Announcements

• Office: Rm 1047• Office Hours?• Exam sign-up

3 pass/fail Edel, Gloria, KevinTuesday after class?

5 graded Tuesday afternoon/evening?Two groups: Verena and Garrett

Saurabh, Orge, Elisa

Another Term

How is interest rate set? What is it a lender wants?

Loan = productLender = wants profit

“Spread” = profitMtg. broker – lender willing to lend at 4%Broker – arranges loan at 4.25%

-or-Lender borrows money from fed at 2%Loans it to borrower at 2.25%

Spread

• ARMs – affect of spread?• Teaser rate– Lender paying 2% for its money– Lender initially loans at 1.75%– Losing money – Won’t last long

“Mixed Collateral”

• Example– Hotel– What are you buying?

• What would lender want as security?– Why?

Multiple Security

• Refers to ?• Example:– Need $500k– Have five properties

• Together equity = $1 million; individually none has $500K

• How might lender structure loan?• One note?• Several notes?• What happens upon default?

Buying Property in other Countries

ITALY

• Can buy property even without an extended stay visa and without obtaining residency

• Private contract, called compromesso - Can register it• A public notary,       super partes, completes sale.• Parties sign before notary.

http://www.italy-real-estate.net/buying_in_italy.php?lang=en

http://www.keyitaly.com/article/legal-process/

Italy - continued

• Some additional information:• Principle of prelazione, third parties’ right to buy

[farm land], allows neighbors adjoining the land first refusal on the property at the asking price.

• Sitting tenants and people conducting a business from the property also have a right to buy. Sale can be stymied by interested parties putting in a last-minute offer and having to be bought off.

• Completion date or data del rogito.

Spain

• PROPERTY REGISTRY (REGISTRO DE LA PROPIEDAD) • Can use private agreement (no notary)• Housing purchase agreements - concluded in a

notarial deed: public document authorized by a notary, who writes down the wishes of the parties, checks identity, legal capacity, etc.

• Notarization of the deed is tantamount to delivery of the home, and generally the price is handed over to the seller in the notary’s presence.

SPAIN

http://www.fomento.gob.es/NR/rdonlyres/55F07DA1-3DC3-4FB8-B140-3BE95097CD47/101724/guia_comprar.pdf

GERMANY

• 42% of Germans own their own homes (lowest of entire European Union)

• http://www.howtogermany.com/pages/housebuying.html

• http://www.howtogermany.com/pages/mortgage.html

TURKEY

• https://www.gov.uk/how-to-buy-property-in-turkey

• Must have military permission [?]• http://www.mfa.gov.tr/guidance-for-foreigner

s.en.mfa

INDIA

• http://www.buyassociation.co.uk/property/buying-a-property-in-india.html

• http://en.wikipedia.org/wiki/Indian_states_ranking_by_families_owning_house

Housing Ownership Rates

• http://www.housingfinance.org/uploads/Publicationsmanager/0212_Hom.pdf

Article: Ownership Rates: A Global Perspective“Homes” and “home ownership” defined differentlyExample: under Canada’s def., only 4 of 10 “homes” would qualify in India

http://www.nationmaster.com/graph/peo_hom_own-people-home-ownersh[data as of 2000]

Reactions/Solutions to the Financial Crisis

AssignmentWhich country?

What is that country doing to remedy financial crisis?

Groups – share information

Reactions/Solutions to the Financial Crisis

• 1999: repeal of 1933 Glass-Steagall Act• US: Troubled Asset Relief Program [TARP]• Dodd-Frank Wall Street Reform and Consumer Protection Act

1933 Glass-Steagall Act

• Enacted as reaction to ?• Regulatory firewall between commercial and investment bank activities• Severely limited right of commercial bank to issue securities• Parts -repealed in 1999 - no longer illegal for

investment commercial bank to also engage in business/commercial and retail banking.

Troubled Asset Relief ProgramTARP

• U.S. Treasury - purchasing power of $475 billion to buy up mortgage backed securities (MBS) from institutions across the country, in an attempt to create liquidity and un-seize the money markets.

• “Bailout”• “Toxic assets”

TARP – cont.

• October 2012 Congressional Budget Ofc. report: govt. disbursed $313 billion to financial institutions, almost all of which was paid back. The CBO estimates that taxpayers will realize a net gain of about $25 billion.

• The government purchased $205 billion worth of preferred stock from 707 financial institutions. Of that investment, those institutions paid back $192 billion, or 94%. The CBO believes that taxpayers will see a net gain of $18 billion from that program.

TARP - continued

• TARP provided an infusion of capital to banks (some would say they were "bailed out"), most of the banks have paid back the funds with interest.

Home Loan Modification Program"Home Affordable Modification Program"

• Change terms so more affordable• FHA loans

Dodd-Frank Wall Street Reform and Consumer Protection Act

• 2010• Several year implementation period• Reduce risks in financial markets• Created several new agencies– Financial Stability Oversight Council (monitors

financial stability of firms; liquidation/restructuring if nec.

– Federal Insurance Office (monitors ins. cos.)

Dodd-Frank - continued

• Consumer Financial Protection Bureau (prevent predatory lending and easier for consumers to understand mtgs.)

• SEC Office of Credit Ratings (ensure that agencies provide meaningful and reliable credit ratings of the entities they evaluate)

• Years before full implications known

EUROPE

http://www.youtube.com/watch?v=wY6G6U4gU40• Banks – shedding assets around the world• Euro zone – banks in healthy economies

pulling out of weaker southern locales• Significant retrenchment in global banking

GREECE

• 3rd qtr. bailout installment: in 3 disbursements• Each – linked to some condition re/ reform of

public administration, privatization, administrative reforms [austerity program]

• Result?• Massive public protests by municipal workers,

teachers

ICELAND – “THE NORDIC TIGER”

• Prior to 2008:– Strong growth projectory

• High Growth Domestic Product• Low unemployment• Even income distribution

• 2008 – one of earliest casualties– Banking sector – privatized in early 2000– Banks - aggressively expanded– 2008 crisis - Iceland's three largest banks collapsed– Economy contracting by 6.8% in 2009

Iceland – cont.

• Much of capital – loaned outside country• Dependent on other countries’ economies:

residents needed to pay debts• Oct. 2008: IMF: $2.4 billion loan plan• Must adhere to IMF-supported economic

program

Ireland

• Road to recovery?• 1,600 Irish workers per week leaving…• Wages – fallen by 15% since crisis began• Homes – under water

China?

Come up with 2 unintended consequences…

• Health care – Greece• Lose job/lose healthcare• Nationwide unemployment increase of 20%

since last year (215,735 people)• Free clinics• Corruption: public trust in govt – eroded• Greece – 90% say political parties affected by

corruption.

Group Exercise

Brainstorm together – think of three questions you think I should ask in the oral exam. 1 – easy2 – medium3 - hard

Discuss the answers.

• Synopsis? EXTRA CREDIT

• Office: 1047• Office Hours?