Britney Melcher Greg Russo Lyndsey Robison Shawn Stormer

 Began in 2007  Most severe of post- WWII era  Impacts on: - The housing market - Financial Institutions worldwide - general economy  Result? - deep global recession

 Housing Bubble: characterized by rapid increases in value of real estate.  Housing prices peaked in 2005 and started to decrease in  Increased foreclosure rates in led to a major crisis in: subprime, Alt-A, mortgage, credit, hedge fund, and other financial institutions on a global scale.

 In , about 1/3 of the mortgage loans were for adjustable-rate mortgages (ARM)  Borrowers extended mortgages that they could not pay in the long run.  They were given loans with the expectation that accumulating home equity would allow refinancing into better mortgages.

 Goals: -meet federal (HUD) goals - improve home ownership of low and middle income families  Lending practices by Fannie Mae and Freddie Mac shoehorned millions of people into homes that they could not afford.  They are now owned by federal government.

 Between 1997 and 2006 ◦ Typical American house price increased 124% ◦ In 2006 prices began too decline, and still have not hit rock bottom ◦ In December 2008, the Case-Shiller Home Price Index reported its largest price drop in history.

 National median home price ranged from 2.9 to 3.1 times the median household income  Rose to 4.0  Rose to 4.6

 Average 609,000 newly constructed homes per year  ,283,000 newly constructed single family homes sold  Homeowners extracted $750 Billion of equity from their homes ◦ Up from $106 Billion in 1996 ◦ Spent 2/3 of it on personal consumption

 $900 Billion special loans and rescues ◦ Over half  Fannie Mae  Freddie Mac  Federal Housing Network  December 24, Treasury Department ◦ Provide Fannie Mae and Freddie Mac unlimited financial support for 3 years

 Subprime lending refers to credit quality of borrowers with weakened credit histories ◦ March Value of subprime mortgages was $1.3 Trillion ◦ Over $7.5 Million first-lien subprime mortgages outstanding  Form of security interest granted

 Created in 1937 under the FDR administration  Current mission is to increase homeownership, support community development and increase access to affordable housing free from discrimination.  Fannie Mae & Freddie Mac ◦ 1996, HUD set target for 42% of mortgages to be issued to borrowers whose income was below the median of the area. ◦ 2000, this number was raised to 50%

 GSE’s (group of financial service corporations) receive tax incentives when purchasing from low income borrowers.  Subprime Mortgages – mortgage offered to borrowers with a greater-than- average risk of defaulting on the loan

 Established in 1977 but strengthened in 1995 ◦ Increased number of loans given to low and moderate income families by 80%  Why? ◦ Pressure caused banks to serve poor regions of the US ◦ Resulted in politicians pushing for increased home ownership & urban development without committing budgetary dollars.

 $300 billion government initiative to refinance troubled mortgages and boosts oversight of Fannie Mae & Freddie Mac  Also provide government-backed mortgages and get out from under risky mortgages distressed homeowners can’t afford  Tax breaks for home buying  1 st national licensing system for mortgage brokers & loan officers

 Program that allows US Treasury to purchase or insure $24 trillion of troubled assets ◦ Illiquid difficult to value assets (foreclosed homes) from banks & other financial institutions  Once housing stabilizes value is expected to increase and both the banks and Treasury are expected to profit  Encourage lending levels seen before crisis

 Stabilize housing market by providing help to 7-9 million Americans by reducing monthly mortgage payments  4-5 million with loans from Fannie Mae & Freddie Mac opportunity to refinance  $75 billion to 3-4 million Americans for aid to preventing more foreclosures

 Detailed info about each program  Also self-assessment & calculators to determine if an individual is eligible  Ability to connect with free counseling resources for questions  Locate local homeowner events  Checklist of materials to have when contacting about this program  FAQ from similar borrowers

Housing crisis moved beyond USA Canada England Spain Ireland Australia

 Household debt is historically high  Obligatory Mortgage Insurance ◦ Insurance required for <20% down payment  Single-family housing sales increased ◦ 78% over 2009 ◦ Due to fear of increase in interest rates

 Houses estimated to be overvalued by 30%  Loaned money to risky investors ◦ Reacted to crisis in US by increasing interest rates  Housing prices have increased 300% since 1975

 Housing prices more than tripled since 1997  Debt increasing 25% each year ◦ Interest rates are variable from year to year  Banking system well equipped ◦ Conservative laws  Require high securities from potential borrowers ◦ Helped in the UK Banking Bailout

 Increase in prosperity in the 90’s ◦ Caused many Irish citizens to move back to Ireland ◦ Further increased housing prices  Central Bank of Ireland ◦ Admitted houses overvalued by 60% (2005)  Liam Carrol, developer ◦ Unable to pay back loans  1.3 billion euros

 Debt to GDP ratio increased from 80% to 160% since 1994 ◦ Inflation only rose 36%  Houses are overvalued by 18%

 Government Oversight ◦ Regulate who loans can be given too  Focus on Economy ◦ Restoring jobs will increase demand in the housing market  Reward Smart Investing  Bring prices back down to equilibrium ◦ Construction/Sale Prices  Restore Investor Faith  Conservative Banking Laws