Exam 22: The Residential Mortgage Market

Fannie Mae and Freddie Mac can buy or sell any type of ________, but the mortgages that are packaged into securities are restricted to ________ and those that satisfy their underwriting guidelines.

The difference between the purchase price of the property and the amount borrowed is the borrower's ________. The LTV is the ratio of the amount of the loan to the market (or appraised) value of the ________. The ________, the greater the protection for the lender if the applicant defaults on the payments and the lender must repossess and sell the property.

In regards the risks associated with mortgage origination, price risk refers to the adverse effects on the value of the pipeline if mortgage rates in the market rise.

Freddie Mac and Fannie Mae are GSEs whose mission is to provide liquidity and support to the ________.

________ is the risk associated with a mortgage's cash flow due to prepayments.

The maximum loan size for one- to four-family homes changes every year, based on the percentage change in the average home price (for both new and existing homes) published by the Federal Housing Finance Board.

Two government-sponsored enterprises and several private companies buy mortgages for purposes of pooling them and selling them to investors.

The principal investors in mortgage loans include ________.

A component of the cash flow of a fixed-income instrument includes ________.

A loan originated where the borrow is of lower credit quality is classified as a ________.

Mortgage originators may generate income from mortgage activity ________.

Mortgage loans can be classified based upon whether a credit guaranty associated with the loan is provided by the ________.

Prepayment risk can be reduced if the mortgage is insured by a government agency or a private insurance company.

________ calculate income ratios such as the PTI to assess the applicant's ability to pay. These ratios compare the ________ that the applicant would have to pay if the loan is granted to the applicant's monthly income.

Conventional loans in the market are referred to as conforming conventional loans and nonconforming conventional loans.

The types of real estate properties that can be mortgaged includes ________.

What is prepayment risk? Discuss.

What does the lien status of a mortgage loan indicate?

Can a borrower face penalties if a loan is prepaid? Discuss.

Which of the below statements is TRUE?