The regular mortgage and house value ratio (LTV) of the United States is more than 80%, and the ratio of the monthly repayment amount and the income of the borrower is about 30%. The subprime loans LTV average in 84%, some more than 90%, or even 100%, which means that the first payment is less than 20% of the borrower, or even zero Shoufu, then, in the absence of any one of its own funds invested, the bank will lose the basic guarantee of the borrower and the bank risks, its potential risk is moral obviously the. Borrowers owing on the loan amount and income ratio is too high, means that borrowers income is small, owing on the loan can pay limited income, and its ability to resist risks is relatively weak.
Its basic characteristics can be summed up as:
Because of the subprime mortgage credit risk is relatively large, the risk of default is 7 times, so the quality of housing loans, subprime loan interest rates than housing mortgage loans by 350 basis points, and about 80% of adjustable rate. When the loan interest rates continue to decline, can reduce the borrower’s repayment burden; but when the loan interest rates continue to rise, the borrower debt burden with increasing interest rates, leading to defaults and foreclosures increased the risk. In 2007, the subprime mortgage delinquency rate (owed 30 days) and cancel the mortgage foreclosure rate was as high as 13.33% and 4%, far higher than the abolition of prime default rate of 2.57% and 0.5% of the mortgage foreclosure rate.
Subprime mortgages (subprimemortgageloan, that is, subprime mortgages)
The crisis and panic caused by subprime mortgages in the United States are gradually spreading throughout the global market. In China, not only the BOC and ICBC for investment in the US subprime mortgage is involved, industry executives and bankers have questioned Chinese buy American subprime real estate mortgage loans at the same time, with China reserves to take the United States by inappropriate risk.
Housing mortgage loan securitization, the financial institutions issuing mortgage loans into mortgage-backed securities, and then in the capital markets through the sale of these securities to investors, financing, and housing loans risk by many investors.
So the bigger worry is whether China will have a real estate mortgage risk. China’s real estate mortgage balance in August 2007 has been as high as 2 trillion and 250 billion yuan, the total amount close to the United states. However, we can not ignore that the United States has been developing in this area for more than 50 years, while China has only 8 years to go.
Soaring house prices
And mostly adjustable interest rates, or only pay interest and non income documentary loans. About 90% of subprime mortgages are adjustable rate mortgages; about 30% are monthly interest payments, large one-time mortgages or refinancing. This type of mortgage loans began to burden less light, very attractive, but the accumulation of debt burden is heavy, especially when interest rates go up, housing prices down, refinancing can only aggravate the burden of repayment.
Run behind one’s expenses
Some aspects of China are similar to those before the crisis in the United States. House prices have been rising, and because of excessive liquidity, the competition between banks is fierce, and the pressure of loans is also under way. Therefore, the risk of China’s mortgage market is still very large, of which the risk is developers. China’s supply of houses is growing faster than that of the United States, and there will be no major problems when demand for speculation is strong. However, once speculative demand inflection point, it will throw out all the inventory in the hands, it will cause great pressure on the entire property market. The United States because of falling house prices, in a very short period of time there are 2 million Suites because of speculative demand was sold, more than a year’s normal demand. In China, the accumulation of speculative demand in the real estate market is much higher than in the United states. Moreover, China’s economy is threatened with inflation, and if interest rates rise substantially, and prices fall, it will easily lead to crises.
Credit rating scores are low. The American credit Rating firm (FICO) divides personal credit rating into five categories: excellent (750~850 points), good (660~749 points), general (620~659 points), poor (350~619 points), uncertain (350 points or less). Subprime borrowers earn more than 620 credit points, and unless individuals pay a high proportion of down payment, they do not meet the borrowing requirements of regular mortgages.
In this case, neither the individual credit system nor the bank’s own sense of risk prevention, China is not as good as the United states. And unlike the United States, the domestic real estate mortgage loans mainly provided by the banks, resulting in mortgage risk is difficult to resolve. The domestic subprime mortgage market has not yet been established, and the process of mortgage securitization has been relatively slow.
The huge profit margin shown by the rising house prices is a temptation to any commercial bank. Chinese four large state-owned banks, joint-stock banks and foreign banks have also started to fight home “cake”.
At the peak of the boom cycle, the rate of bad loans is often bad. Whether it is real estate mortgage loans, or securitization of related products, as long as the phenomenon of falling prices, mortgage property if it can not be realized, it will directly lead to financial institutions risk.
The so-called subprime mortgage loans to low-income, minority groups, low education level, lack of financial knowledge of families and individuals issued by the housing mortgage loans.
House price regulation
The subprime mortgage (Subprime) and the “Prime” of the mortgage market in America are based on the borrower’s credit terms. According to the credit level, the lending institutions treat borrowers differently, thus forming two levels of market. People with low credit can not apply for preferential loans and can only seek loans in the secondary market. Two levels of market services are loans to property buyers, but the secondary market lending rates are usually higher than the preferential mortgage loans 2% ~ 3%.
Some lenders provide loans to borrowers with poor credit and low income. After the recession in 2001, the US housing market was flourishing at an ultra-low interest rate, playing an important role in the recovery and its continued growth, and the subprime mortgage market grew rapidly. But as the U. S. housing market cooled sharply and interest rates rose, borrowers in many subprime mortgage markets failed to pay their loans on time, causing some lenders to suffer heavy losses and even bankruptcy. In 2008, the subprime mortgage crisis triggered investor concern about the health and growth prospects of the country’s financial markets as a whole, leading to a surge in stock markets over the next few years.
Original article, reprinted please note： ReprintLOAN
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