Ms.
Ceceilia Berkowitz
Mr.
Wonsuk Leigh
Mr.
Ian Swanson
Mr.
Michael Wonski
August
10, 2008
Subprime
Mortgage Crisis of 2006 to 2008: Yin & Yang
The
U.S. economy has recently entered into a recession this year, for the
first time since the dot-com bubble burst in 2001. This is
partly due to the subprime mortgage crisis that affected the
financial services industry as well as many individual subprime
mortgage holders over the last year or two. As the economy and
housing market had been especially favorable in the first half of the
decade, prospective homebuyers and mortgage borrowers would often
invest in risky subprime mortgages that were offered at low initial
"teaser" rates of 3% or 4%, and later on would increase to
a higher adjustable rate. By doing so, potential homebuyers
with poor credit who were inclined to take on an above-average degree
of risk in the form of a subprime mortgage loan, could in fact obtain
one or several mortgages in order to proceed with the purchase of
homes the prospective buyers otherwise could not afford.
In the United
States, as well as in several other countries abroad, many of our
financial institutions, including the major bulge bracket and
boutique investment banks, as well as almost any other important
financial institution in such capacity, would begin the practice of
securitization of this type of subprime mortgage loan. In doing so,
the financial institution would pool together a large number of
subprime mortgage loans and create a securitized mortgage backed
asset which would then be marketed and sold to investors for a
profit. The allure of subprime mortgage backed assets to the
potential investor was that the higher level of increased risk was
accompanied by a significantly higher expected return than that could
be obtained by investing in U.S. Treasury bonds and notes. When
the U.S. housing market unexpectedly returned to normal, instead of
the above normal conditions of the immediate pre-dot.com bubble
bursting 2001 economy, as determined by historical data, the U.S.
financial services industry, which used fair value or mark-to market
accounting, instead of (historical) cost accounting, showed
significant losses which had to be written down . The U.S. economy
experienced a detrimental shock as a direct result. There were many
sudden negative changes in the financial services industry as JP
Morgan Chase purchased Bear Stearns, many financial services industry
job cuts took place, there was an abnormal amount of CEO and CFO, and
other employee turnover among the financial institutions, and the
Federal Reserve Bank of New York increased its permissible lending
regularizations when it opened its discount window for the first time
to investment banking houses including Bear Stearns.
Since March 2008,
the U.S. economy has entered into a recession, despite the Federal
Reserve Bank's series of rate cuts of both the Federal Funds and
Discount Rates. There is increased unemployment in the
financial services industry, and there has been a decline in the
housing market as there have been increased defaults on the subprime
loans and increasing interest rates. There has been discussion
as to the need for increased transparency and the questioning of the
suitability of subprime loans and other mortgage lending activities.
There has also been discussion in the accounting profession about the
increased importance of the Sarbanes-Oxley Act of 2002, whether fair
value or cost accounting should be used with regard to mortgage
loans, whether residences should be considered a purchase of a good
or a financial investment as equities are, and the increasing
importance of continuous auditing, IT audit, and business ethics.
As the role of the accounting profession is elevated and made more
important in response to the subprime mortgage crisis, this change
should help stimulate the U.S. economy. It is likely that the CPA
profession will create and improve upon its jobs in these three
areas, as well as corporate and international tax, and help bring the
U.S. economy out of its recession. At the same time, the
convergence of U.S. GAAP with IFRS reporting and increasing
importance of global business and international expansion among
accounting firms should also improve the U.S. economy as its
enterprises engage in more and more business activities on a global
scale.
Traditionally and
historically, in the United States and other Western and
industrialized nations, home ownership has been the principal form of
residency for the majority of people. Over the last two decades, the
traditional type of family in the United States, consisting of a
household of husband and wife, one or more children, and maybe at
least one pet, has become of diminishing importance and less
prevalent in our society than it once was. Instead, people often
live nowadays with extended family members, such as grandparents,
aunts, uncles, cousins, with friends, roommates, or alone. There are
also many single, over 18 years of age person, and single adult
parent households today, as a result of death, increased divorced
rates, and work or personal other reasons.
Since
around 1999-2000, the U.S. housing market has been relatively strong
prior to the recent subprime mortgage crisis. Typically, however,
even during those years, people in their 20s and also many other U.S.
residents would decide to rent or otherwise not become homeowners.
