Breakdown of the Mortgage Supply Chain

5482 WordsOct 8, 201022 Pages
Executive Summary This report reviews the current financial crisis by looking at the lack of quality management through the mortgage supply chain. The crisis represents a failure of proper regulation and visibility throughout the mortgage supply chain. Only careful management of these quality issues through all financial institutions and through all aspects of the financial supply chain will remedy the past issues. This is a difficult task but not impossible. This report will discuss each section of the mortgage supply chain and how the weaknesses in the integration caused the financial crisis. Proposed legislation will be explained in detail. Several recommendations will be proposed, both short-term and long-term, which I believe…show more content…
As a result, credit underwriting tightened nationwide as the capital of many banks declined sharply. Residential Mortgage Debt Figure 1 shows the “Outstanding First-Lien Residential Mortgage Debt” in all sectors as of 2007. The “Agency Mortgage Backed Securities” represent the high credit, low loan-to-value, “safe” loans administered by governmental agencies such as; Fannie Mae, Freddie Mac and Ginnie Mae. The right side of the exhibit shows the “Non-Agency Backed Securities” which make up three areas of mortgage where the government is not willing to lend. Jumbo loans consist of those loans which exceed the maximum allowed loan limits which differ from state-to state. This level is set forth by the government and is any loan $417,000 or greater in North Carolina. The Alt-A loans are intended for those borrowers who do not fit in the conforming guidelines but who have a better credit rating and history than a sub-prime borrower. Alt-A loans would consist of loans for investment properties, second homes, or high loan-to-values for borrowers who would otherwise be considered conforming. The third section of this exhibit makes up the sub-prime borrowers who have less than stellar credit but are willing to pay a higher down-payment and a higher rate to get a mortgage loan. As you can see, the sub-prime sector makes up the majority of the non-agency loans. Also note that most of

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