2. “ What began as a tremor in the sub-prime mortgage market that affected a relative few, has sadly gained momentum, creating a broader credit crisis that continues to threaten the middle class and overall economic growth.” - Senator Jack Reed (D-RI)
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6. THE MODEL OF MORTGAGE LENDING Bank grants mortgage Bank grants mortgage Home buyer pays the bank Bank sells mortgage bonds Home buyer pays the bank Bank pays bondholders 2 4 1 3 1 2 1 1 Keys: Safeguard: Flow Of Money Home Checks Independent Checks 2 2 3 4 Mortgage Broker Home Appraisers Rating Agencies Home Buyer Home Buyer Mortgage Bond Market Bank Bank Home Valuation Income Check Repayments Mortgage Loan Repayments Mortgage Bond Bond Payments Mortgage loans
7. THE MODEL OF MORTGAGE LENDING Homebuyer defaults Homebuyer defaults Bank repossess the loans Bond payments cease Bond markets dry up Bondholders repossess 3 2 4 1 2 1 1 1 Keys: Safeguard: Flow Of Money Flawed × Flow stops Home Checks Independentchecks 2 2 3 4 Mortgage Broker Home Appraisers Rating Agencies Home Buyer Home Buyer Mortgage Bond Market Bank Bank Home Valuation Income Check × Repayments stops × Mortgages Dry up × Mortgage Bond Defaults × Repayments stops × Bond Payments Stop × Mortgage Loan