In the past year, the subprime mortgage crisis shocked our nation and
spread outside the U.S. to affect current and prospective homeowners
on a global level. The decision of whether or not to purchase a home
is still a worthwhile consideration, but a house is no longer
considered to be an equally good or better investment than one in a
good stock position, or one in part of a larger, diversified
investment portfolio. Owning a home is instead now considered to be
an acquisition of a form of equity that normally will not be expected
to increase an individual’s purchasing power upon liquidation,
but will instead provide the benefits of having a place to live and
becoming more of a part of a local community and as such a better
citizen.
I
personally have been considering the purchase of a home several times
in the past few years. After performing quite a few cost-benefit
analyses at different times, I have concluded that it is in by best
interest to decide to not proceed with a home purchase within the
next three years or so. Around that time, I will reconsider my
current financial situation, lifestyle, and planned endeavors and
goals to see if home ownership would then be a good idea for me. It
is unclear and hard to tell whether an affirmative decision to
proceed with a new home purchase would result.
Until
I attended undergraduate school in Philadelphia, I lived in Essex
County (Millburn-Short Hills) for almost all of my life. I attended
public schools in Essex County, and then lived on campus in college
and also studied abroad during my four undergraduate years. During
summers, I returned to my town in New Jersey to study or intern.
After graduation, I accepted a position in Philadelphia instead of
one in New York City. I did not consider purchasing a home at that
time, and instead rented an apartment a few blocks from my job. I
switched to a job in New York soon after, unexpectedly, and did not
rent or purchase, as I lived in New Jersey with a relatively short
commute to my New York job by train, and I worked regular hours with
only one week per month of extensive overtime work. It was also not
certain how long I would stay at either my first or second
post-graduation job, as it is typically up to the employer rather
than the employee to provide good reviews and offer any possible
promotional opportunities. It is therefore debatable whether a home
should be purchased or even a lease should be signed when beginning a
new job. I think it is a risky decision to enter into either such
agreement, though it is sometimes useful for an individual to take
advantage of a salaried post and an employment offer to make a move
to a new city or location, and to make personal plans such as
entering into a marriage or having children. After I was part of the
15% companywide layoff at HotJobs.com (now part of Yahoo) in March
2001, I was immediately glad to not be working anymore in New York,
and my subsequent positions at Tiffany & Co. and Weichert
Realtors were in Northwest Central New Jersey. As I often would go
to New York and Hoboken, it was not practical for me to live where I
worked, and also salaries on those new jobs were rather low, so it
was difficult for me to afford nice, luxury housing. One of my
friends has received relocation assistance and moving cost
reimbursement from his new employer when he switched jobs, but I have
never received this employment benefit.
In
2004, I received another good performance review at Tiffany &
Co., and I looked at purchasing a condo in Hoboken at 1500 Washington
Street, the Hudson Tea building. They had several available condos
at this Toll Brothers complex, however, the cost was excessive and
the commute to work in Parsippany was impractical. My former manager
was not flexible about my start time or traffic delays. I also
considered purchasing a home about 1 ½ years ago when I worked
at Weichert Realtors, where they offered us an employee discount on a
home purchase through the company. Again, it was still not
affordable enough to actually purchase one.
When
I decided to attend Rutgers and study accounting, it was also not
practical or cost effective to purchase a home or condo, or move to
New York or Hoboken or a nearby town. I did find, however, that it
was not easy for me to work from home or my car. I often had to cram
at nearby hotels for exams while I balanced by classes and work
schedule.
This
year, my salary and bonus is not high enough at my accounting firm to
afford living in a desirable New York co-op within walking distance
to my firm. They were not willing to offer me relocation assistance,
and I may consider living for one month in New York during training.
I may also consider commuting to work from New York hotels, but after
the first month they will send me to a different U.S. or possibly
international location each week, so I am not planning to make a home
purchase as it is not necessary for me to have a home when I will
normally be away at client sites.
Even
if I were to find myself not traveling to clients as frequently as
anticipated over the course of the next year, there are quite a few
reasons that I have found that indicate that the overall benefits do
not exceed the overall costs for me to purchase a home in the near
future. First, there is not much available selection of homes in my
price range, without me taking on a mortgage. I have an expected but
not certain salary plus bonus of $59,000 in the next year, with a lot
of costs involved in keeping my position well and working toward a
possible promotion in three months at my December review. I have up
to at most $300,000 to spend on purchasing a home, but need to take
into account taxes and other fees, so should probably not spend more
than $150,000 to $200,000 at most. There are also a lot of drawbacks
in taking out a mortgage loan which include the requirement to pay
back the loan on a regular basis with lack of any flexibility without
some type of penalty, the necessity of paying extra attention to my
FICO credit score to ensure a satisfactory interest rate, the fact
that I would be taking on debt that would need to be paid back, and
the realization that the tax benefits of having a mortgage and owning
a home normally do not outweigh the costs of going into debt. There
are also excessive interest payments over the long term that together
make taking out a mortgage loan undesirable. Second, there is lack
of flexibility once a home is purchased. Basically, it might not be
as great as it seems to actually live there after purchase. If it is
noisy in the neighborhood, it might be difficult to work from home.
