Economically, it did not seem like the increase in housing values later called the "housing bubble" would ever decrease, and the technology was available to predict that the loans were sound because the investors were earning so much money in equity.
Instead of sticking to the mission and values that made the company what it was, the managers during this period focused on what the market was doing and did what everyone else did.
This prompted the innovation and design of new financial instruments and organizations such as securitized mortgage loans — mortgage backed securities MBSasset-backed securities ABS and collaterized debt obligations CDOs Knutsen, As a result, the majority of borrowers were refinanced, leading to increased debt that ultimately resulted in the subprime mortgage crisis.
Lehman Brothers had grown increasingly reliant on its fixed income trading and underwriting division which served as the primary engine for Subprime mortgages essay strong growth throughout the first half of the decade as shown in Exhibit 1 Stowell, Causes The subprime mortgage crisis can be attributed to having occurred due two different forces.
There were an abundant of cheap credits at that time and in the meanwhile, the risks were existed in them. Part of the cause of the housing crisis is consumerism.
Impacts and Responses Since the beginning of the subprime mortgage crisis invarious measures have been collectively instituted by both the government and lending facilities. A number of the banks such as the Barclays, Citigroup and UBS among others have posted significant write-down.
Policies The failure of the government to formulate policies that should have prevented the emergency, exploitation or regulation of the emergency loan types, is a core cause of the crisis. Therefore, economic crisis in America is usually felt in most part of the world, thought at different magnitude.
The sudden failure of Lehman Brothers is widely viewed as a watershed moment in the global financial crisis of — There was a threat of substitute products because any lender could come up with a new loophole to exploit.
Drastic increase in number of defaulters The drastic increase in the number of defaulters and foreclosures that started from the mid is one of the contributing factors to the subprime mortgage crisis. During the leadership George Bush, the state interfered with an investigation that was aimed at identifying repercussions of the housing bubble.
Conclusion The mortgage crisis should be taken as a challenge so that the state will be a bit more careful with legislation to prevent avoidable errors. They in America, the FBI unit have raised a concern of increased cases of house destruction. Internally, the company was financially sound at this time, and they had a group of lending associates who were willing to do what it took to pass the loans.
As the subprime mortgage crisis escalated and the investment risk increased incredit-rating agencies were reluctant to identify and downgrade these packages.
The Federal Reserve partnered with different central banks in pursuance of open market operations in an effort to uphold market liquidity. Retrieved May 4,from http: In years preceding the subprime mortgage crisis, the rate of home foreclosures on subprime borrowers was observed as always higher in comparison to prime borrowers.
So, this led to a floating interest rate which subprime mortgage rates based on continue to increase. Securitization Practices Securitization is described as practice where by income generating assets, receivable are bundled to create profit making pools that are sold as collateral to third party investors.
Another problem includes over building during economic boom period, this creates surplus supply that many homeowners are not willing to sell at a lower market prices. When the collapse of the U. A company can gain market share by giving the customer more of what they want than the next company is willing to.
Old Wine in New Bottles: Options created such as the Adjustable Rate Mortgages ARMwhere one can forgo principal and pay only interest during the first period of lending. Innovation in housing finance in combination with the rise in subprime lending and the added an overall boom in housing.
Another called Payment option, gives homeowners the ability to pay a random amount for the first period and any interest left over is added to the principal. The current essay is a discussion of these issues.
This activity, in turn, flowed through the rest of the economy during the first half of this decade, contributing to the expansion that began in To ensure that the banks do not close down due to bankruptcy, they opted to reduce the number of employees.
This resulted in eventual financial meltdown and credit crunch inwhose effects can still be felt today. Subprime Mortgage Essays: OverSubprime Mortgage Essays, Subprime Mortgage Term Papers, Subprime Mortgage Research Paper, Book Reports.
ESSAYS, term and research papers available for UNLIMITED access. The subprime mortgage crisis The argument over who is at fault for the housing market collapse has been a heated issue amongst government, politicians, banking institutions, and mortgage lenders.
The subprime mortgage crisis is an ongoing financial issue and real.
View Essay - Conflicts of Interests in Subprime Mortgages Essay from MS at Milwaukee School of Engineering. company folded.
Arthur Anderson’s accounting firm employees also lost their jobs.
Subprime Loans Essay Subprime loans are loans offered to people who otherwise would not be able to afford a loan. People who are credit worthy are those who have a.
Defining Subprime Lending The problem to be investigated is the effect of subprime mortgage loans on the economy. According to Merriam Webster subprime is defined as having or being an interest rate that is higher than a prime rate and is extended especially to low-income borrowers; extending or obtaining a subprime loan (Webster, ).
Related Essays: Predatory Lending and the Subprime Mortgage Crisis View Paper. Predatory Lending and the Subprime Mortgage Crisis The issues with subprime mortgages are recognized by now, with many evasions and consequences for businesses and financiers in a similar way.Subprime mortgages essay