Predatory Lending Hypothesis

The mortgage crisis of 2007 marked catastrophe for millions of homeowners who suffered from foreclosure and short sales. Most of the problems involving the foreclosing of families’ homes could boil down to risky borrowing and lending. Lenders were pushed to ensure families would be eligible for a loan, when in previous years the same families would have been deemed too high-risk to obtain any kind of loan. With the increase in high-risk families obtaining loans, there was a huge increase in home buyers and subsequently a rapid increase in home prices. As a result, prices peaked and then began falling just as fast as they rose. Soon after families began to default on their mortgages forcing them either into foreclosure or short sales. Who was to blame for the risky lending and borrowing that caused the mortgage meltdown? Many might blame the company Fannie Mae and Freddie Mac, but in reality the entire system of buying and selling and free market failed home owners and the housing economy.

The housing crisis of the late 2000s rocked the economy and changed the landscape of the real estate business for years to come. Decades of people purchasing houses unfordable houses and properties with lenient loans policies led to a collective housing bubble. When the banking system faltered and the economy wilted, interest rates were raised, mortgages increased, and people lost their jobs amidst the chaos. This all culminated in tens of thousands of American losing their houses to foreclosures and short sales, as they could no longer afford the mortgage payments on their homes. The United States entered a recession and homeownership no longer appeared to be a feasible goal as many questioned whether the country could continue to support a middle-class. Former home owners became renters and in some cases homeless as the American Dream was delayed with no foreseeable return. While the future of the economy looked bleak, conditions gradually improved. American citizens regained their jobs, the United States government bailed out the banking industry, and regulations were put in place to deter such events as the mortgage crash from ever taking place again. The path to homeowner ship has been forever altered, as loans in general are now more difficult to acquire and can be accompanied by a substantial down payment.

In 2008 the real estate market crashed because of the Graham-Leach-Bliley Act and Commodities Futures Modernization Act, which led to shady mortgage lending or “liar loans” (Hartman). The loans primarily approved for lower income and middle class borrowers with little income or no job income verification, which lead to many buyers purchasing homes they could not afford because everyone wants a piece of the American dream; homeownership. Because of “reckless lending to lower- and middle-income borrowers who could not afford to repay their loans many of the home buyers lost everything when the market collapsed” (Tankersley 3). Homeowners often continued to live in their houses for months or years without paying any

In 2007-2008 the US went into a recession, a financial crisis that has since then taken five years to rebuild. During that time millions of Americans were unemployed and faced many economic struggles which negatively impacted the real estate market causing a multitude of foreclosures. The reason for this recession was because there was no authority over banks and they were not being monitored properly. Banks were able to gamble with the finances of millions of people with no consequences towards their actions. The Dodd Frank Act Wall Street Reform and Consumer Protection Act of 2010 was put into place to make sure that nothing like this ever happened again; The Dodd Frank Act implemented and set laws into place to make sure that banks and financial

Time is uncontrolled. As we grow older we discover different tactics and interest, most importantly we decide to create a future for our self. The ultimate American goal as an adolescent is to embrace the self-fulfilling responsibility of providing for our self and have a family of our own. Buying a home/ apartment or leasing a car, requires an extensive amount of not only income but sufficient credit to be approved. As young and unaware of how cruel this world could be, it is fairly easy to get manipulated into becoming a gullible victim of fraud, bankruptcy, or simply being stripped of one’s self-identity, known as predatory lending.

In the lead up to the current recession, when the real estate market began to fall, there were so many investors shorting stocks and securitized mortgage packages that were already falling, that the market simply fell further. There were no buyers at the bottom, and the professional investors made millions off of the losses of others. Beyond this, there was no real federal regulation for securitized mortgages, since there was no real way to gauge the mathematical risk of any given package. This allowed the investors to take advantage of the system and to short loans on real people’s homes. Once these securities were worthless, many of the homebuyer’s defaulted on their mortgages and were left penniless. No matter from which angle this crisis is looked at, the blame rests squarely with the managers who began the entire cycle, the ones who pursued the securitization of mortgages. Their incompetence not only led to the losses of Americans who have never invested in the stock market, but to losses for their shareholders.

