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Subprime mortgage banksruptcy of Lehman Brothers [Part3] 2008-12-30 14:44:07 Continued from part2Impact of subprime mortgage banksruptcy filingThe Dow Jones closed down just over 500 points on September 15, 2008, at the time the largest drop by points in a single day since the days following the attacks on September 11, 2001. (This drop was subsequently exceeded by an even larger plunge on September 29th, 2008.)Lehman
's subprime mortgage banksruptcy is expected to cause so Read more:Brothers
, Subprime
Subprime mortgage Banksruptcy of Lehman Brothers [Part2] 2008-12-30 02:42:00 Continued from part1Subprime
mortgage banksruptcy filingLehmanBrothers
filed for Chapter 11 subprime mortgage banksruptcy protection on September 15, 2008.Breakup processOn September 20, 2008, a revised proposal to sell the brokerage part of Lehman Brothers holdings of the deal, was put before the subprime mortgage banksruptcy court, with a $ 1.35 billion (£700 million) plan for Barclays Plc to
Subprime mortgage Banksruptcy of Lehman Brothers [Part1] 2008-12-29 14:41:00 LehmanBrothers
filed for Chapter 11 subprime mortgage banksruptcy protection on September 15, 2008. The subprime mortgage banksruptcy of Lehman Brothers is the largest subprime mortgage banksruptcy filing in U.S. history with Lehman holding over $600 billion in assets. BackgroundIn August 2007, Lehman closed its subprime mortgage lenders, BNC Mortgage, eliminating 1,200 positions in 23 locations Read more:Subprime
Completely Information about Collateralized debt obligation [part9 (the last)] 2008-12-29 02:38:01 Continued from part8AccountantsThe underwriter typically will hire an accounting firm to perform due diligence on the CDO's portfolio of debt securities. This entails verifying certain attributes, such as credit rating and coupon/spread, of each collateral security. Source documents or public sources will typically be used to tie-out the collateral pool information. In addition, the accountants t Read more:obligation
Completely Information about Collateralized debt obligation [part8] 2008-12-28 14:37:01 Continued from part7The Asset ManagerThe asset manager plays a key role in each CDO transaction, even after the CDO is issued. An experienced manager is critical in both the construction and maintenance of the CDO's portfolio. The manager can maintain the credit quality of a CDO's portfolio through trades as well as maximize recovery rates when defaults on CDO assets occur.The asset manager's role Read more:obligation
Completely Information about Collateralized debt obligation [part7] 2008-12-28 02:36:01 Continued from part6Transaction ParticipantsParticipants in a CDO transaction include investors, the underwriter, the asset manager, the trustee and collateral administrator, accountants and attorneys. Beginning in 1999, the Gramm-Leach-Bliley Act allowed subprime mortgage lenders to also participate.InvestorsInvestors have different motivations for purchasing CDO securities depending on which tr Read more:obligation
Completely Information about Collateralized debt obligation [part6] 2008-12-27 14:35:01 Continued from part5Types of CollateralThe collateral for cash CDOs include:Structured finance securities (mortgage-backed securities, home equity asset-backed securities, commercial mortgage-backed securities)Leveraged loansCorporate bondsReal estate investment trust (REIT) debtCommercial real estate mortgage debt (including whole loans, B notes, and Mezzanine debt)Emerging-market sovereign debtP Read more:obligation
Federal takeover of Fannie Mae and Freddie Mac [part7 (the last)] 2008-12-27 02:57:42 Effects on the subprime mortgage crisisThe effects on the subprime mortgage crisis have led the government to support the soundness of the obligations and guarantees on securities issued by Fannie and Freddie
to obtain funds. Those funds are in turn used to purchase mortgages from originating subprime mortgage lenders. The continuing soundness of GSE obligations enhances market liquidity (loanable Read more:Federal
Federal takeover of Fannie Mae and Freddie Mac [part6] 2008-12-27 02:57:37 Market consequencesSubprime mortgage lenders reservesMany commercial subprime mortgage lenders in the United States own Freddie
