As a reaction to problems in the subprime area, lenders tightened lending standards. What effect do you think this had on the housing market?
• 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.
• 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.