People often say that as a result of the crash millions of people lost their homes before they could pay their mortgage off. However, it also seems that the housing crash was directly a result of millions of people defaulting on their mortgage payments. Are both true? Is it just a roundabout way of saying that irresponsible bankers offered mortgages to clients when they should have known they would default? Does this claim have anything to do with changing interest rates, unemployment or the depreciation of housing prices?
In: Economics
The housing crash was basically
1. Banks gave loans to anyone who wanted them
2. Banks allowed ridiculous loans. Like negative interest loans. With this people owed more per month rather than paying the loan down
3. Housing prices were skyrocketing so everyone wanted to buy a house. Buying a house and holding it for 6 months was seeing huge returns. This made negative interest loans not so bad.
So you have that in place. Now suddenly the housing market dips.
1. Banks start for closing on loans because they aren’t being paid. They then sell the home asap. Banks usually sell for less than the loan amount
2. More homes means the price drops.
3. Banks foreclose on more homes because people didn’t pay their loan. Banks sell for way under the loan amount.
4. The price of homes tanks
5. People who could afford their loans are now owing $250,000 on a house worth $100,000 and choose to default on the loan instead.
6. banks foreclose on those homes and lose a shitload of money.
7. Banks stop loaning out money because they don’t have money.
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