Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Question
Chapter ST5, Problem 2CQ
To determine
Change in credit standards between 1995 and 2005 and its effect on the Great Recession.
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Students have asked these similar questions
What happened to credit standards(down payment, mortgage loan relative to value, and creditworthiness of the buyer between 1995 and 2005? How did this influence the housing pricing bubble and later the default and foreclosure rates?
Why did housing prices rise rapidly during 2002 - 2005?
Why did the mortgage default rate increase so sharply during 2006 and 2007 even before the 2008 - 2009 recession began?
What did the Community Reinvestment Act have to do with the housing bubble and collapse?
Cite your sources as needed. Use APA formatting.
When mortgages originators sell mortgages to Fannie Mae, Freddie Mac, and investment bankers the originators have no additional liability for possible default by the borrow. How will this arrangement influence the incentive of the originators to scrutinize the creditworthiness of the borrow?
Chapter ST5 Solutions
Economics: Private and Public Choice (MindTap Course List)
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- How did banks change home lending practices in the decades leading up to the housing bubble of 2008? Why did they do this?arrow_forwardWhy did the housing market get so cheap during the economic crash?arrow_forwardWhy do the creditors generally charge higher interest rates on new borrowing?arrow_forward
- describe the key functions and components of the credit management processarrow_forwardIn contrast to revolving credit, installment credit loans allow a borrower to do which of the following? A- to borrow funds continually B- to borrow funds interest free C- to borrow funds one time D- to borrow funds tax freearrow_forwardCredit card borrowing can be reduced by which of the following policies? (A) increasing rewards on credit cards; (B) educating people about self-control problems and providing them with com mitment opportunities; (C) marketing with discounts and promotions; (D) all of the above.arrow_forward
- You are getting a loan to buy your first home. It is a $250,000 home with three bedrooms and two bathrooms. The price is so low because the economy was bad, a lot of people lost their jobs, and few people are buying homes. You got the following information from the bank: Loan Amount: $150,000 Interest Rate 1 month ago: 4.5% Today: 4.1% Loan Period: 15 years (180 months) 1.Based on what you are hearing from friends and what you know about supply and demand in financial markets, what would you predict about the level of interest rates for house loans in the future? Will they stay the same, increase, or decrease? 2.Explain your answer by drawing and explaining two supply and demand curves: one showing the interest rate today (assume it is 4.1%) and one predicting what the interest rate will look like in one month. 3.arrow_forwardHow would a financial manager's role in a corporation increase/decrease if the rate of inflation in the economy was increasing. Why? How? What to do?arrow_forwardCBA Supply is looking at relaxing their credit standards. Using the information below, calculate net profit (loss) from implementation of the increased sales due to relax in credit standards. Current bad debt is 1.5% of sales. Proposed new bad debt would be 2.5% of sales. Show your work progression. Sales price/unit Sales units current Sales units new VC Opport. Cost $30 40,000 42,000 $18 0.10 ACP old 30 ACP new 40arrow_forward
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