Recall the Application about the number of homeowners in the year 2012 who owed more on their homes than their homes were worth to answer the following question(s). To assist homeowners who are behind on their payments and may eventually lose their homes to foreclosure, many in Congress have advocated for reduction on the amount of money they actually owe-or principal reduction. The hope is that with a reduction in the amount they owed they would start making timely payments on their mortgages and avoid a messy default.
-Recall the Application. Assume that immediately before the housing bubble burst, you purchased a $250,000 home and took out a $225,000 mortgage to make the purchase. When the bubble burst, the value of your home fell by 20 percent. If you immediately sold the home for its new, current value, you will still owe the mortgage company an additional ________ and your total loss incurred from this entire process will be ________.
A) $50,000; $75,000
B) $25,000; $50,000
C) $18,000; $25,000
D) $50,000; $25,000

Question

Quizplus · Accepted Answer

The value of the home fell by 20 percent, so the new value is 80% of $250,000, which is $200,000. The mortgage was $225,000, so if sold for $200,000, you would still owe $25,000. The total loss includes the $50,000 loss in home value (from $250,000 to $200,000) plus the $25,000 still owed, totaling $75,000. However, the question asks for the additional amount owed and the total loss incurred from the entire process, which are $25,000 and $50,000, respectively, making the correct answer B.

Recall the Application About the Number of Homeowners in the Year