logo image

The sub prime mortgage crisis Essay

This is a financial crisis that is challenging the whole world in areas of liquidity, banking sectors and credit markets. This crisis has been developed and enhanced by failures attached to investment firms, mortgage firms, and enterprises sponsored by the government all of which have flooded in sub prime mortgage investments. It has therefore weakened the global regulatory framework and financial system. The mortgage crisis has acted as a beacon of hope for homebuyers of the mortgage services. Because of competition and diversification in the mortgage sector, the companies are pushed to lend in more conscientious manner.

Before the crisis, homebuyers characterized by low income and immobility could not take any mortgage of low rate at their local areas. After this fiasco, extensions have been structured and implemented to allow the participation of all creams of societies regardless of their allocation and social status. Homebuyers are of late making large deposits as they take out a mortgage because nobody cares their pay back ability. They are therefore enjoying times when they are engaging in mortgage activities that have multiples of annual salaries at lower rates when compared to the regime before the crisis struck.

The problem affects not only lenders and borrowers,

Need essay sample on "The sub prime mortgage crisis"? We will write a custom essay sample specifically for you for only $ 13.90/page

but also lenders who transact with other lenders. During the demand boom, borrowers believed that houses served as collateral holding such that if mortgage repayment flops, the concerned banks can recuperate the incurred losses by repossessing and reselling the houses. This was later proved ineffective in repairing repayment cracks (Cocheo, 2008, 9). Following this shocking event and phenomenon, companies and firms have been forced to undergo or conduct research and development programs to help deal with the scenario.

Compared to the old regime, today’s organizational regulators are more careful and sensitive to any uncertainty that may emerge to down pull the enterprises. The record keeping standards, software and hardware have been streamlined by the challenges that have come with the mortgage crisis. Lending is not done blindly to any person without assessing the ability to pay back, the stream of income relied on and the viability of the collateral presented. It has also challenged the emerging companies offering the same services upon the financial involvements that can wipe them out of the market.

This scandal has also made land a scarce resource in the affected areas. The scarcity of land has an economic benefit because it has made the available land and other properties to regain value. If housing regains the value it was attached to, then immigration to the affected zones will be sustained and continue keeping the demand of houses high. The amount of investment credit can not dry up completely. This is because the ability to secure the loan is constrained; ensuring demand is lower than the supply (Cocheo, 2008, 15). As the crisis continues and deepens mortgage lenders are responding to it appropriately.

As a result the number of lenders is decreasing and the amount of lending available is shrinking with time. Major movers and players in the financial industry such as banks have altered or completely changed their mortgage products. Others have completely and involuntarily withdrawn the provision of some particular mortgage products. The changes experienced in the product lineups are mostly due to the boom in demand of such services. The contraction of the lending sector has been attributed to reduction of lending amounts by the mortgage lenders.

This extends to the bank themselves, which are on the other hand lending each other les and less as time goes by. They are directed and governed by the believe that the root cause of the problem was high demand for capital investment and the cure to the problem is contraction of the supply of the capital. Not only in the mortgage sector, the other financial dealers have also deviated from generous lending and adopted the old rough lending mechanisms of the pre crisis period. It has therefore become a great challenge to secure credit cards and personal loans at personal levels within economies characterized by this severe phenomenon.

This scenario has heavily transferred the biggest burden to Wall Street investors and major lenders. At the bottom of non traditional mortgage and sub prime market are the low and moderate income homeowners and homebuyers. These people are faced with familial foreclosures because of faults in repaying the loans. They are also subjected to victimization from aggressive and focused but quite unaccountable mortgage broker sales men, who receive enormous commissions on the loans and have no associated risk after resettlement of the payments.

Borrowers have false fully enticed by the ideology of accumulating and riches by escalating home assets and properties or any available cash running for what has been branded as no cost finances. The borrowers have failed to realize the accumulative costs. When many borrowers are not able to repay their loans, then the mortgage market generally fails because there is no one they can resell their mortgages to (Cocheo, 2008, 19). Work Cited Cocheo Steve. Foreclosure Fallout: Subprime Lending Crisis Adds to Bank’s Insurance Headaches. ABA Banking Journal, Vol. 100, 2008, pp. 9, 15, 19

Can’t wait to take that assignment burden offyour shoulders?

Let us know what it is and we will show you how it can be done!
Sorry, but copying text is forbidden on this website. If you need this or any other sample, please register

Already on Businessays? Login here

No, thanks. I prefer suffering on my own
Sorry, but copying text is forbidden on this website. If you need this or any other sample register now and get a free access to all papers, carefully proofread and edited by our experts.
Sign in / Sign up
No, thanks. I prefer suffering on my own
Not quite the topic you need?
We would be happy to write it
Join and witness the magic
Service Open At All Times
Complete Buyer Protection
Plagiarism-Free Writing

Emily from Businessays

Hi there, would you like to get such a paper? How about receiving a customized one? Check it out https://goo.gl/chNgQy

We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy