...Outline * Introduction The subprime mortgage crisis is a series of events and conditions that lead to the 2008 global financial crisis, which has caused the worst recession since Great Depression. The subprime crisis has made the five biggest investment banks become history and reduced thousands of American citizens begging on the street corners without a place to lay their heads. There is a proverb in China, “One can cope with the future by viewing the history”. Therefore, by reviewing the main causes of the subprime mortgage crisis and the impact it had on the global economy, we can figure out ways of avoiding a future crisis. * Background * Roots of the subprime crisis * Housing bubble * Homeowner wild speculation * Rapacious financial institutions * High-risk mortgage loans * Securitization practices * Governmental policies * Impacts * The U.S market impacts * The global market impacts * Ways of avoiding a future crisis A. Review the signs of the subprime mortage crisis 1. Rapaid appreciation in housing price 2. Monotonic degradation of loan quality B. Improve the supervision of the government 1. Improve regulation of the financial institutions 2. Policies to promote affordable housing 3. Community reinvestment act * Conclusion Subprime Mortgage Crisis I. Introduction The subprime mortgage crisis is a series of events and conditions that lead to the 2008 global financial...
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...focusing on subprime mortgages and the housing market bubble. The paper will also analyze Fannie Mae and Freddie Mac and how they are linked to the subprime mortgage crisis, including potential solutions to the crisis. References have been added to each section to show which references are being used in which section. References will be added as needed. 1) Abstract a. 120 word overview of paper 2) Introduction a. Introduction to the topic of subprime mortgages and the housing market bubble. b. Timeline of the crisis and housing market bubble burst 3) Discussion Content a. Definitions and background information on the following topics: i. Mortgages ii. Housing Market iii. Subprime Mortgages 1. Demyanyk, Y., & Van Hemert, O. (2011). Understanding the Subprime Mortgage Crisis. Review of Financial Studies, 24(6), 1848-1880. 2. Karikari, J., Voicu, I., & Fang, I. (2011). FHA vs. Subprime Mortgage Originations: Is FHA the Answer to Subprime Lending?. Journal of Real Estate Finance and Economics, 43(4), 441-458. doi.10.1007/s11146-009-9218-7. iv. Housing Market Bubble Burst b. Overview and causes of the subprime mortgage crisis i. Fixed mortgage versus floating 1. Demyanyk, Y., & Van Hemert, O. (2011). Understanding the Subprime Mortgage Crisis. Review of Financial Studies, 24(6), 1848-1880. ii. High risk mortgage loans and lending/borrowing practices 1. Peterson, C.L. (2009). Fannie Mae, Freddie Mac, and the Home Mortgage Foreclosure Crisis. Loyola Journal...
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...SUBPRIME LENDING INTRODUCTION: Sub-prime lending usually refers to the practice of giving loans to those who do not qualify for regular loans at market interest rates because of their poor credit history. Due to the increased risk associated with the takers, sub-prime loans are offered at a rate higher than market rates. These loans are risky for both, those who are giving and those who are taking, because these combine high interest rates, bad credit history, and often, murky financial situations of the takers. Subprime lenders use a risk-based pricing system to calculate the terms of loans, including the interest rate, which they offer to borrowers with varying credit histories. The securities issued by subprime lenders tend to carry more credit risk but less interest rate risk than securities backed by prime loans. This is because subprime borrowers tend to have a shorter time horizon and fewer opportunities to refinance when interest rates fall. SUB PRIME CRISIS: The subprime mortgage crisis, popularly known as the “mortgage mess” or “mortgage meltdown,” came to the public’s attention when a steep rise in home foreclosures in 2006 spiraled seemingly out of control in 2007, triggering a national financial crisis of USA that went global within the year. Consumer spending was down, the housing market had plummeted, foreclosure numbers continue to rise and the stock market had been shaken. The subprime crisis and resulting foreclosure fallout has caused dissension...
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...Subprime mortgage crisis is defined as a nationwide banking emergency that coincided with the U.S. recession of December 2007 – June 2009. This incident had been analyzed from various aspects as it redefined the world economy and the largest banking and financial institutions of the world. A major American financial services company Citigroup suffered the crisis caused by manifold contributing reasons that could be triggered and prevented prior to the crisis, is analyzed here. Secondary data had been used here to formulate the thorough study from sources like Reuters, Sonntag, Barnett-Hart. Excessive issuance of CDOs by Citigroup to reallocate risk, regulate capital relief and earn greater profit was the substantial reason of its distress. Besides insufficient risk management resulting from risk managers’ cronyism and retransfer of huge amount of troubled assets back into its balance sheet to avoid the forego of its institutional clients due to shadow banking added to the situation. The crisis resulted in a numerical loss of $18.72 billion and around 100000 job cuts during 2008 period. Government aid like bail-out and internal restructure was implemented by this giant institution to overcome the distress. An analysis, backed by the study of the overall mishap suggests that, providing Citigroup with independent risk management, credit rating of its internal departments with stricter regulations, audits and checking rather than profit oriented private rating agencies and deeper...
