Question 1

Which of the following is true of mortgage interest rates?

Accepted Answer

A)  Longer-term mortgages have lower interest rates than shorter-term mortgages. 
B)  Mortgage rates are lower than Treasury bond rates because of the tax deductibility of mortgage interest rates. 
C)  In exchange for points, lenders reduce interest rates on mortgage loans. 
D)  All of the above are true. 
E)  Only A and B of the above are true. 
A)  Longer-term mortgages have lower interest rates than shorter-term mortgages. 
B)  Mortgage rates are lower than Treasury bond rates because of the tax deductibility of mortgage interest rates. 
C)  In exchange for points, lenders reduce interest rates on mortgage loans. 
D)  All of the above are true. 
E)  Only A and B of the above are true.

Question 2

A borrower with a 30-year loan can create a GEM by

Accepted Answer

A)  simply increasing the monthly payments beyond what is required and designating that the excess be applied entirely to the principal. 
B)  converting his ARM into a conventional mortgage. 
C)  converting his conventional mortgage into an ARM. 
D)  converting his conventional mortgage into a GPM. 
A)  simply increasing the monthly payments beyond what is required and designating that the excess be applied entirely to the principal. 
B)  converting his ARM into a conventional mortgage. 
C)  converting his conventional mortgage into an ARM. 
D)  converting his conventional mortgage into a GPM.

Question 3

An advantage of a graduated-payment mortgage is that borrowers will qualify for a larger loan than if they requested a conventional mortgage.

Accepted Answer

A) True 
 B)False

Question 4

Down payments are designed to reduce the likelihood of default on mortgage loans.

Accepted Answer

A) True 
 B)False

Question 5

The percentage of the total loan paid back immediately when a mortgage loan is obtained,which lowers the annual interest rate on the debt,is called

Accepted Answer

A)  discount points. 
B)  loan terms. 
C)  collateral. 
D)  down payment. 
A)  discount points. 
B)  loan terms. 
C)  collateral. 
D)  down payment.

Question 6

The interest rate borrowers pay on their mortgages is determined by

Accepted Answer

A)  current long-term market rates. 
B)  the term. 
C)  the number of discount points. 
D)  all of the above. 
A)  current long-term market rates. 
B)  the term. 
C)  the number of discount points. 
D)  all of the above.

Question 7

Mortgage-backed securities have declined in popularity in recent years as institutional investors have sought higher returns in other markets.

Accepted Answer

A) True 
 B)False

Question 8

Mortgage-backed securities are marketable securities collateralized by a pool of mortgages.

Accepted Answer

A) True 
 B)False

Question 9

A problem that initially hindered the marketability of mortgages in a secondary market was that they were not standardized.

Accepted Answer

A) True 
 B)False

Question 10

REMICs are most like

Accepted Answer

A)  Freddie Mac pass-through securities. 
B)  Ginnie Mae pass-through securities. 
C)  participation certificates. 
D)  collateralized mortgage obligations. 
A)  Freddie Mac pass-through securities. 
B)  Ginnie Mae pass-through securities. 
C)  participation certificates. 
D)  collateralized mortgage obligations.

Question 11

Why may Fannie Mae and Freddie Mac pose a threat to the health of the financial system?

Accepted Answer

Fannie Mae (Federal National Mortgage As

Question 12

What are the benefits and side effects of securitized mortgages?

Accepted Answer

Securitized mortgages offer several bene

Question 13

The Federal National Mortgage Association (Fannie Mae)

Accepted Answer

A)  was set up to buy mortgages from thrifts so that these institutions could make more loans. 
B)  funds purchases of mortgages by selling bonds to the public. 
C)  provides insurance for certain mortgage contracts. 
D)  does all of the above. 
E)  does only A and B of the above. 
A)  was set up to buy mortgages from thrifts so that these institutions could make more loans. 
B)  funds purchases of mortgages by selling bonds to the public. 
C)  provides insurance for certain mortgage contracts. 
D)  does all of the above. 
E)  does only A and B of the above.

