Question

Case study Moody’s credit ratings and the subprime mortgage meltdown

Answer 1

Moody’s credit ratings: The main reason of Moody’s rating securities is to rate the investors with the grading system so that the future creditworthiness can be estimated. The gradations are indicated by the rating symbols, the symbols are representing as a group. If the ratings are not present the application held as not accepted or not received, else; due to the missing of essential data from the issuer. The qualities of most of the issuer are not same and it remains fixed for a limited period of time. If the ratings are found to be same, it cannot be treated as the equal credit in quality.

Subprime mortgage: It is usually used by the lending organization to borrow credits of the lower ratings. As the rates are lower so the conventional mortgages are not allowed to borrow the loan because there can be the high chance of becoming the defaulter. The rates of interest of the lenders are kept higher than the conventional mortgages in order to avoid the risk in the number of defaulters the compensation are made in this manner.
Subprime meltdown: It is the point of increase for the high-risk mortgages at the beginning of the year 2007. The rates were comparatively lower of the housing boom in the mid of the year 2000; many lenders individually have got the home loans with lower credit. In the real estate sector when the bubble burst, many borrowers faced huge problems to repay the payments on subprime mortgages.