The crisis in the US subprime market has been the result of the mounting amount of bad loans and the consequential increase in the mortgage foreclosures associated with subprime lending activities. It was in the later phase of 2006 that the US subprime mortgage lenders started realizing the meltdown in the subprime market of the country. The first blow caused over 100 subprime lenders to declare bankruptcy. New Century Financial Corporation was one of those subprime mortgage firms that suffered most from the collapse of the US subprime market.
Impact on Global Economy
The failure of US subprime market is going to have a long-lasting impact on the global economy. This is mainly because of the fact that the success of the subprime mortgage industry of US in the decade of 1990s urged many other nations across the world to go for risky lending activities. The sudden meltdown in the US subprime market is therefore bound to have a trickle down effect on the global economy as a whole.
Prior to the major breakdown of the US subprime market in August 2007, the worldwide economic scenario was quite satisfactory. The growth rate of the global economy was more than 5 percent in the initial part of the 2007 fiscal. As an immediate impact of the collapse of the US subprime industry, the Dow Jones Industrial Average recorded a sharp fall from 14,000 on 19th July 2007 to 13,000 by mid August.
The crisis in US subprime market has had major consequences on the financial service providers across the world. Till 17th January 2008 total financial loss arising from US subprime crisis amounted to US $120 billion. IKB Deutsche Industriebank, Morgan Stanley, Citigroup, Bank of America, Merrill Lynch, HSBC, Barclays Capital and UBS AG are some of the global giants in the financial sector that suffered huge loss due to the crash of US subprime industry.
As per the forecast of the International Monetary Fund, the meltdown in US subprime market will surely have adverse impact on the world economic growth in 2008 as well. The global growth rate of around 4.8 percent (annual), as projected by the IMF for the year 2008, would stand in contrast with the growth rates of 5.4 percent and 5.2 percent for 2006 and 2007 respectively.
The economists of the International Monetary Fund are also apprehensive of the downfall of residential investment that would result due to the indirect effect of crisis in US subprime market.
The emerging markets in the developing countries are going to be worst hit by the collapse of US subprime market, as the impending inflationary pressure would cut down the inflow of foreign capital.
Finally, when it comes to the foremost concern of IMF, it is the imbalance in the global economic scenario. The International Monetary Fund is too much worried about long term effects of the US subprime crisis that mainly include persistent imbalance in trade practices and the probability of unmanageable US dollar depreciation.
In conclusion it can be said that sudden collapse of the US subprime industry has placed the world economy in front of a tremendous challenge it has never faced before.
Importance of the Mortgage Brokers
In every developed country of the world, the function of a mortgage broker has become indispensable. On behalf of the mortgage lenders, the mortgage brokers perform a number of tasks and in this way, it is easy for the mortgage lenders to transact with the mortgage borrowers in a speedy and efficient way. By taking the assistance of the mortgage brokers, the mortgage lenders can deal with the competition effectively. A mortgage broker can help a customer get a fair idea about the mortgage market. People who have poor credit rating often find it hard to obtain a mortgage loan. A mortgage broker can also help in this regard and find out a bad credit mortgage lender for them, because they have a lot of exposure to the mortgage market.