Subprime mortgage crisis_ the legal thinking by fdjerue7eeu


									Subprime mortgage crisis, the legal thinking
"Subprime crisis" has been a familiar term in the world
community, its full name is "sub-prime mortgage crisis", from
the U.S. subprime mortgage market turmoil caused by the financial crisis. In August
2007 in a bankruptcy due to subprime mortgage lenders, investment funds were
forced to close, the stock market turbulence caused by severe storms hit the United
States, the European Union and Japan, the world's major financial markets,
the situation now with the spread of financial turmoil have been the local Following
the evolution of the swept the world since the thirties of last century the most serious
financial crisis.
As we all know, in the United States, loans are very common phenomenon, from
house to car, from credit card to the phone bill, credit everywhere, local people rarely
buy a house full paragraph, almost all achieved through loans. As the U.S.
unemployment and re-employment is widespread, there is a lot of credit in society
with less or lower income borrowers, in order to meet the needs of different classes of
loans, the U.S. mortgage market to the borrower's credit terms as the
demarcation line, the mortgage loan market is divided into "sub"
and "Economy Class" two levels. According to the level of
credit, lending institutions discriminate against borrowers, people with low credit
loans are not eligible for benefits, only in the secondary market for loans. U.S.
subprime mortgage market is usually a fixed interest rate and floating rate repayment
methods combined, ie: buyers in the purchase during the first few years to repay the
loan a fixed rate, floating rate thereafter to repay the loan. Although the two levels of
market clients are home buyers, but the secondary market lending rate mortgages are
usually higher than the Bulk 2% ~ 3%. Lending institution will then sell the bank
claims, the claim will be labeled by the bank package, divided into
"shares" sold to investors and ultimately the formation of
sub-prime         mortgage-backed         securities      (commonly       known        as
Subprime mortgages have good market prospects. Because it discriminated against or
for those who do not meet standards of the mortgage market to provide mortgage loan
services, so a high concentration of ethnic minorities and the economically
underdeveloped areas are very popular. In 2006, 5 years before, as the U.S. housing
market continued to boom, coupled with lower interest rates a few years ago the
United States, the United States subprime mortgage market has developed rapidly.
Subprime mortgage lender is on a high return business, lending institutions that, while
lending to the sub-credit borrowers, but if the borrowers can not repay the loan, you
can also use mortgage housing to end the sale by auction or means of repayment.
However, as subprime lending requirements on the borrower's credit grade
loans at preferential low, lenders poor credit history, so the risk subprime mortgage
sector is also naturally more: International UBS (UBS) research data shows that As of
the end of 2006, the U.S. subprime mortgage market, the repayment default rate as
high as 10.5%, is the preferential loan market level 7 times.
As of June 2006 in two years time, the U.S. Federal Reserve raised interest rates 17
consecutive times, the federal funds rate from 1% to 5.25%. Sharp rise in interest
rates increased the repayment burden on home buyers. Moreover, since the second
quarter of 2007, the U.S. housing market began to cool down significantly. With the
rise in U.S. interest rates and falling house prices, the housing market prompted the
temperature plunged, and many borrowers unable to repay on schedule, lending
institutions can not be scheduled back buyers of mortgage loans. Quality of credit
assets, then quickly transfer the exposure to capital markets. First of all, the subprime
crisis led directly to the mortgage loans underlying the securities of various types of
bonds, depreciation, and because a number of high-quality bond market was generally
bearish and this penalty, while a similar number of corporate bonds and subordinated
debt investments were also were sold. Second, the investment in subordinated debt
and other high-risk bond funds were selling and redemption, and real estate-related
stocks also suffered heavy losses, coupled with adverse market expectations to guide
the United States stock indexes fell significantly recently. The interests of the chain of
many commercial banks, investment banks, mutual funds and hedge funds were bring
disaster and brought the money market and stock market volatility, financial market
liquidity, thereby causing a serious threat.
In 2007, the sub-prime crisis and gradually spread from Europe to the world, many
world-renowned banks, fund companies and other enterprises that involved in the
subprime mortgage crisis and claimed losses, more like New Century Financial and
other lending institutions and banks endangered bankruptcy. Into 2008, the United
States has more than 30 subprime lenders closed down.
In China, the Bank of China, Construction Bank, ICBC, Bank of Communications,
China Merchants Bank and CITIC Bank, six Chinese banks has been confirmed the
involvement of U.S. subprime crisis, although one after another statement, the
affected slightly, but the management of foreign exchange reserves of the country
SAFE's investment in subordinated debt even more attention. U.S. report
says China to buy 12 months before the subprime securities to 95 billion. In the
context of economic globalization, Chinese enterprises have not been spared.
