What is a subprime mortgage? Please explain how it is connected to the Economic Crisis.

What is a 'Subprime Mortgage'

A subprime mortgage is a type of mortgage that is normally issued by a lending institution to borrowers with low credit ratings. As a result of the borrower's lower credit rating, a conventional mortgage is not offered because the lender views the borrower as having a larger-than-average risk of defaulting on the loan. Lending institutions often charge interest on subprime mortgages at a rate that is higher than a conventional mortgage in order to compensate themselves for carrying more risk.

Subprime mortgages as a share of total mortgages originated during the year, increased from 5% in 1994 to 13% in 2000 and on to 20% in 2004 – 2006

 

Discuss the 3 criteria that banks typically use to approve a mortgage. (Explained in Week 2)

1. Your ability to repay the loan

2. Your likelihood to repay the loan. Your payment history and credit score are indicators to lenders of your likelihood to make payments in the future.

3. The home value. The underwriter carefully looks at the home value of the property you are purchasing or refinancing to verify that it meets or exceeds the purchase price or outstanding mortgage balance.

Explain the term “Diversification” in regards to investment strategy. Provide an example.

Diversification is spreading your assets among different types of investments to reduce risk.

Don’t put all your eggs in one basket. (поискать)

 

Discuss the 3 ways to leave a company as discussed in class.

1. By The Book: Perhaps the most common way of quitting is to do it the right way. You'll typically have meetings with your boss and/or HR and hand in your notice, see out a notice period and so on.

 

2. To The Point: This is very similar to the previous method, but perhaps because you're peeved off, the meeting tends to be shorter and to the point. You're also less likely to offer any reason for your leaving.

 

3. Helping With The Transition: If you're leaving on good terms then the 3rd route might be on you'll take. Here, you're likely to try and offer thanks for your time at the company and help them with any transition your departure might invoke.

 

What are “Credit Rating Agencies” and please discuss their role in the Economic Crisis of 2008.

Credit rating agency – Firms that rate the quality of bonds and other financial securities. These ratings are used by investors to assess the probability of default. Well-known rating agencies include Moody’s, Standard & Poors, and Fitch Ratings. Firms in this business must meet standards enforced by the Securities and Exchange Commission

Explain the difference between a “default” and a “foreclosure”.

Foreclosure - The legal process by which a property that is mortgaged as security for a loan may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure can occur when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments.

 

Default - is the failure to pay interest or principal on a loan or security when due. Default occurs when a debtor is unable to meet the legal obligation of debt repayment, and it also refers to cases in which one party fails to perform on a futures contract as required by an exchange.

17) You will be asked to explain some of the “IT” terms discussed in class and on the worksheets. ( Diana)

You will be asked to explain some of the “Phrasal Verbs” that were discussed in class and on the worksheets.

Get out - leave, escape
Get down to - begin to do something
Gets away with - escape blame or punishment
Come up with - think of or produce (an idea, solution)
Pull out off - withdraw form

Fall through-begin to do something
Go under-go bankrupt
Slack off-work less hard than usual
Stand out-be noticeable
Knock off-leave work to go home
Pull out-withdraw from

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