Unfairness
This is a short review of literature that discusses the subprime mortgage crisis which many believe had a significant impact on the financial crisis that began in 2008. The discussion will range from how the crisis started and what the banks knew might happen because of faulty legislation and greedy lenders prior to the crash, to how the crash has impacted families and how some entities have tried to mitigate it with little success.
The financial crisis that began in earnest in 2008 followed many decisions which, in retrospect, were not wise. Legislation can be traced back to the 1960s that began allowing lending companies (banks) and hedge funds to buy large numbers of mortgages and leverage them as if they were real assets (Block-Lieb & Janger, 2011). Other laws followed such as the Community Reinvestment Act first passed in 1977 and amended with much stronger language in 1995 pushed lenders to make loans to people who could not easily afford them (Canner & Passmore, 1995). The result of these laws was that lenders were tasked with promoting low initial cost loans (ARMs) that were often defaulted on by borrowers after the initial low payment period ended (Ruzich & Grant, 2009). Another cause of the financial collapse of 2008/2009 was the fact that speculators bought up large amounts of loans which sent prices skyrocketing. Unfortunately the crisis has affected people unequally, and has helped to foster financial problems worldwide which were further exacerbated by poor socialist practices in other countries. A great deal of research has been conducted since the initial phases of the crisis, but looking at literature from before during and after the crisis is the most accurate method for determining what actually happened and why.
The Community Reinvestment Act (CRA)
Legislators often act in what they believe is the best interests of their constituents and people across the country; presumably, that is what happened when the CRA was
Signed into law by Jimmy Carter in 1977. The law was amended several times over the years, but in 1995 it evolved into a mandate for lenders (Canner & Passmore, 1995). At the time, analysts believed that this amendment was positive, and it is difficult to find research literature that refutes that view. Proponents of the law believed that "lenders overlook[ed] safe and...
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