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Essay / Research Paper Abstract
A 4 page paper discussing 2 articles from late 2007, each of which addresses developments in the mortgage market following the fall of the subprime portion of it. The paper provides a chart of how negative externalities lead to market failure, and a discussion of how increased government involvement may be able to lessen the negative effects of the market failure Bibliography lists 4 sources.
Page Count:
4 pages (~225 words per page)
File: CC6_KSeconMktFailH.rtf
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Unformatted sample text from the term paper:
2007) and Ruth Simon (October 23, 2007) both address within the Wall Street Journal the market failure of the housing market. Resulting largely from negative externalities, the recent advent
of the "credit crunch" in the subprime mortgage market (Simon, 2007) currently is affecting the ability of those with sufficient income and good credit from gaining housing mortgages (Reddy, 2007).
Lenders to Home Buyers Tighten Further Reddy (2007) reports on a survey of senior loan officers at banks, a survey conducted in the
last half of October 2007 by the Federal Reserve. The general consensus is that "More banks are tightening lending standards for home buyers - even those with good credit
- and raising borrowing costs for larger businesses" (Reddy, 2007). It was reasonable that mortgages for 125 percent of market value extended to those whose ability to pay was
only marginal would carry a higher foreclosure rate than traditional mortgages. That expectation came to fruition, not so much in response to market conditions but rather in response to
a question of valuation of the mortgages that subprime lenders held. Lenders Curb New Mortgages in Weaker Areas Simon (2007) discusses the effect
that the current mortgage industry problems may have in extension, specifically in terms of housing prices. Market correction of prices is highly beneficial for those seeking new homes of
course, but the same action can leave new purchasers in an "upside down" situation in which their mortgage is for more than the total current market value of the house
in which they live. Simon (2007) explains that in addition to tightening standards overall, other lenders also are applying still stricter standards to
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