and Fannie preferred shares. Those shares have had their dividends suspended, and are junior to the senior preferred stock issued to the Treasury in the restructuring of the two companies. The market value of the preferred shares plunged after the restructuring announceme Read more:Federal
Federal takeover of Fannie Mae and Freddie Mac [part5] 2008-12-27 02:57:31 Treasury support programs and credit facilitiesTreasury Secretary Paulson on September 7, 2008 described four aspects of the U.S Treasury's support of the two government sponsored enterprises (GSEs) while under conservatorship of the FHFA: "To promote stability in the secondary mortgage market and lower the cost of funding, the GSEs will modestly increase their MBS portfolios through the end of 2 Read more:Federal
, Freddie
Federal takeover of Fannie Mae and Freddie Mac [part4] 2008-12-27 02:57:27 FHFA initial actions as conservatorIn the September 7, 2008 conservatorship announcement, Lockhart indicated the following items in the plan of action for the Federal
Housing Finance Agency conservatorship: On September 8, 2008, the first business day of the conservatorship, business will be transacted normally, with stronger backing for the holders of Mortgage Backed Securities (MBS), senior debt Read more:Freddie
Federal takeover of Fannie Mae and Freddie Mac [part3] 2008-12-27 02:57:23 Capital infusion by the TreasuryThe agreement the Treasury made with both GSEs specifies that in exchange for future support and capital investments of up to US$ 100 billion in each GSE, at the inception of the conservatorship, each GSE shall issue to the Treasury US$ 1 billion of senior preferred stock, with a 10% coupon, without cost to the Treasury. Also each GSE contracted to issue common stoc Read more:Federal
, Freddie
Federal takeover of Fannie Mae and Freddie Mac [part1] 2008-12-27 02:57:17 The federal takeover of Fannie Mae and Freddie
Mac refers to the placing into conservatorship of government sponsored enterprises Fannie Mae and Freddie Mac by the US Treasury in September 2008. It was one financial event among many in the ongoing Subprime mortgage crisis.The director of the Federal
Housing Finance Agency (FHFA), James B. Lockhart III. on September 7, 2008 announced his decision
Federal takeover of Fannie Mae and Freddie Mac [part2] 2008-12-27 02:57:12 Previous Attempts for GSE ReformIn 2003, the Bush Administration sought to create an agency to oversee Fannie Mae and Freddie
Mac. While Senate and House leaders voiced their intention to bring about the needed legislation, no reform bills materialized. A Senate reform bill introduced by Senator John Corzine (D-NJ) (S.1656) never made it out of committee. At the time members of congress expressed Read more:Federal
Impact of Subprime Mortgage crisis to Countrywide Financial [part3 (the last)] 2008-12-27 02:54:26 Continued from part2 ImpactOn August 15, 2007, Merrill Lynch advised its clients to sell their stock in Countrywide
. The stock had lost over 57% YTD through September 7, 2007.'Protect Our House' PR campaignIn September 2007, after months of negative publicity and the announcement of a reduction of 20% of its workforce, Countrywide launched a public relations campaign aimed at demoralized employees Read more:Financial
, Mortgage
, Subprime
Impact of Subprime Mortgage crisis to Countrywide Financial [part2] 2008-12-27 02:54:21 Continued from part1Announcement of problems and bailoutsOn Thursday, August 16, 2007 the company expressed concerns over liquidity because of the decline of the secondary market for securitized mortgage obligations. Countrywide
also announced its intent draw on the entire $11.5 billion credit line from a group of 40 subprime mortgage lenders including JPMorgan Chase. On Friday August 17, many dep Read more:Financial
, Mortgage
, Subprime
Impact of Subprime Mortgage crisis to Countrywide Financial [part1] 2008-12-27 02:54:17 Secondary market disruptionWhen Countrywide
finances mortgage loans, they usually package them for sale to large investors as mortgage-backed securities. Fannie Mae or Freddie Mac can only buy loans which conform to the standards of government sponsored enterprises. Non-conforming mortgages securities must be sold in the private, secondary market to alternative investors. On August 3, 2007, this Read more:Financial
