bank of america cd rates october 2018

The Best CD Rates in March 2018 · 12-Month CD: Goldman Sachs Bank USA – 2.05% APY, $500 minimum deposit · 1 year – 5 years: Barclays Bank – 2.05%. KEY SMART CHECKING. no monthly maintenance fees. It's a checking account, not a country club. C-CD. Capital and Dividends. Version 1.0, July 2018 appropriate for U.S. banking organizations and, if so, implement that standard only. bank of america cd rates october 2018

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Bank of america cd rates october 2018 -

Updated March 5, 2018

If you are looking for a better yield on your savings, a high rate CD (certificate of deposit) offered by an online bank could be a good option. Internet-only banks offer much better interest rates than traditional banks. For example, a 12-month CD at Bank of America would require a $10,000 minimum deposit and would pay only 0.07%. At an online bank, you could earn 1.85% with only a $2,000 minimum deposit. (If you would rather get a savings account or money market with no time restriction, look at the best savings accounts or best money market accounts).

The Best CD Rates in March 2018

This list is updated monthly, and competition continues to intensify.  Here are the accounts with some of the best CD rates:

Term

Institution

APY

Minimum Deposit Amount

12 months

Goldman Sachs Bank USA

2.05%

$500

2 years

VirtualBank

2.36%

$10,000

3 years

Northern Bank Direct

2.55%

$500

5 years

DollarSavingsDirect

2.80%

$1,000

See a full list of the best CD rates below.

  • 12-Month CD: Goldman Sachs Bank USA – 2.05% APY, $500 minimum deposit

Our advertiser Marcus by Goldman Sachs is the online consumer bank of Goldman Sachs Bank USA (the large investment bank). Your funds are FDIC insured, and Goldman offers very competitive rates. Even better: there is only a $500 minimum deposit. So, if you don’t have enough money to meet the minimum deposit of the other banks on this list, or you are looking for another bank for your savings, GS is a good option. It also doesn’t hurt that they also offer some of the best CD rates in the market today.  You can currently earn an outstanding 2.05% APY by only committing to a 12-month term. Here are their other rates:

  • 2-year: 2.15% APY
  • 3-year: 2.25% APY
  • 5-year: 2.60% APY
  • 6-year: 2.65% APY

LEARN MORE Secured

on Goldman Sachs Bank USA’s secure website

Member FDIC

  • 1 year – 5 years: Barclays Bank – 2.05% – 2.65% APY, no minimum deposit

Barclays is one of the oldest banks in the world. Although they’re based in London, they do have a U.S. presence and offer competitive rates on their CDs and savings account. Currently, they’re offering some of the highest CD rates in the market, and they have an edge over the rest of the institutions on this list: they don’t require a minimum balance to earn the APY or open an account. Deposit as little or as much as you’d like into a term of your choice and you can start earning interest as long as the account is funded within 14 days of opening the CD. Additionally, your funds are insured through the FDIC.

  • 1-year: 2.05% APY
  • 2-year: 2.20% APY
  • 3-year: 2.30% APY
  • 5-year: 2.65% APY

LEARN MORE

Member FDIC

  • 3 months – 5 years: Ally Bank – 1.00% APY – 2.50% APY; $0 minimum deposit (higher APY with higher deposit)

Ally is one of the largest internet-only banks in the country. Ally’s former advertising campaign made it very clear: no branches = higher rates. And Ally has consistently paid some of the highest rates in the country across savings accounts, money market accounts and CDs. For savers with fewer funds, Ally is unique. There is no minimum deposit to open a CD. However, if you have more money, you can earn a higher APY. If you have more than $25,000 to deposit, you can earn between 0.39% APY and 2.35% APY. And one of our favorite features of Ally: they often (although not always) offer preferential rates on renewal. Far too often banks give the biggest bonuses to new customers, but Ally has done a good job of rewarding its existing customers. All deposits at Ally are FDIC insured up to the legal limit.

  • 12-months: 1.75% APY (less than $5k); 1.85% APY ($5k minimum deposit) and 2.00% APY ($25k minimum deposit)
  • 18-months: 1.80% APY (less than $5k); 1.95% APY ($5k minimum deposit) and 2.05% APY ($25k minimum deposit)
  • 3-year: 1.85% APY (less than $5k); 2.00% APY ($5k minimum deposit) and 2.10% APY ($25k minimum deposit)
  • 5-year: 2.25% APY (less than $5k); 2.40% APY ($5k minimum deposit) and 2.50% APY ($25k minimum deposit)

LEARN MORE Secured

on Ally Bank’s secure website

Member FDIC

  • 6 months – 5 years: Capital One – 0.60% APY – 2.65% APY; no minimum deposit

Capital One is famous for its credit card business. It is now getting aggressive with CD rates. There is no minimum deposit, which make these CDs comparable to Barclays’ CDs. Capital One CDs are FDIC insured, up to the federal maximum. And you get the comfort of depositing your money with a very large, publicly traded bank.

  • 12-months: 2.00% APY
  • 18-months: 2.05% APY
  • 2-year: 2.20% APY
  • 3-year: 2.30% APY
  • 5-year: 2.65% APY

LEARN MORE

Member FDIC

  • 3 months – 5 years: Synchrony Bank – 0.25% APY – 2.50% APY; $2,000 minimum deposit

Synchrony used to be a part of GE, and now has an online bank that pays competitive rates. The online deposits are used to fund their store credit card portfolio – and the company is publicly traded. Your deposit will be insured up to the FDIC limit. In a rising rate environment, this is a great way to get a high interest rate without locking yourself into a long term.

  • 12-months: 1.95% APY
  • 18-months: 1.95% APY
  • 2-year: 2.10% APY
  • 3-year: 2.05% APY
  • 5-year: 2.50% APY

LEARN MORE Secured

on Synchrony Bank’s secure website

Member FDIC

  • 1-Year CD: Live Oak Bank – 2.10% APY, $2,500 minimum deposit

Live Oak is a bank you’ll want to notice. With a minimum deposit amount of $2,500, you can earn an outstanding APY of 2.10%. They also offer an incredible rate on their online savings account. While they’re still a small bank when compared to Synchrony, Goldman Sachs, and Ally, they have quickly grown to have over $2 billion in assets. They do have a mobile banking app as well as the option to bank online. Although they have the capability to manage your account digitally, you will have to call one of their Customer Success Managers in order to withdraw your funds once the account matures.

LEARN MORE

Member FDIC

  • 2-Year CD: VirtualBank – 2.36% APY, $10,000 minimum deposit

VirtualBank, an online division of IBERIABANK, “has its eye on the future” by providing customers a great banking experience. By rewarding their customers with a 2.36% APY on their 2-year CDs, they’re doing just that. You’ll need to deposit $10,000 in order to earn the APY. In addition to their online banking platform, VirtualBank also offers a Mobile Banking app for free.

LEARN MORE

  • 2-Year CD from a Credit Union: Latino Credit Union – 2.30% APY, $500 minimum deposit

Latino Credit Union is open to anyone who is willing to donate $10 to join the Latino Community Development Center (LCDC). You don’t have to be Latino to join the credit union or the organization. With a small deposit of $500, this credit union will reward you with a 2.30% APY. Accounts can be managed online or through their mobile app. Deposits made to Latino Credit Union are insured by the NCUA.

LEARN MORE

  • 3-Year CD: Northern Bank Direct – 2.55% APY, $500 minimum deposit

Northern Bank Direct is currently offering a top rate of 2.55% on their 3-year CD. You’ll only need to deposit $500 to open the account. You’ll want to make sure that you’re able to commit to keeping your money in the account for the full 36 months because the penalty for withdrawing funds early is the equivalent of 24 months of interest. Opening the account can easily be done online and managed on their Mobile Banking app or online.

  • 3-Year CD from a Credit Union: Latino Credit Union, 2.40% APY, $500 minimum deposit

Latino Credit Union surprises us with their outstanding rate of 2.40% on a 3-year CD. As a bonus, the minimum amount to open the account is five times lower than Live Oak Bank’s deposit requirement. The credit union is open to anyone, Latino or not, for a small fee and deposits are NCUA insured.

LEARN MORE

  • 5-Year CD: Dollar Savings Direct – 2.80% APY, $1,000 minimum deposit

Dollar Savings Direct, an online division of Emigrant Bank, has been surprising us with their competitive rates not only with their CDs, but also with their online savings account. They’re currently offering the most competitive rate on a 5-year CD provided by an online bank. All you need is $1,000 to deposit and a little patience navigating their website. They don’t have the greatest online experience and they lack a mobile app. However, they do have a great rate and we would be remiss if we didn’t include them on this list.

  • 5-Year CD from a Credit Union: Connexus Credit Union – 3.00% APY, $5,000 minimum deposit

If you’re able to deposit $5,000 into a CD, you’ll want to consider this 5-year CD with an incredible 3.00% APY. Anyone is able to join the credit union by making a donation of $5 to their organization called Connexus Association. This organization provides scholarships and assists educational institutions. They have a mobile banking app as well as an online banking platform.

LEARN MORE

3 Questions To Ask Before You Open A CD

1. Should I just open an online savings account instead? 

With a CD, the saver and the bank make stronger commitments. The saver promises to keep the funds in the account for a specified period of time. In exchange, the bank guarantees the interest rate during the term of the CD. The longer the term, the higher the interest rate – and the higher the penalty for closing the CD early. With a savings account, there are few promises. You can empty the account without paying a penalty and the bank can change the interest rate at any time.

If you have a high level of confidence that you do not need to touch the money for a specified period of time, a CD is a much better deal. However, if you think you might need to use the money in the next couple of months, a savings account is a much better idea.

You can earn a lot more interest with a CD. Imagine you have $10,000 and know that you do not need to touch the money for two years. In a high-yield savings account earning 1.10%, you would earn $221 over two years. If you put that money into a 1.50% CD, you would earn $302. Given the ease of switching to an online CD, the extra interest income is easy money.

2. What term should I select? 

The early withdrawal penalties on CDs can be significant. On a 1-year CD, 90 days is a typical penalty. And on 2 and 3 year CDs, a 6-month penalty is common. The impact of the penalty on your return can be significant. If you opened a one-year CD with a 1.25% APY and closed it after six months, you would forfeit half of the interest and earned only 0.63%. You would have been better off with a savings account paying 1.05%.

The worst case scenario is with the longest CDs. 5-year CDs usually have a one-year penalty for taking out funds early. If you open a 5-year CD and close it quickly, you could actually end up losing money.

Given the early penalties, you need complete confidence that you will not need to withdrawal the money early. Ask yourself this question: “do I have 90% confidence that I will not need access to the cash during the CD term?” If you don’t have confidence, go for a shorter term or a savings account.

3. Should I consider my local bank or credit union? 

The interest rates shown in this article are all from online banks that offer products nationally. Our product database includes traditional banks, community banks and credit unions. If traditional banks offered better rates, they would have been featured in this article. The internet-only banks have dramatically better interest rates. That should not be surprising. Because internet-only banks do not have branches, they are able to pass along their cost savings to you in the form of higher interest rates.

However, you can always visit your local bank or credit union and ask them to beat the rates listed in this article. The chance of getting a better deal is extremely low (remember that Bank of America is only paying 0.07%), but you can try.

How To Find The Best Account

If you don’t find an account that meets your needs in this article, you can use the MagnifyMoney CD tool to find the best rate for your individual needs. Input your zip code, deposit amount and term. The tool will then provide you with CD options, from the highest APY to the lowest.

You can learn more about us and how we make money here.

The post The Best CD Rates – March 2018 appeared first on MagnifyMoney.

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Subprime mortgage crisis

December 2007–June 2009 banking emergency in the US

The United States subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis.[1][2] It was triggered by a large decline in US home prices after the collapse of a housing bubble, leading to mortgage delinquencies, foreclosures, and the devaluation of housing-related securities. Declines in residential investment preceded the Great Recession and were followed by reductions in household spending and then business investment. Spending reductions were more significant in areas with a combination of high household debt and larger housing price declines.[3]

The housing bubble preceding the crisis was financed with mortgage-backed securities (MBSes) and collateralized debt obligations (CDOs), which initially offered higher interest rates (i.e. better returns) than government securities, along with attractive risk ratings from rating agencies. While elements of the crisis first became more visible during 2007, several major financial institutions collapsed in September 2008, with significant disruption in the flow of credit to businesses and consumers and the onset of a severe global recession.[4]

There were many causes of the crisis, with commentators assigning different levels of blame to financial institutions, regulators, credit agencies, government housing policies, and consumers, among others.[5] Two proximate causes were the rise in subprime lending and the increase in housing speculation. The percentage of lower-quality subprime mortgages originated during a given year rose from the historical 8% or lower range to approximately 20% from 2004 to 2006, with much higher ratios in some parts of the U.S.[6][7] A high percentage of these subprime mortgages, over 90% in 2006 for example, had an interest rate that increased over time.[4] Housing speculation also increased, with the share of mortgage originations to investors (i.e. those owning homes other than primary residences) rising significantly from around 20% in 2000 to around 35% in 2006–2007. Investors, even those with prime credit ratings, were much more likely to default than non-investors when prices fell.[8][9][10] These changes were part of a broader trend of lowered lending standards and higher-risk mortgage products,[4][11] which contributed to U.S. households becoming increasingly indebted. The ratio of household debt to disposable personal income rose from 77% in 1990 to 127% by the end of 2007.[12]

When U.S. home prices declined steeply after peaking in mid-2006, it became more difficult for borrowers to refinance their loans. As adjustable-rate mortgages began to reset at higher interest rates (causing higher monthly payments), mortgage delinquencies soared. Securities backed with mortgages, including subprime mortgages, widely held by financial firms globally, lost most of their value. Global investors also drastically reduced purchases of mortgage-backed debt and other securities as part of a decline in the capacity and willingness of the private financial system to support lending.[6] Concerns about the soundness of U.S. credit and financial markets led to tightening credit around the world and slowing economic growth in the U.S. and Europe.

The crisis had severe, long-lasting consequences for the U.S. and European economies. The U.S. entered a deep recession, with nearly 9 million jobs lost during 2008 and 2009, roughly 6% of the workforce. The number of jobs did not return to the December 2007 pre-crisis peak until May 2014.[13] U.S. household net worth declined by nearly $13 trillion (20%) from its Q2 2007 pre-crisis peak, recovering by Q4 2012.[14] U.S. housing prices fell nearly 30% on average and the U.S. stock market fell approximately 50% by early 2009, with stocks regaining their December 2007 level during September 2012.[15] One estimate of lost output and income from the crisis comes to "at least 40% of 2007 gross domestic product".[16] Europe also continued to struggle with its own economic crisis, with elevated unemployment and severe banking impairments estimated at €940 billion between 2008 and 2012.[17] As of January 2018, U.S. bailout funds had been fully recovered by the government, when interest on loans is taken into consideration. A total of $626B was invested, loaned, or granted due to various bailout measures, while $390B had been returned to the Treasury. The Treasury had earned another $323B in interest on bailout loans, resulting in an $87B profit.[18]

Background and timeline of events[edit]

Main articles: Subprime crisis background information, Subprime crisis impact timeline, United States housing bubble, and United States housing market correction

President George W. Bush discusses Education, Entrepreneurship & Home Ownership at the Indiana Black Expo in 2005
Subprime mortgage lending jumped dramatically during the 2004–2006 period preceding the crisis (source: Financial Crisis Inquiry Commission Report, p. 70, Fig. 5.2)
Federal funds rate history and recessions
Factors contributing to housing bubble

The immediate cause of the crisis was the bursting of the United States housing bubble which peaked in approximately 2005–2006.[19][20] An increase in loan incentives such as easy initial terms and a long-term trend of rising housing prices had encouraged borrowers to assume risky mortgages in the anticipation that they would be able to quickly refinance at easier terms. However, once interest rates began to rise and housing prices started to drop moderately in 2006–2007 in many parts of the U.S., borrowers were unable to refinance. Defaults and foreclosure activity increased dramatically as easy initial terms expired, home prices fell, and adjustable-rate mortgage (ARM) interest rates reset higher.

As housing prices fell, global investor demand for mortgage-related securities evaporated. This became apparent by July 2007, when investment bank Bear Stearns announced that two of its hedge funds had imploded. These funds had invested in securities that derived their value from mortgages. When the value of these securities dropped, investors demanded that these hedge funds provide additional collateral. This created a cascade of selling in these securities, which lowered their value further. Economist Mark Zandi wrote that this 2007 event was "arguably the proximate catalyst" for the financial market disruption that followed.[4]

Several other factors set the stage for the rise and fall of housing prices, and related securities widely held by financial firms. In the years leading up to the crisis, the U.S. received large amounts of foreign money from fast-growing economies in Asia and oil-producing/exporting countries. This inflow of funds combined with low U.S. interest rates from 2002 to 2004 contributed to easy credit conditions, which fueled both housing and credit bubbles. Loans of various types (e.g., mortgage, credit card, and auto) were easy to obtain and consumers assumed an unprecedented debt load.[21][22]

As part of the housing and credit booms, the number of financial agreements called mortgage-backed securities (MBS), which derive their value from mortgage payments and housing prices, greatly increased. Such financial innovation enabled institutions and investors around the world to invest in the U.S. housing market. As housing prices declined, major global financial institutions that had borrowed and invested heavily in MBS reported significant losses. Defaults and losses on other loan types also increased significantly as the crisis expanded from the housing market to other parts of the economy. Total losses were estimated in the trillions of U.S. dollars globally.[23]

While the housing and credit bubbles were growing, a series of factors caused the financial system to become increasingly fragile. Policymakers did not recognize the increasingly important role played by financial institutions such as investment banks and hedge funds, also known as the shadow banking system. These entities were not subject to the same regulations as depository banking. Further, shadow banks were able to mask the extent of their risk taking from investors and regulators through the use of complex, off-balance sheet derivatives and securitizations.[24] Economist Gary Gorton has referred to the 2007–2008 aspects of the crisis as a "run" on the shadow banking system.[25]

The complexity of these off-balance sheet arrangements and the securities held, as well as the interconnection between larger financial institutions, made it virtually impossible to re-organize them via bankruptcy, which contributed to the need for government bailouts.[24] Some experts believe these shadow institutions had become as important as commercial (depository) banks in providing credit to the U.S. economy, but they were not subject to the same regulations.[26] These institutions as well as certain regulated banks had also assumed significant debt burdens while providing the loans described above and did not have a financial cushion sufficient to absorb large loan defaults or MBS losses.[27]

The losses experienced by financial institutions on their mortgage-related securities impacted their ability to lend, slowing economic activity. Interbank lending dried-up initially and then loans to non-financial firms were affected. Concerns regarding the stability of key financial institutions drove central banks to take action to provide funds to encourage lending and to restore faith in the commercial paper markets, which are integral to funding business operations. Governments also bailed out key financial institutions, assuming significant additional financial commitments.

The risks to the broader economy created by the housing market downturn and subsequent financial market crisis were primary factors in several decisions by central banks around the world to cut interest rates and governments to implement economic stimulus packages. Effects on global stock markets due to the crisis were dramatic. Between January 1 and October 11, 2008, owners of stocks in U.S. corporations suffered about $8 trillion in losses, as their holdings declined in value from $20 trillion to $12 trillion. Losses in other countries averaged about 40%.[28]

Losses in the stock markets and housing value declines place further downward pressure on consumer spending, a key economic engine.[29] Leaders of the larger developed and emerging nations met in November 2008 and March 2009 to formulate strategies for addressing the crisis.[30] A variety of solutions have been proposed by government officials, central bankers, economists, and business executives.[31][32][33] In the U.S., the Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into law in July 2010 to address some of the causes of the crisis.

