From 2008 until now the national unemployment rate has risen from 5-6% to about 10.2% (U.S. Bureau of Labor Statistics). With unemployment rates continuing to climb, more and more Americans are stuck in large mortgages with no means to pay them. Many of these debtors are faced with mortgages that are greater than the values of their homes due to impairment resulting from the market collapse. With the job market in its current state and unemployment continuing to grow, most of these debtors look to default as the best solution to their problems. Simply, the best preventive measure to the foreclosure crisis would have been to not to overextend yourself.
What caused the Great Recession that lasted from December 2007 to June 2009 in the United States? The United States a country with abundance of resources from jobs, education, money and power went from one day of economic balance to the next suffering major dimensions crisis. According to the Economic Policy Institute, it all began in 2007 from the credit crisis, which resulted in an 8 trillion dollar housing bubble (n.d.). This said by Economist analysts to attributed to the collapse in the United States. Even today, strong debates continue over major issues caused by the Great Recession in part over the accommodative federal monetary and fiscal policy (Economic Policy Institute, 2013).
This problem gives us the opportunity to fix a system that is in desperate need of overhaul in order to help people from all economic backgrounds. First, sub-prime mortgage lending practices must cease. This program has allowed people to purchase homes they simply cannot afford. Buyers must evidence a steady flow of income, show a high credit score, and the ability to pay off debt. Loaning substantial amounts of money to people who have no way of evidencing that they are capable of paying off loans is a reckless practice.
In 2006 the largest housing bubble we have seen in the past 50 years burst and in December 2007 the recession began. The recession would last for roughly 18 months, officially. However, some economists and citizens would argue that it lasted much longer than that due to the ongoing consequences the nation continued to experience all the way through 2010. Some would say we are still recovering from the recession. When the housing bubble burst the Fed responded by providing large amounts of liquidity to the economy to help soften the blow in the short term.
Secondly there was the accessibility of pioneering mortgages outlooks which allowed buyers to acquire houses that they could not keep up the credits payments in stability as well as on the ability to refinance them constantly at higher prices. This made the lending rate deteriorate as the conditions were favorable. (Ariccia et al, 2008). This attributed to increased competition among lenders. The massive amount of issuance added by an i... ... middle of paper ... ...om foreign and local to invest in them.
In early 2008, when the financial crisis began, then the U.S. national debt stood at $9.2 trillion. Figures figure out by the White House, the national debt will reach $20.0 trillion by the end of decade about 140% of our current GDP. Successful debt reduction requires fiscal constraint and policies that sustain the main expansion. This includes sympathetic financial policy and measures that address structural flaws in the nation. (Author) The U.S. economy has grown more rapidly in the fourth quarter than estimated previously as end user spending scramble in the most three years, hence showing that expansion had thrust heading into this year’s harsh winter.
This was a 30% increase from the number of property foreclosures recorded in February 2008. This translates to approximately one in every 440 United States homes receiving a foreclosure filing in February of this year. It is obvious that this crisis must be dealt with as soon as possible. The foreclosure crisis really began by a relaxation of underwriting standards on the part of the lenders. When the real estate market was strong, lenders made the decision to finance individuals with poor credit backgrounds, in order to supply the beckoning real estate demand.
High-risk loans are loans that are over leveraged, where the financing is done more than the suggested values to be given. (Greenspan) This can result in immediate sell off when the property falls below that loan amount and to avoid further loss the banks start raising the installment. The housing market has seen pressure as a result of the over pressure on most homeowners by increasing rates. This affects people ability to make the payments, resulting in defaults. This is the problem with the burst in the housing market.
We see it is a merely bounced back that comes and relates from a kind of “temporary setback”. This set back is occurred in first quarter of this fiscal year, some economists think that it was caused by any minor bad policy. We also find that in US growth rate is slightly high. We see this growth caused the ration and number of jobs is increased. It makes U.S. job numbers “strong” and provides stability in American fluctuated economy.
All of a sudden, people bought houses because there was an excessive amount of money in the economy and they thought the price of houses would only increase. (Amadeo, 2012). There was a financial frenzy as the growing desire for homes expanded. People held a lot of faith in the economy and began spending irrationally on houses that they couldn’t afford. This led to overvalued estate and unsustainable mortgage debt.