Mortgage Subprime Mortgage Crisis 2

Question 1

Which government-sponsored enterprises (GSEs) were placed into federal conservatorship in September 2008 due to their exposure to subprime mortgages?

Accepted Answer

Fannie Mae and Freddie Mac

Answer

Ginnie Mae and Sallie Mae

Answer

FHA and VA

Answer

FDIC and OCC

Question 2

What is a 'liar loan' in the context of the subprime mortgage crisis?

Accepted Answer

A mortgage where borrowers self-certify income without documentation verification

Answer

A loan with a deliberately misleading interest rate disclosure

Answer

A mortgage that resets to a higher rate without notice

Answer

A loan originated by unlicensed brokers

Question 3

What role did credit default swaps (CDS) play in amplifying the subprime mortgage crisis?

Accepted Answer

They allowed investors to bet on or hedge against mortgage defaults, spreading risk widely

Answer

They guaranteed principal repayment on all mortgage-backed securities

Answer

They set maximum interest rates on subprime loans

Answer

They required lenders to hold minimum capital reserves

Question 4

What was the 'originate-to-distribute' model that contributed to the subprime crisis?

Accepted Answer

Lenders originate loans intending to sell them, removing incentive to ensure loan quality

Answer

Banks distribute mortgage applications among multiple underwriters for risk spreading

Answer

A federal program to originate loans and distribute them to low-income borrowers

Answer

A system where loan officers distribute leads to competing mortgage brokers

Question 5

Which 2010 legislation created the Consumer Financial Protection Bureau (CFPB) largely in response to the subprime mortgage crisis?

Accepted Answer

Dodd-Frank Wall Street Reform and Consumer Protection Act

Answer

Sarbanes-Oxley Act

Answer

Glass-Steagall Restoration Act

Answer

Community Reinvestment Act Amendment

Question 6

What was a 'silent second' mortgage in the context of predatory subprime lending?

Accepted Answer

An undisclosed second lien used to cover a down payment, hidden from the primary lender

Answer

A second mortgage that had no interest for the first five years

Answer

A government-backed subordinate loan for first-time homebuyers

Answer

A reverse mortgage taken out without the knowledge of heirs

Question 7

What happened to U.S. home prices between the peak in 2006 and the trough around 2012?

Accepted Answer

They fell approximately 30% nationally, with some markets declining over 50%

Answer

They fell approximately 10% nationally before recovering

Answer

They remained flat nationally but declined in sunbelt states only

Answer

They fell approximately 60% nationally across all markets