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The originate-to-distribute business model has a serious ____ problem since the
mortgage broker has little incentive to make sure that the mortgagee is a good credit risk.
A) principal-agent
B) debt deflation
C) democratization of credit
D) collateralized debt
Answer: A
Diff: 1 Type: MC Page Ref: 189
Skill: Recall
Objective List: 9.3 Discuss the most recent financial crisis
The originate-to-distribute business model is when ____.
A) mortgage originators made sure that the mortgage was a good credit risk
B) mortgage originators distributed the mortgage to an investor as an underlying asset in a
security
C) homeowners could refinance their houses with larger loans when their homes appreciated in
value
D) mortgage originators were the credit rating agencies
Answer: B
Diff: 2 Type: MC Page Ref: 189
Skill: Recall
Objective List: 9.3 Discuss the most recent financial crisis
Mortgage brokers often did not make a strong effort to evaluate whether the borrower could
pay off the loan. This created a ____.
A) severe adverse selection problem
B) decline in mortgage applications
C) call to deregulate the industry
D) decrease in the demand for houses
Answer: A
Diff: 1 Type: MC Page Ref: 189
Skill: Recall
Objective List: 9.3 Discuss the most recent financial crisis
The agency problem in the mortgage markets was due to the ____ business model.
A) originate-to-distribute
B) business-as-usual
C) securitization
D) "pass-through"
Answer: A
Diff: 2 Type: MC Page Ref: 189
Skill: Recall
Objective List: 9.2 Explain how increases in adverse selection and moral hazard cause financial
crises