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This article documents the growth and geographic distribution of nontraditional mortgages (NTMs) and subprime mortgages during 2000-2006, and examines the association between these products and homeownership at the county level between 2000 and 2012. It finds a significant relationship between the origination of NTM and subprime mortgages during the boom and changes in the number of homeowners (positive during the 2000-2006 period and negative during the 2006-2012 period) but no significant relationship with the change in the homeownership rate. Looking at specific categories of the population, the results indicate a positive relationship between the presence of NTMs and subprime mortgages and increased numbers of homeowners for young households as well as for low income and minority households, but the relationship is smaller than for the general population. Overall, the relationship between NTMs and homeownership is stronger than the relationship between subprime mortgages and homeownership during the boom and it is less negative during the bust. [ABSTRACT FROM AUTHOR]

We examine the behaviour of market agents during the years leading to the 2008 US subprime mortgage crisis using a stylized capital asset pricing model model. In our study, an average investor eager to make money by flipping houses meets a banker who offers him subprime mortgage deals. We refer to recent research that shows the mechanics of the psychological and behavioural components of these two market agents. In particular, much in line with the famous Stanford experiment, it is assumed that investors adopt a predator or a prey position. Our analysis shows that, given a historical tendency towards financial predatory acts on the part of market agents (including buyers), government regulations should be adapted and strengthened to face this dooming reality. [ABSTRACT FROM PUBLISHER]

Research summary: This study uses the 2008 mortgage crisis to demonstrate how the relationship between vertical integration and performance crucially depends on corporate governance. Prior research has argued that the vertical integration of mortgage origination and securitization aligned divisional incentives and improved lending quality. We show that vertical integration improved loan performance only in those firms with strong corporate governance and that this performance-integration relationship strongly decreases and actually reverses as governance quality decreases. We interpret these findings as suggesting that the additional control afforded by vertical integration can, in the hands of poorly monitored managers, offset gains from aligned divisional incentives. These findings support the view that corporate governance influences the strategic outcomes of a firm, in our case, by influencing the effectiveness of boundary decisions. Managerial summary: One of the unanswered questions of the 2008 mortgage crisis is why some firms produced toxic mortgages and others did not. Many have argued that vertically integrated banks-banks that both originated and securitized mortgages-had incentives to monitor themselves and thereby avoid overaggressive lending and outright fraud. Yet many of the worst lenders, such as Washington Mutual and New Century Financial, were in fact integrated. This study shows that the behavior of these firms critically depended on their corporate governance. We find that poorly monitored executives used their additional control over the integrated businesses to issue low quality loans that supported short-term growth. Our results suggest that governance is a crucial prerequisite for financial services, particularly for firms whose managers control multiple, interrelated businesses. Copyright © 2015 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]

The subprime crisis appeared in 2008 brought many changes in Hungarian and European companies' life as well, even all over the world. The relatively high supply of resources, the low cost of funds, has encouraged the borrowers. Because of the over-supply of credit, companies launched further and further investments. The abundance of the resources before the crisis suppressed the perception of business and project risks, and suppressed the perception of risks as well. It also showed some projects in favourable light, which had been clearly rejected otherwise. The crisis had changed the conditions in macro economies in national and international level too. Loans and credit became more and more expensive, which draw attention to project risks also. Companies had to handle the financial, technical, and other risks more realistically, than they did it before. Dozens of scientific papers dealing with the management of project risks, with identifying and making recommendations to avoid them. Most of the risks are unavoidable, but still manageable. The perception of the project risk is different. It depends on the size, on the activity as well. The aim of the study is to present the project risks, the opinions about them according to a Hungarian questionnaire research. [ABSTRACT FROM AUTHOR]