Causes[edit]

Further information: Causes of the 2007–2012 global financial crisis and Causes of the United States housing bubble

Overview[edit]

Housing price appreciation in selected countries, 2002–2008
U.S. households and financial businesses significantly increased borrowing (leverage) in the years leading up to the crisis

The crisis can be attributed to several factors, which emerged over a number of years. Causes proposed include the inability of homeowners to make their mortgage payments (due primarily to adjustable-rate mortgages resetting, borrowers overextending, predatory lending, and speculation), overbuilding during the boom period, risky mortgage products, increased power of mortgage originators, high personal and corporate debt levels, financial products that distributed and perhaps concealed the risk of mortgage default, monetary and housing policies that encouraged risk-taking and more debt, international trade imbalances, and inappropriate government regulation.[6][34][35][36][37] Excessive consumer housing debt was in turn caused by the mortgage-backed security, credit default swap, and collateralized debt obligation sub-sectors of the finance industry, which were offering irrationally low interest rates and irrationally high levels of approval to subprime mortgage consumers due in part to faulty financial models.[38][39] Debt consumers were acting in their rational self-interest, because they were unable to audit the finance industry's opaque faulty risk pricing methodology.[40]

Among the important catalysts of the subprime crisis were the influx of money from the private sector, the banks entering into the mortgage bond market, government policies aimed at expanding homeownership, speculation by many home buyers, and the predatory lending practices of the mortgage lenders, specifically the adjustable-rate mortgage, 2–28 loan, that mortgage lenders sold directly or indirectly via mortgage brokers.[41][42]: 5–31  On Wall Street and in the financial industry, moral hazard lay at the core of many of the causes.[43]

In its "Declaration of the Summit on Financial Markets and the World Economy," dated November 15, 2008, leaders of the Group of 20 cited the following causes:

During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.[44]

Federal Reserve Chair Ben Bernanke testified in September 2010 regarding the causes of the crisis. He wrote that there were shocks or triggers (i.e., particular events that touched off the crisis) and vulnerabilities (i.e., structural weaknesses in the financial system, regulation and supervision) that amplified the shocks. Examples of triggers included: losses on subprime mortgage securities that began in 2007 and a run on the shadow banking system that began in mid-2007, which adversely affected the functioning of money markets. Examples of vulnerabilities in the private sector included: financial institution dependence on unstable sources of short-term funding such as repurchase agreements or Repos; deficiencies in corporate risk management; excessive use of leverage (borrowing to invest); and inappropriate usage of derivatives as a tool for taking excessive risks. Examples of vulnerabilities in the public sector included: statutory gaps and conflicts between regulators; ineffective use of regulatory authority; and ineffective crisis management capabilities. Bernanke also discussed "Too big to fail" institutions, monetary policy, and trade deficits.[45]

During May 2010, Warren Buffett and Paul Volcker separately described questionable assumptions or judgments underlying the U.S. financial and economic system that contributed to the crisis. These assumptions included: 1) Housing prices would not fall dramatically;[46] 2) Free and open financial markets supported by sophisticated financial engineering would most effectively support market efficiency and stability, directing funds to the most profitable and productive uses; 3) Concepts embedded in mathematics and physics could be directly adapted to markets, in the form of various financial models used to evaluate credit risk; 4) Economic imbalances, such as large trade deficits and low savings rates indicative of over-consumption, were sustainable; and 5) Stronger regulation of the shadow banking system and derivatives markets was not needed.[47] Economists surveyed by the University of Chicago during 2017 rated the factors that caused the crisis in order of importance: 1) Flawed financial sector regulation and supervision; 2) Underestimating risks in financial engineering (e.g., CDOs); 3) Mortgage fraud and bad incentives; 4) Short-term funding decisions and corresponding runs in those markets (e.g., repo); and 5) Credit rating agency failures.[48]

The U.S. Financial Crisis Inquiry Commission reported its findings in January 2011. It concluded that "the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve's failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels."[49]

Narratives[edit]

U.S. residential and non-residential investment fell relative to GDP during the crisis

There are several "narratives" attempting to place the causes of the crisis into context, with overlapping elements. Five such narratives include:

  1. There was the equivalent of a bank run on the shadow banking system, which includes investment banks and other non-depository financial entities. This system had grown to rival the depository system in scale yet was not subject to the same regulatory safeguards.[25][50]
  2. The economy was being driven by a housing bubble. When it burst, private residential investment (i.e., housing construction) fell by nearly 4% GDP and consumption enabled by bubble-generated housing wealth also slowed. This created a gap in annual demand (GDP) of nearly $1 trillion. Government was unwilling to make up for this private sector shortfall.[51][52]
  3. Record levels of household debt accumulated in the decades preceding the crisis resulted in a balance sheet recession (similar to debt deflation) once housing prices began falling in 2006. Consumers began paying down debt, which reduces their consumption, slowing down the economy for an extended period while debt levels are reduced.[3][50]
  4. Housing speculation using high levels of mortgage debt drove many investors with prime-quality mortgages (i.e., those investors in the middle of the credit score distribution) to default and enter foreclosure on investment properties when housing prices fell; the blame on "subprime" homeowners (i.e., those at the bottom of the credit score distribution) was overstated.[8][10]
  5. Government policies that encouraged home ownership even for those who could not afford it, contributing to lax lending standards, unsustainable housing price increases, and indebtedness.[53]

Underlying narratives #1-3 is a hypothesis that growing income inequality and wage stagnation encouraged families to increase their household debt to maintain their desired living standard, fueling the bubble. Further, this greater share of income flowing to the top increased the political power of business interests, who used that power to deregulate or limit regulation of the shadow banking system.[54][55][56]

Housing market[edit]

Boom and bust[edit]

Main articles: United States housing bubble and United States housing market correction

Household debt relative to disposable income and GDP.
Existing homes sales, inventory, and months supply, by quarter.
Vicious cycles in the housing and financial markets.

According to Robert J. Shiller and other economists, housing price increases beyond the general inflation rate are not sustainable in the long term. From the end of World War II to the beginning of the housing bubble in 1997, housing prices in the US remained relatively stable.[57]: 19–21  The bubble was characterized by higher rates of household debt and lower savings rates, slightly higher rates of home ownership, and of course higher housing prices. It was fueled by low interest rates and large inflows of foreign funds that created easy credit conditions.[58]

Between 1997 and 2006 (the peak of the housing bubble), the price of the typical American house increased by 124%.[59] Many research articles confirmed the timeline of the U.S. housing bubble (emerged in 2002 and collapsed in 2006-2007) before the collapse of the subprime mortgage industry.[60][61] From 1980 to 2001, the ratio of median home prices to median household income (a measure of ability to buy a house) fluctuated from 2.9 to 3.1. In 2004 it rose to 4.0, and by 2006 it hit 4.6.[62] The housing bubble was more pronounced in coastal areas where the ability to build new housing was restricted by geography or land use restrictions.[63] This housing bubble resulted in quite a few homeowners refinancing their homes at lower interest rates, or financing consumer spending by taking out second mortgages secured by the price appreciation. US household debt as a percentage of annual disposable personal income was 127% at the end of 2007, versus 77% in 1990.[12][64]

While housing prices were increasing, consumers were saving less[65] and both borrowing and spending more. Household debt grew from $705 billion at year end 1974, 60% of disposable personal income, to $7.4 trillion at yearend 2000, and finally to $14.5 trillion in midyear 2008, 134% of disposable personal income.[66] During 2008, the typical US household owned 13 credit cards, with 40% of households carrying a balance, up from 6% in 1970.[67]

Free cash used by consumers from home equity extraction doubled from $627 billion in 2001 to $1,428 billion in 2005 as the housing bubble built, a total of nearly $5 trillion over the period.[68][69][70] U.S. home mortgage debt relative to GDP increased from an average of 46% during the 1990s to 73% during 2008, reaching $10.5 trillion.[71] From 2001 to 2007, U.S. mortgage debt almost doubled, and the amount of mortgage debt per household rose more than 63%, from $91,500 to $149,500, with essentially stagnant wages.[72] Economist Tyler Cowen explained that the economy was highly dependent on this home equity extraction: "In the 1993–1997 period, home owners extracted an amount of equity from their homes equivalent to 2.3% to 3.8% GDP. By 2005, this figure had increased to 11.5% GDP."[73]

This credit and house price explosion led to a building boom and eventually to a surplus of unsold homes, which caused U.S. housing prices to peak and begin declining in mid-2006.[74] Easy credit, and a belief that house prices would continue to appreciate, had encouraged many subprime borrowers to obtain adjustable-rate mortgages. These mortgages enticed borrowers with a below market interest rate for some predetermined period, followed by market interest rates for the remainder of the mortgage's term.

The US home ownership rate increased from 64% in 1994 (about where it had been since 1980) to an all-time high of 69.2% in 2004.[75] Subprime lending was a major contributor to this increase in home ownership rates and in the overall demand for housing, which drove prices higher.

Borrowers who would not be able to make the higher payments once the initial grace period ended, were planning to refinance their mortgages after a year or two of appreciation. As a result of the depreciating housing prices, borrowers’ ability to refinance became more difficult. Borrowers who found themselves unable to escape higher monthly payments by refinancing began to default.

As more borrowers stopped making their mortgage payments, foreclosures and the supply of homes for sale increased. This placed downward pressure on housing prices, which further lowered homeowners' equity. The decline in mortgage payments also reduced the value of mortgage-backed securities, which eroded the net worth and financial health of banks. This vicious cycle was at the heart of the crisis.[76]

By September 2008, average U.S. housing prices had declined by over 20% from their mid-2006 peak.[77][78] This major and unexpected decline in house prices means that many borrowers have zero or negative equity in their homes, meaning their homes were worth less than their mortgages. As of March 2008, an estimated 8.8 million borrowers – 10.8% of all homeowners – had negative equity in their homes, a number that is believed to have risen to 12 million by November 2008. By September 2010, 23% of all U.S. homes were worth less than the mortgage loan.[79]

Borrowers in this situation have an incentive to default on their mortgages as a mortgage is typically nonrecourse debt secured against the property.[80] Economist Stan Leibowitz argued in the Wall Street Journal that although only 12% of homes had negative equity, they comprised 47% of foreclosures during the second half of 2008. He concluded that the extent of equity in the home was the key factor in foreclosure, rather than the type of loan, credit worthiness of the borrower, or ability to pay.[81]

Increasing foreclosure rates increases the inventory of houses offered for sale. The number of new homes sold in 2007 was 26.4% less than in the preceding year. By January 2008, the inventory of unsold new homes was 9.8 times the December 2007 sales volume, the highest value of this ratio since 1981.[82] Furthermore, nearly four million existing homes were for sale,[83] of which roughly 2.2 million were vacant.[84]

This overhang of unsold homes lowered house prices. As prices declined, more homeowners were at risk of default or foreclosure. House prices are expected to continue declining until this inventory of unsold homes (an instance of excess supply) declines to normal levels.[85] A report in January 2011 stated that U.S. home values dropped by 26 percent from their peak in June 2006 to November 2010, more than the 25.9% drop between 1928 to 1933 when the Great Depression occurred.[86]

From September 2008 to September 2012, there were approximately 4 million completed foreclosures in the U.S. As of September 2012, approximately 1.4 million homes, or 3.3% of all homes with a mortgage, were in some stage of foreclosure compared to 1.5 million, or 3.5%, in September 2011. During September 2012, 57,000 homes completed foreclosure; this is down from 83,000 the prior September but well above the 2000–2006 average of 21,000 completed foreclosures per month.[87]

Homeowner speculation[edit]

Main article: Speculation

Speculative borrowing in residential real estate has been cited as a contributing factor to the subprime mortgage crisis.[88] During 2006, 22% of homes purchased (1.65 million units) were for investment purposes, with an additional 14% (1.07 million units) purchased as vacation homes. During 2005, these figures were 28% and 12%, respectively. In other words, a record level of nearly 40% of homes purchased were not intended as primary residences. David Lereah, National Association of Realtors's chief economist at the time, stated that the 2006 decline in investment buying was expected: "Speculators left the market in 2006, which caused investment sales to fall much faster than the primary market."[89]

Housing prices nearly doubled between 2000 and 2006, a vastly different trend from the historical appreciation at roughly the rate of inflation. While homes had not traditionally been treated as investments subject to speculation, this behavior changed during the housing boom. Media widely reported condominiums being purchased while under construction, then being "flipped" (sold) for a profit without the seller ever having lived in them.[90] Some mortgage companies identified risks inherent in this activity as early as 2005, after identifying investors assuming highly leveraged positions in multiple properties.[91]

One 2017 NBER study argued that real estate investors (i.e., those owning 2+ homes) were more to blame for the crisis than subprime borrowers: "The rise in mortgage defaults during the crisis was concentrated in the middle of the credit score distribution, and mostly attributable to real estate investors" and that "credit growth between 2001 and 2007 was concentrated in the prime segment, and debt to high-risk [subprime] borrowers was virtually constant for all debt categories during this period." The authors argued that this investor-driven narrative was more accurate than blaming the crisis on lower-income, subprime borrowers.[8] A 2011 Fed study had a similar finding: "In states that experienced the largest housing booms and busts, at the peak of the market almost half of purchase mortgage originations were associated with investors. In part by apparently misreporting their intentions to occupy the property, investors took on more leverage, contributing to higher rates of default." The Fed study reported that mortgage originations to investors rose from 25% in 2000 to 45% in 2006, for Arizona, California, Florida, and Nevada overall, where housing price increases during the bubble (and declines in the bust) were most pronounced. In these states, investor delinquency rose from around 15% in 2000 to over 35% in 2007 and 2008.[9]

Nicole Gelinas of the Manhattan Institute described the negative consequences of not adjusting tax and mortgage policies to the shifting treatment of a home from conservative inflation hedge to speculative investment.[92] Economist Robert Shiller argued that speculative bubbles are fueled by "contagious optimism, seemingly impervious to facts, that often takes hold when prices are rising. Bubbles are primarily social phenomena; until we understand and address the psychology that fuels them, they're going to keep forming."[93] Keynesian economist Hyman Minsky described how speculative borrowing contributed to rising debt and an eventual collapse of asset values.[94]

Warren Buffett testified to the Financial Crisis Inquiry Commission: "There was the greatest bubble I've ever seen in my life...The entire American public eventually was caught up in a belief that housing prices could not fall dramatically."[46]

High-risk mortgage loans and lending/borrowing practices[edit]

A mortgage brokerage in the US advertising subprime mortgages in July 2008.

In the years before the crisis, the behavior of lenders changed dramatically. Lenders offered more and more loans to higher-risk borrowers,[6][95] including undocumented immigrants.[96] Lending standards deteriorated particularly between 2004 and 2007, as the government-sponsored enterprise (GSE) mortgage market share (i.e. the share of Fannie Mae and Freddie Mac, which specialized in conventional, conforming, non-subprime mortgages) declined and private securitizers share grew, rising to more than half of mortgage securitizations.[6]

Historically less than 2% of homebuyers lost their homes to foreclosure. But by 2009 over 40% of subprime adjustable rate mortgages were past due. (source: Financial Crisis Inquiry Report, p.217, figure 11.2)

Subprime mortgages grew from 5% of total originations ($35 billion) in 1994,[97][98] to 20% ($600 billion) in 2006.[98][99][100] Another indicator of a "classic" boom-bust credit cycle, was a closing in the difference between subprime and prime mortgage interest rates (the "subprime markup") between 2001 and 2007.[101]

In addition to considering higher-risk borrowers, lenders had offered progressively riskier loan options and borrowing incentives. In 2005, the median down payment for first-time home buyers was 2%, with 43% of those buyers making no down payment whatsoever.[102] By comparison, China has down payment requirements that exceed 20%, with higher amounts for non-primary residences.[103]

Growth in mortgage loan fraud based upon US Department of the Treasury Suspicious Activity Report Analysis

To produce more mortgages and more securities, mortgage qualification guidelines became progressively looser. First, "stated income, verified assets" (SIVA) loans replaced proof of income with a "statement" of it. Then, "no income, verified assets" (NIVA) loans eliminated proof of employment requirements. Borrowers needed only to show proof of money in their bank accounts. "No Income, No Assets" (NINA) or Ninja loans eliminated the need to prove, or even to state any owned assets. All that was required for a mortgage was a credit score.[104]

Types of mortgages became more risky as well. The interest-only adjustable-rate mortgage (ARM), allowed the homeowner to pay only the interest (not principal) of the mortgage during an initial "teaser" period. Even looser was the "payment option" loan, in which the homeowner has the option to make monthly payment that do not even cover the interest for the first two or three year initial period of the loan. Nearly one in 10 mortgage borrowers in 2005 and 2006 took out these "option ARM" loans,[72] and an estimated one-third of ARMs originated between 2004 and 2006 had "teaser" rates below 4%. After the initial period, monthly payments might double[98] or even triple.[105]

The proportion of subprime ARM loans made to people with credit scores high enough to qualify for conventional mortgages with better terms increased from 41% in 2000 to 61% by 2006. In addition, mortgage brokers in some cases received incentives from lenders to offer subprime ARM's even to those with credit ratings that merited a conforming (i.e., non-subprime) loan.[106]

Mortgage underwriting standards declined precipitously during the boom period. The use of automated loan approvals allowed loans to be made without appropriate review and documentation.[107] In 2007, 40% of all subprime loans resulted from automated underwriting.[108][109] The chairman of the Mortgage Bankers Association claimed that mortgage brokers, while profiting from the home loan boom, did not do enough to examine whether borrowers could repay.[110]Mortgage fraud by lenders and borrowers increased enormously.[111]

The Financial Crisis Inquiry Commission reported in January 2011 that many mortgage lenders took eager borrowers' qualifications on faith, often with a "willful disregard" for a borrower's ability to pay. Nearly 25% of all mortgages made in the first half of 2005 were "interest-only" loans. During the same year, 68% of "option ARM" loans originated by Countrywide Financial and Washington Mutual had low- or no-documentation requirements.[72]

At least one study has suggested that the decline in standards was driven by a shift of mortgage securitization from a tightly controlled duopoly to a competitive market in which mortgage originators held the most sway.[6] The worst mortgage vintage years coincided with the periods during which Government Sponsored Enterprises (specifically Fannie Mae and Freddie Mac) were at their weakest, and mortgage originators and private label securitizers were at their strongest.[6]

Why was there a market for these low quality private label securitizations? In a Peabody Award winning program, NPR correspondents argued that a "Giant Pool of Money" (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. Further, this pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had not grown as fast. Investment banks on Wall Street answered this demand with financial innovation such as the mortgage-backed security (MBS) and collateralized debt obligation (CDO), which were assigned safe ratings by the credit rating agencies.

In effect, Wall Street connected this pool of money to the mortgage market in the U.S., with enormous fees accruing to those throughout the mortgage supply chain, from the mortgage broker selling the loans, to small banks that funded the brokers, to the giant investment banks behind them. By approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted. However, continued strong demand for MBS and CDO began to drive down lending standards, as long as mortgages could still be sold along the supply chain. Eventually, this speculative bubble proved unsustainable. NPR described it this way:[112]

The problem was that even though housing prices were going through the roof, people weren't making any more money. From 2000 to 2007, the median household income stayed flat. And so the more prices rose, the more tenuous the whole thing became. No matter how lax lending standards got, no matter how many exotic mortgage products were created to shoehorn people into homes they couldn't possibly afford, no matter what the mortgage machine tried, the people just couldn't swing it. By late 2006, the average home cost nearly four times what the average family made. Historically it was between two and three times. And mortgage lenders noticed something that they'd almost never seen before. People would close on a house, sign all the mortgage papers, and then default on their very first payment. No loss of a job, no medical emergency, they were underwater before they even started. And although no one could really hear it, that was probably the moment when one of the biggest speculative bubbles in American history popped.

Subprime mortgage market[edit]

Number of U.S. residential properties subject to foreclosure actions by quarter (2007–2012).

Subprime borrowers typically have weakened credit histories and reduced repayment capacity. Subprime loans have a higher risk of default than loans to prime borrowers.[113] If a borrower is delinquent in making timely mortgage payments to the loan servicer (a bank or other financial firm), the lender may take possession of the property, in a process called foreclosure.

