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

They provided affordable insurance to homeowners against foreclosure

Answer

They reduced the risk of subprime lending by distributing it evenly

Answer

They were used exclusively by government agencies to stabilize markets

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

Federal Home Loan Banks

Answer

Ginnie Mae

Answer

Sallie Mae

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

It required a minimum credit score of 700

Answer

It offered fixed interest rates below the prime rate

Answer

It was backed by full government guarantees

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

It was the primary cause of the crisis by forcing banks to make risky loans

Answer

It prevented the crisis from becoming worse by requiring prudent lending

Answer

It only applied to investment banks that created mortgage-backed securities

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

About 10%

Answer

About 20%

Answer

About 50%

Question 6

What practice involved mortgage originators immediately selling loans to investment banks for securitization, reducing their incentive to ensure borrower creditworthiness?

Accepted Answer

Originate-to-distribute model

Answer

Loan warehousing

Answer

Portfolio lending

Answer

Correspondent banking