This article may require cleanup to meet Wikipedia's quality standards. Please improve this article if you can. (October 2007)

The subprime mortgage financial crisis, is an ongoing financial crisis that has caused a sharp rise in home foreclosures. The subprime mortgage market crisis started in the United States during Fall of 2006 and had become a global financial crisis by July 2007. Many factors created the crisis, but the most immediate causes were a rising interest rate environment which caused people with adjustable rate mortgages to see significant increases in their mortgage payments, and declining property values as the national real estate market finally began making corrections. This left many home owners unable or unwilling to meet financial commitments, and lenders without a means to recoup their losses. Many observers believe this has resulted in a severe credit crunch, threatening the solvency of a number of marginal private banks and other financial institutions. Image File history File links Broom_icon. ... Foreclosure is the equitable proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property (immovable property) due to the owners failure to comply with an agreement between the lender and borrower called a mortgage or deed of trust. ... Subprime lending, also called B-Paper, near-prime, or second chance lending, is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history. ... July 2007 is the seventh month of that year. ... A mortgage is a method of using property (real or personal) as security for the payment of a debt. ... A credit crunch is a recessionary period in a debt-based monetary system where growth in debt money (or credit) has slowed and subsequently causes a drying up of liquidity in an economy. ... In finance solvency is the ability of an entity to pay its debts with available cash. ... It has been suggested that this article or section be merged with private banking. ... A financial institution acts as an agent that provides financial services for its clients. ...

The sharp rise in foreclosures after the peak of the housing bubble caused several major subprime mortgage lenders, such as New Century Financial Corporation, to shut down or file for bankruptcy, with some accused of actively encouraging fraudulent income reporting on loan applications. This led to the collapse of stock prices for many in the subprime mortgage industry, and drops in stock prices of some large lenders like Countrywide Financial.^[1] and Citigroup^[2]. Foreclosure is the legal proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property (immovable property) due to the owners failure to comply with an agreement between the lender and borrower called a mortgage or deed of trust. Commonly, the violation of... Subprime lending, also called B-paper, near-prime, or second chance lending, is the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history. ... New Century Financial Corporation Pink Sheets: newxq was founded in 1995 by a trio of former managers at Option One Mortgage, including current Chief Executive Officer Brad Morrice gone, and is headquartered in Irvine, California. ... Countrywide Financial Corporation (NYSE: CFC) is a diversified financial marketing and service holding company engaged primarily in residential mortgage banking and related businesses. ... Citigroup Inc. ...

This has been associated with declines in stock markets worldwide, several hedge funds becoming worthless, coordinated national bank interventions, contractions of retail profits, and bankruptcy of several mortgage lenders. A hedge fund is a private investment fund charging a performance fee and typically open to only a limited range of qualified investors. ... This article does not cite any references or sources. ... Notice of closure stuck on the door of a computer store the day after its parent company, Granville Technology Group Ltd, declared bankruptcy (strictly, put into administration—see text) in the United Kingdom. ...

Observers of the meltdown have cast blame widely. Some, like Senate Banking, Housing, and Urban Affairs Committee chairman Chris Dodd of Connecticut, have highlighted the predatory lending practices of subprime lenders and the lack of effective government oversight.^[3] Others have charged mortgage brokers with steering borrowers to unaffordable loans even though lenders offered these borrowers programs that found them acceptable risks, appraisers with inflating housing values, and Wall Street investors with backing subprime mortgage securities without verifying the strength of the portfolios. Borrowers have also been criticized for over-stating their incomes on loan applications^[4] and entering into loan agreements they could not meet^[5] or did not understand.^[6]. Some subprime lending practices have also raised concerns about mortgage discrimination on the basis of race.^[7] The United States Senate Committee on Banking, Housing, and Urban Affairs has jurisdiction over matters related to banks and banking, price controls, deposit insurance, export promotion and controls, federal monetary policy, financial aid to commerce and industry, issuance of redemption of notes, currency and coinage, public and private housing, urban... Christopher John Dodd (born May 27, 1944) is an American lawyer and politician from Willimantic, Connecticut. ... Official language(s) English Capital Hartford Largest city Bridgeport[3] Largest metro area Hartford Metro Area[2] Area  Ranked 48th  - Total 5,543[4] sq mi (14,356 km²)  - Width 70 miles (113 km)  - Length 110 miles (177 km)  - % water 12. ... Predatory lending is a pejorative term used to describe practices of some lenders. ... Mortgage discrimination or mortgage lending discrimination is the practice of banks, governments or other lending institutions denying loans to one or more groups of people primarily on the basis of race, ethnic origin, sex or religion. ...