The neighborhood might become unsafe, the education and township
activities might not be up to par, the neighbors may not be likeable,
there might be breakouts of disease in the area, and there might
surprisingly be unwanted animals, bugs, construction, hazardous
weather and roads. Third, it might be necessary to have hotel stays
or a second home as a result of an unsatisfactory neighborhood, but
it can be hard to afford this as well as a primary residence. Also,
if you purchase a home you may begin to worry more about your
personal safety, in terms of being followed home, and potential
robbery and crime. Much is involved in home ownership including
hiring a housekeeper, gardeners, testing water filters, security and
alarm systems, fire prevention, fixing broken garage doors, plumbing,
computer and wireless internet connections, upkeep of the roof, wood
floors, carpet cleaning, possibly a pool and fitness center,
fireplace and chimney, building additions, and dealing with equipment
delivery. There is also the unsafety and danger of living alone,
especially if you get sick, fall down, or faint. Normally people who
are not very elderly do not take advantage of systems such as in
home, OnStar type medical alarms that are connected with emergency
assistance. There are therefore a lot of costs to manage yourself
when you purchase a home, and it is not beneficial for me to take
them all on, including the cost of hired help such as a housekeeper,
gardener, or computer maintenance person, the cost of upkeep and
fixing up the home, the cost of moving and traveling if you need or
would like to, and the fact that you would feel unsafe at times in
your new home. You may indeed also want some change and variety from
living in the same residence, there might be mean people in your
neighborhood or who might move in and this is becoming more
commonplace as FHA Equal Housing lending and home ownership rules are
enforced. Also, if you are interested in township education,
libraries, and recreation, they might become neglected by other
residents and may not be as good as they once were in a few years of
your home ownership. It should be noted that there is almost always
cheaper alternate opportunities to home ownership that might better
fit your lifestyle and goals. Buying a home often accompanies the
necessity of taking out insurance, while forgoing a home purchase can
save the time, money, and effort involved with insurance brokers. As
we want our country to be one of overall savers and investors, rather
than debtors, it is best to be able to overall afford a home purchase
when you make the decision to buy one.
On
the contrary, there are also quite a few reasons to buy a home, which
I will consider again in a few years. There is the positive
reputation effect of home ownership as the purchaser would be seen in
society as a home owner. Along these lines, there is the snob effect
of owning a home at a coveted address. It is best to purchase a home
at a good address as soon as you are willing and able to do so, as a
home at a good address may not always be available. If a family has
children or plans to, home ownership creates a more stabile home
environment for rearing them well. Some adults also prefer a stable
home to always return to. Owning a home is also a way to become
well-known in a community. Its proximity to churches and places of
worship, stores such as Kings and Whole Foods, libraries, post
offices, Mailboxes Etc., shopping malls, nail and hair salons, Y’s
and Country Clubs, schools, and offices, allow home owners to become
friendly with the neighbors and a responsible citizen. Owning a home
allow you to work with the community on a “neighborhood watch”
to instill alarms, work with police to better prevent crime, and
similar such activities. The National Debt should be expected to be
improved upon as more and more Americans become home owners even with
mortgages. Mortgage programs by banks and other lenders would be
expected to better adapt to the needs of nearby citizens. If there
are in fact any future national attacks on our country, owning a home
can assist in making its residents feel part of the larger community.
Owning a home can empower its residents to work better with the
local community to have better education, health care, decreased
pollution, increased water and food quality, and better living and
working standards in general.
There
are also additional reasons that buying a home can be advantageous.
It is traditional for adults to be homeowners in America, and this is
longtime considered to be a major part of “the American Dream.”
