Financial Risk Manager Part 1
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A risk expert is leading a lecture for financial analysts on the impact of subprime mortgages during the 2007-2009 economic downturn. To begin, the expert provides an overview of the mechanics of subprime mortgages and outlines the market trends in the subprime sector leading up to the crisis. Which of the following statements should the expert include in the lecture?
A risk expert is leading a lecture for financial analysts on the impact of subprime mortgages during the 2007-2009 economic downturn. To begin, the expert provides an overview of the mechanics of subprime mortgages and outlines the market trends in the subprime sector leading up to the crisis. Which of the following statements should the expert include in the lecture?
Explanation:
A is correct. Some borrowers used subprime lending to purchase a house in which they intended to live, whereas others were merely speculating on rising home prices. For either type of borrower, an adjustable-rate loan could typically be refinanced into another similar mortgage once the teaser rate period ended (as long as housing prices rose).