Dodd-Frank Wall Street Reform Research Paper Example | Topics and Well Written Essays - 1250 words

Dodd-Frank Wall Street Reform - Research Paper Example People had to borrow in order to finance their mortgages. From the periods of 1994, to 2004, the ownership of homes amongst residents of United States of America increased from 64%, to 69.4% (Whalen, 2008, 220). Because of an increase in the demand of the houses, the price of these commodities increased by 124%. These made consumers to refinance their homes, and take on second mortgages resulting to a reduction in their disposable income. By the time 2008 reached, the United States mortgage debts in relation to its GDP increased by 26% reaching a figure of 73%. This is from the periods of the 1990s. The easy availability of credit, and an increase in the house prices led to the building boom, and this further increased the prices of the houses, and eventually to their decline in the periods 2006 (Deminyank and Herbert, 2011, 1851 ). Paying back these mortgages became difficult, because of the fall of the home prices, as compared to the prices in which they initially bought the homes. This had an effect of reducing the value of mortgage backed securities, eroding the financial capability of the banks. This failure led to the emergence of the subprime financial crises. ... Another reason for the emergence of the subprime crises is failure by the government to effectively regulate the financial activities of various banking organizations, and their financial products. This was made possible by the 1982 mortgage transactions parity act. This act allowed credit organizations to readjust their mortgage rates, and its aims was to make it possible for as many people as possible to own homes. This act led to an abuse of the mortgage lending procedures, because credit institutions could offer any amount of interest payments to their loan products. In 1999, the Federal government repelled the Glass Steagal Act, which created an environment of risk consciousness in investment banking (Immerglack, 2011, 247). This act had an effect of regulating the creditors during boom periods, making credit organizations to undertake risk measures while carrying out their duties. Its repeal made banking organizations, to lend freely, without establishing measures that would le ad to the mitigation of risks. The Securities and Exchange Commission also played a role into the emergence of the subprime mortgage crises. The commission changed the rules of calculating its capital reserves, and this enabled credit organizations to increase the percentage of debts they incurred for purposes of financing their operations (Deminyank and Herbert, 2011, 1850 ). The consequences of this action are that it led to the growth of mortgage securities that supported subprime mortgages. This eventually led to the near collapse of the banking system, because of an increase in their debts ratio, and inability to pay. This led to the enactment of the Dodd Frank financial reform act. This act created changes to the