Therefore, owning a home can be a way to better fit in across Western
and other developed nations. Owning a home can also be a way to
model ourselves after older generations such as that of our parents
and grandparents in terms of how we should progress in our adult
lives. It can be a way to meet friends in town, feel part of a
community, and deciding on a town and zip code where you fit in terms
of income and lifestyle can be rewarding. For unmarried people,
owning a home can be an asset to a future potential spouse, as a
dowry was historically. Owning your own home can offer you more
flexibility in terms of activities you partake in, in terms of noisy
parties, pets, illegal substances and alcohol, and dress code. From
a financial standpoint, if you own a home, you are in a better
position to build even more additional equity in terms of vacation
timeshares such as at the Marriott Vacation Club. Basically, a house
you own is a way to diversify your assets, liabilities, and potential
future assets and liabilities in terms of salary, taxes, necessary
and unnecessary costs, short and long term loans, revenue, and
expected cash flows.
I
also considered purchasing a home in France, but there are too many
risks involved for it to be worthwhile. Risks include political
risk, risk of destruction and damage, risk of burglary, risk of the
neighborhood becoming unsafe, risk of barriers to travel making it
difficult for me to visit often, risk that it would become
unaffordable but it would be hard to sell being based in the United
States, and the risk that you might prefer to stay in hotels or other
parts of the country instead.
My
conclusion is that I do not plan to buy a home in the next three
years. After that, I will be in my mid 30’s and will
reevaluate whether I can take on the additional risk and
responsibility of home ownership, and whether the current and
expected future benefits exceed costs. I plan to keep my current
travel to Florida for two weeks in August, to France for three weeks
in September, to either rent an expensive one month sublet very near
my firm during the month of October, or mostly stay in hotels in New
York at that time and live at my permanent address while staying most
weeks after October at various hotels for my firm when I visit
clients. I may need to stay at hotels in New York on occasion to
make it to work, but it is not practical at this time for me to
purchase a home.
One of the great
American dreams is to be an owner of a home, regardless of an
individual’s race, background, or financial situation.
While purchasing a home is almost always financial challenge for most
Americans, it can be an even more difficult process for some of them
depending on their overall financial situation. Since 2000, the
main American solution to buying a house with little cash or a poor
credit rating was to take out a subprime mortgage loan.
Subprime mortgage
loans can be utilized by those people with poor credit history, who
can therefore not obtain traditional types of mortgage loans such as
30-year fixed interest rate based mortgage loans. In order to
compensate for the higher lending risk involved in a subprime loan,
the lending institution or a bank charges a higher interest rate,
after an initial teaser rate is normally charged in the first few
years of the subprime loan interest payment schedule, and this higher
interest rate is usually inversely correlated to the credit profile
of the borrower. Subprime mortgage lending has grown
substantially over the last six to seven years, from around 2001 to
the present, and subprime mortgage lending can be partially credited
with the real estate boom we experienced over the course of the same
approximate time period.
Proponents of
subprime lending and borrowing state the following reasons for their
views. First, subprime mortgage lending
enables many more individuals to purchase a home that in the past
they may not have been able to. Subprime
mortgage lending also allows for a window of time for interested
individuals to build a credit history, which can eventually enable
them to better refinance debt and more easily qualify for a fixed
interest rate (not a subprime or an adjustable rate) home mortgage
loan. During this time, they would be already building some degree
of equity in their home and thus would be realizing significant tax
advantages.
The subprime
mortgage debacle, even with government bailout and assistance to both
homeowners and lenders, may indeed delay the pending U.S. economic
recovery as tighter lending standards and inevitable foreclosures
increase housing inventory and supply relative to its demand.
Nonetheless, as the U.S. economy moves further toward a context of
generally lower housing prices and relatively favorable interest
rates, the pending subprime mortgage crisis recovery should find that
it is provided with some U.S. macroeconomic support. On a positive
note, the end of the recent housing boom of the first half of the
decade may lead to some good news for the overall macroeconomy. A
return to normalcy in the housing market should increase home
ownership affordability while still providing reasonable returns on
new and existing housing related investments. In addition, the
meltdown of the subprime market may bring more attention and more
favorable financial terms to traditional fixed interest rate, non
subprime mortgage loan borrowers.
When
the subprime mortgage crisis first occurred around 2007, the true
level of risk associated with subprime mortgages became transparent,
and investors were panicking as they did not know which of the banks
or hedge funds were most exposed to potential losses. According to
Wall Street Journal, on December 31, 2007, during the
housing boom, the sub prime industry shot down efforts by some U.S.
states to curtail risky lending to borrowers with spotty credit.
