Lan-Li-st810j_project by fanzhongqing


									A Survey Paper on 2007 Subprime Mortgage
Financial Crisis

    Lan Li
    Edward P. Fitts Department of Industrial and
    Systems Engineering
 Background Introduction
 Causes of the Subprime mortgage crisis
 The countrywide influence and the corresponding
 The international impacts of this financial crisis
Part I—Background Introduction
 What is Subprime lending? the practice of making loans to
  borrowers who do not qualify for the best market interest
  rate because of their deficient credit history or inability to
  prove they could for the loans they are applying.
 Subprime loan involves high risks.
  --housing market
  --a combination of high interest rates, bad credit history and
  murky financial situations associated with the applicants.
Part II—Causes of the Crisis
 Many factors created the crisis, but the most immediate
  causes were a rising interest rate environment which caused
  people with adjustable rate mortgages (ARM) to see
  significant increases in their mortgage payments, and
  declining property values as the national real estate market
  finally began making corrections (Housing bubble bursts).
 Flow chart.
Part II—Cont.
 Role of Mortgage lenders
  --Incomplete lending procedure. For example, Many of the
  sub-prime loans did not even require that borrowers
  document the income listed on their loan application with a
  pay stub. some of the lending probably involved actual
  fraudulence where people misstated their income and
  --adjustable-rate mortgages (ARM); interest-only
  adjustable-rate mortgages
Part II—Cont.
 Role of Subprime borrowers—homeowners
  --With the assumption that housing prices would continue
  to increase, many subprime borrowers are encouraged to
  obtain ARM.
  --Difficult to refinance due to declining property values.
 Role of Regulators
   --In response to a concern that lending environment was too
   easy or say, not properly regulated, the House and Senate
   are both considering making some new bills to regulate
   lending practices.
Part III- The countrywide influence and the
corresponding reactions
 Drastic fluctuation in stock market--investors began to
  worry about whether the Subprime crisis will turn into a
  global economic one.
 Many investment banks, mortgage lenders, real estate
  investment trusts and hedge funds suffered significant
  losses as a result of mortgage payment defaults or mortgage
  asset devaluation.
  --New Century Finance; American Home Mortgage
   --Merrill Lynch;Citigroup
Part III—cont.
 The recession of housing market and the continually
  increased oil prices will slow down the step of economic
  growth rate of the U.S.
 Actions to manage the crisis.
  --Central bank infuse funds to ensure member banks have
  access to funds to live through this difficult time.
  --Lower interest rate for short-term loans for several times.
  --Make new regulations.
Part IV-- The international impacts of this
financial crisis
 As closely connected with the United States financial
   markets, the euro zones and Japan are experiencing a rough
   time as well.
 Pink-Euro
  (Till 31th. Aug, 2007)
Part IV- Cont.
 Main impact to China
  --export markets shrinks
  --import-rely country
  --shrinking profits of many Chinese manufactures and
  foreign trade enterprises
Thank you!

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