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In: Historical Events

Submitted By allan12345
Words 1414
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Sub prime mortgages
The origins of the current crisis lie within the ashes of the equity bubble and subsequent collapse of the equity markets at the end of the 1990s
With the collapse of the bubble, capital began to flow increasingly toward the real estate sectors in the United States
The U.S. banking sector found mortgage lending highly profitable and saw it as a rapidly expanding market
As a result, investment and speculation in the real estate sector increased rapidly
As prices rose and speculation continued, a growing number of the borrowers were of lower and lower credit quality
These borrowers, and their associated mortgage agreements (sub-prime debt), now carried higher debt service obligations with lower and lower income and cash flow capabilities
New market openness and competitiveness allowed many borrowers to qualify for mortgages that they would not have qualified for previously
Structurally, some mortgages re-set a high interest rates after a few years or had substantial step-ups in payments after an initial period of interest-only payments
Housing bubble
The bursting of the U.S. (United States) housing bubble, which peaked in 2006, caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally. The financial crisis was triggered by a complex interplay of policies that encouraged home ownership, providing easier access to loans for (lending) borrowers, overvaluation of bundled sub-prime mortgages based on the theory that housing prices would continue to escalate, questionable trading practices on behalf of both buyers and sellers, compensation structures that prioritize short-term deal flow over long-term value creation, and a lack of adequate capital holdings from banks and insurance companies to back the financial commitments they were making. Questions regarding bank solvency,…...

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