Explore BrainMass
Share

Factors leading to the subprime mortgage crisis, adjustable rate mortgage

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

First, read "New Century Brings Trouble for Subprime Mortgages" (see attached file). Answer the following questions:

1. As a reaction to problems in the subprime area, lenders tightened lending standards. What effect do you think this had on the housing market?
2. What is an adjustable rate mortgage (ARM)? Do you think this type of mortgage is more attractive to new homebuyers than traditional mortgages? Explain with reasons.
3. Which of the following factors was most influential in the crisis: low interest rate environment, loose underwriting standards, or innovations in mortgage financing? Select one and explain why.

© BrainMass Inc. brainmass.com October 25, 2018, 9:39 am ad1c9bdddf
https://brainmass.com/business/finance/factors-leading-to-the-subprime-mortgage-crisis-adjustable-rate-mortgage-581819

Attachments

Solution Preview

1. The impact of tightened lending standards led many subprime lenders to raise the minimum credit score to qualify for a home loan. Also, home buyers were required to show proof of income instead of showing no proof. Finally, home buyers were required to put money down on a house instead of obtaining a zero down home mortgage (The information was obtained at http://www.hawthornproperties.com/effects-of-a-tightening-credit-market "Effects of a ...

Solution Summary

An examination of the factors that led to the subprime mortgage crisis, and the definition of an adjustable rate mortgage.

$2.19
See Also This Related BrainMass Solution

Money and Banking

What factors led to the mortgage default crisis? How did mortgage defaults affect banks involved in mortgage lending and mortgage investing? Securitization? TARP? What do these mean? How did mortgage-backed securities spread losses during the mortgage default crisis? How does TARP illustrate the problem of moral hazard? What did the Federal Reserve do during the financial crisis of 2008 and 2009? How did the recent financial crisis affect the financial services industry? What are some of the major provisions of the Wall Street Reform and Consumer Protection Act?

View Full Posting Details