**Figure 1**, sourced from the Federal Reserve Monetary Policy Report to Congress (July 21, 2009), illustrates mortgage delinquency rates from 2001 to 2009 in the United States.1) **Why were mortgage delinquency rates higher for subprime mortgages?** - a) Subprime mortgages were made on real estate properties that only saw increases in their values. - b) Subprime mortgages were able to be put into security packages and sold to investors who demanded borrowers pay more on their mortgages. - c) Subprime mortgages were made to borrowers with a lower probability of paying back their loans, and more of these borrowers defaulted on their payments when the economy declined. - d) All of the above.2) **Why did adjustable rate mortgages experience higher delinquency rates?** - a) Many adjustable rate mortgages were made to borrowers with lower probabilities of paying back their loans. - b) Borrowers with adjustable rate mortgages experienced an increase in monthly payments, which may have raised payments above the borrower's ability to pay. - c) When interest rates increased from 2004 to 2006, the monthly payments for borrowers with adjustable rate mortgages increased. - d) All of the above. The image contains two line graphs depicting the delinquency rates of mortgages over time for different types of loans.### Top Graph: Subprime Loans- **Title:** Subprime- **Y-Axis:** Percent (ranging from 0 to 40)- **X-Axis:** Years from 2001 to 2009- **Data Displayed:** - **Adjustable Rate (Blue Line):** Starting around 10% in 2001, the rate remains relatively stable until 2005, after which it rises sharply, peaking near 38% by 2009. - **Fixed Rate (Red Line):** Begins at a similar level in 2001, remains flat until 2007, and then increases to about 18% by 2009.### Bottom Graph: Prime and Near Prime Loans- **Title:** Prime and Near Prime- **Y-Axis:** Percent (ranging from 0 to 12)- **X-Axis:** Years from 2001 to 2009- **Data Displayed:** - **Adjustable Rate (Blue Line):** Starts slightly above 2% in 2001, stays stable until 2007, and then increases significantly to near 10% by 2009. - **Fixed Rate (Red Line):** Begins just below 2% in 2001, with minor fluctuations until 2007, after which it rises slightly, reaching about 3.5% by 2009.### Analysis:The graphs illustrate that delinquency rates for both subprime and prime (including near prime) loans increased significantly from 2007 to 2009. The increase is more pronounced for adjustable-rate mortgages compared to fixed-rate mortgages. Subprime loans experienced a more dramatic rise in delinquency rates compared to prime loans.

The questions are related to subprime mortgage lending that had resulted in The Great Recession of…

Figure 1 above, taken from the Federal Reserve Monetary Policy Report to the Congress (July 21, 2009), shows mortgage delinquency rates from 2001 to 2009 in the United States. 1)Why were mortgage delinquency rates higher for subprime mortgages? a) Subprime mortgages were made on real estate properties that only saw increases in their values. b) Subprime mortgages were able to be put into security packages and sold to investors who demanded borrowers pay more on their mortgages. c) Subprime mortgages were made to borrowers with a lower probability of paying back their loans and more of these borrowers defaulted on their payments when the economy declined. d) All of the above. 2)Why did adjustable rate mortgages experience higher delinquency rates? a) Many adjustable rate mortgages were made to borrowers with lower probabilities of paying back their loans. b) Borrowers with adjustable rate mortgages experienced an increase in monthly payments, which may have raised payments above the borrower's ability to pay. c) When interest rates increased from 2004 to 2006, the monthly payments for borrowers with adjustable rate mortgages increased. d) All of the above.

Figure 1 above, taken from the Federal Reserve Monetary Policy Report to the Congress (July 21, 2009), shows mortgage delinquency rates from 2001 to 2009 in the United States. 1)Why were mortgage delinquency rates higher for subprime mortgages? a) Subprime mortgages were made on real estate properties that only saw increases in their values. b) Subprime mortgages were able to be put into security packages and sold to investors who demanded borrowers pay more on their mortgages. c) Subprime mortgages were made to borrowers with a lower probability of paying back their loans and more of these borrowers defaulted on their payments when the economy declined. d) All of the above. 2)Why did adjustable rate mortgages experience higher delinquency rates? a) Many adjustable rate mortgages were made to borrowers with lower probabilities of paying back their loans. b) Borrowers with adjustable rate mortgages experienced an increase in monthly payments, which may have raised payments above the borrower's ability to pay. c) When interest rates increased from 2004 to 2006, the monthly payments for borrowers with adjustable rate mortgages increased. d) All of the above.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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