The factors which lead to mortgage default crisis included high risk loans (as the number of existing loans where financing was required exceeded the suggested values, which resulted in the immediate selling of the property when its price was lower than the loan amount); problems at housing market (the following problems were caused by the increase of pressure on the homeowners); speculation of the property (a great deal of purchases at mortgage market were committed not for self-living but as an investment which could potentially be sold in the future); frauds in the sphere of property.
When the mortgage crisis occurred, it had a devastating impact on financial markets. It is necessary to note that the impact was caused not only on US financial markets but on other countries which receive the investments from the USA. Also the sellouts in equity markets can be considered one of the triggers for the beginning of the crisis (Justin Pritchard, 2012). Speaking about securitization, it is the commonly-used practice to pool various types of contractual debt including different types of mortgages, auto loans, etc to various investors. The interest is paid to the investors regularly, and the investors receive different kinds of securities: mortgage-backed securities and asset-backed securities. As for TARP (The Troubled Asset Relief Program), the aim of the following program is to purchase assets from financial institutions in order to strengthen the financial sector. The activities performed by TARP were part of the government program to influence the crisis situation.
Speaking about the actions of the Federal Reserve during the crisis, they included providing the liquidity, the support of endangered financial markets and the support given to financial institutions (The Federal Reserve Bank, 2008)
References
Justin Pritchard. (2012). Mortgage Crisis Overview.
HYPERLINK "http://banking.about.com/od/mortgages/a/mortgagecrisis.htm" http://banking.about.com/od/mortgages/a/mortgagecrisis.htm
The Federal Reserve Bank. (2008). The Economy: Crisis and Response.
HYPERLINK "http://www.frbsf.org/econanswers/FR_Q1.pdf" …