U.S. sub-prime mortgage credit crisis

What is the Subordinated Debt Crisis:

In the United States, the credit rating of different people in the search for bank loans or lending institutions to enjoy a different rate. 660 points higher than the credit rating of borrowers, can enjoy preferential interest rates. The U.S. federal funds rate to 5.25 percent, banks or financial institutions in general to the prime rate of 8.25 percent. Credit rating lower than 660 sub-loans, had to accept the relatively high interest rates. In the mortgage market, the relatively high interest rate, known as subprime mortgage interest rates or the subprime mortgage interest rates. Secondary mortgage rates are usually higher than the prime rate 2-3 percentage points.

U.S. mortgage securities market operation mechanism:

In the United States, personal loans are loans to companies rather than directly to the bank to apply for mortgages. Mortgage loans will be sold to commercial banks or investment banks. Bank loans will be re-packaged into mortgage securities after the sale to buy mortgage securities investors, the transfer of risk. At the same time, banks and mortgage companies will sign an agreement requiring mortgage lenders in the personal loan arrears, the buy-back mortgage. Bank will purchase some of the credit default swap contracts, which is equivalent to the purchase of a mortgage default rates rise against the "insurance" to further spread their risk.

Almost all the time to make money:

2001-2004, Federal Reserve policy of low interest rates to stimulate the real estate development, the American enthusiasm for the purchase of a sharp rise, due to availability, the hot unprecedentedly subprime mortgage market. During this period, most of the chain will profit, mortgage securitization is that the benefits of real estate value-added revenue would be allocated to more people. Mortgage company's profits will come from the sale of mortgage loans to the bank, the bank's profits from the mortgage securities will be sold to purchase mortgage securities, and mortgage securities buyers will be able to enjoy than to buy treasury bonds or investment-grade bonds more High income. This does not include those indirect involvement of investors, including the purchase of mortgage company or bank stock investors. The only losses may occur in the credit default swap market bet mortgage default rates will rise.

Almost all the loss-making period:

U.S. real estate boom significant decline in Subordinated Debt is the root of the problem. Increasing the loan default, the secondary market than the U.S. bogged down in the bad debt crisis by lending institutions. March 13, 2007, the U.S. Mortgage Bankers Association reported that subprime mortgage market crisis. The news of the U.S. stock market fell comprehensive. The U.S. stock market panic quickly spread to Asia. April 2, 2007, the nation's largest distributors of the new century Subordinated Debt filed for bankruptcy protection, marking the U.S. subprime mortgage market crisis.

Possible solutions:

March 15, the former Federal Reserve Chairman Alan Greenspan said that house prices continue to drop unless the United States, the United States subprime mortgage risk is unlikely to affect the U.S. economy as a whole. Reading from a different angle, and Alan Greenspan to mean that house prices can not fall in the United States, or other areas of the economy will be affected. "I think it is important to identify clearly we are dealing with things, this is a house, rather than mortgage credit problems." Is Greenspan also hinted at using the old methods of drawing a market it?

March 21 meeting of Federal Reserve monetary policy statement from the Qu Xiaodiao in August 2006 to stop raising interest rates has always been like this since the "further tightening" the language and replace it with "future policy adjustments" relatively neutral language. The market will interpret the Federal Reserve to cut interest rates for the formal opening the door. Although the March 28 Federal Reserve Chairman Ben Bernanke are both houses of Congress in the Economic Commission for Co testified that the wording change does not necessarily mean that interest rate cuts, and repeatedly play down the subprime mortgage crisis threat, but a lot of bystander That this is motivated.