Article: The Subprime Mortgage Crisis Explained
Source: www.stock-market-investors.com
As the title already reveals, the above named article explains the subprime mortgage crisis and why it occured.
In the early 2000´s there was an excess capital globally and in order to make it grow, investors were seeking for low risk investments that paid nice return. This was done by securitization: individuals got a mortgage loan from a broker, which in turn was sold by the broker to a bank, which again was sold to an investment firm on Wall Street. It seemed as a safe investment, built out of mortgages with big down payments, proven steady income and money in the bank. Most of the mortgage backed securities were assessed with AAA rating (safest ones) and were sold globally.
Due to high demand even mortgage qualification guidelines were changed. First the stated income, verified assets (SIVA) loans came out (`stating`not proving income and showing money in the bank was enough), followed by the no income, verified assets (NIVA) loans (just show money in the bank), eventually leading to no income, no asseets (NINA) loans, where you didn´t need to prove or even state anything. The increased housing demand increased also the prices - in contrast to that, the average housing income did not. People took new loans to pay off their debts. Due to oversupply of houses and lack of buyers the house prices plunged in 2007 and this so-called housing bubble burst. It was too late to panic, many people had defaulted on their very first mortgage payment and the market had absorbed to many of these securities.
I think that the article was kept very simple and easy to understand, which is very important as I had never heard of the term subprime mortgage crisis up to this class.
However, I think the main reason why all this happened is simply greed and the people had to suffer the consequences. First of all, it is the banks as well as the governments fault. Already in the 1990´s... [continues]
Source: www.stock-market-investors.com
As the title already reveals, the above named article explains the subprime mortgage crisis and why it occured.
In the early 2000´s there was an excess capital globally and in order to make it grow, investors were seeking for low risk investments that paid nice return. This was done by securitization: individuals got a mortgage loan from a broker, which in turn was sold by the broker to a bank, which again was sold to an investment firm on Wall Street. It seemed as a safe investment, built out of mortgages with big down payments, proven steady income and money in the bank. Most of the mortgage backed securities were assessed with AAA rating (safest ones) and were sold globally.
Due to high demand even mortgage qualification guidelines were changed. First the stated income, verified assets (SIVA) loans came out (`stating`not proving income and showing money in the bank was enough), followed by the no income, verified assets (NIVA) loans (just show money in the bank), eventually leading to no income, no asseets (NINA) loans, where you didn´t need to prove or even state anything. The increased housing demand increased also the prices - in contrast to that, the average housing income did not. People took new loans to pay off their debts. Due to oversupply of houses and lack of buyers the house prices plunged in 2007 and this so-called housing bubble burst. It was too late to panic, many people had defaulted on their very first mortgage payment and the market had absorbed to many of these securities.
I think that the article was kept very simple and easy to understand, which is very important as I had never heard of the term subprime mortgage crisis up to this class.
However, I think the main reason why all this happened is simply greed and the people had to suffer the consequences. First of all, it is the banks as well as the governments fault. Already in the 1990´s... [continues]
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