However, the low interest rates offered by mortgage lenders as well as the requirement to service the mortgage debts of the home owners in relation to their higher take home pay will not bring back the sad economic scenario in the 1990s era. Also the high value attached to the homes has triggered the money lenders to enter into the home mortgage and the chattel mortgage economic market. Currently, the fixed costs that goes with maintaining a home is no longer as expensive as the mortgage homes of the early part of the 1990s(2003;p.5).
Despite the unfortunate beginnings in the latter part of 2002 and until 2003, many people contributed to the economy by continuing their spending spree at moderate speed. This was one of the major factors that prevented the increase in severity of the economic downturn. Thus, government monetary policy theory states that the state must intervene in order to create a competitive economic environment (Roberts,2000;pp 77). In addition, Marshall theorized that people have the normal attitude of preferring to spend instead of saving their money in His Principles of Economics book as " Everyone is aware that the accumulation of wealth is held in check, and the rate of interest so far sustained, by the preference which the great mass of humanity have for the present over deferred gratifications, or, in other words, by their unwillingness to 'wait'"(Keynes, 1936; pp.242)
The supply and demand theory states that as the mortgage interest increases, the number of borrower demands will decrease. And, the supply theory states that as the mortgage interest rate increases, the number of mortgage lenders will increase(Graziano, 1987;p129-145). Both theories state meet when the mortgage lenders lower their interest rates in order to attract more borrowers. For, the best mortgage interest rate that will make both the mortgagor borrower and the mortgagee lender happily meet in the middle is the equilibrium rate. In terms of mortgagor purchasing power, the timely increases in the take home pay off household owners as well as the gains in disposable personal income starting June of 2003 countered the ill effects of the consumer's spending spree. As proof, the share of personal consumption on Gross Domestic Products had reached a whopping seventy percent in the year 2004. For clarity, consumer spending is arrived at taking into consideration the increase in real permanent income, fluctuations in market prices and demographic factors(Su, 2005;p10).
MORTGAGE RATE GRAPH
Under the theory known as Markowitz economic model, the investors, including the mortgage lender, want to maximize expected return from their investments and minimize variances. For variance is synonymous with risk(Culp, 2001;pp.48-113). Thus, the lenders charge higher interest rates for more risky mortgage borrowers. The above graph shows that there are fluctuations in the mortgage interest rates from the period Aug 2, 2007 to Sept 27 2007. The graph shows that the Thirty -year mortgage rates had declined starting in the middle of July. Then decline trendily continued to decline until