1) Which of the following is not a common difference between prime and subprime loans? (4 Points)

Subprime Mortgages have lower downpayments.

Lower credit score requirements for borrowers in the subprime market.

Subprime mortgages mature later.

Higher interest rates for subprime mortgages.

2) Which of the following types of loans has on average the lowest interest rate? (4 Points)

Alt-A Loans

Option ARM in the subprime market

Hybrid ARM in the prime market.

Conforming conventional loans.

3) How do Qualified Mortgages differ from other mortgages? (4 Points)

Qualified Mortgages are subject to federal programs and are therefore tax exempt.

Qualified Mortgages are subject to stricter regulations, e.g., the ability-to-pay standard.

Only a certain percentage of Mortgages issued in a year can qualify and can receive the title "Qualified Mortgage", giving them a higher trustworthiness on the Mortgage market.

All of the above

None of the above

4) Please describe briefly in your own words how the selection process between various mortgage products will lead to different outcomes between very risk avers and more risk affine borrowers. (8 Points)