Consider the following scenario. An American family is living in a home with no equity in it. They have an obligation to make monthly payments for their home. At a given point in time, their monthly-payment obligation is increased such that they can no longer afford the payments.
Which of the following choices best describes the above scenario:
- This is one of those "millions of American families who are about to lose their homes" that we keep hearing about. This family fell victim to the sub-prime lending practices that created our financial crisis. Having made no down payment, they had assumed an adjustable-rate interest-only mortgage, whose rate has been adjusted; upwards.
- This is one of those millions of American families who are about to move to a cheaper apartment, because their rent has been increased beyond what their prudent monthly budget can manage.
- There is not enough information given in the scenario to distinguish between the first two choices.
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