Question 1

What is the probability that a mortgage will be prepaid during a given year called?

Accepted Answer

A) mortgage reduction rate 
B) amortization rate 
C) filtration rate 
D) prepayment rate 
E) postponement rate 
A) mortgage reduction rate 
B) amortization rate 
C) filtration rate 
D) prepayment rate 
E) postponement rate

Question 2

You have decided to pay $1,200 a month on your 30-year, $220,000 mortgage. The interest rate is 3.75%. What is your total prepayment amount for the first year of your mortgage?

Accepted Answer

A) $2,174 
B) $2,257 
C) $2,384 
D) $2,400 
E) $14,000 
A) $2,174 
B) $2,257 
C) $2,384 
D) $2,400 
E) $14,000

Question 3

A mortgage pool is divided into a basic sequential CMO structure that includes A-, B-, C-, and Z-tranches. What happens to the initial interest payment for the Z-tranche?

Accepted Answer

A) It is immediately passed through to holders of Z-tranche securities. 
B) It is accumulated and held until the Z-tranche securities mature. 
C) It is exchanged for principal from the A-tranche. 
D) It is exchanged for principal from the B-tranche. 
E) It is exchanged for principal from the C-tranche. 
A) It is immediately passed through to holders of Z-tranche securities. 
B) It is accumulated and held until the Z-tranche securities mature. 
C) It is exchanged for principal from the A-tranche. 
D) It is exchanged for principal from the B-tranche. 
E) It is exchanged for principal from the C-tranche.

Question 4

If a borrower pays a constant monthly amount on a home mortgage based on a set rate of interest, which type of mortgage does she have?

Accepted Answer

A) prepayment-based 
B) open-end 
C) fixed-rate 
D) variable-rate 
E) floating-rate 
A) prepayment-based 
B) open-end 
C) fixed-rate 
D) variable-rate 
E) floating-rate

Question 5

You took out a 20-year, $125,000, 4.5% loan 8 years ago. What is your current principal balance, assuming payments are made monthly?

Accepted Answer

A) $58,588 
B) $65,130 
C) $74,988 
D) $87,867 
E) $88,889 
A) $58,588 
B) $65,130 
C) $74,988 
D) $87,867 
E) $88,889

Question 6

You just purchased a GNMA mortgage-backed security. Which one of the following should you expect to receive?

Accepted Answer

A) fixed monthly payments 
B) fixed quarterly payments 
C) variable monthly payments 
D) variable quarterly payments 
E) quarterly payments that decrease at a constant rate 
A) fixed monthly payments 
B) fixed quarterly payments 
C) variable monthly payments 
D) variable quarterly payments 
E) quarterly payments that decrease at a constant rate

Question 7

Which one of the following is the type of mortgage pool that guarantees timely payment of interest and principal?

Accepted Answer

A) prepaid 
B) refinanced 
C) secured 
D) fully amortized 
E) fully modified 
A) prepaid 
B) refinanced 
C) secured 
D) fully amortized 
E) fully modified

Question 8

Mortgage-backed securities are defined as securities whose investment returns are based on which one of the following?

Accepted Answer

A) lease payments from the tenants of financed property 
B) interest on mortgage loans 
C) loan refinancing 
D) condominium fees 
E) a pool of mortgages 
A) lease payments from the tenants of financed property 
B) interest on mortgage loans 
C) loan refinancing 
D) condominium fees 
E) a pool of mortgages

Question 9

Seasoned mortgages are defined as mortgages that are ________.

Accepted Answer

A) prepackaged 
B) being resold 
C) being paid faster than scheduled 
D) being refinanced 
E) over 30 months old 
A) prepackaged 
B) being resold 
C) being paid faster than scheduled 
D) being refinanced 
E) over 30 months old

Question 10

You are borrowing $300,000 for 20 years at 4%. Payments will be made monthly. What is the total amount of interest you will pay if you pay the loan as agreed over the 20 years?

Accepted Answer

A) $114,786 
B) $124,340 
C) $136,306 
D) $164,120 
E) $196,342 
A) $114,786 
B) $124,340 
C) $136,306 
D) $164,120 
E) $196,342

Question 11

Fifteen years ago, you borrowed $385,000 for 25 years at 3.5% interest. What is the current principal balance, assuming payments are made monthly?

Accepted Answer

A) $193,909 
B) $194,129 
C) $194,219 
D) $194,912 
E) $195,092 
A) $193,909 
B) $194,129 
C) $194,219 
D) $194,912 
E) $195,092

Question 12

You are currently borrowing $175,000 to buy a house. The mortgage is for 15 years at 6%. How much would you save each month if you could finance this amount at 5% for the same time period?

Accepted Answer

A) $84.37 
B) $86.27 
C) $88.95 
D) $90.24 
E) $92.86 
A) $84.37 
B) $86.27 
C) $88.95 
D) $90.24 
E) $92.86

Question 13

Which one of the following financing terms will provide the lowest monthly payment for a fixed-rate, $175,000 mortgage?

Accepted Answer

A) 10-year, 5.5% 
B) 10-year, 6.0% 
C) 15-year, 5.5% 
D) 15-year, 6.0% 
E) 30-year, 5.5% 
A) 10-year, 5.5% 
B) 10-year, 6.0% 
C) 15-year, 5.5% 
D) 15-year, 6.0% 
E) 30-year, 5.5%

Question 14

Which one of the following is correct concerning the total payment amount on a PO strip?

