sub prime mortgage crisis
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Sub Prime Mortgage Crisis
Hae Jin, Eun Joo & Philipp
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Sub Prime Mortgage?
FICO
Payment History
Amount Owed
Length of Credit History
New Credit
Types of Credit Use
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PRIME (more than 680) : about 6%
Sub Prime Mortgage (620 Down) : 9~10%
Alt – A (620 ~680) : 7~8%
FICO
Fixed rate -> Adjustable rate after 2 YEARS
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S & LA
Bankruptcy
LTCM Bankruptcy
Asian Financial Crisis
Terrorist
Attacks
Low Rates + House Price up = Sub. Mortgage UP
Why It Happened?
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Crisis Goes Global
BorrowerLow credit
Sub prime mortgage
LenderHigher Rates
Sell Mortgages
Repayment
Loan
Financial Firms
Mortgage-based Securities
Sell Mort.
Invest.
Hedge Funds
Private Funds
Sell
Securities
InvestorsIndividual
Corporate
Sell
Securities
Invest.
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Crisis Goes Global To.. (as of
8.31)
* New Century Financial Bankruptcy
* Bear Sterns 3 funds in trouble * American Home Mortgage Filed for Bankruptcy
* BNP PARIBAS 3 funds in trouble
* Basis Capital 2 funds in trouble
* Fortress Investment 25% loss in hedge funds
* Absolute Capital 2 funds in trouble
* Commerzbank 1.2 billion euro loss
* IKB 1.3 billion dollar loss
* NIBC 200 million dollar loss
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Reasons: Who to blame?
Borrowers? Lenders? Technology?
Nescience
Info Source: Lenders advise
Risky lending
practices
Complex security system
90% banks use FICO
Model works with given data
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Case 1 - Germany
1995-2007: $26.6 billion
Rhineland Fund (US sub-prime mortgage market)
Mid-sized enterprises in real estate
IKB
Principal Shareholder: KfW Bank Group
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Impacts and Effects
Enormous value drop!
Loss of investors
$1.040 M Loss + - 71.36% in Stock Value
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So, Now..
Recovery Package of $5.18 B
KfW: Under Pressure from Government
Rhineland Fund risk precaution up to $ 7.1 B
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Case 2 - ASIA
loss : $2.5 million -> IR
Bad lending rate : amounted by 7 times
Invest: $850 million Loss: $85 million
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Hang Seng KOSPI
Asian Stock index hitting its lowest mark
Case 2 - ASIA
Nikkei 225
-13.1%
-16.4% -18.3%
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Limited impact on Asia
1. Abundant cash in the region's banking systems
2. Few funds directly invested into the US S.M.
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NegativeNegative"The
Two different scenario
PositivePositive
Market volatilityAsian bank: locally
focused & conservative
Mortgage-backed securities
(CHINA)Credit Crunch
Hits Asia debt issuance
Uncoupling Asia
Thanks to China
Dropped CR US: ASIA
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Prospects
Another crisis coming -> Next year Spring
(those in the late half of 2005)
Believe in China’s Power
But, already prepared &
Financial tech. improvement
Europe Asia
Conservative banking &
Decoupling with the US
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Prospects…
Thanks to China and India
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Prospects…
Strong momentu
m
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Thanks for your patience ^^
Hae Jin, Eun Joo & Philipp