Ameriquest Mortgage Company, until recently one of the nation's
largest sub prime lenders, handed out more than $20 million in
political donations and played an important role in persuading
legislators to relax tough new laws. These victories helped to blunt
efforts by other states to crack down on reckless lending. A host of
subprime lenders and banking trade groups, including Citigroup Inc.,
Wells Fargo & Co., Countrywide Financial Corp. (CFC)
and the Mortgage Bankers Association, spent a significant amount of
funds on subprime crisis related political lobbying and donating. It
raised awareness of the past mistakes of lending to borrowers with
spotty credit and its resulting negative effects on our economy.
This new awareness and transparency allows us to begin to rectify
this lending and investing problem and help to prevent further
subprime mortgage related economic and financial damage.
Since the negative
effects of subprime mortgage crisis began to surface in the news and
in the media, the technology industry began to expect huge benefits
from our shaky financial markets. Their point of
view is that positions that lenders have taken in the subprime
mortgage market could prove beneficial to the nation's technology
sector because the subprime debacle will free up more funds for
investment
in the country's technology sector. If the subprime fiasco diverts
more money to venture capital funds, the whole nation could benefit
from this. For at least a decade, financial engineering is the
preferred way to squeeze a greater yield out of exisitng investment
strategies that make a only limited contribution to the growth of an
innovative
economy. A credit market collapse in the inflow of funds to those
sectors bodes well for venture capital investment. Thus, the
techonology industry would be better off because companies seeking
venture capital financing are those companies that are truly
achieving innovation and are contributing real growth to the
macroeconomy.
The subprime
mortgage fiasco at present has been portrayed quite negatively in the
news media over the past year. Many observers have noted the wide
ranging impact that the collapse of the subprime mortgage market has
had on nearly every other aspect of the economy. Many people
might view the situation as a case of reckless bankers inventing
overly complex investment products made up of bundles of subprime
mortgages, which the banks then offered to clients with little regard
for the inherent value of the loans themselves or the potential
economic fallout that would follow widespread defaults. One
might ask, if these debtors were such a high risk prospect for the
banks, why they were even given loans in the first place? What
is the benefit of the sub-prime mortgage market if it causes such a
catastrophe?
Some observers,
however, might take an alternative view of the subprime mortgage
crisis. They might view the former subprime mortgage market as
overall beneficial to the American economy despite several
not-so-good economic periods such as the one we are currently mired
in. The simple reality is that many Americans do not have
nearly perfect FICO scores, and that there are risks involved to
creditors in lending such individuals mortgage loans. By
allowing prospective mortgage loan recipients to borrow against the
value of their homes, the American consumer was, in the early part of
the decade, able to buy goods that they might not have ordinarily
been able to afford. “…In recent years, homeowners
pulled up to $450 billion in equity a year out of their homes through
refinancing and second and third mortgages—money that was
plowed into retailers’ coffers. That helped keep consumer
spending high, with greater than 6 percent retail sales growth in
2005 and 2006, according to data compiled by the National Retail
Federation.”
(http://retailtrafficmag.com/retailing/sub_prime_meltdown_worrisome)
The spending
of the American consumer is in many ways like the engine that runs
the global economy. It is crucial for consumer spending and
international trade of consumer goods that the American consumer has
a certain amount of discretionary income. When the American
consumer is feeling an economic “pinch” and therefore
spends less, resulting effects are spread globally, particularly in
some Asian economies that are driven fundamentally by U.S. exports.
This concept is counterintuitive to the idea that current and former
emerging economies elsewhere such as China lessen the importance of
the American consumer as the driver of the global economy: “…Indeed,
the very global interconnections that many thought might spare the
United States now appear to be working in reverse: American consumers
will pull back from their exuberant spending, cooling demand for
goods worldwide, dragging down the global economy.” (
http://www.iht.com/articles/2008/01/25/business/25usecon.php).
This is why Asian economies are in many ways willing to finance
America’s debt by buying treasury bills as the US market is an
essential destination for their consumer goods.
Therefore,
according to this alternative view, the current subprime mortgage
market crisis is not truly the direct result of a highly speculative
real estate market and reckless lending practices, but instead more
of a rather an unfortunate byproduct of the free and easy credit
lending terms that were in some ways the cause of the American
“economic miracle” of the 90’s and the decade-plus
bull market that saw the stock market reach unprecedented heights.
A cynical
critic might therefore conclude that it is essential that the
American consumer has readily available access to loans and other
forms of credit, but surely there are no excuses for the wanton
lending by bankers and the foolish “living beyond one’s
means” that so many Americans engaged in. Many financially
uneducated Americans do not possess a basic level of financial
literacy and do not understand how credit truly works. One
example of this is illustrated by a 2004 study, which asked the
question, “You have $200 in an investment that's earning 10
percent a year. Assuming you let the money grow, how much would you
have at the end of two years?” The correct answer is of
course $242, but only 18% of American adults gave that answers.
