Question 1

How does an amortizing mortgage loan differ from a balloon mortgage loan?

Accepted Answer

An amortizing mortgage loan and a balloon mortgage loan are two different types of lending structures used for financing real estate purchases. Here's how they differ:

**Amortizing Mortgage Loan:**

An amortizing mortgage loan is structured so that the borrower pays off the loan amount, along with interest, through regular payments over a set period of time. These payments are calculated to be the same amount each period, typically monthly, and are designed to pay down both the principal (the original loan amount) and the interest. The process of spreading out the loan payments over time is known as amortization.

With each payment, a portion goes toward the interest cost, and the remaining amount reduces the principal balance. Early in the loan term, a larger portion of each payment is applied to interest. As time goes on, the interest portion decreases, and more of the payment goes toward reducing the principal. By the end of the loan term, the entire debt is paid off, and the borrower owns the property outright.

Common types of amortizing loans include fixed-rate mortgages, where the interest rate remains the same throughout the life of the loan, and adjustable-rate mortgages (ARMs), where the interest rate may change at specified intervals.

**Balloon Mortgage Loan:**

A balloon mortgage loan, on the other hand, requires the borrower to make regular payments for a shorter term than the amortization period, and then pay off the remaining balance in one large, or "balloon," payment at the end of that term. The regular payments may be based on a standard amortization schedule, as if the loan would be paid off over a longer period (such as 30 years), but the loan term itself might only be 5 to 7 years.

At the end of the balloon mortgage term, the borrower must pay the remaining balance in full. This can be done by refinancing the loan, selling the property, or using other funds to pay off the debt. Balloon mortgages can be risky for borrowers because they must be prepared to handle the large lump-sum payment. If they are unable to refinance or otherwise pay off the balloon payment, they may risk defaulting on the loan and losing the property.

In summary, the key difference between an amortizing mortgage loan and a balloon mortgage loan is the loan repayment structure. An amortizing loan is paid off completely over the loan term through regular payments, while a balloon loan requires smaller regular payments with a large lump-sum payment at the end of a shorter term.

Question 2

Which of the following is true of mortgage interest rates?

Accepted Answer

A) Mortgage rates are closely tied to Treasury bond rates, but mortgage rates tend to stay below Treasury rates because mortgages are secured with collateral. 
B) Longer-term mortgages have higher interest rates than shorter-term mortgages. 
C) Interest rates are higher on mortgage loans on which lenders charge points. 
D) All of the above are true. 
E) Only A and B of the above are true. 
A) Mortgage rates are closely tied to Treasury bond rates, but mortgage rates tend to stay below Treasury rates because mortgages are secured with collateral. 
B) Longer-term mortgages have higher interest rates than shorter-term mortgages. 
C) Interest rates are higher on mortgage loans on which lenders charge points. 
D) All of the above are true. 
E) Only A and B of the above are true. B

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  True

Question 4

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

Accepted Answer

The answer of Discuss the pros and cons of a...

Question 5

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

Accepted Answer

A) The usual borrowers in capital markets are government entities, whereas the usual borrowers in mortgage markets are small businesses. 
B) The usual borrowers in capital markets are government entities and large businesses, whereas the usual borrowers in mortgage markets are small businesses. 
C) The usual borrowers in capital markets are government entities and large businesses, whereas the usual borrowers in mortgage markets are small businesses and individuals. 
D) The usual borrowers in capital markets are businesses and government entities, whereas the usual borrowers in mortgage markets are individuals. 
A) The usual borrowers in capital markets are government entities, whereas the usual borrowers in mortgage markets are small businesses. 
B) The usual borrowers in capital markets are government entities and large businesses, whereas the usual borrowers in mortgage markets are small businesses. 
C) The usual borrowers in capital markets are government entities and large businesses, whereas the usual borrowers in mortgage markets are small businesses and individuals. 
D) The usual borrowers in capital markets are businesses and government entities, whereas the usual borrowers in mortgage markets are individuals.

Question 6

Subprime loans are those made to borrowers who do not qualify for loans at the usual market rate of interest because of a poor credit rating or because the loan is larger than justified by their income.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Mortgage-backed securities

Accepted Answer

A) have been growing in popularity in recent years as institutional investors look for attractive investment opportunities. 
B) are securities collateralized by a pool of mortgages. 
C) are securities collateralized by both insured and uninsured mortgages. 
D) are all of the above. 
E) are only A and B of the above. 
A) have been growing in popularity in recent years as institutional investors look for attractive investment opportunities. 
B) are securities collateralized by a pool of mortgages. 
C) are securities collateralized by both insured and uninsured mortgages. 
D) are all of the above. 
E) are only A and B of the above.

