The mortgage crisis which currently afflicts the U.S. economy has brought about numerous foreclosures, corporate bankruptcies, and job layoffs. There is no one answer as to who or what caused this crisis; it was brought about by a combination of several factors. First, we should start with how and when it began, to see what actually caused it to occur.

With the real estate “boom” underway, home prices were constantly rising, and sales remained brisk. Owners realized that they could “flip” (quickly re-sell) their homes at higher prices, rapidly moving from one to the next. Low fuel and food costs helped spur these real estate sales, convincing buyers that they could afford to live in increasingly more expensive homes, without the slightest sacrifice in their standard of living.

Buyers, mortgage brokers, and lending institutions all realized that “flipping” made it possible for homes to be purchased and temporarily owned by people with insufficient incomes to pay for them. Some brokers encouraged people to put false income data on their mortgage applications, while small lenders defrauded larger banks into purchasing mortgages from them based on falsified applications. This sort of mortgage activity would have caused a crisis earlier, if it had not been for the continuing rapid home sales.

With the mortgage industry having been deregulated by the government years earlier, some were taking a more “creative” approach to lending. The unrealistic technique of offering high-interest “subprime” loans to people with poor credit histories became quite common, with many brokers and lenders employing dishonest tactics to deceive buyers about them. At the time, ever-rising home prices made it possible for lending institutions to easily resell (at a higher price) any homes that did get foreclosed upon.

When real estate sales sharply declined and prices began to drop, the “bubble” burst and owners were unable to escape the current home (and mortgage) they had intended upon “flipping.” The monthly payments on many of their adjustable mortgages went up, and increasing fuel costs caused the price of consumer goods to rise. As many of them became unable to make the payments, and banks could no longer find buyers for foreclosed-upon properties, the mortgage crisis began.

Basically, the current mortgage crisis was caused by the unsound financial decisions of many lending institutions, brokers, and home owners who based their actions upon the formerly-booming real estate market. The crisis was also caused by the government’s failure to properly regulate the mortgage industry, and the questionable economic theory of giving high-interest loans to people with problematic credit records.