Question

One risk of adding the "condition subsequent" mortgage financing clause is that if the buyer does nothing, the agreement will still remain binding, even though the buyer could fail to arrange mortgage financing.

a) True
b) False

Answer 1

The statement that if the buyer does nothing, the agreement will still remain binding in the presence of a "condition subsequent" clause is false. Option b

Step-by-step explanation:

The statement that if the buyer does nothing, the agreement will still remain binding in the presence of a "condition subsequent" clause is false. A "condition subsequent" clause in a mortgage financing situation implies that the agreement becomes void if a certain condition is not met after the deal has been agreed upon.

For example, if the buyer fails to arrange mortgage financing by a specified date, the agreement could be terminated. This type of clause is in place to protect both the buyer and the seller, allowing an exit strategy should the buyer not secure the needed financing.

Within the context of securitization, banks may be less inclined to thoroughly vet borrowers if they plan to sell the loan as a securitized asset.

This could lead to the issuance of more subprime loans, which come with less scrutiny and potentially more risk. The so-called NINJA loans—indicative of 'No Income, No Job, or Assets'—exemplify extreme cases of subprime lending and have been linked to financial crises, such as the one experienced in the mid-2000s. Option b