Exam 10: Residential Mortgage Types and Borrower Decisions

Many older,retired households are considered "house poor." Which of the following forms of loans has been designed to help mitigate this problem by offering additional monthly income to these homeowners in exchange for a portion of their housing equity?

Considering the following information,what is the NPV if the borrower refinances the loan? Expected holding period: 3 years,Current loan balance: $100,000;Current loan interest: 7%;Current loan mortgage payment: $898.33;Remaining term on current mortgage: 15 years;New loan interest: 5.5%;New loan mortgage payment: $817.08;New loan term: 15 years;Cost of refinancing: $5,000.Assume that the opportunity cost is the interest rate on the new loan (5.5%).

Suppose that you are in the process of deciding whether or not to refinance your fixed rate mortgage at a lower rate and you are interested in using the payback period rule of thumb to help you in your decision.Your lender has informed you that the cost of refinancing would be $4,300.If your original monthly mortgage payment was $1,250 and your new monthly mortgage payment would be $1,150 after refinancing,determine the payback period.

Mortgage originators can either hold loans in their portfolios or sell them to investors.When a mortgage originator decides to sell mortgages to another institution,this transaction occurs in what is commonly referred to as the:

Suppose you are interested in taking a mortgage loan for $250,000 in order to purchase your principal residence.Your lender has suggested that you might be interested in taking an FHA loan.In order to do so,you must pay an additional up-front mortgage insurance Premium (UFMIP)of 1.0% of the mortgage balance.If the interest rate on the fully-amortizing mortgage loan is 5% and the term is 30 years,what is your monthly mortgage payment assuming the UFMIP is financed?

When a borrower decides to stop making payments on an existing mortgage loan despite having the ability to make payments (typically when the home has lost value),this is more commonly referred to as a(n):

Federal Housing Administration (FHA)loans differ from conventional loans in a number of ways.All of the following statements regarding FHA loans are true EXCEPT:

Created by Congress to promote an active secondary market for home mortgages,Fannie Mae and Freddie Mac purchase loans that meet specific underwriting standards such as loan size,documentation,and payment to income ratio.The loans that Fannie Mae and Freddie Mac are eligible to purchase are commonly referred to as:

Assume that a veteran decides to purchase a house for $150,000 using a VA loan that amounts to $44,000.If the buyer were to defaults on the loan,what is the maximum amount that the VA guarantees the lender?

Mortgage originators often offer many types and forms of available residential loans as part of their mortgage menu.However,the predominant form of prime conventional mortgage remains the:

Lenders generally require private mortgage insurance (PMI)for conventional loans over 80 percent of the value of the security property.PMI protects a lender against which of the following?

Suppose a homeowner is reluctant to refinance until he is reasonably sure that interest rates are not going to fall appreciably from where they currently are.In this case,the Homeowner appears to be concerned about which of the following costs associated with refinancing?

The refinancing decision is sometimes oversimplified into a few "rules of thumb" that a borrower uses in order to gauge its potential benefits.Which of the following methodologies is criticized for its inability to account for a variation in refinancing benefits due to cost or holding period differences?

In recent years,home equity loans have become a popular form of second mortgage.Their popularity has been a result of all of the following EXCEPT:

FHA mortgage insurance covers any lender loss after conveyance of title of the property to the U.S.Department of Housing and Urban Development (HUD).FHA mortgage insurance requires two premiums to be paid: the UFMIP (up-mortgage insurance premium)and the MIP (monthly insurance premium).Currently,the UFMIP is what percentage of the loan for normal loans used to purchase a personal residence?

In recent years,mortgage lenders responded to the demand from home buyers who were unable to put 20 percent down on their purchase and were looking to avoid the private mortgage insurance (PMI)requirement that would typically accompany such a loan by developing a second mortgage that is created simultaneously with the first mortgage in an amount of ten percent of the value of the home.This enabled the borrower to obtain 90 percent financing while avoiding the additional cost of PMI.These loans are more commonly referred to as:

Suppose a buyer agrees to purchase a tract of land for $40,000.The buyer is only able to obtain a mortgage for $32,000.Rather than let the deal fall through,the seller agrees to accept $4,000 in cash and a note from the buyer for the remaining $4,000.This type of transaction is commonly referred to as a:

A conventional mortgage loan is one that is not insured or guaranteed by an agency of the U.S.government.The lender,however,can still pursue a private mortgage insurance (PMI)policy to provide a guarantee for the fulfillment of the borrower's obligations.Typically PMI is required for all loans that have a loan to value (LTV)ratio greater than:

It would be hard to overstate the importance of the Federal Housing Administration (FHA)in the history of housing finance.Which of the following instruments created by the FHA is considered the single most important financial instrument in modern housing finance?

Mortgage loans made to borrowers with normal credit quality,but who lack the necessary documentation of their financial circumstances typically needed to meet conforming mortgage standards would most likely be considered: