Sales: Sales: Support: Support:
Academic writing services  
 
Custom written essay Book report Research paper Dissertation Resume and CV Editing and proofreading  
main menu
discounts
discounts
By ordering custom paper you get
  • 24/7 Support
  • Over 100 professional US Writers
  • 300 words per page
  • Flexible discount system
  • FREE revision (within 2 days)
  • Anti-Plagiarism Software Check
we accept
sample essays
Accounting Essays
Admission Essays
Analysis Essays
Art Essays
Biography Essays
Biology Essays
Book Review Essays
Business Essays
Case Studies Essays
Cause and Effect Essays
Character Analysis Essays
Communication Essays
Communication and Media Essays
Compute Technologies Essays
Consideration Essays
Controversial Essays
Description Essays
Economics Essays
Education Essays
Evaluation Essays
Explanation Essays
History Essays
Job Essays
Law Essays
Management Essays
Medicine Essays
Music Essays
Personal Essays
Personal Experience Essays
Persuasive Essays
Persuasive Speech Essays
Philosophy Essays
Political science Essays
Politics Essays
Proposal Essays
Psychology Essays
Reflective Essays
Religion Essays
Research Essays
Response Essays
School Essays
Science Essays
Sociology Essays
Technology Essays
World Literature Essays
Subprime Crisis essay
 
← Britain Supermarket ChainEffects on Small Businesses →

Subprime Crisis. Custom Subprime Crisis Essay Writing Service || Subprime Crisis Essay samples, help

The Mortgage crisis is attributed to the United States ‘American Dream’ which promotes property ownership. Government Sponsored Entities like Freddie Mac and Fannie Mae fuelled the “affordable housing politics” by availing huge donations to many a Congress member, an opportunity which real estate developers and lenders explored (Whalen, 2008, p. 3). However, since owning a home is expensive, individuals need to borrow the money from lending institutions or banks to make this dream a reality. The collateral for a mortgage is normally the house itself. A mortgage, though, has proved to be a blessing in disguise because apart from enabling individuals to own a home, it has lead to a financial crisis. This paper, therefore, seeks to bring to the fore the causes of the Mortgage Crisis, its ramifications on small businesses and the Wall Street. In order for one to be given a mortgage, certain qualifications have to be met. Individuals who do not merit are high risk borrowers who receive a subprime mortgage. Subprime borrowers are normally given mortgages that are to be paid with hefty interest rates or premiums since they are most likely to default their payments. Such subprime mortgagers qualify marginally or lack enough cash to make a down payment. They show a poor credit worthiness from the onset and there is a larger probability that they always default since there credit portfolio is questionable (Semmelrock, 2009).

Historical Background

The September 11th terrorist attack and the “dot-com” bubble were instrumental in the increased uncertainty among investors who resorted to withdrawals of significant amounts of funds from the market. As a result, the Federal Reserve director Alan Greenspan in collaboration with the Bush administration, championed for interest rate cuts by the Central Bank in order to attract more investment from the population and companies. These decisions lead to the drop in the interest rates from 6.5 % in 2001 to 1 % by January 2003 (Federal Reserve, 2010). This reduction in interest rates and liberalizing the requirements for lending offered an opportunity for borrowing. In particular, mortgages were sought after due to the increasing demands for real estate caused by the rising values for houses.

The subprime mortgages thus started to increase because of the lowered mortgage interest rates that allowed individuals to borrow more money which was to be refunded with lower monthly payments. Moreover, the rising home prices proved bait to lenders as they thought they would cash in on the status quo. The housing “bubble” thus began in the U.S. from 2001 and rose to its peak in 2005 (Bianco, 2008). During this period, lending bodies like the banks provided a soft landing for accessing money leading to high risk borrowing like adjustable rate mortgage (ARMs) which is dependent on the market interest rate. The lenders too preferred the ARMs to fixed rate loans since it enticed borrowers (Mishkin & Eakins, 2006 p. 305). Borrowers qualified for the mortgages without proper merit as they presented little or no documentation. Subsequently, the stringent standards necessary to qualifying for mortgage loans were watered down; This in turn lead to fraudulent behavior by mortgage brokers and home buyers hence fuelling the mortgage crisis.

The new policies implemented by the banks allowed borrowers to obtain money at an initial lower interest rate for the first two years, and a subsequent rise in the interest rates depending on the prevailing market conditions. These sudden hikes in interest rates coupled with a sudden halt in the increasing housing prices in the U.S., has put many borrowers between a rock and a hard place. They found themselves unable to pay the increased amount of money, and hence a majority of them defaulted, leading to foreclosure and bankruptcy (Semmelrock, 2009).

Some critics have mentioned that the Federal Reserve (Fed) was instrumental in accelerating the mortgage crisis. They reason that the since the Fed cut short-term interest rates from 6.5 % to 1%, the skyrocketing home values and high risk borrowing went up (Federal Reserve, 2010). Subsequently, a sudden drop in the home valuation, lead to a high defaulter rate and hence an increased liquidity in the economy. Bianco (2008, p. 4) says that in a 2005 report by the Fed, like other assets, house pricing is “influenced by interest rates, and in some countries the housing market is a key channel of monetary policy transmission.” Moreover, the way the Fed reacted to the “bubbles” (dot-com and housing) by mitigating the collateral damage done to the economy rather than to halt the “bubbles”, has fuelled the mortgage crisis. This reaction by the Fed has been due to a lack of a means of identifying a “bubble” and the monetary policy necessary to deflate the “bubbles”.

Further, faulty credit ratings by credit rating agencies have been blamed for the mortgage crisis. These agencies gave investment grade ratings to mortgage backed securities (MBS) while basing it on risky subprime mortgage loans. Consequently, the high ratings motivated investors to buy MBS that lead to the housing boom. The ratings fostered a belief of risk reduction like the willingness of equity investors to assume the first losses and insurance from credit default.

Subprime Crisis. Custom Subprime Crisis Essay Writing Service || Subprime Crisis Essay samples, help

Order Now
Order nowhesitating

Related essays

  1. Effects on Small Businesses
  2. Strategically Designed Program
  3. Britain Supermarket Chain
  4. The Woes of Hewlett-Packard


order now

 
 
3.6K
1.2K
Order now
Email
Password
 
why choose us
96% of satisfied returning customers
24/7 customer support
A wide range of services
Up-to-date sources
100% privacy guaranteed
MA/PhD writers
Custom written papers only
Free plagiarism report
Free revision (within 2 days)
Free extras by your request
Direct communication with a writer
faq
Are your writers qualified for the custom writing?
How quick can my order be accomplished?
Is it legal to buy custom essays, term papers or book reports from your company?
Are essays offered by your company truly custom-written?
Is it safe to buy from SupremeEssays.com?
How secure is the payment system of your company?
Can I submit custom essays or term papers done by your company as my own?
How can I contact your company if I've got problems with my ordered paper?
testimonials

Finally, I've found the real custom writing service . My grades are saying "Thank you, it's been a pleasure to work with you."

Jamal, South Africa

I can't believe you finished my essay under such a short deadline! You saved me from a disaster once again. You guys deliver exactly what you promise. I'll be back. That's for sure!

William H , Kansas, US

contact us
Toll free for US & Canada only. International callers are charged for outgoing calls.

Our phone numbers:
SupremeEssays.com provides custom term paper writing/rewriting services inclusive of research material for assistance purposes only. The term papers should be used with proper reference and are not meant to replace actual assignments.
 

Get 15% off your first custom essay order

Order now

PRICES
from $12.99/PAGE

X