American Housing Crisis Case Study

The world’s financial system was almost brought down in 2008 by the collapse of Lehman Brothers that was a major international investment bank at that time. The government sponsored these banks’ bailouts that were funded by tax money in order to restore the industry. Before the crisis, banks were lending irresponsible mortgages to subprime borrowers who had poor credit histories. These mortgages were purchased by banks and packaged into low-risk securities known as collateralized debt obligations (CDOs). CDOs were divided into tranches by its default risk. The ratings of those risks were determined by rating agencies such as Moody’s and Standard & Poor’s. However, those agencies were paid by banks and created an environment in which agencies were being generous to ratings since banks were their major clients.

The financial crisis from2007 to 2008 is considered the worst financial crisis since the Great Depression of the 1920s and destroyed the U.S. economy severely. It led the housing prices fell 31.8%, the unemployment rate rose a peak of 10% in the United States. Especially the subprime market, began defaulting on their mortgage. Housing industry had collapsed. This crisis was not an accident, it caused by varies of factors. The unregulated securitization system, the US government deregulation, poor monetary policies, the irresponsibility of 3 rating agencies, the massed shadow banking system and so on. From my view, the unregulated private label mortgages securitization is the main contribute factor which led the global financial crisis in 2008.

How many houses would it take to help put a decent dent in the Washington DC affordable housing crisis. It would take 1,000 houses to help the Washington DC affordable housing crisis. That mean you would have to build 125 houses in the eight wards to even put a dent in the Washington DC affordable housing crisis. The problem is that housing cots a great deal of money. Middle class and lower class can barely afford food and clothes also on top that having to find affordable housing. In result, low-class and middle class face a high risk of being evicted and move often or even become homeless. There are only 39 homeless shelter in the DC area with a population of 672,228. Most families spend about $ 150 less per month on groceries because they

Collateralized debt obligations (CDOs) refers to a kind of innovative derivative securities product which simply bundling mortgage debt, bonds, loans and other assets together and then rearranging these assets into different tranches with different credit ratings, interest rate payments, risks, and priority of repayment to meet the needs of different investors. As borrowers began to default, investors in the inferior tranche of the CDOs took the first hit, so the owner of this tranche of CDOs may be riskier. In order to compensate for the higher risk, the subordinate tranche receives higher rate of return while the superior tranche receives lower rate but still nice return. To make the top even safer, the banks ensured it small fee called the credit default swap (CDS). The banks do all of the works so that creating rating agencies will stamp the top tranche since as a safe, triple A rated

During the early 2000 's, the United States housing market experienced growth at an unprecedented rate, leading to historical highs in home ownership. This surge in home buying was the result of multiple illusory financial circumstances which reduced the apparent risk of both lending and receiving loans. However, in 2007, when the upward trend in home values could no longer continue and began to reverse itself, homeowners found themselves owing more than the value of their properties, a trend which lent itself to increased defaults and foreclosures, further reducing the value of homes in a vicious, self-perpetuating cycle. The 2008 crash of the near-$7-billion housing industry dragged down the entire U.S. economy, and by extension, the global economy, with it, therefore having a large part in triggering the global recession of 2008-2012.

With currently about 87% of properties qualifying for downpayment assistance and historically low interest rates coming from the Federal Reserve, one has to wonder just how long the present housing recovery can last. Credit restrictions at the present are very tight and job growth is anemic at best. This combined with the fact that the National Association of Realtors' pending sales index fell in June by 1.8% certainly leads one to believe that a slowdown in the housing market is a good possibility.