The effects of the meltdown spread beyond housing and disrupted global financial markets (see financial contagion and systemic risk) as investors, largely deregulated foreign and domestic hedge funds, were forced to re-evaluate the risks they were taking and consumers lost the ability to finance further consumer spending, causing increased volatility in the fixed income, equity, and derivative markets. There are very few or no other articles that link to this one. ... Systemic risk describes the likelihood of the collapse of a financial system, such as a general stock market crash or a joint breakdown of the banking system. ... The term hedge fund dates back to the first such fund founded by Alfred Winslow Jones in 1949. ... Consumer demand or consumption is also known as personal consumption expenditure. ...

The impact on the economy of this American problem was also felt in Europe, where the European Central Bank tried to control the crisis by injecting over USD$ 205 billion in the European financial markets.^[8] For other uses, see Europe (disambiguation). ... Headquarters Coordinates , , Established 1 January 1998 President Jean-Claude Trichet Central Bank of Austria, Belgium, France, Finland, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Slovenia, Spain Currency Euro ISO 4217 Code EUR Reserves €43bn directly, €338bn through the Eurosystem (including gold deposits). ... USD redirects here. ...

Background information

Main article: Subprime lending

Subprime lending is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history or the ability to prove that they have enough income to support the monthly payment on the loan for which they are applying. Subprime loans or mortgages are risky for both creditors and debtors because of the combination of high interest rates, bad credit history, and murky financial situations often associated with subprime applicants. A subprime loan is one that is offered at an interest rate higher than A-paper loans due to the increased risk. Subprime, therefore, is not the same as "Alt-A", because Alt-A loans qualify for the "A-rating" by Moody's or other rating firms, albeit for an "alternative" means. Subprime lending, also called B-paper, near-prime, or second chance lending, is the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history. ... Subprime lending, also called B-paper, near-prime, or second chance lending, is the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history. ... A loan is a type of debt. ... An interest rate is the price a borrower pays for the use of money he does not own, and the return a lender receives for deferring his consumption, by lending to the borrower. ... Credit history or credit report is, in many countries, a record of an individuals or companys past borrowing and repaying, including information about late payments and bankruptcy. ... The introduction to this article provides insufficient context for those unfamiliar with the subject matter. ... An Alt-A mortgage is a type of U.S. mortgage that, for various reasons, is considered riskier than prime and less risky than subprime, the riskiest category. ... Moodys Corporation (NYSE: MCO) is the holding company for Moodys Investors Service which performs financial research and analysis on commercial and government entities. ...

The value of U.S. subprime mortgages was estimated at $1.3 trillion as of March 2007,^[9] with over 7.5 million first-lien subprime mortgages outstanding.^[10]Approximately 16% of subprime loans with adjustable rate mortgages (ARM) are 90-days into default or in foreclosure proceedings as of October 2007, roughly triple the rate of 2005.^[11] A total of nearly 447,000 U.S. homes were targeted by some sort of foreclosure activity from July to September 2007, including those with prime, alt-A and subprime loans. This is nearly double the 223,000 properties in the year-ago period and 34% higher than the 333,000 in the prior quarter.^[12] The estimated value of subprime adjustable-rate mortages (ARM) resetting at higher interest rates is U.S. $400 billion for 2007 and $500 billion for 2008. Reset activity is expected to increase to a monthly peak in March 2008 of nearly $100 billion, before declining.^[13] An average of 450,000 subprime ARM are scheduled to undergo their first rate increase each quarter in 2008.^[14]

Understanding the causes and risks of the subprime crisis

This is the good reason The reasons for this crisis are varied and complex.^[15] Understanding and managing the ripple effect through the world-wide economy is a critical challenge for governments, businesses, and investors. The risks related to the inability of homeowners to make their mortgage payments have been distributed broadly, due to innovations in securitization, with a series of consequential impacts. The crisis can be described as stemming from the inability of homeowners to make their mortgage payments due to a variety of factors such as poor judgment by either the borrower or the lender, mortgage incentives, and rising adjustable mortgage rates. Further, declining home prices have made re-financing more difficult. There are three primary risk categories involved: This article is about securitization in finance. ...

