Finance
What is an 'alternative documentation' (alt-doc) mortgage and how did it contribute to the housing crisis?
AA mortgage requiring extra documentation
BA mortgage allowing borrowers to use alternative income documentation (stated income, no-doc) rather than full verification; widespread misuse contributed to the 2007-2009 housing crisis✓ Correct
CA government mortgage for self-employed borrowers
DA Rhode Island-specific mortgage program
Explanation
Alt-doc mortgages allowed borrowers to state their income without full verification. Widespread misuse (false income claims) led to loans to borrowers who couldn't afford them, contributing significantly to the 2007-2009 mortgage and housing crisis.
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Key Terms to Know
Debt-to-Income Ratio (DTI)
A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Short SaleA sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
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