When housing prices began to decline after their peak in 2006, many subprime borrowers found that their mortgages were "underwater." This meant that A) the value of the house fell below the amount of the mortgage. B) the basement flooded since they could not afford to fix the leaky plumbing. C) the roof leaked during a rainstorm. D) the amount that they owed on their mortgage was less than the value of their house.

Question

Business

Andrea King

28 February, 18:29

When housing prices began to decline after their peak in 2006, many subprime borrowers found that their mortgages were "underwater." This meant that A) the value of the house fell below the amount of the mortgage. B) the basement flooded since they could not afford to fix the leaky plumbing. C) the roof leaked during a rainstorm. D) the amount that they owed on their mortgage was less than the value of their house.

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Answers (1)

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Chaya Williams · Answer 1

The correct answer is option A.

Explanation:

In the year 2006, the housing prices in the US were at their peak. But after the bursting of the housing bubble, when the housing prices fell, many subprime borrowers realized that their mortgages were "underwater."

A subprime borrower refers to a person with less than perfect credit rating. Such borrowers are considered to have high default risk, so they have to pay higher interest.

Underwater mortgage refers to the situation when the borrowers realize that the principal amount of their loan is greater than the free market value of the house. It generally happens in cases property values are falling.