Changes

==Causes==

==Causes==

In the early 2000s, U.S. interest rates were low and demand for housing was high, as housing prices soared, especially in California, Florida, Nevada and Arizona. Mortgage companies and banks were very eager to lend at low rates, especially to people with mediocre credit who would not previously have been eligible for mortgages.  The expectation was that rising house prices would cover the mortgage payments through refinancing. In addition, hundreds of billions of dollars poured into the U.S. from abroad, and financiers looked for imaginative ways to make a profit. They turned to real estate.

In the early 2000s, U.S. interest rates were low and demand for housing was high, as housing prices soared, especially in [[California]], [[Florida]], [[Nevada]] and [[Arizona]]. Mortgage companies and banks were very eager to lend at low rates, especially to people with mediocre [[credit]] who would not previously have been eligible for mortgages.  The expectation was that rising house prices would cover the mortgage payments through refinancing. In addition, hundreds of billions of dollars poured into the U.S. from abroad, and financiers looked for imaginative ways to make a profit. They turned to [[real estate]].

Americans owed some $10 trillion on their mortgages, most of which were sound with payments made on time. However financiers bundled the mortgages into very complicated packages called "'''collateralized debt obligations''''<ref> That is, homeowners were obligated to pay the debts and the collateral behind them was the physical house.</ref> or CDOs. Hundreds of billions of dollars worth of CDO's were sold to banks, pension funds and financiers in the U.S. and Europe. Generally they borrowed cash to buy the CDOs.  The risk was that if the CDO's declines in value, they would not be able to repay those loans.  To minimize the risk, companies sold insurance called "credit default swaps" ('''CDS''') to guarantee payment of the CDOs. The largest seller was American International Group ('''AIG'''), the world's largest insurance company. The CDOs and CDS were especially attractive because they were not regulated by the government; experts are not sure how many trillions of dollars are involved.

Americans owed some $10 trillion on their mortgages, most of which were sound with payments made on time. However financiers bundled the mortgages into very complicated packages called "'''collateralized debt obligations''''<ref> That is, homeowners were obligated to pay the debts and the collateral behind them was the physical house.</ref> or CDOs. Hundreds of billions of dollars worth of CDO's were sold to banks, pension funds and financiers in the U.S. and Europe. Generally they borrowed cash to buy the CDOs.  The risk was that if the CDO's declines in value, they would not be able to repay those loans.  To minimize the risk, companies sold insurance called "credit default swaps" ('''CDS''') to guarantee payment of the CDOs. The largest seller was [[American International Group]] ('''AIG'''), the world's largest insurance company. The CDOs and CDS were especially attractive because they were not regulated by the government; experts are not sure how many trillions of dollars are involved.

 

Many mortgages were held by mortgage companies like [[Countrywide]] and [[Washington Mutual]], as well as investment banks such as [[Bear Stearns]], [[Merrill Lynch]], [[Lehman Brothers]], [[Morgan Stanley]] and [[Goldman Sachs]], as well as commercial banking chains like [[Wachovia]] and [[Bank of America]], which have thousands of local offices.

==Bubble bursts==

==Bubble bursts==

The housing "bubble" burst in 2006-07, as prices plunged downward in the Sunbelt. Many homeowners could not meet their payments, especially those who had "sub-prime" mortgages because their income was low, or who had adjustable rate mortgages where the monthly payments started small then escalated.  Foreclosures skyrocketed. With housing prices falling few people risked buying a new house (because it would soon be worth less than they paid for it). Construction firms had built millions of new houses that could not be sold but which glutted the market.

The housing "bubble" burst in 2006-07, as prices plunged downward in the Sunbelt. Many homeowners could not meet their payments, especially those who had "sub-prime" mortgages because their income was low, or who had adjustable rate mortgages where the monthly payments started small then escalated.  Foreclosures skyrocketed. With housing prices falling few people risked buying a new house (because it would soon be worth less than they paid for it). Construction firms had built millions of new houses that could not be sold but which glutted the market.