Question: Suppose you buy a home for $200,000 with a $20,000 down payment and finance the rest with a home mortgage. a. Suppose that if you

Suppose you buy a home for $200,000 with a $20,000 down payment and finance the rest with a home mortgage.

a. Suppose that if you default on your mortgage loan, you lose the home, but nothing else. By what percentage would housing prices have to fall to create an economic incentive for you to default on the loan? Explain briefly.

b. Suppose that if you default on your mortgage loan, you not only lose the home, but also $10,000 in moving and relocating expenses. By what percentage would housing prices have to fall now to create an economic incentive for default?

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