• Extends geographic work on law, race, and property to subprime lending. • Identifies significance of collateral for analysis of property regimes. • Engages concept of legal form to theorize shifting commodity nature of property. • Analyzes litigation against subprime lenders claiming liability for racial discrimination. • Promotes the concept of "racial territoriality" to assess legal coding of space. This paper assesses the relationship between law, race, and property through the legal regimes shaping post-crisis claims of racial harm linked to the U.S. subprime mortgage market. Drawing on theories of legal form linking capitalism, property, and race, I detail how racially exploitative practices through the subprime mortgage depended on transformation of a specific legal instrument – collateral - that tied the pledge of real property as security for a loan to financial market abstractions of liquidity and yield. Then, through close analysis of a recent set of mass lawsuits filed by the cities of Cleveland, Baltimore, and Miami against large subprime lenders seeking restitution for discriminatory lending practices, I examine how collateral's legal form has patterned a "politics of redress" within court adjudication. This illuminates two novel aspects of the racial logic of property linked to mass foreclosures in Black and Brown neighborhoods. On the one hand, focusing on collateral has enabled municipalities to link disparate properties/neighborhoods into cognizable legal actions against lenders, effectively territorializing claims for restitution across significant areas of the city. On the other hand, the disposition of these cases demonstrates how plural doctrines of property, contract, and discrimination have produced a recoding of property within which the flow of value to lenders and investors from racially exploitative lending is rendered legally unproblematic. [ABSTRACT FROM AUTHOR]

We compare the twelve-month default probability among subprime borrowers differing only in the number of months before their first lump-sum property tax payment, after which time they may be exposed to reduced liquidity. We showthat borrowers with an earlier property tax bill-- within three months of origination--have 2% to 6% higher first-year default rates than borrowers facing their first property tax bill ten to twelve months after origination. Lump-sum property tax payments appear to produce a persistent state of low liquidity, the length of which raises the likelihood of default. These results are about one-third the effect size of a transition from 10% positive to 20% negative equity found in the literature. This paper provides causal evidence that liquidity constraints are important predictors of mortgage default. [ABSTRACT FROM AUTHOR]

Using simulations, we show that the probability of default and losses given default of subprime mortgage loans are small in comparison to their interest rates. The implication is that these loans are profitable for risk neutral efficient banks. As subprime mortgages remain a good investment even for higher values of probability of default and losses given default, our conclusion is that they did not trigger the 2007-2009 financial crisis. In contrast with other papers, this finding does not derive from analyses relating to the subprime market size, but from the positive ex-ante net present value of their discounted cash flows.

This paper deals with the financial crisis triggered after the default of subprime mortgages in the United States which expanded to a global systemic crisis. It is divided into a brief introduction and three sections. The first section sums up the dynamics of inflation and deflation of real estate and financial assets which characterizes finance-led cycles. The second section covers major effect of financial assets deflation on the American and European banks. The third section focuses on measures implemented by central banks in order to manage this financial crisis.

The sub-prime mortgage crisis of 2007 that affected the US economy is considered the most severe financial catastrophe that affected the United States since the Great Depression. The main purpose of this study is to examine whether any contagion effect occurred across international financial markets after the sub-prime financial crisis. We investigate the co-movements in the US market index and sixteen European indices for the period between April 2007 and February 2012 using daily observations of prices and returns. We calculate the unconditional correlation coefficients for a stable period and a turmoil period and observe significant increases in their values, which indicate that contagion has occurred in the sub-prime financial crisis from the US market to almost all European markets under scrutiny - except for Greece. [ABSTRACT FROM AUTHOR]

State foreclosure and bankruptcy laws govern the rights of mortgage lenders and borrowers during foreclosure and bankruptcy proceedings and thereby affect lenders' exposure to credit risk. In this paper, we examine the impact of these laws on the types of mortgages originated. The empirical identification is based on state-level variations in foreclosure and bankruptcy laws and a border estimation strategy. We find that higher-risk loans (FHA and subprime loans) are more likely to be originated in states with lender-friendly foreclosure laws. Also, higher-risk loans are less likely to be originated in states with a more generous bankruptcy homestead exemption. In addition, our results are consistent with the idea that FHA and subprime loans share a similar clientele and are close substitutes. These results are robust without the ordering assumption among conventional prime, FHA, and subprime loans. [ABSTRACT FROM AUTHOR]

