BRING IT HOME

The Housing Bubble and the Financial Crisis of 2007
The housing boom and bust in the United States, and the resulting multi-trillion-dollar decline in home equity, began

with the fall of home prices starting in 2007. As home values dipped, many home prices fell below the amount the

borrower owed on the mortgage and owners stopped paying and defaulted on their loan. Banks found that their

assets (loans) became worthless. Many financial institutions around the world had invested in mortgage-backed

securities, or had purchased insurance on mortgage-backed securities. When housing prices collapsed, the value of

those financial assets collapsed as well. The asset side of the banks’ balance sheets dropped, causing bank failures

and bank runs. Around the globe, financial institutions were bankrupted or nearly so. The result was a large

decrease in lending and borrowing, or a freezing up of available credit. When credit dries up, the economy is on its
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