Exam 7: Mortgage Markets

A homeowner can obtain a $250,000,30-year fixed-rate mortgage at a rate of 6.0 percent with zero points or at a rate of 5.5 percent with 2.25 points. How long must the owner stay in the house to make it worthwhile to pay the points if the payment saving is invested monthly?

You obtain a $265,000,15-year fixed-rate mortgage. The annual interest rate is 6.25 percent. In addition to the principal and interest paid,you must pay $275 a month into an escrow account for insurance and taxes. What is the total monthly payment (to the nearest dollar)?

Construct an amortization schedule for the first three months and the final three months of payments for a 30-year,7 percent mortgage in the amount of $90,000. What percentage of the third payment is principal? What percentage of the final payment is principal? What do these differences imply? (Hint: The balance after the 357^th payment is $1,775.56.)

Mortgage payments are ____________ on a 15-year fixed-rate mortgage than on a 30-year fixed-rate mortgage,and ____________ is paid on a 15-year mortgage than on a 30-year mortgage; ceteris paribus.

A $25,000 face value GNMA pass-through quote sheet lists a spread to average life of 103,PSA of 220,and a price of 101-09. This means that I. the pass-through yield is 103 basis points above the comparable maturity Treasury bond. II. the pass-through is being prepaid more quickly than standard PSA. III. the pass-through is priced at $25,272.50.

Federally insured mortgages are called conventional mortgages.

One fixed-rate mortgage pool has a 750 PSA and a second fixed-rate pool has 150 PSA. The pool with the higher PSA ______________________ than the pool with the lower PSA. I. probably has a higher coupon II. probably has lower default risk III. will mature more quickly

Why have FNMA and Freddie Mac,considered government-sponsored enterprises (GSEs),been in the news lately? Explain.