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Mortgage Industry and Housing foreclosure increase affected by the 2008 economic recession

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Mortgage Industry and Housing foreclosure increase affected by the 2008 economic recession

The housing crisis that is ballooning into a national disaster has its genesis in the economic boom times of the early 1990 's . Good economic times encouraged subprime companies to go out and lend money to high risk borrowers who would otherwise not have qualified for a home mortgage in the open market . The high incomes enjoyed by the majority of the borrowers convinced them that they could pay for the

mortgage comfortably . Further , the introductory low rates of interest enticed most of the skeptical borrowers . Predatory lending , as it later came to be discovered , had many strings that were not explained to the customer and which have caused untold havoc in the housing industry today . The economic slowdown and the low sales leading to the shedding of jobs meant that most borrowers out of work could not pay for the mortgage repayments . This coupled with higher interest rates courtesy of the adjusted rate of mortgage- ARM (most borrowers were unaware of this has complicated the otherwise messy financial situation . Unless the government comes in strongly and regulates the activities of the lenders and brokers innocent home owners stand to lose their home equity and with it a lot of investment they had saved up for the future . This will examine how the economic boom was exploited by the subprime companies and how their actions have led to the current crisis . Further it will briefly touch on the legal implications and key definitions plus give a case study on one of the companies that advanced mortgages Finally it will give the government 's response to the whole situation and the potential impact on the economy

The housing crisis has come about mainly because borrowers are unable to pay for their mortgage payments . In the late 1990 's and early 2000 's the housing sector experienced a boom due to the well performing economy . Subprime companies took advantage of the situation to lend money to those customers with poor credit ratings so they could achieve the dream of owning a house . Many such people took the mortgage without giving it a second thought because of the enticing language of the lenders and their brokers . Within a short time the prices of houses were doubling because of the demand for them . Many people took up houses that they could ill afford as the subprime companies were offering initial teaser interest rates that anyone could afford easily . For those who came into the market late they were buying houses that had doubled in price over a period of 6 months to one year . In essence they market had overheated and the truth was that borrowers were not getting value for their money . The lenders did not care as long as they were able to get back their money and the brokers were working overtime to bring in more customers as the lenders would pay...

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