The Derivations of The Mortgage Crisis
June 4, 2011 Mortgage Information
The global financial crisis has caused the extravagant damage to the great economies. This crisis did not happen because of only a happening or a factor. To find out the reasons for the mortgage in the USA, we need to study the long time of the American economy.
It can be said that the subprime mortgage crisis was derived from the changes of the policies of the USA’s government. In the late 2001, when the American economy fell into a crisis, FED implemented the policy of reducing the interest. The expansive money policy strengthened the economic activities. In 2002, the economy started recovering but the risk of the return of the economic crisis made the president of FED, Alan Greenspan, to keep the interest rate at the level of 1% for the next 2 years.
Besides, the continual rise of the house prices also contributed to the happening of the mortgage crisis. With the individual income on a high increase, the low interest rate of mortgage loans and the plentiful credit, the clients in the property wanted to take opportunities to gain benefits. With the expectation of the higher price of houses, a large number of American people crushed to buy new houses. Many houses were bought when the houses were not completed and brought in use yet.
Most of these houses could easily be purchased with the mortgage loans from the banks. Due to the very low interest rate of ARM rate for the period of 3-5 years, the buyers were appealed by this policy. However, contrary to the belief, the monthly payment of mortgage interest gradually increased when the interest of the loans was adjusted to the higher level.
The policy of the government misled most American people to the ignorance of the risk of the loans, which mainly caused the mortgage crisis in America.