House Of Cards Questions Financial Collapse

Financial collapse
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House of cards questions
Part 1
a. Bailout-This is extension of financial support to companies facing bankruptcy and may require reimbursements and often requires government regulations.
b. Bankruptcy- Refers to a firm’s or person’s inability to repay their outstanding debts
c. Layoff- This is employee being terminated in a job for business reasons and not work-related performance and may include being made redundant.
d. Credit- This is the amount of credit (money) available to a person or business, and when financial obligations extend credit the borrowers have obligations to repay.
2) It is not wrong to evict a person before taking their houses, but banks need to follow the due procedures and try other avenues before eviction. Judicial foreclosures are often the first step before trying eviction.
3) The consumers were partly responsible because they took much debt to buy houses the houses they could not buy, driving values high and were overwhelmed by the debt burden.
4) Alan Greenspan lowered interest rates to stimulate the weak economy and this increases credit at a low interest rate allowing firms and individuals to borrow more.
5) Many people with bad credit were allowed to take bad mortgages and were unable to afford the required payments.
Part 2
1 Yes it is necessary for the borrowers to present documentation so that lenders can undertake further analysis and exercise due diligence to determine who is eligible for loans.
2 The new mortgage lenders want new rules because the rules were unfair to new entrants and would allow more fair competition.
3 As the more prices rose more people invested in the real estate market based on expectations that there would be higher returns, and the subprime mortgage lending was also rising.
4 The mortgage backed securities (MBS) are a form of asset-backed security or instrument that allowed banks to lend more loans. For borrowers MBS was a good option as here was low regulation and there were fewer restrictions compared to other sources.
5 Stated income is the borrower’s income and the stated income loans were mortgages where lenders provided loans without verifying the borrower’s income and ability to repay.
6 F.I.C.O score are scores of credit ratings, which lenders use to assess creditworthiness, and the score depends on credit reports and information.
7 Mortgages lenders made more sub-prime mortgages to increase lending and there was increased demand as the house values rose.
Part 3: Dream Homes
1 2-28 is a type of mortgage where there is a two-year fixed interest rate period and then variable interest for the remaining 28 years of the 30 year mortgage.
2 Brokers took advantage of home buyers because they could make more on commissions and some people overpaid for homes that were overvalued.
3 The brokers earned more by selling more homes and connecting customers with the lenders as they sold high-cost mortgages to poor people.
4 Taking equity is remortgaging the house and borrowing against the house, and when the value if the house increases so does the equity.
5 More people took larger loans after remortgaging based on the belief th...