Subprime Crisis. By: Brad, Mario, Andrew, Matt. April 30, 2008 . Keep In Mind. Overview. Deregulation. Securitization. .com & 9/11. Housing Boom. Housing Bust. Bailout. Deregulation. 1977- Community Reinvestment Act
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By: Brad, Mario, Andrew, Matt
April 30, 2008
.com & 9/11
March 10th 2000
9/11 Spawned a re-emergence of patriotic spending and owning your own home.
“The traditional fixed-rate mortgage
may be an expensive way
of financing a home.
American consumers might benefit
if lenders provided greater mortgage
to the traditional fixed-rate mortgages.”
Increase in Demand for Homes
“The provision of such liquidity
support undermines the efficient p
ricing of risk…
that encourages excessive risk-takingand
sows the seeds of a future financial crisis.”
“It is is the job
of economic policy makers
to mitigate the fallout
when it occurs.”
Supply & Demand
Falling Home Prices
default rates among Subprime loans
43% were Subprime ARMs even though these loans only made up 6.8% of the loans outstanding
Average 60% rolled over
Now 80-95% is rolled over
A way to hedge
A way to speculate
As of December 22, 2007, the Economist estimated Subprime defaults would reach a level between U.S. $200-300 billion.
“Most people told us house prices
never go down on a national level,
and that there had never been a default
of an investment-grade-rated mortgage bond."
AL, Would you like
to work for me?
People burning homes
Disproportionate levels of foreclosures
46% of Hispanics
55% of African-Americans
obtained mortgages in 2005 with higher cost loans.
“The so called stimulatory impact
we got in the early 2000s
when rates were low was due
to Subprime borrowing
and house spending.”
Edward M. Gramlich