(CNN Student News) -- Record the CNN Special Investigations Unit Classroom Edition: Busted! Mortgage Meltdown when it airs commercial-free on Monday, October 6, 2008, from approximately 4:10-- 5:00 a.m. ET on CNN. (A short feature begins at 4:00 a.m. and precedes the program.)
Home loans gone bad are wrecking the U.S. economy. CNN teams up with Fortune Magazine's Andy Serwer to investigate how the housing boom went bust. The fallout begins on Wall Street, where billions of dollars in American mortgages were bought, bundled and sold around the world. CNN takes the high-stakes mortgage game to Delmonico's, a Wall Street institution since 1837, where the likes of J.P. Morgan and Andrew Carnegie once wheeled and dealed. Host Andy Serwer plays dealer and invites a few experts to face off on the mortgage crisis. Guest players include New York Times columnist and Princeton economist Paul Krugman, CNN's Personal Finance Editor Gerri Willis, securities guru Janet Tavakoli, investment strategist Peter Dunay and mortgage broker Jon Shibley.
Grade Levels: 11-12, College
Subject Areas: Business, Economics, Finance, Social Studies, Life Skills
The CNN Special Investigations Unit Classroom Edition: Busted! Mortgage Meltdown and its corresponding discussion questions and activity challenge students to:
Economics America National Standards
Standard 10 : Role of Economic Institutions
Students will understand that: Institutions evolve in market economies to help individuals and groups accomplish their goals. Banks, labor unions, corporations, legal systems, and not-for-profit organizations are examples of important institutions. A different kind of institution, clearly defined and enforced property rights, is essential to a market economy.
Standard 16 : Role of Government
Students will understand that: There is an economic role for government in a market economy whenever the benefits of a government policy outweigh its costs. Governments often provide for national defense, address environmental concerns, define and protect property rights, and attempt to make markets more competitive. Most government policies also redistribute income.
Standard V. Individuals, Groups and Institutions: Social studies programs should include experiences that provide for the study of interactions among individuals, groups, and institutions.
Standard VI. Power, Authority, and Governance: Social studies programs should include experiences that provide for the study of how people create and change structures of power, authority, and governance.
Point out to students that one of the best ways for them to prepare for homeownership is to arm themselves with knowledge, and that the purpose of this activity is to help them obtain this information.
Group students and instruct each group to prepare a PowerPoint presentation on the top ten things that first-time homebuyers should know before they shop for a mortgage. Groups may want to include information that addresses these points:
Have groups deliver their presentations to the class. If possible, invite a realtor or mortgage broker to attend the presentations and discuss the guidelines that are used to determine whether or not a homebuyer can afford a home.
Following the presentations, direct students to print and online resources to identify homes that are for sale in their community, as well as the current interest rates for a 30-year fixed mortgage, a 15-year fixed mortgage and a 5/1 ARM. Next, have each student select a house and use an online amortization schedule calculator to determine what the monthly payment (principle + interest) would be for each type of loan, assuming that the loan was for 80% of the purchase price of the home. Instruct students to identify the potential benefits and drawbacks of each type of loan, and to select the loan type that they feel would be the best choice for the homebuyer. Then, have each student determine the salary that he or she thinks a person would need to earn to afford the monthly mortgage payments. After students share their research, ask:
mortgage, subprime, foreclosure, economy, interest rates, credit risk, housing prices, homeowner, real estate, mortgage broker, reverse redlining, Wall Street, Federal Reserve, securities, regulation, predatory lending, housing bubble, capitalism, recession, depression