ECON 2D03 Lecture Notes - Lecture 5: Affordable Housing, Lease, Subprime Mortgage Crisis
8 Dec 2017
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Foreclosure: homeowner unable to meet their monthly mortgage loan repayments and lender takes ownership of home. Credit readily available: low interest rates, avoid normal screening assuring credit-worthiness. Subprime mortgages: mortgage loan made to a borrower with less than prime borrowing characteristics. Adjustable rate mortgages: interest rates do not stay constant, fluctuate with market rates. Housing bubble burst interest rates went up and arm became unaffordable. Borrowers defaulted on payments and lenders foreclosed on homeowners = housing prices pushed lower. Affected the rest of the economy via mbs. Falling housing prices = falling value of mbss. People less able to pay mortgages or buy new homes. Federal gov placed banks in conservatorship nationalizing them. Federal tax policy: deduction of mortgage interest payments from incomes before personal income taxes are calculated, benefits middle/higher income households. Gentrification: conversion of low-cost apartments into middle/upper middle class housing. Reduced supply and increased demand results in higher-priced ad less affordable housing for low income families.