• Credit risk: Traditionally, the risk of default (called credit risk) would be assumed by the bank originating the loan. However, due to innovations in securitization, credit risk is now shared more broadly with investors. This is because the rights to these mortgage payments have been repackaged into a variety of complex investment securities, generally categorized as mortgage-backed securities (MBS) or collateralized debt obligations (CDO). A CDO, essentially, is a repacking of existing debt, and in recent years MBS collateral has made up a large proportion of issuance. In exchange for purchasing the MBS, third-party investors receive a claim on the mortgage assets, which become collateral in the event of default. Further, the MBS investor has the right to cash flows related to the mortgage payments. To manage their risk, mortgage originators (e.g., banks or mortgage lenders) may also create separate legal entities, called special-purpose entities (SPE), to both assume the risk of default and issue the MBS. The banks effectively sell the mortgage assets (i.e., banking receivables, which are the rights to receive the mortgage payments) to these SPE. The SPE then sells the MBS to the investors. The mortgage assets in the SPE become the collateral.

• Asset price risk: Most CDOs require that a number of tests be satisfied on a periodic basis, such as tests of interest cash flows, collateral ratings, or market values. Because the ability of sub-prime and lower-quality (e.g., Alt-A) mortgage homeowners to pay is now in question, the value of the mortgage asset may be reduced suddenly. For deals with market value tests, if the valuation falls below certain levels, the CDO may be required by its terms to sell collateral in a short period of time, often at a steep loss, much like a stock brokerage account margin call. If the risk is not legally contained within an SPE or otherwise, the entity owning the mortgage collateral may be forced to sell other types of assets, as well, to satisfy the terms of the deal.

• Liquidity risk: A related risk involves the commercial paper market, a key source of funds (i.e., liquidity) for many companies. Companies and SPE called structured investment vehicles (SIV) often obtain short-term loans by issuing commercial paper, pledging mortgage assets or CDO as collateral. Investors provide cash in exchange for the commercial paper, receiving money-market interest rates. However, because of concerns regarding the value of the mortgage asset collateral linked to subprime and Alt-A loans, the ability of many companies to issue such paper has been significantly affected.^[16] The amount of commercial paper issued as of October 18, 2007 dropped by 25%, to $888 billion, from the August 8 level. In addition, the interest rate charged by investors to provide loans for commercial paper has increased substantially above historical levels.^[17]

Credit risk is the risk of loss due to a debtors non-payment of a loan or other line of credit (either the principal or interest (coupon) or both). ... A mortgage-backed security (MBS) is a bond whose cash flows are backed by homeowners mortgage payements. ... A cash flow collateralized debt obligation, or cash flow CDO, is a structured finance product that typically securitizes a diversified pool of debt assets. ... A margin call is the demand, in a margin account, for additional funds, additional money or securities, to be deposited into the account. ... Commercial paper is a money market security issued by large banks and corporations. ...

Understanding the impact on corporations and investors

Average investors and corporations face a variety of risks due to the inability of mortgage holders to pay. These vary by legal entity. Some general exposures by entity type include:

• Bank corporations: The earnings reported by major banks are adversely affected by defaults on mortgages they issue and retain. Companies value their mortgage assets (receivables) based on estimates of collections from homeowners. Companies record expenses in the current period to adjust this valuation, increasing their bad debt reserves and reducing earnings. Rapid or unexpected changes in mortgage asset valuation can lead to volatility in earnings and stock prices. The ability of lenders to predict future collections is a complex task subject to a multitude of variables.^[18]

• Mortgage lenders and Real Estate Investment Trusts: These entities face similar risks to banks. In addition, they have business models with significant reliance on the ability to regularly secure new financing through CDO or commercial paper issuance secured by mortgages. Investors have become reluctant to fund such investments and are demanding higher interest rates. Such lenders are at increased risk of significant reductions in book value due to asset sales at unfavorable prices and several have filed bankruptcy.^[19]

• Special purpose entities (SPE): Like corporations, SPE are required to revalue their mortgage assets based on estimates of collection of mortgage payments. If this valuation falls below a certain level, or if cash flow falls below contractual levels, investors may have immediate rights to the mortgage asset collateral. This can also cause the rapid sale of assets at unfavorable prices. Other SPE called structured investment vehicles (SIV) issue commercial paper and use the proceeds to purchase securitized assets such as CDO. These entities have been affected by mortgage asset devaluation. Several major SIV are associated with large banks.^[20]

• Investors: The stocks or bonds of the entities above are affected by the lower earnings and uncertainty regarding the valuation of mortgage assets and related payment collection.

