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It is pointed out that, “in its preamble to the 1949 Housing Act, Congress declared its goal of ‘a decent home in a suitable living environment for every American family’” (Schwartz 1).
In the course of over the last six decades, beginning from the time the this legislation was passed, the U.S Federal Government has engaged in assisting to finance the construction as well as rehabilitation of over five million housing units for the families that have a low income and has also offered rental vouchers to almost two million more families. However, the housing problems in the United States remain severe.
For instance, it is reported that in the year 2005, over forty two million families stayed in physically deficient housing, with more than thirty percent of their incomes being spent on housing and even some families were homeless (Schwartz 1).
Since housing is very costly, its development as well as acquisition mostly relies on borrowed funds. It is reported that “housing construction, acquisition of existing rental buildings, and the purchase of single-family homes all rely on debt” (Schwartz 51).
It is also reported that in the year 2009, the residential mortgages were more than eleven trillion dollars, and this was more than fifty percent of the whole federal government debt (Schwartz 51).
There has been structuring of the “housing finance system” to a larger extent by the federal government, usually in response to a crisis. A large number of the most stable elements as well as institutions, “including fixed-rate, self-amortizing mortgages, mortgage insurance, and a secondary mortgage market, stem from Roosevelt administration’s interventions in response to the Great depression” (Schwartz 51).
The response made by the government to the savings as well as loan crisis that occurred in the course of the 1980s assisted in ushering in a fresh era in housing finance; an era that was marked by securitization.
The “housing finance system” fell into a crisis once again in the year 2007 and it is reported that, as of mid-2009, its final impact remained unknown and “a new regulatory and institutional landscape is still taking shape” (Schwartz 51).
Much has been written on the impacts of the US mortgage crisis on the global economy. Financial experts have warned that the impacts of the US housing and financial crises might persist if the necessary policies are not implemented (Kolb 6). As a result, adjustments in the financial institutions have been inevitable.
Most mortgage lenders have tightened their lending rates to survive in the changing markets. Several financial experts believe that the effects of the current US mortgage crisis are far much worse than stated by the government economists.
Objectives of the investigation
The main aim of the study is to investigate the effects of the mortgage and Housing Act in the United States of America. The Housing Act was enacted with an intention of encouraging the low-income earners in the United States to acquire houses at affordable prices. The study will try to establish the extent to which this act has achieved its intended objectives.
Moreover, this study will aim at assessing the level of the current housing crisis in the US. In this regard, a number of the affected sectors will be assessed and an evaluation of how the mortgage markets have behaved all through the recession will be carried out.
In addition, the study will aim to analyze the magnitude of the housing crisis on the annual revenue collected by the government and the local authorities. This will be carried out through evaluating the changes reported in the annual property tax revenues. The research intends to answer the following questions among others:
- To what extent have the objectives of the Housing Act in the U.S been met?
- How have mortgage markets behaved all through the recession?
- What are the effects of housing and financial crises on the government, organizations and households?
It is reported that before the commencement of “the Great Depression” in the year 1929; funding for buying “owner-occupied housing was in short supply and expensive”(Schwartz 51). Mortgages usually became due after a period of between two to eleven years, depending on the kind of the lender, “requiring repayment or re-financing” (Schwartz 51).
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A large number of lenders had the willingness to engage in covering less than sixty percent of the value of the property, calling for a larger number of borrowers to get “the second and third mortgages”(Schwartz 51). The difficulty of funding home purchases limited homeownership to the people who were richer and assisted in making rental housing to be the main type of tenure (Schwartz 51).
It is reported that the “Great Depression” affected the homeowners as well as home ownership negatively to a large extent (Schwartz 51). Unemployment became prevalent and several homeowners could not make their monthly payments for the mortgage any longer.
This prompted foreclosure on an immense scale. In the course of the year 1933, over fifty percent of the entire home mortgages “were defaulted and more than 1,000 mortgages were foreclosed every day” (Schwartz 51).
Those homeowners who were able to remain current on their mortgage payments evaded foreclosure. However, a large number of them were forced to engage in selling their homes when the mortgages they had came due.
It is reported that “cash-starved banks, beleaguered by customers withdrawing their deposits, became increasingly reluctant to roll over their mortgages and instead demanded that the borrower pay back the principal in full” (Schwartz 52).
In addition, during that time, the total mortgage debt of a homeowner could be more than the actual value of the house and this could leave this person in debt even after the house being sold.
This is a problem that appeared again seven and a half decades later, when there was collapsing of the recent housing bubble that caused about twenty percent of the homeowners “to owe more on their mortgage than their homes were worth” (Schwartz 52).
Following increased mortgage closure and collapsing of the whole housing industry, the federal government’s response was to take various measures that completely changed the U.S’s “housing finance system” and assisted in propelling homeownership “within reach of a majority of its households” (Schwartz 52).
Such institutions and programs made it possible to have a considerable increase in the nation’s homeownership beginning from the 1940s until the 1960s; setting up a fresh and steady “system for housing finance” which remained concrete for over four decades (Schwartz 52).
It is also important to note that, the United States’ housing and financial sectors contribute significantly to the growth of the country’s economy. In the early 1990s, the US government took an initiative of enabling more low- income earners to own homes (Marshall 23).
The government authorized all the housing stakeholders to reduce their mortgage requirements. In the year 1992, the US government, through Fannie Mae and Freddie Mac, acquired loans from mortgage banks and mortgage brokers. Following this move, more secondary mortgage markets were created (Marshall 34).
