Question 1

Since the 1980s, mortgages allowing less than 20% down payment have appeared, requiring

Accepted Answer

A) lenders to insure the borrower against physical damage to the house. 
B) lenders to insure the borrower against loss in case of default. 
C) borrowers to insure the lender against loss in case of default. 
D) both borrowers and lenders to hold each other harmless in case of default or physical damage. 
A) lenders to insure the borrower against physical damage to the house. 
B) lenders to insure the borrower against loss in case of default. 
C) borrowers to insure the lender against loss in case of default. 
D) both borrowers and lenders to hold each other harmless in case of default or physical damage.

Question 2

A mortgage that allows the borrower to pay less than the interest due for a few years is a

Accepted Answer

A) credit default swap. 
B) "liar loan". 
C) negative amortization mortgage. 
D) traditional, thirty-year fixed rate mortgage. 
A) credit default swap. 
B) "liar loan". 
C) negative amortization mortgage. 
D) traditional, thirty-year fixed rate mortgage.

Question 3

In comparing the traditional way of structuring mortgages and the newer structure of providing mortgages that securitized them and insured those securities with credit default swaps , it is clear that the ____ structure increased homeownership rates and that the ___ structure was riskier to the health of the overall economy.

Accepted Answer

A) traditional; traditional 
B) newer; newer 
C) traditional; newer 
D) newer; traditional 
A) traditional; traditional 
B) newer; newer 
C) traditional; newer 
D) newer; traditional

Question 4

The "exotic" mortgage instrument of recent years is exemplified by the

Accepted Answer

A) bank mortgage loan. 
B) "traditional" mortgage. 
C) "magical-mystery" mortgage. 
D) "interest-only" mortgage. 
A) bank mortgage loan. 
B) "traditional" mortgage. 
C) "magical-mystery" mortgage. 
D) "interest-only" mortgage.

Question 5

Monthly payments on "negative-amortization" mortgages typically increase over the life of mortgage.

Accepted Answer

A) True 
 B)False

Question 6

Other things equal, increasing home prices tend to

Accepted Answer

A) increase homeowners' equity in their homes. 
B) decrease homeowners' equity in their homes. 
C) leave homeowners' equity in their homes unaffected. 
D) increase the likelihood that homeowners will default on their mortgages. 
A) increase homeowners' equity in their homes. 
B) decrease homeowners' equity in their homes. 
C) leave homeowners' equity in their homes unaffected. 
D) increase the likelihood that homeowners will default on their mortgages.

Question 7

The "interest-only" mortgage typically converts later to a

Accepted Answer

A) traditional mortgage with a higher payment. 
B) traditional mortgage with a lower payment. 
C) "negative-amortization" mortgage with a lower payment. 
D) "exotic" mortgage with a lower payment. 
A) traditional mortgage with a higher payment. 
B) traditional mortgage with a lower payment. 
C) "negative-amortization" mortgage with a lower payment. 
D) "exotic" mortgage with a lower payment.

Question 8

An asset price "bubble" is created when

Accepted Answer

A) buyers base their purchase decision upon solid fundamentals. 
B) sellers base their sale decision upon solid fundamentals. 
C) buyers base their purchase decision upon their expectation that the asset's price will rise. 
D) sellers base their sale decision upon their expectation that the asset's price will fall. 
A) buyers base their purchase decision upon solid fundamentals. 
B) sellers base their sale decision upon solid fundamentals. 
C) buyers base their purchase decision upon their expectation that the asset's price will rise. 
D) sellers base their sale decision upon their expectation that the asset's price will fall.

Question 9

The difference between the purchase price of a home and the amount of the mortgage is the

Accepted Answer

A) leasehold. 
B) indebtedness. 
C) down payment. 
D) term to maturity. 
A) leasehold. 
B) indebtedness. 
C) down payment. 
D) term to maturity.

Question 10

The companies that were the largest securitizers of mortgages were

Accepted Answer

A) AIG. 
B) Goldman Sachs. 
C) Freddie Mac & Fannie Mae. 
D) the Fed. 
A) AIG. 
B) Goldman Sachs. 
C) Freddie Mac & Fannie Mae. 
D) the Fed.

Question 11

The mathematics of amortization for mortgage loans must utilize the

Accepted Answer

A) interest rate. 
B) borrower's marginal income tax rate. 
C) borrower's age. 
D) borrower's marital status. 
A) interest rate. 
B) borrower's marginal income tax rate. 
C) borrower's age. 
D) borrower's marital status.

Question 12

Many years ago, the traditional mortgage loan structure specified

Accepted Answer

A) a down payment of 100%. 
B) an initial loan-to-value ratio of 80%. 
C) a variable interest rate. 
D) all of the option are correct. 
A) a down payment of 100%. 
B) an initial loan-to-value ratio of 80%. 
C) a variable interest rate. 
D) all of the option are correct.

