Question 1

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 2

What factors are used in determining a person's FICO score?

Accepted Answer

A) past payment history 
B) outstanding debt 
C) length of credit history 
D) all of the above 
A) past payment history 
B) outstanding debt 
C) length of credit history 
D) all of the above

Question 3

Mortgage interest rates loosely track interest rates on three-month Treasury bills.

Accepted Answer

A) True 
 B)False

Question 4

Typically, discount points should not be paid if the borrower will pay off the loan in ________ years or less.

Accepted Answer

A) 5 
B) 10 
C) 15 
D) 20 
A) 5 
B) 10 
C) 15 
D) 20

Question 5

Retired people can live on the equity they have in their homes by using a

Accepted Answer

A) GEM. 
B) GPM. 
C) SAM. 
D) RAM. 
A) GEM. 
B) GPM. 
C) SAM. 
D) RAM.

Question 6

Growing-equity mortgages (GEMs)

Accepted Answer

A) help the borrower pay off the loan in a shorter time. 
B) have such low payments in the first few years that the principal balance increases. 
C) offer borrowers payments that are initially lower than the payments on a conventional mortgage. 
D) do all of the above. 
E) do only A and B of the above. 
A) help the borrower pay off the loan in a shorter time. 
B) have such low payments in the first few years that the principal balance increases. 
C) offer borrowers payments that are initially lower than the payments on a conventional mortgage. 
D) do all of the above. 
E) do only A and B of the above.

Question 7

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.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Many institutions that make mortgage loans do not want to hold large portfolios of long-term securities, because it would subject them to unacceptably high interest-rate risk.

Accepted Answer

A) True 
 B)False

Question 10

One important advantage to a borrower who qualifies for an FHA or VA loan is the very low interest rate on the mortgage.

Accepted Answer

A) True 
 B)False

Question 11

Adjustable-rate mortgages generally have lower initial interest rates than fixed-rate mortgages.

Accepted Answer

A) True 
 B)False

Question 12

With an option ARM loan, the borrower has an option to

Accepted Answer

A) reduce the monthly interest rate being charged. 
B) reduce the monthly payment, possibly increasing the mortgage balance from one month to the next. 
C) increase the outstanding balance by increasing the monthly payment. 
D) Both A and C are correct. 
A) reduce the monthly interest rate being charged. 
B) reduce the monthly payment, possibly increasing the mortgage balance from one month to the next. 
C) increase the outstanding balance by increasing the monthly payment. 
D) Both A and C are correct.

Question 13

Which of the following reduces moral hazard for the mortgage borrower?

Accepted Answer

A) collateral 
B) down payments 
C) private mortgage insurance 
D) borrower qualifications 
A) collateral 
B) down payments 
C) private mortgage insurance 
D) borrower qualifications

Question 14

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 15

Distinct elements of a mortgage loan include

Accepted Answer

A) origination. 
B) investment. 
C) servicing. 
D) all of the above. 
E) only B and C of the above. 
A) origination. 
B) investment. 
C) servicing. 
D) all of the above. 
E) only B and C of the above.

Exam 14: The Mortgage Markets

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

What factors are used in determining a person's FICO score?

Mortgage interest rates loosely track interest rates on three-month Treasury bills.

Typically, discount points should not be paid if the borrower will pay off the loan in ________ years or less.

Retired people can live on the equity they have in their homes by using a

Growing-equity mortgages (GEMs)

The Federal Housing Administration (FHA)

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

Many institutions that make mortgage loans do not want to hold large portfolios of long-term securities, because it would subject them to unacceptably high interest-rate risk.

One important advantage to a borrower who qualifies for an FHA or VA loan is the very low interest rate on the mortgage.

Adjustable-rate mortgages generally have lower initial interest rates than fixed-rate mortgages.

With an option ARM loan, the borrower has an option to

Which of the following reduces moral hazard for the mortgage borrower?

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

Distinct elements of a mortgage loan include

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