Question 14

Which of the following protects the mortgage lender's right to sell property if the underlying loan defaults?

Accepted Answer

A)  A lien 
B)  A down payment 
C)  Private mortgage insurance 
D)  Borrower qualification 
E)  Amortization 
A)  A lien 
B)  A down payment 
C)  Private mortgage insurance 
D)  Borrower qualification 
E)  Amortization

Question 15

In 2012,mortgage loans to farms represented the largest proportion of mortgage lending in the U.S.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following are important ways in which mortgage markets differ from the stock and bond markets?

Accepted Answer

A)  The usual borrowers in the capital markets are government entities and businesses, whereas the usual borrowers in the mortgage markets are individuals. 
B)  Most mortgages are secured by real estate, whereas the majority of capital market borrowing is unsecured. 
C)  Because mortgages are made for different amounts and different maturities, developing a secondary market has been more difficult. 
D)  All of the above are important differences. 
E)  Only A and B of the above are important differences. 
A)  The usual borrowers in the capital markets are government entities and businesses, whereas the usual borrowers in the mortgage markets are individuals. 
B)  Most mortgages are secured by real estate, whereas the majority of capital market borrowing is unsecured. 
C)  Because mortgages are made for different amounts and different maturities, developing a secondary market has been more difficult. 
D)  All of the above are important differences. 
E)  Only A and B of the above are important differences.

Question 17

Why has the online lending market developed in recent years and what are the advantages and disadvantages of this development?

Accepted Answer

The online lending market has developed

Question 18

What are points? What is their purpose?

Accepted Answer

Points can refer to various concepts dep

Question 19

Discuss the pros and cons of a subprime market for residential mortgages in the U.S.

Accepted Answer

Subprime mortgages are loans granted to

Question 20

The Federal Housing Administration (FHA)

Accepted Answer

A)  was set up to buy mortgages from thrifts so that these institutions could make more loans. 
B)  funds purchases of mortgages by selling bonds to the public. 
C)  provides insurance for certain mortgage contracts. 
D)  does all of the above. 
E)  does only A and B of the above. 
A)  was set up to buy mortgages from thrifts so that these institutions could make more loans. 
B)  funds purchases of mortgages by selling bonds to the public. 
C)  provides insurance for certain mortgage contracts. 
D)  does all of the above. 
E)  does only A and B of the above.

Exam 14: The Mortgage Markets

Which of the following is true of mortgage interest rates?

A borrower with a 30-year loan can create a GEM by

An advantage of a graduated-payment mortgage is that borrowers will qualify for a larger loan than if they requested a conventional mortgage.

Down payments are designed to reduce the likelihood of default on mortgage loans.

The percentage of the total loan paid back immediately when a mortgage loan is obtained,which lowers the annual interest rate on the debt,is called

The interest rate borrowers pay on their mortgages is determined by

Mortgage-backed securities have declined in popularity in recent years as institutional investors have sought higher returns in other markets.

Mortgage-backed securities are marketable securities collateralized by a pool of mortgages.

A problem that initially hindered the marketability of mortgages in a secondary market was that they were not standardized.

REMICs are most like

Why may Fannie Mae and Freddie Mac pose a threat to the health of the financial system?

What are the benefits and side effects of securitized mortgages?

The Federal National Mortgage Association (Fannie Mae)

Which of the following protects the mortgage lender's right to sell property if the underlying loan defaults?

In 2012,mortgage loans to farms represented the largest proportion of mortgage lending in the U.S.

Which of the following are important ways in which mortgage markets differ from the stock and bond markets?

Why has the online lending market developed in recent years and what are the advantages and disadvantages of this development?

What are points? What is their purpose?

Discuss the pros and cons of a subprime market for residential mortgages in the U.S.

The Federal Housing Administration (FHA)

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

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