Question 1

A ________ placed against mortgaged property ensures that the property cannot be sold (except by the lender)until the mortgage is paid off.

Accepted Answer

A) collateral 
B) lien 
C) writ of habeas corpus 
D) down payment 
E) writ of certiorari 
A) collateral 
B) lien 
C) writ of habeas corpus 
D) down payment 
E) writ of certiorari B

Question 2

One fixed-rate mortgage pool has a 750 PSA and a second fixed-rate pool has 150 PSA. The pool with the higher PSA ________ than the pool with the lower PSA.
I. probably has a higher coupon
II. probably has lower default risk
III. will mature more quickly

Accepted Answer

A) I,II,and III 
B) I and II only 
C) II and III only 
D) I and III only 
E) I only 
A) I,II,and III 
B) I and II only 
C) II and III only 
D) I and III only 
E) I only D

Question 3

A $25,000 face value GNMA pass-through quote sheet lists a spread to average life of 103,PSA of 220,and a price of 101-09. This means that
I. the pass-through yield is 103 basis points above the comparable maturity Treasury bond.
II. the pass-through is being prepaid more quickly than standard PSA.
III. the pass-through is priced at $25,272.50.

Accepted Answer

A) I,II,and III are correct. 
B) I and II only 
C) I and III only 
D) II and III only 
E) III only 
A) I,II,and III are correct. 
B) I and II only 
C) I and III only 
D) II and III only 
E) III only B

Question 4

What three major ways has the federal government assisted the mortgage markets? Explain.

Accepted Answer

1. By providing insurance for homeowners

Question 5

You purchase a $325,000 town home and you pay 25 percent down. You obtain a 30-year fixed-rate mortgage with an annual interest rate of 5.75 percent. After five years you refinance the mortgage for 25 years at a 5.1 percent annual interest rate. After you refinance,what is the new monthly payment (to the nearest dollar)?

Accepted Answer

A) $1,422 
B) $1,401 
C) $1,366 
D) $1,335 
E) $1,296 
A) $1,422 
B) $1,401 
C) $1,366 
D) $1,335 
E) $1,296

Question 6

Risk attributes of collateralized mortgage obligations differ based on tranches.

Accepted Answer

A) True 
 B)False

Question 7

A borrower took out a 30-year fixed-rate mortgage of $2,250,000 at a 7.2 percent annual rate. After five years,he wishes to pay off the remaining balance. Interest rates have by then fallen to 7 percent. How much must he pay to retire the mortgage (to the nearest dollar)?

Accepted Answer

A) $2,122,426 
B) $2,225,330 
C) $2,015,678 
D) $2,212,041 
E) $1,999,998 
A) $2,122,426 
B) $2,225,330 
C) $2,015,678 
D) $2,212,041 
E) $1,999,998

Question 8

A homeowner can obtain a $250,000,30-year fixed-rate mortgage at a rate of 6.0 percent with zero points or at a rate of 5.5 percent with 2.25 points.
If you will keep the mortgage for 30 years,what is the net present value of paying the points (to the nearest dollar)?

Accepted Answer

A) $9,475 
B) $8,360 
C) $7,564 
D) $7,222 
E) $6,578 
A) $9,475 
B) $8,360 
C) $7,564 
D) $7,222 
E) $6,578

Question 9

The FHA charges the homeowner ________ to insure an FHA mortgage.

Accepted Answer

A) nothing 
B) 0.5 percent of the loan amount 
C) $500 
D) 1 percent of the loan amount 
E) $1,500 
A) nothing 
B) 0.5 percent of the loan amount 
C) $500 
D) 1 percent of the loan amount 
E) $1,500

Question 10

How does GNMA improve mortgage marketability?

Accepted Answer

GNMA sponsors pools of FHA- or VA-insure

Question 11

A homeowner could take out a 15-year mortgage at a 5.5 percent annual rate on a $195,000 mortgage amount,or she could finance the purchase with a 30-year mortgage at a 6.1 percent annual rate. How much total interest over the entire mortgage period could she save by financing her home with the 15-year mortgage (to the nearest dollar)?

Accepted Answer

A) $230,408 
B) $190,105 
C) $155,612 
D) $144,325 
E) $138,612 
A) $230,408 
B) $190,105 
C) $155,612 
D) $144,325 
E) $138,612

Question 12

For CMOs,prepayment risk is the risk that a borrower may prepay the mortgage before maturity when interest rates decrease.

Accepted Answer

A) True 
 B)False

Question 13

A large portion of the mortgage payment goes towards the principal,during the early life of a mortgage loan.

Accepted Answer

A) True 
 B)False

Question 14

A homeowner is looking to buy a home in Marvin Gardens. The most he can afford to pay in total is $1,800 per month. Yearly property taxes will be about $3,000 (escrowed monthly)and insurance is $110 per month. There are no other costs.
If his parents give him $20,000 for a down payment,what is the most he can pay for a house with a 15-year mortgage if the interest rate is 5.50 percent?

Accepted Answer

Max monthly payment = $1,800 − $3,000/12

Question 15

A homeowner is looking to buy a home in Marvin Gardens. The most he can afford to pay in total is $1,800 per month. Yearly property taxes will be about $3,000 (escrowed monthly)and insurance is $110 per month. There are no other costs.
If mortgage rates are 6.25 percent for a 30-year fixed-rate mortgage,how large can his mortgage be?

Accepted Answer

Max monthly payment = $1,800 −

Question 16

Which of the following statements about GNMA is/are true?
I. GNMA provides timing insurance.
II. GNMA creates pools of mortgages and issues securities.
III. GNMA insures only FHA,VA,HUD's Office of Indian and Public Housing,and USDA Rural Development loans.
IV. GNMA requires that all mortgages in the pool have the same interest rate.

