grading rubric for five paragraph essay

Mar 21, There is often overlap between the discussion and conclusion, and in some to avoid when writing the discussion section of your dissertation.

Why did a similar disaster occur again in ? Today's news sources are filled with misinformation about what is happening and why in America's financial world—perpetrating myths and putting people's hard-earned funds at risk. With the September housing bubble bursting, stock markets swooning, and wealth and job-evaporating economic convulsion, many people were asking just that.

The credit crunch? What does it all mean and how can ordinary people, not conversant in the language of finance, banking, and economics, make sense of it? Credit cards. Child care and school costs. For any number of families, managing a household budget is frustrating, agonizing, and often depressing. But for single-parent families, often faced with limited resources and limited options—getting a grip on household finances can be an overwhelming task.

They think retirement will be a time of calm and peace. Yet for many, it becomes a time of inactivity, sadness, and role confusion. The impact of collapsing housing as well as the credit markets over the US economy led the officials to decide upon a specified limit of bailout in the US housing market who are unable to pay their mortgage debts. Some of the factors or characteristics attached along the housing price fluctuations have been discussed in this section of the essay.

Real Estate Bubble - Explained

Firstly, market efficiency along with housing supply leads to high levels of fluctuations in the mortgage market. It has been seen that, efficiency in the US housing markets can be seen with respect to the changes in the price levels of the same. Based upon the report it has been analyzed that, change in the housing demand will affect the rental house market, housing demand alone will not affect the housing prices as the prices of the houses change with the demand changes. The two measures which have been discussed above in this essay support the notion of the home price bubble as well as suggested that the prices of the buildings are likely to decline in the near future.

The Housing Bubble During the Great Recession Essay | Bartleby

But there are two flaws attached to it. They have been highlighted in this section of the essay. Com, Secondly, the home price index will help in order to calculate the ratios which will have an impact over the conclusions derived from the same. Taking into account the influence of decline in the interest rates of the mortgage as led to an entirely different assessment of the same.

The gap was especially large— basis point or more—from mid to mid The demand bubble thus created went heavily into real estate. From mid to mid, while the dollar volume of final sales of goods and services was growing at 5 percent to 7 percent, real estate loans at commercial banks were growing at 10—17 percent. Because real estate is an especially long-lived asset, its market value is especially boosted by low interest rates. The housing sector thus exhibited more than its share of the price inflation as predicted by the Taylor Rule. The Fed's policy of lowering short-term interest rates not only fueled growth in the dollar volume of mortgage lending, but had unintended consequences for the type of mortgages written.

By pushing very-short-term interest rates down so dramatically between and , the Fed lowered short-term rates relative to year rates. Adjustable-rate mortgages ARMs , typically based on a one-year interest rate, became increasingly cheap relative to year fixed-rate mortgages.

This Real Estate Bubble – Likely Isn’t a Bubble

Back in , non-teaser ARM rates on average were 1. By , as a result of the ultralow federal funds rate, the gap had grown to 1. Not surprisingly, increasing numbers of new mortgage borrowers were drawn away from mortgages with year rates into ARMs. The share of new mortgages with adjustable rates, only one-fifth in , had more than doubled by An adjustable-rate mortgage shifts the risk of refinancing at higher rates from the lender to the borrower.

Many borrowers who took out ARMs implicitly and imprudently counted on the Fed to keep short-term rates low indefinitely. They have faced problems as their monthly payments have adjusted upward. The shift toward ARMs thus compounded the mortgage-quality problems arising from regulatory mandates and subsidies. The International Monetary Fund corroborated the view that the Fed's easy-credit policy fueled the housing bubble.

After estimating the sensitivity of U. The excess investment in new housing resulted in an overbuilding of housing stock.

Assuming that the federal government does not follow proposals tongue-in-cheek or otherwise that it should buy up and then raze excess houses and condos, or proposals to admit a large number of new immigrants, house prices and activity in the U. The process of adjustment, already well under way but not yet completed, requires house prices to fall and workers and capital to be released from the construction industry to find more appropriate employment elsewhere.

Correspondingly, an adjustment requires the book value of existing financial assets based on housing to be written down and workers and capital to be released from writing and trading mortgages to find more appropriate employment elsewhere. No matter how painful the adjustment process, delaying it only delays the economy's recovery.