Wall Street went through in September in the history of the darkest end of the week,
the U.S. Treasury Secretary Henry Paulson presented to Congress a 700 billion U.S.
dollars of the rescue program. The initial version of the program by the U.S. Congress
simply check out a huge, free from the U.S. Treasury and the Fed decision, for the
purchase of financial institutions experienced difficulties on the balance sheets of bad
assets. Therefore, the program called "Troubled Asset Relief
Program." The program of the 1980s the U.S. government for relief for the
savings and loan associations is quite similar to the reorganization of the Trust Fund.
To understand the "problem assets relief program", we must
first understand the bad assets. In general, non-performing assets are classified into
two categories, non-performing assets of enterprises and banks of bad assets. Business
enterprise non-performing assets is not dealt with the net losses and hidden assets
(funds) unpaid debts, and according to the financial accounting system shall provide
for impairment of assets not to mention all kinds of problem assets, the amount of
expected losses. Non-performing assets of banks mainly refers to non-performing
loans, commonly known as bad debts. In other words, bank loans can not be at a pre
agreed time limit, the interest rate to recover the principal and interest, which include
overdue loans (loans to the loan periods have not yet), doubtful loans (loans overdue
for more than two years) and doubtful loans ( need not justify writing off the loans)
three conditions, but also includes real estate property portfolio. In China, since 1998,
our        assets      are      divided       into       "normal",
"concern"               and       "substandard",
"suspect", "loss" or "five
categories." July 1999, the central bank issued a "full
implementation of the PBC on the work of loan classification notice" and
"loan risk classification guidelines (for trial implementation)."
In accordance with the provisions of the People's Bank, now usually
earmarked reserves extraction ratio: 2% interest, sub-25%, suspicious 50%, 100% loss.
After the three categories as non-performing assets. It is clear that the U.S. subprime
mortgage crisis caused a large number of subprime loans can not be repaid on the part
of bad assets, that is, the United States "in Asset Relief
Program," the protagonist.
Both developing and developed countries, the banking industry exists or ever existed,
in varying degrees of asset deterioration, in some countries the proportion of
non-performing assets of banks and even shocking, the international community in
recent years the problem of bad assets on the banking industry is also very concerned
about "Wall Street Journal" as early as May 1997 on the
published article, described the banking crisis threatening world prosperity, world
economic crisis caused by the "time bomb." For this reason,
take various measures to address non-performing assets, to avoid the bad assets on the
financial crisis has been induced by all countries attach great importance to financial
institutions, the primary issue. Some countries and banking institutions and practice
has fully proved that the concern is certainly important to monitor non-performing
assets, but, once the bad assets, how effectively, as soon as possible disposal are the
most crucial.
As countries and the causes of non-performing assets of different asset condition and
economic environment is different, so different countries to take on the disposal of
bad assets model (including the loss of commitment to the way) and focus are
different. But in the past, the specific operation, the disposal of bad assets and
methods of the main measures generally include the following:
1, strengthening the system of bad debt reserve, bad debt write-offs and optimize
assets. If the United States on various bad assets (loans classified in the following five
categories) were 20%, 50%, 100% loan loss provisions, and clear and strict provisions
of the loss reserve account to offset losses, prompted the banks to solve
non-performing assets. Singapore, South Korea, India and Indonesia Waldo higher
provisions for doubtful debts, and some can even keep additional. Indonesian
government in 1997 to shield state-owned bank's bad debt write-off 460
million to make state-owned banks non-performing loans to total outstanding loans
increased from 6% to 3%.
2, eliminating bad assets by the specialized agencies. Full clean up bad assets, the
bank's bad assets out of the specialized agencies to operate. United States,
Sweden and Japan have had this operation. Established in 1989, the United States
savings and loan institution crisis, rtc solution, rtc on receiving 399 billion U.S.
dollars of assets were sold or recycled, the actual recovery of 358 billion U.S. dollars.
3, asset restructuring. Cultivate qualified to meet the market economy, has rich
experience in intermediary capital operation, established its own market-oriented
corporate governance structure and reasonable supervision, and incentive mechanisms
to prevent the administrative factors on the market, the irrational behavior of asset
restructuring intervention; cultivate professional managers class professional families
from the private sector and select the best elements bankers handling non-performing
assets, which prohibits government officials as the major enterprise management
4, and asset securitization. Full use of the financial market, especially the stock
market will discount the sale of bank assets or a part of the securitization, shrink the
size of bad assets. After the occurrence of non-performing assets will be directly
discounted high-quality bank carefully Jing Ying Chu Shou Ji, Sui Ran Hui
Chengshouyiding up the losses, Dantaibufen fact that it was preservation of assets,
Daikuanfengxian be Huajie Huozhuan Yi.
