4. The subprime mortgage market

The financial crisis started with defaultsborrowers not repaying their loanson subprime mortgages in the United States.

Subprime mortgages have which of the following characteristics? Check all that apply.

a. They are made to people with relatively poor credit history.

b. They are made to people with relatively few assets.

c. They have a higher likelihood of default.

Subprime mortgages expanded to about 35% of all mortgages issued in the United States in 2004. Which of the following contributed to the growth of these mortgages? Check all that apply.

a. Banks maintaining traditional levels of leverage

b. The Federal Reserve setting low interest rates in the early part of the 2000s

c. Decreased regulation of the financial sector

d. The expectation that housing prices would keep rising

A contraction in the mortgage market would have resulted in (an increase/ a decrease) in the price for housing.