Discuss what economic factors influence loan defaults

Reference no: EM131410972

The Wall Street Journal (March 12, 2007) reported that an analyst with the Center for Financial Research and Analysis found an interesting item in an earnings report from New Century Financial Corporation, a mortgage lending company specializing in "subprime" loans to borrowers with checkered credit histories. The analyst discovered that New Century had for the first time combined two categories of reserves for losses. New Century combined the reserve for losses on defaulted loans with a reserve for losses on real estate that had been acquired through foreclosure. By putting the two reserve accounts together, New Century could show that total reserves for losses had increased only slightly from the prior period. Hidden, though, was the fact that the reserve for losses on bad loans actually dropped by 8.7 percent. The Center for Financial Research and Analysis pointed out the discrepancy of a drop in reserves at a time when defaults on subprime mortgages were increasing across the country

REQUIRED:

Discuss the effect of "reserves for loan losses" on the financial statements and why a company such as New Century might be reluctant to increase the reserve. Discuss what economic factors influence loan defaults (and especially loans in the subprime mortgage market).

Reference no: EM131410972

Questions Cloud

Evaluate key changes in the google companys manageme style : Evaluate two key changes in the selected company's management style from the company's inception to the current day. Indicate whether or not you believe the company is properly managed. Provide support for your position.

What conclusions you can draw from thinking : An identification of three historical lenses that could be applied to your topic and an explanation of what would happen if each lens were applied.A description of what would happen if a historian using one of these lenses were to approach the Re..

What impact has african american history made on our present : Using the information you have acquired over the last eight weeks, explain how our society has been affected by the events and shaped by the Jim Crow era and the Civil Rights Movement? What impact has African American History made on our present s..

What options you would recommend for healthcare facility : Your paper must examine what options you would recommend for your healthcare facility with support from your research and analysis. The final paper must include at least 5 scholarly sources other than the Reading & Study materials and the Bible.

Discuss what economic factors influence loan defaults : Discuss the effect of "reserves for loan losses" on the financial statements and why a company such as New Century might be reluctant to increase the reserve. Discuss what economic factors influence loan defaults (and especially loans in the subpr..

What interval of values would you give : Do you think this sample would be representative for the question of interest? Explain.- Is the sampling plan that was used a probability sampling plan? Explain.

Evaluate the effectiveness of the organization hr policies : Evaluate the effectiveness of the organization's HR policies and processes that are designed to promote a diverse workforce. Next, outline one (1) strategy for the organization that recognizes affirmative action

Write a restatement of the thesis : The long essay would be a traditional essay that typically five paragraphs long. The first paragraph should introduce the topic and state the student's position / answer to the question. It should contain between three-five (3-5) complete sentence..

Discuss the implications of a weakened real estate market : How does the provision for loan loss affect the balance sheet and the income statement of banks? Why do banks adjust the provision when market conditions change, and why do analysts sometimes question the amount of the reserve set aside by the ban..

User Account

All Pages