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...Global Lessons from the Recent Financial Crisis: Need for Reforms Jason Khan – 212857264 Yiwen Shen – 212828810 Alexander Grynszpan – 212811618 Xueyan wu - 212828380 INTRODUCTION Mortgage Backed Securities Lack of Regulations in the Banking System Lack of Regulations in the Credit Rating Agencies Subprime Mortgages Financial Crisis of 2007-2009 Lack of Regulations of over-thecounter derivatives Introduction to the Financial Crisis Causes of the Financial Crisis Reforms introduced International response Conclusion Cause: Subprime Mortgage - Housing prices were on the rise à More difficult for consumers to purchase - Investment banks purchased the mortgages from individual lenders, re-packaged them, and sold them to an even larger quantity of small and large investors - Borrowed money to magnify the outcome à Created collateral debt obligations (CDO) - Mortgages were sometimes given without down payments, or assurance of repayments - When the housing bubble “popped”, investment banks held massive debts without means of paying them à led to declaration of bankruptcy Introduction to the Financial Crisis Causes of the Financial Crisis Reforms introduced International response Conclusion Cause: Mortgage backed securities - Important players in the Crisis: Federal National Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC), or as known as Fanny Mae ad Freddy Mac - Through mortgage backed...
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...concerning sub-prime mortgage lenders Outline I. Introduction II. Subprime History III. What lead to subprime lenders making unethical and illegal decisions IV. What safe guards are in place V. Conclusions VI. Works cited page Introduction When most people hear the phrase “subprime lending”, the first thoughts that come to mind are the mortgage meltdown; predatory lenders, high interest mortgages for borrowers who have poor credit or low incomes. All of these thoughts may be true to a certain extent, but contrary to popular belief subprime mortgage lending has helped expand homeownership for all borrowers regardless of credit or income level in the US between 1995 and 2006 (Favro, 07). The problem is that this ethical and legal lending market took an unethical and illegal turn and has been cited as one of the contributing factors that aided in many Americans defaulting on their home loans that resulted in sending this country and many others into one of the biggest recessions since the Great Depression. It has been almost six years since the subprime meltdown and this country, the housing markets, and the economy have yet to fully recovered. In this research paper I will cover the history and original purpose of subprime lending, what lured the subprime lending market to take an unethical and illegal turn, and what safeguards have been put in place to lessen the likely hood of subprime mortgage lenders making unethical and illegal decisions...
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...required to develop respective business continuity planning in accordance to the 7 high-level principles. There are various incidents within the last decade that has resulted in major operational disruption to financial industry. However, with the guidance of the 7 high-level principles, most of the participants were able to cope with crisis well and survive through the crisis. In this report, several case studies were researched and commented on their business continuity planning. Subprime crisis which caused the collapse of Lehman Brothers has caused a significant stir in the financial industry. Many counterparties ended up with huge exposure and default due to the fall of Lehman Brothers. However, Euroclear was able to manage the crisis well after it activated its crisis management plan which has been developed before the crisis. Similarly, terrorist’s attack on New York World Trade Center has not only caused major security issues but has also significantly affecting the financial industry. Bank of America and Deutsche Bank were the direct victims of the terrorist attack. Both banks remained sound operation and survived through the crisis due to well business continuity planning. Besides, Hurricane Gustav that caused massive destructions in United States in 2008 has crippled the local banking system in Louisiana and Mississippi. BancorpSouth Bank quickly activated its business continuity plans shortly after the announcement of the hurricane. Various actions and measures...
