1 / 9

Subprime Mortgages and the Financial Crisis

Subprime Mortgages and the Financial Crisis. Created by: Haley Muir. Subprime Mortgages. Mortgages offered to borrowers with a lower credit rating Usually below 600 Caused by making late bill payments or declaring bankruptcy Higher interest rates to compensate higher risk

esme
Télécharger la présentation

Subprime Mortgages and the Financial Crisis

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Subprime Mortgages and the Financial Crisis Created by: Haley Muir

  2. Subprime Mortgages • Mortgages offered to borrowers with a lower credit rating • Usually below 600 • Caused by making late bill payments or declaring bankruptcy • Higher interest rates to compensate higher risk • Can be fixed or adjustable • Smarter financial decision to build up credit, and invest in conventional mortgage later

  3. Subprime Mortgages Cont. • Not intended as long-term financing • ‘Bridge’ loan to more permanent financing • Chance to build repayment history • Build equity in the house • Refinance into lower-priced mortgage • Borrowers who are unable to refinance have higher default rates

  4. Rise in Subprime Mortgages • Boom in housing • Standards for mortgages began to ease

  5. Residential Mortgage Backed Securities • Loans are purchased from issuing firms, and then assembled into pools that are sold to investors • Securitization of residential mortgages was dominated by Fannie Mae and Freddie Mac • Only extended loans to higher quality borrowers • Subprime market doesn’t meet requirements • Private label RMBSs

  6. Private Label RMBSs • Made their way into the portfolios of a wide range of investors • Exposed through other types of asset-backed securities • Ex. Collateralized debt obligations and packaged RMBSs • Level of risk not always clear, so institutions placed all trust into credit rating agencies • Structured investments rated highly

  7. The Financial Crisis • By the end of 2005 delinquency rates were much higher • Changes in house prices, employment conditions weaker, and standards for receiving credit lower • Little or no house-price appreciation • Riskiness of subprime lending revealed!

  8. Subprime Market Now? • Alive, and well! • As of 2009: • Large banks had backed out • Smaller lenders picked up business • Borrowers have fewer options, so they can increase interest • More difficult to get home & auto loans • Credit cards more expensive

  9. Subprime Market Now? Cont. • As of 2012: • Headed down the wrong path once again • Financial institutions trying to make up for the billions of dollars lost due to new regulations • Lending is a sign of the economy improving • Subprime borrowers has not extended to mortgage market—open to only the most creditworthy!

More Related