Theater of the Mind

Context and summary

• 1968: The Government mortgage-related agency, Federal National Mortgage Association (Fannie Mae) is converted from a federal government entity to a stand-alone government sponsored enterprise which purchases and securitizes mortgages to facilitate liquidity in the primary mortgage market. The move takes the debt of Fannie Mae off of the books of the government.
• 1970 Federal Home Loan Mortgage Corporation (Freddie Mac) is created by an act of Congress, as a GSE, to buy mortgages on the secondary market, pool them, and sell them as mortgage-backed securities to investors on the open market
• 1974: Equal Credit Opportunity Act imposes heavy sanctions for financial institutions found guilty of discrimination on the basis of race, color, religion, national origin, sex, marital status, or age
• 1977: Community Reinvestment Act passed to require banks and savings and loan associations to offer credit to lower income individuals and small businesses 12 U.S.C. § 2901 et seq.)
• 1992:Federal Housing Enterprises Financial Safety and Soundness Act of 1992 required Fannie Mae and Freddie Mac to devote a percentage of their lending to support affordable housing increasing their pooling and selling of such loans as securities; Office of Federal Housing Enterprise Oversight (OFHEO) created to oversee them
• 1997: First Union Capital Markets and Bear, Stearns & Co launch the first publicly available securitization of Community Reinvestment Act loans, issuing $384.6 million of such securities.
• 1980: The Depository Institutions Deregulation and Monetary Control Act of 1980 granted all thrifts, including savings and loan associations, the power to make consumer and commercial loans and to issue transaction accounts, but with little regulatory oversight of competing banks; also exempted federally chartered savings banks, installment plan sellers and chartered loan companies from state usury limits.
• 1981: Each Federal Reserve bank establishes a Community Affairs Office to ensure compliance with Community Reinvestment Act.
• 1985–1991: Savings and Loan Crisis caused by rising interest rates and over development in the commercial real estate sector, and exacerbated by deregulation of savings and loan lending standards and a reduction in capital reserve requirements from 5% to 3%.
• 1989: Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA") enacted which established the Resolution Trust Corporation (RTC), closing hundreds of insolvent thrifts and moved regulatory authority to the Office of Thrift Supervision (OTS); required federal agencies to issue Community Reinvestment Act ratings publicly
• 1992: The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 requires Fannie Mae and Freddie Mac to devote a percentage of their lending to support affordable housing
• 1994: Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (IBBEA) repeals the interstate provisions of the Bank Holding Company Act of 1956 that regulated the actions of bank holding companies.
• 1995: New Community Reinvestment Act regulations break down home-loan data broken down by neighborhood, income group, and race; encourage community groups to complain to banks and regulators by allowing community groups that marketed loans collect a brokers fee
• 1997: July - The Taxpayer Relief Act of 1997 expanded the capital-gains exclusion to $500,000 (per couple) from $125,000, encouraging people to invest in second homes and investment properties.

November: Fannie Mae helped First Union Capital Markets and Bear, Stearns & Co launch the first publicly available securitization of CRA loans, issuing $384.6 million of such securities. All carried a Fannie Mae guarantee as to timely interest and principal.

• 1998: Incipient housing bubble as inflation-adjusted home price appreciation exceeds 10%/year in most West Coast metropolitan areas; "Financial Services Modernization Act" killed in Senate because of no restrictions on Community Reinvestment Act-related community groups written into law
• 1999: Fannie Mae eases the credit requirements to encourage banks to extend home mortgages to individuals whose credit is not good enough to qualify for conventional loans. (September); Gramm-Leach-Bliley Act "Financial Services Modernization Act" repeals Glass-Steagall Act, deregulates banking, insurance and securities into a financial services industry allow financial institutions to grow very large; limits Community Reinvestment Coverage of smaller banks and makes community groups report certain financial relationships with banks (November)
• 2000: Commodity Futures Modernization Act of 2000 defines interest rates, currency prices, and stock indexes as "excluded commodities," allowing trade of credit-default swaps by hedge funds, investment banks or insurance companies with minimal oversight
• 2000–2003: Early 2000s recession (exact time varies by country)
• 1995–2001: Dot-com bubble and collapse
• 2001–2005: United States housing bubble accelerates
  • 2001: US Federal Reserve lowers Federal funds rate 11 times, from 6.5% (May 2000) to 1.75% (December 2001), creating an easy-credit environment that encouraged less-qualified home buyers and investments in higher yielding subprime mortgages.
