Mortgage Subprime Mortgage Crisis Question and Answers 2

Question 1

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

Accepted Answer

They allowed investors to bet against mortgage-backed securities, amplifying losses across the financial system

Answer

Credit default swaps allowed investors to speculate on mortgage defaults, which magnified systemic risk when subprime borrowers began defaulting en masse.

Question 2

Which government-sponsored enterprise was placed into conservatorship in September 2008 due to losses from mortgage-backed securities?

Accepted Answer

Fannie Mae

Answer

Fannie Mae and Freddie Mac were both placed into conservatorship by the Federal Housing Finance Agency in September 2008 due to massive losses on mortgage-backed securities.

Question 3

What was a typical characteristic of a NINJA loan issued before the subprime crisis?

Accepted Answer

It was issued to borrowers with no income, no job, and no assets

Answer

NINJA loans were issued to borrowers with no verified income, no job, and no assets, representing some of the riskiest lending practices before the crisis.

Question 4

How did the Community Reinvestment Act (CRA) relate to the subprime mortgage crisis according to most economic research?

Accepted Answer

Most studies found it played a minimal role since the majority of subprime loans were made by non-CRA-regulated lenders

Answer

Most economic research concluded that the CRA played a minimal role because the majority of subprime loans were originated by mortgage companies and other lenders not subject to CRA oversight.

Question 5

What was the approximate peak-to-trough decline in U.S. home prices during the subprime mortgage crisis as measured by the Case-Shiller Index?

Accepted Answer

About 33%

Answer

The S&P/Case-Shiller U.S. National Home Price Index fell approximately 33% from its peak in 2006 to its trough in early 2012.

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Mortgage Subprime Mortgage Crisis Question and Answers 2