Question 1

Assume that a mortgage pool follows a specified PSA prepayment schedule. Given this, the cash flow yield on the mortgage pool will do which one of the following?

Accepted Answer

A) equal the average interest rate of the mortgages contained in the pool 
B) equal the anticipated cash flow for the next year divided by the current value of the pool 
C) equate the present value of the future cash flows from the pool to the current value of the pool 
D) equate the average interest rate on the mortgages to the current market rate of interest 
E) equal the current market rate of interest 
A) equal the average interest rate of the mortgages contained in the pool 
B) equal the anticipated cash flow for the next year divided by the current value of the pool 
C) equate the present value of the future cash flows from the pool to the current value of the pool 
D) equate the average interest rate on the mortgages to the current market rate of interest 
E) equal the current market rate of interest

Question 2

Which one of the following terms is applied to the process of creating mortgage-backed securities from a pool of mortgages?

Accepted Answer

A) mortgage aggregation 
B) mortgage securitization 
C) mortgage bundling 
D) mortgage pooling 
E) mortgage financing 
A) mortgage aggregation 
B) mortgage securitization 
C) mortgage bundling 
D) mortgage pooling 
E) mortgage financing

Question 3

You acquired a 30-year mortgage two years ago to purchase your current residence. Your mortgage is classified as which one of the following?

Accepted Answer

A) seasoned 
B) unseasoned 
C) conditional 
D) complex 
E) deferred 
A) seasoned 
B) unseasoned 
C) conditional 
D) complex 
E) deferred

Question 4

Which one of the following will maximize the value of an IO strip?

Accepted Answer

A) prepaying all mortgages in the underlying mortgage pool 
B) minimizing the duration of the underlying mortgage pool 
C) maximizing the value of the PO strip 
D) amortizing the bonds in the underlying pool faster than anticipated 
E) creating conditions where no prepayments occur in the underlying mortgage pool 
A) prepaying all mortgages in the underlying mortgage pool 
B) minimizing the duration of the underlying mortgage pool 
C) maximizing the value of the PO strip 
D) amortizing the bonds in the underlying pool faster than anticipated 
E) creating conditions where no prepayments occur in the underlying mortgage pool

Question 5

A mortgage pool was created six years ago. Which one of the following PSA values is most likely to apply to that pool if market mortgage rates have been declining very rapidly over the past five years?

Accepted Answer

A) 0 
B) 50 
C) 100 
D) 150 
E) 200 
A) 0 
B) 50 
C) 100 
D) 150 
E) 200

Question 6

You have a 25-year, $300,000 mortgage at 3.5% interest. What is the amount of your mortgage prepayment if you pay $1,725 as your second mortgage payment? Assume your first payment was the agreed upon amount.

Accepted Answer

A) $204.93 
B) $212.25 
C) $223.13 
D) $231.54 
E) $246.65 
A) $204.93 
B) $212.25 
C) $223.13 
D) $231.54 
E) $246.65

Question 7

Which one of the following is a security that only pays the principal cash flows to investors?

Accepted Answer

A) split strip 
B) interest-only strip 
C) amortized strip 
D) principal-only strip 
E) final strip 
A) split strip 
B) interest-only strip 
C) amortized strip 
D) principal-only strip 
E) final strip

Question 8

How much faster will a mortgage pool with a PSA of 150 be prepaid as compared to the benchmark?

Accepted Answer

A) 150 times faster 
B) 15 times faster 
C) 1.5 times faster 
D) 1.5 times slower 
E) 15 times slower 
A) 150 times faster 
B) 15 times faster 
C) 1.5 times faster 
D) 1.5 times slower 
E) 15 times slower

Question 9

Which one of the following correctly applies to a mortgage passthrough bond?

Accepted Answer

A) The primary collateral for the bond is the underlying pool of mortgages. 
B) All interest received is immediately passed through while principal payments are held until the bond matures. 
C) Each bond represents one home mortgage. 
D) These bonds are created via a process known as mortgage collaring. 
E) All of these bonds are guaranteed by the full faith and credit of the U.S. government. 
A) The primary collateral for the bond is the underlying pool of mortgages. 
B) All interest received is immediately passed through while principal payments are held until the bond matures. 
C) Each bond represents one home mortgage. 
D) These bonds are created via a process known as mortgage collaring. 
E) All of these bonds are guaranteed by the full faith and credit of the U.S. government.

Question 10

Which one of the following is most apt to create an environment that increases mortgage prepayments?

Accepted Answer

A) home mortgage rates remain relatively steady 
B) home mortgage rates decline significantly 
C) the frequency of mortgage defaults rises 
D) homeowners have steady, secure employment at their current jobs 
E) the number of employees being transferred for employment purposes declines 
A) home mortgage rates remain relatively steady 
B) home mortgage rates decline significantly 
C) the frequency of mortgage defaults rises 
D) homeowners have steady, secure employment at their current jobs 
E) the number of employees being transferred for employment purposes declines

Question 11

The CPR for a seasoned 150 PSA mortgage is 8.4%. What is the single monthly mortality?

Accepted Answer

A) .7285% 
B) .7558% 
C) .7949% 
D) .8013% 
E) .8129% 
A) .7285% 
B) .7558% 
C) .7949% 
D) .8013% 
E) .8129%

Question 12

You have a 25-year mortgage at 5% interest. The initial loan amount was $250,000. By how much did the principal decrease over the first 10 years of the loan? Payments are made monthly.