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...Causes of Economic Crisis of 2008 and its resulting Recession Student’s Name Institution Introduction The economic crisis of 2008 which began in the United States had great impact in the global economy. The economic crisis began slowly and grew into global economic crisis. It has affected the stock markets to the extent of stopping operations. In the US it is an issue which has been used as a campaign tool for presidential candidates to request for votes during their campaigns. Due to the crisis many US citizens have felt its impact and even lost their jobs. The crisis began with the United States housing market and gradually resulted into liquidity crisis (Steil, 2009). It is in this regard that this paper looks into the causes of the economic crisis of 2008 and its resulting recession. Causes of the 2008 crisis and its resulting recession Actually, the United States experienced many serious problems that included frozen money markets, plummeting dollar, banks on the threshold of bankruptcy, declining stock market, high levels of public debt and the impending threat of recession. According to some economists, the economic crisis was mainly affected by the world imbalances, perceptions of interest rates, risks and the regulations of the financial system. The following are the main causes of the economic crisis of 2008: Housing Crash The United States housing market is one of the main determinants...
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...TABLE OF CONTENTS CHAPTERS CHAPTER 1 – Abstract 3 CHAPTER 2 – Introduction 4 CHAPTER 3 – Body Paragraphs 4 CHAPTER 4 – Discussion 5 CHAPTER 5 – Conclusion 8 REFERENCES 8 Sub-Prime Mortgage Crisis: What Went Wrong? Abstract: The crisis of subprime mortgages has become a huge problem in the U.S. financial industry in the last few years and has affected the global financial market too. The smaller mortgage companies fell one by one until Bear Stearns also fell; then the “Titanic” of the mortgage world – Lehman Brothers – also fell. The ripple effect of the fall of Lehman Brothers coupled with the near death of AIG, nearly crashed the financial market and sent shock waves through the global markets. The effect of the crisis is still being felt in the housing market with no clear resolution in sight. This essay emphasizes the caution of this crisis to our economy. I. Introduction The mortgage crisis in 2008 didn’t have to happen but it did. Why did it happen? At a first glance, it seems it came out of nowhere but a deeper analysis shows that a series of events such as the explosion of sub-prime mortgages on the market and the easy accessibility of credit set the stage for the meltdown. II. Body Paragraphs A. In 2000 when President Clinton was in office, he signed the Commodity Futures Modernization Act which led to the unregulated trading of the Credit Default Swaps (CDS). B. Sub-prime originators invented the mortgage to sell...
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...Economic effects of subprime lending A subprime lending is an option for individuals that have difficulty meeting mortgage payment schedules or for individuals who have low credit scores and considered risky borrowers. For example, an applicant with a low credit score of 500 will have a very difficult time locating a loan. Subprime lending comes with a high cost to borrowers. Lenders see bad credit applicants as riskier than applicants with better credit scores. Borrowers in turn pay for this risk by accepting loans with a higher interest rate. Subprime lenders offered the realization of the American dream of home ownership to borrowers who would otherwise be denied credit. Interest only loan options were offered, and combined with the mortgage-backed securities (MBS) added so much liquidity that in turn created a housing boom. Over time borrowers end up paying higher interest rates with zero payment application against their loan amount. Unemployment setbacks that ultimately resulted in defaults, added to the economic crisis. Consequently, more homes were placed in a market that is already saturated with newly constructed homes. This created less demand resulting to more houses that builders were unable to sell. Controls of banking rules and regulations during the 1980’s were relaxed, and monitoring policies for these were not the highest priority. Jimmy Carter’s “Depository Institutions Deregulation and Monetary Control Act of 1980” was a window for financial institutions...
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...CONTENT PAGE * Introduction Page 2 * Crisis Page 3 1. Subprime Mortgage Crisis 2. Liquidation * Causes Page 5 * Impact Page 6 * Requirements Page 7-12 * Macro – Environment * Decision making method * Competitive strategy * Organization’s planning * Organization’s structure * Connection between Crisis & Culture * Resistance changes manage by manager * Advice to reduce crisis * Job related stress * The relevancy of innovation in mitigating the impact of the crisis and how the managers can foster innovation * Identification and description of relevant motivation theory that the managers can usefully apply to motivate the employees during the crisis * Feedback & Advices Page 12 * Referencing Guide Page 13 dfsfjn Introduction The organization in crisis that we chose to report on is the “Lehman brothers”. On September 15, 2008, Lehman Brothers declared the largest bankruptcy in history and changed the American...