Commercial paper is a money market security issued by large banks and corporations. ...

Causes of the crisis

Role of lenders

A variety of factors have caused lenders to offer an increasing array of higher-risk loans to higher-risk borrowers. The share of subprime mortgages to total originations increased from 9% in 1996, to 20% in 2006. Due to securitization, investor appetite for mortgage-backed securities (MBS), and the tendency of rating agencies to assign investment-grade ratings to MBS, loans with a high risk of default could be originated, packaged and the risk readily transferred to others.

In addition to considering higher-risk borrowers, lenders have offered increasingly high risk loan options and incentives to them. One example is the interest-only adjustable-rate mortgage (ARM), which allows the homeowner to pay just the interest (not principal) during an initial period. Another example is a "payment option" loan, in which the homeowner can pay a variable amount, but any interest not paid is added to the principal. Further, an estimated one-third of ARM originated between 2004-2006 had "teaser" rates below 4%, which then increased significantly after some initial period, as much as doubling the monthly payment.^[21]

Some subprime lending practices have raised concerns about mortgage discrimination on the basis of race.^[7] As African Americans and other minorities are being disproportionately led to sub-prime mortgages with higher interest rates than their white counterparts.^[22] Even when median income levels were comparable, home buyers in minority neighborhoods were more likely to get a loan from a subprime lender.^[7] However, home ownership among black Americans has increased from 42% to 48% since the mid 1990's, with the overall rate of U.S. home ownership increasing from 64% to 69%. Subprime loans were a significant contributor to this increase.^[23] Mortgage discrimination or mortgage lending discrimination is the practice of banks, governments or other lending institutions denying loans to one or more groups of people primarily on the basis of race, ethnic origin, sex or religion. ... Subprime lending, also called B-paper, near-prime, or second chance lending, is the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history. ...

Role of homeowners

Homeowners had been using the increased property value experienced in the housing bubble to refinance their homes with lower interest rates and take out second mortgages against the added value to use the funds for consumer spending. Between 1997 and 2006, American home prices increased by 124%.^[24] Easy credit, combined with the assumption that housing prices would continue to appreciate, also encouraged many subprime borrowers to obtain ARMs they could not afford after the initial incentive period. With housing prices now depreciating moderately in many parts of the U.S., refinancing has become difficult, leaving homeowners with higher payments than anticipated. The current US property bubble is the United States economic bubble in real estate following the stock market bubble in the 1990s called, among other things, the dot-com bubble. ... A second mortgage typically refers to a secured loan (or mortgage) that is subordinate to another loan against the same property. ...

In the early 2000s recession that began in early 2001 and which was exacerbated by the September 11, 2001 terrorist attacks, Americans were asked to spend their way out of economic decline with "consumerism... cast as the new patriotism". This call linking patriotism to shopping echoed the urging of former President Bill Clinton to "get out and shop"^[25], and corporations like General Motors produced commercials with the same theme. The Early 2000s recession was felt in mostly Western countries, affecting the European Union mostly during 2000 and 2001 and the United States mostly in 2002 and 2003. ... The World Trade Center on fire The September 11, 2001 attacks were a series of coordinated terrorist attacks against the United States on September 11, 2001. ... Consumerist redirects here. ... Defence of the fatherland is a commonplace of patriotism: The statue in the courtyard of École polytechnique, Paris, commemorating the students involvement in defending France against the 1814 invasion of the Coalition. ... William Jefferson Bill Clinton (born William Jefferson Blythe III[1] on August 19, 1946) was the 42nd President of the United States, serving from 1993 to 2001. ... General Motors Corporation, also known as GM, an American multinational corporation, is the worlds largest auto company by production volume for the first 9 months of 2007, and by sales volume for 76 consecutive years. ...

The housing bubble was largely fed by the lowering of interest rates to record low levels to diminish the blow of the massive collapse of the dot-com bubble. The collapse of the housing bubble, and resultant decline in property values, and increase in defaults has left lenders unable to recover losses.^[26] The dot-com bubble was a speculative bubble covering roughly 1995–2001 during which stock markets in Western nations saw their value increase rapidly from growth in the new Internet sector and related fields. ...

