Exam 10: Residential Mortgage Types and Borrower Decisions

With the arrival of subprime mortgages in recent years,a new kind of "trigger" event became apparent in leading households to default.Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis?

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:

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:

A common criticism of the annual percentage rate (APR)is that it usually understates the true cost of borrowing.The APR may understate the cost of borrowing because it assumes:

When personal property items such as a range,refrigerator,and household furnishings may be included in the home loan,which usually carries a longer term and lower interest rate than if the borrower had financed these items with a separate consumer loan,this is referred to as a:

Considering the following information,what is the NPV if the borrower refinances the loan? Expected holding period: 15 years,Current loan balance: $100,000,Current loan interest: 9 %,New loan interest: 7.5 %,Cost of refinancing: $4,250

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

In contrast to conventional home loans,the interest-only balloon loan requires the borrower to pay off the loan with a "balloon" payment equal to the original balance after:

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 referred to as:

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?

Since mortgages typically have multiple costs associated with them,a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages.Which of the following measures is a popular tool for comparing the cost of several mortgages?

Considered the most common type of home loan,which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S.government?

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?

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?

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

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:

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

The Federal Housing Administration (FHA)insures loans made by private lenders that meet FHA's property and credit-risk standards.Which of the following statements concerning FHA insurance is true?

Since conforming loans can be much more readily bought and sold in the secondary mortgage market,they carry a _______ interest rate than comparable nonconforming loans.

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?