...benefit and the marginal cost, which may have an effect on a person purchasing a home. The purchase of a house is one of the largest monetary purchases an individual can make in their lifetime. If the economy is low then real estate prices may go down to compensate accordingly so that the house will sale. This would be an opportune time to purchase. If the economy is high or strong then the prices are more competitive based on the amount of people that are willing to buy houses. “If measured marginal costs and benefits are provided, it is much easier to calculate the ideal price and quantity.” How does the removal of the tax deductions on mortgage interest affect the housing market? Removal of the tax deduction on mortgage interest affects the housing market by causing the demand for homes to decrease and therefore housing prices to fall even more. Today people that purchase houses count on being able to deduct the mortgage interest from their taxes the following year. People will buy houses up to late December in order to get this deduction. Having a tax deduction on purchasing a home is part of the incentive. If you can purchase a home and deduct the interest paid when you file your taxes, it works to your benefit. If the tax is removed then monthly payments are higher as well. How do other changes in government spending and taxes affect your decision? I am currently in the market to buy a home and evaluating the economy has been quite beneficial in my thought process. If...
Words: 419 - Pages: 2
...Housing and Global Financial Turmoil The real estate and financial crisis was caused by a significant rise in mortgage delinquencies and foreclosures, leaving repercussions for banks and financial markets globally. The subprime mortgage crises started to become apparent in 2007 resulting in a weakening global financial system. An estimated 80% of US mortgages held by the subprime borrowers were adjustable rate mortgages. Once housing prices reached their peak during the middle of 2006, the steep decline that followed made refinancing difficult. Adjustable rate mortgages began to reset at higher rates resulting in increasing mortgage defaults. Financial firms which held most of the securities backed with subprime mortgages were left with securities with no value. Ultimately, credit around the world tightened as the capital in many banks and US government sponsored enterprises were losing value. What caused the crises can be attributed to a number of factors; the failure of homeowners to meet their mortgage payments, the adjustable rate mortgages resetting along with the extensive lending. In 2008 the mortgage industry played a crucial role in the recession when an estimated 1.5 million homeowners defaulted on payments lending to foreclosure by 2009. As a result, the mortgage industry has restructured limiting individuals to purchase homes. From 2000-2006, home foreclosures began to rise. Thus the government began to investigate the practices of subprime lenders in response...
Words: 1227 - Pages: 5
...Subprime Special The term "subprime" refers to the credit status of the borrower, which is being less than ideal. Subprime lending is a general term that refers to the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history. According to the U.S. Department of Treasury guidelines issued in 2001, "Subprime borrowers typically have weakened credit histories that include payment delinquencies, and possibly more severe problems such as charge-offs, judgments, and bankruptcies. They may also display reduced repayment capacity as measured by credit scores, debt-to-income ratios, or other criteria that may encompass borrowers with incomplete credit histories." Subprime lending is also called B-Paper, near-prime, or second chance lending. Subprime lending encompasses a variety of credit instruments, including subprime mortgages, subprime car loans, and subprime credit cards, among others. A subprime loan is offered at a rate higher than A-paper loans due to the increased risk. Subprime lending crisis, which began in the United States has become a financial contagion and has led to a restriction on the availability of credit in world financial markets. Hundreds of thousands of borrowers have been forced to default and several major subprime lenders have filed for bankruptcy. Types of subprime lending Subprime mortgages Subprime mortgage loans are riskier loans in that they are made to borrowers...
Words: 1017 - Pages: 5
...The term "subprime" refers to the credit status of the borrower, which is being less than ideal. Subprime lending is a general term that refers to the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history. According to the U.S. Department of Treasury guidelines issued in 2001, "Subprime borrowers typically have weakened credit histories that include payment delinquencies i.e. non-payment of the mortgage, and possibly more severe problems such as charge-offs, judgments, and bankruptcies. They may also display reduced repayment capacity as measured by credit scores, debt-to-income ratios, or other criteria that may encompass borrowers with incomplete credit histories." This is when the borrowers have a poor credit history that is they are bad borrowers. Subprime lending is also called B-Paper, near-prime, or second chance lending, as the borrowing is done to customers with a poor credit history or no credit history without any security in return of the money lending. Subprime lending encompasses a variety of credit instruments, including subprime mortgages, subprime car loans, and subprime credit cards, among others. A subprime loan is offered at a rate higher than A-paper loans due to the increased risk. Subprime lenders To access this increasing market, lenders often take on risks associated with lending to people with poor credit ratings or limited credit histories. Subprime loans are considered...