The Subprime Bubble preceding the Subprime Crisis of 2008 was fueled by risky lending practices, manifesting in the form of a large abrupt increase in the proportion of subprime mortgages issued in the US. This event also coincided with critical slowing down signals associated with instability, which served as evidence of a regime shift or phase transition in the US housing market. Here, we show that the US housing market underwent a regime shift between alternate stable states consistent with the observed critical slowing down signals. We modeled this regime shift on a universal transition path and validated the model by estimating when the bubble burst. Additionally, this model reveals loose monetary policy to be a plausible cause of the phase transition, implying that the bubble might have been deflatable by a timely tightening of monetary policy. [ABSTRACT FROM AUTHOR]

The recent U.S. financial crisis has been found to be unique compared with previous crises: it started when problems first appeared in the housing market and subprime lending, and then spread to the whole financial system and national economy. Through the securitization of structured private label mortgage products, its impact even reached the international capital markets. To explore the cause of the long and farreaching effect of the current subprime-induced crisis, we review a series of events and government policies prior, during, and after the subprime and housing crisis. Using qualitative and quantitative models, we show that the low interest rate and passive market supervisory policies made by the U.S. government are among the main drivers of the housing boom. During the housing bust, despite a more aggressive regulatory environment, several conflicting policies that were implemented may have prolonged and deepened the recession. Based on these hypotheses, we argue that contagious real estate cycles can be prevented and/or controlled by more proactive counter-cyclical government intervention. [ABSTRACT FROM AUTHOR]

Although major changes in mortgage finance have occurred since the subprime bust, several issues remain unresolved, centering on the roles of Fannie Mae, Freddie Mac, and the FHA. We analyze how some reforms might affect house prices in a framework rich enough to simulate the impact of several reforms which change mortgage interest rates and/or loan-to-value (LTV) ratios of first time home buyers, the key drivers of house prices in recent decades. Simulations suggest that ending the GSE interest rate subsidy would have small effects, while changes in capital requirements or maximum FHA loan size limits would have larger effects. [ABSTRACT FROM AUTHOR]

Financial markets have suffered the greatest dislocation following the truly seismic significance of the global financial crisis. Regulators argue that the banking sector played a particularly special role in triggering the causes of the subprime debacle, thereby leading to the occurrence of the global financial crisis. Banks previously functioned as only a financial intermediary, but certain developments in the international banking sector like deregulation, technological progress, consolidation and competition, securitisation and financial innovation, resulted in banks being involved in subprime lending activities and hence, a reason behind the financial turmoil. The aim of this paper is to scrutinise the special role of banks in the global financial crisis and to stress on the need for increased regulation and their implications on the banking sector. The current study will thus contribute to the examination of the salient features of the global financial crisis and provide regulatory suggestions for the banking sector and the government as a whole. [ABSTRACT FROM AUTHOR]

We examine the evolution of mortgage modification terms obtained by distressed subprime borrowers during the recent housing crisis and the effect of the various types of modifications on the subsequent loan performance. Using the CoreLogic Loan Performance dataset that contains detailed loan level information on mortgages, modification terms, second liens, and home values, we estimate a discrete time proportional hazard model with competing risks to examine the determinants of post-modification mortgage outcomes. We find that principal reductions are particularly effective at improving loan outcomes, as high loan-to-value ratios are the single greatest contributor to re-default and foreclosure. However, any modification that reduces total payment and interest (P&I) reduces the likelihood of subsequent re-default and foreclosure. Modifications that increase the loan principal-primarily through capitalized interest and fees-are more likely to fail, even while controlling for changes in P&I. [ABSTRACT FROM AUTHOR]

The links between the crisis of subprime mortgages and the so-called crisis of European sovereign debt are sometimes concealed, so as to create a veritable sense of shared guilt meant to sanction the legitimacy of the austerity policies that have been imposed by virtuous Northern European countries on the undeserving countries of Southern Europe. We will analyse three main aspects of the current crisis: (1) we will interpret the austerity policies that today characterize the eurozone as the result of financialization; (2) we will define the state of permanent crisis as an instrument of governance characterized by specific economic policies; (3) we will show how all this unfolds at a stage of capitalist development wherein a new constituent process begins to take shape in a fragmented but nonetheless significant manner, and how this process is reclaimed by the very subjectivities upon which the accumulation of cognitive and relational skills depends in order to reproduce itself: the Welfare of the Common. [ABSTRACT FROM AUTHOR]

