Introduction and methodology Essay Example | Topics and Well Written Essays - 1000 words

Introduction and methodology - taste ExampleThe real sign of the credit crunch started in summer 2007 when mortgage borrowers started defaulting on their mortgages and exposing billions of dollars of lamentable debt. This was when US housing prices started to plunge 20% to 30% in 12 months (Financial Times 2009). However, this was not something that was beingness anticipated by the lenders, as bankers thought they held new products that guaranteed never-ending great profits. However, the best performance for the sub-prime food market was between 2001 and 2006, when sales essentially boomed. Analysts state that approximately one-third of mortgages issued to subprime borrowers were adjusted grade mortgages. In the primordial 2000s, interest was at its lowest rate and mortgage lenders started to relax their lending standards, which made many poor people credit families creditworthy to qualify for a mortgage. As more people started to buy property, it change magnitude subscribe to in the housing market and caused house prices to rise (Mortgageguideuk 2009). In addition, subprime lending rocketed to trillions of dollars bankers and lenders bundled up the subprime mortgages with the prime mortgages, unspoilt and bad apples, and sold them in a single package to hedge funds and investment banks who initially thought it as a great way to generate high return investments (Terner 2008). These are called Collateralised Debt Obligations (CDOs). Lehman Brothers was the biggest participant on this subprime market, making millions of dollars every month they even offered Ninja (no income, no job or asset) mortgages, basically grammatical construction if you can breathe, we will give you a loan (reference). This is what caused the problem subprime mortgages were mostly given to new homeowners who did not understand the risks behind the scenes (Financial Times 2009). When the demand in the housing reached its peak in the US, the interest rate started to rise from 1% to 5.35%, which caused the housing market to slowdown. As a result, this caused real concern for homeowners who could barely support their mortgage payments when interest rates were low. Homeowners started to default on their mortgages, sparking trouble for all of us and the entire fiscal system (Mortgages 2010). When borrowers could no longer afford to pay their loans, the value of these investments started to fall, causing huge losses for banks crossways the world and many businesses that wholly depended on free fall credit have either collapsed, been taken over by competitors or been nationalised (Parliament 2010). For example, Lehman Brothers, Bear Stearns, Washington Mutual, Northern Rock, Freddie Mac, AIG, Fanny Mae, Bradford and Bingley, RBS Bank of Scotland Group, Wachovia, Halifax Bank of Scotland and many more have been hit hard by the credit crisis. For example, HSBCs subsidiary Housing finance Corporation (HFC) was the highest provider of high risk subprime borrowers in the US and was hit hardest by the credit crunch. This was when US housing prices started to fall in 2006. As a result, provisions for losses on HFC loans increased by almost $3 billion in comparison to the previous year (Financial Times 2009). This discourse focuses on how the credit crunch has affected the UK population in terms of mortgages and unemployment. Jon Moulton, the British venture capitalistic stated that, as Americans and