Posted on March 14, 2010.
The housing crisis The day after the signature of the package $ 787 billion economic stimulus package, Obama unveiled a housing plan that involves a heavy $ 75 billion to help prevent about nine million Americans losing their homes. It is a sign that highlights the urgency of solving the economic crisis. The president made the announcement in Arizona, which is on the states most severely affected by seizures. The housing problem is considered by many to be the source of the economic crisis. The President believes that the housing crisis, the financial crisis and the overall economic crisis are interrelated and solving the housing problem, the economy could recover.
Almost 27% of 52 million U.S. homeowners with mortgages have more on their mortgages than their homes are worth now. The president's plan aims to help borrowers in this situation, and those who are in danger of foreclosure.
The main cause of the subprime mortgage crisis is. According to Wikipedia "subprime lending practices, primarily in the form of mortgages to purchase homes, to borrowers who do not meet the usual criteria for borrowing at the lowest prevailing market interest." The criteria may be a credit score of the borrower, credit history and others. If the borrower is in arrears in payments to the loan provider, the lender will take possession of the property. This process is called foreclosure.
The mortgage market in the United States is estimated at 10,000 billion. 13% of which is the subprime market. It's a huge amount and has an impact on the economy of the market share of subprime U.S. GDP is 9%.
Why do Financial Institutions support giving subprime mortgages? Before the crisis, government policies and competitive pressures have encouraged the lending practices of higher risk. Also, in addition, incentives loan as easy initial conditions and long-term trend of rising housing prices encouraged borrowers to believe they can afford the loan. But this is not the case in the course of 2006 to 2007, interest rates began to rise and housing prices began to fall. This refinancing a mortgage is difficult, resulting from increased defaults and foreclosures.
The lenders are normally only responsible for the mortgage, they have published. But it is possible for the lender to sell the right to receive payments on mortgage loans through securitization. These are the mortgage backed securities (MBS) and Collateralized Debt Obligations (CDOs). Those involved in MBS and CDOs can also insure against credit risk by buying credit default swaps (CDS), which ensures that the main obligations and interest would be paid in full. Most mortgages have CDS, when the number of foreclosures started, the holders of mortgage bonds backed asked to be compensated for their losses. Sellers of credit default swaps as CIO, Lehman Brothers, Merrill Lynch, Wachovia and has no funds to implement these guarantees.
This brings down the U.S. financial giants, which cascade through the banking, credit and the entire economy of the United States and finally the world. The U.S. mortgage crisis has prompted governments worldwide to implement their own economic recovery and their respective central banks to reduce interest rates. These actions are intended to stimulate economic growth and inspire confidence in global financial markets.