History helped to recognize the parallels between these eras and learn from them. The crisis of 2008 was not nearly as bad as the Great Depression, but like the Depression consumers lost trust in the market and were afraid to invest in the economy. The Housing Crash catastrophe, like the Great Depression contributed to the failure of banking institutions and led to high unemployment rates. Unlike the Great Depression, the crisis of 2008 was supported by more than a dozen economic stimulus packages provided by the federal government to jumpstart the economy. The federal government stepped in to bailout the banking institutions to avoid another Great Depression. It is important to look back on the history of these two national devastations and learn from their mistakes so we can be better prepared for future economic downfalls in the

Becoming a victim of predatory leading can be achieved many different ways. Things such as targeting college students to apply for credit cards, convincing you it’s acceptable to lie or slightly change information on loan applications, or even targeting people who are already in debt are just a few examples of predatory lending. Predatory lending is the practice of banks targeting individuals with low incomes, charges them outrageous loans with knowledge that the individual will have no way to fully pay what was borrowed. There is a broad definition within different jurisdictions, most times a case where a bank that used a form of predatory lending that, while it may

The collapse of the housing market had far and wide ranging effects in the economy of the United States. While the effects were felt throughout the country, California, Florida, New York, Michigan, Illinois were dealt devastating blows to their respective economy. Throughout the country, foreclosures rose to staggering numbers and jobs lost were in the millions. This research paper will concentrate on the causes and consequences of the housing crisis and will attempt to determine if there is any fault for not controlling the crisis.

Predatory lenders are organizations, which offer loans with high interest rates to those who are in need of fast money, usually because of an emergency. Engel Kathleen, and Patricia McCoy, in their paper “A tale of three markets: The law and economics of predatory lending” defined predatory lending as Any serious attempt to address the problem of predatory lending, however, must be able to describe it. “predatory lending generally has been described as a catalogue of onerous lending practices, which are often targeted at vulnerable populations and result in devastating personal losses, including bankruptcy, poverty, and foreclosure. ” which essentially means that while the methods of predatory lending have changed over the years, the concept of predatory lending has remained the same. Predatory lenders used to be loan sharks, who would loan people money from the local mob, but now predatory lenders operate as payday loan offices, and Car Title loaners. These companies utilize the niche market of people living in low-income areas, who are desperate for quick cash and have stable paying jobs, and a willingness to pay the flat fees associated with said loans. Loans such as Payday Loans and Car title loans operate by preying on those who have no other alternatives. Predatory lending practices have had a predominately negative effect on lower income communities, forcing many families living in these communities to go into deeper debt trying to pay off the initial loan, leading

In the late 2000’s, the US encountered an unforgettable financial crisis which was caused by low interest rates and sky high real estate prices. This enticed not only those within the US to purchase

Foreclosures are painful for everyone, including the individuals, lenders, and the costs associated with foreclosures are taking a toll on our communities. Lenders and investors lose from 20 cents to 60 cents on the dollar, typically losing $50,000 or more on each foreclosure (per Craig Focardi, CMB, Research Director, TowerGroup’s consumer lending division). One foreclosure can result in as much as $220,000 in reduced property values and equity for nearby homes (William C. Apgar and Mark Duda “Collateral Damage: The Municipal Impact of Today’s Mortgage Foreclosure Boom”). In

Today’s financial crisis has deeply impacted all areas of life not only in the United States, but also the rest of the world. Company giants such as Circuit City® and Merrill Lynch® have fallen victim to the financial crisis. One of the biggest industries the financial crisis has had an impact on has been the housing market. Everyday newspapers, journal articles, and television media cover stories regarding foreclosures around the country. To regain financial control of the world and domestic economy, one must begin with the housing market. There are various areas of the housing market, which allow for overhaul and maintain a prosperous future. Regulating bank interest rates and federal interest rates will reduce, if not eliminate the

Due to such events as the subprime mortgage crisis, the auto market and Wall Street’s failure, the United States suffered a severe economic blow. Looking at the situation from an economic view, supply is supposed to equal demand. Due to the mortgage crisis and the careless attempts of some to make money, there is a superfluous amount of empty homes throughout the United States. In the subprime mortgage crisis, the nature of the failure was the inability to account for money given to individuals, who lack the appropriate requirements. In order to obtain a loan, collateral is needed. References were not being checked and poor credit history went ignored. People were obtaining loans and not paying attention to the interests rates associated. “This time around, the slack standards allowed millions of high-risk borrowers to get easy home mortgages. When this so-called subprime market collapsed beginning about a year ago, ordinary working people bore the brunt” (Gallagher, 2008). Companies were so anxious to place people in homes, that it cost them billions of dollars and

Ten years ago the US housing market was booming and with a constant rise in prices there didn’t seem to be an end in sight. It is, however, difficult to know when a peak is reached and for participants to take the appropriate actions in time. Nevertheless, as several studies have shown, measurements which were or were not taken made the bubble worse. Despite warnings from experts, investors and senators, the participants actions on the housing market eventually led to one of the biggest threats towards modern capitalism since the black Tuesday of 1929.