Additional problems are anticipated in the future from the impending retirement of the baby boomer generation. It is believed that a significant proportion of baby boomers are not saving adequately for retirement and were planning on using their increased property value as a "piggy bank" or replacement for a retirement-savings account. This is a departure from the traditional American approach to homes where "people worked toward paying off the family house so they could hand it down to their children"^[27]. For the video game, see Baby Boomer (video game). ... Retirement is the point where a person stops employment completely. ...

Role of regulators

Some observers claim that government policy actually encouraged the development of the subprime debacle through legislation like the Community Reinvestment Act, which they say forces banks to lend to otherwise uncreditworthy consumers.^[28] The Community Reinvestment Act (or CRA, Pub. ...

In response to a concern that lending was not properly regulated, the House and Senate are both considering bills to regulate lending practices.^[29]

Regulators have turned their attention to rating agencies, who they think may have been conflicted in rating securitization transactions containing subprime mortgages.^[30] A credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations. ... A conflict of interest is a situation in which someone in a position of trust, such as a lawyer, a politician, or an executive or director of a corporation, has competing professional or personal interests. ... This article is about securitization in finance. ...

Role of rating agencies

Rating agencies are now under scrutiny for giving investment-grade ratings to securitization transactions holding subprime mortgages. Higher ratings are theoretically due to the multiple independent mortgages held in the MBS per the agencies, but critics claim that conflicts of interest were in play. A credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations. ... This article is about securitization in finance. ...

Role of central banks

Central banks are primarily concerned with managing the rate of inflation and avoiding recessions. They are also the “lenders of last resort” to ensure liquidity. They are less concerned with avoiding asset bubbles, such as the housing bubble and dotcom bubble. Central banks have generally chosen to react after such bubbles burst to minimize collateral impact on the economy, rather than trying to avoid the bubble itself. This is because identifying an asset bubble and determining the proper monetary policy to properly deflate it are not proven concepts. There is significant debate among economists regarding whether this is the optimal strategy.^[31] The current US property bubble is the United States economic bubble in real estate following the stock market bubble in the 1990s called, among other things, the dot-com bubble. ... Dot-com (also dotcom or redundantly dot. ...

Impact on stock markets

On July 19, 2007, the Dow Jones Industrial Average hit a record high, closing above 14,000 for the first time.^[32] By August 15, the Dow had dropped below 13,000 and the S&P 500 had crossed into negative territory year-to-date. Similar drops occurred in virtually every market in the world, with Brazil and Korea being hard-hit. Large daily drops became common, with, for example, the KOSPI dropping about 7% in one day,^[33] although 2007's largest daily drop by the S&P 500 in the U.S. was in February, a result of the subprime crisis. is the 200th day of the year (201st in leap years) in the Gregorian calendar. ... Linear graph of the DJIA from 1901 until today Logarithmic graph of the DJIA from 1901 until today The Dow Jones Industrial Average (NYSE: DJI, also called the DJIA, Dow 30, or informally the Dow Jones or The Dow) is one of several stock market indices created by nineteenth-century... is the 227th day of the year (228th in leap years) in the Gregorian calendar. ... The S&P 500 is an index containing the stocks of 500 Large-Cap corporations, most of which are American. ... The Korea Composite Stock Price Index (KOSPI) is an index of all companies traded on the Korea Stock Exchange. ...

Mortgage lenders^[34][35] and home builders ^[36][37] 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.^[38]

Impact on corporations and other business entities

See also: Subprime crisis impact timeline

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 November 21, 2007 banks had recognized subprime-related losses exceeding U.S. $30 billion, with an additional $8-$11 billion expected from Citibank.^[39][40] Other companies around the world have also suffered significant losses, from Europe to China.^[41]Scores of mortgage lenders have filed for bankruptcy or are expected to do so during 2007.^[42] The purpose of this article is to record specific day-by-day impacts of the 2007 Subprime mortgage financial crisis. ...

Top management has not escaped unscathed, as the CEOs of Merrill Lynch and Citigroup were forced to resign within a week of each other.^[43]

Specific impacts by entity are described further in the subprime crisis impact timeline. The purpose of this article is to record specific day-by-day impacts of the 2007 Subprime mortgage financial crisis. ...

