The Cause and Effect of the Subprime Mortgage Crisis

The subprime mortgage crisis is an ongoing event affecting buyers who purchased houses in the early 21st century. The term subprime mortgage refers to a number of mortgages made during the real estate bubble that occurred on the US coast between 2000 and 2005. Since mortgage was provided at the subprime mortgage rate, there was a large amount of foreclosure of mortgage loans and it was necessary to leave the house in order to afford to pay for the house. (Short) The cause and effect of this crisis can be broadly divided into five reasons.

Due to the subprime mortgage crisis, in the beginning of 2009 the economies of the United States and the UK slowed down and fell into recession. This research investigates the causes and effects of the subprime mortgage crisis and explores their role in securitization operations and economic disasters. The economic boom in 2000 caused real estate bubbles, real estate prices rose faster than before. The prerequisite for this real estate bubble is caused by the loose monetary policy of the US government after the economy basically entered a recession in the beginning of 2000. Nevertheless, the regression analysis conducted in this study does not prove that interest rate reduction affects the current economic slowdown in the United States and the UK. Low interest rates will affect mortgage rates and attractiveness of subprime mortgage borrowers to the real estate market. Therefore, against securitization of the Federal Reserve System and the collapse of the real estate market, anti-securitization is considered to be a major cause of the crisis.

In 2007, the US economy was hit by a mortgage crisis, causing global panic and financial turmoil. The financial market has become particularly unstable, and its impact has been continuing for many years (or more). The subprime mortgage crisis was caused by excessive borrowing and a flawed financial model, predominantly on the rise in housing prices. Greed and fraud also play an important role. In the early 21st century, this dream became a record number. Because of the low mortgage rate, consumers can get a relatively large loan with fewer monthly payments (see how to calculate payment to see the impact of low interest on payment ). In addition, house prices are rising rapidly, and buying a house seems to be a positive bet. The lender thinks that the house is a good collateral, so they are going to earn income by lending money when the income is good.