  • 2002: Annual home price appreciation of 10% or more in California, Florida, and most Northeastern states.
    • June 17 President G.W. Bush sets goal of increasing minority home owners by at least 5.5 million by 2010 through billions of dollars in tax credits, subsidies and a Fannie Mae commitment of $440 billion to establish NeighborWorks America with faith based organizations.
  • 2003: Bush administration recommended moving governmental supervision of Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. The changes were blocked by Congress.
  • June 2003: Federal Reserve Chair Alan Greenspan lowers federal reserve’s key interest rate to 1%, the lowest in 45 years.
  • April 2004: SEC effectively suspends net capital rule at investment bank's request by permitting self-reporting of firm's own risk models for determining riskiness of investments. Brokerages are consequently freed from government imposed limits on the debt they can assume.
  • 2004-2005: Arizona, California, Florida, Hawaii, and Nevada record price increases in excess of 25% per year.
  • 2005: Booming housing market halts abruptly in many parts of the U.S. in late summer of 2005
• 2006: Prices are flat, home sales fall, resulting in inventory buildup. U.S. Home Construction Index is down over 40% as of mid-August 2006 compared to a year earlier.
  • May 5: In possibly the first casualty of the looming subprime crisis, Kirkland, Washington based Merit Financial Inc. files for bankruptcy and closes its doors, firing all but 80 of its 410 employees, kept to wind down the business. Chief financial officer, Ryan Kidd, said that Merit’s marketplace had declined about 40% and sales were not bringing in enough revenue to support the overhead of running the company.
  • Fall: FASB issued a standard with the title "Fair Value Measurements" - FASB Statement no. 157
• 2007: Home sales continue to fall. The plunge in existing-home sales is the steepest since 1989. In Q1/2007, S&P/Case-Shiller house price index records first year-over-year decline in nationwide house prices since 1991. The subprime mortgage industry collapses, and a surge of foreclosure activity (twice as bad as 2006) and rising interest rates threaten to depress prices further as problems in the subprime markets spread to the near-prime and prime mortgage markets. The U.S. Treasury secretary calls the bursting housing bubble "the most significant risk to our economy."
  • January 3: Ownit Mortgage Solutions Inc. files for Chapter 11. Records show that Ownit Mortgage Solutions owed Merrill Lynch around $93 million at the time of filing.
  • February 5: Mortgage Lenders Network USA Inc., the country's 15th largest subprime lender with $3.3 billion in loans funded in third quarter 2006, files for Chapter 11.
  • February–March: Subprime industry collapse; more than 25 subprime lenders declaring bankruptcy, announcing significant losses, or putting themselves up for sale.
  • April 2: New Century Financial, largest U.S. subprime lender, files for chapter 11 bankruptcy.
  • April 3: According to CNN Money, business sources report lenders made $640 billion in subprime loans in 2006, nearly twice the level3 years earlier; subprime loans amounted to about 20 percent of the nation's mortgage lending and about 17 percent of home purchases; financial firms and hedge funds likely own more than $1 trillion in securities backed by subprime mortgage; about 13 percent of subprime loans are now delinquent, more than five times the delinquency rate for home loans to borrowers with top credit; more than 2 percent of subprime loans had foreclosure proceedings start in the fourth quarter.
  • June 7: Bear Stearns, Bear Stearns informs investors in two of its funds, the High-Grade Structured Credit Strategies Enhanced Leverage Fund and the High-Grade Structured Credit Fund that it was halting redemptions.
  • July 19: Dow Jones Industrial Average closes above 14,000 for the first time in its history.
  • June 20: Merrill Lynch seized $800 million in assets from two Bear Stearns hedge funds that were involved in securities backed by subprime loans..
  • August: worldwide "credit crunch" as subprime mortgage backed securities are discovered in portfolios of banks and hedge funds around the world, from BNP Paribas to Bank of China. Many lenders stop offering home equity loans and "stated income" loans. Federal Reserve injects about $100B into the money supply for banks to borrow at a low rate.
  • August 6:American Home Mortgage Investment Corporation (AHMI) filed Chapter 11 bankruptcy. The company expected to see up to a $60 million loss for the first quarter 2007.
  • August 8: Mortgage Guaranty Insurance Corporation (MGIC, Milwaukee, Wisconsin) announced it would discontinue its purchase of Radian Group after suffering a billion-dollar loss of its investment in Credit-Based Asset Servicing and Securitization (C-BASS, New York]).
