Subprime Mortgage Crisis Question and Answers

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Who was the U.S. Treasury Secretary at the time this crisis unfolded?

Correct! Wrong!

Explanation:
The American Treasury Secretary during the 2008 financial crisis was Henry Paulson.

How does leverage operate?

Correct! Wrong!

Explanation:
The tactic of leveraging borrowed funds to boost an investment's return is known as leverage. You can make a sizeable profit if the return on the total value invested in the security (your own money plus borrowed money) is greater than the interest you pay on the borrowed money.

What happens to the value of properties owned by those who continue to make timely mortgage payments to the bank despite the fact that many of their neighbors have defaulted?

Correct! Wrong!

Correct answer:
Their home goes down in value because of all the houses for sale

Which of the following didn't contribute to the economic crisis?

Correct! Wrong!

Correct answer:
Increasing interest rates

What kind of financing traditionally lends to those who would not be able to qualify for a mortgage?

Correct! Wrong!

Explanation:
A subprime mortgage is typically given out to applicants with bad credit. Because the lender believes the borrower has a higher-than-average chance of defaulting on the loan, a prime conventional mortgage is not offered.

What kind of financial inducement prompted so many foreclosures?

Correct! Wrong!

Correct answer:
The home is worth less than the amount of the mortgage.

Which of the subsequent claims is untrue?

Correct! Wrong!

Correct answer:
On subprime adjustable rate mortgages, lenders are 20% less likely to have started the foreclosure process than on standard mortgages.

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