The Subprime Mortgage Crisis Essay

1477 words - 6 pages

The subprime mortgage crisis
The argument over who is at fault for the housing market collapse has been a heated issue amongst government, politicians, banking institutions, and mortgage lenders. The subprime mortgage crisis is an ongoing financial issue and real estate nightmare for the United States economy. A dramatic increase in mortgage delinquencies and foreclosures has caused a significant adverse effect on banking institutions and financial markets. Due to this mortgage crisis, the housing market subsequently has crumbled resulting in a record numbers of home foreclosure and more are still looming in the horizon. For many, the dream of home ownership has become a real nightmare. Who ...view middle of the document...

Joseph E. Stiglitz, a professor at Columbia University points out the causes proposed include the inability of homeowners to make their mortgage payments, due primarily to adjustable-rate mortgages resetting, borrowers overextending, predatory lending, speculation and overbuilding during the boom period, risky mortgage products, high personal and corporate debt levels, financial products that distributed and perhaps concealed the risk of mortgage default, bad monetary and housing policies, international trade imbalances, and inappropriate government regulation, (Stiglitz, 2008).
Subprime mortgages loans were those attractively packaged and offered to people who normally did not qualify to get an ordinary loan. Because the default rate is much higher, banks would charge a lot more for people in this high risk group. That will mean people who could not qualify for a home loan ended up paying more for their mortgage. These loans were provided to people with poor credit or no credit from poor neighborhood, and minorities groups. Specially targeted were the African-American and Hispanics groups. It has been argued that subprime mortgages and lending practices towards minorities by the banking and mortgage lending institutions has been a growing and heated political discussion. “Democrats and their advocacy groups also prodded Fannie Mae and Freddie Mac to buy the high-risk NINJA (no income, no job, and no assets) loans they'd pressured banks to make to Hispanic immigrants. Now immigrants are defaulting on subprime mortgages in droves, adding to the toxic debt that is poisoning the financial industry. By 2006, before the bubble burst, Hispanics had taken out 40% of all subprime loans.” (IBD, 2009)
Mortgage lenders and brokers benefited substantially from these loans and thereby utilizing predatory lending practices, and realizing that qualifying for a mortgage loans had more a stringent guidelines, they continued to lured these borrowers into adjustable rate mortgages with lower or no down payments option. It is suggested that this apparently went as far as selling mortgages to illegal immigrants and perhaps some were even forced to lie about their income and immigration status to get approved for these mortgage loans. The harsh reality is that “in actuality, those subprime mortgages issued in the last several years that went into foreclosure went mostly to illegal aliens, the exploiting landlords who rented to illegal aliens, and other citizen minorities who lost jobs to illegal aliens, especially displaced African-Americans in the agricultural, trades and services industries,” (Capenni,2009). However, an argument can be made that irresponsible borrowers applied for home loan from these subprime lenders who knew they would not substantiate financial documents, credit worthiness, or prove their employment history. What were the results of these practices?
According to a news report, the “High-cost subprime mortgages have often been framed as...

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