Business filling for bankruptcy

Business	Type	Date
New Century Financial	subprime lender	April 2, 2007
American Home Mortgage	mortgage lender	August 6, 2007
Ameriquest	subprime lender	August 31, 2007
NetBank	on-line bank	September 30, 2007
Sentinel Management Group

Loss due to subprime crisis

Business	Type	Loss
Citigroup	investment bank	$11,000,000,000 [44]
Merrill Lynch	investment bank	$8,400,000,000[45]
Barclays Capital	investment bank	£1,300,000,000 [46]
HSBC	bank	$3,400,000,000 [47]
Swiss Re	re-insurance	$ 1,070,000,000 [48]
UBS AG	investment bank	$3,600,000,000 [49]
Deutsche Bank	bank	€2,200,000,000 [50]
Bear Stearns	investment bank	$1,200,000,000 [51]
Morgan Stanley	investment bank	$3,700,000,000 [52]
Lehman Brothers	investment bank	$700,000,000[53]
Freddie Mac	mortgage GSE	$3,600,000,000 [54]

Image File history File links This is a lossless scalable vector image. ... New Century Financial Corporation is an American mortgage REIT headquartered in Irvine, California. ... is the 92nd day of the year (93rd in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st century. ... Image File history File links This is a lossless scalable vector image. ... American Home Mortgage Investment Corporation (NYSE: AHM) is the 10th largest retail mortgage lender in the United States and it is structured as a real estate investment trust (REIT). ... is the 218th day of the year (219th in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st century. ... Image File history File links This is a lossless scalable vector image. ... Ameriquest is a national mortgage lender based in Orange, California with staff of 14,000 in 280 offices across the United States. ... is the 243rd day of the year (244th in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st century. ... Image File history File links This is a lossless scalable vector image. ... This article is about the United States bank with the name NetBank. ... is the 273rd day of the year (274th in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st century. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Citigroup Inc. ... Image File history File links This is a lossless scalable vector image. ... Merrill Lynch & Co. ... Image File history File links Flag_of_the_United_Kingdom. ... Barclays Capital is the investment banking division of Barclays Bank plc. ... Image File history File links Flag_of_the_United_Kingdom. ... For other uses, see HSBC (disambiguation). ... Image File history File links Flag_of_Switzerland. ... 30 St Mary Axe - at 180 m, Swiss Res London headquarters is the 6th tallest building in London Swiss Re is the worlds second-largest reinsurance company (after Munich Re/ Münchener Rück), and the worlds largest life and health reinsurer. ... Image File history File links Flag_of_Switzerland. ... UBS AG (NYSE: UBS; SWX: UBSN; TYO: 8657) is a diversified global financial services company, with its main headquarters in Basel & Zürich, Switzerland. ... Image File history File links Flag_of_Germany. ... Deutsche Bank AG (IPA: [1]) (ISIN: DE0005140008, NYSE: DB) (English: ) is a bank operating worldwide and employing more than 75,000 people (June, 2007). ... Image File history File links This is a lossless scalable vector image. ... The Bear Stearns Companies, Inc. ... Image File history File links This is a lossless scalable vector image. ... Morgan Stanley (NYSE: MS) is one of the largest and the most reputed investment banks headquartered in New York City. ... Image File history File links This is a lossless scalable vector image. ... Lehman Brothers Holdings Inc. ... Image File history File links This is a lossless scalable vector image. ... The Federal Home Loan Mortgage Corporation (FHLMC) NYSE: FRE, commonly known as Freddie Mac, is a government-sponsored enterprise (GSE) sponsored by the United States Government. ... The government sponsored enterprises (GSEs) are a group of financial services corporations created by the United States Congress. ...

Actions to manage the crisis

• 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. ^[55] Both measures effectively lubricate the financial system, in two key ways. First, they help provide access to funds for those entities with illiquid mortgage-backed assets. This helps lenders, SPE, and SIV avoid selling mortgage-backed assets at a steep loss. Second, the available funds stimulate the commercial paper market and general economic activity. Specific responses by central banks are included in the subprime crisis impact timeline.

