The real estate markets in Arizona represented their value using the property worth of mortgage. Consequently, the lenders had successfully invested in many buying homes. As a result, a lot of property ended up as foreclosures. With the increase in foreclosure, the securities were not worthy. The arrangement to offer many people homes instead become unsuccessful and led to more challenges. Crook (23) mentions that mortgages enable people to own home. The challenge comes in when the interest rates are adjusted according to fluctuation. Most people are not aware how the mortgage works.
This makes them fall into traps and purchase homes that are beyond their income. When Arizona’ s real estate market became unfavorable, the financial institutions became hesitant to give loans. Investors took time before engaging in any meaningful business for fear of suffering losses. Many lenders began repossessing the homes when the owners could not pay the mortgage. The lenders went for foreclosures. This meant that the value of homes was increasingly falling, and the fall was not favorable to the economy. The financial institutions did not the value they had previously invested in real estate market.
The American government rescued some of the financial institutions by bailing them. The objective was to reinstate liquidation of the market. When the financial institutions were restored investors could confidently invest, considering that the cost of purchasing property had drastically decreased. Another major factor that led to the real estate market crash is that the financial institution's practice was unrealistic. The mortgage given to investors was several times higher than the annual income of the buyers. It was higher than considerable value of around three times higher than the annual income of the buyer.
This practice was unsafe and misled many people to think that they could own homes safely. Moreover, the financial institutions used terminologies that ordinary people could not comprehend. They also gave conditions that were complementing and failed to scrutinize the factors that could affect the mortgage.
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