The value of American subprime mortgages was estimated at $1.3 trillion as of March 2007,[114] with over 7.5 million first-lien subprime mortgages outstanding.[115] Between 2004 and 2006 the share of subprime mortgages relative to total originations ranged from 18%–21%, versus less than 10% in 2001–2003 and during 2007.[116][117] The majority of subprime loans were issued in California.[118] The boom in mortgage lending, including subprime lending, was also driven by a fast expansion of non-bank independent mortgage originators which despite their smaller share (around 25 percent in 2002) in the market have contributed to around 50 percent of the increase in mortgage credit between 2003 and 2005.[119] In the third quarter of 2007, subprime ARMs making up only 6.9% of US mortgages outstanding also accounted for 43% of the foreclosures which began during that quarter.[120]

By October 2007, approximately 16% of subprime adjustable-rate mortgages (ARM) were either 90-days delinquent or the lender had begun foreclosure proceedings, roughly triple the rate of 2005.[121] By January 2008, the delinquency rate had risen to 21%[122] and by May 2008 it was 25%.[123]

According to RealtyTrac, the value of all outstanding residential mortgages, owed by U.S. households to purchase residences housing at most four families, was US$9.9 trillion as of year-end 2006, and US$10.6 trillion as of midyear 2008.[124] During 2007, lenders had begun foreclosure proceedings on nearly 1.3 million properties, a 79% increase over 2006.[125] This increased to 2.3 million in 2008, an 81% increase vs. 2007,[126] and again to 2.8 million in 2009, a 21% increase vs. 2008.[127]

By August 2008, 9.2% of all U.S. mortgages outstanding were either delinquent or in foreclosure.[128] By September 2009, this had risen to 14.4%.[129] Between August 2007 and October 2008, 936,439 US residences completed foreclosure.[130] Foreclosures are concentrated in particular states both in terms of the number and rate of foreclosure filings.[131] Ten states accounted for 74% of the foreclosure filings during 2008; the top two (California and Florida) represented 41%. Nine states were above the national foreclosure rate average of 1.84% of households.[132]

Mortgage fraud and predatory lending[edit]

"The FBI defines mortgage fraud as 'the intentional misstatement, misrepresentation, or omission by an applicant or other interest parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan.'"[133] In 2004, the Federal Bureau of Investigation warned of an "epidemic" in mortgage fraud, an important credit risk of nonprime mortgage lending, which, they said, could lead to "a problem that could have as much impact as the S&L crisis".[134][135][136][137] Despite this, the Bush administration prevented states from investigating and prosecuting predatory lenders by invoking a banking law from 1863 "to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative."[138]

The Financial Crisis Inquiry Commission reported in January 2011 that: "... mortgage fraud... flourished in an environment of collapsing lending standards and lax regulation. The number of suspicious activity reports – reports of possible financial crimes filed by depository banks and their affiliates – related to mortgage fraud grew 20-fold between 1996 and 2005 and then more than doubled again between 2005 and 2009. One study places the losses resulting from fraud on mortgage loans made between 2005 and 2007 at $112 billion.

"Predatory lending describes unfair, deceptive, or fraudulent practices of some lenders during the loan origination process."Lenders made loans that they knew borrowers could not afford and that could cause massive losses to investors in mortgage securities."[72]

Financial markets[edit]

Boom and collapse of the shadow banking system[edit]

Comparison of the growth of traditional banking and shadow banking[139]

The Financial Crisis Inquiry Commission reported in January 2011:

"In the early part of the 20th century, we erected a series of protections – the Federal Reserve as a lender of last resort, federal deposit insurance, ample regulations – to provide a bulwark against the panics that had regularly plagued America's banking system in the 19th century. Yet, over the past 30-plus years, we permitted the growth of a shadow banking system – opaque and laden with short term debt – that rivaled the size of the traditional banking system. Key components of the market – for example, the multitrillion-dollar repo lending market, off-balance-sheet entities, and the use of over-the-counter derivatives – were hidden from view, without the protections we had constructed to prevent financial meltdowns. We had a 21st-century financial system with 19th-century safeguards."[72]

In a June 2008 speech, President of the NY Federal Reserve Bank Timothy Geithner, who later became Secretary of the Treasury, placed significant blame for the freezing of credit markets on a "run" on the entities in the "parallel" banking system, also called the shadow banking system. These entities became critical to the credit markets underpinning the financial system, but were not subject to the same regulatory controls as depository banks. Further, these entities were vulnerable because they borrowed short-term in liquid markets to purchase long-term, illiquid and risky assets. This meant that disruptions in credit markets would make them subject to rapid deleveraging, selling their long-term assets at depressed prices.[26]

Repo and other forms of shadow banking accounted for an estimated 60% of the "overall US banking system," according to Nobel laureate economist Paul Krugman.[140] Geithner described its "entities":

"In early 2007, asset-backed commercial paper conduits, in structured investment vehicles, in auction-rate preferred securities, tender option bonds and variable rate demand notes, had a combined asset size of roughly $2.2 trillion. Assets financed overnight in triparty repo grew to $2.5 trillion. Assets held in hedge funds grew to roughly $1.8 trillion. The combined balance sheets of the then five major investment banks totaled $4 trillion. In comparison, the total assets of the top five bank holding companies in the United States at that point were just over $6 trillion, and total assets of the entire banking system were about $10 trillion."

He stated that the "combined effect of these factors was a financial system vulnerable to self-reinforcing asset price and credit cycles."[26] Krugman described the run on the shadow banking system as the "core of what happened" to cause the crisis.

As the shadow banking system expanded to rival or even surpass conventional banking in importance, politicians and government officials should have realized that they were re-creating the kind of financial vulnerability that made the Great Depression possible – and they should have responded by extending regulations and the financial safety net to cover these new institutions. Influential figures should have proclaimed a simple rule: anything that does what a bank does, anything that has to be rescued in crises the way banks are, should be regulated like a bank.

He referred to this lack of controls as "malign neglect."[141][142]

The securitization markets supported by the shadow banking system started to close down in the spring of 2007 and nearly shut-down in the fall of 2008. More than a third of the private credit markets thus became unavailable as a source of funds.[143] According to the Brookings Institution, the traditional banking system does not have the capital to close this gap as of June 2009: "It would take a number of years of strong profits to generate sufficient capital to support that additional lending volume." The authors also indicate that some forms of securitization are "likely to vanish forever, having been an artifact of excessively loose credit conditions."[144]

Economist Gary Gorton wrote in May 2009:

Unlike the historical banking panics of the 19th and early 20th centuries, the current banking panic is a wholesale panic, not a retail panic. In the earlier episodes, depositors ran to their banks and demanded cash in exchange for their checking accounts. Unable to meet those demands, the banking system became insolvent. The current panic involved financial firms "running" on other financial firms by not renewing sale and repurchase agreements (repo) or increasing the repo margin ("haircut"), forcing massive deleveraging, and resulting in the banking system being insolvent.[25]

Fed Chair Ben Bernanke stated in an interview with the FCIC during 2009 that 12 of the 13 largest U.S. financial institutions were at risk of failure during 2008. The FCIC report did not identify which of the 13 firms was not considered by Bernanke to be in danger of failure.[145]

Economist Mark Zandi testified to the Financial Crisis Inquiry Commission in January 2010:

The securitization markets also remain impaired, as investors anticipate more loan losses. Investors are also uncertain about coming legal and accounting rule changes and regulatory reforms. Private bond issuance of residential and commercial mortgage-backed securities, asset-backed securities, and CDOs peaked in 2006 at close to $2 trillion...In 2009, private issuance was less than $150 billion, and almost all of it was asset-backed issuance supported by the Federal Reserve's TALF program to aid credit card, auto and small-business lenders. Issuance of residential and commercial mortgage-backed securities and CDOs remains dormant.[146]

The Economist reported in March 2010: "Bear Stearns and Lehman Brothers were non-banks that were crippled by a silent run among panicky overnight "repo" lenders, many of them money market funds uncertain about the quality of securitized collateral they were holding. Mass redemptions from these funds after Lehman's failure froze short-term funding for big firms."[147]

Securitization[edit]

Borrowing under a securitization structure.
IMF diagram of CDO and RMBS.

Further information: Securitization and Mortgage-backed security

Securitization – the bundling of bank loans to create tradeablebonds – started in the mortgage industry in the 1970s, when Government Sponsored Enterprises (GSEs) began to pool relatively safe, conventional, "conforming" or "prime" mortgages, create "mortgage-backed securities" (MBS) from the pool, sell them to investors, guaranteeing these securities/bonds against default on the underlying mortgages.[6][148] This "originate-to-distribute" model had advantages over the old "originate-to-hold" model,[149] where a bank originated a loan to the borrower/homeowner and retained the credit (default) risk. Securitization removed the loans from a bank's books, enabling the bank to remain in compliance with capital requirement laws. More loans could be made with proceeds of the MBS sale. The liquidity of a national and even international mortgage market allowed capital to flow where mortgages were in demand and funding short. However, securitization created a moral hazard – the bank/institution making the loan no longer had to worry if the mortgage was paid off[150] – giving them incentive to process mortgage transactions but not to ensure their credit quality.[151][152] Bankers were no longer around to work out borrower problems and minimize defaults during the course of the mortgage.[153]

With the high down payments and credit scores of the conforming mortgages used by GSE, this danger was minimal.[154] Investment banks however, wanted to enter the market and avoid competing with the GSEs.[150] They did so by developing mortgage-backed securities in the riskier non-conforming subprime and Alt-A market. Unlike the GSEs[155] the issuers generally did not guarantee the securities against default of the underlying mortgages.[6]

What these "private label" or "non-agency" originators did do was to use "structured finance" to create securities. Structuring involved "slicing" the pooled mortgages into "tranches", each having a different priority in the monthly or quarterly principal and interest stream.[156][157] Tranches were compared to "buckets" catching the "water" of principal and interest. More senior buckets didn't share water with those below until they were filled to the brim and overflowing.[158] This gave the top buckets/tranches considerable creditworthiness (in theory) that would earn the highest "triple A" credit ratings, making them salable to money market and pension funds that would not otherwise deal with subprime mortgage securities.

To use up the MBS tranches lower in payback priority that could not be rated triple-A and that a conservative fixed income market would not buy, investment banks developed another security – known as the collateralized debt obligation (CDO). Although the CDO market was smaller, it was crucial because unless buyers were found for the non-triple-A or "mezzanine" tranches, it would not be profitable to make a mortgage-backed security in the first place.[159][160] These CDOs pooled the leftover BBB, A-, etc. rated tranches, and produced new tranches – 70%[161] to 80%[162] of which were rated triple A by rating agencies. The 20–30% remaining mezzanine tranches were sometimes bought up by other CDOs, to make so-called "CDO-Squared" securities which also produced tranches rated mostly triple A.[163]

This process was later disparaged as "ratings laundering"[164] or a way of transforming "dross into gold"[165] by some business journalists, but was justified at the time by the belief that home prices would always rise.[166][167] The model used by underwriters, rating agencies and investors to estimate the probability of mortgage default was based on the history of credit default swaps, which unfortunately went back "less than a decade, a period when house prices soared".[168]

In addition the model – which postulated that the correlation of default risks among loans in securitization pools could be measured in a simple, stable, tractable number, suitable for risk management or valuation[168] – also purported to show that the mortgages in CDO pools were well diversified or "uncorrelated". Defaults on mortgages in Orlando, for example, were thought to have no effect on – i.e. were uncorrelated with – the real estate market across the country in Laguna Beach. When prices corrected (i.e. the bubble collapsed), the resulting defaults were not only larger in number than predicted but far more correlated.[168]

Still another innovative security criticized after the bubble burst was the synthetic CDO. Cheaper and easier to create than original "cash" CDOs, synthetics did not provide funding for housing, rather synthetic CDO-buying investors were in effect providing insurance (in the form of "credit default swaps") against mortgage default. The mortgages they insured were those in "cash" CDOs the synthetics "referenced". So instead of providing investors with interest and principal payments from MBS tranches, payments were the equivalent of insurance premiums from the insurance "buyers".[169] If the referenced CDOs defaulted, investors lost their investment, which was paid out to the insurance buyers.[170]

Unlike true insurance, credit default swaps were not regulated to insure that providers had the reserves to pay settlements, or that buyers owned the property (MBSs) they were insuring, i.e. were not simply making a bet a security would default.[171] Because synthetics "referenced" another (cash) CDO, more than one – in fact numerous – synthetics could be made to reference the same original, multiplying the effect if a referenced security defaulted.[172][173] As with MBS and other CDOs, triple A ratings for "large chunks"[174] of synthetics were crucial to the securities' success, because of the buyer/investors' ignorance of the mortgage security market and trust in the credit rating agencies ratings.[175]

Securitization began to take off in the mid-1990s. The total amount of mortgage-backed securities issued almost tripled between 1996 and 2007, to $7.3 trillion. The securitized share of subprime mortgages (i.e., those passed to third-party investors via MBS) increased from 54% in 2001, to 75% in 2006.[101] In the mid-2000s as the housing market was peaking, GSE securitization market share declined dramatically, while higher-risk subprime and Alt-A mortgage private label securitization grew sharply.[6] As mortgage defaults began to rise, it was among mortgages securitized by the private banks. GSE mortgages – securitized or not – continued to perform better than the rest of the market.[6][176] Picking up the slack for the dwindling cash CDO market[177] synthetics were the dominant form of CDO's by 2006,[178] valued "notionally"[179] at an estimated $5 trillion.[178]

By the autumn of 2008, when the securitization market "seized up" and investors would "no longer lend at any price", securitized lending made up about $10 trillion of the roughly $25 trillion American credit market, (i.e. what "American homeowners, consumers, and corporations owed").[143][144] In February 2009, Ben Bernanke stated that securitization markets remained effectively shut, with the exception of conforming mortgages, which could be sold to Fannie Mae and Freddie Mac.[180]

According to economist A. Michael Spence: "when formerly uncorrelated risks shift and become highly correlated ... diversification models fail." "An important challenge going forward is to better understand these dynamics as the analytical underpinning of an early warning system with respect to financial instability."[181]

Criticizing the argument that complex structured investment securitization was instrumental in the mortgage crisis, Paul Krugman points out that the Wall Street firms issuing the securities "kept the riskiest assets on their own books", and that neither of the equally disastrous bubbles in European housing or US commercial property used complex structured securities. Krugman does agree that it is "arguable is that financial innovation ... spread the bust to financial institutions around the world" and its inherent fragmentation of loans has made post-bubble "cleanup" through debt renegotiation extremely difficult.[140]

Financial institution debt levels and incentives[edit]

Leverage ratios of investment banks increased significantly between 2003 and 2007.

The Financial Crisis Inquiry Commission reported in January 2011 that: "From 1978 to 2007, the amount of debt held by the financial sector soared from $3 trillion to $36 trillion, more than doubling as a share of gross domestic product. The very nature of many Wall Street firms changed – from relatively staid private partnerships to publicly traded corporations taking greater and more diverse kinds of risks. By 2005, the 10 largest U.S. commercial banks held 55% of the industry's assets, more than double the level held in 1990. On the eve of the crisis in 2006, financial sector profits constituted 27% of all corporate profits in the United States, up from 15% in 1980."[72]

Many financial institutions, investment banks in particular, issued large amounts of debt during 2004–07, and invested the proceeds in mortgage-backed securities (MBS), essentially betting that house prices would continue to rise, and that households would continue to make their mortgage payments. Borrowing at a lower interest rate and investing the proceeds at a higher interest rate is a form of financial leverage. This is analogous to an individual taking out a second mortgage on his residence to invest in the stock market. This strategy proved profitable during the housing boom, but resulted in large losses when house prices began to decline and mortgages began to default. Beginning in 2007, financial institutions and individual investors holding MBS also suffered significant losses from mortgage payment defaults and the resulting decline in the value of MBS.[182]

A 2004 U.S. Securities and Exchange Commission (SEC) decision related to the net capital rule allowed US investment banks to issue substantially more debt, which was then used to purchase MBS. Over 2004–07, the top five US investment banks each significantly increased their financial leverage (see diagram), which increased their vulnerability to the declining value of MBSs. These five institutions reported over $4.1 trillion in debt for fiscal year 2007, about 30% of US nominal GDP for 2007. Further, the percentage of subprime mortgages originated to total originations increased from below 10% in 2001–03 to between 18–20% from 2004 to 2006, due in-part to financing from investment banks.[116][117]

During 2008, three of the largest U.S. investment banks either went bankrupt (Lehman Brothers) or were sold at fire sale prices to other banks (Bear Stearns and Merrill Lynch). These failures augmented the instability in the global financial system. The remaining two investment banks, Morgan Stanley and Goldman Sachs, opted to become commercial banks, thereby subjecting themselves to more stringent regulation.[183][184]

In the years leading up to the crisis, the top four U.S. depository banks moved an estimated $5.2 trillion in assets and liabilities off-balance sheet into special purpose vehicles or other entities in the shadow banking system. This enabled them to essentially bypass existing regulations regarding minimum capital ratios, thereby increasing leverage and profits during the boom but increasing losses during the crisis. New accounting guidance will require them to put some of these assets back onto their books during 2009, which will significantly reduce their capital ratios. One news agency estimated this amount to be between $500 billion and $1 trillion. This effect was considered as part of the stress tests performed by the government during 2009.[185]

Martin Wolf wrote in June 2009: "...an enormous part of what banks did in the early part of this decade – the off-balance-sheet vehicles, the derivatives and the 'shadow banking system' itself – was to find a way round regulation."[186]

The New York State Comptroller's Office has said that in 2006, Wall Street executives took home bonuses totaling $23.9 billion. "Wall Street traders were thinking of the bonus at the end of the year, not the long-term health of their firm. The whole system – from mortgage brokers to Wall Street risk managers – seemed tilted toward taking short-term risks while ignoring long-term obligations. The most damning evidence is that most of the people at the top of the banks didn't really understand how those [investments] worked."[62][187]

The incentive compensation of traders was focused on fees generated from assembling financial products, rather than the performance of those products and profits generated over time. Their bonuses were heavily skewed towards cash rather than stock and not subject to "claw-back" (recovery of the bonus from the employee by the firm) in the event the MBS or CDO created did not perform. In addition, the increased risk (in the form of financial leverage) taken by the major investment banks was not adequately factored into the compensation of senior executives.[188]

Credit default swaps[edit]

Credit default swaps (CDS) are financial instruments used as a hedge and protection for debtholders, in particular MBS investors, from the risk of default, or by speculators to profit from default. As the net worth of banks and other financial institutions deteriorated because of losses related to subprime mortgages, the likelihood increased that those providing the protection would have to pay their counterparties. This created uncertainty across the system, as investors wondered which companies would be required to pay to cover mortgage defaults.

Like all swaps and other financial derivatives, CDS may either be used to hedge risks (specifically, to insure creditors against default) or to profit from speculation. The volume of CDS outstanding increased 100-fold from 1998 to 2008, with estimates of the debt covered by CDS contracts, as of November 2008, ranging from US$33 to $47 trillion.[189]: 73  CDS are lightly regulated, largely because of the Commodity Futures Modernization Act of 2000. As of 2008, there was no central clearing house to honor CDS in the event a party to a CDS proved unable to perform his obligations under the CDS contract. Required disclosure of CDS-related obligations has been criticized as inadequate. Insurance companies such as American International Group (AIG), MBIA, and Ambac faced ratings downgrades because widespread mortgage defaults increased their potential exposure to CDS losses. These firms had to obtain additional funds (capital) to offset this exposure. AIG's having CDSs insuring $440 billion of MBS resulted in its seeking and obtaining a Federal government bailout.[190] The monoline insurance companies went out of business in 2008–2009.

