The Subprime Mortgage Crisis – A Commentary
Mortgaging was not always as accessible as it is today. Even just two decades ago, the majority of average class citizens would not be able to afford one. The subprime mortgage crisis was both an initial jump forward for those people, but also a major setback in the property industry. Occurring between the years 2007 and 2010, the subprime mortgage crisis brought many to bankruptcy. What caused this crisis, you ask? Well, sit back, and let me explain!
Difficulties of Applying for a Prime Mortgage
Before the subprime mortgage crisis, applying for a mortgage was only going to help a few select people. There were not as many loaning agencies as there are today, causing the ones that were there to only accept those who had high end down payments. If you were a citizen with a below average credit history, then you had little or no chance at getting a mortgage. This problem forced many people to simply rent instead of buy a house. The rate of house ownership was reduced to approximately 65%, leaving millions without a home of their own!
High Risk Mortgages
By the 21st century, high risk mortgages became quite popular. A high risk mortgage allowed people with a below average credit rate or poor wage to take a larger mortgage with a small down payment. This ability drastically increases the demand for housing, which in turn increased the rate at which new houses were built. Instead of millions of people renting for their whole lives, many of them started taking high risk mortgages whereby they could pay a minimal down payment, sometimes even just 2%, and pay off the remainder of a period of 40-50 years. This was what they expected to happen, at least. Unfortunately, the economy didn’t see eye to eye with the desires of these people. This was the point in time where the crisis truly revealed itself.
Subprime Mortgage Crisis Revealed!
The increase in demand for housing initially lead to property value increases, which made the lenders very happy as this meant that the borrowers were able to sell their properties at a profit and pay off their mortgage all at once! For a while this system worked, until it didn’t. Eventually the housing market hit its peak, whereby housing had become appallingly expensive. However, so many new houses had been built with all the mortgages being thrown around, that all of a sudden there was a major dip in housing value. For areas where housing was limited, this wasn’t much of an issue; however, for the average neighbourhood, the houses that were still being mortgaged suddenly lost all their value. This decrease in value meat that not the cost of mortgage for these people became higher than the value of the house itself! Lenders suddenly lost all their money and attempted to force borrowers to pay them back immediately; but of course most were unable. During the 4 year period of crisis, many of the high risk lending companies declared bankruptcy and closed down. Governments did their best to alleviate the crisis, but some people are still recovering from this trauma even today. We are fortunate to have a more stable mortgaging system here in 2017 and it is the hope of us all that the mistakes of the past will not be repeated!