34% of American adults believed there would be $240 at the end of two
years, ignoring the basic idea of compounding interest. The
remaining 48% either gave worse answers or didn’t even answer
the question (http://www.newsweek.com/id/130590).
If there were some way to educate these sort of financially
uneducated Americans, many of whom are at high risk for defaulting on
their loans, perhaps the subprime mortgage crisis could would not
have been inevitable and the less sophisticated borrowers would have
made better financial decisions, regardless of the degree to which
the lenders and financial institutions were at fault.
A
large part of the problem is not necessarily that the financial
knowledge of Americans has decreased, but rather that in today’s
complex environment more knowledge is needed than in the past when
most transactions involved cash and fixed-rate mortgages
(http://www.newsweek.com/id/130590).
According to the Treasury Undersecretary Robert Steel, “There
are more financial products available now than ever, but these
products have become more complex and challenging for all of us to
understand,” Steel said. “And as consumers, we need to
know more than our parents or grandparents did, if we are going to
employ these financial products successfully.”
(http://www.housingwire.com/2008/05/28/steel-financial-literacy-might-have-mitigated-crisis/).
Perhaps
one positive result of the subprime mortgage crisis is that it will
open people’s eyes to the problems that result from many
American’s lack of financial literacy, a problem that
unfortunately has not been adequately addressed yet. The federal
government has already taken some steps to address the crucial issue
of financial literacy as a result of the credit crisis; in January
president Bush created the “President's
Advisory Council on Financial Literacy”
(http://www.newsweek.com/id/130590).
State and local governments have also stepped into the ring. Since
October, in the state of New Jersey, the Department of Banking and
Insurance has held ten community-wide forums in cities such as
Paterson and Trenton, with the stated goal of “assist[ing]
people caught in this credit crisis, such as those who bought
unconventional mortgage products and saw payments balloon to
unaffordable levels, and to let people know how to avoid loans with
potentially catastrophic consequences”
(http://www.njslom.org/magart_0408_pg20.html).
In addition, the New Jersey Department of Banking and Insurance, or
DOBI, has published and distributed a brochure called “A
Homeowner’s Guide to Subprime”, which is available
throughout the state of New Jersey in government offices as well as
on the DOBI website (http://www.njslom.org/magart_0408_pg20.html).
While these steps
made by the government are welcome and necessary, perhaps even
greater governmental intervention is necessary. One way
to educate Americans could be by requiring them to attend an
introductory personal finance class, as they would a driver’s
education class, that teaches the most important basic financial
concepts and skills that are relevant to qualifying for a loan. A
little bit similar to the sort of requirements that are needed in
order to drive a car legally. When a significant amount of
people make poor credit decisions, this can be detrimental to the
economy as a whole. A personal financial educational program
would not need to be thorough or advanced, but rather could simply
explain relevant concepts including compound interest rates and
floating interest rates. While there will always be a certain amount
of risk in credit decisions made by lenders, and while the amount of
financial skill and acumen will always be distributed unequally among
individuals in America, there is no excuse for the extreme lack of
financial knowledge that many Americans possess. While certain
lenders might in the past viewed these less-educated consumers as
“easy prey”; susceptible into entering into loan
agreements with high interest rates, when a large amount of them
default on their loans, the results can be disastrous not only for
the American economy but the global economy as a whole. If just
a few easy steps were taken to increase financial literacy among the
least educated Americans they would be able to enjoy relatively free
and easy credit with much less risk for the economy as a whole.
References:
1.
http://loanofficer.blog.com/1550730/
2.
http://gbr.pepperdine.edu/073/housing.html
3.
Lender
Lobbying Blitz Abetted Mortgage Mess (Wall
St. Journal, Dec. 31st)
4.
http://www.ecommercetimes.com/rsstory/59393.html?welcome=1218266664
5.http://www.mortgageloanplace.com/lending-guide/fha-loans/march-madness-subprimes-benched-in-favor-of-fha-loans
6.
http://www.equinox.co.za/article_1826.html
7.
"U.S. FORECLOSURE ACTIVITY INCREASES 75 PERCENT IN
2007", RealtyTrac
8. "FORECLOSURE
ACTIVITY INCREASES 4 PERCENT IN APRIL", realitytrac.com,
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