Mortgage: A loan on a house

Mortgage backed securities (financialization)

• Chances the incentives of mortgage loans

  • A derivative that takes individual mortgages in which banks can only be repaid by the spender, collects all of them and sells to a third party

  • banks would only make money on repayment, now not the case

  • The risk is now in the hands of the third party

  • Deregulation in neoliberalism

    • Before 1999, banks could not offer mortgages to masses of third parties

      Freed up banks from just individual mortgages to make more profits

• As a result of this, the sale of houses balloons, the number of mortgages increases + the purchases of Mortgage backed securites

Who can you offer mortgages to? - People who did not own homes - Subprime Borrowers

Subprime Mortgages:

Definition: A group of potential borrowers that are not good risks, leads to higher interest rate

• “predatory” lending - imposing unfair, deceptive or abusive loan terms on borrowers

  • Teaser Loan: offer an easy affordable rate for first years of mortgage, then increases dramatically during the later years

  • misleading attractive terms at the beginning of the loan

• Adjustable-rate mortgages, or ARMs, which had low initial “teaser” rates that lasted for the first two or three years and then increased afterward

• banks would keep offering these loans to subprime borrowers

Subprime and “Assetization”

• US housing market bubble

  • was fluxuating greatly during this time

• Can think about a house as an asset, therefore its an investment

• The value of real estate was increasing every year

Variable vs Fixed mortgages in a low interest environment

• Interest rate policiy in an indebted economy

• interest rates dropped extremely low

• housing suddenly became very affordable

• (low interest rate time period encourages debt)

• fixed rate mortgage—interest rate doesn’t change, less risky

• variable rate mortgage-interest rate is linked to the bank’s policies

Emergence of the Crisis 2006-2008

Increase in interest rate

• governments worried as the debt to interest rate is very high, want to increase interest rates

  • increase in delinquency and foreclosure

  • People started struggling and unable to pay it back

• Lead to a decline in housing prices

• Financial Firms start to fail

  • countrywide financial firm

September 2008 financial crisis starts

• mortgage backed securities aren’t being paid off

• American and European governments had to pay off to keep economy afloat

Exam Info

6-7 questions + 2 long answer questions (slightly weighted to the material after the term test)

(8-9 for whole test)

take something abt debt and ask what a lineage would think about that

Liberal view of debt: (how would market balance itself out)

• In favour of deregulation of the market

  • part of the instability that caused the crisis

• they would argue that all that needed to happen to avoid crisis is to not help out poor people

  • banks tried to get poor people in the housing market, should have

• let the financial institutions fail and not bail them out, so that they are less likely to make that mistake again

  • problem is that if you dont bail out financial institutions, the economy fails

How would marxist lineage interperet certification schemes

• mostly against because of commodity fetishism

• label doesnt reveal enough for marxist, doesnt pull it back far enough

Four worlds of student finance

• how many students recieve loans

• how much tuition costs