Words: 13058 - Pages: 53
...Subprime Mortgage Crisis and What to Do about It A Review of the Literature The fuse for the subprime financial shock was set early in this decade, following the tech-stock bust, September 11th, and the invasions of Afghanistan and Iraq. The subprime mortgage crisis is a historic turning point in our economy and our culture. The disruption in our credit markets is already of historic proportions and will have important economic impacts. More importantly, this crisis has set in motion fundamental societal changes – changes that affect our consumer habits, our values, our confidence to the future, and our psychological status. After this financial crisis, our economic went downturns and worsen now. When we talk about or hear about the subprime mortgage crisis, to fully understand the crisis help us to avoid the crisis happening again in the future. This literature review considers different opinions of the subprime mortgage crisis by responding to the following questions: 1. What are subprime mortgages? 2. How did the subprime mortgage crisis happen? 3. What are the causes of the subprime mortgage crisis? 4. Was the subprime mortgage crisis in the U.S. totally unexpected? 5. What to do to avoid it happening again in the future? By answering these questions, we can have understandings of the subprime mortgage crisis and find out the solutions to the crisis. When Americans taking advantage of the easy credit conditions, we take for granted the problems behind the credit system...
Words: 2816 - Pages: 12
...NACA QUALIFICATION CRITERIA The NACA Mortgage is our answer to the huge sub-prime and predatory lending industry. NACA has conclusively shown that when working people get the benefit of a prime rate loan, they can resolve their financial problems, make their mortgage payments and become prime borrowers. NACA’s track-record of helping homebuyers with credit problems become homeowners debunks the myth that high rates and fees are necessary to compensate for their “credit risk.” NACA’s mission is to make homeownership available on the best terms for Members who would otherwise be prevented from obtaining an affordable mortgage. NACA is open to everyone regardless of their income or where they want to live as long as they adhere to our eligibility requirements, policies, and procedures. The real estate and mortgage industries are filled with bad actors who contribute to the destabilization of our communities and the exploitation of working people. As an alternative to these predatory practices, we will work with you for as long as it takes to purchase a home, and we will support you for as long as you have your NACA Mortgage. The NACA Qualification, which is required for a NACA Mortgage, is an extensive analysis of your finances to determine whether you are ready for homeownership and what monthly mortgage payment you can comfortably afford. Depending on your situation, this process can take one session, several months, or longer. NACA will work with you for as long as it takes to...
Words: 10359 - Pages: 42
...Introduction Purchasing a home is one of the largest investments one will make in their lifetime. The extreme difficulty to amass enough savings to purchase a home up front causes most people to obtain a mortgage, a loan to finance the purchase of your home. There are various types of mortgages and many pros and cons that come with each. To determine whether or not you are eligible for a mortgage loan, you must consider your credit history, how much money you can put toward a new home, and the new costs that come with owning a home. You also have to consider the principle, the sum of money you borrow to buy your home, the interest on your mortgage payments, property taxes, and homeowner’s insurance. Understanding the financial considerations that go along with buying a home and creating a financial plan prior to your decision is the base for a successful start. Discussion The key to successfully buying a home is to determine how much you can afford and starting your research early. I would start by calculating my mortgage limit by finding what the principle, interest, taxes, insurance, as well as my other liabilities to establish a plan and limit on the price I’m willing to pay. I would then determine the area in which I wish to live based on the location of my work, home prices, and housing trends, such as price fluctuations and how long homes have been on the market, in certain areas. I would also have to consider the financial setback buying a house would cause. Not only...
