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 a greater need for mortgages to be issued out as they were considered safe investments.
The homeowners 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 homeowners 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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