Distinguish prime borrowers from subprime borrowers

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1. If you were watching house prices rise during the years 2000-2006, how might you have decided whether or not you were witnessing a "bubble"?

2. What factors do you think bankers normally use to distinguish "prime" borrowers from "subprime" borrowers?

3. Explain why a mortgage-backed security becomes riskier when the values of the underlying houses decline. What, as a result, happens to the price of the mortgage-backed security?

Reference no: EM131353708

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