BADM 2003W Lecture Notes - Lecture 10: Systemically Important Financial Institution, Financial Stability Oversight Council, Cash Flow
5 Apr 2016
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Third party buys mortgages, sells bonds backed by payments. Competition from private investment banks in 1980s. Assets held in special purpose vehicles, off balance sheet. Mortgage brokers, 2/3 of originations in 2004. Only for a short period of time. Fee based compensation, but on hook for defaults initially. The first person who receives the payment. Still have to pay the loan regardless of default. Different rates and terms based on risk. 2004: 4. 6% of subprime loans and . 49% for prime loans. Expanded homeownership from 65% to 69% over a decade. Low interest rates, end of capital gains taxes spurred demand. Consumer protection concerns about subprime lending circa 2004. Lending without regard to ability to repay. 2 years of fixed and 28 of variable or (3 and 27) How much does the owner actually own. By 2005, subprime was 100% meaning 0 down payment. From 2001 through 2007, each vintage of subprime loans was riskier than the vintage before.
