Moody’s Credit Ratings and the Subprime Mortgage Meltdown Essay

Subprime Meltdown: American Housing and Global Financial Turmoil Borrowers with a lower credit score were considered as risky and were called ‘subprime borrowers’. Therefore the interest rates on these loans were higher than the rates given to borrowers with a higher credit rating. In the 1970s it was very difficult for these borrowers to avail loans. They had to apply through conventional lenders for loans insured by the Federal Housing Administration (FHA). The procedure was long and tedious

century had marked the history of the United States (US) with the Subprime mortgage crisis. In fact, it started when the traditional model used by the bank to finance mortgages lending trough customer deposits moved to a new model in which they were selling the mortgages to the bond markets through new kind of investment vehicles . This method made it easier to find borrowers because banks were no more limited by a maximum amount of mortgage lending . The increasing demand fuelled the rise of housing prices

was previously stated, Moody’s committed no crime or infraction, yet one cannot overlook a somewhat lax stance in regards to it’s’ ratings on residential mortgage backed securities. Chairman and Chief Executive Officer of Moody’s, Raymond McDaniel, testified before the Financial Crisis Inquiry Commission that while Moody’s did observe a trend in the declining quality of mortgage-backed securities as early as 2003, that it is not the role of Moody’s nor any other credit rating agency to serve as the

enterprise. Mortgage brokers easily deceived home buyers by promoting subprime loans, and then they passed on bundled documents to unwary investors. These subprime loans were offered at a rate above prime to individuals who did not qualify for prime rate loans. The loans were made to people who had no other way to access funds, and little understanding of the mechanics of the loan. A scholarly document on subprime lending by Hanif NuMan warns, “Servicing prime and alternative- A (not subprime) loans,

Title: SECURITIZATION AND SUBPRIME CRISIS: A CRITICAL ANALYSIS OF THE ROLE OF CREDIT RATING AGENCIES Dr. Quamrul Alam Department of Management Monash University Email: quamrul.alam@buseco.monash.edu.au Phone: +613 99031030 ATM Tariquzzaman Postgraduate student Faculty of Business & Law Deakin University Melbourne, Australia Email: atm_zaman@hotmail.com; tuz@deakin.edu.au Mohammad Abu Yusuf Department of Management Monash University Mohammad.yusuf@buseco.monash

Great Depression? Michael Lewis takes us to the very beginning, covering the story of how cynical mortgage brokers and CDO managers were playing fraudulent roulette. A rigged system that was doomed from the beginning but that very well needed every piece to be in place for 2008 to happen. Credit rating agencies S&P and Moody’s had to be completely oblivious in properly rating the CDO tranche system, mortgage lenders had to be eager to write down sub-prime loans, and . Yet, through all the dust came a

Keynesian Economics and the Mortgage Crisis The recent mortgage crisis in the US was unprecedented. It led to a massive clampdown of financial institutions, occasioning one of the worst financial melt-downs the US has ever faced (Jaffe, 2008). Quite naturally, it would be necessary to examine the cause of the crisis in order to draft prophylactic measures that would prevent the same financial disaster in the future. This paper will discuss the events that led to the mortgage crisis. The housing

can be traced to banks’ incredibly risky policies regarding how and to whom they made large real estate loans and the insatiable greed that drove them to adopt these practices. In this analysis of the perfect storm that facilitated the financial meltdown, I

Subprime Meltdown: American Housing and Global Financial Turmoil In early 2008, policy-makers in the United States needed to deal with the frightening after-effects of what had appeared to be a glorious housing boom. The most immediate problem was a wave of foreclosures, which a Senate report predicted could reach 2 million by the end of 2009. Lawmakers sought to relieve the resulting pain and to preserve the longstanding dream of raising the US homeownership rate. Amidst a sea of lawsuits and

inflated home prices deceivably turned downward, spread quickly. The losses included: The investment banking industry, insurance companies, the two major enterprises chartered by the government to facilitate mortgage lending, mortgage lenders and commercial banks. Since most industries rely on credit, the most spectacular troubles broke out in the auto industry as banks stopped making the loans that they need to regulate their cash flow. The Dow Jones Industry Average in the U.S. lost 33.8% of its value