The crisis in the US subprime market has been the result of a growing number of bad loans and the consequential increase in mortgage foreclosures associated with subprime lending activities. It was in the latter part of 2006 that the US subprime mortgage lenders began noticing this meltdown in the subprime market.
The first blow caused over 100 subprime lenders to declare bankruptcy. The New Century Financial Corporation was one of the subprime mortgage firms which suffered most from the collapse of the US subprime market.
Impacts On the Global Economy:
The failure of the US subprime market will have a long-lasting impact on the global economy. This is mainly due to the success of the subprime mortgage industry in the US in the 1990’s. This success prompted many other nations to try risky lending activities.
The sudden meltdown in the US subprime market is thus bound to have a negative effect on the global economy as a whole.
Prior to the collapse of the US subprime market in August 2007, the worldwide economic status was satisfactory. The growth rate of the global economy was more than five percent in the first part of the 2007 fiscal year. The Dow Jones Industrial Average recorded a sharp fall from 14,000 points on July 19, 2007, to 13,000 by mid August, and represented an immediate impact of the collapse of the US subprime industry.
The US subprime market crisis has had major consequences for financial service providers throughout the world. Until January 17, 2008, the total financial losses arising from the crisis amounted to $120 billion (US). IKB Deutsche Industriebank, Morgan Stanley, Citigroup, Bank of America, Merrill Lynch, HSBC, Barclays Capital and UBS AG are some of the global giants that suffered massive losses due to the crash of US subprime industry.
The forecast of the International Monetary Fund shows that the meltdown in the US subprime market will surely have an adverse impact on world economic growth in 2008 as well. The annual global growth rate of 4.8%, as projected by the IMF for the year 2008, stands in contrast to 5.4% and 5.2% for 2006 and 2007, respectively.
The economists of the International Monetary Fund are also apprehending a loss in residential investments that would result from indirect effects of a crisis in the US subprime market.
The emerging markets in the developing countries are going to be the worst hit by the collapse of the US subprime market, as the impending inflationary pressure would cut down the inflow of foreign capital.
Finally, the foremost concern of IMF is an imbalance in the global economic scenario. The International Monetary Fund worried about the long term effects of the US subprime crisis. These mainly include a persistent imbalance in trade practices and the probability of unmanageable depreciation in the US dollar.
In conclusion it can be said that the sudden collapse of the US subprime industry has given the world economy tremendous challenges which it has never faced before.
The Importance of Mortgage Brokers
In every developed country, the function of a mortgage broker is indispensable. On behalf of the mortgage lenders, the brokers perform a number of tasks. In this way, it is easy for the mortgage lenders to perform transactions with the mortgage borrowers in a speedy and efficient way. With the assistance of the brokers, the lenders can deal with competition effectively.
A mortgage broker can help a customer attain a fair idea about the mortgage market. It is often hard for people with poor credit ratings to obtain a mortgage loan. A mortgage broker can help by finding a bad-credit mortgage lender for them, because the brokers have much experience in the mortgage market.