Mortgage Crisis

Topics: Interest, Money, Loan Pages: 2 (1132 words) Published: October 28, 2014

Attached is a sample of loan-level information (Exhibit 2). How would you expect an applicant’s debt-to-income ratio to relate to other loan characteristics, such as credit score? (Narrative) In analyzing an applicant’s debt-to-income ratio, I would take into account how much money the applicant makes monthly/yearly in order to determine the likelihood that they are able to pay off the loan in its entirety. For example, an applicant whose income greatly surpasses their debt to the point where they will have a sizeable amount of income left over after each loan payment has a much greater chance of having a good credit score as opposed to an applicant that will seemingly not have a reasonable amount of money left over for living expenses. The reason why this is so is because an applicant who takes on more debt than their income allows (higher debt-to-income ratio) is more than likely struggling to get by and living check to check. In the event that an accident happens or they lose their job, they are far more likely to end up behind on loan payments or to stop paying the loans completely because living expenses will obviously have a much larger priority over loan payments to the average person. Could limiting an applicant’s debt-to-income ratio present any mortgage credit availability issues? (Narrative) I believe that limiting an applicant’s debt-to-income ratio could present mortgage credit availability issues. Limiting an applicant’s debt-to-income ratio ultimately means limiting the amount of debt someone can take on. This in turn limits the level of demand for loans. Over the past few years, I have taken a personal interest to the mortgage market. It is evident that many financial institutions are limiting the amount of debt that applicants can take on. Mortgage credit is tight and applicants must jump through more hoops to get the same amount of loans they were given in prior years. I believe that this creates weak demand for loans overall because...
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