Financial Risk Manager Part 1
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In the midst of the housing boom in 2005, Ann, who had a less than stellar credit rating, sought to ride the wave and purchase her own home. Despite her credit rating suggesting a higher-than-average probability of defaulting on loan repayments, the local bank decided to approve her mortgage application. This was a common practice during this period, and it ultimately contributed significantly to the 2008/2009 financial crisis. Which of the following terms most accurately describes this type of lending practice?
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Explanation:
Subprime mortgage lending refers to the practice of lending to borrowers who are considered a higher credit risk, often due to a lower credit rating, as in Ann's case. During the housing boom in the years leading up to the 2008/2009 financial crisis, there was a significant increase in subprime lending, which eventually contributed to the severity of the crisis.
Option A is incorrect. "Unsecured mortgage lending" is not a recognized term in the context of mortgage lending. Mortgages are by definition, secured loans, with the purchased property serving as collateral.
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