Investors purchasing PMBS profited at first because rising house prices protected them from losses.
When high-risk mortgage borrowers could not make loan payments, they either sold their homes at a gain and paid off their mortgages, or borrowed more against higher market prices.
Because the default rate is much higher, banks would charge a lot more for people in this high risk group.
That will mean people who could not qualify for a home loan ended up paying more for their mortgage.
Should we blame the government for their inactions for not protecting victims of predatory lending?
Some will suggest that borrowers, banking institutions, mortgage lenders, brokers and investors, government,(Baker, 2008) But government should force banks to work extremely hard with borrowers who are diligently trying to save their home.
Some believe that a dramatic increase in mortgage delinquencies and foreclosures will caused a significant adverse effect on banking institutions and financial markets.
Thus far, the housing market has crumbled due to this mortgage crisis, resulting in elevated record number of foreclosures. Gray points out, that the goal is to take corrective action to prevent a continuous meltdown.
Also, it will be dispensable to look at what has really prompted the housing collapse.
The subprime mortgage crisis The argument over who is at fault for the housing market collapse has been a heated issue amongst government, politicians, banking institutions, and mortgage lenders.