September, 2009 Housing Crisis

Dru McInerney

2/27/2014

Collapse of the Housing Market

In September of 2009 14.4% of all United States mortgages were delinquent or in foreclosure. The current percent has dropped lower then 12% and has improved since 2009. Several contributing factors have lead to decrease in delinquencies and foreclosures. The United States treasury has implemented Troubled Asset Relief Programs (TARP). Additionally there has been a decrease in the need for Subprime Mortgages and Credit Default Swaps.

            Subprime Mortgages contributed to the housing crash of 2009. Subprime mortgages are loans and mortgages that are given to people with bad credit. The interest rate on Subprime Mortgages is higher then normal rates because of the risk. These rates are given to people who would not normally qualify for a mortgage. Many foreclosures took place in September 2009 because Subprime Mortgages were given to people who were proven that they couldn’t keep good credit, and ultimately were unable to pay high interest rates that come with the Subprime Mortgage. Many of these Subprime Mortgages were also Adjustable Rate Mortgages. Since they were adjustable the interest rates sky rocketed and made it hard for many Americans to pay there interest and keep their head above water. These Mortgages were run mostly by investment banks, which were able to use a Shadow Banking System that allowed them to mask the risk taking from investors.

The United States Treasury started several programs through TARP to help decrease the chances of foreclosure in the housing market. Initially, congress budgeted for $700 billion for TARP. However, due to the consumer protection act this amount was reduced to $475 billion dollars. This money was allocated to several different places. Percentages when to help the auto industry recover and even help stabilize certain banks. $46 billion of TARP did go to struggling families that had to prevent the homes from foreclosure. Currently, these TARP investments are becoming to be close to complete. The treasury has said they will continue to make TARP initiatives to help prevent home foreclosures.  There are currently two TARP programs that are implemented to help alleviate foreclosure on families. The Hardest Hit Fund and Making Home Affordable have both been used to help lower foreclosure rates since September 2009.