The US Housing Market and the Subprime Mortgage Crisis (B): Impact on the US Economy

            
 
Case Studies | Case Study in Business, Management, Operations, Strategy, Marketing, Finance, Corporate Governance, Economics, Project Management, Insurence, Free Management Case Study, Case Study

ICMR HOME | Case Studies Collection

Case Details:

Case Code : BENV015
Case Length : 28 Pages
Period : 2001-2007
Pub Date : 2008
Teaching Note :Not Available
Organization : -
Industry : Financial Services
Countries : USA

To download The US Housing Market and the Subprime Mortgage Crisis (B): Impact on the US Economy case study (Case Code: BENV015) click on the button below, and select the case from the list of available cases:

Business Environment Case Studies | Case Study

OR


Buy With PayPal

Amount to be paid:



Prefer to pay in another currency ?
Select Currency for Payment



Exchange Rates: Click Here
Delivery Details: Click Here

Price:

For delivery in electronic format: Rs. 400;
For delivery through courier (within India): Rs. 400 + Rs. 25 for Shipping & Handling Charges

Business Environment Case Studies
Case Studies Collection
ICMR Home
Business Environment Short Case Studies
View Detailed Pricing Info
How To Order This Case
Business Case Studies
Case Studies by Area
Case Studies by Industry
Case Studies by Company

Custom Search


Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



Chat with us

Strategic Management Formulation, Implementation, & Control, 12e

Please leave your feedback

Leave Your Feedback

ICMR India ICMR India ICMR India ICMR India RSS Feed

<< Previous

Introduction Contd...

The overheating of the housing sector was blamed in part for the Federal Reserve's decision to start increasing interest rates from mid-2004 onward. This led to a decline in home sales which in turn led to a fall in their prices. This decline in home prices and increasing interest rates seriously affected subprime mortgage borrowers – a class of borrowers who on account of their poor credit score were not eligible for prime loans - with several of them defaulting on their mortgage loans (Refer Exhibit I for different types of mortgages). With rising interest rates and declining home prices in 2006, more than two million borrowers failed to make payments on their mortgage loans.

Business Environment Case Studies | Case Study in Management, Operations, Strategies, Business Environment, Case Studies

The crisis intensified with 2.2 million delinquencies8 leading to foreclosures9 in 2007,10 and ending up in repossessions11, which added to the glut in unsold homes in the real estate market and caused a further decline in home prices.

As the subprime mortgage market12 ($600 billion in 2006), accounted for a significant share of the mortgage market, the high rate of defaults in subprime loans was seen as an indicator of the worsening situation in the housing market. The crisis in the subprime mortgage market led to billions in losses for several mortgage companies, banks and other lenders in the primary market. As a result, the lenders started applying tighter standards for giving loans (Refer Exhibit II for process of mortgage origination). The crisis also affected the secondary mortgage market as investors shied away from Mortgage Backed Securities (MBSs) (Refer Exhibit II for a note on the primary and secondary mortgage markets).

Excerpts >>


8] Delinquency means repeated failure to make payments of the mortgage loan.

9] Foreclosure refers to the legal process where a bank or a secured creditor sells or repossesses a parcel of immovable property after the owner defaults on making payments on his mortgage. The proceeds from the sale of the property are used to pay off the mortgage and legal costs, if any.

10] “US Foreclosures Rise in December; Reach 2.2 Mln in 2007, Up 75 Pct from 2006,” http://www.forbes.com, January 29, 2008.
 
11] Repossession refers to the seizure of collateral securing a loan in default. In most jurisdictions, repossession of collateral in which a lender has a security interest is done by obtaining a deficiency judgment or court order authorizing the lien holder to reclaim the property. (Source: www.answers.com)

12] Mortgage market refers to residential mortgage market in this case.

 

Case Studies Links:- Case Studies, Short Case Studies, Simplified Case Studies.

Other Case Studies:- Multimedia Case Studies, Cases in Other Languages.

Business Reports Link:- Business Reports.

Books:- Textbooks, Work Books, Case Study Volumes.