The subprime mortgage crisis that helped bring on the Great Recession resulted in the decimation of housing-related wealth among economically disenfranchised groups and communities. These losses were, in significant part, the direct result of the rampant racialized and geographic mortgage discrimination that took place in these communities in the run-up to the financial crisis and persists today. The Bankruptcy Code, however, offers little relief to these and other distressed homeowners because the Code's "anti-modification" provision limits a distressed homeowner from modifying the terms of a mortgage on her primary residence. The anti-modification provision is particularly troubling for economically disenfranchised groups and communities because it operates at the intersection of three social and economic factors: (1) the importance of homeownership to wealth acquisition and retention in the economically disenfranchised communities; (2) the persistence of predatory lending relationships that lead to high loan-to-value ratios on mortgages and, in turn, a greater risk of underwater mortgages; and (3) foreclosure externalities that are borne by segregated communities in which compromised wealth is a common attribute. For communities that are already vulnerable to mortgage discrimination, the lack of a bankruptcy modification option compounds the unique risks of cyclical and historical economic disenfranchisement related to homeownership. This Article contends that by permitting debtors to modify primary residential mortgages, consumer bankruptcy law can address persistent and intractable mortgage discrimination in historically disenfranchised communities and support wealth-building and retention in the process. Reframed in this way as a tool of economic remediation and improvement, and not just a form of temporary relief for temporary financial misfortune and crisis, bankruptcy law can address the broader structural forces that produce chronic, racialized, economic subordination, particularly related to homeownership. Accordingly, this Article reconceives consumer bankruptcy as providing not only a "fresh start" but also an appropriate remedy for financially distressed borrowers whose economic hardships are directly related to illegal and discriminatory mortgage lending practices that lead to or exacerbate financial distress. [ABSTRACT FROM AUTHOR]

We use a regression discontinuity approach and present new institutional evidence to investigate whether affordable housing policies influenced the market for securitized subprime mortgages. We use merged loan-level data on nonprime mortgages with individual- and neighborhood-level data for California and Florida. We find no evidence that lenders increased subprime originations or altered loan pricing around the discrete eligibility cutoffs for the Government-Sponsored Enterprises' (GSEs) affordable housing goals or the Community Reinvestment Act. Although we find evidence that the GSEs bought significant quantities of subprime securities, our results indicate that these purchases were not directly related to affordable housing mandates. [ABSTRACT FROM AUTHOR]

Credit, debt and indebtedness are key terms for understanding contemporary social and economic life. In many recent accounts of debt, however, debt is largely an ahistorical category that remains constant throughout time, or seen simply in terms of a quantum of interest accrued over time that can then serve as a proxy for both the accumulation of profit and measurable oppression and exploitation. This forecloses analytical investigation of contemporary shifts in the everyday articulations of credit and debt and the specificity of creditor–debtor relations, including important changes in the nature of debt itself. In contrast, this paper focuses on the redefinition of debt as ‘leverage’, a dynamic, productive force that can have unpredictable effects. Alongside other developments that have transformed debt into a tradeable asset, such as financial securitization, debt as ‘leverage’ involves the anticipation of speculative excess and possibility. Addressing the contemporary transformations of credit/debt also requires acknowledging the multiple ways in which ordinary households are now expected to embrace the potentialities afforded by ‘leverage’. This is a symbiotic relationship that is evolving and persistent, and it demonstrates a much larger expansion of financial power, in which the biopolitical terrain of individual subjectivity, aspiration and forms of conduct at a micro-level is directly linked to macro-financial global structures. As the paper suggests, the contemporary consumer-citizen increasingly relies on debt-fuelled and frequently asset-based consumption that necessarily depends on some kind of leverage. [ABSTRACT FROM AUTHOR]

