Presentation Subprime Lending

7/28/2019 Presentation Subprime Lending

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Subprime Lending Crisis The subprime mortgage crisis, popularly known as the

mortgagemess ormortgagemeltdown.

Subprime crisis came to attention when a steep rise inhome foreclosures in 2006 spiraled seemingly out of control

in 2007 triggering a national financial crisis that went globalwithin the year.


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Roots of Subprime Lending Crisis Housing Bubble

Historically Low Interest Rates

The Rise of Subprime Lending.

The Bubble Bursts

Housing Market Correction

Declining Risk Premiums

Risky Mortgage Products and Lax Lending Standards

Securitization

Credit Rating Agencies

Financial institution debt levels and incentives

Government policies

Credit default swaps

US Balance of Payments

Boom and collapse of the shadow banking system


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Effects of Subprime Lending Crisis

Consumer spending went down, the housing market has plummeted, foreclosure numbers continueto rise and the stock market has been shaken.

The subprime crisis and resulting foreclosure fallout has caused opposition among consumers,lenders and legislators and laid furious debate over the causes and possible fixes of the mess

In its semiannual Global Financial Stability Report released on April 8, 2008, the InternationalMonetary Fund (IMF) said that falling U.S. housing prices and rising delinquencies on the residentialmortgage market could lead to losses of $565 billion dollars.

Combining these factors with losses from other categories of loans originated and securities issuedin the United States related to commercial real estate, IMF puts potential losses at about $945billion.

It was the first time that IMF has made an official estimate of the global losses suffered by banks andother financial institutions in the U.S. credit crunch that began in 2007 amid the rising number ofdefaults on subprime home loans.

The crisis had a shocking effect on the U.S. auto industry. New vehicle sales, which peaked at 17million in 2005, recovered to only 12 million by 2010.

Americans' second-largest household asset, dropped by 22 percent, from $10.3 trillion in 2006 to $8trillion in mid-2008. During the same period, savings and investment assets (apart from retirementsavings) lost $1.2 trillion and pension assets lost $1.3 trillion.


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Causes

The crisis began to affect the financial sector in February 2007, when HSBC,the world's largest (2008) bank, wrote down its holdings of subprime-relatedMBS by $10.5 billion, the first major subprime related loss to be reported. [179]During 2007, at least 100 mortgage companies either shut down, suspendedoperations or were sold.[180] Top management has not escaped unscathed,as the CEOs ofMerrill Lynch and Citigroup resigned within a week of eachother in late 2007.[181] As the crisis deepened, more and more financial firmseither merged, or announced that they were negotiating seeking mergerpartners.

During 2007, the crisis caused panic in financial markets and encouragedinvestors to take their money out of risky mortgage bonds and shaky equitiesand put it into commodities as "stores of value".[183] Financial speculation in

commodity futures following the collapse of the financial derivatives marketshas contributed to the world food price crisis and oil price increases due to a"commodities super-cycle."[184][185] Financial speculators seeking quickreturns have removed trillions of dollars from equities and mortgage bonds,some of which has been invested into food and raw materials.
http://en.wikipedia.org/wiki/HSBChttp://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/Mortgage_lawhttp://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/Merrill_Lynchhttp://en.wikipedia.org/wiki/Citigrouphttp://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/Commoditieshttp://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/2007%E2%80%932008_world_food_price_crisishttp://en.wikipedia.org/wiki/Oil_price_increases_since_2003http://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/Oil_price_increases_since_2003http://en.wikipedia.org/wiki/2007%E2%80%932008_world_food_price_crisishttp://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/Commoditieshttp://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/Citigrouphttp://en.wikipedia.org/wiki/Merrill_Lynchhttp://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/Mortgage_lawhttp://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/HSBC

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Presentation Subprime Lending