Dear Group

I thought that it would be a good idea to set up a blog for the ICFE preparation course and I welcome relevant contributions that will help the group to share information and to communicate in English on a daily basis.

Using this blog should also cut down on the amount of paper content during the course!

If you have any problems using this blog please let me know.



Friday 5 November 2010

Unit 7Fraud / Unit 8 Banking

Following on from Unit 7 and related to Unit 8 is a very relevant topic: alleged Bank fraud
Read the article on the BBC website.
Vocab-related exercises are
from the CUP website: Subprime mortgage

house made of dollar notes

 What is it?

A subprime mortgage is a loan granted to people who have poor credit histories and low credit ratings. For these reasons they do not meet the requirements for a conventional mortgage. As these loans are seen as risky by the lending institutions, they charge higher rates of interest than the normal prime rate, a rate of interest which banks establish for their most credit-worthy customers.  One of the most common forms of this type of loan is the adjustable rate mortgage (ARM). This begins with a fixed interest rate which is then adjusted to the current interest rate in the market plus a margin. At the beginning borrowers are able to keep up with their payments, but when the interest rates increase, their monthly payment also increase causing many to default on their loans.

Why is it in the news?

From 2004 to 2006 these mortgages were very popular as they enabled those with poor credit histories to take out loans and buy property. At the time interest rates were low and lenders were searching for a way to increase their profits. With these loans they were able to charge much higher interest than on a  conventional loan. However, these loans posed a higher risk to the lenders, so they were packaged into mortgage-backed securities and sold to investors. When the payments no longer could be made, many investors discovered that the securities they had bought were worthless and this eventually led to the world-wide financial meltdown.
Reading
Do you  understand the concept of a mortgage? It is a loan in which the property being bought with it becomes the security for the loan. This means that if the borrower cannot keep up with the payments, he or she can lose the property.
Think about the possible topics which could come up in an article about subprime mortgages.
Read the BBC article listed below.
Vocabulary work
In the articles listed below, the word 'mortgage' is often used in combination with other words. Read the articles and find the collocations or phrases with the word mortgage. It is used both as a noun and adjective.
Discussion points
Let's discuss these questions in class.
  • What do you think of the idea of offering housing loans to people who normally don’t qualify for them?
  • Does this have advantages and disadvantages?
  • Do you think that the housing bubble was created artificially? Why or why not?
  • Where do you think the blame lies, with borrowers who borrowed beyond their means or banks who lent money to high-risk customers?
  • Are you in favour or more regulation in the banking industry or do you think it interferes with free trade and a healthy economy?  Give reasons and examples for your opinion.

Where can you read about it?

  • Case study: Florida father battles to save his home. BBC, October 15th 2010.
  • Bank of America Sued by Chicago Home Loan Bank over Subprime Mortgages, Bloomberg, October 15th 2010.
  • From Bad to Worse? A Foreclosure Crisis Primer, AOL News, October 15th 2010.

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