Community Reinvestment Act

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expertise”. By going to Wall Street and engaging with Morgan Stanley, they would prevent financial failure if future events occurred. Fannie and Freddie mac and the big banks invested in subprime mortgage back securities that were created by Wall Street Firms.

The need for banks to lend more and create more mortgages resulted in the creation of a housing bubble. This was a run- up in the housing market demand because of low interest rates and loosened credit underwriting standards. The contributing factors to the housing bubble were Deregulation, mandated loans and the belief that owning a home is a fundamental right. The CRA was created and amended to deregulate the underwriting guidelines so that low income and low credit borrowers could afford homes they normally would not be approved of. The mandating of loans was in response to Clinton’s amendment in 2005 that put more pressure on banks to lend more and ultimately turn the cheek on seeking quality mortgages. Lastly, people believed that it was a right to own a home. However, people didn’t believe that you also had to be able to afford the homes you were living. The factors all led to a downward spiral and the demise to our housing bubble burst.

After 2006, there were signs that subprime loans were heading towards default. In the summer of 2007, the credit markets froze and subprime credit loans came to a halt. Thus, the subprime credit loans interest rates for credit and corporate loans skyrocketed up dramatically. Since the GSE’s were no longer buying the risky subprime loans caused some lenders to file bankruptcy. The ending result to the worldwide credit crunch led to a housing market crash.

After doing my research I have gained an enormous amount of understanding of the causes of the financial meltdown. There was entirely too much deregulation in the lending standards and pressure on the banks to lend out as much as they could to avoid negative backlash. There was little scrutiny over subprime loans which were in no surprise resulted into default. Our government did not manage the risk that was foreseen to happen. Ultimately, I feel that we have learned from this deregulation mistake. However, we have learned that because the big banks are too big to fail that the chances of a financial catastrophe will probably happen again. However, next time we may not have the funds to bail out the big banks again which could put the country in default.