Mortgage Finance System
The mortgage finance system in the United States has changed since the Great Depression era in some ways , yet at the same time it is still very similar . The system relies on a process where lenders are able to get cheap credit and subsequently offer loans at variable rates to consumers who do not have good credit ratings themselves . As these variable rate loans began to become higher , defaults on mortgage payments increased and eventually led to the lenders repossessing these toxic assets . The mortgage finance system during the Great Depression and the
subsequent crash of the stock market is slightly different . Credit was offered at very low rates , yet consumers did not invest in homes , they invested in the stock market . As consumer confidence in the stock market began to fail , the stock market began to slide , causing a massive fire sale of shares at a very low value compared to their original purchase price U .S citizens lost huge amounts of money overnight , which is different to this current economic crisis , where customers have lost value in their homes , instead of their stock market investments
Some of the features and mechanisms that have led to the current subprime mortgage crisis surround the way the credit market works , and how the products are sold . Credit was offered to consumers that were backed by numerous inter-bank loans . When the customers began to default on loans secured against their houses that were falling in value , the knock on effect that banks...