Subprime Failure and Top US Banks

The failure of US subprime market resulted in a chain of consequences across the world. However, none of these consequences has been isolated one. All happened as a result of the trickle down effects that followed the sudden turmoil in the US financial sector. If we start searching for the factors causing disaster in the US subprime market, we will end up with a long list.
The subprime lending activities involving the financial organizations, mortgage underwriters, borrowers and mortgage brokers were primarily responsible for prompting the crisis of US subprime industry. When it comes to the financial organizations, the most important fact that needs to be considered is that it is mainly the flourishing real estate sector of US that compelled the US lenders to go for subprime lending.

Risk factor was there in the US subprime industry from the very beginning. However, it is mainly because of the increasing amount of mortgage foreclosures, repayment failure, predatory lending and bankruptcy that triggered the collapse of US subprime market.

Financial organizations as catalysts of subprime failure
Amongst the various factors, it is the housing bubble in US that is considered to be the most crucial one behind the meltdown of US subprime mortgage sector. The sudden climb in real estate valuation urged the common people of US to go for multiple mortgage loans against the same property. However, the bubble didn’t last long.
The decline in financial activity thereafter lowered the property prices in most parts of the United States. Now, with reduced property valuation, people can hardly manage to meet the repayment obligations that the financial organizations owe them.

The following table gives an idea about how the share of subprime mortgage in total mortgage of US has increased over the passage of time.

Year Share of Subprime Mortgage in Total Mortgage of US (in percentage)
1994 5
1996 9
1999 13
2006 20

Subprime crisis and its effect on US banks
As far as the impact of subprime failure is concerned, it is the US banking sector that has suffered most. A number of top US banks and other financial service providers registered for bankruptcy as a result of the direct effect of subprime market disaster.

The Bank of America recorded a loss of $5.28 billion. The loss amount for Morgan Stanley has been $10.3 billion. The loss for Bear Stearns amounted to $2.6 billion. However, Citigroup topped the list in terms of loss amount followed by Merrill Lynch. The loss amount for Citigroup has been $24.1 billion while that for Merrill Lynch stands at $22.5 billion.

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