Subprime Lending

Abstract

The following information will describe the housing market crisis because of the sub-prime lending problems that have evolved immensely. It will provide a history of sub-prime lending, furthermore the crisis of the housing market, the market which it operates, government regulations, and issues or opportunities of the housing market.

Housing Market Crisis: Sub-Prime Lending

One of the major stories shown in the news for these past months has been the crisis of the housing market, sub-prime lending, and how it is impacting the United States economy. According to USA Today website, they stated that if the U.S. economy were a car, all of its warning lights would be flashing red because of the condition of the car. As mentioned by real estate agents, business organizations or individuals, “buying a home/property is the single best investment an individual could make during their lifetime”. This statement is actually true because real estate purchases are considered investment because in most cases the property goes up in value. For some people it has been their worst investment ever made in which at that time they possibly did not know what they where getting themselves into; and because their lender was somewhat irresponsible when processing the mortgage loan and disclosing all information. The information to follow will give more details to what is happening in the housing market in the U.S.

History of Industry: Sub-Prime Lending

As mentioned in the introduction, homeownership is one way that an individual can build wealth over a lifetime.

Market

Construction, sale and resale of residential properties across the country are what make up the United States housing market. In the U.S the housing market is at an all time low, the lowest in the past fourteen years. Calling it “financial Armageddon”, housing prices in the past had short term interest rates down to one percent and then were raised very slowly over the years allowing people to borrow large sums of money to overpay for homes that they couldn’t afford to begin with (CNN.com, 2008). Directly the collapse of the subprime lending industry which is the practice of broadening or extending credit to borrowers, who qualify, is the cause of todays’shaky housing market (Wikinvest, 2008). Although the housing market all over the United States isn’t experiencing a low in real estate, the majority of the country is which can affect the economy to the point of a second Great Depression (CNN.com, 2008). Since homes are considered durable goods which mean that the construction of new homes is deeply linked to economic cycles which are categorized as booms or recessions, the housing market greatly shapes the economy. When people decide to purchase a home they are usually compelled to buy secondary goods and services for the home as well such as appliances, furniture, necessities and utility services, so as you can see the impact of the sale of a home continues indefinitely (Wikinvest, 2008).

Government Regulations

Secretary of the Treasury Henry M. Paulson, Jr. recently released the "Blueprint for a Modernized Financial Regulatory Structure," the Department of the Treasury’s plan to overhaul America’s financial system in the wake of the housing crisis