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Role of Mortgage Market in 2008 Financial Crisis
For quite a long time, conservatives have been debating that certain aspects of the federal
housing policy accelerated the financial crisis of 2008. As such, the majority of this lot have been
pushing for legislation to eliminate or restrict government programs that facilitates the
mortgaging process. A decade following the financial crisis, there is widespread agreement that
the boom in mortgage lending and its subsequent reversal were at the core of the Great Recession
(Adelino et al. p.3) . As such, an analysis of the existing evidence indicates that the inflated house
price expectations across the economy played a key role in driving both demand for and supply
of mortgage credit before the crisis. In this respect, the great misnomer of the financial crisis is
that it was not a subprime crisis but rather a middle-class crisis. Inflated house-price expectations
led households across all income groups, especially the middle class, to increase their demand
for housing and mortgage leverage. Similarly, banks lent against increasing collateral values and
underestimated the risk of defaults. The magnitude of the 2008 crisis was comparable to a
monumental shift in world economies and left nations puzzled due to the chain reaction that
appeared impossible to control. This paper investigates the role played by mortgage market in
accelerating the financial crisis of 2008.
Housing Unaffordability, Debt and Finance

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The social and economic repercussions of increased housing unaffordability are
variegated and far reaching. In many cases, there is a positive correlation between housing
affordability and the increase in mortgage credit accessibility (Loomans and Kaika) . For
instance, this correlation had been documented in both Canada and the Netherlands. This shows
that the development of debt on the balance sheets of the financial organizations and households
has directly been accelerated by mortgage markets. In this regard, mortgage loans act as an
element of financialization, where profit in progressively being made without actual production
(Loomans and Kaika P. 4) . This implied that mortgage markets shifted from being an auxiliary to
the home ownership plan, towards becoming a market of mortgage products in its own right. At
the height of financialization that took place before the financial crisis, mortgage markets
contributed to the switching of capital from the primary circuit (production and manufacturing)
towards the secondary circuit (the built environment and consumption).
The Impact of Predatory Private Mortgage Lending and Unregulated Markets
It is argued that mortgages insured by the Federal Housing Administration (FHA) played
no role in the acceleration of the crisis. Since its establishment in 1934, the FHA has been at the
forefront of ensuring that qualified borrowers seeking homes or refinance acquire reduced down
payments and better terms. As such, in the lender is protected in case of default if the mortgage
lender is FHA-authorized. However, the mortgage market changed substantially during the onset
of the 2000s. This led to the emergence of subprime mortgage credit, a considerable amount of
which found its way into exorbitantly perilous and predatory properties.