However, when housing prices decline or just do not appreciate, and the debt market is illiquid, subprime mortgagors have difficulty obtaining cash-out refinancing. Hence, the probability of defaults is high and is correlated across mortgages, reflecting the fact that common macroeconomic factors—decline in housing prices or debt market illiquidity—determine the defaults. This binary quality of subprime mortgages should require a careful reconsideration of assumptions and model estimations based on housing prices. However, once again, the rating agencies’ assumptions were too optimistic, and the assigned ratings did not reflect the underlying economic risk.