Home Loans
Tuesday, April 29th, 2008 by Decor Guru Subscribe To Our Feed
From Wikipedia: Mortgage lenders [138] [139] and home builders [140] [141] fared terribly, but losses cut across sectors, with some of the worst-hit industries, such as metals & mining companies, having only the vaguest connection with lending or mortgages.
Debt Consolidation
Crisis has caused panic in financial markets and encouraged investors to take their money out of risky mortgage bonds and shaky equities and put it into commodities as “stores of value”.
[edit] Effect on financial institutions
See also: Subprime crisis impact timeline
Credit Card Consolidation
Many banks, mortgage lenders, real estate investment trusts (REIT), and hedge funds suffered significant losses as a result of mortgage payment defaults or mortgage asset devaluation. As of April 18, 2008 financial institutions had recognized subprime-related losses or write-downs exceeding U.S. $240 billion.
Heloc
ICICI, India’s second largest bank, has reported mark-to-market loss of $263 million in its loans and investment exposures. Other state owned banks such as State Bank of India, Bank of India and Bank of Baroda have refused to release their figures.[152]
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[edit] Effect on municipal bond “monoline” insurers
By insuring municipal bond issues, those bonds achieve higher debt ratings.
[edit] Effect on home owners
Further information: United States housing market correction
Sales volume (units) of new homes dropped by 26.4% in 2007 versus the prior year. As home prices have declined following the rise of home prices caused by speculation and as re-financing standards have tightened, a number of homes have been foreclosed and sit vacant.
[edit] Effect on jobs of the financial sector
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[edit] Actions to manage the crisis
[edit] The Federal Reserve
The U.S. central banking system, the Federal Reserve, in partnership with central banks around the world, has taken several steps to address the crisis. [168][169] The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank’s lending facility via the Discount window.
The Fed and other central banks have conducted open market operations to ensure member banks have access to funds (i.e., liquidity). These are effectively short-term loans to member banks collateralized by government securities. Central banks have also lowered the interest rates charged to member banks (called the discount rate in the U.S.) for short-term loans. First, they help provide access to funds for those entities with illiquid mortgage-backed securities. This helps these entities avoid selling the MBS at a steep loss. Specific responses by central banks are included in the subprime crisis impact timeline.
The Fed is utilizing the Term auction facility (TAF) to provide short-term loans (liquidity) to banks. Fed Chairman Bernanke also delivered a speech March 4, 2008 titled “Reducing Preventable Mortgage Foreclosures.” In March 2008, the Fed also provided funds and guarantees to enable bank J.P. Morgan Chase to purchase Bear Stearns, a large financial institution with substantial mortgage-backed securities (MBS) investments that had recently plunged in value.
[edit] Loan modification / Hope Now Alliance
Some lenders have taken action to reach out to homeowners to provide more favorable mortgage terms (i.e., loan modification or refinancing).
[edit] Credit rating agencies
Credit rating agencies help evaluate and report on the risk involved with various investment alternatives. Rating agencies have recently begun to aggressively downgrade large amounts of mortgage-backed debt.[186]
[edit] [edit] Bank financial health
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Litigation related to the subprime crisis is underway. Defendants included mortgage bankers, brokers, lenders, appraisers, title companies, home builders, servicers, issuers, underwriters, bond insurers, money managers, public accounting firms, and company boards and officers.[193]
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As of November 22, 2007, analysts at a leading investment bank estimated losses on subprime CDO would be approximately U.S. $148 billion.[201]
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