Question

1. What are three characteristics of a Prime/Conventional/Truly Qualified, Primary Residential Real Estate Loan? In other words, what was required for these loans to qualify the correct way?

2. What is a Subprime Mortgage?

3. Give a scenario where someone wasn’t even in the market to buy a house, suddenly became a house owner. How did this happen?

4. Who was buying houses in the late 1990s through 2007? Give three examples.

5. What is a Predatory Loan?

6. What is CRA? Explain.

7. What is NINA? Explain.

8. What percent of Subprime loans were being approved via Automated Loan Approvals in 2007?

9. Explain Malignant Neglect.

10. What is TARP? Did every bank need it? What happened if a bank refused funds from this? Explain.

11. What is the earliest missed payment by some borrowers/homeowners?

12. Historically, banks required Verified Income. What is this, and what are two examples of it?

13. What is Stated Income? What did it lead to?

14. What is a Single Pay, Interest Only Loan? Give an example of scenario when this would be done? What purpose did it serve? Explain.

15. What kind of ratings were given on CDOs and MBSs from the Big Three rating agencies? What did these ratings indicate? Were they correct?

16. What happened to some of the largest United States investment banks during this time?

17. What happened to bank regulations after the housing fiasco?

18. What happened to the Stock Market immediately after the housing bust? What about a year later?

19. Would you agree with the following statement?: It was common for a single household to have as many as 14 credit cards in the early 2000s. Explain.

Answer 1

Truly qualified loans are defined as the loans which generally do not carries the features negative amortization, tenure of beyond 30 years. Such loans cannot be interest only loans. The truly qualified loans or mortgages are to be created based on guidelines of consumer protection act and Dodd-Frank Wall Street reform. The lenders have to pursue a good faith effort to realize on the applicant's ability to repay loans. The truly qualified loans would therefore have three broad characteristics namely: -

1. The debt to income of the borrower should be below a threshold of 43 percent.

2. The loan is guaranteed or insured under either the federal housing administration, US department of agriculture and givernment sponsored enterprises as well as veteran affairs.

3. The origination of loan was initiated by insured depositories having an asset base of less than $10 billion and should be present in their portfolio for a period of three years or more.

If the three criterias are not met, they are not qualified as the truly qualified residential loan.

Subprime loans or mortgages are defined as the mortgage that is given to the borrowers that do not stand on the three criterias listed in the truly qualified loans and generally hold high risk with lack lustre credit history and deteriorated income levels as well as have high debt to income ratio.