Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

The Federal Housing Administration (FHA)

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. C

Question 3

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  False

Question 4

Adjustable-rate mortgages generally have lower initial interest rates than fixed-rate mortgages.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is true of mortgage interest rates?

Accepted Answer

A) Mortgage rates are closely tied to Treasury bond rates, but mortgage rates tend to stay below Treasury rates because mortgages are secured with collateral. 
B) Longer-term mortgages have higher interest rates than shorter-term mortgages. 
C) Interest rates are higher on mortgage loans on which lenders charge points. 
D) All of the above are true. 
E) Only A and B of the above are true. 
A) Mortgage rates are closely tied to Treasury bond rates, but mortgage rates tend to stay below Treasury rates because mortgages are secured with collateral. 
B) Longer-term mortgages have higher interest rates than shorter-term mortgages. 
C) Interest rates are higher on mortgage loans on which lenders charge points. 
D) All of the above are true. 
E) Only A and B of the above are true.

Question 6

Down payments are designed to reduce the likelihood of default on mortgage loans.

Accepted Answer

A) True 
 B)False

Question 7

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 8

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.

Question 9

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 10

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

Accepted Answer

A) True 
 B)False

Question 11

A problem that initially hindered the marketability of mortgages in a secondary market was that they were not standardized.

Accepted Answer

A) True 
 B)False

Question 12

Why may Fannie Mae and Freddie Mac pose a threat to the health of the financial system?

Accepted Answer

Fannie Mae (Federal National Mortgage As

Question 13

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 14

Which of the following are useful for home buyers who expect their income to fall in the future?

Accepted Answer

A) GPMs 
B) RAMs 
C) GEMs 
D) Only A and B are useful. 
E) Only A and C are useful. 
A) GPMs 
B) RAMs 
C) GEMs 
D) Only A and B are useful. 
E) Only A and C are useful.

Question 15

What are mortgage-backed securities, why were they developed, what types of mortgage-backed securities are there, and how do they work?

Accepted Answer

The answer of What are mortgage-backed securities, why were they...

Question 16

During the early 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 17

Why has the online lending market developed in recent years and what are the advantages and disadvantages of this development?

Accepted Answer

The online lending market has developed

Question 18

REMICs are most like

Accepted Answer

A) Freddie Mac pass-through securities. 
B) Ginnie Mae pass-through securities. 
C) participation certificates. 
D) collateralized mortgage obligations. 
A) Freddie Mac pass-through securities. 
B) Ginnie Mae pass-through securities. 
C) participation certificates. 
D) collateralized mortgage obligations.

Question 19

How does an amortizing mortgage loan differ from a balloon mortgage loan?

Accepted Answer

An amortizing mortgage loan and a balloo

Question 20

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

Exam 14: The Mortgage Markets

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

The Federal Housing Administration (FHA)

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

Adjustable-rate mortgages generally have lower initial interest rates than fixed-rate mortgages.

Which of the following is true of mortgage interest rates?

Down payments are designed to reduce the likelihood of default on mortgage loans.

Which of the following is true of mortgage interest rates?

Which of the following are true of mortgages?

A loan-servicing agent will

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

A problem that initially hindered the marketability of mortgages in a secondary market was that they were not standardized.

Why may Fannie Mae and Freddie Mac pose a threat to the health of the financial system?

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 are useful for home buyers who expect their income to fall in the future?

What are mortgage-backed securities, why were they developed, what types of mortgage-backed securities are there, and how do they work?

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

Why has the online lending market developed in recent years and what are the advantages and disadvantages of this development?

REMICs are most like

How does an amortizing mortgage loan differ from a balloon mortgage loan?

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

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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