Subprime Crisis Impact Timeline - 2007

2007

See also: Financial crisis of 2007–2010, List of writedowns due to subprime crisis, and List of bankrupt or acquired banks during the subprime mortgage crisis

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.

Lehman Brothers leaders Dick Fuld and Joe Gregory double down; in 2007 they fire their internal critics and spend billions of dollars on real estate investments that will, within a year, become worthless, including Archstone-Smith and McAllister Ranch.

• • January 3: Ownit Mortgage Solutions Inc. files for Chapter 11; it owed Merrill Lynch around $93 million.
  • January 29: American Freedom Mortgage, Inc. files for Chapter 7 protection.
  • 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 8: HSBC warns that bad debt provisions for 2006 would be 20% higher than expected to roughly $10.5bn (£5bn).
  • February 22: HSBC fires head of its US mortgage lending business as losses reach $10.5bn.
  • February 26:Comments by former Federal Reserve Chairman, Alan Greenspan, set off market tremors.
  • February 27: Dow Jones drops 416 points (3.3%).
  • February–March: Subprime industry collapse; several subprime lenders declaring bankruptcy, announcing significant losses, or putting themselves up for sale. These include Accredited Home Lenders Holding, New Century Financial, DR Horton and Countrywide Financial
  • March: The value of USA subprime mortgages was estimated at $1.3 trillion as of March 2007.
  • March 6: In a speech before the Independent Community Bankers of America's Annual Convention and Techworld, Honolulu, Hawaii, Ben Bernanke, quoting Alan Greenspan, warns that the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, were a source of "systemic risk" and suggest legislation to head off a possible crisis
  • 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 level 3 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.
  • April 18: Freddie Mac fined $3.8 million by the Federal Election Commission as a result of illegal campaign contributions, much of it to members of the United States House Committee on Financial Services which oversees Freddie Mac.
  • June: "Shorts" actively prevent banks (like Bear Stearns) from helping homeowners avoid foreclosure. Shorts are hedge funds and proprietary bank traders like John Paulson, Kyle Bass, and Greg Lippman, who will profit from the housing crash. Harvey Pitt lobbies the SEC for shorts.
  • June 7: Bear Stearns & Co informs investors in two of its CDO hedge funds, the High-Grade Structured Credit Strategies Enhanced Leverage Fund and the High-Grade Structured Credit Fund that it was halting redemptions.
  • June 20: Merrill Lynch seizes $800 million in assets from Bear Stearn's hedge funds as the funds implode.
  • June 25: FDIC Chair Shelia Bair cautioned against the more flexible risk management standards of the Basel II international accord and lowering bank capital requirements generally: "There are strong reasons for believing that banks left to their own devices would maintain less capital -- not more -- than would be prudent. The fact is, banks do benefit from implicit and explicit government safety nets...In short, regulators can't leave capital decisions totally to the banks."
  • July 19: Dow Jones Industrial Average closes above 14,000 for the first time in its history.
  • 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 $100 billion into the money supply for banks to borrow at a low rate.
  • August 6: American Home Mortgage Investment Corporation (AHMI) files Chapter 11 bankruptcy. The company expects to see up to a $60 million loss for the first quarter 2007.
  • August 7: Numerous quantitative long/short equity hedge funds suddenly begin experiencing unprecedented losses as a result of what is believed to be liquidations by some managers eager to access cash during the liquidity crisis. It highlights one of the first examples of the contagion effect of the subprime crisis spilling over into a radically different business area.
  • August 8: Mortgage Guaranty Insurance Corporation (MGIC, Milwaukee, Wisconsin) announces it will 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 investment bank BNP Paribas suspends three investment funds that invested in subprime mortgage debt, due to a "complete evaporation of liquidity" in the market. The bank's announcement is the first of many credit-loss and write-down announcements by banks, mortgage lenders and other institutional investors, as subprime assets went bad, due to defaults by subprime mortgage payers. This announcement compels the intervention of the European Central Bank, pumping 95 billion euros into the European banking market.
  • 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) injects 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 come from the central banks of Australia, and Canada.
  • August 14: Sentinel Management Group suspends redemptions for investors and sells off $312 million worth of assets; three days later Sentinel files for Chapter 11 bankruptcy protection. US and European stock indices continue to fall.
  • August 15: The stock of Countrywide Financial, which is the largest mortgage lender in the United States, falls around 13% on the New York Stock Exchange after Countrywide says foreclosures and mortgage delinquencies have 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 cuts 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 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 argue 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, and Yale University economist Robert Shiller warned of possible home price declines of fifty percent.
  • September 4: The Libor rate rises to its highest level since December 1998, at 6.7975%, above the Bank of England's 5.75% base rate.
  • September 6: The Federal Reserve adds $31.25 billion in temporary reserves (loans) to the US money markets which has to be repaid in two weeks.
  • September 7: US Labor Department announces 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.
  • September 12: Citibank borrows $3.375 billion from the Fed discount window, prompting then-President of the Federal Reserve Bank of NY Timothy Geithner to call the CFO of Citibank. Over four days in late August and early September, foreign banks borrowed almost $1.7 billion through the discount window.
  • September 17: Former Fed Chairman Alan Greenspan said "we had a bubble in housing" 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 announces that it lost US$690 million in the third quarter.
  • October 5: Merrill Lynch announces a US$5.5 billion loss, revised to $8.4 billion on October 24, a sum that credit rating firm Standard & Poor's called "startling".
  • October 10: Hope Now Alliance is 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 announces 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 express alarm about the dangers posed by the bursting housing bubble; Paulson says "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%.
  • End of October: Merrill Lynch's board fires Stan O'Neal for trying to sell the company; they hire John Thain who winds up having to sell it for a much lower price a year later.
  • 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: Financial Accounting Standards Board "Fair Value Measurements" standards upgrade the quality of financial reporting through greater transparency. However, this "mark-to-market" accounting may exaggerate the loss in value of an asset, as shown on balance sheets, and trigger a cascade of unnecessary financial losses.
  • December 6: President Bush announces a plan to voluntarily and temporarily freeze the mortgages of a limited number of mortgage debtors holding adjustable rate mortgages (ARM). He also asked 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.
  • December 24: A consortium of banks officially abandons the U.S. government-supported "super-SIV" mortgage crisis bail-out plan announced in mid-October, citing a lack of demand for the risky mortgage products on which the plan was based, and widespread criticism that the fund was a flawed idea that would have been difficult to execute.