Accepted Answer

A) $61,345 
B) $64,580 
C) $65,189 
D) $66,453 
E) $68,618 
A) $61,345 
B) $64,580 
C) $65,189 
D) $66,453 
E) $68,618

Question 13

After month 30, assuming that prepayments remain within the PAC collar, the holders of a PAC bond will receive which one of the following payments?

Accepted Answer

A) a fixed principal payment only 
B) a fixed interest payment only 
C) a fixed principal payment plus a declining interest payment 
D) a declining principal payment only 
E) a declining principal payment and a declining interest payment 
A) a fixed principal payment only 
B) a fixed interest payment only 
C) a fixed principal payment plus a declining interest payment 
D) a declining principal payment only 
E) a declining principal payment and a declining interest payment

Question 14

You have a 15-year, fixed-rate, $150,000 mortgage. The monthly payment amount is constant and the mortgage is amortized on a monthly basis. Which of the following best describes how much the principal balance will be after the 90th payment has been made?

Accepted Answer

A) $0 
B)  $75,000 
E) cannot be determined from the information provided 
A) $0 
B)  $75,000 
E) cannot be determined from the information provided

Question 15

The greater the prepayment rate for a mortgage pool, the:

Accepted Answer

A) slower the payments to the holders of the bonds supported by the pool. 
B) greater the decline in the bond principal for bonds supported by the pool. 
C) longer the age of the mortgages held in the underlying pool. 
D) lower the PSA benchmark rate. 
E) greater the default risk. 
A) slower the payments to the holders of the bonds supported by the pool. 
B) greater the decline in the bond principal for bonds supported by the pool. 
C) longer the age of the mortgages held in the underlying pool. 
D) lower the PSA benchmark rate. 
E) greater the default risk.

Question 16

What is the monthly mortgage payment on a $350,000, 20-year fixed rate loan if the interest rate is 3.125%?

Accepted Answer

A) $1,910.39 
B) $1,928.57 
C) $1,945.27 
D) $1,963.07 
E) $2,022.49 
A) $1,910.39 
B) $1,928.57 
C) $1,945.27 
D) $1,963.07 
E) $2,022.49

Question 17

After 30 months, what is the 100 PSA benchmark conditional prepayment rate per year?

Accepted Answer

A) 3% 
B) 5% 
C) 6% 
D) 8% 
E) 12% 
A) 3% 
B) 5% 
C) 6% 
D) 8% 
E) 12%

Question 18

How long is the expected average life of a mortgage held in a pool of 30-year mortgages with a 100 PSA?

Accepted Answer

A) 14.68 years 
B) 18.29 years 
C) 21.33 years 
D) 23.90 years 
E) 25.25 years 
A) 14.68 years 
B) 18.29 years 
C) 21.33 years 
D) 23.90 years 
E) 25.25 years

Question 19

The CPR for a seasoned 150 PSA mortgage is 9.9%. What is the single monthly mortality?

Accepted Answer

A) .7885% 
B) .8158% 
C) .8349% 
D) .8650% 
E) .8829% 
A) .7885% 
B) .8158% 
C) .8349% 
D) .8650% 
E) .8829%

Question 20

Which one of the following is a government agency?

Accepted Answer

A) FHLMC 
B) Fannie Mae 
C) Freddie Mac 
D) GNMA 
E) FNMA 
A) FHLMC 
B) Fannie Mae 
C) Freddie Mac 
D) GNMA 
E) FNMA

Exam 21: Mortgage-Backed Securities

Assume that a mortgage pool follows a specified PSA prepayment schedule. Given this, the cash flow yield on the mortgage pool will do which one of the following?

Which one of the following terms is applied to the process of creating mortgage-backed securities from a pool of mortgages?

You acquired a 30-year mortgage two years ago to purchase your current residence. Your mortgage is classified as which one of the following?

Which one of the following will maximize the value of an IO strip?

A mortgage pool was created six years ago. Which one of the following PSA values is most likely to apply to that pool if market mortgage rates have been declining very rapidly over the past five years?

You have a 25-year, $300,000 mortgage at 3.5% interest. What is the amount of your mortgage prepayment if you pay $1,725 as your second mortgage payment? Assume your first payment was the agreed upon amount.

Which one of the following is a security that only pays the principal cash flows to investors?

How much faster will a mortgage pool with a PSA of 150 be prepaid as compared to the benchmark?

Which one of the following correctly applies to a mortgage passthrough bond?

Which one of the following is most apt to create an environment that increases mortgage prepayments?

The CPR for a seasoned 150 PSA mortgage is 8.4%. What is the single monthly mortality?

You have a 25-year mortgage at 5% interest. The initial loan amount was $250,000. By how much did the principal decrease over the first 10 years of the loan? Payments are made monthly.

After month 30, assuming that prepayments remain within the PAC collar, the holders of a PAC bond will receive which one of the following payments?

You have a 15-year, fixed-rate, $150,000 mortgage. The monthly payment amount is constant and the mortgage is amortized on a monthly basis. Which of the following best describes how much the principal balance will be after the 90th payment has been made?

The greater the prepayment rate for a mortgage pool, the:

What is the monthly mortgage payment on a $350,000, 20-year fixed rate loan if the interest rate is 3.125%?

After 30 months, what is the 100 PSA benchmark conditional prepayment rate per year?

How long is the expected average life of a mortgage held in a pool of 30-year mortgages with a 100 PSA?

The CPR for a seasoned 150 PSA mortgage is 9.9%. What is the single monthly mortality?

Which one of the following is a government agency?

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