US MORTGAGE CRISIS

US mortgage crisis



US mortgage crisis

Introduction

The U.S. financial crisis began in late 2006 with the mortgage crisis in the sector of subprime (poor-quality loans), which appeared due to huff a bubble in the mortgage market caused by the Fed's low interest rates, abundant liquidity and the frivolous attitude of mortgage companies to the borrowers. A chain reaction around the world caused by the fact that mortgage companies trying to get out of difficult situations with low-quality mortgages, mortgages were sold under the mortgage (mortgage) to institutional investors in the U.S. and other countries. When real estate prices in the U.S. fell, the company bought these mortgages, incurring huge losses as the price of real estate was much lower than the price of mortgages. The U.S. housing bubble was blown away - hit the global economy. In fact, the U.S. mortgage companies gained unfair, poor speculative clients, and when the debt no longer give away, resell mortgages to other companies around the world who have suffered huge losses on themselves.

Scope of the Paper

During the past three decades consumer expenditure has always been the significant driver of UK economic growth and development, but this boom finally came to an end in the beginning of 2008 when first the hike in oil prices and then the inception of the credit crunch activated a sharp consumer cutback. There are many reasons for the Financial Crisis of 2007. The paper aims to evaluate the causes of the US mortgage crisis and to what extent do such crises appear to be an inevitable feature of contemporary capitalism.

Discussion

The U.S. economy seems to be in trouble. According to former Federal Reserve Chairman Alan Greenspan, "The current financial crisis in the U.S. is likely to be judged in retrospect as the most wrenching since the end of the Second World War," which lasted from 1939 to 1945. George Soros, a philanthropist who made billions of dollars managing a hedge fund in the 1970s, has cautioned that the current economic situation is "the worst financial crisis of our lifetime." The cause of that crisis, according to Soros, Greenspan and many other leading financial experts, has been the collapse of the subprime mortgage industry (Mohsen 2011, 101-111).

Mortgages enable people to obtain loans to buy property. A mortgage borrower is said to be "subprime" if he or she has a poor credit history, a low income level or both. Traditionally, subprime mortgages comprise only a small fraction of the overall mortgage industry, as lenders are much more comfortable loaning money to people who have good credit and earn enough to make their monthly payments. Between 2004 and 2006, mortgage lenders began dealing with subprime borrowers in record numbers. During that three-year period, the subprime mortgage industry ballooned to approximately two and a half times its normal size. More and more subprime borrowers were obtaining mortgages to buy homes, leading to the creation of a "housing bubble." Many of those subprime mortgages were structured so borrowers would have to pay a very small interest rate ...