Housing finance firms and banks need to determine the underlying risk of default more

carefully.

Aggressive lending by banks in a soft interest rate environment during the early part of the current

decade, with subsequent sharp growth in housing development, has led to a significant supply-

demand mismatch in the US residential housing sector.

Less than proportionate growth in household income, tightening of the interest-rate setting, and

decreased liquidity in the subsequent period contributed to a rise in household income. A

precipitous decline in the market value of the housing stock.

This condition is further crippled by the high interest rate on home loans. Thus, such a community

must settle for rooms or slums in illegal colonies and settlements.