A Particular Bank Has Two Loan Modification Programs for Distressed

Multiple Choice

A particular bank has two loan modification programs for distressed borrowers: Home Affordable Modification Program (HAMP) modifications, where the federal government pays the bank $1,000 for each successful modification, and non-HAMP modifications, where the bank does not receive a bonus from the federal government. To qualify for a HAMP modification, borrowers must meet a set of financial suitability criteria. Define the null and alternative hypotheses to test whether borrowers who receive HAMP modifications default less than borrowers who receive non-HAMP modifications. Let p₁ and p₂ represent the proportion of borrowers who received HAMP and non-HAMP modifications that did not re-default, respectively.

A) H₀: p₁ - p₂ ≤ 0, H_A: p₁ - p₂ > 0
B) H₀: p₁ - p₂ ≥ 0, H_A: p₁ - p₂ < 0
C) H₀: p₁ - p₂ = 0, H_A: p₁ - p₂ ≠ 0
D) H₀: p₁ - p₂ > 0, H_A: p₁ - p₂ ≤ 0