When investment bank Lehman Brothers went bankrupt in September 2008, there was much uncertainty as to which financial firms would be required to honor the CDS contracts on its $600 billion of bonds outstanding.[191][192]Merrill Lynch's large losses in 2008 were attributed in part to the drop in value of its unhedged portfolio of collateralized debt obligations (CDOs) after AIG ceased offering CDS on Merrill's CDOs. The loss of confidence of trading partners in Merrill Lynch's solvency and its ability to refinance its short-term debt led to its acquisition by the Bank of America.[193][194]

Economist Joseph Stiglitz summarized how credit default swaps contributed to the systemic meltdown: "With this complicated intertwining of bets of great magnitude, no one could be sure of the financial position of anyone else-or even of one's own position. Not surprisingly, the credit markets froze."[195]

Author Michael Lewis wrote that CDS enabled speculators to stack bets on the same mortgage bonds and CDO's. This is analogous to allowing many persons to buy insurance on the same house. Speculators that bought CDS insurance were betting that significant defaults would occur, while the sellers (such as AIG) bet they would not. A theoretically infinite amount could be wagered on the same housing-related securities, provided buyers and sellers of the CDS could be found.[196]

Derivatives such as CDS were unregulated or barely regulated. Several sources have noted the failure of the US government to supervise or even require transparency of the financial instruments known as derivatives.[197][198][199] A 2008 investigative article in the Washington Post found that leading government officials at the time (Federal Reserve Board Chairman Alan Greenspan, Treasury Secretary Robert Rubin, and SEC Chairman Arthur Levitt) vehemently opposed any regulation of derivatives. In 1998 Brooksley E. Born, head of the Commodity Futures Trading Commission, put forth a policy paper asking for feedback from regulators, lobbyists, legislators on the question of whether derivatives should be reported, sold through a central facility, or whether capital requirements should be required of their buyers. Greenspan, Rubin, and Levitt pressured her to withdraw the paper and Greenspan persuaded Congress to pass a resolution preventing CFTC from regulating derivatives for another six months – when Born's term of office would expire.[198] Ultimately, it was the collapse of a specific kind of derivative, the mortgage-backed security, that triggered the economic crisis of 2008.[199]

In addition, Chicago Public Radio, Huffington Post, and ProPublica reported in April 2010 that market participants, including a hedge fund called Magnetar Capital, encouraged the creation of CDO's containing low quality mortgages, so they could bet against them using CDS. NPR reported that Magnetar encouraged investors to purchase CDO's while simultaneously betting against them, without disclosing the latter bet.[173][200][201] Instruments called synthetic CDO, which are portfolios of credit default swaps, were also involved in allegations by the SEC against Goldman-Sachs in April 2010.[202]

The Financial Crisis Inquiry Commission reported in January 2011 that CDS contributed significantly to the crisis. Companies were able to sell protection to investors against the default of mortgage-backed securities, helping to launch and expand the market for new, complex instruments such as CDO's. This further fueled the housing bubble. They also amplified the losses from the collapse of the housing bubble by allowing multiple bets on the same securities and helped spread these bets throughout the financial system. Companies selling protection, such as AIG, were not required to set aside sufficient capital to cover their obligations when significant defaults occurred. Because many CDS were not traded on exchanges, the obligations of key financial institutions became hard to measure, creating uncertainty in the financial system.[72]

Inaccurate credit ratings[edit]

Main article: Credit rating agencies and the subprime crisis

MBS credit rating downgrades, by quarter

Credit rating agencies – firms which rate debt instruments/securities according to the debtor's ability to pay lenders back – have come under scrutiny during and after the financial crisis for having given investment-grade ratings to MBSs and CDOs based on risky subprime mortgage loans that later defaulted. Dozens of lawsuits have been filed by investors against the "Big Three" rating agencies – Moody's Investors Service, Standard & Poor's, and Fitch Ratings.[203] The Financial Crisis Inquiry Commission (FCIC)[204] concluded the "failures" of the Big Three rating agencies were "essential cogs in the wheel of financial destruction" and "key enablers of the financial meltdown".[205] Economist Joseph Stiglitz called them "one of the key culprits" of the financial crisis.[206] Others called their ratings "catastrophically misleading", (the U.S. Securities and Exchange Commissioner[207]), their performance "horrendous" (The Economist magazine[208]). There are indications that some involved in rating subprime-related securities knew at the time that the rating process was faulty.[209][210]

The position of the three agencies "between the issuers and the investors of securities"[211] "transformed" them into "key" players in the housing bubble and financial crisis according to the Financial Crisis Inquiry Report. Most investors in the fixed income market had no experience with the mortgage business – let alone dealing with the complexity of pools of mortgages and tranche priority of MBS and CDO securities[211] – and were simply looking for an independent party who could rate securities.[212] The putatively independent parties meanwhile were paid "handsome fees" by investment banks "to obtain the desired ratings", according to one expert.[212]

In addition, a large section of the debt securities market – many money markets and pension funds – were restricted in their bylaws to holding only the safest securities – i.e securities the rating agencies designated "triple-A". Hence non-prime securities could not be sold without ratings by (usually two of) the three agencies.[213]

From 2000 to 2007, one of the largest agencies – Moody's – rated nearly 45,000 mortgage-related securities[214] – more than half of those it rated – as triple-A.[215] By December 2008, there were over $11 trillion structured finance securities outstanding in the U.S. bond market debt.[214] But as the boom matured, mortgage underwriting standards deteriorated. By 2007 an estimated $3.2 trillion in loans were made to homebuyers and owners with bad credit and undocumented incomes, bundled into MBSs and CDOs, and given top ratings[216] to appeal to global investors.

As these mortgages began to default, the three agencies were compelled to go back and redo their ratings. Between autumn of 2007 and the middle of 2008, agencies downgraded nearly $2 trillion in MBS tranches.[217] By the end of 2008, 80% of the CDOs by value[218] rated "triple-A" were downgraded to junk.[219][220] Bank writedowns and losses on these investments totaled $523 billion.[216][221][222]

Critics such as the Financial Crisis Inquiry Commission argue the mistaken credit ratings stemmed from "flawed computer models, the pressure from financial firms that paid for the ratings, the relentless drive for market share, the lack of resources to do the job despite record profits, and the absence of meaningful public oversight".[72]

Structured investment was very profitable to the agencies and by 2007 accounted for just under half of Moody's total ratings revenue and all of the revenue growth.[223] But profits were not guaranteed, and issuers played the agencies off one another, 'shopping' around to find the best ratings, sometimes openly threatening to cut off business after insufficiently generous ratings.[224] Thus there was a conflict of interest between accommodating clients – for whom higher ratings meant higher earnings – and accurately rating the debt for the benefit of the debt buyer/investors – who provided zero revenue to the agencies.[225]

Despite the profitability of the three big credit agencies – Moody's operating margins were consistently over 50%, higher than famously successful Exxon Mobil or Microsoft[226] – salaries and bonuses for non-management were significantly lower than at Wall Street banks, and its employees complained of overwork.

This incentivized agency rating analysts to seek employment at those Wall Street banks who were issuing mortgage securities, and who were particularly interested in the analysts' knowledge of what criteria their former employers used to rate securities.[227][228] Inside knowledge of interest to security issuers eager to find loopholes included the fact that rating agencies looked at the average credit score of a pool of borrowers, but not how dispersed it was; that agencies ignored borrower's household income or length of credit history (explaining the large numbers of low income immigrants given mortgages—people "who had never failed to repay a debt, because they had never been given a loan"); that agencies were indifferent to credit worthiness issues of adjustable-rate mortgages with low teaser rates, "silent second" mortgages, or no-documentation mortgages.[229]

As of 2010, virtually all of the investigations of rating agencies, criminal as well as civil, are in their early stages.[230] In New York, state prosecutors are examining whether eight banks[231] duped the credit ratings agencies into inflating the grades of subprime-linked investments.[232] In the dozens of suits filed against them by investors involving claims of inaccurate ratings[203] the rating agencies have defended themselves using the First Amendment defense—that a credit rating is an opinion protected as free speech.[233] In 2013, McClatchy Newspapers found that "little competition has emerged" since the Credit Rating Agency Reform Act of 2006 was passed "in rating the kinds of complex home-mortgage securities whose implosion led to the 2007 financial crisis". The Big Three's market share of outstanding credit rating has barely shrunk, moving from 98% to 97%.[234]

Governmental policies[edit]

Main article: Government policies and the subprime mortgage crisis

U.S. Subprime lending expanded dramatically 2004–2006.

Government over-regulation, failed regulation and deregulation have all been claimed as causes of the crisis. Increasing home ownership has been the goal of several presidents including Roosevelt, Reagan, Clinton and George W. Bush.[235]

Decreased regulation of financial institutions[edit]

Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief.

Alan Greenspan[236]

Several steps were taken to deregulate banking institutions in the years leading up to the crisis. Further, major investment banks which collapsed during the crisis were not subject to the regulations applied to depository banks. In testimony before Congress both the Securities and Exchange Commission (SEC) and Alan Greenspan claimed failure in allowing the self-regulation of investment banks.[237][238]

In 1982, Congress passed the Alternative Mortgage Transactions Parity Act (AMTPA), which allowed non-federally chartered housing creditors to write adjustable-rate mortgages. This bi-partisan legislation was, according to the Urban Institute, intended to "increase the volume of loan products that reduced the up-front costs to borrowers in order to make homeownership more affordable."[239] Among the new mortgage loan types created and gaining in popularity in the early 1980s were adjustable-rate, option adjustable-rate, balloon-payment and interest-only mortgages. Subsequent widespread abuses of predatory lending occurred with the use of adjustable-rate mortgages.[41][240] Approximately 90% of subprime mortgages issued in 2006 were adjustable-rate mortgages.[4]

The Glass–Steagall Act was enacted after the Great Depression. It separated commercial banks and investment banks, in part to avoid potential conflicts of interest between the lending activities of the former and rating activities of the latter. In 1999 Glass–Steagall was repealed by the Gramm-Leach-Bliley Act. Economist Joseph Stiglitz criticized the repeal of Glass–Steagall because, in his opinion, it enabled the risk-taking culture of investment banking to dominate the more conservative commercial banking culture, leading to increased levels of risk-taking and leverage during the boom period.[241] President Bill Clinton, who signed the legislation, dismissed its connection to the subprime mortgage crisis, stating (in 2008): "I don't see that signing that bill had anything to do with the current crisis."[242]

The Commodity Futures Modernization Act of 2000 was bi-partisan legislation that formally exempted derivatives from regulation, supervision, trading on established exchanges, and capital reserve requirements for major participants. It "provided a legal safe harbor for treatment already in effect."[243] Concerns that counterparties to derivative deals would be unable to pay their obligations caused pervasive uncertainty during the crisis. Particularly relevant to the crisis are credit default swaps (CDS), a derivative in which Party A pays Party B what is essentially an insurance premium, in exchange for payment should Party C default on its obligations. Warren Buffett famously referred to derivatives as "financial weapons of mass destruction" in early 2003.[244][245]

Former Fed Chair Alan Greenspan, who many economists blamed for the financial crisis, testified in October 2008 that he had trusted free markets to self-correct and had not anticipated the risk of reduced lending standards."Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief."[236]

Some analysts believe the subprime mortgage crisis was due, in part, to a 2004 decision of the SEC that affected 5 large investment banks. The critics believe that changes in the capital reserve calculation rules enabled investment banks to substantially increase the level of debt they were taking on, fueling the growth in mortgage-backed securities supporting subprime mortgages. These banks dramatically increased their risk taking from 2003 to 2007. By the end of 2007, the largest five U.S. investment banks had over $4 trillion in debt with high ratios of debt to equity, meaning only a small decline in the value of their assets would render them insolvent.[246][247] However, in an April 9, 2009, speech, Erik Sirri, then Director of the SEC's Division of Trading and Markets, argued that the regulatory weaknesses in leverage restrictions originated in the late 1970s: "The Commission did not undo any leverage restrictions in 2004," nor did it intend to make a substantial reduction.[248]

The financial sector invested heavily to gain clout in the halls of government to bring about these major deregulatory objectives: it spent more than $5 billion over a decade to strengthen its political clout in Washington, DC, including $1.725 billion in political campaign contributions and $3.4 billion on Industry lobbyists during the years 1998-2008.[249]

Policies to promote private ownership of housing[edit]

Several administrations, both Democratic and Republican, advocated private home ownership in the years leading up to the crisis. The Housing and Community Development Act of 1992 established, for the first time, a mandate to Fannie Mae and Freddie Mac for loans to enable home ownership of less expensive housing, a mandate to be regulated by the Department of Housing and Urban Development (HUD). Initially, the 1992 legislation required that 30 percent or more of Fannie's and Freddie's loan purchases be in support of private home ownership of affordable housing. However, HUD was given the power to set future requirements. During the later part of the Clinton Administration, HUD Secretary Andrew Cuomo announced "new regulations to provide $2.4 trillion in mortgages for affordable housing for 28.1 million families, which increased the required percentage of mortgage loans for low- and moderate-income families that finance companies Fannie Mae and Freddie Mac must buy annually from the then current 42 percent of their total purchases to a new high of 50 percent.[250] Eventually (under the Bush Administration) a 56 percent minimum was established.[251] Additionally, in 2003, "The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.".[252]

"The National Homeownership Strategy: Partners in the American Dream", was compiled in 1995 by Henry Cisneros, President Clinton's HUD Secretary. This 100-page document represented the viewpoints of HUD, Fannie Mae, Freddie Mac, leaders of the housing industry, various banks, numerous activist organizations such as ACORN and La Raza, and representatives from several state and local governments."[253] In 2001, the independent research company, Graham Fisher & Company, stated: "While the underlying initiatives of the [strategy] were broad in content, the main theme … was the relaxation of credit standards."[254]

"Members of the Right tried to blame the seeming market failures on government; in their mind the government effort to push people with low incomes into home ownership was the source of the problem. Widespread as this belief has become in conservative circles, virtually all serious attempts to evaluate the evidence have concluded that there is little merit in this view."

Joseph Stiglitz[255]

The Financial Crisis Inquiry Commission (majority report), Federal Reserve economists, and several academic researchers have stated that government affordable housing policies were not the major cause of the financial crisis.[6][119] They also state that Community Reinvestment Act loans outperformed other "subprime" mortgages, and GSE mortgages performed better than private label securitizations.

[edit]

The Community Reinvestment Act (CRA) was originally enacted under President Jimmy Carter in 1977 in an effort to encourage banks to halt the practice of lending discrimination.[256] In 1995 the Clinton Administration issued regulations that added numerical guidelines, urged lending flexibility, and instructed bank examiners to evaluate a bank's responsiveness to community activists (such as ACORN) when deciding whether to approve bank merger or expansion requests.[257] Critics claim that the 1995 changes to CRA signaled to banks that relaxed lending standards were appropriate and could minimize potential risk of governmental sanctions.

Conservatives and libertarians have debated the possible effects of the CRA, with detractors claiming that the Act encouraged lending to uncreditworthy borrowers,[258][259][260][261] and defenders claiming a thirty-year history of lending without increased risk.[262][263][264][265] Detractors also claim that amendments to the CRA in the mid-1990s raised the number of mortgages issued to otherwise unqualified low-income borrowers, and allowed the securitization of CRA-regulated mortgages, even though a fair number of them were subprime.[266][267]

In its "Conclusions" submitted January 2011, the Financial Crisis Inquiry Commission reported that

"the CRA was not a significant factor in subprime lending or the crisis. Many subprime lenders were not subject to the CRA. Research indicates only 6% of high-cost loans—a proxy for subprime loans—had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law."[72]

Critics claim that the use of the high-interest-rate proxy distorts results because government programs generally promote low-interest rate loans—even when the loans are to borrowers who are clearly subprime.[268] However, several economists maintain that Community Reinvestment Act loans outperformed other "subprime" mortgages, and GSE mortgages performed better than private label securitizations.[6][119]

However, economists at the National Bureau of Economic Research (NBER) concluded that banks undergoing CRA-related regulatory exams took additional mortgage lending risk. The authors of a study entitled "Did the Community Reinvestment Act Lead to Risky Lending?" compared "the lending behavior of banks undergoing CRA exams within a given census tract in a given month (the treatment group) to the behavior of banks operating in the same census tract-month that did not face these exams (the control group). This comparison clearly indicates that adherence to the CRA led to riskier lending by banks." They concluded: "The evidence shows that around CRA examinations, when incentives to conform to CRA standards are particularly high, banks not only increase lending rates but also appear to originate loans that are markedly riskier." Loan delinquency averaged 15% higher in the treatment group than the control group one year after mortgage origination.[269]

State and local governmental programs[edit]

As part of the 1995 National Homeownership Strategy, HUD advocated greater involvement of state and local organizations in the promotion of affordable housing.[270] In addition, it promoted the use of low or no-down payment loans and second, unsecured loans to the borrower to pay their down payments (if any) and closing costs.[271] This idea manifested itself in "silent second" loans that became extremely popular in several states such as California, and in scores of cities such as San Francisco.[272] Using federal funds and their own funds, these states and cities offered borrowers loans that would defray the cost of the down payment. The loans were called "silent" because the primary lender was not supposed to know about them. A Neighborhood Reinvestment Corporation (affiliated with HUD) publicity sheet explicitly described the desired secrecy: "[The NRC affiliates] hold the second mortgages. Instead of going to the family, the monthly voucher is paid to [the NRC affiliates]. In this way the voucher is "invisible" to the traditional lender and the family (emphasis added)[273]

Role of Fannie Mae and Freddie Mac[edit]

Fannie Mae and Freddie Mac are government sponsored enterprises (GSE) that purchase mortgages, buy and sell mortgage-backed securities (MBS), and guarantee nearly half of the mortgages in the U.S. A variety of political and competitive pressures resulted in the GSEs ramping up their purchase and guarantee of risky mortgages in 2005 and 2006, just as the housing market was peaking.[275][276] Fannie and Freddie were both under political pressure to expand purchases of higher-risk affordable housing mortgage types, and under significant competitive pressure from large investment banks and mortgage lenders.[277]

As early as February 2004, in testimony before the U.S. Senate Banking Committee, Alan Greenspan (chairman of the Federal Reserve) raised serious concerns regarding the systemic financial risk that Fannie Mae and Freddie Mac represented. He implored Congress to take actions to avert a crisis.[278] The GSEs dispute these studies and dismissed Greenspan's testimony.

