Financial Crisis 2008 Essay Example

summer of 2006, there was an oversupply of homes that resulted in a noticeable decrease in home prices.

With the availability of bank loans, there is a growing interest among people in purchasing affordable homes. This has resulted in banks offering risky loans to counter the surplus supply of houses, causing a notable decline in prices. Consequently, as prices continue to plummet, more homeowners are exposed to the dangers of default and foreclosure. The S;P/Case-Shiller price index confirms that the average home price in the United States hit its lowest point by November 2007.

Housing prices experienced a decline of around 8% from their highest point in Q2 2006, eventually reaching a decrease of 18.4% by May 2008. Comparing to the previous year, the price decline was 10.4% in December 2007 and further dropped to 15.8% by May 2008. Experts anticipate that housing prices will continue to decrease until the surplus inventory of homes returns to normal levels.

Speculation in the real estate market contributed to these developments.

The percentage of homes bought as investments in 2006 was 22% (1.65 million units), while an extra 14% (1.07 million units) were purchased as vacation homes. Comparatively, in 2005, the figures were 28% and 12%, respectively. Hence, a total of approximately 40% of home purchases, the highest level on record, were not intended for primary residency.

During that time, David Lereah, who was the chief economist of NAR, made a prediction about a decrease in investment buying in 2006. He observed that the departure of speculators from the market caused investment sales to decline more rapidly compared to primary market sales. This trend was also influenced by mortgage fraud and misrepresentation

of loan application data. The US Department of the Treasury reported a significant increase (1,411%) in suspicious activity related to mortgage fraud between 1997 and 2005. In response, lenders started offering higher-risk loans to borrowers with higher risk profiles, such as "No Income, No Job, and No Assets" loans. Additionally, the banking industry viewed providing home loans to undocumented immigrants as an untapped source of revenue and took advantage of it for their own benefit.

Major banks provided home-mortgage loans to individuals without Social Security numbers, despite the three C's of mortgage underwriting: credit, capacity, and collateral. These institutions used guidelines and computer models to assess loan aspects and offer risk recommendations. Nonetheless, it was ultimately the underwriter's decision to approve or reject a loan. In 2007, automated underwriting represented 40% of all Subprime loans, with the Executive Vice President of Countrywide Home Loans Inc. participating in this practice.

Before automation, it used to take up to a week to get an answer from an underwriter in 2004. However, thanks to automation, we can now provide a decision within 30 seconds. Previously, every mortgage required a standard set of full documentation. Some people believe that this led to lax controls and reliance on shortcuts, causing borrowers who would not have qualified under a less-automated system to be approved. The sub prime meltdown was partially blamed on flawed oversight by mortgage brokers. According to Wholesale Access Mortgage Research & Consulting Inc.'s 2004 study, mortgage brokers originated 68% of all residential loans.

S., sub-prime and Alt-A loans comprised 42.7% of brokerages' overall production volume. The Mortgage Bankers Association's chairman accused brokers of benefiting from the surge in home loans without

adequately assessing borrowers' repayment capabilities. A conflict arose when Freddie Mac, a major mortgage lender, was fined $3 on April 18, 2006.

The Federal Election Commission has imposed an unprecedented $8 million fine for illegal campaign contributions. The majority of these funds went to members of the United States House Committee on Financial Services, who have significant influence over decisions related to Freddie Mac. However, Republican politicians in general also benefited from this illegal fundraising. Numerous lawmakers received special treatment from financial institutions associated with the subprime industry. In June 2008, Conde Nast Portfolio magazine disclosed that Washington, DC politicians had obtained mortgage financing at noncompetitive rates from Countrywide Financial due to their positions as officeholders. On June 18, 2008, a Congressional ethics panel launched an investigation into allegations that Christopher Dodd (D-CT), Chairman of the Senate Banking Committee, and Kent Conrad (D-ND), Chairman of the Senate Budget Committee, secured preferential loans from troubled mortgage lender Countrywide Financial Corp. Additionally, Franklin Raines and James A. Johnson, former CEOs of Fannie Mae, also received preferential loans from this troubled mortgage lender.

Fannie Mae, the primary buyer of mortgages from Countrywide, played a crucial role in the financial crisis. The global economic turmoil can be attributed to greed. The U.S. government's inadequate regulations resulted in banks lacking foresight and preparation.

In order to ensure our financial security in the future, it is important for us to save our money.

Reference

1. Click here for more information on the global financial crisis
2. Click here for an archived article on economic development and globalization
3. Click here to read about the negative effects of greed on society

globalissues.org/article/768/global-financial-crisis http://en.wikipedia.org/wiki/Financial_crisis_of_2007–2008

org/wiki/Subprime_mortgage_crisis