Words: 1142 - Pages: 5
...ISSUES IN CANADAS MORTGAGE MARKET What is the applicable law? Under the adjusted mortgage rules: * Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire. * Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers. * Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers. What are the relevant regulatory agencies or bodies? Describe their roles. The Office of the Superintendent of Financial Institutions (OSFI) regulates federally licensed banks, trust companies, insurance companies, credit unions and some provincial financial institutions. It was created in 1987 to supervise the financial institutions and to build consumer confidence in the Canadian financial system...
Words: 1288 - Pages: 6
...risks. (Wright, R. E. 2013) The Financial System affects my life in several ways, for instance as our textbook mentions, technology such as automobiles and cellphones, thing we rely heavily upon, would not have even existed if not for The Financial System. However, I wasn’t aware how much The Financial System really affects my life personally until my husband and I decided to purchase our first home last summer. When you go to buy a home you take out a mortgage, and the interest rate that you receive that is charged on the mortgage is referred to as the mortgage rate. Lenders usually decide what the mortgage rate will end up being. Mortgage rates can be either a fixed mortgage rate which means it doesn’t change over the life of the mortgage, or variable meaning it changes based on the current market interest rate. The thing that has the most impact on your mortgage rate you receive, and whether you will even be able to take out a loan on a home at all is your FICO (Fair Isaac Corporation) credit score. Your FICO credit score is comprised of your three credit scores from the three top credit reporting...
Words: 804 - Pages: 4
...SUBPRIME MORTGAGE CRISIS The beginning of 2000s, commodity, especially “petrol” and agricultural products prices was soared unexpectedly. Economic growth of high population countries such as India and China raised demand of agricultural and merchandise products and thus, this demand caused increasing of these products prices. In 2008, not only food prices but also gold and petrol prices reached the highest level in history. On the other hand, while these prices was increasing, the value of the United States Dollar fell than almost all currency units. It was paralelled that the market of real estate particularly “housing prices” decreased a great value in the US in 2006. Hovewer, housing prices started to increase gradually early 2000s in the US because of mortgage. Due to the this increment, banks provided credits to their low income family in order to purchase a new house, but when housing prices fell into decline suddenly, a new credit market which is called subprime mortgage collapsed. In 2006, home mortgage foreclosures were at record highs. From 2006 to 2007 foreclosures fillings grew 75 percent and leaving more than 1 percent of all households in some stage of foreclosure. Foreclosures in the subprime mortgage market were leading the way. In the end of 2006, about 300,000 foreclosure proceedings were initiated, with subprime mortgages accounting for more than half. Majority of these subprime borrowers were low and moderate...
Words: 976 - Pages: 4
...CORPORATE FINANCE 307 LITERATURE REVIEW Student Name / ID: Chay Yu Xi 15907811 Jacqueline Teo Hui Yun 15805054 Ting Heng Huat 14973837 Tutor: Leo Kee Chye Tutorial Day / Time: Monday / 2pm Table of Contents Abstract The Tech Bubble Introduction Lowering of Interest Rates Adjustable Rate Mortgage Securitization Mortgage Backed Securities Collateralized Debt Obligation Credit Default Swap Government Reaction and Policies Emergency TARP Repercussions Basel Disadvantages Future Policy Requirements Controversy Conclusion Reference List Review of the causes of the 2008 Financial Crisis in US. Abstract This paper seeks to summarize a stream of research that has delved into the major causes of the financial crisis in 2008. More precisely, we will be looking at a combination of causes such as the sub-prime mortgage crisis, the mortgage backed security, the collateralized debt obligation as well as how the incidental credit-default swap contributed to the incident. This paper will begin from analyzing the past, when it happened and how it built up and resulted in the financial crisis. The significance of this literature review seeks to give a simplified explanation of the financial crisis of 2008 and will be useful for the people unversed in economics or finance but wish to have a basic understanding of its causes and history. The Tech Bubble During the early 2000, numerous companies and individuals bought new operating...
