Housing Crisis Essay

1403 Words Mar 23rd, 2012 6 Pages
A home of your own house is the typical American Dream. Who in this county wasn’t raised in the environment that taught us, owning your own home is a desired goal and solid investment for the future.
From late 2001 through early 2004, the housing market was busting record rates in sales and the fast growth made housing prices soar to record highs. For example, the value of a home bought in late 2001, for a price of $290K, could well have the retail value of $340K by the middle of 2002, and by the following year could near double in value to an astonishing $460K or more. These out of the norm home values were driving people to suddenly sell their homes they had owned for years at double the original value, and make a nice profit to
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For example, A home owner going for a loan with 10% down, using a fixed rate of 5.25%, can well qualify for the price of a home, is a good solid long term risk. However a potential home owner with zero percent down, who has to use savings, 401k, bonuses, and other funds that are not a part of their normal monthly income, to qualify for a loan is not a solid investment risk, and will likely pay a higher interest rate for seven percent(+) due to that fact. The banks were bundling the solid sound investments, with the less desired risky ones. The investment groups took these deals, hungry for the higher yields on their investments and could always pull out of them if they saw a decline in the repayment process.
Investment groups would not have invested in some of these bundled packages, but the credit rating companies, such as Moody’s, Standard & Poor’s (S&P) was putting a rating risk of “AAA” or “A+” on these mixed bundled securities that were being invested in or “sold” to companies through Wall Street. A rating of “AAA” or “A+” is a stamp of approval. Investors needed no more to jump into the game.
In late 2004 the housing market was saturated with homes and the interest rate the Fed Reserve had been keeping so low, was one the rise. This didn’t slow down the boom quiet yet though. The banks started to get more creative with the types of loans they were financing. For example: an investor who is buying two or three homes

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