Que-3 In light of the fact that foreclosure rates have been much higher on ARMs
ID: 1252958 • Letter: Q
Question
Que-3 In light of the fact that foreclosure rates have been much higher on ARMs than on fixed-rate mortgages, what do you predict will happen in the future to the proportion of mortgages that are of each type? Explain.Que-4 In effect, the CRA and the actions of Fannie Mae and Freddie Mac acted to subsidize home purchases by people who otherwise would not have purchased houses. All subsidies must be financed by taxes, implicit or explicit on someone. Who is paying the "taxes" in this case? Explain.
Please give separate and clear answer
Thanks
Explanation / Answer
3.) ARMs will cost more (higher interest rate than necessary) offset the higher risk attached, while fixed-rate mortgage interest rates will actually decrease due to higher supply and stability. 4.) Taxes are paid by the general public. In this case, some of the homeowners are paying tax... which goes back to them in the form of helping them pay for their homes. So they are being subsidized by their neighbor, and paying for their own home through past taxes.