  • August 9: French bank BNP Paribas stopped valuing three of its funds and suspended all withdrawals due to "a complete evaporation of liquidity".
  • August 10: Central banks coordinate efforts to increase liquidity for first time since the aftermath of the September 11, 2001 terrorist attacks. The United States Federal Reserve (Fed) has injected a combined 43 billion USD, the European Central Bank (ECB) 156 billion euros (214.6 billion USD), and the Bank of Japan 1 trillion Yen (8.4 billion USD). Smaller amounts have come from the central banks of Australia, and Canada.
  • August 14: Sentinel Management Group suspended redemptions for investors and sold off $312 million worth of assets; three days later it Sentinel filed for Chapter 11 bankruptcy protection. US and European stock indices continued to fall.
  • August 15: The stock of Countrywide Financial, which is the largest mortgage lender in the United States, fell around 13% on the New York Stock Exchange after Countrywide said foreclosures and mortgage delinquencies had risen to their highest levels since early 2002.
  • August 16: Countrywide Financial Corporation, the biggest U.S. mortgage lender, narrowly avoids bankruptcy by taking out an emergency loan of $11 billion from a group of banks.
  • August 17: the Federal Reserve cut the discount rate by half a percent to 5.75% from 6.25% while leaving the federal funds rate unchanged in an attempt to stabilize financial markets.
  • August 29: The Australian Hedge Fund, Basis Capital's "Basis Yield Alpha Fund" applied for bankruptcy protection.
  • August 31: President Bush announces a limited bailout of U.S. homeowners unable to pay the rising costs of their debts. Ameriquest, once the largest subprime lender in the U.S., goes out of business;
  • September 1–3: Fed Economic Symposium in Jackson Hole, WY addressed the housing recession that jeopardizes U.S. growth. Several critics argued that the Fed should use regulation and interest rates to prevent asset-price bubbles, blamed former Fed-chairman Alan Greenspan's low interest rate policies for stoking the U.S. housing boom and subsequent bust[1], and Yale University economist Robert Shiller warned of possible home price declines of fifty percent.
  • September 6: the Federal Reserve added $31.25 billion in temporary reserves (loans) to the US money markets which had to be repaid in two weeks.
  • September 7: US Labor Department announced that non-farm payrolls fell by 4,000 in August 2007, the first month of negative job growth since August 2003, due in large part to problems in the housing and credit markets.

Concerned customers of Northern Rock queuing to withdraw savings from the bank due to fallout from the subprime crisis

• • September 13: British bank Northern Rock applied to the Bank of England for emergency funds caused by liquidity problems. Concerned customers produced "an estimated £2bn withdrawn in just three days". [2]
  • September 14: A run on the bank forms at the United Kingdom's Northern Rock bank precipitated by liquidity problems related to the subprime crisis.
  • September 17: Former Fed Chairman Alan Greenspan said "we had a bubble in housing" [3] and warns of "large double digit declines" in home values "larger than most people expect."
  • September 18: The Fed lowers interest rates by half a point (0.5%) in an attempt to limit damage to the economy from the housing and credit crises.
  • September 28: Television finance personality Jim Cramer warns Americans on The Today Show, "don't you dare buy a home—you'll lose money," causing a furor among realtors.
  • September 30: Affected by the spiraling mortgage and credit crises, Internet banking pioneer NetBank goes bankrupt, and the Swiss bank UBS announced that it lost US$690 million in the third quarter.
  • October 5: Merrill Lynch announced a US$5.5 billion loss as a consequence of the subprime crisis, which was revised to $8.4 billion on October 24, a sum that credit rating firm Standard & Poor's called "startling".
  • October 10: Hope Now Alliance was created by the US Government and private industry to help some sub-prime borrowers.
  • October 15–17: A consortium of U.S. banks backed by the U.S. government announced a "super fund" of $100 billion to purchase mortgage-backed securities whose mark-to-market value plummeted in the subprime collapse. Both Fed chairman Ben Bernanke and Treasury Secretary Hank Paulson expressed alarm about the dangers posed by the bursting housing bubble; Paulson said "the housing decline is still unfolding and I view it as the most significant risk to our economy. … The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth."
  • October 31: Federal Reserve lowers the federal funds rate by 25 basis points to 4.5%.
