Deck 5: Mortgage Money: the Secondary Market

Question 1

Which of the following best describe the difference between a CMO and a CDO?

A) The CDO is a security the CMO is not.
B) The CMO can be tranched and the CDO cannot.
C) The CDO can have other asset classes other than mortgage loans.
D) A CMO will always be higher rated by S & P and Moody's than a CDO.

Answer 1

The CDO can have other asset classes other than mortgage loans.

Question 2

Expansion of the secondary market into conventional loans was made possible by which of the following two events.

A) Money available in the financial markets and an increase in the number of mortgages.
B) Growth of available money and the standardization of loan documents.
C) The creation of uniform mortgage instruments and the expansion of private mortgage insurance.
D) The shift to private mortgage insurance and the sharp decrease in FHA and VA insured commitments.

Answer 2

The creation of uniform mortgage instruments and the expansion of private mortgage insurance.

Question 3

As used in mortgage lending, yield means

A) the flexibility allowed in a mortgage loan.
B) to give priority to another.
C) the return of interest plus discount.
D) the interest earned on the loan.

Answer 3

the return of interest plus discount.

Question 4

The distinguishing feature of a collateralized mortgage obligation, compared with a pass-through, is that:

A) the collateral is other than mortgage loans.
B) the cash flows are segmented and distributed to different classes of security holders.
C) interest payments on all classes are withheld until maturity.
D) all principal payments are discounted when issued.

Question 5

If a discount is taken off the face value of a note, the result is

A) a decrease in the return to the note holder
B) no change in the return since the interest rate is unchanged
C) a higher market value for the note
D) an increase in the return to the note holder

Question 6

The secondary market for mortgages can be described as the

A) Operations of Fannie Mae/Freddie Mac.
B) Market for trading second mortgages.
C) Purchase and/or sale of mortgage loans after origination.
D) Market for trading in Ginnie Mae contracts.

Question 7

The primary purpose of federal agency underwriting of securities backed by mortgage loan pools is to

A) earn greater fees for the government.
B) enhance the credit-worthiness of an investment in mortgage-back securities.
C) exercise more control over the mortgage business.
D) direct more funds into low-income housing.

Question 8

A unit of measure when used as a real estate finance term amounting to one hundredth of one percent is:

A) One Discount Point
B) One Basis Point
C) A Fraction
D) One Point

Question 9

State and municipal housing authorities are able to offer lower cost home loans because

A) the money loaned is raised through the sale of tax-exempt bonds.
B) tax money is used to subsidize the home buyer's costs.
C) administrative costs are paid for by the government agencies involved.
D) all issues are of such large scale that costs are lower.

Question 10

Which of the following entities in not considered a Government Sponsored Enterprise?

A) FHA
B) Fannie Mae
C) Federal Home Loan Bank
D) Freddie Mac

Question 11

To purchase loans for portfolio means to

A) loans that can be easily carried about
B) purchasing loans primarily for resale
C) holding loans as an investment to earn a return
D) purchasing loans that meet certain income tax requirements

Question 12

A mortgage pool can be described as

A) a block of loans serving as collateral for an issue of securities.
B) a pool of loans organized so that the winner takes the highest return.
C) another type of loan guarantee.
D) a block of defaulted loans whose risk is shared by a group of mortgage investors.