Over the past decade, both the housing market and the subprime mortgage market in the United States experienced a rise and fall. To explore whether subprime lending has increased or decreased social inequality between subprime neighborhoods and nonsubprime neighborhoods, this article examines the relationship between subprime mortgages and housing price variations within the Philadelphia Metropolitan Statistical Area (MSA), using a global, ordinary least squares (OLS) method and a local, geographically weighted regression (GWR) method. The results show that neighborhoods obtaining disproportionate numbers of subprime mortgages enjoyed lower housing price appreciation rates than other neighborhoods during the housing boom era but suffered higher housing price depreciation rates during the housing bust era, after controlling for other variables. The results also show that the association between housing price variations and explanatory variables differs across geographic submarkets. The empirical evidence draws some policy implications, such as rethinking the homeownership policy through expanding subprime lending, as well as promoting place-based housing policymaking. Combining OLS and GWR, this article improves the understanding of how subprime lending exacerbated social inequality at the neighborhood level. [ABSTRACT FROM AUTHOR]

This article studies volatility spillover between the US and the three largest European stock markets (Frankfurt, London and Paris) around the time of the recent Subprime crisis. In order to investigate the impact of the latter, we break our sample down into two sub-periods: a pre-crisis period and a post-crisis period, using a structural break test that has the advantage of endogenously testing for further breaks in the data. Unlike previous studies that have frequently investigated this issue using low frequency data, our article makes use of intraday data. Accordingly, using Threshold generalized autoregressive conditional heteroscedasticity (GARCH) model estimations, we find weak evidence of volatility transmission between the two regions before the Subprime crisis. However, during the post-crisis period, we record returns and volatility spillover from US to European markets and vice versa at different times of the trading day, indicating that the two regions became more dependent during the recent Subprime crisis, a finding that supports the contagion hypothesis between the US and European stock markets. [ABSTRACT FROM AUTHOR]

Some have suggested that housing policy, embodied by the Community Reinvestment Act (CRA) and affordable housing goals of the government-sponsored enterprises (GSEs), caused the subprime crisis. We examine if these programs led to worse mortgage outcomes using two approaches. The first examines whether more activity by CRA-covered lenders, or more loan sales to the GSEs, was associated with worse outcomes. The second uses regression discontinuity to determine if outcomes were worse at the geographic thresholds used by each program. Our results suggest that neither program played a significant role in the subprime crisis. [ABSTRACT FROM AUTHOR]

Purpose -- The purpose of this paper is to provide a cohesive review of the major findings in the literature concerning the Global Financial Crisis. Design/methodology/approach -- Papers published in top-rated finance and economics journal since the crisis up to the present were reviewed. A large number of these were selected for inclusion, primarily based on the number of citations they had received adjusted for the amount of time elapsed since their publication, but also partly based on how well they fit in with the narrative. Findings -- Much has been done to investigate the causes of the Global Financial Crisis, its effects on various aspects of the financial system, and the effectiveness of regulatory measures undertaken to restore the financial system. While more remains to be done, the existing body of research paints an interesting picture of what happened and why it happened, describes the interrelationships between the mortgage markets and financial markets created by the large scale securitization of financial assets, identifies the problems created by these inter-linkages and offers possible solutions, and assesses the effectiveness of the regulatory response to the crisis. Originality/value -- This study summarizes a vast amount of literature using a framework that allows the reader to quickly absorb a large amount of information as well as identify specific works that they may wish to examine more closely. By providing a picture of what has been done, it may also assist the reader in identifying areas that should be the subject of future research. [ABSTRACT FROM AUTHOR]

We offer the first empirical evidence on the adverse effect of credit default swap (CDS) coverage on subprime mortgage defaults. Using a large database of privately securitized mortgages, we find that higher defaults concentrate in mortgage pools with concurrent CDS coverage, and within these pools the loans originated after or shortly before the start of CDS coverage have an even higher delinquency rate. The results are robust across zip code and origination quarter cohorts. Overall, we show that CDS coverage helped drive higher mortgage defaults during the financial crisis. [ABSTRACT FROM AUTHOR]

The author reflects on the role of individual real estate investors in the U.S. housing bubble from 1996 - 2006 and its fall in 2012 by discussing investor characteristics and the factors that affect their buying and selling. Topics include how investors differ from homeowners, an analysis of house price movements and relative demand by real estate investors, and the credit-related factors that caused the housing boom and bust such as low interest rates and the growth of subprime mortgages.

