Financial Risk Manager Part 1
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A junior risk analyst is asked to summarize the developments leading up to the financial crisis of 2007 – 2009. As part of the summary, the analyst researches the role of subprime mortgages as a contributing factor to the crisis. Which of the following correctly describes a role or impact of these mortgages in the years leading up to the crisis?
A
Strict documentation requirements for new borrowers resulted in a liquidity crisis for real estate due to a lack of qualified borrowers.
B
Initial loan-to-value ratios steadily decreased for new subprime borrowers in the years leading up to the crisis.
C
Most mortgage brokers were compensated based on the performance of subprime mortgages they originated, and were forced to pay back large commissions as loans began to fail.
D
Interest rates rose sharply on many subprime mortgages after a short initial low-rate period, forcing some borrowers to default.