Question 13

An asset price "bubble" is often supported by

Accepted Answer

A) buyers with irrationally pessimistic price expectations, 
B) sellers with irrationally pessimistic price expectations. 
C) politicians with insatiable appetites for capital gains tax revenues. 
D) borrowed money. 
A) buyers with irrationally pessimistic price expectations, 
B) sellers with irrationally pessimistic price expectations. 
C) politicians with insatiable appetites for capital gains tax revenues. 
D) borrowed money.

Question 14

The mathematics of amortization for mortgage loans must utilize the

Accepted Answer

A) borrower's marital status. 
B) borrower's ethnicity. 
C) period of time over which the debt will be repaid. 
D) all of the options are correct. 
A) borrower's marital status. 
B) borrower's ethnicity. 
C) period of time over which the debt will be repaid. 
D) all of the options are correct.

Question 15

Borrowers who use "exotic" mortgages when purchasing a home must expect

Accepted Answer

A) their income to increase. 
B) the value of the home to increase. 
C) an increase in the value of the home and their income. 
D) Congress will act to make everything "turn out in the end". 
A) their income to increase. 
B) the value of the home to increase. 
C) an increase in the value of the home and their income. 
D) Congress will act to make everything "turn out in the end".

Question 16

A security that pays the holder should mortgage borrowers fail to repay their debts is a

Accepted Answer

A) credit default swap. 
B) traditional, thirty-year fixed rate mortgage. 
C) pay option adjustable rate mortgage. 
D) thirty-year U.S. Treasury bond. 
A) credit default swap. 
B) traditional, thirty-year fixed rate mortgage. 
C) pay option adjustable rate mortgage. 
D) thirty-year U.S. Treasury bond.

Question 17

In comparing the traditional way of structuring mortgages and the newer structure of providing mortgages that securitized them and insured those securities with credit default swaps, it is clear that the ____ structure increased homeownership rates and that the ___ structure was safer to the health of the overall economy.

Accepted Answer

A) traditional; traditional 
B) newer; newer 
C) traditional; newer 
D) newer; traditional 
A) traditional; traditional 
B) newer; newer 
C) traditional; newer 
D) newer; traditional

Question 18

Among the most important demand side factors explaining homes prices would be the

Accepted Answer

A) rates charged by licensed plumbers. 
B) cost of land. 
C) cost of lumber. 
D) local population growth rate. 
A) rates charged by licensed plumbers. 
B) cost of land. 
C) cost of lumber. 
D) local population growth rate.

Question 19

By 2006 and 2007, foreclosure rates in some previously-booming states such as Nevada and Colorado were

Accepted Answer

A) still far below the national average. 
B) roughly equal to the national average. 
C) three times the national average. 
D) one hundred times the national average. 
A) still far below the national average. 
B) roughly equal to the national average. 
C) three times the national average. 
D) one hundred times the national average.

Question 20

Unlike the traditional mortgage amortization schedule, "negative-amortization" mortgages permit the

Accepted Answer

A) mortgage payments to exceed the accrued interest during the early years of the mortgage. 
B) principal payments to grow at a constant rate during the early years of the mortgage. 
C) value of the house to depreciate during the early years of the mortgage. 
D) outstanding balance to increase over a part of the life of the mortgage. 
A) mortgage payments to exceed the accrued interest during the early years of the mortgage. 
B) principal payments to grow at a constant rate during the early years of the mortgage. 
C) value of the house to depreciate during the early years of the mortgage. 
D) outstanding balance to increase over a part of the life of the mortgage.

Exam 13: The Housing Bubble

Since the 1980s, mortgages allowing less than 20% down payment have appeared, requiring

A mortgage that allows the borrower to pay less than the interest due for a few years is a

The "exotic" mortgage instrument of recent years is exemplified by the

Monthly payments on "negative-amortization" mortgages typically increase over the life of mortgage.

Other things equal, increasing home prices tend to

The "interest-only" mortgage typically converts later to a

An asset price "bubble" is created when

The difference between the purchase price of a home and the amount of the mortgage is the

The companies that were the largest securitizers of mortgages were

The mathematics of amortization for mortgage loans must utilize the

Many years ago, the traditional mortgage loan structure specified

An asset price "bubble" is often supported by

The mathematics of amortization for mortgage loans must utilize the

Borrowers who use "exotic" mortgages when purchasing a home must expect

A security that pays the holder should mortgage borrowers fail to repay their debts is a

Among the most important demand side factors explaining homes prices would be the

By 2006 and 2007, foreclosure rates in some previously-booming states such as Nevada and Colorado were

Unlike the traditional mortgage amortization schedule, "negative-amortization" mortgages permit the

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