V01-39

Question

Spokesperson: After a series of foreclosures, many homes in our community remain vacant, driving down property values and prompting long-time residents to consider relocating. To halt this decline, we should immediately offer vacant homes to new buyers with attractive two-year introductory-rate mortgages and zero down payment. After two years, these rates would adjust to match prevailing market conditions. This approach will swiftly restore neighborhood stability.
 
Which of the following, if true, casts the most serious doubt on the spokesperson’s proposal?

A. Local lenders already offer similar introductory mortgage rates that have so far attracted little interest from prospective buyers.
B. Reported burglaries on streets with multiple vacant houses rose 25 % last year.
C. Some long-time residents oppose any plan that might change the neighborhood’s character.
D. Past experience in similar communities shows buyers who accepted introductory-rate mortgages frequently defaulted after rates rose, leaving properties vacant once again.
E. Because the average sale price of a vacant home is below replacement cost, builders are unwilling to purchase and renovate these properties.

Bunuel · Answer

Official Solution:

Spokesperson: After a series of foreclosures, many homes in our community remain vacant, driving down property values and prompting long-time residents to consider relocating. To halt this decline, we should immediately offer vacant homes to new buyers with attractive two-year introductory-rate mortgages and zero down payment. After two years, these rates would adjust to match prevailing market conditions. This approach will swiftly restore neighborhood stability.
 
Which of the following, if true, casts the most serious doubt on the spokesperson’s proposal?

A. Local lenders already offer similar introductory mortgage rates that have so far attracted little interest from prospective buyers.
B. Reported burglaries on streets with multiple vacant houses rose 25 % last year.
C. Some long-time residents oppose any plan that might change the neighborhood’s character.
D. Past experience in similar communities shows buyers who accepted introductory-rate mortgages frequently defaulted after rates rose, leaving properties vacant once again.
E. Because the average sale price of a vacant home is below replacement cost, builders are unwilling to purchase and renovate these properties.

Situation:  A community spokesperson proposes offering two-year teaser-rate mortgages with zero down payment to lure buyers into purchasing the many vacant, foreclosure-scarred houses, thereby halting the decline in neighborhood property values.
 
 Reasoning:   Which option exposes the most serious flaw in the plan? 
 The proposal hinges on the assumption that borrowers who take advantage of the low introductory rate and zero down payment incentive can maintain their payments after the mortgage resets to a higher, standard rate. If borrowers default at that point, foreclosures will recur, restarting the cycle of vacancies and declining property values the plan seeks to prevent.
 
 A.  Local lenders already offer similar introductory mortgage rates that have so far attracted little interest from prospective buyers.
 This option highlights that similar interest rates alone haven't attracted buyers in the past, but it overlooks the new zero-down-payment incentive, which significantly differentiates the spokesperson's proposal. Thus, it fails to show that the plan would actually backfire.
 
 B.  Neighborhoods experiencing vacancies saw an increase in crime, primarily theft, by over 25% in the past year.
 Increased crime rates demonstrate the urgency of addressing vacant homes but do not undermine the teaser-mortgage proposal. It identifies a symptom rather than a flaw in the proposed solution.
 
 C.  Recent surveys indicate that a majority of current residents strongly oppose any initiative perceived as rapidly transforming neighborhood demographics.
 Resident opposition might slow or complicate implementation but does not impact the financial viability of the mortgage plan. It introduces a political rather than financial challenge, peripheral to the core mortgage mechanism.
 
 D. CORRECT.  Past experience in similar communities shows buyers who accepted introductory-rate mortgages frequently defaulted after rates rose, leaving properties vacant once again.
 This option challenges the central assumption underpinning the plan—that buyers can afford higher payments once the introductory rate expires. Historical precedent clearly demonstrates a high likelihood of repeated defaults, thus recreating the exact vacancy issue the spokesperson seeks to eliminate. It identifies the most fundamental flaw and is the correct answer.
 
 E.  The cost of renovating vacant homes currently exceeds their market value, discouraging developers from investing in refurbishing these properties.
 This option points out a barrier to developers but does not directly address the viability or effectiveness of the teaser-rate mortgage strategy for potential owner-occupants. It is a logistical concern rather than a fundamental flaw.

Answer: D

sergge · Answer

Cant' understand the logic of the OA.

The question asks us:
Which of the following, if true, represents the most significant potential problem with the  plan to attract buyers  through special mortgage offers?

