American Housing Crisis Case Study

During the early 2000 's, the United States housing market experienced growth at an unprecedented rate, leading to historical highs in home ownership. This surge in home buying was the result of multiple illusory financial circumstances which reduced the apparent risk of both lending and receiving loans. However, in 2007, when the upward trend in home values could no longer continue and began to reverse itself, homeowners found themselves owing more than the value of their properties, a trend which lent itself to increased defaults and foreclosures, further reducing the value of homes in a vicious, self-perpetuating cycle. The 2008 crash of the near-$7-billion housing industry dragged down the entire U.S. economy, and by extension, the global economy, with it, therefore having a large part in triggering the global recession of 2008-2012.

The world’s financial system was almost brought down in 2008 by the collapse of Lehman Brothers that was a major international investment bank at that time. The government sponsored these banks’ bailouts that were funded by tax money in order to restore the industry. Before the crisis, banks were lending irresponsible mortgages to subprime borrowers who had poor credit histories. These mortgages were purchased by banks and packaged into low-risk securities known as collateralized debt obligations (CDOs). CDOs were divided into tranches by its default risk. The ratings of those risks were determined by rating agencies such as Moody’s and Standard & Poor’s. However, those agencies were paid by banks and created an environment in which agencies were being generous to ratings since banks were their major clients.

The housing crisis of the late 2000s rocked the economy and changed the landscape of the real estate business for years to come. Decades of people purchasing houses unfordable houses and properties with lenient loans policies led to a collective housing bubble. When the banking system faltered and the economy wilted, interest rates were raised, mortgages increased, and people lost their jobs amidst the chaos. This all culminated in tens of thousands of American losing their houses to foreclosures and short sales, as they could no longer afford the mortgage payments on their homes. The United States entered a recession and homeownership no longer appeared to be a feasible goal as many questioned whether the country could continue to support a middle-class. Former home owners became renters and in some cases homeless as the American Dream was delayed with no foreseeable return. While the future of the economy looked bleak, conditions gradually improved. American citizens regained their jobs, the United States government bailed out the banking industry, and regulations were put in place to deter such events as the mortgage crash from ever taking place again. The path to homeowner ship has been forever altered, as loans in general are now more difficult to acquire and can be accompanied by a substantial down payment.

The private label mortgage securitization collected a series of assets – most of them are high-yield junk bonds, mortgage securities, credit-default swap with varying degrees of risk. The securitization of subprime mortgages was attractive to investors due to high interest rates and high return features. More and more financial institutions started to sell private label mortgage securitization, including banks, insurance companies and so on. In 2006, the CDO market ranged from $0.5 trillion to $2 trillion (boundless. Com). Also, by 2007, about 70% of subprime borrowers used hybrid adjustable-rate mortgages (ARMs).

Que the creation of the Collateralized Debt Obligation (CDO). CDOs bundled the bottom tranches, or the riskiest,

Bespoke Tranche Opportunities are, in lots of ways, similar to collateralized debt obligations. Just like CDOs, bespoke tranche opportunities utilize mortgage-based securities to yield high returns. According to Steven Mintz, banks took mortgage loans that were made based on shaky credit and pooled them into a basket of mortgage securities that were backed by homes. They then sell those CDOs to investors through credit default swaps. A CDS is a agreement that the seller will compensate the buyer in the event of a loan default. When homeowners failed to pay their mortgage loans, they default their loans. Investors are required to pay premium fees to sellers.

For decades Americans couldn’t help but rejoice when they were able to own their very own home. The image of holding the keys and to quickly step foot into their home provided Americans with visons of prosperity. Many Americans whether poor, middle-class, or wealthy could now dream of endless possibilities when owning their very own home, as well as embracing a sense of accomplishment. These accomplishments or feelings were great at first; however, the realty for some Americans was that behind the glitz and glamor was a ticking time bomb. Now imagine the United States of America flourishing in the real estate sector and the US economy from Wall Street to individuals benefiting from the booming housing market. However, while all this was

The housing crisis in the late 2000’s was created in part from subprime loans that lenders gave to individuals that did not have to provide proof of income that they could afford the house. This was a disaster likely to repeat itself. If a person is hoping to buy a home, they will buy whatever the lender allows them to purchase even though it could be a financial stretch. Lenders, builders, sellers, appraisers, buyers, owners, and governmental policy makers are all still gambling with the economic future of both their buyers and the American economy as a whole.

