Question

The Financial Crisis

7. What is an unconventional mortgage?

8. What is a collateralized debt obligation?

9. What is a credit default swap?

10. How did the collapse of housing prices in 2007 affect bank balance sheets?

Answer 1

7. There exist a problem when the unconventional loans will become high. So at this situation they are said to be non-qualified mortgages or non-QM. This unconventional loans accomodate borrowers whose unusual circumstances mean they don't have a standard proof of income.

8. Collateralized Debt Obligation or CDO is a financial tool that are using by banks. This financial tools is a type of structured asset-backed security or ABS, which pools together the cash-flow generating assets and repackage individual loans into a product sold to investors on a secondary market.

9. In the world market, the Credit Default Swap will used as type of credit derivative and a powerful force. CDs will existing from since 1990s are came widely in use in early 2000s. It is an financial derivative that insurance against default risk by a particular company.

10.The collapse of housing prices in 2007 highly affected the bank balance Sheets. Falls in housing prices will cause the bank to default on their home loans. For saving, spending, investing or paying down their debts, the consumers get only fewer funds while the home equity dries up. Therefore some times the banks are forced to shut down.