Nine of the ten members of the Financial Crisis Inquiry Commission reported in 2011 that Fannie and Freddie "contributed to the crisis, but were not a primary cause",[279] or that since "credit spreads declined not just for housing, but also for other asset classes like commercial real estate ... problems with U.S. housing policy or markets [could] not by themselves explain the U.S. housing bubble."[280] According to the Commission, GSE mortgage securities essentially maintained their value throughout the crisis and did not contribute to the significant financial firm losses that were central to the financial crisis. The GSEs participated in the expansion of subprime and other risky mortgages, but they followed rather than led Wall Street and other lenders into subprime lending.[72]

Several studies by the Government Accountability Office (GAO), Harvard Joint Center for Housing Studies, the Federal Housing Finance Agency, and several academic institutions summarized by economist Mike Konczal of the Roosevelt Institute, indicate Fannie and Freddie were not to blame for the crisis.[281] A 2011 statistical comparisons of regions of the US which were subject to GSE regulations with regions that were not, done by the Federal Reserve, found that GSEs played no significant role in the subprime crisis.[282] In 2008, David Goldstein and Kevin G. Hall reported that more than 84 percent of the subprime mortgages came from private lending institutions in 2006, and the share of subprime loans insured by Fannie Mae and Freddie Mac decreased as the bubble got bigger (from a high of insuring 48 percent to insuring 24 percent of all subprime loans in 2006).[283] In 2008, another source found estimates by some analysts that Fannie's share of the subprime mortgage-backed securities market dropped from a peak of 44% in 2003 to 22% in 2005, before rising to 33% in 2007.[277]

Whether GSEs played a small role in the crisis because they were legally barred from engaging in subprime lending is disputed.[284] Economist Russell Roberts[285] cites a June 2008 Washington Post article which stated that "[f]rom 2004 to 2006, the two [GSEs] purchased $434 billion in securities backed by subprime loans, creating a market for more such lending."[286] Furthermore, a 2004 HUD report admitted that while trading securities that were backed by subprime mortgages was something that the GSEs officially disavowed, they nevertheless participated in the market.[287]

Insofar as Fannie and Freddie did purchase substandard loans, some analysts question whether government mandates for affordable housing were the motivation. In December 2011 the Securities and Exchange Commission charged the former Fannie Mae and Freddie Mac executives, accusing them of misleading investors about risks of subprime-mortgage loans and about the amount of subprime mortgage loans they held in portfolio.[288] According to one analyst, "The SEC's facts paint a picture in which it wasn't high-minded government mandates that did the GSEs wrong, but rather the monomaniacal focus of top management on marketshare. With marketshare came bonuses and with bonuses came risk-taking, understood or not."[289] However, there is evidence suggesting that governmental housing policies were a motivational factor. Daniel H. Mudd, the former CEO of Fannie Mae, stated: "We were afraid that lenders would be selling products we weren't buying and Congress would feel like we weren't fulfilling our mission." Another senior Fannie Mae executive stated: "Everybody understood that we were now buying loans that we would have previously rejected, and that the models were telling us that we were charging way too little, but our mandate was to stay relevant and to serve low-income borrowers. So that's what we did."[290]

In his lone dissent to the majority and minority opinions of the FCIC, Peter J. Wallison of the American Enterprise Institute (AEI) blamed U.S. housing policy, including the actions of Fannie and Freddie, primarily for the crisis, writing: "When the bubble began to deflate in mid-2007, the low quality and high risk loans engendered by government policies failed in unprecedented numbers. The effect of these defaults was exacerbated by the fact that few if any investors – including housing market analysts – understood at the time that Fannie Mae and Freddie Mac had been acquiring large numbers of subprime and other high risk loans in order to meet HUD's affordable housing goals." His dissent relied heavily on the research of fellow AEI member Edward Pinto, the former Chief Credit Officer of Fannie Mae. Pinto estimated that by early 2008 there were 27 million higher-risk, "non-traditional" mortgages (defined as subprime and Alt-A) outstanding valued at $4.6 trillion. Of these, Fannie & Freddie held or guaranteed 12 million mortgages valued at $1.8 trillion. Government entities held or guaranteed 19.2 million or $2.7 trillion of such mortgages total.[291]

One counter-argument to Wallison and Pinto's analysis is that the credit bubble was global and also affected the U.S. commercial real estate market, a scope beyond U.S. government housing policy pressures. The three Republican authors of the dissenting report to the FCIC majority opinion wrote in January 2011: "Credit spreads declined not just for housing, but also for other asset classes like commercial real estate. This tells us to look to the credit bubble as an essential cause of the U.S. housing bubble. It also tells us that problems with U.S. housing policy or markets do not by themselves explain the U.S. housing bubble."[292] Economist Paul Krugman wrote in January 2010 that Fannie Mae, Freddie Mac, CRA, or predatory lending were not primary causes of the bubble/bust in residential real estate because there was a bubble of similar magnitude in commercial real estate in America.[293]

Countering the analysis of Krugman and members of the FCIC, Peter Wallison argues that the crisis was caused by the bursting of a real estate bubble that was supported largely by low or no-down-payment loans, which was uniquely the case for U.S. residential housing loans. He states: "It is not true that every bubble – even a large bubble – has the potential to cause a financial crisis when it deflates." As an example, Wallison notes that other developed countries had "large bubbles during the 1997–2007 period" but "the losses associated with mortgage delinquencies and defaults when these bubbles deflated were far lower than the losses suffered in the United States when the 1997–2007 [bubble] deflated."[294]

Other analysis calls into question the validity of comparing the residential loan crisis to the commercial loan crisis. After researching the default of commercial loans during the financial crisis, Xudong An and Anthony B. Sanders reported (in December 2010): "We find limited evidence that substantial deterioration in CMBS [commercial mortgage-backed securities] loan underwriting occurred prior to the crisis."[295] Other analysts support the contention that the crisis in commercial real estate and related lending took place after the crisis in residential real estate. Business journalist Kimberly Amadeo wrote "The first signs of decline in residential real estate occurred in 2006. Three years later, commercial real estate started feeling the effects."[296] Denice A. Gierach, a real estate attorney and CPA, wrote:

...most of the commercial real estate loans were good loans destroyed by a really bad economy. In other words, the borrowers did not cause the loans to go bad, it was the economy.[297]

A second counter-argument to Wallison's dissent is that the definition of "non-traditional mortgages" used in Pinto's analysis overstated the number of risky mortgages in the system by including Alt-A, which was not necessarily high-risk. Krugman explained in July 2011 that the data provided by Pinto significantly overstated the number of subprime loans, citing the work of economist Mike Konczal: "As Konczal says, all of this stuff relies on a form of three-card monte: you talk about 'subprime and other high-risk' loans, lumping subprime with other loans that are not, it turns out, anywhere near as risky as actual subprime; then use this essentially fake aggregate to make it seem as if Fannie/Freddie were actually at the core of the problem."[298]

Other contributing factors[edit]

Policies of central banks[edit]

Federal funds rate and various mortgage rates

Central banks manage monetary policy and may target the rate of inflation. They have some authority over commercial banks and possibly other financial institutions. They are less concerned with avoiding asset price bubbles, such as the housing bubble and dot-com bubble. Central banks have generally chosen to react after such bubbles burst so as to minimize collateral damage to the economy, rather than trying to prevent or stop the bubble itself. This is because identifying an asset bubble and determining the proper monetary policy to deflate it are matters of debate among economists.[299][300]

Some market observers have been concerned that Federal Reserve actions could give rise to moral hazard.[43] A Government Accountability Office critic said that the Federal Reserve Bank of New York's rescue of Long-Term Capital Management in 1998 would encourage large financial institutions to believe that the Federal Reserve would intervene on their behalf if risky loans went sour because they were "

Источник: https://en.wikipedia.org/wiki/Subprime_mortgage_crisis

What Is APY and What It Means for Your Savings

Illustration of a question mark with text that says “annual percentage yield.” Illustrations of computer screens, gears, and ally logo.

Have you noticed banks quoting their “APYs” and wondered what that means? APY stands for annual percentage yield. Banks are required to prominently display this rate for their deposit accounts, like savings accounts and certificates of deposit (CDs). APY gives you the most accurate idea of what your money could earn in a year and an easy way to compare the returns on different deposit account offerings.

What Is APY?

APY indicates the total amount of interest you earn on a deposit account over one year, assuming you do not add or withdraw funds for the entire year. The annual percentage yield is expressed as an annualized rate. APY includes your interest rate and the frequency of compounding interest, which is the interest you earn on your principal plus the interest on your earnings. As you can see, APY includes several factors to give you a big-picture view of your earning potential on your deposit account.

Illustration with text “APY factors in: Interest rate, compounding interest” with illustrations of checkmarks, calculator and percentage sign.

Fixed vs. variable APY

APYs can be associated with variable or fixed rate deposit accounts.  With a variable rate account, the APY can change at any time. Variable rate accounts — typically savings or money market accounts (MMA) — will usually fluctuate with market rates. On the other hand, fixed rate accounts have an APY that does not change during the term of the account. For example, CD accounts usually have a fixed rate for the term of the CD.

Some banks may offer different APYs that apply to specified balance levels or balance tiers. In other words, you may earn a different APY based on how much money is in your account. For example, some banks may offer a higher APY for higher account balances.

APY vs. APR

It’s important to note that annual percentage yield (APY) is different from annual percentage rate (APR). APR tells you how much it costs to borrow money over the span of a year and applies to a variety of credit accounts, including mortgages, credit cards, home equity loans and personal loans. Learn more about the difference between APY and APR.

How to Calculate APY

You can calculate the APY on any account you’re considering a few different ways if you like to figure things out for yourself.

By Hand

If you want to go old school with paper and pencil (and maybe a calculator), just apply the basic formula for APY, which takes into account the interest rate and the number of compounding periods per year.  APY = (1 + R/N)N – 1; with ‘R’ being the nominal interest rate, and ‘N’ being the number of compounding periods per year.

Illustration with text “calculating apy: APY = (1+R/N)N-1. R = Interest Rate. N = Number of compounding periods per year” with an illustration of a calculator

Spreadsheets

You can also create a simple spreadsheet to do the calculations for you. This option gives you the ability to plug in different numbers to easily see how different variables affect the overall APY. Here’s how to calculate both APY and APR in a spreadsheet.

APY Calculator

Hands down, an APY calculator is the easiest way to calculate APY. You can also use ours to calculate your potential interest earnings.

So what does this all mean for your wallet?

APY is designed to help consumers comparison-shop for deposit accounts. Simply put, the higher the APY, the more you can earn and the faster your bank account balance may grow. The APY normalizes many factors related to the interest calculations on deposit accounts (for example, frequency of compounding) so consumers can make simple comparisons between different deposit accounts and don’t have to get caught up in the details. A compound interest calculator, like this one, can help you make comparisons based on your initial investment, monthly contributions you plan to make, the length of time you keep the account, and compound frequency.

Take a look at the difference in potential interest earned at the end of one year with a $25,000 deposit, and have a little fun imagining the different things that extra interest could buy:

Illustration of a stack of coins with text: “what could you earn on a $25,000 deposit.” Coffee much with text: 0.01% APY, $2.50. Burger with text 0.03 APY. $7.50. Airplane with text: 1.45% APY, $362.50.

If you want to see how much you can earn, check out Ally Bank’s Savings Interest Calculator.

Pay Attention to APY for the Most Accurate Picture of Your Earnings

Don’t be tempted to ignore seemingly small differences in APYs — those numbers can really add up over time. When you’re looking to bolster your bottom line, it pays to compare APYs on CDs (certificates of deposit), savings accounts and any other savings product you consider. That way you can be sure you’re getting the most accurate estimate of your potential earnings.

See your APY options from Ally Bank for CDs, savings accounts, checking and money market accounts, and Individual Retirement Accounts (IRAs). Compare rates.

 

Источник: https://www.ally.com/do-it-right/banking/how-is-annual-percentage-yield-calculated/

CD Calculator

Print

The Certificate of Deposit (CD) Calculator can help determine accumulated interest earnings on CDs over time. Included are considerations for tax and inflation for more accurate results.

Results

End Balance$5,788.13
After Inflation Adjustment$5,296.95
Total Principal$5,000.00
Total Interest$788.13

Balance Accumulation Graph


What is a Certificate of Deposit?

A certificate of deposit is an agreement to deposit money for a fixed period that will pay interest. Common term lengths range from three months to five years. The lengthier the term, the higher the exposure to interest rate risk. Generally, the larger the initial deposit, or the longer the investment period, the higher the interest rate. As a type of investment, CDs fall on the low-risk, low-return end of the spectrum. Historically, interest rates of CDs tend to be higher than rates of savings accounts and money markets, but much lower than the historical average return rate of the equity market. There are also different types of CDs with varying rates of interest or rates linked to indexes of various kinds, but the calculator can only do calculations based on fixed-rate CDs.

The gains from CDs are taxable as income in the U.S. unless they are in accounts that are tax-deferred or tax-free, such as an IRA or Roth IRA. For more information about or to do calculations involving a traditional IRA or Roth IRA, please visit the IRA Calculator or Roth IRA Calculator.

CDs are called "certificates of deposit" because before electronic transfers were invented, buyers of CDs were issued certificates in exchange for their deposits as a way for financial institutions to keep track of buyers of their CDs. Receiving actual certificates for making deposits is no longer practiced today, as transactions are done electronically.

FDIC-Backed

One of the defining characteristics of CDs in the U.S. is that they are protected by the Federal Deposit Insurance Corporation (FDIC). CDs that originate from FDIC-insured banks are insured for up to $250,000, meaning that if banks fail, up to $250,000 of each depositor's funds is guaranteed to be safe. Anyone who wishes to deposit more than the $250,000 limit and wants all of it to be FDIC-insured can simply buy CDs from other FDIC-insured banks. Due to this insurance, there are few lower-risk investments. Similarly, credit unions are covered by insurance from the National Credit Union Administration (NCUA insurance), which provides essentially the same insurance coverage on deposits as the FDIC.

Where and How to Purchase CDs

CDs are typically offered by many financial institutions (including the largest banks) as fixed-income investments. Different banks offer different interest rates on CDs, so it is important to first shop around and compare maturity periods of CDs, especially their annual percentage yields (APY). This ultimately determines how much interest is received. The process of buying CDs is straightforward; an initial deposit will be required, along with the desired term. CDs tend to have various minimum deposit requirements. Brokers can also charge fees for CDs purchased through them.

"Buying" a CD is effectively lending money to the seller of the CD. Financial institutions use the funds from sold CDs to re-lend (and profit from the difference), hold in their reserves, spend for their operations, or take care of other miscellaneous expenses. Along with the federal funds rate, all of these factors play a part in determining the interest rates that each financial institution will pay on their CDs.

History of CDs

Although they weren't called CDs then, a financial concept similar to that of a modern CD was first used by European banks in the 1600s. These banks gave a receipt to account holders for the funds they deposited, which they lent to merchants. However, to ensure that account holders did not withdraw their funds while they were lent out, the banks began to pay interest for the use of their money for a designated period of time. This sort of financial transaction is essentially how a modern CD operates.

A major turning point for CDs happened in the early twentieth century after the stock market crash of 1929, which was partly due to unregulated banks that didn't have reserve requirements. In response, the FDIC was established to regulate banks and give investors (such as CD holders) assurance that the government would protect their assets up to a limit.

Historically, rates of CD yields have varied greatly. During the high-inflation years of the late 1970s and 1980s, CDs had return rates of almost 20%. On the other hand, CD rates have dropped to as low as standard savings rates during certain years. CD rates had declined since 1984, a time when they once exceeded 10% APY. In late 2007, just before the economy spiraled downward, they were at 4%. In comparison, the average one-year CD yield is below 1% in 2021. In the U.S., the Federal Reserve, which controls federal funds rates, calibrates them accordingly based on the economic climate.

How to Use CDs

CDs are effective financial instruments when it comes to protecting savings, building short-term wealth, and ensuring returns without risk. With these key benefits in mind, it is possible to capitalize on CDs by using them to:

  • supplement diversified portfolios to reduce total risk exposure. This can come in handy as retirees get closer to their retirement date and require a more guaranteed return to ensure they have savings in retirement to live off of.
  • act as a short-term (5 years or less) place to put extra money that isn't needed or isn't required until a set future date. This can come in handy when saving for a down payment for a home or car several years in the future.
  • estimate future returns accurately because most CDs have fixed rates. The result of this is a useful investment for people who prefer predictability.

As the maturity date for a CD approaches, CD owners have options of what to do next. In most cases, if nothing is done after the maturity date, the funds will likely be reinvested into another similar CD. If not, it is possible for buyers to notify the sellers to transfer the funds into a checking or savings account, or reinvest into a different CD.

Withdrawing from a CD

Funds that are invested in CDs are meant to be tied up for the life of the certificate, and any early withdrawals are normally subject to a penalty (except liquid CDs). The severity of the penalty depends on the length of the CD and the issuing institution. As an aside, in certain rising interest rate environments, it can be financially beneficial to pay the early withdrawal penalty in order to reinvest the proceeds into new higher-yielding CDs or other investments.

CD Ladder

While longer-term CDs offer higher returns, an obvious drawback to them is that the funds are locked up for longer. A CD ladder is a common strategy employed by investors that attempts to circumvent this drawback by using multiple CDs. Instead of renewing just one CD with a specific amount, the CD is split up into multiple amounts for multiple CDs in a setup that allows them to mature at staggered intervals. For example, instead of investing all funds into a 3-year CD, the funds are used to invest in 3 different CDs at the same time with terms of 1, 2, and 3 years. As one matures, making principal and earnings available, proceeds can be optionally reinvested into a new CD or withdrawal. CD laddering can be beneficial when more flexibility is required, by giving a person access to previously invested funds at more frequent intervals, or the ability to purchase new CDs at higher rates if interest rates go up.

APY vs. APR

It is important to make the distinction between annual percentage yield (APY) and annual percentage rate (APR). Banks tend to use APR for debt-related accounts such as mortgages, credit cards, and car loans, whereas APY is often related to interest-accruing accounts such as CDs and money market investments. APY denotes the amount of interest earned with compound interest accounted for in an entire year, while APR is the annualized representation of the monthly interest rate. APY is typically the more accurate representation of effective net gains or losses, and CDs are often advertised in APY rates.

Compounding Frequency

The calculator contains options for different compounding frequencies. As a rule of thumb, the more frequently compounding occurs, the greater the return. To understand the differences between compounding frequencies or to do calculations involving them, please use our Compound Interest Calculator.

Types of CDs

  • Traditional CD—Investors receive fixed interest rates over a specified period of time. Money can only be withdrawn without penalty after maturity, and there are also options to roll earnings over for more terms. Traditional CDs that require initial deposits of $100,000 or more are often referred to as "jumbo" CDs, and usually have higher interest rates.
  • Bump-Up CD—Investors are allowed to "bump up" preexisting interest rates on CDs to match higher current market rates. Bump-up CDs offer the best returns for investors who hold them while interest rates increase. Compared to traditional CDs, these generally receive lower rates.
  • Liquid CD—Investors can withdraw from liquid CDs without penalties, but they require maintaining a minimum balance. Interest rates are relatively lower than other types of CDs, but for the most part, still higher than savings accounts or money market investments.
  • Zero-Coupon CD—Similar to zero-coupon bonds, these CDs contain no interest payments. Rather, they are reinvested in order to earn more interest. Zero-coupon CDs are bought at fractions of their par values (face value, or amount received at maturity), and generally have longer terms compared to traditional CDs, which can expose investors to considerable risk.
  • Callable CD—Issuers that sell callable CDs can possibly recall them from their investors after call-protection periods expire and before they mature, resulting in the return of the initial deposit and any subsequent interest earnings. To make up for this, sellers offer higher rates for these CDs than other types.
  • Brokered CD—These are different in that they are sold in brokerage accounts and not through financial institutions such as banks or credit unions. An advantage to brokered CDs is that there is exposure to a wide variety of CDs instead of just the CDs offered by individual banks.

Alternatives to CDs

  • Paying off Debt—Especially for high-interest debt, paying off existing debt is a great alternative to CDs because it is essentially a guaranteed rate of return, compared to any further investment. Comparatively, even the interest rate of a low rate loan, such as a home mortgage, is normally higher than CDs, making it financially rewarding to pay off a loan than to collect interest from CD.
  • Money Market Accounts—Investors who like the security of a CD and are okay with slightly lower returns can consider money market accounts, which are certain types of FDIC-insured savings accounts that have restrictions such as limits on how funds can be withdrawn. They are generally offered by banks.
  • Bonds—Similar to CDs, bonds are relatively low-risk financial instruments. Bonds are sold by the government (municipal, state, or federal) or corporate entities.
  • Peer-to-Peer Lending—Peer-to-peer (P2P) lending is a fairly new form of lending that arose from advances in internet technology that enables lenders and borrowers to link up on an online platform. Peer borrowers request loans through the platform, and lenders can fund the loans they find desirable. Each P2P lending service will come with rules in order to regulate cases of default.
  • Bundled Mortgages—Commonly available through mutual funds, bundled mortgages are securities that are traded in a similar manner as bonds but generally yield more than Treasury securities. Although they received a lot of negative publicity for the role they played in the 2008 financial crisis, mortgage securities have bounced back through more stringent regulations. Bundled mortgages are backed by the Government National Mortgage Association (Ginnie Mae).

Listed above are just some of the low-risk alternatives to CDs. There are much more investment options for those that can tolerate higher risk.

