The 2007 to 2011 term credit crisis has had a major impact on the financial system, the banking sector and the overall consumer confidence in the economy. Among others, the huge price increases in the housing market and the privatization of financial institutions have ensured that there was a huge bubble, who once had burst. How did this crisis arise and why is there arose such a huge damage on the housing market?
The actual start of the crisis originated in America in the early 21st century. The September 11 attacks and the bursting of the Internet bubble led to a substantial fall in equity prices and a decline in consumer confidence. A combination of government decisions and creativity of banks led to an enormous increase in the demand for mortgage loans. Because of a looming recession, the US government decided to sharply cut interest rates to stimulate investment by businesses and consumers. The banks, which are increasingly privatized in those years and therefore had much more freedom to introduce in the supply of products, took advantage of this by a number of new mortgages. Thus a number of creative ways to increase the number of mortgage lending sharply:
Which could be financed in the Netherlands before the crisis still 125% of the value of the property that was not common in America. In order to provide mortgages to prospective buyers who did not have their own resources to finance additional expenses, was next to the main loan that met all legal standards, a second loan which the additional costs could be paid. Because this second loan fell outside the standards for this was often considered a much higher interest rate than the loan principal.
The name "subprime" refers to consumers who had a lower credit rating than the credit rating that was required to take out a mortgage. These were consumers who for example had recently gone bankrupt or had only one variable income. They could also creativity of banks still buy a house.
Ninja stands for "No Income, No Job, No Assets" or consumers who have no income, no job and have no power. Even those consumers could still get a mortgage because the value of houses rose so quickly that the property upon default anyway would bring in enough to repay the mortgage note.
The easing of credit standards and the low starting interest rates that banks wielded led to a new audience of consumers who first had insufficient income to take out a mortgage, but now without difficulty a house with high mortgage debt could finance. The measures had a significant increase in demand for homes, which may cause housing prices, as a result of the operation of supply and demand, began to increase. Rising house prices increased in turn the demand for houses, which were increasingly regarded as investment by the increase. The assumption was that a house would always recoup the investment because the price still increased annually.
Rising demand, and thus housing prices, which rose each year, eventually stagnated. Cause was the interest began to increase, partly because of rate hikes by the government and by the banks, which had begun with low access rates, but after the expiry of the new contract rates, and higher interest rates introduced. In addition, house prices were now so high that buying a house was almost priceless. The result was a drop in demand for housing and increase the supply of homes because homeowners could not pay their "new" mortgage rates. This development led to a decrease in housing prices, and by the increased forced sales remained many homeowners with negative equity behind. Because the number of foreclosures and the remaining debt, often by banks had to be written off as a loss, became the first mortgage banks in financial trouble.
In Europe, several countries have been hit hard by similar developments. In Ireland and England, prices fell in 2008 by 10% to 15% over the previous year. Also in the Netherlands stagnated prices rise in 2008, after which a few years to decline. In addition, Europe has been indirectly affected by the downturn in the US housing market through the securitization phenomenon. US banks sold their mortgages in packets to other financial institutions, this to make yourself free cash for other investments. European banks were bought these packages in the crisis in trouble because of the increased number of defaulters in these packages.
Ultimately, the financial crisis has left deep scars in the economy, in particular the housing market. Thus, in the Netherlands, house prices fell by about 10%, the number of homes sold decreased by approximately 40% compared to 2007 and there is less employment in the construction industry. The Dutch government has been hit hard by the decline in revenues and increased spending. Worldwide, some mortgage banks went bankrupt and in the Netherlands and several other countries, a number of major banks narrowly saved from bankruptcy by the application of State aid. Eventually, there are several changes introduced in the regulations for mortgage lending, making it difficult for consumers to get a mortgage. There are also pension evaporate who see their power by buying packages of mortgages and many consumers have lost their savings they had outstanding with banks that have gone bankrupt.
The credit crisis: the government measures
The concept of securitization