The subprime crisis and the credit

crunchMK, Unit 14

Match up the terms and definitions mortgage

down payment

credit rating

collateral

default foreclosure (to

foreclose)

bubble

failure to repay a loan a partial payment made at the time of

purchase, with the balance to be paid later. a loan secured by the collateral of a real

estate property a process that transfers the right of home

ownership from the homeowner to the bank or lender. This happens when the owner defaults on his mortgage loan payments.

A situation in which prices of some asset(s) rise far above their actual value.

property or other assets used as a guarantee of payment

estimates of people’s ability to fulfil their financial commitments

Solutions:

mortgage

down payment

credit rating

collateral

default foreclosure (to

foreclose)

bubble

a loan secured by the collateral of a real estate property

a partial payment made at the time of purchase, with the balance to be paid later.

estimates of people’s ability to fulfil their financial commitments

property or other assets used as a guarantee of payment

failure to repay a loan a process that transfers the right of home

ownership from the homeowner to the bank or lender. This happens when the owner defaults on his mortgage loan payments.

A situation in which prices of some asset(s) rise far above their actual value.

Video – Watch this at home too!!!

Watch and answer the questions

http://www.crisisofcredit.com/ Why did institutional investors look for new

investment opportunities in the early 2000s? What are collateralized debt obligations? What is the difference between prime and

subprime borrowers? How are prices of all houses affected when a

significant portion of homeowners default on their mortgage?

RB, p. 80/III

1. G

2. B

3. C

4. E

5. D

6. A

7. F

Practice: MK, p. 75 Before reading explain these terms: financial assets cash flow securities to write off a bad debt

When banks realize that a debt will never be repaid and stop trying to collect it

Practice: What are these? Find the corresponding term in the reading. (MK, p. 75)

People who are unlikely to repay their loan. – subprime borrowers /people with a high risk of

default A security, that an investor would buy because

(s)he wants to get a regular income from people who are paying off the mortgage on their houses.

– MBS and CDO The property is worth less than the loan value. – the debt is greater than the value of the house

Practice: Find definitions for these terms in the text Subprime borrowers Default Securitization Credit crunch