  • November 1: Federal Reserve injects $41B into the money supply for banks to borrow at a low rate. The largest single expansion by the Fed since $50.35B on September 19, 2001.
  • November 15: FASB Statement no. 157 becomes effective for annual statements for fiscal years beginning after Nov. 15, 2007, and for interim reports prepared in that initial fiscal year.
  • December 6: President Bush announced a plan to voluntarily and temporarily freeze the mortgages of a limited number of mortgage debtors holding adjustable rate mortgages (ARM). He also ask Members Of Congress to: 1. pass legislation to modernize the FHA. 2. temporarily reform the tax code to help homeowners refinance during this time of housing market stress. 3. pass funding to support mortgage counseling. 4. pass legislation to reform Government Sponsored Enterprises (GSEs) like Freddie Mac and Fannie Mae. .
• 2008: Financial crisis escalates with collapse of major lenders and investors
  • March 14, 2008: Bear Stearns gets Fed funding as shares plummet .
  • March 16, 2008: Bear Stearns gets acquired for $2 a share by JPMorgan Chase in a fire sale avoiding bankruptcy. The deal is backed by Federal Reserve providing up to $30B to cover possible Bear Stearn losses. .
  • May 6, 2008: UBS AG Swiss bank announced plans to cut 5,500 jobs by the middle of 2009
  • September 7, 2008: Federal takeover of Fannie Mae and Freddie Mac which at that point owned or guaranteed about half of the U.S.'s $12 trillion mortgage market.
  • September 14, 2008: Merrill Lynch sold to Bank of America amidst fears of a liquidity crisis and Lehman Brothers collapse
  • September 15, 2008: Lehman Brothers files for bankruptcy protection
  • September 16, 2008: Moody's and Standard and Poor's downgrade ratings on AIG's credit on concerns over continuing losses to mortgage-backed securities, sending the company into fears of insolvency.
  • September 17, 2008: The US Federal Reserve loans $85 billion to American International Group (AIG) to avoid bankruptcy.
  • September 19, 2008: Paulson financial rescue plan unveiled after a volatile week in stock and debt markets.
  • September 25, 2008: Washington Mutual was seized by the Federal Deposit Insurance Corporation, and its banking assets were sold to JP MorganChase for $1.9bn.
  • September 29, 2008: Emergency Economic Stabilization Act defeated 228-205 in the United States House of Representatives.
  • September 29, 2008: Federal Deposit Insurance Corporation announces that Citigroup Inc. would acquire banking operations of Wachovia.
  • October 1, 2008: The U.S. Senate passes HR1424, their version of the bailout bill.
  • October 3, 2008: The U.S. House of Representatives passes HR1424 and President George W. Bush signs it into law. It contains also easing of the accounting rules (FASB 157) that forced companies to collapse because of the existence of toxic mortgage-related investments.
  • October 6, 2008: The London market declines by 8% - its biggest one day fall in more than 20 years. Other European markets fell by a similar amount.
  • October 6, 2008: Bank of America agrees to settle claim of predatory lending charges against recently acquired Countrywide Financial. The settlement was with attorney generals in 11 states. Bank of America agreed to offer more affordable mortgage payments to borrowers who financed with subprime mortgage loans or pay option adjustable rate mortgages serviced by Countrywide and originated before December 31, 2007. Bank of America said that around 400,000 borrowers will be helped by the deal.
  • October 6, 2008: The Danish government announces plan to guarantee all banking deposits and some inter-bank loans. In return for the guarantees, the country’s banks must establish a rescue fund of $6.5 billion.
  • October 6, 2008: BNP Paribas agrees to takeover Fortis from the Belgian government for €14.5 billion. This deal makes BNP the largest bank operating in the Eurozone.
  • October 6, 2008: Iceland passes legislation that allows the government to nationalize, merge, or force ailing banks into bankruptcy. The new bill also allows the government to take over housing loans held by the banks and put them into a government housing fund.
  • October 7, 2008: Bank of America reports third quarter earnings of $1.2 billion, less than analyst expectations. In an effort to get through the credit crisis, BofA cut its dividend by half and announced plans to raise an additional $10 in capital.
  • October 7, 2008: The Internal Revenue Service (IRS) relaxes rules on US corporations repatriating money held oversees in an attempt to inject liquidity into the US financial market. The new ruling allows the companies to receive loans from their foreign subsidiaries for longer periods and more times a year without triggering the 35% corporate income tax.