Exam 22: Mortgage Market and Mortgage Instruments

The convertible mortgage instrument (CMI) starts out with an adjustable interest rate, but later the home buyer can switch to a fixed-rate mortgage if interest rates look more favorable. However, some loan contracts carry a mandatory holding period before conversion to a fixed-rate loan is permitted and also prohibit switching after a certain length of time has elapsed (such as five years).

The majority of GNMA pass-throughs are issued by savings banks.

Variable-rate mortgages in the long-term usually result in a heavier interest-rate burden than is generally true with fixed-rate home mortgage loans.

The creation of Freddie Mac in ______ reflected a desire by the federal government to develop a stronger secondary market for conventional home mortgages, of which it has purchased huge quantities.

Points in home mortgage lending have declined as a percentage of loan size in the most recent period.

GMCs pay interest to investors on a semiannual basis.

Savings and loan associations have preferred single-family home mortgages over the years.

Fannie Mae raises funds for its mortgage purchases by selling short-term discount notes and medium-term debentures on the open market.

Fannie Mae is the world's largest mortgage bank.

What are the advantages and disadvantages of home refinancing and home equity loans? Under what circumstances should a homeowner seriously consider these financial instruments?

In the long run, average home prices have tended to match or even outstrip inflation.

Pension funds, finance companies and government agencies account for a growing share of outstanding mortgage loans.

Which private mortgage lending institutions are described in each of the profiles given below? a. These firms, which faced serious financial problems in the 1980s and early 1990s with numerous failures, are predominantly local lenders providing mortgage credit in the local areas where their offices are situated. These lenders began in the U. S. in the 19th Century to enable individuals and families to save and eventually be able to afford to build or buy new homes. Savings and Loan Associations. b. These firms serve as a channel for builders and contractors to ultimately obtain permanent financing by initially providing temporary financial support while construction is underway and then finding long-term lenders to take over these mortgage loans for the long haul (often for 15 to 30 years). c. These lending institutions make investments in both commercial and residential mortgage properties and prefer to purchase residential mortgages in large blocks rather than one at a time. d. Now ranking first as lenders for the construction and purchase of homes, condominiums and apartments and in the commercial mortgage field, this mortgage lending institution normally prefers to make shorter-term construction loans and let longer-term lenders (such as insurance companies and pension funds) provide permanent mortgage financing. e. A depository institution that began its history mainly in the Eastern United States and prefers to acquire residential mortgages in large blocks rather than loan by loan.

All of the following describe creative financing techniques that make home ownership more affordable, except:

Fannie Mae has become a private, shareholder-owned corporation.

Residential mortgages represent about ____ of all mortgage loans outstanding in the U.S.

Loans granted to the residential properties sector account for about 80 percent of the total outstanding mortgage loans in 2009.

Which mortgage instruments meet the definitions provided below? a. A home mortgage loan under which some of the terms of the loan, such as the loan rate or maturity of the loan, varies as market conditions change. b. A mortgage loan that begins with an adjustable loan rate that can be switched later to a fixed loan rate. c. Debt securities backed by pools of mortgage loans. d. Mortgage-backed securities issued in a range of maturity classes so that prepayment risk can be more easily selected to match an investor's particular investment goals.

The total amount of interest paid by the borrower will be much smaller with a Graduated-Payment Mortgage than it would be under a conventional fixed-rate mortgage.

The Servicemen's Readjustment Act in 1944 created the Veterans' Administration.