Deck 8: Federal Housing Policies: Part 1

Question 1

A loan in which the seller or another third party agrees to pay an amount to the lender in order to reduce the borrower's payments,or to reduce the interest rate for a portion of the loan's term,is called a(n):

A) adjustable rate mortgage
B) graduated payment mortgage
C) buy down mortgage
D) shared appreciation mortgage

Answer 1

buy down mortgage

Question 2

Under Federal Regulation Q,the individual states were allowed to impose a ceiling on the rates that lenders were allowed to charge on mortgages.The effect of this regulation was:

A) to keep mortgage rates low and affordable
B) that mortgage money dried up in those states when interest rates rose to cyclical peaks
C) that fewer lenders were willing to finance residential mortgages in the presence of higher paying investments
D) an increase in the number of lenders willing to finance residential mortgages because of the risk-free stability of these loans

Answer 2

that mortgage money dried up in those states when interest rates rose to cyclical peaks

Question 3

A loan that involves regular increases in payment at a fixed rate,is called a(n):

A) adjustable rate mortgage
B) graduated payment mortgage
C) buy down mortgage
D) shared appreciation mortgage

Answer 3

graduated payment mortgage

Question 4

The rate charged on a Home Equity Loan is almost always:

A) tied to the APR of the mortgage on the property being used as collateral
B) the same as that of other loans based on collateral other than a residence
C) tied in to some money market index,such as short term Treasury yields
D) based on the amount of equity the borrower has accrued

Question 5

The flat-rate insurance provided by the FDIC has two faults.First,it misprizes risk.Second,

A) it penalizes large thrifts by making them subsidize smaller ones by paying the same rate
B) it forces conservatively managed thrifts to subsidize those with more risky investments
C) it is not adjustable to reflect the actual market conditions that are met by commercial financial institutions
D) the rates are too high to be paid by a thrift without a large number of depositors

Question 6

Under the Housing and Urban Development Act,the Federal National Mortgage Association (FNMA)buys loans and holds them in it's own portfolio.The Government National Mortgage Association (GNMA)does which of the following?

A) guarantees the payment of principal and interest on the securities that are created and backed by mortgages
B) oversees the individual states' Mortgage Associations
C) also buys loans,but holds them as a separate part of the U.S. Government budget
D) none of the above

Question 7

Federal Home Loan Banks obtain a significant amount of the funds they lend to thrifts from the sale of FHLB bonds in the capital market.These bonds are:

A) guaranteed by the US government
B) not guaranteed,but the thrifts are required to purchase them in order to receive loans from a FHLB
C) not guaranteed,but provide a high rate of return when compared to less risky bonds
D) not guaranteed,but the banks operate under a federal charter and government supervision

Question 8

Under Regulation Z,the borrower must be informed about the total finance charges associated with a residential mortgage.Which of the following charges are not mandated to be included in this report?

A) appraisal fees
B) discount points
C) title examination fees
D) amount of each payment

Question 9

If the current tax law was changed,and the individual had to pay tax on the appreciation in housing values,and the interest costs and property taxes were not deductible,what would the annual cost of housing be for a person with a house valued at $150,000,a mortgage rate of 11 percent,property taxes of 3 percent,miscellaneous expenses and depreciation of 1 percent,and housing inflation of 7 percent? The person is in the 30 percent tax bracket.

A) $16,200
B) $15,150
C) $14,100
D) $17,350

Question 10

Under the current tax law,what would the annual cost of housing be for a person with a house valued at $150,000,a mortgage rate of 11 percent,property taxes of 3 percent,miscellaneous expenses and depreciation of 1 percent,and housing inflation of 7 percent.The person is in the 30 percent tax bracket.

A) $4,700
B) $4,200
C) $6,100
D) $5,700

Question 11

A loan in which the lender receives a share of the increase in value of the property in return for a reduction in the initial rate of interest,is called a(n):

A) adjustable rate mortgage
B) graduated payment mortgage
C) buy down mortgage
D) shared appreciation mortgage

Question 12

"Points" are defined as:

A) a fee charged by the lender to the seller for extending the loan to the buyer
B) a fee charged by the lender to the borrower for extending the loan
C) a fee charged by the seller to the buyer as a part of the selling price
D) a fee charged by the lender to the seller to defray the risk of a loan that can't have a higher interest rate because of regulations governing the allowable rates

Question 13

After the securitization of residential mortgages,the relative yield that lenders require has

A) lowered
B) risen
C) been about the same
D) risen for higher value homes,but lowered for lower value homes

Question 14

Consider a person with a house valued at $150,000,a mortgage rate of 11 percent, property taxes of 3 percent,miscellaneous expenses and depreciation of 1 percent
Housing inflation of 7 percent,and the person is in the 30 percent tax bracket.If the
Housing inflation rate was raised to 8 percent,how much would the annual cost of
Housing change?

A) -$1,500
B) -$400
C) +$50
D) +$1,500

Question 15

A loan in which the payments go up or down with movements in the index,is called a(n):

A) adjustable rate mortgage
B) graduated payment mortgage
C) buy down mortgage
D) shared appreciation mortgage

Question 16

What conclusions can you draw about the influence of housing inflation on the annual cost of housing?

A) Housing inflation increases the cost of housing
B) Housing inflation increases the cost of housing by a very small amount
C) Housing inflation reduces the cost of housing
D) Housing inflation has almost no effect on the cost of housing

Question 17

Mortgage insurance is designed to:

A) provide for continued payment of the loan installments to the lender in case the borrower becomes temporarily unable to do so
B) protect the borrower in case the lender or seller has provided inaccurate or fraudulent claims that contributed to the borrower's agreement to purchase the property
C) protect the lender from the dual events that the borrower defaults and the value of the residence is less than the loan balance at the time of default
D) protect the lender if,for any reason,the borrower defaults

Question 18

Before the integration of the mortgage market into the larger capital market,rates on residential mortgages relative to bonds were:

A) generally lower
B) always lower
C) relatively higher
D) about the same

Question 19

Escrow accounts are designed to:

A) ensure that the property taxes and hazard fees are current
B) ensure the borrower that no other party can claim ownership or title to the property
C) provide for the payment of all closing costs
D) ensure that the mortgage insurance and title insurance are paid.