...1. Explain in general terms how savings institutions differ from commercial banks with respect to their sources of funds and uses of funds. Discuss each source of funds for savings institutions. Identify and discuss the main uses of funds for savings institutions. Savings institutions obtain a large portion of their funds from savings deposits, more than large commercial banks. While savings institutions can offer NOW accounts, they cannot offer the traditional demand deposits. Savings institutions concentrate on mortgages as their main use of funds. Commercial banks concentrate on commercial loans and some consumer loans. The major sources of funds for savings institutions 1. Deposits, which include passbook savings, retail CDs, and money market deposit accounts; 2. Borrowed funds, which come from either their district Federal Home Loan Bank for an extended length of time, the Federal Reserve discount window for very short-term loans, through repurchase agreements, and in the federal funds market; 3. Capital obtained by issuing stock and retaining earnings. The main uses of funds for savings institutions are: 1. Cash to satisfy reserve requirements enforced by the Federal Reserve System and to accommodate withdrawal requests of depositors; 2. Mortgages where the real estate represented serves as collateral to guard against default risk; 3. Mortgage-backed securities issued by other savings institutions that were in need of funds; 4. Investment securities...
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...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 do most sellers require a twenty percent down payment on the home, there are closing costs, loan fees, title fees, and...
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...make home loans to people with weaker credit Now it is difficult for most of the Americans to get a home loan, because the banks are extremely cautious when they are considering offering a loan to someone due to the financial crisis of 2008. However, Recently, the Obama administration asks banks to make home loans to borrowers with weaker credits. They are doing this in order to help young people looking to buy their first homes and individuals with credit records weakened by the recession. And it is more important to promote the economic recovery. (Goldfarb, 2013) Administration officials are trying to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs. Federal Housing Administration and the Obama White House are working to develop new policies to make clear to banks that they will not face legal or financial recriminations if loans that conform to the program’s standards later default. Also, they are encouraging lenders to use more subjective judgment in determining whether to offer a loan, such as looking at a borrower’s overall savings. (Goldfarb, 2013) The skeptics argue that we should learn from recession in 2008. Risky lending will sow the seeds of other house bubble and credit crisis. Looking at the recession that happened in 2008, the primary reason of this recession was the house bubble, which led to credit crisis. There are several primary causes of the house bubble: (i) Low mortgage interest rates. Mortgage interest...
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...AND FINANCIAL MARKETS Peter N. Ireland Department of Economics Boston College irelandp@bc.edu http://www2.bc.edu/~irelandp/ec261.html Chapter 2: An Overview of the Financial System 1. Function of Financial Markets and Financial Intermediaries 2. Structure of Financial Markets Debt and Equity Markets Primary and Secondary Markets Exchanges and Over-the-Counter Markets Money and Capital Markets 3. Financial Instruments Money Market Instruments Capital Market Instruments 4. Role of Financial Intermediaries Transaction Costs and Economies of Scale Risk Sharing and Diversification Adverse Selection and Moral Hazard 5. Types of Financial Intermediaries Depository Institutions (Banks) Contractual Savings Institutions Investment Intermediaries This chapter provides an overview of the financial system in the US economy by describing the various types of financial markets, financial instruments, and financial institutions or intermediaries that exist. 1 The chapter begins with a general statement that clarifies what function financial markets and financial intermediaries have in the economy as a whole. It then deals more specifically with: The structure of financial markets and the ways in which different types of financial markets can be distinguished. Here, it discusses debt versus equity markets, primary versus secondary markets, exchanges versus over-the-counter markets, and money versus capital markets. The various types of financial instruments, including both money market instruments and...