With currently about 87% of properties qualifying for downpayment assistance and historically low interest rates coming from the Federal Reserve, one has to wonder just how long the present housing recovery can last. Credit restrictions at the present are very tight and job growth is anemic at best. This combined with the fact that the National Association of Realtors' pending sales index fell in June by 1.8% certainly leads one to believe that a slowdown in the housing market is a good possibility.

In 2008 the United States economy faced it most serious economic downturn since the great depression. This crisis began in 2006 when the subprime mortgage market showed an increase in mortgage defaults. This would lead to the decline of the U.S. housing market after a decade of high growth. The problems in the mortgage market where able to spread to other sectors of the economy especially in financial markets because of Collateralized Mortgage Obligations or CMOs. CMOs where mortgage backed securities that where given out by investment banks and where not regulated by the government. These securities fell as did mortgages due to increasing default rates. Because of CMOs companies bought Credit Default swaps or CDSs. These CDSs where nominally

How many houses would it take to help put a decent dent in the Washington DC affordable housing crisis. It would take 1,000 houses to help the Washington DC affordable housing crisis. That mean you would have to build 125 houses in the eight wards to even put a dent in the Washington DC affordable housing crisis. The problem is that housing cots a great deal of money. Middle class and lower class can barely afford food and clothes also on top that having to find affordable housing. In result, low-class and middle class face a high risk of being evicted and move often or even become homeless. There are only 39 homeless shelter in the DC area with a population of 672,228. Most families spend about $ 150 less per month on groceries because they

Housing policy in the mid 20th century was predicated on the notion that only certain people could gain access to class mobility and all subsequent policies were constructed in that vision. Those who benefited from those policies exploited the very people, whose denial of mobility propelled them into their position, leaving a class long neglected by the U.S. government stuck in the same position of exclusion with no aid in sight. The current affordable housing crisis in the United States is an outcome of decades of misguided policy making and capitalist ideology that began in the mid 20th century.

The housing crisis is not random, but is the deliberate result of the social and structural institutions that create neighborhood racial inequalities. Discriminatory and unfair housing policies have existed for generations, but have recently taken shape in the form of the new Jim Crow which relies on law and order regulation to create new forms of discrimination in housing, education, and employment. This regulated discrimination can be seen through the recent surge in sub-prime mortgage lending that targeted inner-city and marginalized communities. To challenge the housing crisis, policymakers must answer the question of whether they are willing to take a stance and create an infrastructure that challenges discrimination and advocates for

Collateralized debt obligations (CDOs) refers to a kind of innovative derivative securities product which simply bundling mortgage debt, bonds, loans and other assets together and then rearranging these assets into different tranches with different credit ratings, interest rate payments, risks, and priority of repayment to meet the needs of different investors. As borrowers began to default, investors in the inferior tranche of the CDOs took the first hit, so the owner of this tranche of CDOs may be riskier. In order to compensate for the higher risk, the subordinate tranche receives higher rate of return while the superior tranche receives lower rate but still nice return. To make the top even safer, the banks ensured it small fee called the credit default swap (CDS). The banks do all of the works so that creating rating agencies will stamp the top tranche since as a safe, triple A rated

In relation to the increase in house’s price, the rise of financial agreements such as mortgage-backed securities (MBS) and collateralized debt obligations (CDO) encouraged investors to invest in the U.S housing market (Krugman, 2009). When housing price declined in the U.S, many financial institutions that borrowed and invested in subprime mortgage reported losses. In addition, the fall of housing price resulted in default and foreclosure and that began to exhaust consumer’s wealth and