Currently, the US mortgage finance company market is facing a crisis, but the US government has resolved it. How did the US government resolve it? It's simple. Adjust the interest rates.
Since last year, the Federal Reserve has been adjusting the interest rates continuously. The interest rates had increased from 1% to 5.5%.
When interest rates rise, it means that the income of these mortgage finance companies and banks will increase. However, the pressure on those who repay their loans will increase several times.
The interest rates on loans are higher than the interest rates on deposits. This is one of the main sources of income for banks.
What does the increase in interest rates mean? It means that those who could repay their mortgages normally can't afford it now.
The intervention of the mortgage finance companies gives many Americans the opportunity to buy houses. Even if they are not creditworthy enough, they can still get loans to buy houses.
There is another model. The repayment is the same every month, but the interest rates are adjusted according to the bank's interest rates.
When the bank's interest rates increase by several times, many people will have to pay several times more interest. This will increase the burden on the borrowers.
Some people who could repay their loans can't afford it now. In the past, property prices had increased very fast. Even if these people can't repay their loans, the company can still auction off their houses. The company will not suffer any losses.
But now, property prices are not rising as fast as the interest rates. This means that the customers will suffer losses, and the mortgage finance companies will also suffer losses.
Because of this, the US government decided to ask the Federal Reserve to lower interest rates. Although the Federal Reserve does not belong to the government, it still has some influence.
But it's too late. Many loans had become bad debts.
New Century Finance, the second best mortgage company in the US, had given out too many loans. To increase profits, they had given out loans to people who did not meet the requirements. Some of their collateral had even been repeatedly mortgaged.
With the income of many people, they should not be able to get a loan successfully. If you earn 1,000 USD a month and have to repay more than 900 USD, it might seem like you are still rich. However, normal loans require an income that is more than double the repayment amount to be safe. Also, the remaining money must be enough for the other party to live.
How can the other party live with tens of USD a month? Not to mention a highly developed economy like the United States, even in some countries with average economies, it was not enough. The prices of goods were still there.
Many people couldn't repay the money, so New Century Financial Corporation thought of a "good idea," which was to change the loan model. Since they could choose a new loan method, the repayment method would naturally change. In this case, it could solve the problem of repayment for many people.
However, this was only treating the symptoms and not the root cause. In fact, it was akin to drinking poison to quench thirst. As a result, New Century Financial Company suffered even more losses.
New Century Financial Corporation was also a fast-growing company. It was established in 1995 and listed in 1997. The 1998 Asian financial crisis affected the world, especially the collapse of the real estate bubble in Asia, which hit the US again.
However, at the time, New Century Finance wasn't that big, so it managed to avoid this risk. After that, it developed even faster.
After George W. Bush came up with this housing plan, most of the real estate finance companies grew rapidly, and many companies' share prices soared.
But in 2002, Feng Yu had triggered the dotcom bubble in the US and exposed WorldCom, Enron, and other companies' fake accounts. The US stock market and even the world's stock market were hit hard, and it took a few years to recover.
At that time, New Century Financial Corporation grew even faster. But at the same time, Fannie and Freddie also had a scandal.
But interestingly, Fannie and Freddie's scandal was not because they had inflated their profits. It was because they had concealed their profits!
At that time, the real estate industry's profits were very high, and Fannie and Freddie had made a lot of money. However, these two companies concealed a lot of their profits in order to pay less taxes and pay less taxes.
This gave a signal to many people that the real estate finance industry was too profitable. Even after concealing their profits, they still made so much money. So, more and more people started to enter the real estate finance industry to make more money.
At this time, New Century Financial Company's share price inevitably fell. But this company's decision-makers felt that the market had underestimated their share price. So, they colluded with several other companies that also had sub-prime loans to turn them into a real estate investment trust. They hoped to attract more investors with higher dividends.
Simply put, this New Century Financial Corporation doesn't have much money.
But New Century Financial Corporation dares to lend money, and the checks are very low. The checks are just a formality, and the amount of loans they have increased rapidly.
When you get a loan from a bank, you have to go to the bank to apply for it. Most of the time, you have to wait in line and have to go through the checks. It's very complicated. But New Century Financial Corporation doesn't need these procedures.
They use brokers, and many brokers don't even have an office. They work in their own homes, and they only need to make a phone call, and the brokers will come to their homes. They are more considerate than banks.
This is also how New Century Financial Corporation grew to become the second sub-prime mortgage company in the US. Within a decade, the company's market value increased from 1 million USD to over 3 billion USD!
This company is also very lenient with their brokers. Many brokers can take paid leave for up to 6 months, and this includes some of the higher management.
With this, New Century Financial Corporation's hidden problems are getting bigger. Many people are cheating their loans, and the company's bad debts and bad debts are increasing.
This company's financial audit company had discovered these problems long ago, but they chose to hide it. If the shareholders know that this company had lost so much money, the company will be finished.
This type of financial company should have sufficient cash reserves, but this company doesn't. If this news is leaked, the outcome will be determined.
Feng Yu looked at the information Ralph passed to him. He did not expect this company's losses to be higher than what he expected. Also, it's not only New Century Financial Corporation. There are many similar companies in the same industry, and they are in the same situation.
Feng Yu put down the information. "Ralph, tell them to start the plan!"
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