First, read "New Century Brings Trouble for Subprime Mortgages" (see attached file). Answer the following questions:
Question 1. As a reaction to problems in the subprime area, lenders tightened lending standards. What effect do you think this had on the housing market?
Question 2. What is an adjustable rate mortgage (ARM)? Do you think this type of mortgage is more attractive to new homebuyers than traditional mortgages? Explain with reasons.
Question 3. Which of the following factors was most influential in the crisis: low interest rate environment, loose underwriting standards, or innovations in mortgage financing? Select one and explain why.