• Global synthesis of the crisis
• The sub-primes crisis and the mechanisms of the crisis
• Transmission of the crisis through securitization

The sub-primes crisis

The "sub prime" credits are home loans granted to American households with modest incomes. The monthly refunds are lowered the first years, but these loans are granted at variable interest rates and at a high level. Those granting conditions show the solvency risk of those households. Because of the fragility of their financial situation they can, indeed, end up in a situation where they cannot face the due dates of payment of their credit. « The Center for Responsible Lending » estimates that in the United States about 20 % of « sub-prime» borrowers could lose their housing.

In 2006, "sub prime" credits represented 24% of the new home loans granted in the United States. At the end of the year, their outstanding reached almost 13 % of the total mount of the mortgages in the United States (10.200 billion dollar) for 8, 5 % in 2001.

The mechanisms of the crisis

An increase of the guiding interest rates of the Federal Reserve led to the one of home loans across the Atlantic. As a consequence, by the confrontation to a cost of money higher to finance their needs, banks have reflected more severe conditions on their customers.

At the same time, a reduction of real estate goods demand lowered the bar of their prices, leading at the same time a drying out of the « wealth effect » of the households – as the value of their real estate (apartments and houses) decreased, their potential wealth has indeed reduced.

The conjunction of these two unfavourable evolutions led to the increase of the defaults of payment even, in some cases, to situations of insolvency of households. The impossibility to pay back their loans weighs on several specialized credit establishments such as New century, number two of the American « sub-prime » that is facing severe financial difficulties.