Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

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. E

Question 3

Discount points (or simply points)are interest payments made at the beginning of a loan.

Accepted Answer

A) True 
 B)False  True

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

A FICO score below 660 is considered good while a score above 720 is likely to cause problems in obtaining a loan.

Accepted Answer

A) True 
 B)False

Question 6

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 7

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 8

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 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

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 11

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 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

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 14

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

Accepted Answer

A) True 
 B)False

Question 15

A loan-servicing agent will

Accepted Answer

A)  package the loan for an investor. 
B)  hold the loan in their investment portfolio. 
C)  collect payments from the borrower. 
D)  do both A and C of the above. 
E)  do both B and C of the above. 
A)  package the loan for an investor. 
B)  hold the loan in their investment portfolio. 
C)  collect payments from the borrower. 
D)  do both A and C of the above. 
E)  do both B and C of the above.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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 18

Which of the following is true of mortgage interest rates?

Accepted Answer

A)  Longer-term mortgages have higher interest rates than shorter-term mortgages. 
B)  In exchange for points, lenders reduce interest rates on mortgage loans. 
C)  Mortgage rates are lower than Treasury bond rates because of the tax deductibility of mortgage interest payments. 
D)  All of the above are true. 
E)  Only A and B of the above are true. 
A)  Longer-term mortgages have higher interest rates than shorter-term mortgages. 
B)  In exchange for points, lenders reduce interest rates on mortgage loans. 
C)  Mortgage rates are lower than Treasury bond rates because of the tax deductibility of mortgage interest payments. 
D)  All of the above are true. 
E)  Only A and B of the above are true.

Question 19

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 20

Which of the following are true of mortgages?

Accepted Answer

A)  A mortgage is a long-term loan secured by real estate. 
B)  A borrower pays off a mortgage in a combination of principal and interest payments that result in full payment of the debt by maturity. 
C)  Over 80 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)  A borrower pays off a mortgage in a combination of principal and interest payments that result in full payment of the debt by maturity. 
C)  Over 80 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.

Exam 14: The Mortgage Markets

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

Which of the following are true of mortgages?

Discount points (or simply points)are interest payments made at the beginning of a loan.

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

A FICO score below 660 is considered good while a score above 720 is likely to cause problems in obtaining a loan.

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

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

Mortgage-backed securities

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.

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

Distinct elements of a mortgage loan include

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

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

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

A loan-servicing agent will

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

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

Which of the following is true of mortgage interest rates?

The most common type of mortgage-backed security is

Which of the following are true of mortgages?

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

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

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

Filters

Borrowers tend to prefer to ,whereas lenders prefer .