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...FINANCIAL MARKETS Peter N. Ireland Department of Economics Boston College irelandp@bc.edu http://www2.bc.edu/~irelandp/ec261.html Chapter 2: An Overview of the Financial System 1. Function of Financial Markets and Financial Intermediaries 2. Structure of Financial Markets Debt and Equity Markets Primary and Secondary Markets Exchanges and Over-the-Counter Markets Money and Capital Markets 3. Financial Instruments Money Market Instruments Capital Market Instruments 4. Role of Financial Intermediaries Transaction Costs and Economies of Scale Risk Sharing and Diversification Adverse Selection and Moral Hazard 5. Types of Financial Intermediaries Depository Institutions (Banks) Contractual Savings Institutions Investment Intermediaries This chapter provides an overview of the financial system in the US economy by describing the various types of financial markets, financial instruments, and financial institutions or intermediaries that exist. 1 The chapter begins with a general statement that clarifies what function financial markets and financial intermediaries have in the economy as a whole. It then deals more specifically with: The structure of financial markets and the ways in which different types of financial markets can be distinguished. Here, it discusses debt versus equity markets, primary versus secondary markets, exchanges versus over-the-counter markets, and money versus capital markets. The various types of financial instruments, including both money market instruments...
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...University of central Punjab Final Project Financial Markets of Pakistan SUBMITTED TO: Miss. Kainat Riaz SUBMITTD BY GROUP MEMBERS: Muhammad Zubair Humayun L1S09BBAM0057 Omer Yousaf L1F09BBaAM2037 Waqas Rafique L1F07BBAM2075 SECTION: A Washington Mutual ACKNOWLEDGEMENT In the name of Almighty Allah who is most Merciful, and who give us strength to accomplish honors. We take this opportunity to acknowledge our teacher’s efforts Miss Kainat Riaz without which our success would not have been possible. Also would like to pay my gratitude to the very cooperative group members Omer, Waqas and Zubair and also want to applaud our parents for their selfless efforts and cooperation. Executive Summary This report explains that what were the rise and fall of the Washington Mutual the 119 year old bank. How JP Morgan acquired this bank? How it got bankrupt? CONTENTS Acknowledgement 2 Executive Summary……………………………………………………………………………….2 History of WASHINGTON MUTUAL 4 Principle Line of Business...............................................................................................................5 Reasons of Rise of Washington Mutual…………………………………………………………...6 Reasons of fall of Washington Mutual……………………………………………………………8 Conclusion……………………………………………………………………………………….12 Recommendations…………………………………………………………………………..........13 References………………………………………………………………………………………...
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...restructuring to affordable payments, while building a savings program that will help accelerate their principal reduction. In addition, this program will result in a market-supported level of homeowner debt in the shortest possible time with the least amount of loss to the mortgage note holder and least amount of negative credit impact to the homeowner. The even greater societal good of this program is that, if a commitment to place the vast majority of all distress homes into this program, our nations economic outlook will have a stronger foundation. Quick stats • Over 10,000,000 or 20% of all homes with mortgages in the United States have a value that is less than what is owed on the property. o Total exposure to potential losses for banks could exceed $1.5 trillion. • The average home that is overleveraged has a mortgage of $220,000 but has a value of $170,000. • The average home that has a 1st and a 2nd mortgage with a value of $225,000 but has mortgage obligations totaling $309,000. • There are over 5,500,000 homes that are in some stage of delinquency or foreclosure. Below is an example of a home that represents the average property in the US that is underwater (they owe more than the home is worth) with only a 1st mortgage. Current payment: $1,403.19 at 6.5%, based on a $220,000 loan New program based on Owner Occupied (mortgage only lien) |Payment | | ...
