The Subprime Mortgage Crisis Of 2008 Essay

1277 Words Nov 13th, 2016 6 Pages
The subprime mortgage crisis of 2008 continues to be a hot topic today because it still impacts the lives of people today. Consequently, there are many theories explaining why this crisis happened, who were key players, and who were negatively impacted. It is clear that subprime mortgages existed because it provided attractive returns however, these attractive returns came with extremely high risks that eventually did not work out in both the lenders and borrowers favor.
According to Pajarska and Jociene (2014) the subprime mortgage crisis was caused by the credit boom and the housing market bubble. It is argued that the direct cause of the financial turmoil was the steep increase and subsequent sharp decline of housing prices, which in conjunction with poor lending practices, led to large losses on mortgages and mortgage-related instruments in many financial institutions (Pajarska et al., 2014). Financial institutions’ standards for granting mortgages became increasingly low. Subsequently, numerous subprime loans were offered to high-risk individuals with low incomes and/or bad credit at a higher interest rate.
It is imperative to understand the history of why subprime mortgages came into effect and risen in the 2000s. In order to provide a larger group of people with loans, the federal government enacted a number of acts such as the Community Reinvestment Act (CRA) of 1977, the Deregulation and Monetary Control Act of 1980, and the Tax Reform Act of 1986. According to…

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