Between 2007 and 2010 the subprime mortgage crisis
The subprime mortgage crisis occurred and was characterized by a widespread national banking emergency due to a massive drop in house prices as a result of the collapse of house bubbles. During the recession, residential investments fell and this impacted investment in companies. A higher interest-rate than government securities was seen to contribute to a housing bubble crisis, with collateralized debt and mortgage-backed securities. The decline in consumer expenditure has also taken down the GDP (Feldstein. 2009, pp1). The decline in house prices has led to increased mortgages leading to rising in the supply of houses and through the law of demand and the law of supply, this has worsened the situation leading to further fall in prices of houses. It has been noted that homeowners are underwater (a situation whereby the mortgage debt is exceeding the actual value of the house (Feldstein., 2009, pp1).
The recent crisis has not only affected me but also my family
The recent crisis has not only affected me, but also my family who had invested in real estate. The reduction in value of houses has led to less income gain which contributed greatly in paying my tuition fees. It has also lead to a decline in the standards of living in my family prompting my parents to apply for loans from financial institutions. We were forced to sell some of the houses to pay some mortgages.
Fall in household spending led to declining in consumption rate
Fall in household spending led to declining in consumption rate due to a reduction in per capita income. It was noted that some consumers were unable to meet their monthly mortgage payment due to decline in income or due to the progressively rising interest rate (Feldstein., 2009, pp 1 ). This made the Obama regime to enact legislation that would help such consumers by sharing with the creditor bank of individuals with high income. This is seen to reducing the large mortgages with around 31% of the disposable income (Feldstein).
Many mortgage providers have been subjected to bankruptcy
Many mortgage providers have been subjected to bankruptcy and a state of liquidation whereby most of its money is in debt. This has led to the closure of many banks. This is because the house owners were just paying the interest without the principal. The banks lost each other's trust. They were not willing to lend to each other due to mortgage-backed security which was required as collateral. This made the whole financial crisis to start collapsing by 2007.
The government has continuously been in contact with economic crisis experts
The government has continuously been in contact with economic crisis experts who have advised it to be part and parcel of restoring the economy to its vibrant state through helping the creditor to clear the mortgages debt. Some economist has blamed the government as the catalyst for the crisis through the imposing of legislation such as the community reinvestment act which probably gave the bank the right to lend consumers who do not qualify for the credit. The government tried to handle the problem of mortgage crisis by trying to share the cost of mortgages with some consumers. It also established Freddie Mac and Fannie media companies with the aim of boosting the housing market (Amadeo., 2017, pp2).
Conclusion
There has been a lot of attention calling for economists to analyzing the economic crisis and recommend the best measures to take to curb the falling economy and restore back the mortgages stability. This is seen to have been caused by some reasons which can be solved amicably by application of genuine economic cycle that. Restoration of the market will have a greater impact especially on the gross domestic income through an increase in expenditure by the consumer. The government should also use relevant monetary and fiscal tools to regulate the mortgage crisis.
References
Kimberly Amadeo., 2017. Fannie Mae vs. Freddie: similarities and differences- the balance. Pp 2