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...1 How has the asset composition of savings and loan associations differed from those of commercial banks? Explain why and how this distinction have changed (or may change) over time. Savings and loan associations have traditionally concentrated in mortgage lending, while commercial banks have concentrated in commercial lending. Savings and loan associations are now allowed to diversify their asset portfolio to a greater degree and will likely increase their concentration in commercial loans (but not to the same degree as commercial banks). Classify the types of financial institutions mentioned in this chapter as either depository or nondepository. Explain the general difference between depository and nondepository institution sources of funds. Depository institutions include commercial banks, savings and loan associations, and credit unions. These institutions differ from nondepository institutions in that they accept deposits. The source of funds: Commercial Banks and Savings Institutions- Deposits from households, businesses, and government agencies. Credit Unions-Deposits from Credit Union members Nondepository institutions include finance companies, mutual funds, insurance companies, pension funds, and Money market funds. Sources of funds: Finance companies sell securities to households and businesses to obtain funds Mutual Funds (Dominant in total assets) –sell shares to households, businesses...
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... In 2008, a sequence of bank and insurance company failures resulted in a financial crisis that effectively brought global credit markets to a halt and required unprecedented government intervention. For example, Fannie Mae (FNM) and Freddie Mac (FRE) were both taken under the control of the government. In addition Lehman Brothers declared bankruptcy after it was unable to find a buyer. Furthermore, Merrill Lynch was purchased by Bank of America, and American International Group was bailed out by the federal government with an $85 billion dollar capital injection. Shortly after, Washington Mutual (WM) went under; however, J P Morgan Chase (JPM) agreed to purchase the assets of WM resulting in the largest bank failure in the history of the United States. Due to the failures stated above it brings me to realize why banks are so hesitant to lend money between themselves or to anyone. The crisis began in the real estate market and the subprime lending crisis. As long as we can remember, the values in commercial and residential properties have been exponentially increasing and were not interrupted for nearly a decade. With housing prices increasing it lead to banks lowering lending standards allowing unqualified buyers to take out mortgages while at the same time deregulation blended lines between traditional investment banks and mortgage lenders. However, when housing prices failed to rise and homeowners were not able to keep up with their payments, banks were obligated...
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...intermediate term funds and long-term funds are pooled and made available to business, the government & individuals. In a wider sense, stock markets includes all organized market and institutions such as commercial banks, discount houses, stock exchanges, investment corporations etc dealing in long-term loans, mortgages and time and savings deposits. Stock exchange is an independent company formed by shareholders members. It can take various decisions. But decision is taken by ex x of institutions and whereby intermediate term funds and long-term funds are pooled and made available to business, the government & individuals. In a wider sense, stock markets includes all organized market and institutions such as commercial banks, discount houses, stock exchanges, investment corporations etc dealing in long-term loans, mortgages and time and savings deposits. Stock exchange is an independent company formed by shareholders members. It can take various decisions. But decision is taken by exx of institutions and whereby intermediate term funds and long-term funds are pooled and made available to business, the government & individuals. In a wider sense, stock markets includes all organized market and institutions such as commercial banks, discount houses, stock exchanges, investment corporations etc dealing in long-term loans, mortgages and time and savings deposits. Stock exchange is an independent company formed by shareholders members. It can take various decisions. But decision is...
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...FI 398 Paper on Liar’s Poker The History of the Secondary Mortgage Market The secondary mortgage market is one of the richest asset classes in the world today. This market is formed by the trading of securities that are backed by commercial and residential mortgages. There are two main assets that are traded. These are Mortgage Backed Securities (MBS), and Collateralized Mortgage Obligations (CMOs). These two distinct asset classes make the market a very profitable one for many large investment corporations. Thanks to legislative action, most notably when Michael Lewis said, “From the early 1930s legislators had created a portfolio of incentives for Americans to borrow money to buy their homes”(121). These legislative policies made owning your own home something more attractive, because borrowing for it went on to benefit you for tax purposes. In the 1970s, the nation’s mortgage portfolio was booming in growth. As Lewis noted, “the volume of outstanding mortgage loans swelled from $55 billion in 1950 to $700 billion in 1976. In January 1980 that figure became $1.2 trillion, and the mortgage market surpassed the combined United States stock markets as the largest capital market in the world”(122). These are truly shocking numbers. The growth in the industry was completely unforeseen. While there are several similarities between mortgages and bonds, particularly after the development of MBS and CMOs, they are also different. The main difference is that bonds...
