Abstract

In my research you will find that I outlined the cause and effect of the mortgage crisis. I also speak on the falling housing prices due to the mortgage crisis and the domino effect that will be created on and for the economy. I will also speak on the foreclosure rates caused by sub-prime loans and no fall back plan to help in the case of the mortgagor defaults.

The Mortgage Crisis

Thesis Statement:

The mortgage crisis that has caused house prices to fall and foreclosures to occur across the United States will create the need to alter the financial mortgage industry policies; as the impact it has can go as far as causing a consumer recession due to the low unemployment rate, rising
Yet, now as the bubble bursts the interest rates are climbing and the price of houses are dropping. The credit rates of individuals and institutes are dropping as with the increase in interest, even prime borrowers find it hard to meet the cash requirements. Home builders, small time mortgage lenders, and banks are closing down after declaring bankruptcy, due to them being unable to meet the rate of foreclosures. Larger banks are facing a loss in the millions. It’s estimated there will be about 100 million foreclosures in the coming year creating a spiral of doom across the economic system. Der Hovanesian (2207) writes, “In January, industry analysts predicted that the 10 biggest builders would have average earnings per share of $3.69 for 2007; the latest forecast is for a loss of $1.18”.

The Failing Economy:

The mortgage crisis is causing a negative impact on the economy with the property values sinking by $1.2 trillion next year causing 524,000 fewer jobs to be created. (Author Unknown, 2007). The mortgage crisis is such that there is no concrete solution. The unprecedented factor of the crisis is that both the lender and borrower are in trouble. The economy itself is too weak to work through the crisis. The unemployment rate is too low and there are no buffers to support the downward spiral. At the moment a government intervention is not expected as there is no one solution to the problem. However, the failing economy is not helping.