The housing crisis is not random, but is the deliberate result of the social and structural institutions that create neighborhood racial inequalities. Discriminatory and unfair housing policies have existed for generations, but have recently taken shape in the form of the new Jim Crow which relies on law and order regulation to create new forms of discrimination in housing, education, and employment. This regulated discrimination can be seen through the recent surge in sub-prime mortgage lending that targeted inner-city and marginalized communities. To challenge the housing crisis, policymakers must answer the question of whether they are willing to take a stance and create an infrastructure that challenges discrimination and advocates for

In the new system, an investment banker buys the mortgage from the lender, borrowing millions of dollars to buy thousands of mortgages, and every month he gets payments from homeowners for each of the mortgages. The banker then consolidates all the mortgages and splits the final product into three sections: safe, okay, and risky mortgages, which make up a collateralized debt obligation (CDO). As homeowners pay their mortgages, money flows into each of the sections, with the safe filling first and the risky filling last, contributing to their respective names. Credit agencies stamp the top two safer mortgages with a triple A or triple B rating, which are then be sold to investors who want a safe mortgage, while the risky slice is sold to hedge funds who want a risky investment. The bankers make millions, pay back their loans, and investors also make a worthwhile investment. So pleased are the investors, however, that they want more. Unfortunately, back at the beginning of the cycle, the mortgage broker can no longer find qualified mortgagers

For decades Americans couldn’t help but rejoice when they were able to own their very own home. The image of holding the keys and to quickly step foot into their home provided Americans with visons of prosperity. Many Americans whether poor, middle-class, or wealthy could now dream of endless possibilities when owning their very own home, as well as embracing a sense of accomplishment. These accomplishments or feelings were great at first; however, the realty for some Americans was that behind the glitz and glamor was a ticking time bomb. Now imagine the United States of America flourishing in the real estate sector and the US economy from Wall Street to individuals benefiting from the booming housing market. However, while all this was

Bespoke Tranche Opportunities are, in lots of ways, similar to collateralized debt obligations. Just like CDOs, bespoke tranche opportunities utilize mortgage-based securities to yield high returns. According to Steven Mintz, banks took mortgage loans that were made based on shaky credit and pooled them into a basket of mortgage securities that were backed by homes. They then sell those CDOs to investors through credit default swaps. A CDS is a agreement that the seller will compensate the buyer in the event of a loan default. When homeowners failed to pay their mortgage loans, they default their loans. Investors are required to pay premium fees to sellers.

The mortgages and corporate bonds have similarity in trading, however the risk/reward are different. Mortgage bonds is a bond backed by a mortgage or pool of mortgage typically backed by real estate or physical equipment that can be liquidated. The mortgage Bondholder has the right to sell property to compensate in the case if the bond defaults. These type of mortgage bond are generally considered high-grade and safe investments. A corporate bond is a debt security issued by a corporation typically backed by the ability of the company to make payment, which is typically driven by the money earned from the future operation. Also, there are few cases where the company's physical assets may be used as collateral for bonds (Investopedia, 2016).

Mortgage note: The mortgage note is a lien against the property being referred to. It goes about as protection for the moneylender ought to the borrower default on the credit. The mortgage note likewise portrays the borrower's rights and commitments relating to the mortgage.

Housing policy in the mid 20th century was predicated on the notion that only certain people could gain access to class mobility and all subsequent policies were constructed in that vision. Those who benefited from those policies exploited the very people, whose denial of mobility propelled them into their position, leaving a class long neglected by the U.S. government stuck in the same position of exclusion with no aid in sight. The current affordable housing crisis in the United States is an outcome of decades of misguided policy making and capitalist ideology that began in the mid 20th century.

In relation to the increase in house’s price, the rise of financial agreements such as mortgage-backed securities (MBS) and collateralized debt obligations (CDO) encouraged investors to invest in the U.S housing market (Krugman, 2009). When housing price declined in the U.S, many financial institutions that borrowed and invested in subprime mortgage reported losses. In addition, the fall of housing price resulted in default and foreclosure and that began to exhaust consumer’s wealth and

In the 1980s, investments banks such as Goldman Sachs, Merrill Lynch, Bear Stearns, JP Morgan, and Morgan Stanley started selling mortgage bonds. Mortgage bonds were a collection of thousands of home mortgages, purchased from lenders, and their associated income streams (monthly payment). To address the fact that some homeowners often refinance their debt when interest rates are low which prematurely pays off the debt, mortgage bonds were stacked into layers called ‘tranches’. The lowest tranche represented mortgages to be paid off early, and the highest layer was the last mortgages to be paid off.