Exam 10: Residential Mortgage Types and Borrower Decisions

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)

A common criticism of the annual percentage rate (APR)is that it usually understates the true cost of borrowing.The APR may understate the cost of borrowing because it assumes:

Since conforming loans can be much more readily bought and sold in the secondary mortgage market,they carry a(n)_______ interest rate than comparable nonconforming loans.

The Federal Housing Administration (FHA)insures loans made by private lenders that meet FHA's property and credit-risk standards.Which of the following statements concerning FHA insurance is true?

The hybrid ARM attempts to balance the fixed payment desire of a borrower with the lender's desire to increase interest rates if market rates rise in the future.In its most common Form,known as a 2-28,the hybrid ARM will have a fixed-interest rate for:

In addition to the UFMIP (up-front mortgage insurance premium),the owner-occupant borrower who decides to use an FHA mortgage loan will normally pay an additional annual mortgage insurance premium (MIP)that depends on the loan-to-value ratio and the term of the loan.For loans with maturity longer than 15 years and a loan to value ratio that is greater than 95 percent,the MIP will be what percentage of the average annual loan balance?

Which of the following types of institutions has historically been the largest purchaser of residential mortgages?

Suppose you are interested in taking an FHA mortgage loan for $350,000 in order to purchase your principal residence.In order to do so,you must pay an additional up-front mortgage insurance premium (UFMIP)of 1.0% of the mortgage balance.If the interest rate on the fully-amortizing mortgage loan is 6% and the term is 30 years and the UFMIP is financed (i.e. ,it is included in the loan amount),what is the dollar portion of your monthly mortgage payment that is designated to cover the UFMIP?

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:

Considered the most common type of home loan,which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S.government?

With the arrival of subprime mortgages in recent years,a new kind of "trigger" event became apparent in leading households to default.Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis?

Suppose you have obtained a 6%,30 year fully-amortizing FHA mortgage loan of $152,625 to finance the purchase of your primary residence.In so doing,you must pay an additional mortgage insurance premium (MIP)of 1.10%.If the first-year average loan balance is $151,775.25,determine the first-year monthly insurance premium payment.

Mortgage insurance rates vary with the perceived riskiness of the loan.Which of the following scenarios would result in a higher mortgage insurance premium?

In a fixed-term,level-payment reverse mortgage,sometimes called a reverse annuity mortgage,or RAM,a lender agrees to pay the homeowner a monthly payment,or annuity,and expects to be repaid from the homeowner's equity when he or she sells the home or obtains other financing to pay off the RAM.Consider a household that owns a $150,000 home free And clear of mortgage debt.The RAM lender agrees to a $100,000 RAM for 10 years at 6 percent.Assume payments are made annually,at the beginning of each year to the homeowner.Calculate the annual payment on the RAM.

Considering the following information,what is the NPV if the borrower refinances the loan? Expected holding period: 15 years,Current loan balance: $100,000;Current loan interest: 7%;Current loan mortgage payment: $898.33;Remaining term on current mortgage: 15 years;New loan interest: 5.5%;New loan mortgage payment: $817.08;New loan term: 15 years;Cost of refinancing: $$5000.Assume that the opportunity cost is the interest rate on the new loan (5.5%).

Suppose you have just purchased your first home for $300,000.At the time of purchase you could afford to commit 20% of the purchase price to a down-payment.Suppose over time you paid down the principal of the loan to $220,000 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 $190,000,determine the amount of the loan's principal that the lender was unable to recover due to the default.

Since mortgages typically have multiple costs associated with them,a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages.Which of the following measures is a popular tool for comparing the cost of several mortgages?