Mortgage loss

8/17/2019 Mortgage loss

1/16

U.S. Subprime Mortgage Crisis

Presented to

Professor Castillo-Ponce

Presented by

Qian Sun

Man Ying Ha

Econ 490 / Winter 00!


2/16

Subprime Mortgage Crisis

S"ar# rise in "o$e foreclosures in late 00% &nly 9' in (99%) (*' in (999) 0' in 00% +(,* rillion sub#ri$e $ortgage as of Marc" 00. "e delinuency rate "ad risen to (' by 00!

Subprime Borrowers or #oor credit "istory 1i$ited inco$e

Subprime Lenders 2reater ris3s Hig" returns


3/16

New Model of Mortgage Lending

Source 55C 6e7s


4/16

Causes of the Crisis

The Housing Downturn E8cess su##ly of "o$e inentory Sales olu$e of ne7 "o$es dro##ed

:educed $ar3et #rices ;(0,4' (/0%-(/0.< =ncreasing foreclosure rates

Borrowers >ifficulties in re-financing

5egin to default on loans Wal3 a7ay fro$ #ro#erties raudulent $isre#resentations


5/16


Financial Institutions ?ttraction fro$ "ig" returns

&ffered "ig"-ris3 loan and incenties

5eliees t"at 7ill #ass on t"e ris3 to ot"ers

Securitization Mortgage bac3ed securities

:is3 readily transferred to ot"er inestors ro$ @4' in 00( to .@' in 00%


6/16


Government and Regulators Co$$unity :einest$ent ?ct) encourages t"e

deelo#$ent of t"e sub#ri$e debacle

2lass-Steagall ?ct contributes to t"e sub#ri$e crisis;>=C bac3 u#<

entral ban!s 1ess concerned 7it" aoiding asset bubbles

:eact after bubbles burst to $ini$iAe t"e i$#act 6o deter$ination on $onetary #olicy

=nstitutions ris3 $ore because of edBs rescue


7/16

Direct Impacts of the Crisis

Stoc! "ar!et

0!/(@/0. >o7 ones "ad dro##ed belo7 (*)000 fro$

ulyBs (4000 irst * 7ee3s of 0!) t"e >o7 ones =ndustrial

?erage fell 9'

(/(!/0! >o7 ones/0,@') SDP @00/0,%') and6?S>?Q/0,*'

0(/(/0! ;blac3 Monday< t"e 7orldBs biggest fallssince Se#t, (() 00(


8/16


Financial Institutions # Ban!ruptc$

6e7 Century inancial ;S?


9/16


Financial Institutions # %rite&Downs

Citigrou# ;S?< - +4,( bln Merrill 1ync" ;S?< - +,@ bln 5S ?2 ;S7itAerland< - +(%,. bln Morgan Stanley ;S?< - +(0,* Credit ?gricole ;rance< - +4,! bln HS5C ;nited Gingdo$< - +*,4 bln 5an3 of ?$erica ;S?< - +@,! bln C=5C ;Canada< F *, bln >eutsc"e 5an3 ;2er$any< - +*,( bln

5y 0/(9/0! losses or 7rite-do7ns ,S, +(@0 bln5e e8#ected e8ceeding +00 - +400 bln


10/16

Domestic Impacts of the Crisis

Home 'wners Housing #rices do7n (0,4' in >ec, 0. s, year-ago Sales of ne7 "o$es dro##ed by %,4' in 0. s, 0% 5y an, 00!) t"e inentory of unsold ne7 "o$es

stood at 9,! $ont"s) t"e "ig"est leel since (9!(, 7o $illion fa$ilies 7ill be eicted fro$ t"eir "o$es

"inorities >is#ro#ortionate leel of foreclosures in $inority 4%' His#anics) @@' blac3s got "ig"er cost loans


11/16

Domestic Impacts of the Crisis

(conom$ ondition :ecession

1o7 2>P gro7t" rate

5usiness close out or lose $oney ;ban3s) builders etc,< Wea3 financial $ar3et

1o7 consu$er s#ending

1ose Iobs

'ther credit mar!ets Credit card Car loan


12/16

Global Impacts of the Crisis

Investors will be ver$ cautious to act 1ac3 confidence in stoc3/bound $ar3et

onsumer spending will slowdown 1ac3 of cas" or un7illing to s#end

%orld econom$ ma$ slip into recession ,S, econo$y condition 7ill affect global econo$y

GD) growth will be low 1ose businesses

1ose Iobs Econo$y slo7 do7n


13/16

Global Impacts of the Crisis

Financial mar!et May ta3e long ti$e to recoer

*nemplo$ment rate ma$ be high Slo7 econo$y increase une$#loy$ent rate

(+ports will decrease in hina, -orea, Taiwan 2>P gro7t" "eaily de#ends on e8#ort

http://en.wikipedia.org/wiki/Image:George-W-Bush.jpeg


14/16

Government and Central an!s" #ctions

0!/00.) President 5us" announced F Ho#e 6e7 ?lliance

0/(*/0!) President signed a ta8 rebates of +(%! bln

09/(!/0.) t"e ed dro##ed rate J #oint

(0/*(/0.) K #oint cut by ed

(/((/0.) K #oint cut by ed

0(//0! t"e ed slas"ed t"e rate by */4 #oints to *,@'

0(/*0/0! anot"er cut of (/ #oints to *'

Central 5an3s "ae #u$#ed billions of dollars to ban3s

Central 5an3s of t"e 7orld "ae done t"e sa$e t"ing

http://en.wikipedia.org/wiki/Image:Bernanke_ben.jpghttp://en.wikipedia.org/wiki/Image:George-W-Bush.jpeg


15/16

$orecasting

Two Di..erent 'pinions/(, "e crisis 7onBt affect global econo$y dee#ly

, "e crisis 7ill lead t"e global econo$y to recession

Alan Greenspan stated: ”The current credit crisis willcome to an end when the overhang of inventories ofnewly built homes in largely liquidated, and home pricedeflation comes to an end . . . After a period of

protracted adjustment, the .!. economy, and the worldeconomy more generally, will be able to get bac" to

business.”


16/16

%han! &ou'

Documents

Mortgage loss