Question

examine factors that contributed to the growth of mortgaged-backed securities in the run-up to the U.S. housing bubble.
Review the U.S. housing market and other key financial markets or institutions.

Review the U.S. housing market and at least two other key financial markets or institutions or the Internet to conduct your research. Review the factors that contributed to the growth of mortgaged-backed securities in the run-up to the U.S. housing bubble during 2008.

Answer 1

Mortgage backed security is a way the small regional banks lend out the money without bothering for whether the borrower has the assets to cover the loan amount.Before 2008,there were large number of cases of mortgage based secuties which led to recession in the year 2008. The factors that contributed to the growth of mortgage based securities are :

• Mutual Trust between the lender and the borrower : In US based the loan is being offered based on mutual trust and thus the banks lend money without bothering for whether the borrower has assets to cover the same.
• laziness of the lender : Due to laziness of the lender, they do not go for checking the assets of the borrower to cover the loan.
• Increase the loan amount credited : In order to increase the business of the loan amount credited, banks go for mortgage based securities as in the absence of securities, more number of people would be interested in taking loans and the business of the banks rises.