What three factors led to the mortgage default crisis?

What will be an ideal response?

First, banks became quite lax in their lending standards because they thought that they were not exposed to mortgage default risk. Second, government programs encouraged more renters to purchase houses through subsidies and other incentives even if the renters had limited financial capability to repay the mortgages. Third, housing prices also had increased substantially and this development led to overbuilding and over-buying of houses. In short, too many people were given mortgages and assumed mortgage risks which they could not handle. Once housing prices started to fall, the economy moved toward recession and unemployment rose, and the many homeowners with limited financial means could no longer afford to cover their mortgage payments and defaulted on their mortgages.

Economics

You might also like to view...

Incentives

A) are always used to encourage particular behaviors. B) are always used to discourage particular behaviors. C) can be used to either encourage or discourage particular behaviors. D) are never used to encourage or discourage particular behaviors.

Economics

Among all countries in the world, the United States has the most income inequality

a. True b. False Indicate whether the statement is true or false

Economics