The Subprime Mortgage Crisis in the U.S

The subprime mortgage crisis in the U.S

The argument over who should be at fault for the subprime mortgage crisis and housing market collapse in the United States has been a heated debate. Even though home foreclosure keeps rising, there should be some accountability for the economic meltdown resulting from the subprime mortgage situation. Should we blame banking institutions, mortgage lenders, brokers, and investors for this crisis? Should minorities be blamed for recklessly accepting loans and defaulting on them after realizing they could not meet their obligation? Should we blame the government for their inactions of not protecting victims of predatory lending?

Some will suggest that borrowers, banking institutions, mortgage lenders, brokers and investors, government, and politicians all should share the blame. The bottom line is that no one is taking the blame for this crisis. The fact of the matter is someone has to take the blame for the subprime mortgage situation; moreover, immediate action must be taken to rectify the problem. This economic crisis is a collective effort for each lender, broker, borrower, investor and the U.S government that were influenced by greed. Therefore, how could they rectify this problem? A simple solution to stop the foreclosure crisis is to offer the rights to rent to people that have fallen victims of this crisis.

Congress should temporarily modify the rules on foreclosure to give families facing foreclosure, the right to rent their homes at the market rate for a substantial period of time. This change in foreclosure rules will give banks a real incentive to re-negotiate the conditions under which homeowners can continue to stay in their homes as owners. It will be in the banks best interest, since they don't want to become landlords. The bank will own the house after a foreclosure, but a house with a renter is worth much less to them than a house over which it has complete control. (Baker, 2008)

But government should force banks to work extremely hard with borrowers who are diligently trying to save their home. The time for action is now as any inaction will only lengthen the crisis. The subprime mortgage crisis is an on-going financial problem and a housing market nightmare for the United States economy. Some believe that a dramatic increase in mortgage delinquencies and foreclosures will caused a significant adverse effect on banking institutions and financial markets. Thus far, the housing market has crumbled due to this mortgage crisis, resulting in elevated record number of foreclosures. For many, the dream of home ownership has evaporated. How can this dream be re-established? Kevin Alexander Gray states "We've got to do more to stem the tide of foreclosures and stabilize communities throughout the country," (Gray, 2009). What actions should be taken? Mr. Gray points out, that the goal is to take corrective action to prevent a continuous meltdown.

But on the other hand, we need to ask the question, how did the subprime mortgage happen? It is important to understand how the economy has been impacted by this foreclosure crisis. Also, it will be dispensable to look at what has really prompted the housing collapse. The immediate cause or trigger of the crisis was the bursting of the United States housing bubble that peaked between 2005 and 2006, (Almendarez, 2009) This can be attributed to a number of factors equivalent in both housing and credit markets, factors which emerged over a number of years. Joseph E. Stiglitz, a professor at Columbia University points out that the causes proposed include the inability of homeowners to make their mortgage payments, due primarily to adjustable-rate mortgages resetting, borrowers overextending, predatory lending, speculation and overbuilding during the boom period, risky mortgage products, high personal and corporate debt levels, financial products that distributed and perhaps concealed the risk of mortgage default, bad monetary and housing policies, international trade imbalances, and inappropriate government regulation, (Stiglitz, 2008).

Subprime mortgages were loans attractively packaged and offered to people who normally would not qualify to get an ordinary loan. Borrowers who did not qualify for a home loan were charged higher fees and higher mortgage payments because they fell in the 'high risk group'. Banks got away with charging them higher fees and the loans were provided to them, as well as, people with poor credit or no credit, people from poor neighborhoods, minority groups and illegal aliens. African-American and Hispanics were specifically targeted. It has been argued that subprime mortgages and lending practices towards minorities by the banking and mortgage lending institutions has been a growing political discussion. "Democrats and their advocacy groups also prodded Fannie Mae and Freddie Mac to buy the high-risk NINJA (no income, no job, and no assets) loans they had pressured banks to make to Hispanic immigrants. Now immigrants are defaulting on subprime mortgages in droves, adding to the toxic debt that is poisoning the financial industry. By 2006, before the bubble burst, Hispanics had taken out 40% of all subprime loans." (IBD, 2009)

Mortgage lenders and brokers lured these borrowers into adjustable rate mortgages with lower payments and no down payment options. Then the question is why would they offer these types of mortgages knowing that qualifying for a loan had more stringent guidelines? It is suggested that these practices went as far as selling mortgages to illegal immigrants who were likely forced to lie about their income and immigration status to get approved for these mortgage loans. The harsh reality is that "in actuality, those subprime mortgages issued in the last several years that went into foreclosure went mostly to illegal aliens, the exploiting