Quiz On Subprime Mortgage Crisis, Part 1

1.

You want to a buy a house and are looking for a mortgage How will your credit score affect the terms of your mortgage?
- A.
  
  With a good credit score, the bank will offer me a higher interest rate on a mortgage
- B.
  
  With a good credit score, the bank will offer me a lower interest rate on a mortgage
- C.
  
  My credit score has no bearing on the interest rate of bank will offer me on a mortgage.
Correct Answer
B. With a good credit score, the bank will offer me a lower interest rate on a mortgage

Explanation
A good credit score will positively impact the terms of a mortgage by allowing the bank to offer a lower interest rate. This is because a good credit score demonstrates a borrower's reliability and creditworthiness, making them less risky to lend money to. As a result, the bank is more willing to provide more favorable terms, such as a lower interest rate, to borrowers with good credit scores.

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2.

What does the term ARM mean?
- A.
  
  Absolutely real mortgage
- B.
  
  Adjustable rate mortgage
- C.
  
  Actual rate of mortgage
Correct Answer
B. Adjustable rate mortgage

Explanation
The term ARM stands for Adjustable Rate Mortgage. This type of mortgage has an interest rate that can change over time, typically after an initial fixed-rate period. The adjustable rate is usually tied to a specific financial index, such as the U.S. Prime Rate or the London Interbank Offered Rate (LIBOR). As a result, the monthly mortgage payment can increase or decrease based on changes in the index. This allows borrowers to take advantage of lower interest rates initially, but also exposes them to potential increases in the future.

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3.

In the height of the subprime mortgage boom, certain banks realized giving subprime mortgage business was very profitable so they __________ their standards for mortgage applicants.

Correct Answer
lowered
reduced

Explanation
During the subprime mortgage boom, some banks recognized that providing subprime mortgages could be highly profitable. As a result, they decided to lower or reduce their standards for mortgage applicants. This means that the banks became less strict in their requirements and were willing to offer mortgages to individuals who may not have met the previous standards.

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4
4.

The subprime mortgage crisis was one of the main reasons for the situation we have today in the U.S. _______________.

Correct Answer
economy
financial markets
economic downturn

Explanation
The subprime mortgage crisis refers to the period in the early 2000s when banks and financial institutions were giving out mortgages to borrowers with poor creditworthiness. This led to a housing bubble and when it burst, it caused a ripple effect throughout the economy. The crisis had a significant impact on the U.S. economy, resulting in a downturn characterized by declining economic growth, high unemployment rates, and a decrease in consumer spending. It also had a profound impact on financial markets, causing widespread panic and a loss of confidence in the banking system.

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4
5.

Another factor impacting the subprime mortgage crisis was
- A.
  
  Wall Street
- B.
  
  The Federal Reserve
- C.
  
  Foreign banks.
Correct Answer
A. Wall Street

Explanation
Wall Street played a significant role in the subprime mortgage crisis. Investment banks and financial institutions on Wall Street were heavily involved in the creation, packaging, and selling of mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) that contained risky subprime mortgages. These institutions encouraged and facilitated the lending of subprime mortgages, often without proper due diligence, in order to profit from the fees and commissions associated with these transactions. When the housing bubble burst and the subprime borrowers began defaulting on their mortgages, the value of these MBS and CDOs plummeted, causing widespread financial turmoil and contributing to the crisis.

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Quiz On Subprime Mortgage Crisis, Part 1

You want to a buy a house and are looking for a mortgage How will your credit score affect the terms of your mortgage?

What does the term ARM mean?

In the height of the subprime mortgage boom, certain banks realized giving subprime mortgage business was very profitable so they __________ their standards for mortgage applicants.

The subprime mortgage crisis was one of the main reasons for the situation we have today in the U.S. _______________.

Another factor impacting the subprime mortgage crisis was