Nobody downloaded yet

Subprime Mortgage Crisis - Essay Example

Comments (0) Cite this document
The subprime mortgage crisis is an ongoing economic problem manifesting itself through liquidity issues in the global banking system owing to foreclosures which accelerated in the United States in late 2006 and triggered a global financial crisis during 2007 and 2008…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER93.4% of users find it useful
Subprime Mortgage Crisis
Read TextPreview

Extract of sample "Subprime Mortgage Crisis"

Download file to see previous pages This all lies in the fundamental of economics that teaches us that diversification is king and solution for reducing financial risk. It has now come back to haunt us.
What can we learn from this That Harry Markowitz, father of financial risk management, and Thomas Friedman, father of globalization should maybe start writing about the correlation of such economics! Unfortunately, it is not that simple. But before we unleash an economic debate on this painful economic downturn we should intellectually dissect the individuals and the players responsible for the causes and facts that have resulted in the inevitable financial depression in the real estate industry. "It started with the real, it will end will real estate."
"Sub-Prime lending typically has been characterized as lending at relatively costly interest rates and fees to credit impaired or otherwise high risk borrowers." (Lax, Manti, Raca, & Zorn, 2004). Subprime loans are among the newly popular mortgage products, such as interest-only loans, for people with strained budgets, including first-time buyers. Homeowners increasingly use them to refinance and consolidate household debts when their credit scores fall in the wake of bankruptcy, high medical bills, or other setbacks. (Blanton, 2005). It is generally believed that the subprime borrowers emerge due to lack of the good credit history on their back and since there number grew historically therefore banks and financial institutions by spotting the opportunity started lending to them at higher interest rates due to the perceived risks involved in these subprime loans. Not only these subprime borrowers pay higher interest rates but they also pay higher upfront fees also at the time of booking their loans. Due to this profitable alterative, financial institutions take the risk and lend to those customers who would otherwise can not qualify for obtaining loans from the banking channels in the ordinary course of the business. In nutshell, we can say that subprime lending is lending to those who do not deserve it.
US Housing Bubble
Most of the subprime lending is made into the mortgages market of the Banks. Studies suggest that So-called subprime loans have helped boost US homeownership to a record 69 percent of households. They are being tapped by borrowers in all income ranges, who struggle with poor credit ratings stemming from modest incomes or excessive credit card or other debts. In Massachusetts, subprime loans, fueled by refinancing, have grown from 1.6 percent of mortgages in 2000 to 12.3 percent today. (Blanton, 2005).
Apart from that, the surge in the mortgage market was a result of generous monetary policy stance adapted by FED in order to ease the recession caused by the dot com bubble. Due to this reason, the interest rates were lowered by FED. This reduction in interest rates also induced financial institutions to lower the interest rates on the mortgages also. With the lowering interest rates, the demand for the homes increased which ultimately raised the prices for the new homes. In order to capture this rise in the property market, many financial institutions started easing off their standards to bring in more and more customers. This loosening in the standards allowed those borrowers to obtain mortgage loans who were otherwise not eligible to obtain the loans. Once these loans were obtained and subsequently securitized by the issuing financial ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Subprime Mortgage Crisis Essay Example | Topics and Well Written Essays - 2000 words”, n.d.)
Subprime Mortgage Crisis Essay Example | Topics and Well Written Essays - 2000 words. Retrieved from
(Subprime Mortgage Crisis Essay Example | Topics and Well Written Essays - 2000 Words)
Subprime Mortgage Crisis Essay Example | Topics and Well Written Essays - 2000 Words.
“Subprime Mortgage Crisis Essay Example | Topics and Well Written Essays - 2000 Words”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Subprime Mortgage Crisis

CinnZeo Strategic Expansion Plan

2 Pages(500 words)Research Paper

The Impact of the Subprime Mortgage Crisis on the UK Economy

...?Running Head: Impact of Subprime Mortgage Crisis on the UK Economy Impact of Subprime Mortgage Crisis on the UK Economy [Institute’sName] Impact of Subprime Mortgage Crisis on the UK Economy The UK sub-prime mortgage crisis initiated rigorous fiscal market upsets. These upsets, together with the extensively reported credit crisis, have deepened what otherwise might have been a placid financial slump. The UK financial system is now in the middle stages of a financial slump. A number of regions of the country will undergo excessively harsh...
8 Pages(2000 words)Literature review

Causes for the 2007-2008 Subprime Mortgage Crisis the role of mortgage-backed securities on the bank leverage

