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