In , the share of existing mortgages classified as nonprime subprime or the intermediate category "Alt-A" was below 10 percent. That share began rising rapidly. The nonprime share of all new mortgage originations rose close to 34 percent by , bringing the nonprime share of existing mortgages to 23 percent. Meanwhile the quality of loans within the nonprime category declined, because a smaller share of nonprime borrowers made 20 percent down payments on their purchases.

The expansion in risky mortgages to underqualified borrowers was an imprudence fostered by the federal government. As elaborated in the paragraphs to follow, there were several ways that Congress and the executive branch encouraged the expansion. The first way was loosening down-payment standards on mortgages guaranteed by the Federal Housing Administration.

The second was strengthening the Community Reinvestment Act. The third was pressure on lenders by the Department of Housing and Urban Development. The fourth and most important way was subsidizing, through implicit taxpayer guarantees, the dramatic expansion of the government-sponsored mortgage buyers Fannie Mae and Freddie Mac; pointedly refusing to moderate the moral hazard problem of implicit guarantees or otherwise rein in the hyperexpansion of Fannie and Freddie; and increasingly pushing Fannie and Freddie to promote affordable housing through expanded purchases of nonprime loans to low-income applicants.

The Federal Housing Administration was founded in to insure mortgage loans made by private firms to qualifying borrowers. For a borrower to qualify, the FHA originally required—among other things—that the borrower provide a non-borrowed 20 percent down payment on the house being purchased. Private mortgage lenders like savings banks considered that to be a low down payment at the time. But private down payment requirements began falling toward the FHA level. The FHA reduced its requirements below 20 percent. Private mortgage insurance arose for non-FHA borrowers with down payments below 20 percent.

Apparently concerned for bureaucratic reasons with preventing its "market share" from shrinking too far, the FHA began lowering its standards to stay below those of private lenders.

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By the required down payment on the FHA's most popular program had fallen to only 3 percent, and proposals were afoot in Congress to lower it to zero. The Community Reinvestment Act, first enacted in , was relatively innocuous for its first 12 years or so, merely imposing reporting requirements on commercial banks regarding the extent to which they lent funds back into the neighborhoods where they gathered deposits.

Further amendments in gave the CRA serious teeth: regulators could now deny a bank with a low CRA rating approval to merge with another bank—at a time when the arrival of interstate banking made such approvals especially valuable—or even to open new branches.

Real Estate Bubble and Financial Crisis

Complaints from community organizations would now count against a bank's CRA rating. Groups like ACORN the Association of Community Organizations for Reform Now began actively pressuring banks to make loans under the threat that otherwise they would register complaints in order to deny the bank valuable approvals.

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In response to the new CRA rules, some banks joined into partnerships with community groups to distribute millions in mortgage money to low-income borrowers previously considered noncreditworthy. Other banks took advantage of the newly authorized option to boost their CRA rating by purchasing special "CRA mortgage-backed securities," that is, packages of disproportionately nonprime loans certified as meeting CRA criteria and securitized by Freddie Mac. No doubt a small share of the total current crop of bad mortgages has come from CRA loans. But for the share of the increase in defaults that has come from the CRA-qualifying borrowers who would otherwise have been turned down for lack of creditworthiness rather than from, say, would-be condo-flippers on the outskirts of Las Vegas—the CRA bears responsibility.

Defaults and foreclosures are, of course, a drag on real estate values in poor neighborhoods just as in other neighborhoods.

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Federal Reserve chairman Ben Bernanke aptly commented in a speech that "recent problems in mortgage markets illustrate that an underlying assumption of the CRA—that more lending equals better outcomes for local communities, may not always hold. We can only hope that Ben Bernanke will keep his own generalized warning in mind henceforth. Meanwhile, beginning in , officials in the Department of Housing and Urban Development began bringing legal actions against mortgage bankers that declined a higher percentage of minority applicants than white applicants.

To avoid legal trouble, lenders began relaxing their down-payment and income qualifications. A law, as described by Bernanke, "required the government-sponsored enterprises, Fannie Mae and Freddie Mac, to devote a large percentage of their activities to meeting affordable housing goals. Beginning in , Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low- and moderate-income borrowers. For , the Department of Housing and Urban Development HUD gave Fannie and Freddie an explicit target—42 percent of their mortgage financing had to go to borrowers with income below the median in their area.

The target increased to 50 percent in and 52 percent in The hyperexpansion of Fannie Mae and Freddie Mac was made possible by their implicit backing from the U.