PPD 227 Lecture Notes - Lecture 20: Securitization, Savings And Loan Crisis
8 Sep 2016
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Document Summary
2007 crisis: as it turns out, the s&l crisis was nothing compared to the 2007 financial crisis, closer to the 30"s, it seems like every 8-10 years there is a crash. It"s painful but not lethal: what happened, housing bubble. 1990s stock price bubble increases wealth, wealth drives housing demand, . Second phase: rising demand generates rising supply, stock crash of 2001 shifts more demand into housinf, fed reserve cuts interest rates, and promotes arms, house price inflation accelerates to 2007. Growth of non standard mortgages: teaser rates, expansion of sub-prime market, alt-a loans, makes up 40% of all loans at peak, happens when wages were lagging information. Securitization of mortgages creates originators of mortgages, not keepers of mortgages: the money is in the initial transaction, risk associated with mortgage itself passed, mortgage practices onto others. Lowering payment requirements, 20% raised to 10% and some cases 0% for down payments: secondary markets.