At that time, regulations required GSEs to allocate 30 % of all the mortgages purchased as affordable housing loans. However, this requirement was not adhered to and in the year 2007, financial experts noted that the percentage had risen to 55% (Marshall 45).
In the years 2007 and 2008, the boom in the housing sector came to an end following the onset of global financial crisis (Francis 12). This crisis and the subsequent recession had great negative effects on the US housing and financial sectors. A dramatic increase in default rates was realized.
The increase in the default rates occurred because most of the homeowners were among the worst hit individuals by the recession. Notably, most of the homeowners had no retirement accounts (Parker 67). Because of lack of retirement accounts, these individuals were left with nothing they could use to access mortgages. The affected individuals were left with no other choice but to avoid paying their loans.
The crisis affected the US government, organizations, institutions, and households. Economists noted that the effects of the crisis were felt by all persons, regardless of whether or not they had participated in the growth of the housing sector (Ellis, 78). As a result, most of the gains obtained prior to the recession were reversed.
Both primary and secondary data will be collected in this study. The primary data collection will involve obtaining first-hand information from appropriate sources. In this research, primary data collection will involve filling out questionnaires. The questionnaires will be designed by basing on the objectives and research questions of the study.
Several questions will be presented in the questionnaire to ensure the response to be obtained is as helpful as possible in writing the research report. There will be mostly open-ended questions. Presenting such kind of questions to the respondents is of great benefit since it will be possible to obtain additional information since the respondents will give personal opinions on particular issues.
A reasonable sample size will be used in order to ensure accurate results which will reflect the actual situation on the U.S housing and financial sectors among other relevant sectors.
Several groups of respondents will be selected from particular sections and these will include; homeowners, relevant government authorities and other relevant organizations which will be selected with the ultimate goal of ensuring that their responses are helpful in answering the research questions and achieving the research objectives.
The questionnaires will be posted to the respondents. After the questionnaires have been filled, they will be checked for any errors in order for them to be corrected in preparation for analysis.
On the other hand, secondary data collection will involve obtaining information from books, journals, and surveys among other secondary data sources that have information on this topic.
Such sources are useful since they will serve to provide existing information regarding mortgages and the Housing Act in the U.S. Using both the existing information and collected data will help in getting the actual picture of the situation. This will eventually make it possible to write a research report that will be helpful to the concerned parties.
Plan for using the Existing Data
By using the existing data, it will be possible to assess the level to which the current housing crisis in the US has reached. Moreover, basing on the existing data, several affected sectors will be assessed and an evaluation of how the mortgage markets have behaved all through the recession will be carried out. Through this, it will be possible to note how the government and other stakeholders responded to the crisis.
The existing information will help in identifying and evaluating trends in the mortgage markets for the last one decade. Various factors that led to strong and long-term growth in the housing sector will be identified. Moreover, through the use of the existing information, the causes and effects of recession will be analyzed.
By analyzing previous similar situations, there will be a possibility of determining the level of the damage done by the current recession.
Moreover, this study will assess the effect of the housing crisis on the annual revenue collected by the government and the local authorities. This will be realized by analyzing the changes that have been reported in the annual property tax revenues.
By doing so, it is expected that the effects of the estimated policy offset magnitudes will be identified and revealed. In addition, basing on the existing information, it will be possible to make use of graphs and figures to illustrate housing and financial sectors’ growth rates prior to the recession period.
The graphs and figures will be included in the research report which will be submitted to the relevant authorities. The report will be used in evaluating and initiating of necessary changes needed to thwart the recurrence of a similar situation in the future.
Sources and Types of Data
Since this research will involve seeking to achieve several objectives, it will be necessary to use several types and sources of data. It will be ensured that appropriate sources are selected in order to obtain relevant and useful information. In this regard, a number of institutions have been identified as sources of information.
Among the institutions selected are; American Community Survey, Soma of Market Absorption, Residential Finance Survey, Property Owners and Managers Survey and Government Surveys.
It is expected that the American Housing Survey organization will provide information on housing costs, house sizes and the quality of the houses currently available in the US market. Moreover, it is also expected that the “Survey of Market Absorption” organization will provide information on residential sub-market.
When it comes to analyzing the current housing reports and price indexes, the Bureau of Consensus will be consulted in order to be able to scrutinize various housing statistics in the country for the last 10 years in an effective manner.
From the collected data, a comparison of the current housing conditions with those in the past, prior to the recession period, will be made. Both the collected data from the respondents and existing data will be tabulated for easy evaluation and comparison. The authenticity of all the data sources will be established in order to make sure that there is achieving of comprehensive and valid results.
Ellis, Luci. The housing meltdown Why did it happen in the United States? Basel, Switzerland: Bank for International Settlements, 2008. Print.
Francis, Andrea. Affordable housing: the continuing search for solutions : proceedings of the National Housing Trust’s 20th anniversary housing symposium. Kingston, Jamaica : Planning Research Dept., National Housing Trust, 1996. Print.
Kolb, Robert W.. The financial crisis of our time. New York: Oxford University Press, 2011. Print.
Marshall, John. The financial crisis in the US: key events, causes, and responses. London: House of Commons Library, 2009. Print.
Parker, John. Turmoil in U.S. credit markets recent actions regarding government sponsored entities, investment banks, and other financial institutions : hearing before the Committee on Banking, Housing, and Urban Affairs, United States Senate, One Hundred Tenth Congress, second session… Tuesday, September 23, 2008.. Washington: U.S. G.P.O., 2010. Print.
Schwartz, F. Alex. Housing Policy in the United States. Oxford: Taylor & Francis, 2012. Print.