1. Elliott 1
Brian Elliott
Mrs. Corbett
AP Literature
18 November, 2011
Senior Project Research Paper: Subprime Mortgage Crisis
Many people view field s like construction and architecture as unique, interesting and
profitable fields, but, as of now, the ongoing subprime mortgage crisis has greatly hindered these
fields of work. With so many people in debt, the quantity of houses in construction and being
bought have been reduced to a small pool compared to the previous ocean of a market. When the
housing bubble broke in 2001, the market was building up to the meltdown in the later years of
the first decade of the century. Once the market collapsed, it created a major issue for the
construction companies, maintenance workers, Architects and so forth. With the diminishing
career pool, there seems to be an ongoing problem that needs to be addressed in order for future
success.
The early 2000’s brought on floods of new homeowners with subprime mortgages, and
the economy seemed to be in great shape with the Dow Jones Industrial average recently
crossing the 10,000 mark. Americans were not financially prepared, and they were not aware of
the imminent future. Chris Arnold recounts the peak of the subprime mortgages when he points
out that “Analysts say that in September 2005, the subprime lending boom started hitting its
peak. Now a bigger wave of rate resets could mean a flood of foreclosures” (Economists Brace
for Worsening Subprime Crisis). At the end of the quote, Arnold shows the recently increasing
amount of foreclosures, and he effectively predicts the future since this article was written in
2007. In the next few years, the economy became progressively worse as we went entered the

2. Elliott 2
worst recession since the Great Depression in the 1930’s. Along with this and, in fact, one of the
causes of the depression was the subprime mortgage crisis. Since many people could not keep up
with their, now adjusted and much higher, mortgages on their homes. One man, Mr. Pomales had
a mortgage payment of 2,100 dollars per month, but over the next few months, it increased by
over 500 dollar. Soon, He expects it to increase even more (Arnold). While the general populace
could handle the lower mortgage rates they paid each month, the rising rates forced many into
foreclosure. It seems that some people were barely getting by with the previous rates; so, as they
went up, the population of the lower middle class (and some other classes) could not sustain this
standard of living. In 2007, two major hedge funds collapsed, and the United States and Europe
placed 100 billion dollars in the market to stabilize it, so the “subprime mortgage market [would
continue] to be solid as long as the housing market continued to escalate and interest rates didn’t
go up…By 2006, housing prices started to taper off after rising nearly 40% between 200 and
2006. They are expected to continue their decline through 2007 and most of 2008” (Parks). In
order for the market to stay at a stable position, the housing market had to stay on its current
trend at the time of increasing buyers and stable interest rates, but the government did not predict
the sudden drop off in the housing market which ended up causing the current mortgage crisis.
At the root of this destructive crisis, is the bursting of the theoretical housing bubble.
Katalina Bianco analyzes this concept in her report on the Mortgage Crisis:
The current mortgage meltdown actually began with the bursting of the U.S.
housing “bubble” that began in 2001 and reached its peak in 2005…It is defined
by rapid increases in the valuations of real property until unsustainable levels are
reached in relation to incomes and other indicators of affordability. Following the
rapid increases are decreases in home prices and mortgage debt that is higher than
the value of the property (Bianco).

3. Elliott 3
It seems as if The United States and various other countries reached the Absolute maximum of
the housing markets parabola, and, now it has come crashing down on a negative slope. The
population continued to buy products that they, in actuality, could not afford, and this trend also
shifted to houses as people continued to buy real estate outside their budget. While all seemed
well at the time, the population was “digging a hole” that will take several years to escape. In
2005, the amount of homeowners and home prices reached their peaks as “The national median
home prices [for March 2005] jumped 11.4 percent to $195,000 from the same month a year
ago…but some analysts said the housing sector has begun to show signs of easing… a U.S.
Commerce report showed a 17.6 percent plunge in housing starts for March” (Neidenberg).
Since this article was written in 2005, Neidenberg did not realize the impending recession that
came in 2007, but he accurately portrays the market at that time. In this year, the median home
prices leaped by over 15,000 dollars in accordance with the number of home buyers. The mass of
home buyers bolstered the market before the flaws were finally brought into the light. Business
Spot lists one of the central causes of the Subprime Mortgage crisis as “High Risk Loans: These
are over levered loans where the financing is done more than the suggested values to be given.
This results in immediate sell off when the property falls below the loan amount and to avoid
further loss the banks commence raising the installment” (Effects of the Mortgage Crisis).
Because of these seemingly cheap loans, many people’s mortgages unexpectedly reset, forcing
them to pay hundreds of extra dollars per month. At the time, these loans seemed to be a cheap
alternative as to what families would normally have to pay, but after a large percentage of
homeowners having their mortgages reset in later years, these loans would end up costing much
more than these people could afford. Even though the period throughout 2001-2005 created a

4. Elliott 4
façade that showed great success, few could have predicted what was about to happen to the
market.
The disastrous effects of the subprime mortgage crisis have sent the global economy
into a seemingly unending downward spiral. Senator Charles E. Schumer created a short timeline
to chronicle the crisis in 2008: “July 10: Foreclosure filings for June 2008 have jumped 53
percent from this time last year…June 25: Home prices nationwide are down 15.3 percent from a
year ago.” The Senator goes on to state that the number homes foreclosed upon was over
250,000 (Subprime Mortgage Market Crisis Timeline). These staggering numbers show the
unmistakable evidence of how unsustainable the previous prices were. Based on the senator’s
statistics, a year ago there was close to 100,000 less foreclosures than July 2008, and these
obvious irregularities meant massive layoffs in all industries involved in construction. Without
the previous surplus of buyers all of the builders, architects, maintenance workers and more
faced previously unnecessary competition to keep their jobs (The Job Bored). People just
entering the field in the years to come were also confronted with a job market as small as it was
since the Great Depression. The Huffington Post conducted a study of the cities that were hit
worst by the recession in which they discovered that “Most of the cities on [the] list are in
regions worst hit by the housing crash…[all were] booming housing markets before the recession
hit. In the U.S., just fewer than 15 percent of homes were built in the last 10 years. But in some
of the cities…that number is 25 percent and higher” (Sauter). This study shows further evidence
as to the specific cause of the mortgage crisis because each city, generally, had a higher
percentage of homes built after 2000, therefore the percentage and density of foreclosures was
also significantly higher. The 25 percent areas became the areas that were most affected in the
end, and because of the previous trends, it was the predictable outcome. Throughout the ongoing

