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Abstract

The autopsy report for the American Financial Crisis of 2007-2008 is lengthy, and, while examiners may disagree on the specifics, there is widespread agreement that the cause of death was a sudden and dramatic drop in the price of American houses. This precipitous drop, cataclysmic “pop,” was in part driven by the market correcting itself following years of home value appreciation. However, the effect of the correction was magnified by subprime lending practices that allowed borrowers without verified sources of income to obtain loans. Ultimately, this fallout coalesced into a dramatic increase in defaults on mortgage payments and a corresponding increase in foreclosure actions by creditors. For instance: pre-housing crisis, between the years 2000 and 2006, the national average foreclosure rate was about 0.6% or 6 out of every 1000 homes. Following the crisis, the national average foreclosure rate peaked at 3.6% or 36 out of every 1000 homes – a six-fold increase.

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