In not afford to make monthly payments led delinquent

In conclusion, the interest rate
could be bring effect to housing bubbles crisis because the when real interest
rate constant less than zero during the period had led to developing the
housing bubble. During the low-interest rate period, buyers able to borrow
money from mortgage loans to purchase a house easily and they belief that the
asset price wouldn’t decrease instead keep increasing. From 2000 to 2003, the
Federal Reserve lowered the federal fund’s rate from 6.5% to 1.0% developed an
easy credit conditions and lower interest rates encouraged borrowing. Many
house owners refinancing their house at lower interest rates by taking out
second mortgages secured by price appreciation. But there is still exist of
other factors that developed housing bubble crisis. For instance: U.S. credit
rating agencies, collateral debt obligation (CDO), weak and fraudulent
underwriting practices.  The collateral
debt obligation (CDO) enabled the financial institution to get funds from
investors to finance subprime and increase the housing bubble. These collateral
debt obligation and mortgage-backed security were ratings by the credit rating
agencies. The credit rating agencies had given their highest ratings to three dollars
of loans to house buyers with bad credit and undocumented incomes. On August
2008, 9.2% of U.S. mortgages were outstanding because the people do not afford
to make monthly payments led delinquent rate get higher or foreclosure
happened. Another factor is the lending standards dropped, many lenders
required FICO score dropped from 660 to 620 for getting more easily to make
subprime loans lending to more risky business. The widest acceptance of
subprime mortgage product is (NINJA) mortgage which who was no income, no job,
no asset verification required. From these instance, we can understand that the
interest rate not the main reason for developed the housing bubble but it bring
some effect to the housing market.

 

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