Accepted Answer

A) I,II,III,and IV are true. 
B) I,III,and IV only 
C) I,II,and III only 
D) II,III,and IV only 
E) III and IV only 
A) I,II,III,and IV are true. 
B) I,III,and IV only 
C) I,II,and III only 
D) II,III,and IV only 
E) III and IV only

Question 17

Mortgage payments are ________ on a 15-year fixed-rate mortgage than on a 30-year fixed-rate mortgage,and ________ is paid on a 15-year mortgage than on a 30-year mortgage; ceteris paribus.

Accepted Answer

A) lower; less interest 
B) lower; less principal 
C) higher; less interest 
D) higher; more principal 
E) higher; more interest 
A) lower; less interest 
B) lower; less principal 
C) higher; less interest 
D) higher; more principal 
E) higher; more interest

Question 18

The least used form of mortgage securitization is the ________.

Accepted Answer

A) second mortgage 
B) mortgage-backed bond 
C) mortgage pass-through 
D) CMO 
E) home equity loan 
A) second mortgage 
B) mortgage-backed bond 
C) mortgage pass-through 
D) CMO 
E) home equity loan

Question 19

With a fixed-rate mortgage,the ________ bears the interest rate risk and with an ARM the ________ bears the interest rate risk.

Accepted Answer

A) borrower; lender 
B) borrower; borrower 
C) lender; lender 
D) lender; borrower 
E) federal government; pool organizer 
A) borrower; lender 
B) borrower; borrower 
C) lender; lender 
D) lender; borrower 
E) federal government; pool organizer

Question 20

Federally insured mortgages are called conventional mortgages.

Accepted Answer

A) True 
 B)False

A ________ placed against mortgaged property ensures that the property cannot be sold (except by the lender)until the mortgage is paid off.

One fixed-rate mortgage pool has a 750 PSA and a second fixed-rate pool has 150 PSA. The pool with the higher PSA ________ than the pool with the lower PSA. I. probably has a higher coupon II. probably has lower default risk III. will mature more quickly

What three major ways has the federal government assisted the mortgage markets? Explain.

Risk attributes of collateralized mortgage obligations differ based on tranches.

A borrower took out a 30-year fixed-rate mortgage of $2,250,000 at a 7.2 percent annual rate. After five years,he wishes to pay off the remaining balance. Interest rates have by then fallen to 7 percent. How much must he pay to retire the mortgage (to the nearest dollar)?

A homeowner can obtain a $250,000,30-year fixed-rate mortgage at a rate of 6.0 percent with zero points or at a rate of 5.5 percent with 2.25 points. If you will keep the mortgage for 30 years,what is the net present value of paying the points (to the nearest dollar)?

The FHA charges the homeowner ________ to insure an FHA mortgage.

How does GNMA improve mortgage marketability?

For CMOs,prepayment risk is the risk that a borrower may prepay the mortgage before maturity when interest rates decrease.

A large portion of the mortgage payment goes towards the principal,during the early life of a mortgage loan.

Mortgage payments are on a 15-year fixed-rate mortgage than on a 30-year fixed-rate mortgage,and is paid on a 15-year mortgage than on a 30-year mortgage; ceteris paribus.

The least used form of mortgage securitization is the ________.

With a fixed-rate mortgage,the bears the interest rate risk and with an ARM the bears the interest rate risk.

Federally insured mortgages are called conventional mortgages.

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, monetary Policy, and Interest Rates

Money Markets

Bond Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

Exam 7: Mortgage Markets

A ________ placed against mortgaged property ensures that the property cannot be sold (except by the lender)until the mortgage is paid off.

One fixed-rate mortgage pool has a 750 PSA and a second fixed-rate pool has 150 PSA. The pool with the higher PSA ________ than the pool with the lower PSA. I. probably has a higher coupon II. probably has lower default risk III. will mature more quickly

What three major ways has the federal government assisted the mortgage markets? Explain.

Risk attributes of collateralized mortgage obligations differ based on tranches.

A borrower took out a 30-year fixed-rate mortgage of $2,250,000 at a 7.2 percent annual rate. After five years,he wishes to pay off the remaining balance. Interest rates have by then fallen to 7 percent. How much must he pay to retire the mortgage (to the nearest dollar)?

A homeowner can obtain a $250,000,30-year fixed-rate mortgage at a rate of 6.0 percent with zero points or at a rate of 5.5 percent with 2.25 points. If you will keep the mortgage for 30 years,what is the net present value of paying the points (to the nearest dollar)?

The FHA charges the homeowner ________ to insure an FHA mortgage.

How does GNMA improve mortgage marketability?

For CMOs,prepayment risk is the risk that a borrower may prepay the mortgage before maturity when interest rates decrease.

A large portion of the mortgage payment goes towards the principal,during the early life of a mortgage loan.

Mortgage payments are ________ on a 15-year fixed-rate mortgage than on a 30-year fixed-rate mortgage,and ________ is paid on a 15-year mortgage than on a 30-year mortgage; ceteris paribus.

The least used form of mortgage securitization is the ________.

With a fixed-rate mortgage,the ________ bears the interest rate risk and with an ARM the ________ bears the interest rate risk.

Federally insured mortgages are called conventional mortgages.

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, monetary Policy, and Interest Rates

Money Markets

Bond Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

Mortgage payments are on a 15-year fixed-rate mortgage than on a 30-year fixed-rate mortgage,and is paid on a 15-year mortgage than on a 30-year mortgage; ceteris paribus.

With a fixed-rate mortgage,the bears the interest rate risk and with an ARM the bears the interest rate risk.