Question

Minimum standards for mortgages, which have been established through rule making proceedings mandated by the Dodd-Frank Act, included a requirement to:

a: Sert minimum down payment requirements for all lending transactions
b: offer all borrowers fixed-rate loans
c: Prohibit the origination of subprime loan
d: Establish standards for the evaluation of the repayment ability of borrowers

Answer 1

The Dodd-Frank Act requires mortgage lenders to establish standards for evaluating a borrower's ability to repay, responding to past abusive lending practices like issuing subprime loans and securitization that undermined careful loan vetting.

Step-by-step explanation:

The minimum standards for mortgages established by the Dodd-Frank Act include a requirement to establish standards for the evaluation of the repayment ability of borrowers. The Act was a response to the irresponsible lending practices that contributed to the financial crisis of 2007-2008. During that time, banks often issued what were known as "subprime loans", which had features like low or zero down payments, little scrutiny of the borrower's income, and adjustable rates that could dramatically increase after an initial period. Financial institutions sold these risky loans as bonds via securitization, which disconnected the success of the loan from the lender's interest, leading to more risky behavior in the marketplace. These practices resulted in mass loan defaults once adjustable rates increased, placing significant strain on financial institutions.