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Answer: Many first-time home buyers paid zero down payment in 2005.
**Correct Answer: C** **Explanation:** 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. A is incorrect. Mortgages becoming increasingly under-collateralized is another factor contributing to the crisis. B is incorrect. Another reason contributing to the crisis that the interest rates started to increase in 2005. This forced payments on adjustable-rate mortgages higher after the initial "teaser" period. D is incorrect. Housing prices began to fall sharply in 2006. An increase in housing prices would have been beneficial to subprime mortgage holders.
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A risk analyst is studying the history of the subprime mortgage crisis that took place in the US between 2007 and 2009. The risk analyst finds that the delinquencies of subprime mortgages rose significantly after mid-2005. Which of the following was a contributing factor for the increase in delinquencies?
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.
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