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Mortgage Crisis in the U.S - Essay Example

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In turn, it led to rating agencies to under grade their risk assessments of financial instruments. Since the level of risk became so high, ability of…
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Mortgage Crisis in the U.S
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Download file to see previous pages This led to an immediate and intense disorientation of the financial markets.
During its semiannual worldwide financial report released on 8th April 2008, the paramount statue of international finance analysis (that is IMR) stated that the collapsing house prices and rising queries in the residential mortgage market or arena losses of approximately five hundred and sixty five billion US dollars. When these factors are combined with other declines from other areas of loans originated and provision of security in the United States of America that relates to commercial real estate is indicated by the International Monetary Fund to gather a loss of about nine hundred and forty five billion US dollars.
This was shocking as it was the first time that the International Monetary Fund was approximating the extreme losses incurred by banks and other financial institutions in the United States. As indicated earlier, this credit crunch started in the year 2007 and led to the increasing number of defects on the subprime home loans. The main mission of the International Monetary Fund is to facilitate and promote international financial stability.
Since it had easy money policies, the Federal Reserve allowed the housing prices to increase up to unsustainable levels. The bubble bursting led to this unfavorable condition. The current mortgage crisis began with the bursting of the bubble house in 2001 and reached its optimal point in 2005. Housing bubble refers to an economic bubble that occurs in local and international real estate markets. Occurs when there is a rapid rise in the valuation of real property to levels that are unsustainable in relation to income and other sources of affordability. When there are such rapid increases there is a subsequent decline in home prices and mortgage debt that is greater than the actual value of ...Download file to see next pagesRead More
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