Источник: https://www.calculator.net/cd-calculator.html

Suntrust bank account 19100001911416491



suntrust bank account 19100001911416491 SunTrust offers customers a number of other savings options in addition to CDs. Apr 05, 2017 · SunTrust Bank regularly comes out with checking account promotions, and the latest offering, "Live for a Sunny Day," rewards new SunTrust Bank customers with a $150 bonus, when opening a new Everyday Checking account now through July 17, 2015. SunTrust offers three savings account options, plus certificates of deposit if you’re saving for the long Nov 23, 2021 · SunTrust’s Advantage Money Market Savings account offers tiered interest rates; however, you can find higher payouts elsewhere. Earn 1% in cash rewards on all qualifying purchases. The fastest way to do it is online. Travel Booking. Although SunTrust recently merged with BB&T to shape Trust, it nonetheless operates as an unbiased financial institution, with branches in eleven Southeast states. The hold may be based upon how long your account has been open, amount of the deposit, type of item(s) deposited, how your deposit is made and how you manage your account. Closed accounts. enterprisespendplatform. DESIGNED TO HELP STUDENTS BUILD A STRONG FINANCIAL FOUNDATION WITHOUT WORRYING ABOUT FEES. May-04-2021 09:08 AM. com. Avoid a $3 Following those easy steps to login into your SunTrust Bank online account: Step1: Open the Official Website of the SunTrust Bank on your internet browser. 3232 for assistance recovering your User ID. — SunTrust (@SunTrust) September 16, 2018 Our teams are actively working to restore digital access. Free access to your FICO Score, updated monthly. You will also need to contact the bank to find out the specific rates. NOTE: A Company System Administrator is a user who is authorized to administer preferences and entitlements for your company's accounts and employees. For questions specific to activity on your account, contact your Truist Advisor. The bank offers checking accounts, savings accounts, certificates of deposit, credit cards Jul 31, 2020 · Citibank has a savings account with a 1. com Nov 11, 2021 · SunTrust Bank, now Truist, is insured by Truist Bank and is a member of the FDIC (FDIC# 9846). (8 days ago) SunTrust Bank is offering new clients a chance to earn up to $200 when they open a new checking and savings account with them. Apr 22, 2021 · SunTrust Bank Promo Code. While Bank of America is one of the largest banks in the U. The headquarter was located at 303 Peachtreet Street, Northeast, Atlanta, GA 30308. Step 1 – In the homepage, click the Sign Up Now link in the Sign On section. Hours: Monday - Friday 8:00 AM - 8:00 PM ET, Saturday 8:00 AM - 5:00 PM ET. Although SunTrust recently merged with BB&T to form Truist, it still operates as an independent bank, with branches in 11 Southeast states. The bank operates as a subsidiary of Suntrust Banks, Inc. Since this merger I cannot connect my bank accounts to the quickbooks app. This chart shows a view of problem reports submitted in the past 24 hours compared to the typical volume of reports by time of day. Check out this SunTrust $1,000 Combo Bonus to apply online or download your coupon to open in-branch. The best way to close a Suntrust account on behalf of a deceased person is to go visit a branch in person. Bank Name: SunTrust Bank. Availability: AL, AR, GA, FL, MD, MS, NC, SC, TN, VA, DC. This savings account allows you to earn a 1% annual bonus (up to $25) when linked with a Select Checking or Signature Advantage Checking account. 1i 1ii 32862-2227 01/3u p i t febit ach return from acct -sett-a. Chase Coupon Promo Codes $100, $200, $225, $300, $350, $500, $725, $1000, $2000 … Top www. Swift codes also known as BIC Codes is a unique bank identifier used to verify financial transactions such as a Bank Wire Transfer . Step2: On the Homepage of the Website click on the “Sign On” button, at the right-top corner of the website. SunTrust Bank was founded in September 1891 and is based in Atlanta, Georgia. Enhanced Security. Individuals opening an account online must use the promo code CHKSAVQ221 to qualify for this bonus. 38 agh settle -sett-o. S. Select Savings. 786. ‎The SunTrust Business Online mobile app will make doing business more efficient with quick access to your financial information anytime and on the go. Services are offered by the following affiliates of Truist Financial Corporation: Banking products and services, including loans and deposit accounts, are provided by SunTrust Bank and Branch Banking and Trust Company, both now Truist Bank, Member FDIC. Note that the APY of a savings account is the amount of inter Nov 02, 2021 · 10/22/14 - SunTrust Bank's Fall14Checking Promo Offers A $100 Or $200 Reward 10/17/14 - $300 Checking Account Promotion at Some SunTrust Instore Branches 10/13/14 - Earn $125 with SunTrust Bank's Everyday Checking and e-Savings Combo 8/6/14 - Open SunTrust Bank Everyday Checking Account and Earn $125 5/15/14 - SunTrust Bank Checking $100 Bonus Jul 31, 2018 · SunTrust Bank offers a great rate for their Promotional CDs of 12-month or longer. The new universal ACH Routing Transit number of Suntrust Bank is 061000104. com customers look up: Nov 13, 2021 · The SunTrust Bank Advantage money market savings account comes with a $17 monthly fee, which is waived if you have a balance of $10,000 or more or with a $100 monthly transfer or electronic deposit. The SunTrust Mobile App is optimized for your Android device and is specifically designed to provide quick and secure access to your personal accounts. sunt Why is my SunTrust account on hold? If a check is deposited, we may place a hold on the funds which will delay the availability of the funds. The completed and signed Wire Transfer form can be provided to any of SunTrust Bank Branch. You can make payments, transfers, mobile deposits, view account bal… Oct 01, 2021 · SunTrust Bank is a brick-and-mortar bank with locations in 11 states and Washington D. You can also reach to your bank about this update via the online banking website and see bank notifications. m. New Community Member. charge 67590 aile ii -- lien statements 67592 302. Compare SunTrust Bank promotions with offers from institutions like Chase, *Check back at this page for updated SunTrust Bank promotions, bonuses, and offers. Suntrust Bank Routing Number along with account number is required to set up a direct deposit, receive funds through wire transfers or to complete an automated money transfer. citymb. Save on fees while you study • 1 • your parents’ SunTrust account • 10-pack of SunTrust custom checks or 50% off any check style available. Dec 07, 2019 · SunTrust Bank is not active anymore since 2019-12-07. Terms go up to 58 months. As of March 31, 2019, SunTrust had total assets of $214 billion, making it the nation's No. Lost, incorrect, or held deposits. ABA Routing Number: 061000104. com SunTrust®, Truist and the SunTrust logo are service marks of Truist Financial Corporation. For some reason it takes extremely long to access and transfer from the paypal business to suntrust business not sure why this is but this issue needs to be solved. Official suntrust website: www. Requirements. 75 67564 pu39 casi v qlt deposit cash i aolt deposit Jul 16, 2021 · SunTrust Bank $300 Checking Savings Bonus. Phone Number: +18007868787. Complete all fields on this form as per Wire Transfer Instructions. Reward Yourself. [Update February 2021: SunTrust Bank’s fixed and variable rate deposit accounts including CDs, savings and money market accounts, have not seen a rate change yet this year. ] SunTrust Bank , now Truist, is a hybrid brick-and-mortar and online bank. If you are the CSA for your company, please contact SunTrust at 800. Get a Cash Deposit Bonus of 10%, 25% or more based on Feb 02, 2018 · SunTrust Bank Reviews — Checking, Savings, CD, Money Market, and IRA Accounts. Suntrust bank has a universal routing number for its checking account. It's almost a year later from the original post and here we are today with the same issue. com Truist Wealth is a marketing name used by Truist Financial Corporation. SunTrust Bank Promotions: $200, $300, $500 Checking. SunTrust Bank Promotions: $200, $300, $500 Checking . Here is a list of the 50 most common banks that routingtool. The interest rate on a savings account or checking account can change based, in part, on what the Federal Reserve does. You can reference this pdf link for more information about the change SunTrust Bank has 1,400 branches in the Southeast region. 1 percent APY with zero minimum balance. The minimum to open is $2,000. 1% unlimited cash back on all other qualifying purchases. get and sign suntrust bank statement form . SunTrust Business Online Business Online - SunTrust SunTrust Online Banking This video walks you through the step by step process on how to register to suntrust bank online banking account in 2021. For assistance with your new SunTrust account, give us a call, 800. May 14, 2021 · People1st. Swift Code: SNTRUS3A. Open any new personal checking account and complete at least two qualifying direct Apr 04, 2018 · Opening a SunTrust Bank money market account is the same process as any checking or savings account. Step3: Now, enter your User ID, password and then click on the “>” button. C. EST Feb 22, 2021 · SunTrust Bank merged with Branch Banking and Trust Company, a North Carolina banking corporation ("BB&T") and the combined bank is now known as Truist Bank ("Truist"). Eligible accounts are SunTrust Jun 16, 2021 · Step 4a: Visit a Suntrust bank with your required documentation. Thank you for the prompt reply, @Erin1234. 64 2 034. Once you provide all necessary details including those of enterprisespendplatform. 8787). Oct 18, 2021 · SunTrust Bank provides customers with checking and savings accounts, loans, wealth and retirement planning and other products and services. suntrust. To verify a check from SUNTRUST BANK/ SKYLIGHT call: 800-221-9792. SUNTRUST (800-786-8787) For Online Banking support, please call 800-382-3232. If applying in person, be sure to enroll in the promotion when opening Apr 21, 2021 · SunTrust bank is offering new customers up to $500 in bonus cash when they open both an eligible checking account and any SunTrust savings or money market account. For more information about SunTrust Bank, visit SunTrust. 1. 5% cash back on up to $6,000 spent on gas and grocery qualifying purchases in the first 12 months. If you have a checking account with the bank and you have not enrolled for the online banking service, follow the guide below to register. You can make payments, transfers, and mobile deposits, view account balances and account activity, send money via Zelle®, as well as search for ATM / branch locations. Have a copy of the check you want to verify handy, so you can type in the routing numbers on your telephone keypad. CODES (8 days ago) You may want to check out our full list of Bank Rates and CD Rates. I'll take care of your query about online banking in QuickBooks Self-Employed (QBSE). . Top www. Their branch locations are limited to a handful of Southeastern states, but their personal Jul 31, 2020 · Citibank has a savings account with a 1. SAMPLE COMPANY Address City, State ZIP Phone SUNTRUST BANK 7455 CHANCELLOR DRIVE ORLANDO, FL 32809 65-270/550 0000 11/24/2021 C0000C A055002707A 0000000000C All banks are covered, not just some. Avoid a $3 To receive an international wire transfer payment in your Suntrust Bank account, please provide the following information to the sender -. 12 bank. SunTrust Cash Rewards Credit Card. It is specifically engineered to provide easy and secure access to your accounts. There are 1 active routing numbers for SUNTRUST BANK. 2% unlimited cash back on qualifying gas and grocery purchases, after the promotional period ends. Its CDs are FDIC insured up to $250,000 per depositor, for each account ownership category, in the For heritage SunTrust users, contact Wealth Client Care at (877) 422-3993. Mar 16, 2020 · SunTrust $1,000 Checking and Savings Bonus. Jul 30, 2021 · SunTrust Bank is offering a $500 bonus to individuals who open an Essential Checking account and either an Essential Savings or an Advantage Money Market account. It is easy to verify a check from SUNTRUST BANK/ SKYLIGHT or validate a check from SUNTRUST BANK/ SKYLIGHT when you know the number to call. SUNTRUST BANK routing numbers list. Enjoy these great benefits. To prevent unauthorized access to your account information, be sure to sign off and then close your browser once Apr 21, 2021 · SunTrust bank is offering new customers up to $500 in bonus cash when they open both an eligible checking account and any SunTrust savings or money market account. May 17, 2021 · SunTrust Bank presents clients with checking and financial savings accounts, loans, wealth, retirement-making plans, and different merchandise and offerings. You can schedule an appointment on their website in order to make your trip more efficient. Open a new Everyday Checking account online or in a SunTrust branch. 382. This offer is valid through July 30, 2021. suntrust bank account 19100001911416491


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Set 2. The Reason: Payments data are not stored locally. 5 percent, while its American Express credit cards with cash back, travel rewards, 0% APRs, $0 fees and more. No support, no transparency. It has a 1. They put the employees first and really make sure everyone is taken care of regardless of the circumstances. After the first 30 days of service, the company will begin to charge a recurring monthly fee of $16. Difficulty Level : Easy. 77 ms. All Argentina Australia / New Zealand Canada France Germany Global Greater China (Mainland China, Taiwan and Hong Kong) India Italy Japan Mexico Southeast Asia Spain UK U. By Rebecca Lake. com or live chat for more information. Update at 1:35 CST purchasing is no longer an option. Cannot get hold of staff to assist at. NMLS ID# 913828. These are designed to test your logical reasoning as well analytical and problem-solving skills. I am NOT one to ever write a bad review for anything, however I am at the end of my rope. 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The Serve Cash Back has most of the same features as the Serve, but it also offers 1% cash back on all purchases, a rarity among prepaid cards. mGD5 Aug 17, 2021 · August 17, 2021. Oct 12, 2020 · In fact, over 65% of reviewers give American Express a bad rating — not great for a company that has the reputation of marketing to an affluent population. And you can create sub-accounts for your partner, kids, babysitter, or anyone you’d like. " Accessed June 22, 2021. The $100 Global Entry or $85 TSA Pre-Check credit and the yearly CLEAR credit. These enterprises employ more than 2. mGD5 Jul 01, 2021 · [Source: American Express] It takes 12 positive experiences to counteract just 1 negative experience with a company. I am pleased with the ease of use and minimal service fees. 469 billion, or about 17%; for 2020 its Oct 20, 2021 · Considering the fact that American Express has an annual purchase volume in the hundreds of billions of dollars, anyone can't help but wonder why more businesses don't accept American Express. We American Express Serve Stimulus Check Direct Deposit Proof. May 2021. another former American Express CEO, correctly argued that “at the end of the day, corporations and the idea of capitalism will be in lower repute American Express National Bank is based in New York, NY and was founded in 1850. 1 million people and generate $361 billion in revenue. American Express Personal Savings might also not be a great choice for you if you prefer mobile banking. Aug 27, 2021 · We are helping GetHuman-sexbox solve their American Express Serve Technical support issue issue from Aug 27, 2021. Paxful is another major crypto exchange platform that allows users to make payments with American Express. I have been using American Express Serve Debit card for over 10 years. We have tried pinging Serve from American Express website using our server and the website returned the above results. Oct 21, 2021 · We are helping GetHuman6728685 solve their American Express Serve Technical support issue issue from Oct 21, 2021. Oct 30, 2021 · American Express really cares about their own. (4 out AmEx Serve Card - everything is down! App, website, 1800-954-0559. You can monitor your credit by yourself or by using a credit monitoring service, such as American Express CreditSecure. July 2021. Oct 20, 2021 · Considering the fact that American Express has an annual purchase volume in the hundreds of billions of dollars, anyone can't help but wonder why more businesses don't accept American Express. Browse American Express US Customer Service Topics in our Online Help Center to learn how to create your account, confirm your card, dispute a charge and more. I have an issue with American Express Serve too. Total profit was $4. 55%. Powers’ tale begins one evening in late January. American Express has invested over 160 years in building one of the world’s most admired brands. mGD5 Mar 01, 2021 · American Express is adding cell phone protection as a benefit on some premium cards as of April 1. Our business is sustained by innovation, and engaging with and supporting our unique differences helps to drive creative and complex problem solving. To access this chat, log on to your American Express account and click the blue Chat box in the bottom right corner. While the Amex Gold Card remains the number one travel offer, the Delta Platinum is the perfect runner up and potentially a better choice for Delta fans. Paxful. Updated: Sep 21, 2021. Frequent customer complaints about their banking services include: Dissatisfied with products or service quality. 99 for each Money Transfer of $50. September 2021. Sep 24, 2021 · Original review: July 29, 2021. 99 for each Money Transfer of $1,000. mGD5 Apr 19, 2021 · American Express Serve cards reviews and complaints. Jul 09, 2020 · A credit card skimmer drained her American Express Bluebird account. The expectations are fair, the training is adequate, and the compensations are generous. The $200 yearly UBER credits ($15 per month and an additional $20 in December). This loading message is constantly appearing on Amex website when trying to logon to my account. american express serve problems 2021

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What Is APY and What It Means for Your Savings

Illustration of a question mark with text that says “annual percentage yield.” Illustrations of computer screens, gears, and ally logo.

Have you noticed banks quoting their “APYs” and wondered what that means? APY stands for annual percentage yield. Banks are required to prominently display this rate for their deposit accounts, like savings accounts and certificates of deposit (CDs). APY gives you the most accurate idea of what your money could earn in a year and an easy way to compare the returns on different deposit account offerings.

What Is APY?

APY indicates the total amount of interest you earn on a deposit account over one year, assuming you do not add or withdraw funds for the entire year. The annual percentage yield is expressed as an annualized rate. APY includes your interest rate and the frequency of compounding interest, which is the interest you earn on your principal plus the interest on your earnings. As you can see, APY includes several factors to give you a big-picture view of your earning potential on your deposit account.

Illustration with text “APY factors in: Interest rate, compounding interest” with illustrations of checkmarks, calculator and percentage sign.

Fixed vs. variable APY

APYs can be associated with variable or fixed rate deposit accounts.  With a variable rate account, the APY can change at any time. Variable rate accounts — typically savings or money market accounts (MMA) — will usually fluctuate whole foods baton rouge la market rates. On the other hand, fixed rate accounts have an APY that does not change during the term of the account. For example, CD accounts usually have a fixed rate for the term of the CD.

Some banks may offer different APYs that apply to specified balance levels or balance tiers. In other words, you may earn a different APY based on how much money is in your account. For example, some banks may offer a higher APY for higher account balances.

APY vs. APR

It’s important to note that annual percentage yield (APY) is different from annual percentage rate (APR). APR tells you how much it costs to borrow money over the span of a year and applies to a variety of credit accounts, including mortgages, credit cards, home equity loans and personal loans. Learn more about the difference between APY and APR.

How to Calculate APY

You can calculate the APY on any account you’re considering a few different ways if you like to figure things out for yourself.

By Hand

If you want to go old school with paper and pencil (and maybe a calculator), just apply the basic formula for APY, which takes into account the interest rate and the number of compounding periods per year.  APY = (1 + R/N)N – 1; with ‘R’ being the nominal interest rate, and ‘N’ being the number of compounding periods per year.

Illustration with text “calculating apy: APY = (1+R/N)N-1. R = Interest Rate. N = Number of compounding periods per year” with an illustration of a calculator

Spreadsheets

You can also create a simple spreadsheet to do the calculations for you. This option gives you the ability to plug in different numbers to easily see how different variables affect the overall APY. Here’s how to calculate both APY and APR in a spreadsheet.

APY Calculator

Hands down, an APY calculator is the easiest way to calculate APY. You can also use ours to calculate your potential interest earnings.

So what does this all mean for your wallet?

APY is designed to help consumers comparison-shop for deposit accounts. Simply put, the higher the APY, the more you can earn and the faster your bank account balance may grow. The APY normalizes many factors related to the interest calculations on deposit accounts (for example, frequency of compounding) so consumers can make simple comparisons between different deposit accounts and don’t have to get caught up in the details. A compound interest calculator, like this one, can help you make comparisons based on your initial investment, monthly contributions you plan to make, the length of time you keep the account, and compound frequency.

Take a look at the difference in potential interest earned at the end of one year with bank of america cd rates october 2018 $25,000 deposit, and have a little fun imagining the different things that extra interest could buy:

Illustration of a stack of coins with text: “what could you earn on a $25,000 deposit.” Coffee <a href=citizens one card services login with text: 0.01% APY, $2.50. Burger with text 0.03 APY. $7.50. Airplane with text: 1.45% APY, $362.50. " width="1668" height="924">

If you want to see how much you can earn, check out Ally Bank’s Savings Interest Calculator.

Pay Attention to APY for the Most Accurate Picture of Your Earnings

Don’t be tempted to ignore seemingly small differences in APYs — those numbers can really add up over time. When you’re looking to bolster your bottom line, it pays to compare APYs on CDs (certificates of deposit), savings accounts and any other savings product you consider. That way you can be sure you’re getting the most accurate estimate of your potential earnings.

See your APY options from Ally Bank for CDs, savings accounts, checking and money market accounts, and Individual Retirement Accounts (IRAs). Compare rates.