• Lenders and homeowners both may benefit from avoiding foreclosure, which is a costly and lengthy process. Some lenders have taken action to reach out to homeowners to provide more favorable mortgage terms (i.e., loan modification or refinancing). Homeowners have also been encouraged to contact their lenders to discuss alternatives.^[56]

• Credit rating agencies help evaluate and report on the risk involved with various investment alternatives. The rating processes can be re-examined and improved to encourage greater transparency to the risks involved with complex mortgage-backed securities and the entities that provide them. Rating agencies have recently begun to aggressively downgrade large amounts of mortgage-backed debt.^[57]

• Regulators and legislators can take action regarding lending practices, bankruptcy protection, tax policies, affordable housing, credit counseling, education, and the licensing and qualifications of lenders.^[58] Regulations or guidelines can also influence the nature, transparency and regulatory reporting required for the complex legal entities and securities involved in these transactions. Congress also is conducting hearings help identify solutions and apply pressure to the various parties involved.^[59]The U.S. Treasury Department is working directly with major banks to develop a systematic means of modifying loans for a significant portion of borrowers facing ARM increases, rather than working through loans on a case-by-case basis.^[60]

• The media can help educate the public and parties involved.^[61] It can also ensure the top subject material experts are engaged and have a voice to ensure a reasoned debate about the pros and cons of various solutions.^[62]

Open Market Operations are the means by which central banks control the liquidity of the national currency. ... The purpose of this article is to record specific day-by-day impacts of the 2007 Subprime mortgage financial crisis. ... A credit rating agency is a company that rates the ability of a person or company to pay back a loan. ...

Expectations and forecasts

As early as the 2003 Annual Report issued by Fairfax Financial Holdings Limited, Prem Watsa was raising concerns about securitized products: Fairfax Financial Holdings Limited TSX: FFH NYSE: FFH is a Toronto, Ontario based financial services holding company which, through its subsidiaries (including Odyssey Re, Northbridge Financial, and Crum & Forster), is engaged in property, casualty and life insurance and reinsurance, investment management and insurance claims management. ...

"We have been concerned for some time about the risks in asset-backed bonds, particularly bonds that are backed by home equity loans, automobile loans or credit card debt (we own no asset-backed bonds). It seems to us that securitization (or the creation of these asset-backed bonds) eliminates the incentive for the originator of the loan to be credit sensitive... With securitization, the dealer (almost) does not care as these loans can be laid off through securitization. Thus, the loss experienced on these loans after securitization will no longer be comparable to that experienced prior to securitization (called a ‘‘moral’’ hazard)... This is not a small problem. There is $1.0 trillion in asset-backed bonds outstanding as of December 31, 2003 in the U.S.... Who is buying these bonds? Insurance companies, money managers and banks – in the main – all reaching for yield given the excellent ratings for these bonds. What happens if we hit an air pocket? Unlike..." ^[63]:

The legacy of Alan Greenspan has been cast into doubt with Senator Chris Dodd claiming he created the "perfect storm"^[64]. Alan Greenspan has remarked that there is a one-in-three chance of recession from the fallout. Nouriel Roubini, a professor at New York University and head of Roubini Global Economics, has said that if the economy slips into recession "then you have a systemic banking crisis like we haven't had since the 1930s"^[65]. Squalltoonix (born March 6, 1926 in New York City) is an American economist and was Chairman of the Board of Governors of the Federal Reserve of the United States from 1987 to 2006. ... Christopher John Dodd (born May 27, 1944) is an American lawyer and politician from Willimantic, Connecticut. ... The phrase perfect storm refers to the simultaneous occurrence of events which, taken individually, would be far less powerful than the result of their chance combination. ... Nouriel Roubini is a professor of economics at New York University. ... New York University (NYU) is a private, nonsectarian, coeducational research university in New York City. ...

On September 7, 2007, the Wall Street Journal reported that Alan Greenspan has said that the current turmoil in the financial markets is in many ways "identical" to the problems in 1987 and 1998.^[66] The Wall Street Journal is an influential international daily newspaper published in New York City, New York with an average daily circulation of 1,800,607 (2002). ... DJIA (19 July 1987 through 19 January 1988). ... Long Term Capital Management (LTCM) was a hedge fund founded in 1994 by John Meriwether (the former vice-chairman and head of bond trading at Salomon Brothers). ...

The Associated Press described the current climate of the market on August 13, 2007, as one where investors were waiting for "the next shoe to drop" as problems from "an overheated housing market and an overextended consumer" are "just beginning to emerge.^[67]" MarketWatch has cited several economic analysts with Stifel Nicolaus claiming that the problem mortgages are not limited to the subprime niche saying "the rapidly increasing scope and depth of the problems in the mortgage market suggest that the entire sector has plunged into a downward spiral similar to the subprime woes whereby each negative development feeds further deterioration", calling it a "vicious cycle" and adding that they "continue to believe conditions will get worse"^[68]. The Associated Press, or AP, is an American news agency, the worlds largest such organization. ... is the 225th day of the year (226th in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st century. ... MarketWatch is the operator of a leading business news and information Website that provides headline news, analysis and stock market data to some 6 million people. ... Stifel Nicolaus is the largest subsidiary of Stifel Financial Corp. ...