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...Refinancing works to Substantial Saving Do current market conditions favors remortgage? Indeed, yes for most landlords it’s still an upright time to refinance. Refinance or Remortgage is the process of replacing existing mortgage loan with a new mortgage. This allows a borrower to obtain a better interest rate or helps to take cash out of fully paid home for further more investment. There might be any reasons for homeowners to refinance, but it is essential for them to ascertain whether his or her object for refinancing offers true benefits or not. As without the right knowledge, the risk emanates in refinancing. Hence, referring a mortgage consultant for refinance could be an added advantage since they have an in-depth market understanding...
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...services, such as investment, risk pooling, contractual savings, and market brokering. Examples of these include insurance firms, pawn shops, cashier's check issuers, check cashing locations, currency exchanges, and microloan organizations. Alan Greenspan has identified the role of NBFIs in strengthening an economy, as they provide "multiple alternatives to transform an economy's savings into capital investment [which] act as backup facilities should the primary form of intermediation fail. FINANCIAL INSTITUTION is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries. Most financial institutions are highly regulated by government. Broadly speaking, there are three major types of financial institutions: 1. Deposit-taking institutions that accept and manage deposits and make loans, including banks,building societies, credit unions, trust companies, and mortgage loan companies 2. Insurance companies and pension funds; and 3. Brokers, underwriters and investment funds. THRIFT BANK' A financial institution focusing on taking deposits and originating home mortgages. Thrift banks often have access to low-cost funding from Federal Home Loan Banks, which allows for higher savings account yields to customers and increased liquidity for mortgage loans. Also known as "savings and loan associations". tend to be community-focused, and smaller...
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...Northern Rock Bank: an english exemple of the sub-prime mortgage crisis Brief introduction: The Northern Rock-one of the UK's largest mortgage lenders has become the highest profile UK-based victim of the fallout from the global credit crunch, which stemmed from the sub-prime mortgage crisis in the US. The Bank of England has agreed to give emergency financial support to the Northern Rock and it avoided from going bust. I. History of the bank Northern Rock Building Society was formed in 1965 as a result of the merger of Northern Counties Permanent Building Society (established in 1850) and Rock Building Society (established in 1865). During the 30 years that followed, Northern Rock expanded by acquiring 53 smaller building societies, most notably the North of England Building Society in 1994. Along with many other UK building societies in the 1990s, Northern Rock chose to demutualize and float on the stock exchange in order to better expand their business. Demutualization is the process by which a customerowned mutual organisation changes legal form to a shareholder-owned public company. Throughout this period a concern against demutualisation was that the assets of a mutual society was built up by its members throughout its history not just the present members who would benefit, and that demutualisation was a betrayal of the community that the societies were created to serve. Northern Rock chose to address these concerns by founding the Northern Rock Foundation. From...
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...source of net worth and a substantial source of tax savings. This article presents an overview of the tax savings opportunities available to homeowners and analyzes the investment value of home ownership in the current real estate environment using different levels of mortgage financing and costs of renting compared to owning a home over different time horizons. Introduction or many Americans, the purchase of a home is a major step toward the fulfillment of the American dream. It is a very personal and emotional transaction involving a tremendous feeling of pride of ownership and family security. In addition to being a very emotional experience, buying a home is an important financial transaction. For most Americans, the purchase of a home is the largest purchase that they will ever make, their homes are their greatest source of net worth, and the ownership of a home offers tax savings opportunities that are difficult to match. In the year 2004, the percentage of Americans owning homes reached an all-time high. Approximately 70% of the adult population or roughly 120 miilion people in the United States are currently homeowners.' The recent upward trend in home ownership has been aided by record low mortgage interest rates, an improving economy, and the many tax savings benefits of home ownership. This article analyzes the investment valtie of home ownership in the current real estate environment usine different levels of mortgage financing and costs of renting compared to owning...
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