Zusammenfassung der Ressource
Backup
- Homeowners
- Represents:
Mortgages
- Houses
- Linked by Wall Street
- Investors
- How they Make Money?
- Invest in treasury Bills From FED
- It wasn't worth investing in treasury bills due
to the LOW INTEREST RATE caused by the
DOT COM BUST (2000)
- Banks now wanted to
borrow more money
from the FED due to the
low interest rate (2000)
- With cheap credit,
banks now have an
abundance of
LEVERAGE
- With leverage, Wall street makes lots
of good deals and money and grows
very rich . They then came up with
an idea to make more money by...
- Connecting
- Homeowners
- Investors
- THROUGH
MORTGAGES
- How it works
- 1) A FAMILY pays a down
payment to a MORTGAGE
DEALER to receive a mortgage
which would make them home
owners
- 2) The mortgage dealer
would then sell the
mortgage to an
INVESTMENT BANKER.
- 3) The INVESTMENT BANKER then
borrows millions and billions of
money from banks to buy thousands
of mortgages
- 4) This means that the INVESTOR gets thousands of
payments from the HOMEOWNERS for their
mortgages every month. Additionally, the
INVESTMENT BANKER also chose to sell some
mortgages to INVESTORS to make more money
- 5) The INVESTMENT BANKER wanted more
mortgages however, there were
no more mortgages left as
everyone who qualified for a
mortgage already owned one
- 6) This gave the MORTGAGE LENDER &
INVESTMENT BANKER the idea of creating
SUB-PRIME MORTGAGES
- 7) If a homeowner defaults on
his/her mortgage, the rights to
the home which can be re-issued
again goes back to the
INVESTMENT BANKER
- 8) If a homeowner defaults on his/her
mortgage, one of the INVESTMENT
BANKERS monthly payments turns into
an un-issued house which can be put
up for sale again
- 9) Due to the influx of Sub-Prime
mortgages, more and more
irresponsible homeowners were
defaulting from their mortgages
- 10) Due to the high number of
defaulted mortgages, there was now a
higher supply of houses as there was a
demand for it.
- 11) Due to the high supply
of un-issued houses,
housing prices stopped
increasing and started to
FALL
- 12) Homeowners who could still afford
their mortgages also choose to default
from their mortgages as the current
value of their house was much lower as
compared to the mortgage which they
were paying off
- 13) Default rates increases
drastically nationwide,
causing the prices of houses
to PLUMMET
- 14) Now, the INVESTMENT BANKER
was holding on to thousands of
un-issued houses
- 15) The INVESTMENT BANKER try to
sell off these useless houses to
investors, however no one was stupid
enough to invest in them.
- 16) With no supply of income from these
un-issued houses, the INVESTMENT BANKER
is now unable to pay back the millions and
billions of dollars which he borrowed to buy
the mortgages. (bubble 3)
- 17) The INVESTORS who had also
purchased thousands of these defaulted
mortgages were also experiencing the
same problem (Bubble 4)
- 18) The MORTGAGE LENDER
is also unable to sell any
more of his mortgages to
anyone.
- 19) Current HOMEOWNERS
were also now living in houses
which were useless
investments
- 20) With no sources of income,
the financial system freezes
and everyone declares for
BANKRUPTCY
- Which ultimately leads to
- Sub-prime Mortgages:
Mortgages issued to a person
without the need of a down
payment, proof of income of any
other supporting documents
(Irresponsible homeowners)
- Why was Sub-prime mortgages
created even though the
homeowner probably cannot pay
back his/her mortgage?
- 1) If a mortgage owner is
unable to pay back his/ her
mortgage he/she is defaulted
from their mortgage
- 2) If a mortgage owner
defaults from his/her
mortgage, the property and
rights of their house would
revert back to the lender
(INVESTORS)
- 3) The investor would then receive
a house which is always rising in
value. He/she can choose to put it
up for sale again
- Prime Mortgages:
Mortgages issue to
RESPONSIBLE homeowners
- Better investment as
compared to the 1% Treasury
bill offered by the FED
- This would mean that the
INVESTMENT BANKER would
receive the monthly payment
for that mortgage from the
homeowner (Mortgage owner)
- Treasury Bill: Similar to a
government bond but has a shorter
maturity of a year or less
- Represents:
Their Money
- Funds (Investments) in Large Institutions
- Parties involved