#1: What is a mortgage? Housing Bubble Review It is a loan to buy a house.

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Presentation transcript:

#1: What is a mortgage? Housing Bubble Review It is a loan to buy a house.

#2: How was a “sub-prime” mortgage different from a “prime” mortgage? Housing Bubble Review To get a prime mortgage, a person had to have good credit and had to make a down payment of 20%. People were getting sub-prime mortgages even if they had bad credit without putting any money down.

Housing Bubble Review #3: Why did banks make these risky sub-prime mortgage loans? Banks got a check for every loan they made, so they had an incentive to crank out as many loans as they could. Then they sold the loans to other banks, so they transferred the risk to others.

#4: How did the actions of the Federal Reserve contribute to the housing bubble? Housing Bubble Review By lowering the Fed Funds Rate to 1% after the dot.com crash, they made it really cheap to borrow money which led many more people to take out loans.