Mortgage Subprime Mortgage Crisis Question and Answers 3

Question 1

What was the Troubled Asset Relief Program (TARP) initially authorized to spend when signed into law in October 2008?

Accepted Answer

$700 billion

Answer

$300 billion

Answer

$500 billion

Answer

$1 trillion

Question 2

Which investment bank's collapse in September 2008 is widely considered the event that triggered the most acute phase of the financial crisis?

Accepted Answer

Lehman Brothers

Answer

Bear Stearns

Answer

Merrill Lynch

Answer

Goldman Sachs

Question 3

What type of adjustable-rate mortgage feature caused many subprime borrowers to face sudden payment increases after an initial period?

Accepted Answer

Teaser rate that reset to a much higher indexed rate

Answer

Interest-only period followed by full amortization

Answer

Balloon payment at maturity

Answer

Negative amortization with payment caps

Question 4

What term describes the process by which mortgage loans were pooled together and converted into tradable securities sold to investors?

Accepted Answer

Securitization

Answer

Underwriting

Answer

Amortization

Answer

Capitalization

Question 5

Which credit rating agency practice contributed to the crisis by assigning AAA ratings to risky mortgage-backed securities?

Accepted Answer

Issuer-pays model where the agencies were paid by the same banks whose products they rated

Answer

Government mandate requiring conservative ratings

Answer

Independent third-party verification of all underlying loans

Answer

Random sampling methodology for assessing default risk

Question 6

What provision of the Dodd-Frank Act required mortgage lenders to verify a borrower's ability to repay the loan?

Accepted Answer

Ability-to-Repay rule

Answer

Volcker Rule

Answer

Basel III compliance requirement

Answer

Sarbanes-Oxley extension