Author Question: Why do mortgage companies begin to require larger down payments from their borrowers when housing ... (Read 32 times)

waynest · **on:** Jun 29, 2018

Why do mortgage companies begin to require larger down payments from their borrowers when housing prices begin to fall?

What will be an ideal response?

Question 2

When the Fed embarked on a policy known as quantitative easing, they

A) reduced the required reserve ratio by one-quarter point per month for 12 months.
B) bought longer-term securities than are usually bought in open market operations.
C) opened up lending to primary dealers, commercial banks, and investment banks.
D) slowly lowered the federal funds rate target until it was equal to zero.

gstein359 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The primary risk that a mortgage company makes when it loans money on a house is default on the part of the borrower. Even though the house is typically the largest part of the collateral of the loan the mortgage company could stand to lose a significant amount of money if it had to sell the repossessed home in a declining market. Making borrowers put up a larger down payment helps make up for the deficiency in the value of the collateral.

Answer to Question 2

B