Words: 7947 - Pages: 32
...HSBC’s Mortgage Lending Decisions and the Big Melt It isn’t often that the American financial system, and its world counterpart, has a near- death experience. The last time was the 1930s. Beginning in 2007 and extending through 2009, American and global financial systems failed, melted down, and were rescued only by concerted central bank interventions in all the major industrial countries. The United States directly invested about 1 trillion dollars in U. S. financial institutions, and guaran-teed an estimated $ 14 trillion dollars in private debt. The complete history of this period has not been written. Many causes, involving many different actors, have been identified. Some have likened the big melt to a “ perfect storm” where a number of storm systems just happened to combine to form a much larger, lethal storm. But one cause was the failure of decision- making models, both the model builders and the financial man-agers who relied on those models. One of the major players in this crisis was HSBC Holdings PLC, the third largest bank in the world based on market value, and the largest bank in Europe. In the financial meltdown of 2008— 2009, HSBC joined the other major money center banks in a collective failure. HSBC weathered the turmoil in the financial markets better than most of its rivals, mainly because it had profited from continuing growth in Asia, where it generates about 65 percent of its pretax profit. But the company’s stock prices have fallen by half from their...
Words: 2198 - Pages: 9
...Owning a home is part of the 'American Dream'. It allows people to take pride in a property and engage in a community for the long term. However, homes are expensive and most people need to borrow money to get one. Conditions were right for many people to achieve that dream in the early 2000s, mortgage interest rates were low, which allow you to borrow more money with a lower monthly payment. In addition, home prices increased dramatically, so buying a home seemed like a sure bet. Lenders understood that homes make good collateral, so they were willing to participate. In 2007, the US economy entered a mortgage crisis that caused panic and financial turmoil around the world. The mortgage crisis was a result of too much borrowing and flawed financial modeling, largely based on the assumption that home prices only go up. Greed and fraud also played important parts. Banks offered easy access to money before the mortgage crisis emerged. Borrowers got into high risk mortgages such as option-ARMs, and they qualified for mortgages with little or no documentation. Even people with bad credit could qualify as subprime borrowers. Fraud on the part of homebuyers and mortgage brokers helped make the mortgage crisis more serious. Mortgage applications were not checked for accuracy as well as they should have been. This is what started the subprime mortgage crisis, popularly known as the “mortgage mess” or “mortgage meltdown,” came to the public’s attention when a steep rise in home foreclosures...
Words: 1134 - Pages: 5
...U.S. recession; and 2) Significant growth in savings available from developing nations due to ongoing trade imbalances.[9] These factors drove a large increase in demand for high-yield investments. Large investment banks connected the housing markets to this large supply of savings via innovative new securities, fueling housing bubbles in the U.S. and Europe.[10] Many institutions lowered credit standards to continue feeding the global demand for mortgage securities, generating huge profits which its investors shared. They also shared the risk. When the bubbles developed, household debt levels rose sharply after the year 2000 globally. Households became dependent on being able to refinance their mortgages. Further, U.S. households often had adjustable rate mortgages, which had lower initial interest rates and payments that later rose. When global credit markets essentially stopped funding mortgage-related investments in the 2007-2008 period, U.S. homeowners were no longer able to refinance and defaulted in record numbers, leading to the collapse of securities backed by these mortgages that now pervaded the system.[10][11] The failure rates of subprime...
Words: 2361 - Pages: 10
...If you are starting to look into buying a home and have been qualified by your lender for a Federal Housing Administration (FHA) mortgage due to a limited down payment, you now have an alternative. Fannie Mae has recently introduced their 3% down payment mortgage option. This program compares favorably to FHA financing. It allows 100% of the down payment to be gifted from a relative, offers low mortgage insurance rates, and requires a less restrictive appraisal as compared to the FHA's health and safety repair standards. Below is a summary of the guidelines for the Fannie Mae conventional 97% mortgage: • Past Homeownership Qualification - This mortgage program is available to all homebuyers. Both first and second time home buyers may qualify for this 3% down payment mortgage. • Down Payment - The down payment requirement for this loan program is 3% of the sales price. It allows 100% of the down payment to be a gift from a family member, dependent on the borrower's credit scores. • Owner Occupied - This program can only be used by individuals who intend to occupy the home. It does not allow for investor financing. • Property Type - The Fannie Mae 3% down mortgage can only be used for single-family dwellings and qualifying town-homes and condominiums. • Mortgage Insurance - Fannie Mae does require monthly mortgage...
Words: 601 - Pages: 3
