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,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,U.S.Subprime Mortgage Crisis,Presented to,Professor Castillo-Ponce,2024/11/11,U.S.Subprime Mortgage Crisi,Subprime Mortgage Crisis,Sharp rise in home foreclosures in late 2006,Only 9%in 1996,13%in 1999,20%in 2006,$1.3 Trillion subprime mortgage as of March 2007,The delinquency rate had risen to 21%by 2008,Subprime Borrowers,For poor credit history,Limited income,Subprime Lenders,Greater risks,High returns,Subprime Mortgage CrisisSharp,New Model of Mortgage Lending,Source:BBC News,New Model of Mortgage LendingS,Causes of the Crisis,The Housing Downturn,Excess supply of home inventory,Sales volume of new homes dropped,Reduced market prices(10.4%12/06-12/07),Increasing foreclosure rates,Borrowers,Difficulties in re-financing,Begin to default on loans,Walk away from properties,Fraudulent misrepresentations,Causes of the CrisisThe Housin,Causes of the Crisis,Financial Institutions,Attraction from high returns,Offered high-risk loan and incentives,Believes that will pass on the risk to others,Securitization,Mortgage backed securities,Risk readily transferred to other investors,From 54%in 2001 to 75%in 2006,Causes of the CrisisFinancial,Causes of the Crisis,Government and Regulators,Community Reinvestment Act,encourages the development of the subprime debacle,Glass-Steagall Act contributes to the subprime crisis(FDIC back up),Central banks,Less concerned with avoiding asset bubbles,React after bubbles burst to minimize the impact,No determination on monetary policy,Institutions risk more because of Feds rescue,Causes of the CrisisGovernment,Direct Impacts of the Crisis,Stock Market,08/15/07 Dow Jones had dropped below 13,000 from Julys 14000,First 3 weeks of 08,the Dow Jones Industrial Average fell 9%,1/18/08 Dow Jones/0.5%,S&P 500/0.6%,and NASDAQ/0.3%,01/21/08(black Monday)the worlds biggest falls since Sept.11,2001,Direct Impacts of the CrisisSt,Direct Impacts of the Crisis,Financial Institutions Bankruptcy,New Century Financial(USA)Apr.2,2007,American Home Mortgage(USA)Aug.6,2007,Sentinel management Group(USA)Aug.17,2007,Ameriquest(USA)Aug.31,2007,NetBank(USA)Sept.30,2007,Terra Securities(Norway)Nov.28,2007,American Freedom Mortgage Inc.(USA)Jan.30,2007,Direct Impacts of the CrisisFi,Direct Impacts of the Crisis,Financial Institutions Write-Downs,Citigroup(USA)-$24.1 bln,Merrill Lynch(USA)-$22.5 bln,UBS AG(Switzerland)-$16.7 bln,Morgan Stanley(USA)-$10.3,Credit Agricole(France)-$4.8 bln,HSBC(United Kingdom)-$3.4 bln,Bank of America(USA)-$5.28 bln,CIBC(Canada)3.2 bln,Deutsche Bank(Germany)-$3.1 bln,By 02/19/08 losses or write-downs U.S.$150 bln,Be expected exceeding$200-$400 bln,Direct Impacts of the CrisisFi,Domestic Impacts of the Crisis,Home Owners,Housing prices down 10.4%in Dec.07 vs.year-ago,Sales of new homes dropped by 26.4%in 07 vs.06,By Jan.2008,the inventory of unsold new homes stood at 9.8 months,the highest level since 1981.,Two million families will be evicted from their homes,Minorities,Disproportionate level of foreclosures in minority,46%Hispanics,55%blacks got higher cost loans,Domestic Impacts of the Crisis,Domestic Impacts of the Crisis,Economy Condition,Recession,Low GDP growth rate,Business close out or lose money(banks,builders etc.),Weak financial market,Low consumer spending,Lose jobs,Other credit markets,Credit card,Car loan,Domestic Impacts of the Crisis,Global Impacts of the Crisis,Investors will be very cautious to act,Lack confidence in stock/bound market,Consumer spending will slowdown,Lack of cash or unwilling to spend,World economy may slip into recession,U.S.economy condition will affect global economy,GDP growth will be low,Lose businesses,Lose jobs,Economy slow down,Global Impacts of the CrisisIn,Global Impacts of the Crisis,Financial market,May take long time to recover,Unemployment rate may be high,Slow economy increase unemployment rate,Exports will decrease in China,Korea,Taiwan,GDP growth heavily depends on export,Global Impacts of the CrisisFi,Government and Central Banks Actions,08/2007,President Bush announced Hope New Alliance,02/13/08,President signed a tax rebates of$168 bln,09/18/07,the Fed dropped rate point,10/31/07,point cut by Fed,12/11/07,point cut by Fed,01/22/08 the Fed slashed the rate by 3/4 points to 3.5%,01/30/08 another cut of 1/2 points to 3%,Central Banks have pumped billions of dollars to banks,Central Banks of the world have done the same thing,Government and Central Banks,Thank You!,Thank You!,
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