Self-study
One of the things lenders do in evaluating the risk of a potential borrower defaulting on a loan is to consider the potential borrower's credit score. ██ ████████ ███ ██████ ███ ██████ ██████ ███ ████ ███ ████ ██ ████████ ███ ███ ████████ ██████ ███ ██████████ ██ ████████ ██ ████ ██████ ███ █████████ ████ ███ ███████ ██████ ██████ ████ ███ █████ ██████████
"Surprising" Phenomenon
There are higher default rates among mortgage borrowers with the highest credit scores than there are among other mortgage borrowers, even though higher credit scores typically correspond to lower risks of loan default.
Objective
The right answer will explain a key difference between mortgage borrowers with the highest credit scores and other borrowers. That difference must shed light on some factor that explains why the former group tend to have a harder time repaying their loans.
19.
Which one of the following, ██ █████ ████ █████ ██ ███████ ███ ████████ ███████████ ██ ███ ██████████ ██████
a
Mortgage lenders are ████ ████ ██████ ██ ████████ ████ ███████ █████ ████ ██████ █████ ████ ██████████ █████████ ████ ███ ███████ ██████ ███████
This is what we’re looking for! Mortgage lenders are much less likely to take the time to comprehensively evaluate borrowers with the highest credit scores, so they end up loaning to riskier people whose red flags would have disqualified them if the lender had looked closer.
b
Credit scores reported ██ ████████ ███████ ███ █████ ██ ███████████ ██ ████ ████ █████████ ███████ ██████ ██ ████ ████████ ████████████
This doesn’t describe any difference between the highest-credit-score borrowers and the others. Because these inaccuracies presumably occur across the board, (B) doesn’t explain why a correlation that holds for most borrowers falls apart for those with the highest credit scores.
c
A potential borrower's ██████ █████ ██ █████ ██ ████ ██ ███ █████████ ██████████ ████ ███████ ██ ██████ ███ █████ ██ ████ ███ ██ █████
Of course this is true! These factors play a huge role in a person’s credit score. But that’s true for every person at every credit score level, so nothing here explains why a correlation that holds for most borrowers falls apart for those with the highest credit scores.
d
For most consumers, █ ████████ ██ █ ████ ██████ ████ ████ ███ █████ ████ ███ ████████ ████████
Of course this is true! Houses are expensive. But this doesn’t point to a difference between highest-credit-score consumers and others, so nothing here explains why a correlation that holds for most borrowers falls apart for those with the highest credit scores.
e
Most potential borrowers ████ ██████ ██████ ████ ███ ███████ ████ ███ ███ ████ █████
This seems quite plausible, but it doesn’t help us understand what’s happening for mortgage borrowers with the highest credit scores that’s different from what’s happening for other borrowers.