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Answer: Many first-time home buyers paid zero down payment in 2005.
C is correct. One of the reasons for why delinquencies rose significantly after mid-2005 is that in 2005, 43% of first-time home buyers paid zero down payment, significantly reducing the collateral cushion in case housing prices declined. This lack of a down payment meant that these borrowers had less of a financial stake in their homes, which could lead to a higher likelihood of defaulting on their mortgage payments if they faced financial difficulties. Additionally, the absence of a down payment also meant that the borrowers had less equity in their homes, making it more likely that they would default if housing prices fell, as they would be more likely to be underwater on their mortgage (owing more on their mortgage than their home is worth).
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A financial expert is conducting an in-depth analysis of the subprime mortgage crisis in the United States, which spanned from 2007 to 2009. During this period, they observe a notable escalation in the delinquency rates of subprime mortgages beginning in mid-2005. The expert seeks to identify the primary factor among the following options that contributed significantly to this surge in mortgage delinquencies. What is this factor?
A
Mortgages became increasingly over-collateralized in 2005.
B
Interest rates decreased significantly throughout 2005.
C
Many first-time home buyers paid zero down payment in 2005.
D
Housing prices began to rise sharply at the end of 2005.