Subprime
Due to the economic boom since 2001, many Americans had the opportunity to become first-time homeowners. Financial institutions started making loans to people with low incomes or bad credit. This decision has proved to be a very bad one and we are now beginning to see the consequences of risky mortgage loans. The rate at which sub-prime borrowers are defaulting on their loans in constantly increasing. Due to the negative impact future foreclosures could have on the national economy, the government should step in and increase regulations in order to protect the banking industry and the national economy.
Because of their risky decisions, the banking industry is now feeling the crunch from an increasing number of foreclosures throughout the country. They opted to attract sub-prime borrowers into homes they could not afford in order to satisfy their short-term financial goals. Since 2001, lenders started offering very attractive initial loans to first-time homeowners whom often where not educated on the different types of loans and had no previous experience with mortgage loans. Now, a few years later, many people who took out short-term fixed-rate mortgages are starting to expire. They now have to deal with sharply increased payments due to increased interest rates. Many of these people can not afford to make the new higher payments and are losing their homes.
With the increased supply of homes in the market, caused by the high rate of foreclosures and new home construction, the housing market has turned into a buyers market. Thus, the value of real estate is decreasing and financial institutions are not able to regain the original loan amount when selling foreclosed homes. This domino effect can be directly traced to their unwise lending decisions and misleading information provided to sub-prime borrowers. The banking industry was given the opportunity to make loans at their own will without much government intervention and we are now beginning to...
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