Question 1

Which of the following are true of mortgages?

Accepted Answer

A) A mortgage is a long-term loan secured by real estate. 
B) Borrowers pay off mortgages over time in some combination of principal and interest payments that result in full payment of the debt by maturity. 
C) Less than 65 percent of mortgage loans finance residential home purchases. 
D) All of the above are true of mortgages. 
E) Only A and B of the above are true of mortgages. 
A) A mortgage is a long-term loan secured by real estate. 
B) Borrowers pay off mortgages over time in some combination of principal and interest payments that result in full payment of the debt by maturity. 
C) Less than 65 percent of mortgage loans finance residential home purchases. 
D) All of the above are true of mortgages. 
E) Only A and B of the above are true of mortgages.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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 4

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.

Question 5

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 6

During the last years of a balloon 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 7

Fannie Mae and Freddie Mac together either own or insure the risk on nearly one-fourth of America's residential mortgages.

Accepted Answer

A) True 
 B)False

Question 8

What are the benefits and side effects of securitized mortgages?

Accepted Answer

Securitized mortgages offer several bene

Question 9

The most common type of mortgage-backed security is

Accepted Answer

A) the mortgage pass-through, a security that has the borrower's mortgage payments pass through the trustee before being disbursed to the investors. 
B) collateralized mortgage obligations, a security which reduces prepayment risk. 
C) the participation certificate, a security which passes the borrower's mortgage payments equally among all the owners of the certificates. 
D) the securitized mortgage, a security which increases the liquidity of otherwise illiquid mortgages. 
A) the mortgage pass-through, a security that has the borrower's mortgage payments pass through the trustee before being disbursed to the investors. 
B) collateralized mortgage obligations, a security which reduces prepayment risk. 
C) the participation certificate, a security which passes the borrower's mortgage payments equally among all the owners of the certificates. 
D) the securitized mortgage, a security which increases the liquidity of otherwise illiquid mortgages.

Question 10

During the last 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 11

Ginnie Mae

Accepted Answer

A) insures qualifying mortgages. 
B) insures pass-through certificates. 
C) insures collateralized mortgage obligations. 
D) does only A and B. of the above 
E) does only B and C of the above. 
A) insures qualifying mortgages. 
B) insures pass-through certificates. 
C) insures collateralized mortgage obligations. 
D) does only A and B. of the above 
E) does only B and C of the above.

Question 12

Evaluate the advantages and disadvantages, from both the lender's and borrower's perspectives, of fixed-rate and adjustable-rate mortgages.

Accepted Answer

Fixed-rate mortgages offer the advantage

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 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 15

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 16

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 17

Which of the following are true of mortgage interest rates?

Accepted Answer

A) Interest rates on mortgage loans are determined by three factors: current long-term market rates, the term of the mortgage, and the number of discount points paid. 
B) Mortgage interest rates tend to track along with Treasury bond rates. 
C) The interest rate on 15-year mortgages is lower than the rate on 30-year mortgages, all else the same. 
D) All of the above are true. 
E) Only A and B of the above are true. 
A) Interest rates on mortgage loans are determined by three factors: current long-term market rates, the term of the mortgage, and the number of discount points paid. 
B) Mortgage interest rates tend to track along with Treasury bond rates. 
C) The interest rate on 15-year mortgages is lower than the rate on 30-year mortgages, all else the same. 
D) All of the above are true. 
E) Only A and B of the above are true.

Question 18

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 19

What are points? What is their purpose?

Accepted Answer

Points can refer to various concepts dep

Question 20

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.

Exam 14: The Mortgage Markets

Which of the following are true of mortgages?

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

Mortgage-backed securities

Which of the following are true of mortgages?

Which of the following is true of mortgage interest rates?

During the last years of a balloon mortgage loan, the lender applies

Fannie Mae and Freddie Mac together either own or insure the risk on nearly one-fourth of America's residential mortgages.

What are the benefits and side effects of securitized mortgages?

The most common type of mortgage-backed security is

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

Ginnie Mae

Evaluate the advantages and disadvantages, from both the lender's and borrower's perspectives, of fixed-rate and adjustable-rate mortgages.

The Federal National Mortgage Association (Fannie Mae)

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

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

Growing-equity mortgages (GEMs)

Which of the following are 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.

What are points? What is their purpose?

The interest rate borrowers pay on their mortgages is determined by

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

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