Term Paper - Foreclosures in the United States Especially California How it All Started and How it is Affecting Us Economics 425 Money and Banking

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Foreclosures in the United States: Especially California How it All Started and How it is Affecting Us Economics 425: Money and Banking Kerry Bordelon Professor Kooros Maskooki
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Outline I. Synopsis II. Foreclosures in the U.S., specifically California A. Terms B. How did it all begin? 1. Sub-prime mortgages C. Why are prices so high in California? 1. California’s foreclosure rate 2. Worse than in earlier recessions D. Legal implications of foreclosures on renters/leasers E. Reasons for foreclosures shifting F. With rising foreclosures comes rising fraud G. Investor’s chance with foreclosures H. What’s next? III. Summary IV. Conclusion
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Synopsis In this paper, I will try to explain the reasons for the housing crash and how it is affecting people in the United States. I will try to get the reader to better understand how the housing market crashed and what exactly is happening. I hope that this will lead to a better understanding of what not to do when it comes to dealing with something as big as buying a house. I also hope that people will grasp that in order for the housing market, and in turn the economy, to turn around and become stable again, the unemployment rate must also go down dramatically. V.
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Foreclosures in the U.S., California Terms To understand the housing crisis, there are a few terms to understand first: Housing bubble - the increase in valuation of houses until they reach an unsustainable level relative to incomes and other economic elements, usually followed by a reduction in price levels. Sub-prime mortgages - mortgages given to borrowers with bad or no credit and no money to put down, often only with stated income. Stated income - the income that a borrower claims to have, but does not have to prove it with the proper documents. Mortgage-Backed Securities (MBS) - mortgages packaged together into investments in order to sell them to brokers on Wall Street. Collateralized Debt Option (CDO) – different pieces of Mortgage-Backed Securities grouped together in order to sell to investors. How Did It All Begin? It is difficult to pinpoint an exact time when the housing crisis started. It could be when mortgage lenders starting giving out sub-prime loans on stated income only. It could be when Wall Street started to buy these sub-prime loans from the lenders. It could be when Wall Street then turned around to sell these mortgages as CDOs to unsuspecting
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and unknowing investors in other countries. More than likely, it is the very combination of all these things together that made the housing market, along with the economy, fall. Just after 9/11/2001 Alan Greenspan, Chairman of the Federal Reserve from 1987- 2006, stated that the terrorist attacks of 9/11 were the “type of shock to an economy that will unravel it”. His words may not have been true for several years, but his intuitions would ultimately be proven correct. Greenspan would then set interest rates to the lowest that they had been since 1971.
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This note was uploaded on 10/31/2010 for the course ECON 2310 taught by Professor Williams during the Spring '10 term at Western New Mexico.

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Term Paper - Foreclosures in the United States Especially California How it All Started and How it is Affecting Us Economics 425 Money and Banking

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