Housing Bubble in US Economy: Analysis of Standard Debt Mortgage and Shared Responsibility Mortgage

Running head: CASE STUDY - HOUSING BUBBLE IN US ECONOMY
CASE STUDY - HOUSING BUBBLE IN US ECONOMY
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CASE STUDY - HOUSING BUBBLE IN US ECONOMY
Executive Summary
The aim of the report is to discuss on the safety of homeowners of the citizens in the US
economy. The analysis is being done about the externalities in the case of standard debt
mortgage. Do the financial innovations help in the creation of safe debts or the main cause
was the collapse of the housing bubble? This is discussed in relating to the article of Ricardo
Caballero. When talking about securities, they are referred to as investment securities
popularly known as stocks. However, equity securities are not the only type of security found
in the market. Securities are the financial investment units whose value is obtained from
assets that are kept underlying. Stocks are the types of securities that are derived when a
person has some ownership in the corporation, and underlying assets are used to derive bonds
and mutual funds as well. So, we can conclude that you just need an asset to make security
out of it.

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CASE STUDY - HOUSING BUBBLE IN US ECONOMY
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Answer to Question 1(a):...........................................................................................................3
Answer to Question 1(b):...........................................................................................................4
Answer to Question 2:................................................................................................................5
Answer to Question 3:................................................................................................................6
Answer to Question 4:................................................................................................................7
Answer to Question 5:................................................................................................................7
Answer to Question 6:................................................................................................................8
Answer to Question 7:................................................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................12

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CASE STUDY - HOUSING BUBBLE IN US ECONOMY
Introduction
There is a mortgage facility introduced by the federal government to finance the
people who want to buy their own home. Such mortgages are introduced, keeping in mind the
safety of families so that they don't face any downturns that may affect the housing market.
The economic benefits of this idea are huge. It is believed that such securities should be taken
care of by the Federal Housing Finance Agency.
Housing is very important for the middle-class families as it helps them to sustain
their life, and they have security for a lifetime. But, the current mortgage system introduced
by the government has increased the risk for homeowners. If mortgages are replaced with
more of equity-like mortgages such as shared responsibility mortgage would help the housing
market to stabilize, and this will also help the homeowners from sudden economic
downturns.
Discussion
Answer to Question 1(a):
A home mortgage that is used to satisfy the normal mortgage definition is known as a
standard debt contract. This may have a great impact on the homeowners. Such debt contracts
make the homeowners bear before the loss is incurred by the lender (Jones, Gatzlaff and
Sirmans 2016). The use of debt contracts indicates that the loss is still being incurred by the
homeowners; instead, they should be borne by the investors.
Negative externality may be defined as a condition when the consumption of a good
or service impacts the third party who is not directly involved in the transaction. Thus,