1. SUB-PRIME MORTGAGES By: Tiffany Kim Jasmine Silvas Justen Capers Emmanuel Najera

2. Complex Financial Packages Structured finance is a sector of finance that was created to help transfer risk using complex legal and corporate entities.  Subject to misunderstanding and/or misunderstood  Not adequately distinguishing between structured and corporate ratings

3. Continue…  Collateralized Debt Obligations: are made up of sections of mortgage bonds, or mortgage-backed securities. it’s a claim on payments from its thousands of mortgages.  Ranked from best to worst credit (tranches) More risky for investors (bottom tranches) = Higher Interest Rate Safest for investors (top tranches)= Lower Interest Rates  Default Credit Swaps: Investors who supplied money for the loans If defaulted, invertors would receive a great amount of money (their form of interest)

4. 9/11 Attack On American Business  Often referred to as 9/11, was a terrorist attack against the US.  Physical attack on US symbols of the Economy and military strength.  Over 3000 people killed, leading to major US initiatives to combat terrorism.

5. Continue…  Impact on US stock market  Impact on economic growth and consumer confidence in form of spending.  Impact on foreign direct investment in the US.  Impact on fiscal policy

6. Predatory Loan Originators  Subprime borrowers taking more money.  Lenders were collecting huge fees.  Resold mortgages to New York investment houses.  Idea of increase in real estate prices.  Subprime borrowers owed more on their houses.

7. Home Buyers  Subprime mortgages: terms of the credit bureau risk score (FICO) of the borrower  In 2005, it was the peak level of activity in the Housing market  In 2006, the weakening market ended the price escalation borrowers had assumed that home price increases would allow them to refinance their way out of onerous loan terms  Borrowers carry debt loads that exceeded the values of their homes

8. Due-Diligence Underwriter Fraud DEF: Reasonable steps taken by a person in order to satisfy a legal requirement, especially in buying or selling something.  Assessed the risk of buying loan portfolios  Misrepresenting the mortgages they packaged sold Ex: loan would be defective but the underwriters would “tweak” them to get approved  No proof of criminal intent, no one went to jail

9. Agency Fraud  Credit rating agencies provide global investors with an informed analysis of the risk associated with debt securities  The agent's sole source of revenue consists of fees paid by the client  Securities is determined by: corporation, bank-created entity, sovereign nation, or local government

10. VIDEO https://www.youtube.com/watch?v=bx_LWm6_6tA

11. Nothing was Ethical  Agents were not ethical upon handing out loan  Originators were also not ethical because they never thought of the final conditions to the home buyers  Due-diligences underwriters where making fun of applicants

12. Good Ethics  Government bailed out several banks and institutions  Whistle blowers

13. Solutions  Lowering federal funds  Liquidity support  Programs to avoid home foreclosures  Increase transparency  More screening for credit loans

14. Works Cited Utt, Ronald D. "The Subprime Mortgage Market Collapse: A Primer on the Causes and Possible Solutions. “ The Heritage Foundation. N.p., 2015. Web. 02 Dec. 2015 Staff, CRF.org. "The Credit Rating Controversy." Council on Foreign Relations. Council on Foreign Relations, 19 Feb. 2015. Web. 03 Dec. 2015. Wang, Dan. "How Are Collateralized Debt Obligations and Credit Default Swaps Structured?" Medium. The Medium Corporation, 12 May 2014. Web. 4 Dec. 2015. Ashcraft, Adam, and Til Schuermann. "Understanding the Securitization of Subprime Mortgage Credit." No. 318 (2008). Federal Reserve Bank of New York Staff Reports. Web. 3 Dec. 2015.

15. Works Cited Jackson, Olivia A. "The Impact of the 9/11 Terrorist Attacks on the US Economy." The Impact of the 9/11 Terrorist Attacks on the US Economy(2008): n. pag. Fmuniv.edu. Web. 4 Dec. 2015.