...? Causes for the 2007-2008 Subprime Mortgage Crisis; the role of mortgage-backed securities on the bank leverage TABLE OF CONTENTS RESEARCH METHODOLOGY 4 1.1 Chapter Introduction 4 1.2 Justification of Methodology 4 1.3 Research objectives 5 1.3.1 Positivism 6 1.3.2 Interpretivism 6 1.4 Qualitative Research 7 1.5 Quantitative Research 8 1.7 Instruments used 8 1.8 Time Horizon 9 1.8.1 Cross-sectional study 9 1.8.2 Longitudinal Study 9 1.9 Data Collection Method 10 1.9.2 Secondary Data 10 1.10 Method of Analysis 10 1.11 Ethical Considerations 11 2. Results and Findings 12 2.1 Lehman Brother 12 2.1.1 Lehman Brother before Bankruptcy 12 2.1.2 Bankruptcy of Lehman as a pointer...
34 Pages(8500 words)Dissertation

Subprime Mortgage Crisis

...LITERATURE REVIEW The unique situation Numerous experts believed that the crisis would have been controlled within the platform of mortgage issuers who had clogged on the subprime loans. In fact, majority of experts never thought that the subprime fallout would be so severe to an extent of threatening the economy. While mortgage and house markets downtowns have been causes of economic problems in various parts of the world, but experts assert that this situation is unique (Simkovic 257). This study reveals that, the uniqueness of their situation explains for the first time ever downturns are motivated by a credit crisis in the...
7 Pages(1750 words)Research Paper

Ethical Problems in Subprime Mortgage Crisis

...According to USA Today, US $300 billion in subprime Adjustible Rate Mortgages (ARMs) will reset before the end of the year to higher interest rates. This means higher interest payments and a harder time for refinancing by the borrowers. Many middle-class Americans have been hit the hardest in the subprime crisis and these homeowners have already prepared and submitted their foreclosure filings. The main issue on the subprime mortgage crisis is the lack of transparency and accountability in the conduct of the financial transactions from the lender to the borrowers. Transparency and accountability helps speed up business transactions and assures the continued growth and profitability of the mortgage housing sector. The lack... that is...
2 Pages(500 words)Essay

Subprime Crisis

..."On the Subprime Crisis" The subprime housing mortgage crisis currently gripping the United s has become an issue of epic proportions, with serious implications not only on the country's capital markets but towards the prevailing world economy as well. As the rest of the world looks on wistfully, one can only hope that the country can emerge from this dilemma relatively unscathed. According to Global Financial Stability Report (GFSR) released by the International Monetary Fund (IMF), the crisis that has emanated from the subprime crisis has started a chain reaction which has affected markets all over...
3 Pages(750 words)Essay

Mortgage Crisis

...: The Domino Effect: Subprime borrowers, with low rates of 7% to 8%, will see rates reset at numbers like 11%. Prime borrowers are seeing rates jump to 20% and more causing them to come near to defaulting on their loans. This increase in rates will create a domino effect altering most of the financial markets. The Bigger Picture: The mortgage crisis is simply one side of the coin. With the failing economy mortgage lenders and banks are finding it hard to find the cash to support the foreclosures. With the low house demand and the growing defaults companies like American Home Mortgage Investment Corp. and Delta Financial Corp., filed for Chapter 11...
2 Pages(500 words)Essay

The Value of Subprime Mortgage

...Introduction Homeownership is the ultimate “American dream” and the largest significant economic factor of wealth creation for Americans. More so, homeownership is “a forced saving device”1 allowing borrowers to access the equity in their homes. However, to achieve that “American Dream” consumers can gain access to mortgages via a prime mortgage or a sub prime mortgage. As such, for many Americans the means to achieving the “American Dream” or tapping the equity in their home is through the option of a subprime mortgage. Although this paper does not address prime mortgages, prime mortgages “are typically made to...
15 Pages(3750 words)Essay

Subprime mortgage crisis of 2007-09 & the recent Eurozone crisis

...Subprime Mortgage Crisis of 2007-09 and The Recent Eurozone Crisis The subprime mortgage crisis and the Eurozone crisis share a lot in common much asthey have their differences. One similarity between the two crisis is with respect to their causes. In both cases, the interest rates were lowered so that even parties that were sub- prime had easy access to loans. In the case of the Eurozone, countries like Portugal, Ireland, Greece, and Spain (PIGS) spend a lot of money borrowed from the market to finance subsidies and bank bailouts among other expenses (Belkin, Weiss, Nelson & Mix 7). ...
1 Pages(250 words)Essay

Subprime Mortgage Crisis

When home prices started falling and those loans started to go bad, Bear’s creditors got scared and pulled their money out of the investment bank. The U.S. subprime mortgage crisis was an unfolding of events and that were significant aspects of a financial recession and subsequent crisis that was manifested significantly in 2008. It was characterized by an upsurge in subprime mortgage and foreclosures, and the resultant drop of securities was backed up by the mortgages. These mortgage-backed securities (MBS) and collateralized debt obligations (CDO) usually offered attractive return rates due to the high rates of interest on the mortgages but the lower quality of credit ultimately caused hu...
4 Pages(1000 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Subprime Mortgage Crisis for FREE!

Contact Us