Question 9

From 2000 to 2005, housing prices increased, on average, by over 40%. This runup in prices was caused by

Accepted Answer

A) speculators. 
B) an increase in subprime loans, which increased demand for new and existing houses. 
C) both A and B. 
D) None of the above are correct. 
A) speculators. 
B) an increase in subprime loans, which increased demand for new and existing houses. 
C) both A and B. 
D) None of the above are correct.

Question 10

An option ARM mortgage gives the borrower the option to reduce the monthly interest being charged on the mortgage.

Accepted Answer

A) True 
 B)False

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

A borrower who qualifies for an FHA or VA loan enjoys the advantage that

Accepted Answer

A) the mortgage payment is much lower. 
B) only a very low or zero down payment is required. 
C) the cost of private mortgage insurance is lower. 
D) the government holds the lien on the property. 
A) the mortgage payment is much lower. 
B) only a very low or zero down payment is required. 
C) the cost of private mortgage insurance is lower. 
D) the government holds the lien on the property.

Question 13

Explain the features of mortgage loans that are designed to reduce the likelihood of default.

Accepted Answer

Mortgage loans are designed with several

Question 14

What are the benefits and side effects of securitized mortgages?

Accepted Answer

Securitized mortgages offer several bene

Question 15

Which of the following is true of mortgage interest rates?

Accepted Answer

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

Question 16

(I)Conventional mortgages are originated by private lending institutions, and FHA or VA loans are originated by the government. (II)Conventional mortgages are insured by private companies, and FHA or VA loans are insured by the government.

Accepted Answer

A) (I)is true, (II)false. 
B) (I)is false, (II)true. 
C) Both are true. 
D) Both are false. 
A) (I)is true, (II)false. 
B) (I)is false, (II)true. 
C) Both are true. 
D) Both are false.

Question 17

Which of the following are useful for home buyers who expect their income to rise in the future?

Accepted Answer

A) GPMs 
B) RAMs 
C) GEMs 
D) Only A and B are useful. 
E) Only A and C are useful. 
A) GPMs 
B) RAMs 
C) GEMs 
D) Only A and B are useful. 
E) Only A and C are useful.

Question 18

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 19

How has the modern mortgage market changed over recent years?

Accepted Answer

The answer of How has the modern mortgage market changed...

Question 20

Which of the following are true of mortgages?

Accepted Answer

A) More than 80 percent of mortgage loans finance residential home purchases. 
B) The National Banking Act of 1863 rewarded banks that increased mortgage lending. 
C) Most mortgages during the 1920s and 1930s were balloon loans. 
D) All of the above are true. 
E) Only A and C of the above are true. 
A) More than 80 percent of mortgage loans finance residential home purchases. 
B) The National Banking Act of 1863 rewarded banks that increased mortgage lending. 
C) Most mortgages during the 1920s and 1930s were balloon loans. 
D) All of the above are true. 
E) Only A and C of the above are true.

Exam 14: The Mortgage Markets

How does an amortizing mortgage loan differ from a balloon mortgage loan?

Which of the following is true of mortgage interest rates?

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

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

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

Subprime loans are those made to borrowers who do not qualify for loans at the usual market rate of interest because of a poor credit rating or because the loan is larger than justified by their income.

The Federal National Mortgage Association (Fannie Mae)

Mortgage-backed securities

From 2000 to 2005, housing prices increased, on average, by over 40%. This runup in prices was caused by

An option ARM mortgage gives the borrower the option to reduce the monthly interest being charged on the mortgage.

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

A borrower who qualifies for an FHA or VA loan enjoys the advantage that

Explain the features of mortgage loans that are designed to reduce the likelihood of default.

What are the benefits and side effects of securitized mortgages?

Which of the following is true of mortgage interest rates?

(I)Conventional mortgages are originated by private lending institutions, and FHA or VA loans are originated by the government. (II)Conventional mortgages are insured by private companies, and FHA or VA loans are insured by the government.

Which of the following are useful for home buyers who expect their income to rise in the future?

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

How has the modern mortgage market changed over recent years?

Which of the following are true of mortgages?

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 Why Are They so Damaging to the Economy

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

Savings Associations and Credit Unions

Finance Companies

Filters