Real Estate Information - What Caused the Current Financial Situation? - www.cjharrington.com

Posted By:
CJ Harrington
cjharrington.crs@gmail.com
www.cjharrington.com
440.336.0612
Keller Williams Realty
12/30/08

1992
Fannie Mae and Freddie Mac enacted legislation which loosened the lending standards for home ownership.
1999
The Financial Services Modernization Act was passed. This act allowed for less government oversight of the banking industry and allowed for competition among banks, securities companies and insurance companies.
2000-2006
The use of nonprime mortgages such as subprime and near-prime grew rapidly. This growth is attributed, in part, to mortgage lenders who adopted the credit-scoring techniques first used to make subprime auto loans in order to determine the creditworthiness of potential homebuyers. This caused the potential defaults on home loans to be under-predicted - they underestimated the risk.
2000-2007
The Credit Default Swaps market, CDS, an insurance-like market that was invented in the mid-1990s as a way to offset risk in lending or bond portfolios, grew from $900 million in 2000 to more than $45.5 trillion in 2007. In this unregulated market where investors traded contracts without ensuring that buyers had the resources to cover the losses if the security defaulted. As a result, the CDS market now far exceeds the face value of the corporate bonds underlying it.
2000-2008
The global pool of money in the world doubled as poor countries developed,banked money, and wished to invest in good, safe investments. In other words, there was too much money chasing too few good investments.
2003-2004
After events such as the dot.com bust and 9/11, Alan Greenspan made the decision to keep the US Fed fund rate at an extremely low level to prevent the US economy from weakening. As a result, global investors found they couldn't make money with US Treasury Bonds and looked to invest in "safe" US residential mortgages, which had more favorable yield.
2001-2005
The loosened lending standards for home ownership created demand which rapidly drove up home prices.
July 2006
The housing market's prices peaked. Once this happened, housing prices began a rapid decrease.
2006-Present
As conditions in the housing market worsened, delinquencies and foreclosures rapidly increased and loans that Fannie and Freddie backed went bad.
2007-Present
Financial institutions began to fail due to both large mortgage-related losses from defaults and the valuing of mortgage-backed securities at levels that were not considered representative of their fair value due to mark-to-market accounting rules.
Present
Financial companies have started to question each other's ability to pay off debts and stopped lending to one another, which kicked off a global credit crisis.
Please visit our website at www.cjharrington.com for FREE information.
-Buy a Home With Little Money Down
-FREE Seller Reports-Sell Your Home Fast And For Top Dollar
-FREE Buyer Reports-Get The Most Home For Your Money
-FREE Home Value - Report & Evaluation
-Find Out What The House Down The Street Sold For
-And much more...