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From the early 2000’s up and until about 2007 the United States housing market was at its peak and house prices were higher than they’ve ever been before. Then in 2008 the nation hit a recession, the economy was at its worst that’s it’s been in ages. Almost everything factored into this recession and took a fall because of it. The housing market was one of the key things that was impacted and still up to this day it hasn’t been the same. For a generalization on how the mortgage crisis was caused its actually pretty simple- the price values on properties were higher before, so therefore the mortgages were higher. Now the value of the properties decreased thus leaving some mortgages higher than the actually value of the property. For instance let’s say in 2006 you purchased a home for $800,000 with $700,000 of the cost being paid via mortgage. Now in 2013 the value of the house is only at $500,000. Within that timespan only $50,000 was paid towards the mortgage. What this means is that your mortgage to be paid is at $650,000 and the value of the property is at $500,000. Your mortgage is now higher than the value of your home, not leaving enough equity for the banks to fund it which leads to your property being foreclosed.
Several factors were factored in to the up rise of the mortgage crisis. Besides the state of the economy and the nation being in a recession, one of the main reasons was being that prior to 2007 the housing market was in a boom. Houses were selling for much higher than they originally were and value of homes was at its highest in history. At this time banks made it easier for one to access money with low mortgage interest rates. People were able to borrow a lot of money, while paying lower monthly payments on a smaller interest rate. Everyone who could of afforded it was buying homes and thus there houses were used as collaterals for the mortgages. When the house prices stop going up and started to make a fall downwards, homeowners realized they wouldn’t be able to afford their house. Now they were left with only a few choices – wait for the bank to foreclose the home, renegotiate their mortgages, or simply increase their income. Out of these foreclosures became the most popular and it was happening to a lot of people. The only problem was that the banks weren’t getting back the amount of money they originally lent out because the home values fell dramatically. The banks were taking large losses which led us to this mortgage crisis. With banks realizing they are losing out on money they became very hesitant to loan because they didn’t know if they would ever get their money back.
The major aspect of all this comes from the fact that when one took out a mortgage from a bank, it didn’t stay there. Banks would sell the mortgages to investors for securities and bonds in order to get their money back. But because of drastic drops in values it isn’t fair for the investors who would lose a ton of money because of something they had no knowledge of. Current federal cases are underway that could have banks paying as much as $250 billion back to investors to compensate them for buying the mortgages.

1. CNN

2. Fox Business

3. CNBC

4. Bloomberg

5. Wall Street Journal