This is the second part of the qualitative and quantitative research on the subprime mortgage crisis in the United States in 2007-2008. The main purpose of this research is to determine the factors and how they contributed to the subprime mortgage crisis, what their causal links and effects on the markets and the whole economy were, and to assess what actions could have been taken by the Federal Reserve and the Government in order to mitigate or prevent the consequences of the subprime mortgage crisis and the housing bubble. In order to obtain the results, the authors performed a qualitative analysis of the scientific literature on the course of events and their development that led to the subprime mortgage crisis and focused on insufficiently regulated home mortgage market expansion, the impact on subprime mortgage crisis of financial innovations and financial engineering, poorly evaluated systemic risks and policy undertaken by both the U.S. Government and the Federal Reserve before and after the crisis. The quantitative research focused on two main parts: firstly, the analysis of dependencies between the causes of subprime mortgage crisis and the consequences using the statistical and regression analysis; secondly, an alternative path the Government and the Federal Reserve could have taken in their policy actions, and the results they could have produced have been explored. The authors believe that the results of the research could give useful guidelines to the central bankers and government officials on how to make long-term decisions that can help in preparing for the financial distress, mitigating the consequences when the crisis strikes, accelerating the recovery and even preventing the crisis in the future. [ABSTRACT FROM AUTHOR]

Commodity markets are substantial for the shape of the world economy and experienced numerous structural changes over the span of last decades. The financial sector of the economy started to play the commanding role. The prices became more volatile as more and more financial investors began to speculate on commodity markets. Such process combined with other crucial factors leads to market abuses, decreasing transparency of trade and excessive speculation. These issues surged and were mostly observed during the subprime mortgage crisis and in the period straight after it. The policymakers around the globe made an effort in order to diminish those effects and introduced a new policy framework towards commodity markets. This paper focuses on current works and actions taken by the European Union policymakers and their United States counterparts. [ABSTRACT FROM AUTHOR]

In the course of the recent global crisis, the stock shocks are distributed and transmitted from their homes in the developed stock market to emerging stock markets. By supporting the development of emerging stock markets, this study aims to see the transmission of volatility between the Dow Jones stock index and the Dow Jones emerging Islamic stock index. In this study we have divided the period into three, periods, before, during and after this crisis to demonstrate the resilience of the Islamic market index in response to the global financial crisis. Another aim of this study is to provide a new guide line for investors in emerging stock market before making investment decisions. The data are daily, going from 02/01/2005 until 31/12/2012. To measure the transmission we used vicariate BEKK-GARCH and DCC-GARCH model. The result shows that there is a transmission mainly during the crisis period which means that the crisis affects all the financial assets whether Islamic or not. The same result also shows the preference to invest in both Islamic and classical stock indexes since they are less risky. [ABSTRACT FROM AUTHOR]

This paper engages John R. Commons’s arguments regarding the relationship between law and capitalism with the legal adjudication of the U.S. subprime mortgage crisis. As going concerns, subprime lenders have opened up ambiguities in the law regarding the application of earlier legal frameworks to new profit-making activities. As with Commons’s analysis of the nineteenth century legal reframing of property and value, this has promoted a range of legal projects that attempt to work through borrowers’ remedial claims against lenders. In his work, Commons expressed a high degree of optimism that new authoritative sources would expand public powers to balance the growing economic power of financial and industrial going concerns. I argue that the last decade has seen substantial narrowing in the legal remedies available to borrowers who claim to have been harmed through their exposure to the subprime market. Even as highprofile enforcement actions against large lenders seem to represent the expansion of public powers to balance corporate power, I argue that the legal doctrines employed in these actions narrowly structure borrowers’ remedial powers and employ certain legal techniques – most notably, a tendency to settle cases before trial and use of contract modifications – that transfer legal uncertainty back to borrowers and structure harm as legally unproblematic. [ABSTRACT FROM PUBLISHER]