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What are causes and effect of the credit crunch experience by major commercial mortgage lending banks in the US?
Wiki User
∙ 15y ago
The credit crunch began through mortgages being offered to people who didnt deserve it (ie high risk of default). The investment banking industry builds products that rely on the returns of these mortgages. The default level increased and banks had assest they bought for $X and were worth no way near X. Because of the complexity of these products (CDO's) the banks accepted writedowns and stopped lending to keep the cash flow in case of further write downs. For a mortgage lending bank - The interest rate has decreased so mortgages have become more attractive but because of the lack of confidence in mortgage markets, the firms are reluctant to give new mortgages. As a result the percentage of new mortgages has decreased. Furthermore with the drop in housing prices anyone who defaults on the their mortgage will give the bank an asset (the house) which is worth less than the mortgage they issued in the first place - as such the mortgage banks will loose money. Either way the credit crunch has led to reduced business and profits, and in extreme cases - bankruptcy (Northern Rock)
Wiki User
∙ 15y ago
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How profitable is selling mortgage?
When investment companies convert mortgages into securities it causes a big boom in the economy. It is more profitable selling a mortgage when there is a big boom in the economy as the demand of mortgages out weight the supply of them.
What is hazard insurance for a mortgage?
Hazard insurance protects a homeowner against the costs of damage from fire, vandalism, smoke and other causes. When you take out a mortgage, the lender will require you to take out hazard insurance to protect their investment; many lenders will incorporate the insurance payment into your monthly mortgage payment.
What causes Mortgage defaults to rise?
In the USA there is speculation that the 2005 bankruptcy reform caused an increase in mortgage defaults. By declaring bankrupty, homeowners can keep their homes. The problem created in 2005 occured when filing fees were raised and a lower amount of debt was forgiven.
Causes of recession?
One of the major causes of the recession American experienced in 2007 was due to the issues with mortgages. Banks gave loans to people who could not afford the mortgage on the home. Banks would then sell the loan to another bank. People who could not pay the loans would go into foreclosure. The asset value of the home decreased although the repayment of the debt remained the same.
Why do most home buyers prefer a fixed-rate mortgage?
Primarily because they know what to expect and can budget their income ahead to make their payments. People generally get in trouble with their mortgages when the interest rate goes up or they must make some type of balloon payment and don't have the necessary funds. Most working people, especially in the United States, can no longer expect their salaries to rise every year due to the depressed economy so when their mortgage payments go up it causes immediate and serious consequences.
What are the causes of increase in non performing assets account of commercial bank?
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How profitable is selling mortgage?
When investment companies convert mortgages into securities it causes a big boom in the economy. It is more profitable selling a mortgage when there is a big boom in the economy as the demand of mortgages out weight the supply of them.
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The contracting officer can terminate a commercial purchase order for cause:
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The collapse in the mortgage and real estate market that produced and oversupply of houses, plummeting the prices of houses and rendering worthless the so called "Mortgage Backed Securities" that were issued by financial institutions having as an underlying assets the mortgage loans.
What is hazard insurance for a mortgage?
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