5. Elliott 5
recession, these areas have faced a tougher challenge than most, but all around the country there
is a sense of despair.
While society still faces the Subprime Mortgage issue, it has been four to five years since
its start. Along with this period, there have been developments and possible solutions that have
been created in order to ease out of this crisis. Lately, companies are hesitant to build at all
without a guaranteed buyer, unlike before, but “Wheelock Street Capital, which has made
headlines in the past 18 months by teaming with home builders as a private equity investor, has
acquired a coveted 364-acre tract just north of hot Raleigh, N.C., expected to be the site of about
700 homes in the next five years or so” (Housingcrisis.com). While relatively small when one
looks at the mortgage crisis as a whole, this investment shows a possible redemption and
recovery in future years. Over the past year and a half, Wheelock Street Capital has begun what
all building companies need to do on the road to recovery. Although there are still an
unprecedented amount of people dealing with financial issues, financial stability has begun to
return to several areas and many people in the population. This can be applied to the recession as
a whole and just the subprime mortgage crisis, but people and companies need to invest their
money within their budget in order to create an exit from these tough economic times.
It seems that America is reaching the peak of its crisis as things continue to grow worse.
Ben Tracy reports that “the housing report card is ugly. In the past two years, the housing market
has lost an estimated $4.9 trillion dollars, as 59 million homes have declined in value…Nearly 1
in 4 homeowners -- 10.7 million households nationwide -- are underwater on their mortgages.
They owe more than their home is now worth” (Housing Crisis Getting Uglier in 2010). Since
this is a 2010 article, it shows how the numbers continued to become exponentially larger even
just a year ago. Even with the outrageous numbers, there is evidence to suggest that Americans

6. Elliott 6
are approaching their peak with situations like the Wheeler Street Capital example. While the
times are tough right now, there may be an end in sight. Before this crisis, fields such as
architecture and construction would have seemed to have an unendingly great outlook for years
to come, but current times have created a new perspective. Still, history shows that this will most
likely be a relatively short period that will most likely be resolved before the class of 2012 is out
of college, but a solution must come from the government before this plague can bring any more
financial destruction to our nation’s populace.

7. Elliott 7
Works Cited
Arnold, Chris. “Economists Brace for Worsening Subprime Crisis.” NPR. N.p., 7 Aug. 2007.
Web. 13 Nov. 2011. <http://www.npr.org/templates/story/story.php?storyId=12561184>.
Bianco, Katalina M. “The Subprime Lending Crisis: Causes and Effects of the Mortgage
Meltdown.” Business: Banking and Finance. N.p., 2008. Web. 14 Nov. 2011.
<http://business.cch.com/bankingfinance/focus/news/Subprime_WP_rev.pdf>.
Business Spot. “Effects of the Mortgage Crisis.” Business Spot. N.p., 1 Mar. 2011. Web. 14 Nov.
2011. <http://www.birsa.org/effects-of-the-mortgage-crisis.html>.
Housing Crisis.com. “ Wheelock Capital Lands Raleigh Masterplan Gem.” Housing Crisis.com.
N.p., 8 Nov. 2011. Web. 14 Nov. 2011. <http://www.housingcrisis.com/home-builders/
wheelock-capital-lands-raleigh-masterplan-gem/>.
The Job Bored. “How The Housing Crisis Affects The Job Market.” The Job Bored. N.p., 15
June 2008. Web. 14 Nov. 2011. <http://www.thejobbored.com/how-the-housing-crisis-
affects-the-job-market_694/>.
Neidenberg, Milt. “Housing market crisis threatens economy.” Worker’s World. N.p., 27 Apr.
2005. Web. 14 Nov. 2011. <http://www.workers.org/2005/us/housing-0505/>.
Parks, Samanta. “The Subprime Mortgage Crisis: How Did It All Start?” Foreclosure Data
Online. N.p., 2011. Web. 13 Nov. 2011. <The Subprime Mortgage Crisis: How Did It All
Start? Read more: http://www.foreclosuredataonline.com/blog/foreclosure-crisis/the-
subprime-mortgage-crisis-how-did-it-all-start/#ixzz1ddyRZXz9>.

8. Elliott 8
Sauter, Michael B, and Charles B Stockdale. “American Cities With The Most Underwater
Mortgages: 24/7 Wall St. .” Huffington Post. N.p., 29 Oct. 2011. Web. 14 Nov. 2011.
<http://www.huffingtonpost.com/2011/10/28/underwater-mortgages-american-cities-
sunk-by-u_n_1064603.html?ref=housing-crisis>.
Schumer, Charles E. “Subprime Mortgage Market Crisis Timeline.” Senate. The Senate, July
2008. Web. 13 Nov. 2011. <http://jec.senate.gov/public/
?a=Files.Serve&File_id=4cdd7384-dbf6-40e6-adbc-789f69131903>.
Tracy, Ben. “Housing Crisis Getting Uglier in 2010.” CBS News. N.p., 4 Feb. 2010. Web. 14
Nov. 2011. <http://www.cbsnews.com/stories/2010/02/02/eveningnews/
main6167610.shtml>.