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...Alsanoosy FIN- 6063 April-16-2012 Instructor: Dr. David Alldice Contents A- Introduction 3 B- Causes of financial Crisis 2007-2008 3 i- Role of mortgage lenders 4 ii- Role of mortgage Borrowers 5 iii- Role of investment bankers 5 iv- Role of Credit rating agencies 7 v- Role of CDO Investors and hedge funds 8 C- Impact of crisis on financial institutions and Lehman Brothers 8 D- Measures to mitigate financial crisis 11 E- Conclusion 15 F- References 17 A- Introduction The subprime mortgage crisis happened in the U.S. financial system into the most horrible recession from the time when the Great Depression. This report tracks how the subprime mortgage crisis outspread, disturbing first the housing sector and then the economy on the whole. When banks started lending to subprime borrowers, it looked immense. Unexpectedly, anyone could get a house through a mortgage loan, even with modest or no money down payment. Nevertheless not the entire of those mortgage borrowers were high-quality nominees for the mortgage loan. The defaults of these subprime mortgage borrowers helped lash out the subprime crisis. (Rudd, 2009). The circumstances of the mortgage markets became more deteriorated due to the involvement of Investment Banks in underwriting the mortgage loans. The amplified exploitation of the secondary mortgage markets by lenders further to the numeral of subprime mortgages lenders could create. As a substitute of gathering the originated loans on their...
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...Introduction Within the subprime mortgage loan system which involved a relationship with brokers, lenders, and potential homeowners, many seemingly unethical practices were forged in the name of American families and individuals attaining part of the “American Dream” of owning a home. While this may neither have been the direct fault of neither party, each engaged in less than moral actions that played a part in the subprime mortgage crisis. Thus, the problem to be investigated is whether or not these ethical violations ultimately led to the fall of the subprime market by causing a catastrophic domino effect on all stakeholders involved. The article Subprime Loans- The Under-the-Radar Loans That Felled a Market by Marianne M. Jennings will be used to investigate this problem. Ethics of brokers and the isolation of individual ethical choices According to Jennings (2010), the subprime market offered a vast source of wealth to lenders because of the hassle-free and lenient criteria for qualifications for potential home owners (p. 434). As a result, lenders attracted mortgage brokers that engaged in questionable ethical practices such as using the same applicant for more than one application, processing numerous applications out of greed, and even committing fraud (Jennings, 2010, pp. 434-435). The first unethical decision brokers made was to offer loans to applicants they knew would not qualify for loans under normal circumstances. Potential homeowners expected brokers...
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...system reforms after the subprime crises Study case: Spain Author: | Supervisor: | | | Department of …………………………… January 2014 Abstract How did the Subprime Crisis, a small problem of U.S. financial markets, affect the entire global banking system? The aim of this paper is to analyze the effect of the subprime crisis on the banking sector in Europe, with a close attention on the case of Spain. Spain is currently facing the worst crisis ever experienced in its financial history, so it would be interesting to analyze what is the real situation of the banking sector and what will be the reforms that could lead to a consolidation of the financial systems. The strengths and weaknesses of the financial sector will be analyzed in order to see the changes needed to maintain its competitive position. The first part of the paper will briefly explain the subprime crisis, origins and impact on the financial world as new form of contagion. In the second chapter the consequences of the subprime crisis in the Spanish banking sector will be described. The last chapter of the thesis will present an analysis of the reforms made, using legal intervention. It will be concluded with a general point of view regarding the present situation of the Spanish banking system, the potential results of the current measures and the perspectives of new reforms. Contents 1 | Introduction | | 2 | Introducing the Subprime Crisis i. The subprime crisis: origins and evolution ...
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...Subprime Loans - The Under-The-Radar Loans That Felled a Market The problem to be investigated is the ethical challenges for both lenders and borrowers that were the result of the exponential growth in the subprime loan market. The subprime mortgage market grew from $34 billion to $401 billion between 1994 and 2004 (Jennings, 2012, p. 434). The U.S. subprime mortgage crisis, fueled by record mortgage delinquencies and home foreclosures, and the subsequent collapse of mortgage-based securities followed by collateralized debt obligations (CDO’s), led to the financial crisis in the late 2000s. This paper will explore the impact of the subprime mortgage crisis on society and will discuss the roles government, corporations and individuals played. This paper will also offer suggestions on responsible behavior to prevent a recurrence. – Good introduction The History of Subprime Mortgages-- Good -- use one section heading for each question asked in assignments like this that have questions. The deregulation by the Federal Government of the banking industry starting in the 1980s is identified by many experts as responsible for setting in motion the events that resulted in the subprime mortgage crisis. A collision of unintended and intended consequences – regulation, greed, uninformed consumers. Subprime loans have been around for a long time. However, they were never meant for borrowers with less than stellar credit nor as primary loans – good point. ARM, balloon payment...
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