The impact of the subprime lending crisis on consumer mortgage availability since 2008

Normally, it is very essential to develop a borrowers’ history before venturing into the lending process. The borrower’s history largely relies on the transactional values that the bank undergoes in order to complete the requirements fairly. Most borrowers often rely on the. The borrowers capacity to payback can be computed intelligently using modern computer programs that offer the predictability of financial status of bank customers. Subprime lending is often motivated by the fact that most bankers often take the risk of high lending rates. Even though the repayment may not be regular, the borrower will be tied to the completion commitment. Tsunami destroys the dwelling places and countless properties. An entire region under the attack of Tsunami often requires immediate rebuilding and sustenance.

This forms a very reliable way of lending. In Philadelphia, the key concept is that the areas hit by the calamity will require quick rebuilding. doi. org/10. 11430548 Delgadillo and Kelly in their journal successfully established a relationship between subprime lending and the housing costs. The housing costs and the lending rates re directly related to each other. That potentially means that when interests charged on the mortgage is high, consequently the housing costs is also high. SSRN Electronic Journal. http://dx. doi. org/10. 2139/ssrn. , Kahn, M. , & Vaughn, R. Congressional Influence as a Determinant of Subprime Lending. SSRN Electronic Journal. http://dx. One way to control the economic explosion of mortgages was to control the rate of lending from the mortgage companies and the financial institution.

The attempt however did not garner much, since the financial bodies were not willing to lower their rates on the cost of housing. For a subprime legacy, this is where the banks get their return. So literally demanding them to reduce their prices is commonly hampering their targeted goal. The interest rates from any subprime loaning body is usually the return on investment of particular loans. The powers of a CEO in banking industry may well be proven in their stability of running of a financial industry. The financial industry is full of challenges that crop up from day to day. One scenario the authors describe is the subprime lending. When an opportunity window opens, the subprime lending may fetch the bank a very good lending deal as portrayed by the analysts in the financial sector the financial bodies, as controlled by the Chief Executive Officers, considers so many factors before making a valid decision based on the requirements of the firm.

The most firms usually play their parts well when it comes to the concern of going overboard. org/10. 2139/ssrn. 2128313 Louis in in his article explained that the minority lending was a real reason of economic sabotage to the banking sector. In this case, Louis discusses the possible impacts of 2008 economic depression as the sole reason why lending the minority groups the subprime way was a looming financial issue. He further explains that the capacity of Subprime lending is entirely left to control economic emergencies and should not be deployed in the financial sector and betray the normal operations of the banking system. The Journal Of Finance, 68(3), 849-879. http://dx. doi. org/10. 1111/jofi. Although we all know that chances of providing reliable support to the financial body may well be dwindling from unstable financial economies, it is worth noting that subprime lending results are completely unpredictable.

That is why it is a risky venture in the first place. Ohlrogge, M. , & Giesecke, K. Securitization and the Growth of Subprime Mortgage Lending. Normally an asset that is of highest value, and close to what the company rates requires is often taken. In some instance, there is different way of securitizing the value of the subprime mortgages in finding the accumulative returns. Mortgages that are offered under subprime lending are always much more beneficial to client in question, in case the security asset is validly provided for and the payback period is a long term process. Essentially, security is a very important aspect of the local amortization process. The mortgagees require securities, and indeed, a highly valued one to increase the chances of winning the loans.

Most of the time, the company always goes for the opportunities in their clients. Predatory lenders ordinarily target minorities, poor people, the elderly and the less instructed. They additionally go after individuals who require quick money for crises, for example, paying doctor's visit expenses, making a home repair or auto installment. These banks additionally target borrowers with credit issues or individuals who as of late lost their employments. This could exclude them from standard mortgages or credit extensions, despite the fact that they have generous value in their homes. 2139/ssrn. 1316891 When subprime lending kicked in in 2007, the house price volatility became so unpredictable that you would prefer that to go the old way without taking care of the necessary objectives. Pavlov and Watcher later noted that objectively lending institutions plunged the entire housing economy into a very worsening economic condition given that it was a new venture that was encouraged by the housing debate to provide for the economy of the growth.

The economic growth of a country does not involve giving money to the public to appease the investment aspect. Ideally almost all started businesses do fail. http://dx. doi. org/10. 1111/j. x After describing the effects of subprime lending on the housing system, Pavlov and Wachter later explained the position of real estate economics regarding the subprime lending. Basically, security is a vital part of the amortization process. The mortgagees require securities, and in fact, a profoundly esteemed one to build the trust of winning the loans. Ross, L. , & Squires, G. The Personal Costs of Subprime Lending and the Foreclosure Crisis: A Matter of Trust, Insecurity, and Institutional Deception. According to the laws, financial risk and associated setbacks are bound to be disclosed before mortgages are transferred to third parties.

