This problem has you examine the losses on different mortgage contracts under the following scenario. Each mortgage was for $200,000 and has an interest rate of 4%. Each mortgage originated 2 years earlier. It now defaults, i.e., the second annual payment is not made, and the lender is able to recover 75% of the value of the house after expenses. Compute the bank's dollar loss in each case. Assume the value of each house remains its sale price.

a. Mortgage A is a conventional mortgage with a 20% down payment. Annual mortgage payments are $12,000.

b. Mortgage B is an interest-only mortgage with a 20% down payment. Annual mortgage payments are $8,000.

c. Mortgage C is an amortized mortgage that only required a 5% down payment. Annual mortgage payments are $12,000.

Answer rating: 100% (QA)

Mortgage Loss Calculations Heres the breakdown of the banks dollar loss for each mortgage scenario L... View the full answer