Accepted Answer

A) The total payment amount equals the bond's par value. 
B) The total payment amount will either equal or exceed the bond's par value. 
C) The total payment will vary based on the PSA schedule. 
D) The total payment amount will increase if interest rates decline. 
E) The total payment amount will vary if the prepayment rate varies. 
A) The total payment amount equals the bond's par value. 
B) The total payment amount will either equal or exceed the bond's par value. 
C) The total payment will vary based on the PSA schedule. 
D) The total payment amount will increase if interest rates decline. 
E) The total payment amount will vary if the prepayment rate varies.

Question 15

A mortgage-backed security that has only a subordinate claim to scheduled principal payments is referred to as which type of bond?

Accepted Answer

A) subsidiary 
B) sequential 
C) PAC support 
D) secondary 
E) subordinate 
A) subsidiary 
B) sequential 
C) PAC support 
D) secondary 
E) subordinate

Question 16

The CPR for a seasoned 150 PSA mortgage is 6.9%. What is the single monthly mortality?

Accepted Answer

A) .5895% 
B) .5932% 
C) .5940% 
D) .5951% 
E) .5959% 
A) .5895% 
B) .5932% 
C) .5940% 
D) .5951% 
E) .5959%

Question 17

Which one of the following mortgage terms will cause the borrower to pay the most interest, assuming the mortgage is paid according to the amortization schedule?

Accepted Answer

A) 10-year, 6.5% 
B) 10-year, 7.0% 
C) 15-year, 7.0% 
D) 30-year, 6.5% 
E) 30-year, 7.0% 
A) 10-year, 6.5% 
B) 10-year, 7.0% 
C) 15-year, 7.0% 
D) 30-year, 6.5% 
E) 30-year, 7.0%

Question 18

Which one of the following statements regarding PAC bonds is correct?

Accepted Answer

A) The cash flows from a PAC bond are less certain than those from a Z-tranche bond from a sequential CMO. 
B) PAC bondholders receive the residual cash flows from the underlying mortgage pool. 
C) PAC bonds are defined by specific rules that carve up cash flows from a mortgage pool. 
D) PAC bonds have bounds based on market interest rates. 
E) PAC bond cash flows are unaffected by mortgage prepayments. 
A) The cash flows from a PAC bond are less certain than those from a Z-tranche bond from a sequential CMO. 
B) PAC bondholders receive the residual cash flows from the underlying mortgage pool. 
C) PAC bonds are defined by specific rules that carve up cash flows from a mortgage pool. 
D) PAC bonds have bounds based on market interest rates. 
E) PAC bond cash flows are unaffected by mortgage prepayments.

Question 19

GNMA mortgage pools are based on mortgages issued by which of the following?
I. FHLMC
II. FNMA
III. FHA
IV. FmHA

Accepted Answer

A) I and II only 
B) II and III only 
C) III and IV only 
D) I, II, and IV only 
E) I, II, III, and IV 
A) I and II only 
B) II and III only 
C) III and IV only 
D) I, II, and IV only 
E) I, II, III, and IV

Question 20

Which one of the following terms applies to the process of reducing mortgage principal over the life of a mortgage?

Accepted Answer

A) mortgage amortization 
B) mortgage prepayment 
C) mortgage elimination 
D) mortgage securitization 
E) mortgage passthrough 
A) mortgage amortization 
B) mortgage prepayment 
C) mortgage elimination 
D) mortgage securitization 
E) mortgage passthrough

Exam 21: Mortgage-Backed Securities

What is the probability that a mortgage will be prepaid during a given year called?

You have decided to pay $1,200 a month on your 30-year, $220,000 mortgage. The interest rate is 3.75%. What is your total prepayment amount for the first year of your mortgage?

A mortgage pool is divided into a basic sequential CMO structure that includes A-, B-, C-, and Z-tranches. What happens to the initial interest payment for the Z-tranche?

If a borrower pays a constant monthly amount on a home mortgage based on a set rate of interest, which type of mortgage does she have?

You took out a 20-year, $125,000, 4.5% loan 8 years ago. What is your current principal balance, assuming payments are made monthly?

You just purchased a GNMA mortgage-backed security. Which one of the following should you expect to receive?

Which one of the following is the type of mortgage pool that guarantees timely payment of interest and principal?

Mortgage-backed securities are defined as securities whose investment returns are based on which one of the following?

Seasoned mortgages are defined as mortgages that are ________.

You are borrowing $300,000 for 20 years at 4%. Payments will be made monthly. What is the total amount of interest you will pay if you pay the loan as agreed over the 20 years?

Fifteen years ago, you borrowed $385,000 for 25 years at 3.5% interest. What is the current principal balance, assuming payments are made monthly?

You are currently borrowing $175,000 to buy a house. The mortgage is for 15 years at 6%. How much would you save each month if you could finance this amount at 5% for the same time period?

Which one of the following financing terms will provide the lowest monthly payment for a fixed-rate, $175,000 mortgage?

Which one of the following is correct concerning the total payment amount on a PO strip?

A mortgage-backed security that has only a subordinate claim to scheduled principal payments is referred to as which type of bond?

The CPR for a seasoned 150 PSA mortgage is 6.9%. What is the single monthly mortality?

Which one of the following mortgage terms will cause the borrower to pay the most interest, assuming the mortgage is paid according to the amortization schedule?

Which one of the following statements regarding PAC bonds is correct?

GNMA mortgage pools are based on mortgages issued by which of the following? I. FHLMC II. FNMA III. FHA IV. FmHA

Which one of the following terms applies to the process of reducing mortgage principal over the life of a mortgage?

A Brief History of Risk and Return

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