Question 1

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.

Question 2

(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 3

During the early years of an amortizing mortgage loan, the lender applies

Accepted Answer

A) most of the monthly payment to the outstanding principal balance. 
B) all of the monthly payment to the outstanding principal balance. 
C) most of the monthly payment to interest on the loan. 
D) all of the monthly payment to interest on the loan. 
E) the monthly payment equally to interest on the loan and the outstanding principal balance. 
A) most of the monthly payment to the outstanding principal balance. 
B) all of the monthly payment to the outstanding principal balance. 
C) most of the monthly payment to interest on the loan. 
D) all of the monthly payment to interest on the loan. 
E) the monthly payment equally to interest on the loan and the outstanding principal balance.

Question 4

Closing for a mortgage loan refers to the moment the loan is paid off.

Accepted Answer

A) True 
 B)False

Question 5

A point on a mortgage loan refers to one monthly payment of principal and interest.

Accepted Answer

A) True 
 B)False

Question 6

A loan for 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 is

Accepted Answer

A) a subprime mortgage. 
B) a securitized mortgage. 
C) an insured mortgage. 
D) a graduated-payment mortgage. 
A) a subprime mortgage. 
B) a securitized mortgage. 
C) an insured mortgage. 
D) a graduated-payment mortgage.

Question 7

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 8

The share of the mortgage market held by commercial banks is approximately

Accepted Answer

A) 50 percent. 
B) 25 percent. 
C) 15 percent. 
D) 5 percent. 
A) 50 percent. 
B) 25 percent. 
C) 15 percent. 
D) 5 percent.

Question 9

Nearly half the funds for mortgage lending comes from mortgage pools and trusts.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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 12

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 13

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 14

________ issues participation certificates, and ________ provides federal insurance for participation certificates.

Accepted Answer

A) Freddie Mac; Freddie Mac 
B) Freddie Mac; Ginnie Mae 
C) Ginnie Mae; Freddie Mac 
D) Ginnie Mae; Ginnie Mae 
E) Freddie Mac; no one 
A) Freddie Mac; Freddie Mac 
B) Freddie Mac; Ginnie Mae 
C) Ginnie Mae; Freddie Mac 
D) Ginnie Mae; Ginnie Mae 
E) Freddie Mac; no one

Question 15

The share of the mortgage market held by savings and loans is

Accepted Answer

A) over 50 percent. 
B) approximately 40 percent. 
C) approximately 20 percent. 
D) less than 10 percent. 
A) over 50 percent. 
B) approximately 40 percent. 
C) approximately 20 percent. 
D) less than 10 percent.

Question 16

Borrowers tend to prefer ________ to ________, whereas lenders prefer ________.

Accepted Answer

A) fixed-rate loans; ARMs; fixed-rate loans 
B) ARMs; fixed-rate loans; fixed-rate loans 
C) fixed-rate loans; ARMs; ARMs 
D) ARMs; fixed-rate loans; ARMs 
A) fixed-rate loans; ARMs; fixed-rate loans 
B) ARMs; fixed-rate loans; fixed-rate loans 
C) fixed-rate loans; ARMs; ARMs 
D) ARMs; fixed-rate loans; ARMs

Question 17

Which of the following is a disadvantage of a second mortgage compared to credit card debt?

Accepted Answer

A) The loans are secured by the borrower's home. 
B) The borrower gives up the tax deduction on the primary mortgage. 
C) The borrower must pay points to get a second mortgage loan. 
D) The borrower will find it more difficult to qualify for a second mortgage loan. 
A) The loans are secured by the borrower's home. 
B) The borrower gives up the tax deduction on the primary mortgage. 
C) The borrower must pay points to get a second mortgage loan. 
D) The borrower will find it more difficult to qualify for a second mortgage loan.

Question 18

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 19

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 20

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.

Exam 14: The Mortgage Markets

Distinct elements of a mortgage loan include

(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.

During the early years of an amortizing mortgage loan, the lender applies

Closing for a mortgage loan refers to the moment the loan is paid off.

A point on a mortgage loan refers to one monthly payment of principal and interest.

A loan for 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 is

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

The share of the mortgage market held by commercial banks is approximately

Nearly half the funds for mortgage lending comes from mortgage pools and trusts.

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.

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

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

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

________ issues participation certificates, and ________ provides federal insurance for participation certificates.

The share of the mortgage market held by savings and loans is

Borrowers tend to prefer ________ to ________, whereas lenders prefer ________.

Which of the following is a disadvantage of a second mortgage compared to credit card debt?

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

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

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

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

issues participation certificates, and provides federal insurance for participation certificates.

Borrowers tend to prefer to , whereas lenders prefer .