[SHANI D]

Discuss the current mortgage situation in the U.S. and explain why sub-prime lending has created a credit crisis for banks and borrowers alike. What lessons can we learn from this experience to help guide regulators in the future?

[Flattruth]

I don't want to write a whole paragraph on this, but here's summarized choronological of events that lead up to where we are today.1. Dotcom bust causes recession.2. FED lowers interest rates to fight recession.3. Low fed rates filters down to mortgages rates.4. Banks begin lending with very loose standards (ie no credit check, low or no down payment, ARM's, etc.)5. Real estate demand picks up because of easy lending and low rates. Building boom to feed demand.6. Economy out of recession and fear of inflation causes Fed to raise rates.7. Homeowners with adjustable mortgages rates (ARM's), or those who misunderstood their financial capability, default because of higher dues.8. Real estate demand subsides and owners/investors experience values go down causing upside down mortgages, etc.. More defaults and foreclosures occur.9. Banks become homeowners and can't sell over-assessed properties with profit.10. Banks experience big losses. Banks wise up and tighten their lending standards....