Question

To which of the following does 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

Subprime mortgage lending applies to loans given to borrowers with less favorable credit characteristics, which include poor credit history, high debt-to-income ratios, and low down payments. These loans are associated with higher interest rates and were a contributing factor in the financial crisis of the mid-2000s.

Step-by-step explanation:

Subprime mortgage lending applies to:

Subprime mortgages are a type of mortgage offered to borrowers who do not qualify for prime rates due to various high-risk factors, which include poor credit ratings, high debt-to-income ratios, and low down payments. They often have higher interest rates to compensate for the higher risk of default. During the financial crisis in the mid-2000s, such lending practices were particularly problematic when banks sold these risky loans as securities, leading to a widespread economic downturn when many borrowers defaulted on their loans.