The Financial Crisis Of The United States - 1574 Words

In this reflective case study I will discuss the financial crisis that occurred in the U.S. in 2008 which precipitated one of the largest catastrophe within the housing market causing a collapse amongst the financial institutions. I will also discuss about how the banks were at fault for giving out loans to individuals who were not capable of affording to pay these loans back and all financial institutions that should have had regulations on the loans that were dispensed as well. Though, the collapse with the financial institutions was not only because of faulty loans that were given out but the overvaluation of securities which caused U.S. real estate prices to descend, the overvalue from some of the subprime mortgages, financial†¦show more content†¦Banks were also overvaluing some of the subprime mortgages making a false assumption that housing prices would continue to rise. Subprime loans are loans that are made to individuals who have complications in trying to maintain a more scheduled payment. Individuals who are going through certain hardships in their life such as divorces, unemployment, etc. Most of these investment banks preferred subprime loans because they carried higher interest rates which led to a massive increase in predatory lending. The reason why banks were creating such complex policies were so that anyone who planned to take out a loan would have difficulty translating the documents therefore allowing the banks the take advantage of homeowners without or if any repercussions. Bank institutions as well as mortgage loan officers were encouraging homeownership with the interest of not only gaining a commission but due to the fact that lenders were not going to be responsible if the homeowners did not pay their mortgages. Mortgages were being packaged then sold to investment banks then later sold to investors. Borrowers were arranged in expensive subprime loans and numerous loans were given to people who were not able repay them. Once homeowners were not capable of paying their mortgages investors were the ones who were left with the problems allowing lenders and investment banks to escape through the loop. Banks that were overvaluing the