Final answer:
Jumbo mortgages are loans that exceed conforming loan limits and are for very high amounts. When mortgage interest rates are lower than inflation, it is better to be a borrower; when rates are higher than inflation, it is better to be the lender. Risky practices like subprime and NINJA loans played a role in the financial crisis.
Step-by-step explanation:
Mortgage loans for a very high amount of money are referred to as jumbo mortgages. These are loans that exceed the conforming loan limits set by government-sponsored entities like Fannie Mae and Freddie Mac. Due to their size, jumbo mortgages carry a higher risk for lenders and typically have higher interest rates.
When evaluating whether it would be better to be the borrower or the lender over various years based on mortgage interest rates and the rate of inflation, one would need to consider the relative rates. If the mortgage interest rates were lower than the rate of inflation, it would generally be better to be a borrower, as the real value of the borrowed money would decrease over time. Conversely, if the mortgage interest rates were higher than the rate of inflation, it would be more advantageous to be the lender, as the real value of the money being repaid would be higher.
The practice of issuing subprime loans, particularly the risky NINJA loans, contributed to the financial crisis as it led to a large number of defaults when housing prices stopped rising and refinancing became unattainable.