By Robert J. Shiller, Rafal M. Wojakowski, M. Shahid Ebrahim and Mark B. Shackleton
The ongoing crisis has exposed the vulnerability of the most sophisticated financial structures to systemic risk. This crisis—emanating from mortgage loans to borrowers with high credit risk—has devastated the capital base of financial intermediaries on both sides of the Atlantic. Its impact on the real sector of the economy has given rise to a fear and uncertainty not seen since the Great Depression of the 1930s.
The fragility of the financial intermediaries stems from the rigidity of the traditional mortgage contracts such as the Fixed Rate Mortgages (FRMs), Adjustable Rate Mortgages (ARMs) and their hybrids.
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Institutions need to filter out loaners to avoid bigger troubles. Offering mortgage to financial delinquents can result to a worse crisis. Should the government shoulder this problem?
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ReplyDeleteMortgage companies should make sure to lessen their fees because of the financial crisis. I noticed that instead of decreasing the rate they increase it because people need to loan.
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