5, debt-equity swap. As early as the 1929 financial crisis, the stock market crash and
economic depression and in order to avoid the business can not repay bank loans,
which led to bank failures, Italy, once the company could not repay the bank loan into
equity business. Ilya after the Italian Government has set up holding companies, bank
holding companies by buying shares of these corporate restructuring, reorganization is
successful, then sold to private enterprise.
6, a direct capital injection. Capital injection of government funding and private
investment to fund. In fact, in addition to direct government capital injection, to
encourage banks to merge is also a capital injection approach. South Korea, Indonesia,
India and Hong Kong have adopted such measures.
   7 bankruptcy liquidation. Liquidation is the final form of non-performing assets to
solve. For those who are bankrupt and no future business, bankruptcy debt may be the
only means of
In the scope of asset disposal form the asset can be divided into: equity asset classes,
debt asset class and in-kind asset classes; asset disposition ultimate disposition of the
assets into cash and short-term disposal. Ultimate disposal include liquidation, auction,
tender, negotiated transfer, cash discounts, etc., periodically disposed of mainly
debt-equity swap, debt restructuring, litigation and litigation preservation, are
provided for debt, asset replacement, corporate restructuring, re-investment in
physical assets improved physical asset rental, investment in physical assets, etc.. But
for our country, it is clear that preventive measures than remedial and therefore,
experts suggest should be the following aspects:
(A) is highly concerned about the economic cycle fluctuations to the risks, take
precautions, the risk of a comprehensive concept of building a solid. Since 2002,
China entered a new round of economic growth cycle has been strong domestic
commercial banks in profit due to loan demand impulse and excess liquidity caused
by the dual pressures driven by profit, loan growth, particularly the high rate of
growth of personal loans, the balance in the profit and risk, most banks tend to the
former. But the subprime crisis on the biggest lesson is that commercial banks in the
upward phase of economic growth will lead to economic growth ignore the downside
risk level risk even crisis. China's economy has experienced a nearly
six-year period of rapid economic growth, whether it is economic to run itself from
the cyclical characteristics of macro-control situation or point of view, the next few
years China's economy likely to slow the momentum of high growth. Once
the occurrence of cyclical fluctuations of economic, commercial banks will bear the
brunt of loan quality.
(B) is highly concerned about the personal housing loans and personal housing
mortgage loan risk. In recent years, for strategic and operational restructuring to
adjust the needs of domestic commercial banks generally will credit as a major
business and revenue growth. However, after the above analysis, in the current asset
prices quickly rising, the future against the background of increasing pressure
correction, and not simply a personal loan or a consumer loan as a low-risk loans and
not indiscriminately to develop. Data show that individual long-term housing loans
growth this year was to accelerate the trend, the first 5 months of additional personal
and long-term housing loans reached 225.3 billion yuan, up 267.7 billion yuan more
than the increase; July-funded commercial banks Shanghai individual housing loans 6
surge again on a substantial increase in lending, new mortgage month 5.87 billion
yuan, increasing 1.32 billion yuan more than last month, equivalent to the second
quarter, all incremental. Rapid growth of consumer credit strengthened the
momentum of a long-term bank credit, banks increased the risks of bad assets to
increase. Therefore, the subprime crisis on the second revelation of commercial banks
is that, should be highly concerned about the risk of personal loans. To do this,
commercial banks should strengthen the credit system construction, improve risk
(C) is to be effective to prevent the credit funds into the stock market. Subordinated
debt from the credit market crisis quickly passed to the capital market, but also caused
great damage on the credit markets shows that product innovation is accelerating in
the modern financial system, the risk of inter-market spread has accelerated
noticeably than before. Bank funds into the stock market in recent years, the fact that
commercial banks will finance the security challenge. Recently, regulators, credit
funds have been diverted to the company's eight bank branches have
received administrative punishment. Is from a commercial bank itself, conscious
attention should be credit funds into the stock market triggered the credit risk, from
the strengthening of credit review, post-loan management and other aspects to prevent
to prevent the credit funds into the stock market.
In short, the current defense of national economies has just kicked off the global
economic situation is not optimistic about the subprime crisis is just the fuse. In
addition to subprime loans, the U.S. lending institutions have no credit to the extent
and have no income borrowers who borrowed heavily. These loans generally
approved within five years without paying any interest, but the loan by the borrower
to pay after 5 years of high interest, so far, the sub-sub-loans are still interest-free
period, that is, sub- subprime mortgage crisis has not yet emerged. Address the current
increasingly grim global economic crisis, while non-performing assets acquired bank
can effectively curb the spread of financial crisis, but the Government after the
acquisition and holding of bad assets and how to ensure the safety of bank deposits to
financial institutions, high-quality collateral to provide liquidity ; how to adjust the
capital structure of financial systems, promote the issuance of new loans; how to
survive the financial crisis, be in the hands of non-performing assets Anquan of
Chuzhi is Geguo financial sector Zuizhong need to be resolved.

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