Which of the following statements is NOT CORRECT regarding Saving & Loan Associations (S&Ls) before securitization Group of answer choices S&Ls might not have enough money to fund an entire home. S&Ls were raising money through short-term floating-rate deposits, but making loans in the form of long-term fixed-rate mortgages. When interest rates increased, S&Ls faced crisis because they had to pay more to depositors than they collected from mortgagees. S&Ls had legal resources to collect mortgage payments from borrowers.

Which of the following statements is NOT CORRECT regarding Saving & Loan Associations (S&Ls) before securitization Group of answer choices S&Ls might not have enough money to fund an entire home. S&Ls were raising money through short-term floating-rate deposits, but making loans in the form of long-term fixed-rate mortgages. When interest rates increased, S&Ls faced crisis because they had to pay more to depositors than they collected from mortgagees. S&Ls had legal resources to collect mortgage payments from borrowers.

Business/Professional Ethics Directors/Executives/Acct

8th Edition

ISBN:9781337485913

Author:BROOKS

Publisher:BROOKS

Chapter8: Subprime Lending Fiasco-ethics Issues

Section: Chapter Questions

Problem 1Q

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Which one is not an incentive for a bank to securitize its mortgage loans? Reduce insurance premium paid to FDIC Meet the regulations on equity capital adequacy Increase the duration of the bank's asset portfolio Reduce the bank's illiquidity exposure hich one is not an incentive for a bank to Securitize its mortgage loans? A Reduce insurance premium paid to FDIC B Meet the regulations on equity capital adequacy Increase the duration of the bank's asset portfolio Reduce the bank's illiquidity exposure
What risks might commercial banks face if they use short-term deposits from savers to pay for long-term loans, like mortgages, that often have fixed interest rates? What could the financial institution do to lower these risks?
hich one is not an incentive for a bank to Securitize its mortgage loans? A) Reduce insurance premium paid to FDIC B Meet the regulations on equity capital adequacy Increase the duration of the bank's asset portfolio D Reduce the bank's illiquidity exposure
Banks lost money during the mortgage default crisis because: Multiple Choice O of defaulted loans to investors in mortgage-backed securities. they held mortgage-backed securities they had purchased from investment firms. homebuyers defaulted on mortgages held by the banks. of all of these reasons.
39. Small savers prefer to use financial intermediaries rather than lending directly to borrowers because: A. financial intermediaries offer the savers a wide portfolio of financial instruments B. financial intermediaries offer much higher interest rates than can be obtained directly from borrowers C. borrowers dislike dealing with savers D. savers have a claim with the borrower by way of the financial intermediary
Discuss how the subprime mortgage crisis of 2007 was based upon the flawed financial model that house prices only increase.
Analysts and theorists have debated over the different factors that caused the subprime mortgage meltdown. According to your understanding of the crisis, which of the following factors led to the financial crisis? Check all that apply. A. Real estate appraisers and rating agencies were lax B. Credit default swaps clamied to insure CDOs C. The Fed kept interest rates low to encourage home ownership D. investors were fully aware of the risks involved, yet still settled with low returns.
Which of the following did NOT help trigger the subprime crisis in 2007? Housing prices stopped climbing and actually started falling around 2006 Borrowers were offered teaser loans like 2/28 to get them into loans they could not otherwise qualify for Mortgage brokers were required by Sarbanes Oxley to personally pledge that all the loan information provided on loan applications was correct and they could be held personally responsible for any losses due to fraud Banks made loans to borrowers with very questionable income by using “liar loans”
Collateralized debt obligations (CDOs) and collateralized loan obligations (CLOs) were criticisedfor playing a key role in causing the financial crash of 2008. Despite such criticism, the CLO market has grown year on year, with record issuances during 2020 and 2021. Why have CLOs remained popular and, from the perspective of an investor, what is the appeal of CLOs?
Which of the following was NOT a direct and major consequence of the 2007-2009 U.S. Subprime Financial Crisis? Group of answer choices a. Small consumer and household savers lost all their money they had in savings accounts due to the failure of many smaller FDIC member banks b. Many people lost their homes when they could no longer make their payments after their subprime mortgage rates reset to a much higher rate after two years c. Lehman suffered a major financial collapse and ultimately was dissolved after many of its remaining parts were purchased by Barclays and Nomura, among others d. The U.S. stock markets dropped dramatically as the credit fueled economy of the mid-2000s started to suffer after the credit bubble began to burst.
Which of the following situations are likely to result in higher loan defaults? Mortgages are held by originating institutions in their portfolios. Borrowers have higher equity in their homes. Lenders who require documentation of income, liabilities and asset ownership. Borrowers with low credit scores.
when required reserves fall, banks cease granting new loans, which cause _________(assets/ liabilities) to decrease. This process is called deposit destruction. As a result, the money supply will decrease.