Question

To which of the following does the term Subprime Mortgage Lending apply?

(A) Loans made to borrowers with poor credit history.
(B) Loans made to borrowers with high debt-to-income ratios.
(C) Loans made to borrowers with low down payments.
(D) All of the above.

Answer 1

The term 'Subprime Mortgage Lending' applies to loans made to borrowers with poor credit history, high debt-to-income ratios, and low down payments; thus, the correct answer is (D) All of the above. These loans contributed to the 'Great Recession' due to high default rates when introductory interest rates rose.

Step-by-step explanation:

The term Subprime Mortgage Lending applies to loans made to borrowers who present a higher risk to the lender, usually due to a weaker financial position. This includes loans made to borrowers with:

• Poor credit history
• High debt-to-income ratios
• Low down payments

So the correct answer is (D) All of the above. Subprime mortgages feature higher, often adjustable interest rates to compensate the bank for the increased risk of default. The practice of issuing these risky loans was a factor in the economic downturn known as the "Great Recession," as banks initially presented low introductory rates on such mortgages which later increased significantly, leading to widespread defaults when borrowers could not make their higher monthly payments.