The Research On The American Sub-prime Mortgage Crisis

The sub-prime mortgage crisis is an ongoing economic problem manifesting itself through liquidity issues in the global banking system owing to foreclosures which accelerated in the United States in late 2006 and triggered a global financial crisis after 2007,The crisis began with the bursting of the US housing bubble and high default rates on "sub-prime" and other adjustable rate mortgages made to higher-risk borrowers with lower income or lesser credit history than "prime" borrowers. Loan incentives and a long-term trend of rising housing prices encouraged borrowers to assume mortgages, believing they would be able to refinance at more favorable terms later. However, once housing prices started to drop moderately in 2006-2007 in many parts of the U.S. refinancing became more difficult. Defaults and foreclosure activity increased dramatically as ARM interest rates reset higher.During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity, up 79% from 2006. The mortgage lenders that retained credit risk were the first to be affected, as borrowers became unable or unwilling to make payments. Major banks and other financial institutions around the world have reported losses of approximately U.S. $565 billion in April 2008. Owing to a form of financial engineering called securitization, many mortgage lenders had passed the rights to the mortgage payments and related credit risk to third-party investors via mortgage-backed securities (MBS) and collateralized debt obligations (CDO). Corporate, individual and institutional investors holding MBS or CDO faced significant losses, as the value of the underlying mortgage assets declined. Stock markets in many countries declined significantly. The widespread dispersion of credit risk and the unclear effect on financial institutions caused lenders to reduce lending activity or to make loans at higher interest rates.The liquidity concerns drove central banks around the world to take action to provide funds to member banks to encourage the lending of funds to worthy borrowers ,With interest rates on a large number of sub-prime due to adjust upward during the 2008 period, the U.S. Treasury Department, and financial institutions are taking action. A systematic program to limit or defer interest rate adjustments was implemented to reduce the effect. The risks to the broader economy created by the financial market crisis and housing market downturn were primary factors in several decisions by the U.S. Federal reserve to cut interest rates, and a series of economic stimulus packages passed by governments around the world, designed to stimulate economic growth and inspire confidence in the financial markets.This article mainly focuses on the sub-prime mortgage crisis, therefore, the concepts and factors that have nothing to do with the crisis will not be mentioned or less mentioned, the structure of article is divided into six parts, as follows:The first part is the introduction, this part is mainly on the issues raised, the main theory of literature and articles are summarized, the main analysis methods and structure are discussed.The second part is the review of the U.S sub-prime mortgage crisis, the occurrence of crisis led to deterioration of the U.S. real estate market, the large loss of financial institutions and began to spread to the real economy.The third part is about the process of evolution of sub-prime mortgage crisis and Causes of the crisis, this part includes two aspects, first, the demonstration of the process of crisis, and the second analyzes the causes of the crisis.The fourth part mainly analyzes the impact on the global economy, the globalization makes the regional crisis quickly spread to the world, the domino effect of sub-prime mortgage crisis appears in the other parts of the world.The fifth part analyzes the effects of the crisis on China's economy, China, as the emerging markets with the growing economic and financial openness, is obviously difficult to escape or avoid. This part focuses on the effects of the crisis on China's banking system, the RMB exchange rate, exports and other aspects.The last part is about the warning and follow-up consideration of the crisis, we need to guard against financial vulnerabilities, strengthen financial supervision and concern about the mortgage risk.