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The US subprime mortgage crisis was one of the first indicators of the 2007–2010 financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backing said mortgages. Approximately 80% of U.S. mortgages issued to subprime borrowers were adjustable-rate mortgages. After U.S. house sales prices peaked in mid-2006 and began their steep decline thereafter, refinancing became more difficult. As adjustable-rate mortgages began to reset at higher interest rates, mortgage delinquencies soared. Securities backed with mortgages, including subprime mortgages, widely held by financial firms, lost most of their value. Global investors also drastically reduced purchases of mortgage-backed debt and other securities as part of a decline in the capacity and willingness of the private financial system to support lending. Concerns about the soundness of U.S. credit and financial markets led to tightening credit around the world and slowing economic growth in the U.S. and Europe
The US subprime mortgage crisis was one of the first indicators of the 2007–2010 financial Further information: List of bankrupt or acquired banks during the financial crisis of 2007–2008, Federal takeover of Fannie Mae and Freddie Mac, Government intervention during the subprime mortgage crisis, and Bailout
People queuing outside a Northern Rock bank branch in Birmingham, United Kingdom on September 15, 2007, to withdraw their savings because of the subprime crisis. Several major financial institutions either failed, were bailed-out by governments, or merged (voluntarily or otherwise) during the crisis. While the specific circumstances varied, in general the decline in the value of mortgage-backed securities held by these companies resulted in either their insolvency, the equivalent of bank runs as investors pulled funds from them, or inability to secure new funding in the credit markets. These firms had typically borrowed and invested large sums of money relative to their cash or equity capital, meaning they were highly leveraged and vulnerable to unanticipated credit market disruptions. The five largest U.S. investment banks, with combined liabilities or debts of $4 trillion, either went bankrupt (Lehman Brothers), were taken over by other companies (Bear Stearns and Merrill Lynch), or were bailed-out by the U.S. government (Goldman Sachs and Morgan Stanley) during 2008. Government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac either directly owed or guaranteed nearly $5 trillion in mortgage obligations, with a similarly weak capital base, when they were placed into receivership in September 2008. For scale, this $9 trillion in obligations concentrated in seven highly leveraged institutions can be compared to the $14 trillion size of the U.S. economy (GDP) or to the total national debt of $10 trillion in September 2008. Major depository banks around the world had also used financial innovations such as structured investment vehicles to circumvent capital ratio regulations. Notable global failures included Northern Rock, which was nationalized at an estimated cost of £87 billion ($150 billion). In the U.S., Washington Mutual (WaMu) was seized in September 2008 by the USA Office of Thrift Supervision (OTS). Dozens of U.S. banks received funds as part of the TARP or $700 billion bailout. As a result of the financial crisis in 2008, twenty five U.S. banks became insolvent and were taken over by the FDIC. As of August 14, 2009, an additional 77 banks became insolvent. This seven month tally surpasses the 50 banks that were seized in all of 1993, but is still much smaller than the number of failed banking institutions in 1992, 1991, and 1990. The United States has lost over 6 million jobs since the recession began in December 2007. The FDIC deposit insurance fund, supported by fees on insured banks, fell to $13 billion in the first quarter of 2009. That is the lowest total since September, 1993. According to some, the bailouts could be traced directly to Alan Greenspan’s efforts to reflate the stock market and the economy after the tech stock bust, and specifically to a February 23, 2004 speech Mr. Greenspan made to the Mortgage Bankers Association where he suggested that the time had come to push average American borrowers into more exotic loans with variable rates, or deferred interest. This argument suggests that Mr. Greenspan sought to enlist banks to expand lending and debt to stimulate asset prices and that the Federal Reserve and US Treasury Department would back any losses that might result. As early as March 2007 some commentators predicted that a bailout of the banks would exceed $1 trillion, at a time when Ben Bernanke, Alan Greenspan and Henry Paulson all claimed that mortgage problems were "contained" to the subprime market and no bailout of the financial sector would be necessary. From Wikipedia, the free encyclopedia : Mortgage and loan broking, money exchange, bank and savings agencies etc. |
