Exam 10: Residential Mortgage Types and Borrower Decisions

In contrast to conventional home loans, the interest-only balloon loan requires the borrower to pay off the loan with a "balloon" payment equal to the original balance after:

Suppose you have just purchased your first home for $300,000. At the time of purchase you could only afford to commit to a down-payment of $15,000. In order to make the loan, the lender requires you to obtain private mortgage insurance (PMI) on their behalf. Suppose over time you paid down the principal of the loan to $280,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $228,000, what would the lender's loss of principal be taking into consideration the protection of mortgage insurance? (Let's assume that the PMI in this case covers the top 30% of the loan)

Mortgage originators can either hold loans in their portfolios or sell them to investors. When a mortgage originator decides to sell mortgages to another institution, this transaction occurs in what is commonly referred to as the: