Azerbaijan state university of economics unec sabah center

Balloon risk - Unlike the residential mortgage market, where fully amotizing loans make-up the majority of the market,commercial mortgages most often are amotizing loans (20-30 year amortization schedules) with a balloon payment 7 and 12 years. Whereas the scheduled pricipal and interest during the term of the loan is paid from the cash flow generated by the property, the balloon payment is usually made by the traditional lenders. However, many investors in CMBS are relative new-comers to the commercial mortgage market and ar not yet aware of the potensial impact of balloon risk. Even traditional lenders, such as insurance companies, who are allocating more money to CMBS, do not understand the interaction between the CMBS structure and the inderlying pool of balloon mortgages. Moreover, with the advent of loans orginated for securitization, many innovations have appeared which mitigate the effects of balloon risk on bondholders [10, 275].

Unfortunately, the data used in this research contain limited information about each mortgage. Most of the data are provided from life insurance company annual statements filed with state regulatory agencies. In these statements, companies are required to report mortgage holdings as of their year-end status: active, 9 days delinquent, in process of foreclosure, or foreclosed. Included in the schedule are:

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  Mortgage number (which permits tracking of an invidual morgage over time)
  
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  State in which the loan was originated
  
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  Year of loan origination
  
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  Items capitalized during the year
  
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  Principal payments received on the loan during the year
  
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  Increase and decrease during the year
  
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  Value transferred to real estate
  
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  Real estate number [11, 71]
  

Causes - So as to comprehend the how the mortgage emergency can be fixed it is fundamental to consider a portion of the components that added to its being. A few factors in the credit and lodging market added to the emergency.

One of the elements that added to the home loan emergency is the blast in the housing market. The housing market blast was encouraged by the progression of remote cash in the U.S and improved credit conditions. The USA home possession expanded altogether in 2004. As the interest for houses expanded, the costs expanded. The costs of houses expanded by 124 %. Customers began to spend and get more and to spare less. The lodging blast thus prompted a structure blast and the outcome was such huge numbers of unsold houses. In mid 2006, the U.S housing costs started to decrease. The way that credit was anything but difficult to get and the solid conviction by subprime borrowers that the costs of houses would keep on expanding urged them to take up movable rate contracts. When the underlying elegance time frame stopped, numerous borrowers were not capable endured higher installments and renegotiating turned into an option. The decrease in lodging costs anyway made renegotiating extremely convoluted. Most borrowers quit paying their home loans and this prompted dispossessions and increment in the quantity of houses accessible available to be purchased . 

High risk obtaining and loaning rehearses additionally added to the emergency. High hazard borrowers including workers were given an ever increasing number of advances by moneylenders. Lenders likewise given unsafe acquiring activities and advance alternatives for instance occasions in which banks request initial installment as meager as 2 %. The capability for home loans has likewise been changed. Theoretical getting inside private land is one more factor that has added to the crisis. Individuals began to purchase condos which were still under development and later on sold them for a benefit. Practices, for example, secularization likewise prompted the emergency. This prompted the dispersion of credit hazard to speculators. Off base evaluations of credit could likewise be accused for the issue. The offices which manage FICO score gave broken speculation grade evaluations to contract supported securities. The high appraisals given by the FICO assessment offices added to the clearance of home loan supported securities to financial specialists. A portion of the general population engaged with the rating realized that they were flawed. Absence of government guideline likewise added to the emergency .