(10 points) In The Big Short, mortgage brokers were characte…
(10 points) In The Big Short, mortgage brokers were characterized as having sought out (targeted) subprime borrowers, reflecting a new method of discriminatory lending practices in the US housing market. Question detail and grading rubric: 1point: What does it mean to be a “subprime” borrower? 1 point: What is the historical relationship between Fannie Mae and redlining? What was the economic justification for this practice? 4 points: What is Fannie Mae’s AUS and how does it use FICA scores, LTV ratios, and DTV ratios? Define each of those underlined terms in your answer and explain their relevance to mortgage approval generally and to Fannie Mae specifically. 2 points: Based on the material from class, what is the relationship between race and AUS outcomes? Between race and mortgage approval rates over and above AUS outcomes? Explain the reason for each relationship. 2 points: Why did mortgage brokers in The Big Short actively seek out subprime borrowers? Why does this seem counter-intuitive, and what was it about market incentives that nonetheless led to such behavior?
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