 

Источник: https://www.ally.com/do-it-right/banking/how-is-annual-percentage-yield-calculated/
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Updated March 5, 2018

If you are looking for a better yield on your savings, a high rate CD (certificate of deposit) offered by an online bank could be a good option. Internet-only banks offer much better interest rates than traditional banks. For example, a 12-month CD at Bank of America would require a $10,000 minimum deposit and would pay only 0.07%. At an online bank, you could earn 1.85% with only a $2,000 minimum deposit. (If you would rather get a savings account or money market with no time restriction, look at the best savings accounts or best money market accounts).

The Best CD Rates in March 2018

This list is updated monthly, and competition continues to intensify.  Here are the accounts with some of the best CD rates:

Term

Institution

APY

Minimum Deposit Amount

12 months

Goldman Sachs Bank USA

2.05%

$500

2 years

VirtualBank

2.36%

$10,000

3 years

Northern Bank Direct

2.55%

$500

5 years

DollarSavingsDirect

2.80%

$1,000

See a full list of the best CD rates below.

  • 12-Month CD: Goldman Sachs Bank USA – 2.05% APY, $500 minimum deposit

Our advertiser Marcus by Goldman Sachs is the online consumer bank of Goldman Sachs Bank USA (the large investment bank). Your funds are FDIC insured, and Goldman offers very competitive rates. Even better: there is only a $500 minimum deposit. So, if you don’t have enough money to meet the minimum deposit of the other banks on this list, or you are looking for another bank for your savings, GS is a good option. It also doesn’t hurt that they also offer some of the best CD rates in the market today.  You can currently earn an outstanding 2.05% APY by only committing to a 12-month term. Here are their other rates:

  • 2-year: 2.15% APY
  • 3-year: 2.25% APY
  • 5-year: 2.60% APY
  • 6-year: 2.65% APY

LEARN MORE Secured

on Goldman Sachs Bank USA’s secure website

Member FDIC

  • 1 year – 5 years: Barclays Bank – 2.05% – 2.65% APY, no minimum deposit

Barclays is one of the oldest banks in the world. Although they’re based in London, they do have a U.S. presence and offer competitive rates on their CDs and savings account. Currently, they’re offering some of the highest CD rates in the market, and they have an edge over the rest of the institutions on this list: they don’t require a minimum balance to earn the APY or open an account. Deposit as little or as much as you’d like into a term of your choice and you can start earning interest as long as the account is funded within 14 days of opening the CD. Additionally, your funds are insured through the FDIC.

  • 1-year: 2.05% APY
  • 2-year: 2.20% APY
  • 3-year: 2.30% APY
  • 5-year: 2.65% APY

LEARN MORE

Member FDIC

  • 3 months – 5 years: Ally Bank – 1.00% APY – 2.50% APY; $0 minimum deposit (higher APY with higher deposit)

Ally is one of the largest internet-only banks in the country. Ally’s former advertising campaign made it very clear: no branches = higher rates. And Ally has consistently paid some of the highest rates in the country across savings accounts, money market accounts and CDs. For savers with fewer funds, Ally is unique. There is no minimum deposit to open a CD. However, if you have more money, you can earn a higher APY. If you have more than $25,000 to deposit, you can earn between 0.39% APY and 2.35% APY. And one of our favorite features of Ally: they often (although not always) offer preferential rates on renewal. Far too often banks give the biggest bonuses to new customers, but Ally has done a good job of rewarding its existing customers. All deposits at Ally are FDIC insured up to the legal limit.

  • 12-months: 1.75% APY (less than $5k); 1.85% APY ($5k minimum deposit) and 2.00% APY ($25k minimum deposit)
  • 18-months: 1.80% APY (less than $5k); 1.95% APY ($5k minimum deposit) and 2.05% APY ($25k minimum deposit)
  • 3-year: 1.85% APY (less than $5k); 2.00% APY ($5k minimum deposit) and 2.10% APY ($25k minimum deposit)
  • 5-year: 2.25% APY (less than $5k); 2.40% APY ($5k minimum deposit) and 2.50% APY ($25k minimum deposit)

LEARN MORE Secured

on Ally Bank’s secure website

Member FDIC

  • 6 months – 5 years: Capital One – 0.60% APY – 2.65% APY; no minimum deposit

Capital One is famous for its credit card business. It is now getting aggressive with CD rates. There is no minimum deposit, which make these CDs comparable to Barclays’ CDs. Capital One CDs are FDIC insured, up to the federal maximum. And you get the comfort of depositing your money with a very large, publicly traded bank.

  • 12-months: 2.00% APY
  • 18-months: 2.05% APY
  • 2-year: 2.20% APY
  • 3-year: 2.30% APY
  • 5-year: 2.65% APY

LEARN MORE

Member FDIC

  • 3 months – 5 years: Synchrony Bank – 0.25% APY – 2.50% APY; $2,000 minimum deposit

Synchrony used to be a part of GE, and now has an online bank that pays competitive rates. The online deposits are used to fund their store credit card portfolio – and the company is publicly traded. Your deposit will be insured up to the FDIC limit. In a rising rate environment, this is a great way to get a high interest rate without locking yourself into a long term.

  • 12-months: 1.95% APY
  • 18-months: 1.95% APY
  • 2-year: 2.10% APY
  • 3-year: 2.05% APY
  • 5-year: 2.50% APY

LEARN MORE Secured

on Synchrony Bank’s secure website

Member FDIC

  • 1-Year CD: Live Oak Bank – 2.10% APY, $2,500 minimum deposit

Live Oak is a bank you’ll want to notice. With a minimum deposit amount of $2,500, you can earn an outstanding APY of 2.10%. They also offer an incredible rate on their online savings account. While they’re still a small bank when compared to Synchrony, Goldman Sachs, and Ally, they have quickly grown to have over $2 billion in assets. They do have a mobile banking app as well as the option to bank online. Although they have the capability to manage your account digitally, you will have to call one of their Customer Success Managers in order to withdraw your funds once the account matures.

LEARN MORE

Member FDIC

  • 2-Year CD: VirtualBank – 2.36% APY, $10,000 minimum deposit

VirtualBank, an online division of IBERIABANK, “has its eye on the future” by providing customers a great banking experience. By rewarding their customers with a 2.36% APY on their 2-year CDs, they’re doing just that. You’ll need to deposit $10,000 in order to earn the APY. In addition to their online banking platform, VirtualBank also offers a Mobile Banking app for free.

LEARN MORE

  • 2-Year CD from a Credit Union: Latino Credit Union – 2.30% APY, $500 minimum deposit

Latino Credit Union is open to anyone who is willing to donate $10 to join the Latino Community Development Center (LCDC). You don’t have to be Latino to join the credit union or the organization. With a small deposit of $500, this credit union will reward you with a 2.30% APY. Accounts can be managed online or through their mobile app. Deposits made to Latino Credit Union are insured by the NCUA.

LEARN MORE

  • 3-Year CD: Northern Bank Direct – 2.55% APY, $500 minimum deposit

Northern Bank Direct is currently offering a top rate of 2.55% on their 3-year CD. You’ll only need to deposit $500 to open the account. You’ll want to make sure that you’re able to commit to keeping your money in the account for the full 36 months because the penalty for withdrawing funds early is the equivalent of 24 months of interest. Opening the account can easily be done online and managed on their Mobile Banking app or wells fargo custom credit card CD from a Credit Union: Latino Credit Union, 2.40% APY, $500 minimum deposit

Latino Credit Union surprises us with their outstanding rate of 2.40% on a 3-year CD. As a bonus, the minimum amount to open the account is five times lower than Live Oak Bank’s deposit requirement. The credit union is open to anyone, Latino or not, for a small fee and deposits are NCUA insured.

LEARN MORE

  • 5-Year CD: Dollar Savings Direct – 2.80% APY, $1,000 minimum deposit

Dollar Savings Direct, an online division of Emigrant Bank, has been surprising us with their competitive rates not only with their CDs, but also with their online savings account. They’re currently offering the most competitive rate on a 5-year CD provided by an online bank. All you need is $1,000 to deposit and a little patience navigating their website. They don’t have the greatest online experience and they lack a mobile app. However, they do have a great rate and we would be remiss if we didn’t include them on this list.

  • 5-Year CD from a Credit Union: Connexus Credit Union – 3.00% APY, $5,000 td canada easyweb deposit

If you’re able to deposit $5,000 into a CD, you’ll want to consider this 5-year CD with an incredible 3.00% APY. Anyone is able to join the credit union by making a donation of $5 to their organization called Connexus Association. This organization provides scholarships and assists educational institutions. They have a mobile banking app as well as an online banking platform.

LEARN MORE

3 Questions To Ask Before You Open A CD

1. Should I just open an online savings account instead? 

With a CD, the saver and the bank make stronger commitments. The saver promises to keep the funds in the account for a specified period of time. In exchange, the bank guarantees community financial credit union plymouth mi 48170 interest rate during the term of the CD. The longer the term, the higher the interest rate – and the higher the penalty for closing the CD early. With a savings account, there are few promises. You can empty the account without paying a penalty and the bank can change the interest rate at any time.

If you have a high level of confidence that you do not need to touch the money for a specified period of time, a CD is a much better central bank and trust lander login. However, if you think you might need to use the money in the next couple of months, a savings account is a much better idea.

You can earn a lot more interest with a CD. Imagine you have $10,000 and know that you do not need to touch the money for two years. In a high-yield savings account earning 1.10%, you would earn $221 over two years. If you put that money into a 1.50% CD, you would earn $302. Given the ease of switching to an online CD, the extra interest income is easy money.

2. What term should I select? 

The early withdrawal penalties on CDs can be significant. On a 1-year CD, 90 days is a typical penalty. And on 2 and 3 year CDs, a 6-month penalty is common. The impact of the penalty on your return can be significant. If you opened a one-year CD with a 1.25% APY and closed it after six months, you would forfeit half of the interest and earned only 0.63%. You would have been better off with a savings account paying 1.05%.

The worst case scenario is with the longest CDs. 5-year CDs usually have a one-year penalty for taking out funds early. If you open a 5-year CD and close it quickly, you could actually end up losing money.

Given the early penalties, you need complete confidence that you will not need to withdrawal the money early. Ask yourself this question: “do I have 90% confidence that I will not need access to the cash during the CD term?” If you don’t have confidence, go for a shorter term or a savings account.

3. Should I consider my local bank or credit union? 

The interest rates shown in this article are all from online banks that offer products nationally. Our product database includes traditional banks, community banks and credit unions. If traditional banks offered better rates, they would have been featured in this article. The internet-only banks have dramatically better interest rates. That should not be surprising. Because internet-only banks do not have branches, they are able to pass along their cost savings to you in the form of higher interest rates.

However, you can always visit your local bank or credit union and ask them to beat the rates listed in this article. The chance of getting a better deal is extremely low (remember that Bank of America is only paying 0.07%), but you can try.

How To Find The Best Account

If you don’t find an account that meets your needs in this article, you can use the MagnifyMoney CD tool to find the best rate for your individual needs. Input your zip code, deposit amount and term. The tool will then provide you with CD options, from the highest APY to the lowest.

You can learn more about us and how we make money here.

The post The Best CD Rates – March 2018 appeared first on MagnifyMoney.

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CD Calculator

Print

The Certificate of Deposit (CD) Calculator bank of america cd rates october 2018 help determine accumulated interest earnings on CDs over time. Included are considerations for tax and inflation for more accurate results.

Results

End Balance$5,788.13
After Inflation Adjustment$5,296.95
Total Principal$5,000.00
Total Interest$788.13

Balance Accumulation Graph


What is a Certificate of Deposit?

A certificate of deposit is an agreement to deposit money for a fixed period that will pay interest. Common term lengths range from three months to five years. The lengthier the term, the higher the exposure to interest rate risk. Generally, the larger the initial deposit, or the longer the investment period, the higher the interest rate. As a type of investment, CDs fall on the low-risk, low-return end of the spectrum. Historically, interest state street bank summer internship 2020 of CDs tend to be higher than rates of savings accounts and money markets, but much lower than the historical average return rate of the equity market. There are also different types of CDs with varying rates of interest or rates linked to indexes of various kinds, but the calculator can only do calculations based on fixed-rate CDs.

The gains from CDs are taxable as income in the U.S. unless they are in accounts that are tax-deferred or tax-free, such as an IRA or Roth IRA. For more information about or to do calculations involving a traditional IRA or Roth IRA, please visit the IRA Calculator or Roth IRA Calculator.

CDs are called "certificates of deposit" because before electronic transfers were invented, buyers of CDs were issued certificates in exchange for their deposits as a way for financial institutions to keep track of buyers of their CDs. Receiving actual certificates for making deposits is no longer practiced today, as transactions are done electronically.

FDIC-Backed

One of the defining characteristics of CDs in the U.S. is that they are protected by the Federal Deposit Insurance Corporation (FDIC). CDs that originate from FDIC-insured banks are insured for up to $250,000, meaning that if banks fail, up to $250,000 of each depositor's funds is guaranteed to be safe. Anyone who wishes to deposit more than the $250,000 limit and wants all of it to be FDIC-insured can simply buy CDs from other FDIC-insured banks. Due to this insurance, there are few lower-risk investments. Similarly, credit unions are covered by insurance from the National Credit Union Administration (NCUA insurance), which provides essentially the same insurance coverage on deposits as the FDIC.

Where and How to Purchase CDs

CDs are typically offered by many financial institutions (including the largest banks) as fixed-income investments. Different banks offer different interest rates on CDs, so it is important to first shop around and compare maturity periods of CDs, especially their annual percentage yields (APY). This ultimately determines how much interest is received. The process of buying CDs is straightforward; an initial deposit will be required, along with the desired term. CDs tend to have various minimum deposit requirements. Brokers can also charge fees for CDs purchased through them.

"Buying" a CD is effectively lending money to the seller of the CD. Financial institutions use the funds from sold CDs to re-lend (and profit from the difference), hold in their reserves, spend for their operations, or take care of other miscellaneous expenses. Along with the federal funds rate, all of these factors play a part in determining the interest rates that each financial institution will pay on their CDs.

History of CDs

Although they weren't called CDs then, a financial concept similar to that of a modern CD was first used by European banks in the 1600s. These banks gave a receipt to account holders for the funds they deposited, which they bank of america cd rates october 2018 to merchants. However, to ensure that account holders did not withdraw their funds while they were lent out, the banks began to pay interest for the use of their money for a designated period of time. This sort of financial transaction is essentially how a modern CD operates.

A major turning point for CDs happened in the early twentieth century after the stock market crash of 1929, which was partly due to unregulated banks that didn't have reserve requirements. In response, the FDIC was established to regulate banks and give investors (such as CD holders) assurance that the government would protect their assets up to a limit.

Historically, rates of CD yields have varied greatly. During the high-inflation years of the late 1970s and 1980s, CDs had return rates of almost 20%. On the other hand, CD rates have dropped to as low as standard savings rates during certain years. CD rates had declined since 1984, a time when they once exceeded 10% APY. In late 2007, just before the economy spiraled downward, they were at 4%. In comparison, the average one-year CD yield is below 1% in 2021. In the U.S., the Federal Reserve, which controls federal funds rates, calibrates them accordingly based on the economic climate.

How to Use CDs

CDs are effective financial instruments when it comes to protecting savings, building short-term wealth, and ensuring returns without risk. With these key benefits in mind, it is possible to capitalize on CDs by using them to:

  • supplement diversified portfolios to reduce total risk exposure. This can come in handy as retirees get closer to their bank of america cd rates october 2018 date and require a more guaranteed return to ensure they have savings in retirement to live off of.
  • act as a short-term (5 years or less) place to put extra money that isn't needed or isn't required until a set future date. This can come in handy when saving for a down payment for a home or car several years in the future.
  • estimate future returns accurately because most CDs have fixed rates. The result of this is a useful investment for people who prefer predictability.

As the maturity date for a CD approaches, CD owners have options of what to do next. In most cases, if nothing is done after the maturity date, the funds will likely be reinvested into another similar CD. If not, it is possible for buyers to notify the sellers to transfer the funds into a checking or savings account, or reinvest into a different CD.

Withdrawing from a CD

Funds that are invested in CDs are meant to be tied up for the life of the certificate, and any early withdrawals are normally subject to a penalty (except liquid CDs). The severity of bank of america cd rates october 2018 penalty depends on the length of the CD and the issuing bank of america cd rates october 2018. As an aside, in certain rising interest rate environments, it can be financially beneficial to pay the early withdrawal penalty in order to reinvest the proceeds into new higher-yielding Bank of america cd rates october 2018 or other investments.

CD Ladder

While longer-term CDs offer higher returns, an obvious drawback to them is that the funds are locked up for longer. A CD ladder is a common strategy employed by investors that attempts to circumvent this drawback by using multiple CDs. Instead of renewing just one CD with a specific amount, the CD is split up into multiple amounts for multiple CDs in a setup that allows them to mature at staggered intervals. For example, instead of investing all funds into a 3-year CD, the funds are used to invest in 3 different CDs at the same time with terms of 1, 2, and 3 years. As one matures, making principal and earnings available, proceeds can be optionally reinvested into a new CD or withdrawal. Wicked tuna outer banks schedule laddering can be beneficial when more flexibility is required, by giving a person access to previously invested funds at more frequent intervals, or the ability to purchase new CDs at higher rates if interest rates go up.

APY vs. APR

It is important to make the distinction between annual percentage yield (APY) and annual percentage rate (APR). Banks tend to use APR for debt-related accounts such as mortgages, credit cards, and car loans, whereas APY is often related to interest-accruing accounts such as CDs and money market investments. APY denotes the amount of interest earned with compound interest accounted for in an entire year, while APR is the annualized representation of the monthly interest rate. APY is typically the more accurate representation of effective net gains or losses, and CDs are often advertised in APY rates.

Compounding Frequency

The calculator contains options for different compounding frequencies. As a rule of thumb, the more frequently compounding occurs, the greater the return. To understand the differences between compounding frequencies or to do calculations involving them, please use our Compound Interest Calculator.

Types of CDs

  • Traditional CD—Investors receive fixed interest rates over a specified period of time. Money can only be withdrawn without penalty after maturity, and there are also options to roll earnings over for more terms. Traditional CDs that require initial deposits of $100,000 or more are often referred to as "jumbo" CDs, and usually have higher interest rates.
  • Bump-Up CD—Investors are allowed to "bump up" preexisting interest rates on CDs to match higher current market rates. Bump-up CDs offer the best returns for investors who hold them while interest rates increase. Compared to traditional CDs, these generally receive lower rates.
  • Liquid CD—Investors can withdraw from liquid CDs without penalties, but they require maintaining a minimum pnc investments managed account. Interest rates are relatively lower than other types of CDs, but for the most part, still higher than savings accounts or money market investments.
  • Zero-Coupon CD—Similar to zero-coupon bonds, these CDs contain no interest payments. Rather, they are reinvested in order to earn more interest. Zero-coupon CDs are bought at fractions of their par values (face value, or amount received at maturity), and generally have longer terms compared to traditional CDs, which can expose investors to considerable risk.
  • Callable CD—Issuers that sell callable CDs can possibly recall them from their investors after call-protection periods expire and before they mature, resulting in the return of the initial deposit and any subsequent interest earnings. To make up for this, sellers offer higher rates for these CDs than other types.
  • Brokered CD—These are different in that they are sold in brokerage accounts and not through financial institutions such as banks or credit unions. An advantage to brokered CDs is that there is exposure to a wide variety of CDs instead of just the CDs offered by individual banks.

