Essay: Role of credit crisis in US

26 Mar

Essay: Role of credit crisis in US

Sample Essay

This is where their role in the current credit crisis comes in. As increased lending by investment banks on account of the low interest rates spurred the demand for buying out mortgages by investors and other financial institutions, there was greater need for mortgages to be issued out as they were considered safe investments.

The home owners who could afford to pay back their mortgages were a good source of funds allowing a greater rate of return to investors compared to the 1% they got on treasury bills. In the case of those home owners who could not make their payments, the mortgage owning institutions could easily take over the house and sell it. Since real estate prices were continuously on the rise, this appeared a considerably safe investment with a good rate of return. Hence the need for issuing out more mortgages to households arose as they were considered less risky.

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