To understand the effects of how the housing crisis of 2007 affects low-income families today, one must first understand what sparked the crisis and what the crisis was. Beginning in the 1990s, but quickly accelerating after the year 2000, the price on housing rose at a much higher rate than ever before. These houses were primarily located along both coasts of America, especially in selective metropolitan areas such as California and Florida. The boom in the prices of houses led to a massive increase of mortgage lending through banks for investors and new homeowners. The rising cost of housing caused a large quantity of people to take out unorthodox, risky, and larger mortgages than ever before, which only helped to fuel the housing bubble (Schwartz, 2010, p.16-19). .
There is a compilation of new banking policies that helped fuel the housing bubble, which eventually made the bubble burst. There was not one issue, but multiple issues that ultimately contributed to the failure of the housing market. One big issue in the increase of housing prices was the lack of down payment. Before the housing bubble started, it was custom to pay 10% to 20% of the said housing price, and then pay off the rest in the coming years; however, during the bubble, it was common to pay 5% or even 0% down payment, otherwise known as zero down financing (Robertson, 2012). Banks and borrowers believed that they could depend on their home as a viable investment for the future. This belief set up for imminent danger in the future. It wasn't before long that prices of houses began to peak and fall, causing many problems for borrowers with little to no equity on their homes. Between the years 2002 and 2006, housing prices soared exponentially like never before(Schwartz, 2010, p.17). .
As the prices of housing increased, buyers and lenders had to find new financing strategies to make things more affordable in order to attract buyers.