As described in the background section above, 16% of the estimated U.S. $1.3 trillion in subprime mortgages were in default as of October 2007, or approximately $200 billion. Considering that $500 billion in subprime mortgages will reset to higher rates over the next 12 months (placing additional pressure on homeowners) and recent increases in the payment default rate cited by the Federal Reserve, direct loss exposure would likely exceed the $200 billion figure. This figure may be increased significantly by "Alt-A" defaults. The impact will continue to fall most directly on homeowners and those retaining mortgage origination risk, primarily banks, mortgage lenders, or those funds and investors holding mortgage-backed securities. As cited above, many such entities have reported significant losses from both revising the valuation of mortage assets and the sale of MBS at steep losses. Regulators are carefully monitoring this exposure. In addition, a consortium of banks are establishing a fund to prepare for this impact and have committed nearly $100 billion as of October 24th.^[69]

See also

See Wikinews article:

Markets dragged down by credit crisis

• Subprime crisis impact timeline
• Debt-based monetary system
• United States housing market correction
• Subprime lending
• Collateralized debt obligation subprime meltdown
• Bear Stearns subprime mortgage hedge fund crisis
• Corporate scandal
• List of entities involved in 2007 finance crises
• The world housing bubble
  • Chinese property bubble
  • Indian property bubble
  • Irish property bubble
  • Japanese asset price bubble
  • Real estate bubble
  • Russian property bubble
  • Spanish property bubble
  • United States housing bubble
  • Residential property market in the United Kingdom

Image File history File links WikiNews-Logo. ... Wikinews is a free-content news source and a project of the Wikimedia Foundation. ... The purpose of this article is to record specific day-by-day impacts of the 2007 Subprime mortgage financial crisis. ... A debt-based monetary system is an economic system where money is created primarily through fractional reserve banking techniques, using the private banking system. ... The United States housing market correction is the market correction or bubble bursting of the United States housing bubble. ... Subprime lending, also called B-paper, near-prime, or second chance lending, is the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history. ... Collateralized debt obligations (CDOs) are a type of asset-backed security or structured finance product. ... The Bear Stearns Companies, Inc. ... A corporate scandal is a scandal involving allegations of unethical behavior by people acting within or on behalf of a corporation. ... A list of companies, governmental and quasi-governmental agencies involved in the various economic and financial crises of 2007. ... A U-turn in real estate prices in Chinas biggest city has driven many buyers straight into negative equity. ... The introduction to this article provides insufficient context for those unfamiliar with the subject matter. ... The property market in the Republic of Ireland in 2007 is controversially described by some as the Irish Property Bubble. ... Inflation-adjusted house prices in Japan (1980–2005) compared to house price appreciation the United States, Britain, and Australia (1995–2005). ... The Economist magazine cover (16 June 2005) for the article After the fall: Soaring house prices have given a huge boost to the world economy. ... Of all the global house price bubbles, Russia has fared particularly well. ... This article is about the housing bubble in Spain. ... Home $weet Home: cover of the June 13, 2005 issue of Time magazine[1] illustrating the mania[2] for home buying. ... The British residential property market has experienced a rise in house prices significantly above base rate inflation over the past few years (beginning around 2000/1). ...

References

The United States Senate Committee on Banking, Housing, and Urban Affairs has jurisdiction over matters related to banks and banking, price controls, deposit insurance, export promotion and controls, federal monetary policy, financial aid to commerce and industry, issuance of redemption of notes, currency and coinage, public and private housing, urban... is the 81st day of the year (82nd in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st century. ... is the 231st day of the year (232nd in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st century. ... is the 110th day of the year (111th in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st century. ... The New York Times is a daily newspaper published in New York City and distributed internationally. ... is the 271st day of the year (272nd in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st century. ... is the 71st day of the year (72nd in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st century. ...

External links and further reading

• Government regulations nurtured subprime mortgage crisis, Thomas Sowell in the Baltimore Sun, August 8, 2007
• "A Catastrophe Foretold" opinion by Paul Krugman in the New York Times October 26, 2007
• Sloan, Allan. "Junk mortgages under the microscope", The Deal, Fortune, 16 October 2007.