The subprime crisis

Type :

Presentation

Pages :

8 pages

Format :

.doc

Published date :

01/20/2009

Category :

Economics & finance

Sub category :

Finance

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Summary :

Definition.
1. Definition of the subprimes.
2. Characteristics of these loans.
3. The operation of the subprime market.
4. The subprime crisis.
Causes.
1. The law of 1977.
2. The rise of the credit rate.
3. The crash of the real estate market.
4. Change of the political context.
5. Securitization.
6. The share of responsibility by the credit rating agencies.
Consequences.
1. Economic consequences.
2. Consequences for the banking sector.
3. Effects on the loans: The loss of confidence.
The role of the controller.
1. Definition of the business.
2. Link between management control and the subprime crisis.
Conclusion.
Bibliography.

Abstract

Subprimes are mortgages granted in the United States to customers who are not very solvent, on the basis of an increase in the interest rate. One applies a kind of premium to a borrower when his solvency is below a certain threshold. This operation is supposed to compensate for the risks taken by the lender. Let us add that the lender in any event has only a few risks if the borrower defaults, settlement is guaranteed by a mortgage on real estate (definition even of traditional mortgage). The subprime market is made up primarily of real estate mortgage loans granted to customers who are not very solvent or with a difficult credit history. This market largely developed in the United States since 2001, going from an amount of 200 billion USD for the mortgage loans in 2002 to 640 billion USD in 2006 (X 3 in 4 years). This amount represented 23% of the total real estate loans subscribed []. The borrowers at risk can negociate a real estate loan on this market, with the help of a revisable interest rate (indexed on the basis of official market rate of the FED, the American federal reserve), surcharged with a "risk premium" (subprime) which can be very high.