, Mortgage
, Subprime
Business unit of Countrywide Financial Corporation [part3 (the last)] 2008-12-27 02:54:10 Continued from part2InsuranceThe Insurance segment activities include offering property, casualty, life and credit insurance as an underwriter and as an insurance agency, and providing reinsurance coverage to primary mortgage insurers, through two business units: Balboa Life and Casualty Operations, and Balboa Reinsurance Company.Balboa Life and Casualty Group underwrite property, casualty, life a Read more:Business
, Corporation
, Countrywide
, Financial
Business unit of Countrywide Financial Corporation [part1] 2008-12-27 02:54:05 BankingThe Banking segment produces mortgage loans through a variety of channels on a national scale. Nearly all of the mortgage loans the company produces in this segment are sold into the secondary market, primarily in the form of mortgage-backed securities. In 2006, 45% of those mortgages were conventional non-conforming loans, loans too large to sell to Fannie Mae. The company generally perfo Read more:Business
, Corporation
, Countrywide
, Financial
Business unit of Countrywide Financial Corporation [part2] 2008-12-27 02:54:00 Continued from part1 BankingThe Banking segment consists of Countrywide
Subprime mortgage lenders, FSB and Countrywide Warehouse Lending. Formerly, the subprime mortgage lenders was known as Countrywide Subprime mortgage lenders, N.A., a nationally chartered subprime mortgage lenders that was regulated jointly by the Office of the Comptroller of the Currency and the Federal Reserve, but it convert Read more:Business
, Corporation
, Financial
Completely Information about Collateralized debt obligation [part5] 2008-12-27 02:34:01 Continued from part4Taxation of CDOsCDOs are bonds issued by special purpose vehicles that are backed by pools of bonds, loans or other debt instruments. CDOs are typically issued in classes or “tranches” with some being senior to others in the event of a shortfall in the cash available to make payments on the bonds. The issuer of a CDO typically is a corporation established outside the United Read more:obligation
Completely Information about Collateralized debt obligation [part4] 2008-12-26 14:33:01 Continued from part3A synthetic CDO tranche may be either funded or unfunded. Under the swap agreements, the CDO could have to pay up to a certain amount of money in the event of a credit event on the reference obligation
s in the CDO's reference portfolio. Some of this credit exposure is funded at the time of investment by the investors in funded tranches. Typically, the junior tranches that face
Completely Information about Collateralized debt obligation [part3] 2008-12-26 02:32:00 Continued from part2StructuresCDO is a broad term that can refer to several different types of products. They can be categorized in several ways. The primary classifications are as follow:Source of funds -- cash flow vs. market valueCash flow CDOs pay interest and principal to tranche holders using the cash flows produced by the CDO's assets. Cash flow CDOs focus primarily on managing the credit Read more:obligation
Completely Information about Collateralized debt obligation [part2] 2008-12-25 14:31:00 Continued from part1ConceptCDOs vary in structure and underlying assets, but the basic principle is the same. Essentially a CDO is a corporate entity constructed to hold assets as collateral and to sell packages of cash flows to investors. A CDO is constructed as follows:A special purpose entity (SPV) acquires a portfolio of credit. Common assets held include mortgage-backed securities, Commercial Read more:obligation
Completely Information about Collateralized debt obligation [part1] 2008-12-25 02:30:01 Collateralized debt obligation
s (CDOs) are an unregulated type of asset-backed security and structured credit product. CDOs are constructed from a portfolio of fixed-income assets. These assets are divided by the ratings firms that assess their value into different tranches: senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches (unrated). Losses are applied in reverse or
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