OA states that FUTURE event will doubt the CURRENT plan. E.g. 
- on the one side OA states that "Low interests rates will likely attract buyers" and this part supports the argument
- on the other hand OA states that "buyers will be unable to make payments when the interest rate goes up after the first two years." - this is something about the FUTURE event and do not has an influence on the attraction AT THE TIME OF ATTRACTION.

AkaNiau · Answer

I thought the question was asking about the "attract" part of the plan, so I selected B because the crime rate wouldn't attract potential buyers.

theincredible · Answer

Completely agree with sergge here. The question states that the plan is to prevent snowball effect - attract new buyers. How does the option D represent a problem? Option D talks about an event that will happen 2 years later.  But the present problem will still be solved !! Please clarify and provide a more clear explanation.

sayantanc2k · Answer

The question is about "the most significant   POTENTIAL problem that could arise   with this plan". The question is NOT about whether the current problem will be solved or not.

You have erroneously assumed a different question. Your argument would be valid if the question were something like:
Which of the following, if true, most seriously calls into question that the plan would be successful in preventing the anticipated snowball effect (i.e. the CURRENT problem)?
The given question is totally different from this one.

itisSheldon · Answer

Try this one. Similar to the discussed question, but with a nuance https://gmatclub.com/forum/qotd-248691.html?fl=similar

gandalfthewhite · Answer

I think this is a  poor-quality  question and I don't agree with the explanation. If the Crime rates rise, people won't prefer to move to the area even if low-interest mortgages are provided. IMO the answer should be B.

ericzhang0821 · Answer

I would say do not focus on this question and move on.

Option D is not correct at all, as it is future problem not now.

Whoever saw the OA and then try to provide an explanation based on the correct answer, you suck because you cannot provide a solid reason other than you rely only on the OA.

SpecterLitt · Answer

Poor Quality Question & Explanation

thereisaFire · Answer

Hi experts

I understood the question but have one doubt in choice D.

The argument states that only potential buyers will be offered such low interest rater for the first two years.

the only way to prevent a snowball effect is to make it easy to purchase these vacant homes by offering  potential buyers  special mortgages with a low interest rate for the first two years.

Choice D mentioned some buyers "who will be unable to make payments when the interest rate goes up after the first two years". 
How can we assume that these buyers are potential buyers if they are not capable of paying out after 2 years?

Thanks in advance

utkarsh2025v2 · Answer

I don’t quite agree with the solution. Question asks "represents the most significant potential problem that could arise with this plan "

Low interests rates will likely attract buyers who will be unable to make payments when the interest rate goes up after the first two years - This will be a problem that's gonna happen in 2 years later, but we're ideally looking for a near-term bigger problem

if you don’t have enough mortgage brokers to actually set up these loans, buyers can’t close, houses stay empty, and the whole plan collapses before it even starts

bb · Answer

Thank you for the comment!

On GMAT CR,  “most significant potential problem”  means “the fact that, if true, would most seriously call into question the plan’s ability to accomplish its stated goal.”  Nothing in the stem limits you to  immediate  obstacles; any consequence that undermines the goal, whether tomorrow or in two years, it qualifies.

The mortgage broker issue is a distractor. It says the program will be so successful that the few brokers who are in the area won't be able to handle the rush. That's OK. The fact that there are not enough brokers to handle the rush is OK as they will just have to move a bit slower. It will make it slower but not fail.

bb · Answer

I have updated this question answer choices to make it more challenging hopefully.

akshatv45 · Answer

Hi  Bunuel

The answer you have provided states :  D. CORRECT. Past experience in similar communities shows buyers who accepted introductory-rate mortgages frequently defaulted after rates rose, leaving properties vacant once again.

The option D in the question is :  D. Buyers attracted by low introductory payments would face sharply higher monthly obligations when the rate resets, making many of them likely to default.

These two sound very different, am I missing something? Could you please help?

shaliny · Answer

I like the solution - it’s helpful.

Neharika28 · Answer

I don’t quite agree with the solution. Option A does specify no-downpayment which is the same as "zero downpayment" so it is the best weakener

hr1212 · Answer

bb  - There seems to be a syncing issue, as the wording in option A doesn't match the explanation provided for it.

bb · Answer

Thank you! I fixed it. Seems my changes did not stick the first time :-/

V01-39

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