Tag Archive for Derivatives

Financial Turmoil: The Federal Reserve’s Grand Tour

Suspects in the subprime crisis
•Technological innovation in the delivery of credit
•Modeling approaches allowed lenders to more finely differentiate and pool riskier borrowers…borrowers who had trouble getting credit in the past
•Did lenders overshoot?
•High CLTV means thin equity for homeowners.
•Doesn’t take much of a decline in prices to put homeowners “under water”
•Lenders might have underestimated the probability of a broad housing shock