Alternatives to CDs

  • Paying off Debt—Especially for high-interest debt, paying off existing debt is a great alternative to CDs because it is essentially a guaranteed rate of return, compared to any further investment. Comparatively, even the interest rate of a low rate loan, such as a home mortgage, is normally higher than CDs, making it financially rewarding to pay off a loan than to collect interest from CD.
  • Money Market Accounts—Investors who like the security of a CD and are okay with slightly lower returns can consider money market accounts, which are certain types of FDIC-insured savings accounts that have restrictions such as limits on how funds can be withdrawn. They are generally offered by banks.
  • Bonds—Similar to CDs, bonds are relatively low-risk financial instruments. Bonds are sold by the government (municipal, state, or federal) or corporate entities.
  • Peer-to-Peer Lending—Peer-to-peer (P2P) lending is a fairly new form of lending that arose from advances in internet technology that enables lenders and borrowers to link up on an online platform. Peer borrowers request loans through the platform, and lenders can fund the loans they find desirable. Each P2P lending service will come with rules in order to regulate cases of default.
  • Bundled Mortgages—Commonly available through mutual funds, bundled mortgages are securities that are traded in a similar manner as bonds but generally yield more than Treasury securities. Although they received a lot of negative publicity for the role they played in the 2008 financial crisis, mortgage securities have bounced back through more stringent regulations. Bundled mortgages are backed by the Government National Mortgage Association (Ginnie Mae).

Listed above are just some of the low-risk alternatives to CDs. There are much more investment options for those that can tolerate higher risk.

Источник: https://www.calculator.net/cd-calculator.html

The Servicemembers Civil Relief Act (SCRA)

Background

The Civil Rights Division of the Department of Justice, created in 1957 by the enactment of the Civil Rights Act of 1957, works to uphold the civil and constitutional rights of all Americans, particularly some of the most vulnerable members of our society.  SeeCivil Rights Division.  As part of this work, the Civil Rights Division is tasked with enforcing the Servicemembers Civil Relief Act (“SCRA”), 50 U.S.C. §§ 3901-4043.  Seeid. at Housing and Civil Enforcement Section.

The SCRA, enacted in 2003 and amended several times since then, revised and expanded the Soldiers’ and Sailors’ Civil Relief Act of 1940 (SSCRA), a law designed to ease financial burdens on servicemembers during periods of military service.  See 50 U.S.C. §§ 3901-4043.  The SCRA is a federal law that provides protections for military members as they enter active duty.  Seeid.  It covers issues such as rental agreements, security deposits, prepaid rent, evictions, installment contracts, credit card interest rates, mortgage interest rates, mortgage foreclosures, civil judicial proceedings, automobile leases, life insurance, health insurance and income tax payments.  Seeid.

The location of the SCRA within the United States Code changed in late 2015.  Previously found at (codified and cited as) 50 U.S.C. App. §§ 501-597b, there was an editorial reclassification of the SCRA by the Office of the Law Revision Counsel of the United States House of Representatives that became effective on December 1, 2015.  The SCRA is now found at (codified as) 50 U.S.C. §§ 3901-4043.

Overview

“[T]he Act [SCRA] must be read with an eye friendly to those who dropped their affairs to answer their country’s call.”  Le Maistre v. Leffers, 333 U.S. 1, 6 (1948) (citing Boone v. Lightner, 319 U.S. 561, 575 (1943)).  Restated, the SCRA should generally be read in favor of the servicemembers it is intended to protect.  Seeid.

Under the SCRA, the Attorney General is authorized to file a federal lawsuit against any person (or entity) who engages in a pattern or practice of violating this law.  50 U.S.C. § 4041(a)(1).  The Attorney General may also file such a suit where the facts at hand raise "an issue of significant public importance.”  Id. at § 4041(a)(2).  When the Attorney General files a lawsuit under the SCRA, he has the alabama power pay your bill to seek monetary damages on behalf of individual servicemembers.  Id. at § 4041(b)(2).  The Attorney General also has the authority to seek civil penalties, equitable relief, and declaratory relief.  Id. at § 4041(b).

We encourage all servicemembers to first seek assistance from a local military legal assistance office.  However, if military legal assistance cannot resolve the concern, the individual is not eligible for military legal assistance services, or the matter is time-sensitive, the Department will review the complaint to determine whether action is appropriate.

The SCRA provides a wide range of benefits and protections to those in military service.  See 50 U.S.C. §§ 3901-4043.  Military service is defined under the SCRA as including: 1) full-time active duty members of the five military branches (Army, Navy, Air Force, Marine Corps and Coast Guard); 2) Reservists on federal active duty; and 3) members of the National Guard on federal orders for a period of more than 30 days.  Id. at § 3911(2).  How to embed video in powerpoint 2016 absent from duty for a lawful cause or because of sickness, wounds or leave are covered by the SCRA.  Id. at § 3911(2)(C).  Commissioned officers in active service of the Public Health Service (PHS) or the National Oceanic and Atmospheric Administration (NOAA) are also covered by the SCRA.  Id. at § 3911(2)(B).

The SCRA also provides certain benefits and protections to servicemember dependents, see,e.g.,  50 U.S.C. § 3955, and, in certain instances, to those who co-signed a loan for, or took out a loan with, a servicemember.  Seeid.  at § 3913.  The term “dependent” includes a servicemember’s spouse, children, and any other person for whom the servicemember has provided more than half of their financial support for the past 180 days.  Id.  at § 3911(4).  For most servicemembers, SCRA protections begin on the date they enter active duty military service.   See 50 U.S.C. § 3911(3).  For military reservists, protections begin upon the receipt of certain military orders.  Id. at § 3917(a).

Specific Benefits And Protections

The SCRA’s benefits and protections include a six percent interest rate cap on financial obligations that were incurred prior to military service, 50 U.S.C. § 3937; the ability to stay civil court proceedings, id. at §§ 3931, 3932; protections in connection with default judgments, id.; protections in connection with residential (apartment) lease terminations, id. at § 3955; and protections in connection with evictions, mortgage foreclosures, and installment contracts such as car loans.  Id. at §§ 3931, 51, 53, 55-56.  

Below you will find a description of those SCRA benefits and protections that trigger the most questions received by the Department of Justice.  For questions involving areas of the SCRA not addressed below, please feel free to contact us.

Benefit and Protection No. 1 – The six percent interest rate cap.  50 U.S.C. § 3937

The SCRA limits the amount of interest that may be charged on certain financial obligations that were incurred prior to military service to no more than six percent per year, including most fees.  50 U.S.C. § 3937(a)(1) & (d)(1).  In order to have the interest rate on a financial obligation such as a credit card or a mortgage capped at six percent per year, a servicemember must provide the creditor with written notice and a copy of his or her military orders or “other appropriate indicator of military service” (such as a letter from a commanding officer).  Id. at § 3937(b)(1).  The written notice and proof of military service must be provided to the creditor within 180 days of the end of the servicemember’s military service.  Id.

In response, a creditor must forgive – not defer – interest greater than six percent per year.  See 50 U.S.C. § 3937(a)(2).   The creditor must forgive this interest retroactively.  Seeid. at § 3937(a)(1) & (b)(2).  The creditor is also prohibited from accelerating the payment of principal in response to a properly made request for a six percent interest rate cap.  Id. at § 3937(a)(3).

For mortgages, interest is capped at six percent during the entire period of military service and for one year after the period of military service.  50 U.S.C. § 3937(a)(1)(A).  For all other obligations, interest is capped at six percent only for the duration of the period of military service.  Id. at § 3937(a)(1)(B).

A hypothetical under Section 3937 of the SCRA, 50 U.S.C. § 3937: John Doe takes out a mortgage and then enters military service.  Captain John Doe is in military service continuously for 20 years.  Captain Doe retires from military service and on the 179th day of his retirement asks that the interest rate on his mortgage be lowered to six percent per year.  Captain Doe provides his creditor with a written notice and a copy of all of his military orders.  The creditor must forgive the entire 20 years of interest that was at a rate greater than six percent – inclusive of fees – and an additional year of interest going forward.  Seegenerally, 50 U.S.C. § 3937.

The following types of financial obligations, among others, are currently eligible for the six percent SCRA interest rate benefit: credit cards; automobile, ATV, boat and other vehicle loans; mortgages; home equity loans; and student loans.  See,e.g.,  50 U.S.C. § 3937(d)(2).  

On August 14, 2008, President Bush signed into law the Higher Education Opportunity Act, P.L. 110-315, that, among other things, amended 20 U.S.C. § 1078(d) to make federally guaranteed student loans protected under the SCRA.  That means that prior to August 14, 2008, the SCRA did not cover federally guaranteed student loans.  So, for federally guaranteed student loans that originated before August 14, 2008, such as student loans that originated under the Federal Family Education Loan (“FFEL”) Program and Direct Loans from the Department of Education, the servicemember borrower is not covered by the SCRA.

A student loan hypothetical under Section 3937 of the SCRA, 50 U.S.C. § 3937: John Doe takes out five private student loans prior to entering into military service.  After entering military service, Servicemember Doe consolidates his five loans into one loan.  Six months later, he hears about the SCRA’s six percent interest rate cap and requests that the interest rate on his loan be lowered to six percent per year.  He sends in a written notice and a copy of his military orders.

Question:  Is Servicemember Doe entitled to the six percent interest rate cap?

Answer: Only for the santander consumer bank of time between when he entered military service and when he consolidated his private student loans.  Servicemember Doe’s existing student loan originated during a period of military service.  See 50 U.S.C. § 3937(a)(1).

Benefit and Protection No. 2 – Protections against default judgments.  50 U.S.C. § 3931.

In any civil court proceeding in which the defendant servicemember does not make an appearance, a plaintiff creditor must file an affidavit with the court stating one of three things: 1) that the defendant is in military service; 2) that the defendant is not in military service; or 3) that the creditor is unable to determine whether or not the defendant is in military service after making a good faith effort to determine the defendant’s military service status.  Id. at § 3931(b)(1).  This comes up most frequently for the Department of Justice in the context of judicial foreclosure proceedings.  [Note: Foreclosures typically proceed in one of two ways, either judicially (through a court process), or non-judicially (without a court’s involvement).  The way in which the SCRA treats the two types of foreclosure proceedings is very different, see 50 U.S.C. §§ 3931, 32 & 53,  and states typically specify which way foreclosures may proceed within their borders.]

To verify an individual’s military service status, one may search the Department of Defense’s Defense Manpower Data Center (“DMDC”) database.  This database may be located online at: https://scra.dmdc.osd.mil/.

The SCRA states that for civil court proceedings where a defendant servicemember has not made an appearance and it seems that he or she is in military service, a court may not enter a default judgment walmart associate stock login that defendant until after it appoints an attorney to represent the interests of that defendant servicemember.  50 U.S.C. § 3931(b)(2).  The court must stay a civil court proceeding for at least 90 days if that appointed attorney has been unable to contact the defendant servicemember, or if there may be a defense to the action that requires that the defendant be present.  Id. at § 3931(d).

Benefit and Protection No. 3 – Non-judicial foreclosures.  50 U.S.C. § 3953.

Section 3953 of the SCRA, 50 U.S.C. § 3953, addresses the topic of mortgages and non-judicial foreclosures.  Seeid.  In order for a servicemember to receive the protections of Section 3953 of the SCRA, the “obligation on real or personal property” needs to have been taken out prior to the servicemember entering military service.  Id. at § 3953(a)(1).

Under Section 3953 bank of america cd rates october 2018 the SCRA, 50 U.S.C. § 3953, during a period of military service, and for one year after a 1st phorm careers of military service (the “tail coverage” period), a creditor must get a court order prior to foreclosing on a mortgage.  Id.  This is a strict liability section of the SCRA, and a person who knowingly violates this provision may be fined and/or imprisoned for up to one year.  Id. at § 3953(d). 

The tail coverage period described above has changed over time.  The following is chase jp morgan bank near me summary of the tail coverage period over the years under 50 U.S.C. § 3953:

  • December 19, 2003 to July 29, 2008 – 90 days
  • July 30, 2008 to February 1, 2013 – Nine months
  • February 2, 2013 to December 31, 2015 – One year
  • January 1, 2016 to March 30, 2016 – 90 days.  However, on March 31, 2016, the Foreclosure Relief and Extension for Servicemembers Act of 2015 was signed into law.  SeeForeclosure Relief and Extension for Servicemembers Act of 2015, Pub. L. No. 114-142, 130 Stat. 326 (2016).  This extended the tail coverage period for non-judicial foreclosures back to one year, and made this change retroactive to January 1, 2016.  Seeid.
  • March 31, 2016 to present – One year

On May 24, 2018, the President signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act, Pub. L. No. 115-174.  Section 313 provides for a permanent extension of the Section 3953 (non-judicial foreclosure) one-year tail coverage period.

Courts have the ability under the SCRA, and a duty in certain instances, to stay a non-judicial foreclosure proceeding or adjust the payments, if the servicemember’s ability to meet the obligation is materially affected because of his or her military service.  50 U.S.C. § 3953(b).

Benefit and Protection No. 4 – Installment contracts and repossessions – 50 U.S.C. § 3952.

The SCRA states that a creditor may not repossess a vehicle during a borrower’s period of military service without a court order as long as the servicemember borrower either placed a deposit for the vehicle, or made at least one installment payment on the contract before entering military service.  50 U.S.C. § 3952.

Benefit and Protection No. 5 – Residential (apartment) lease terminations – 50 U.S.C. § bank of america cd rates october 2018 3955 of the SCRA, 50 U.S.C. § 3955, addresses the topic of lease terminations.  With respect to residential apartment leases, the SCRA requires that the premises be occupied (or are intended to be occupied) by a servicemember or a servicemember’s dependent(s).  50 U.S.C. § 3955(b)(1).  Additionally, the lease must either be executed by a person who later enters military service, or is in military service and later receives permanent change of station (“PCS”) orders or deployment orders for a period of at least 90 days.  Id. at § 3955(a)(1).  To terminate a residential lease, the servicemember must submit a written notice and a copy of his or her military orders – or a letter from a commanding officer – by certain methods to the landlord or landlord’s agent.  Id. at § 3955(c) & (i)(1).  If a servicemember pays rent on a monthly basis, once he or she gives proper notice and a copy of his or her military orders, then the lease will terminate 30 days after the next rent payment is due.  50 U.S.C. § 3955(d)(1).  If a servicemember lessee dies while in military service, the spouse of a lessee may terminate the lease within one year of the death. Id. at § 3955(a)(3).

A lease termination hypothetical under Section 3955 of the SCRA, 50 U.S.C. § 3955: Jane Servicemember receives PCS orders to transfer from Iowa to Texas.  She gives her landlord written notice of her intent to terminate her apartment lease and a copy of her PCS orders on September 18th.  Her next rent payment is due on October 1st.  The effective date of the lease termination will be Halloween – October 31st.  Seegenerally, 50 U.S.C. § 3955.

Benefit and Protection No. 6 – Enforcement of Storage Liens – 50 U.S.C. § 3958.

Section 3958 of the SCRA states that a person holding a lien on the property of a servicemember, such as a storage facility or a tow company, may not enforce the lien (dispose of the property) without a court order during the servicemember’s period of military service and 90 days my liberty email login 50 U.S.C. § 3958.

Department Of Justice Pleadings And Case Information By Topic

Note that the following is taken from: http://www.justice.gov/crt/housing-and-civilenforcement-section-cases-1#sm

  • VEHICLE LEASE TERMINATIONS
    United States v. BMW Fin. Servs., N.A.
    summarycomplaint (2/22/2018)settlement agreement (2/22/2018)press release (2/22/2018)
  • TOWING
    Andre Gordon v. Pete's Auto Service of Denbigh, Inc. (4th Cir.)
    summarybrief for the United States as amicus curiae in support of plaintiff-appellant urging reversal (4/6/10)supplemental brief for the United States as amicus curiae in support of plaintiff-appellant urging reversal (11/29/10) opinion - reversed and remanded (2/14/11)
  • LANDLORD/TENANT (NON-PATTERN OR PRACTICE)
    United States v. Akhavan (E.D. Va.)
    summarycomplaintconsent orderpress release (9/24/09)


    United States v. Crowe (M.D. Ala.)
    summarycomplaint (6/13/17)settlement agreement (6/16/17)

    United States v. Occoquan Forest Drive, LLC (E.D. Va.)
    summarycomplaintmemorandum opinion (2/14/13)

    United States v. Belshaw (C.D. Cal.)
    summarycomplaint (4/10/18)settlement agreement (4/11/18) 

  • FINANCIAL INSTITUTION (ENTERPRISE WIDE)
    United States v. Capital One, N.A. (E.D. Bank of america cd rates october 2018 consent orderpress release (7/26/12)
  • FINANCIAL (STUDENT LOANS)
    United States v. Sallie Mae, Inc. (D. Del.)
    summarycomplaint (5/13/14)consent order (9/29/14)press release (5/13/13)Attorney General Eric Holder Speaks at Press Conference (5/13/14)press release (5/28/15)
  • MORTGAGE FORECLOSURES
    United States v. Bank of America Corp., Citibank, NA, JPMorgan Chase & Co., Ally Financial, Inc. and Wells Fargo & Co. (D.D.C.) (Please refer to Exhibit H for the SCRA portion of this settlement)
    summarycomplaintconsent judgment with JPMorgan Chase & Co.exhibitspress release (2/9/15)press release (9/30/15)


    United States v. Northwest Tr. Servs., Inc. (W.D. Wash.)

    summary complaintpress release (11/09/2017)settlement agreement (09/26/2018)press release (09/27/2018)


  • STORAGE
    United States v. Horoy, Inc. d/b/a Across Town Movers (S.D. Cal.)
    summarycomplaint (3/16/15)press release (3/16/15)consent order (5/15/15)press release (5/18/15)


    United States v. City and County of Honolulu (D. Haw.)
    summarycomplaint (2/15/18)press release (2/15/18)settlement agreement (2/15/18)

  • VEHICLE REPOSSESSIONS
    United States v. Santander Consumer USA, Inc. (N.D. Tex.)
    summarycomplaint (2/25/15)consent order (2/26/15)addendum to consent order (3/27/15)press release (2/25/15)

    United States v. COPOCO Community Credit Union (E.D. Mich.)
    summarycomplaint (7/26/16)  press release (7/26/16)Opinion and Order Denying Defendant’s Motion to Dismiss (1/5/17)response to motion to dismiss (9/19/16)settlement agreement (7/6/17)press release (7/6/17)


    United States v. HSBC Finance Corp. (N.D. Ill.)
    summarycomplaint (8/8/16)  proposed consent order (8/8/16)press release (8/8/16)

    United States v. Wells Fargo Bank, N.A. d/b/a Wells Fargo Dealer Services (C.D. Cal.)
    summarycomplaint (9/29/16)consent order (9/29/16)press release (9/29/16)press release (11/14/17)

    United States v. CitiFinancial Credit Co. (N.D. Tex.)
    summarycomplaint (9/18/17) settlement agreement (9/18/17)press release (9/18/17)

    United States v. Westlake Services, LLC (C.D. Cal.)
    summarycomplaint (9/27/17)settlement agreement (9/27/17)press release (9/27/17)

    United States v. California Auto Finance (C.D. Cal.)
    summarycomplaint (3/28/18)press release (3/28/18)consent order (3/12/19)press release (3/6/19)

  • EVICTIONS
    United States v. San Diego Family Housing, LLC (S.D. Cal.)
    complaintconsent orderpress release

  • LANDLORD/TENANT (PATTERN OR PRACTICE)
    United States v. Empirian Property Management, Inc. (D. Neb.)
    summarycomplaintconsent orderpress release (3/1/12)

    United States v. Twin Creek Apartments, LLC (D. Neb).
    complaintsettlement agreementpress release (9/11/18)

    United States v.  United Cmtys., LLC (D.N.J.)
    summarycomplaintsettlement agreement (09/27/2018)press release (09/27/2018)

    United States v. PRG Real Estate Management  (E.D. Va.)
    summarycomplaint (3/14/19)settlement agreement (3/15/19)press release (3/15/19)

A Final Note

Any of the rights and protections provided for in the SCRA may be waived.  50 U.S.C. § 3918(a).  For contracts, leases (including apartment leases) and mortgages, all modifications, terminations and cancellations require a written waiver of rights.  Id. at § 3918(b).  Such written waivers are effective only if executed during or after the relevant period of military service.  Id. at § 3918(a).  Written waivers must be in at least 12 point font.  waukesha state bank online banking sign in § 3918(c).  In order to be effective, the written waiver must be its own document.  Id. at § 3918(a).

Источник: https://www.justice.gov/servicemembers/servicemembers-civil-relief-act-scra