ECONOMICS
FEDERAL RESERVE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Loans made to people who have struggled to pay back loans in the past
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Loans made to people who always pay their loans promptly
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Loans made to people who have excellent character, capacity, and capital
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Loans made to people who are a little shady
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Detailed explanation-1: -The subprime mortgage crisis occurred from 2007 to 2010 after the collapse of the U.S. housing market. When the housing bubble burst, many borrowers were unable to pay back their loans. The dramatic increase in foreclosures caused many financial institutions to collapse. Many required a bailout from the government.
Detailed explanation-2: -A subprime loan is a loan offered to individuals at an interest rate above prime, who do not qualify for conventional loans. Such individuals have low income, limited credit history, poor quality collateral, or poor credit.
Detailed explanation-3: -Applicants with low credit scores or other risk factors are offered rates by lenders that are significantly higher than the prime rate-hence the term “subprime loan.”
Detailed explanation-4: -More often, subprime mortgage loans are adjustable rate mortgages (ARMs). A subprime mortgage is generally a loan that is meant to be offered to prospective borrowers with impaired credit records. The higher interest rate is intended to compensate the lender for accepting the greater risk in lending to such borrowers.