This is often not the case when agents are handling the information preemptively. In essence most people end up regretting have taken subprime mortgages when the associated cost turn up so high that they should have opted dropping it. However it is not reasonable to fail to share very important information regarding the need for the clients to develop reliable relationship with their customers over loaning matters. In most cases when the client fails to pay they lose everything, and no chance to redeem their image again. Actually, such people are describe by Sengupta and Emmons as those whose financial security is not stable and not dependable as well. In such a case, lending such clients’ money may plunge the lending body into a very unpredictable risky situations and conditions.

The situational ideas of the mortgaging process to such clients is still highly debatable. From an economic point of view, the subprime lending is very risky. Normally, the more the risk in a business environment, the more the returns. Housing Policy Debate, 18(4), 829-836. http://dx. doi. org/10. 9521622 According to Weicher, the housing policy debate described the sub rime borrowers as people with low score on the FICO scale – literally below 640. Berndt, A. , Hollifield, B. , & Sandås, P. How Subprime Borrowers and Mortgage Brokers Shared the Pie. Real Estate Economics, 44(1), 87-154. The gains that most lending institutions made could have well be neutralized by the overhead costs of deploying the subprime mortgage loans to the prospective clients. A broker earned commissions on both sides.

From the client as well as from the financial institution. Most likely, there was no need to completely understand the real life conditions here, especially client details. Taking a look at the financial data networks it was very useful to do an analysis on compliance. http://dx. doi. org/10. 2139/ssrn. 1577875 Calem and Liles explore the 'Cream-Skimming' in Subprime Mortgage Securitizations in the subprime lending business. The costs involved in processing and finishing the subprime deal is very expensive. Lots of parties are involved. Sadly, payments are very irregular. Most of the time the customers never pay what is actually presented to them in time. This makes processing the loan returns very difficult and even more costly. http://dx. doi. org/10. 2139/ssrn.

1898345 In analyzing the contractual analysis of the mortgages obtained through the subprime loaning facilities, it is clear that the market was flooded by false picture of investment increment. In valuing the investment payback timeline, the financial artificial support body will most likely require the finance history of the stated client. The obligation has to be met, whatever the cause or case. In other words it is possible reliable to include the effects of the financial data before making a choice to dive into the subprime loaning system. Most importantly, the use of any financial system forbids loaning to people whose financial credibility is questionable. Hammond, C. In any case brokers are not actuators of the repayment process. They mainly engage in transferring the ownership of the property to the respective clients and thereafter call is a break.

Considering the viability of the loaning system it is majorly required to confirm that all information is passed on to the clients before the deal I completed. As much as brokers care about their share, which ethically okay for any business environment, there comes a time when their response to matters that affect the entire process questionable. Fraudulent brokers will most likely aim their profits maximization rather than what a company expects. This is unlawful and calls for proper law verification and the provided GAAP guidelines. Purnanandam, A. Originate-to-Distribute Model and the Subprime Mortgage Crisis. SSRN Electronic Journal. http://dx. The model described above was majorly under the impression of using brokers as the central distribution channel in the system. Apparently most brokers were also fraudsters and did not disclose the relevant information that the company was looking for.

In most cases the clients whom the mortgage was loaned to ended up disappearing and hence calling for more and more financial back up to the banks. Of course apart from the model failing, it was at the distribution point that the model lost the logistics to proceed. The brokers could not trace the clients, and if they did, they were either unable to complete the repayment or had largely lost contact with their clients. 759181 Berndt, A. , Hollifield, B. , & Sandås, P. How Subprime Borrowers and Mortgage Brokers Shared the Pie. Real Estate Economics, 44(1), 87-154. org/10. 2139/ssrn. 1577875 Delgadillo, L. , & Kelley, C. Establishing a Link Among Subprime Lending, Payday Lending, and Housing Costs. org/10. 2139/ssrn. 1898345 Hammond, C. Subprime: Real Estate Frauds, Mortgage Frauds and Legal Certainty.

SSRN Electronic Journal. 2139/ssrn. 1982109 Schwarcz, S. Protecting Financial Markets: Lessons from the Subprime Mortgage Meltdown. SSRN Electronic Journal. http://dx. 2023826 Gabriel, S. , Kahn, M. , & Vaughn, R. Congressional Influence as a Determinant of Subprime Lending. SSRN Electronic Journal. org/10. 1111/j. x Louis, H. Minority Lending and the Subprime Foreclosure Crisis. SSRN Electronic Journal. doi. org/10. 2139/ssrn. 2128313 MAKAROV, I. , & PLANTIN, G. http://dx. doi. org/10. 2139/ssrn. 2781060 Palia, D. SSRN Electronic Journal. http://dx. doi. org/10. 2139/ssrn. The Personal Costs of Subprime Lending and the Foreclosure Crisis: A Matter of Trust, Insecurity, and Institutional Deception*. Social Science Quarterly, 92(1), 140-163. http://dx. doi. org/10. Outlook: The subprime lending crisis: Focus on the problem: Subprime borrowers in trouble. Housing Policy Debate, 18(4), 829-836. http://dx. doi. org/10.