Mortgage Crisis Factors Responsible for Thesis

Even worse, the entire process of due diligence with respect to qualifying potential mortgagees carefully to avoid bad risks and of appraising property as accurately as possible dissolved by virtue of the immediate and routine transfer of mortgage instruments to third parties. Realtors began encouraging borrowers to misrepresent their financial information as well as the value of their intended property acquisitions, further inflating the so-called "housing bubble." More importantly, the inflated values were largely illusory rather than reflective of actual property values after diligent appraisal.

In addition to borrowers hoping to make a quick profit, many thousands of ordinary middle class Americans began to take advantage of the lapses that developed in the mortgage lending industry, not uncommonly with encouragement from realtors and lenders who deliberately failed to disclose the meaning of variable interest rates.

Eventually, the housing bubble burst when the supply of so many new housing developments outpaced demand for housing. As a result, home values dropped, leaving many thousands of homeowners with mortgage obligations that far exceeded the value of their property.

Many of them began defaulting once their variable mortgage interest rates increased on homes that were completely out of their responsible price range in the first place. Because those defaults devalued the complex mortgage securities whose value and security depended on the continued solvency of the initial borrowers and of their lending institutions, the many investments supposedly guaranteed by those mortgage securities, including those incorporated into pension funds that provide a fixed income for millions of retired American workers), were threatened directly by increasing home mortgage defaults.Conclusion:

The current economic crisis in the U.S. is attributable to multiple factors, most of which could never have generated such damage without their combined effects and the extent to which each provided the opportunity for the others to undermine the real estate market, followed shortly by the mortgage and investment banking industries, finally threatening the financial interests of millions who had no personal involvement with those industries. The deregulation of banking oversight and the evolution of trading in mortgage-backed securities led to an erosion of the traditional limit of risk within the mortgage industry.

Greedy realtors and lenders allowed equally greedy lenders to undertake irresponsible mortgage obligations. In many cases, these transactions were facilitated by the purposeful circumvention of due diligence on multiple levels. Ultimately, once the housing market became oversaturated, the housing bubble burst, triggering the collapse of the financial institutions that had leveraged themselves heavily in mortgage-backed securities and resulting in the nation's worst economic crisis since the Great Depression.

References

Gallegati, M., Greenwald, B., Richiardi, M., Stiglitz, J. (2008) the Asymmetric Effect of Diffusion Processes: Risk Sharing and Contagion; Global Economy Journal: Vol.

8, No. 3. Halbert, T., Ingulli, E. (2005) Law & Ethics in the Business Environment. Cincinnati: West Legal Studies. Kuttner, R. (2008) Debt Again: The Mortgage Crisis Has Surprising Roots That Go Back Decades. Why We Need to Rethink How We Buy Our Homes; the Boston Globe, August 19, 2007.

Mishkin F. (1999) Lessons from the Asian Financial Crisis; National Bureau of Economic Research, Working Paper No. 7102.

Reinhart, C., Rogoff, K. (2008). This Time.....