Question 1

Which one of the following is the range defined by the upper and lower prepayment schedules of a PAC bond?

Accepted Answer

The range defined by the upper and lower prepayment schedules of a PAC (Planned Amortization Class) bond is known as the PAC collar. This collar helps to protect the bond from prepayment risk by setting predefined boundaries for how quickly the principal can be repaid.

Question 2

What are the securities that are created when a mortgage pool is divided into a number of tranches called?

Accepted Answer

The answer of What are the securities that are created...

Question 3

Which one of the following is NOT a reason why mortgage prepayments occur?

Accepted Answer

An increase in interest rates typically discourages mortgage prepayments because homeowners are less likely to refinance to a higher rate, and it does not directly prompt the sale of a home or a refinancing decision for more favorable terms.

Question 4

Which one of the following financing terms will provide the lowest monthly payment for a fixed-rate $175,000 mortgage? (No calculations are required.)

Accepted Answer

The longest term, 30-year, will provide the lowest monthly payment for the mortgage. This is because the longer the term of the loan, the more spread out the payments are, and the lower the monthly payment will be.

Question 5

A mortgage prepayment is similar to which one of the following features of a corporate bond?

Accepted Answer

Both a mortgage prepayment and a call provision give the issuer (or borrower) the option to retire debt before its scheduled maturity. This can result in savings for the borrower by reducing interest payments, but can also result in losses for investors who may have expected to receive interest payments over a longer period of time. Collateral provision, put provision, conversion provision, and protective covenants provision are all different features of bonds that do not directly relate to the option to retire debt early.

Question 6

Borrowers must pay which one of the following if they are to pay off their home mortgage?

Accepted Answer

Borrowers must pay off the remaining principal balance of their mortgage plus any accrued interest in order to pay off the loan completely. This is the standard method for calculating the payoff amount for mortgages. Option B is incorrect because it involves discounting future payments, which is not relevant to paying off the mortgage in full. Option C is also incorrect because it assumes that the borrower is able to pay all remaining payments at once, which may not be feasible. Option D is incorrect because it only includes one year's worth of interest, whereas the borrower may need to pay several years' worth of interest depending on the terms of the mortgage. Option E is incorrect because it involves calculating the present value of the remaining principal balance, which is not the amount that the borrower would need to pay to completely pay off the mortgage.

Question 7

Which one of the following correctly applies to a mortgage passthrough bond?

Accepted Answer

A mortgage passthrough bond is backed by a pool of underlying mortgages, making them the primary collateral for the bond. The other options are incorrect as interest and principal payments are passed through to investors, each bond represents a fraction of the entire pool of mortgages, not one home mortgage, mortgage collaring is not a process used to create these bonds, and they are not guaranteed by the U.S. government.

Question 8

Which one of the following set of mortgage terms will cause the borrower to pay the most interest,assuming the mortgage is paid according to the amortization schedule?

Accepted Answer

The longer the term of the mortgage, the more interest the borrower will pay over time. Therefore, the 30-year term will result in the most interest paid, even if the interest rate is slightly lower than the other options.

Question 9

You have a 30-year,fixed-rate mortgage with equal monthly payments.The amount of interest you pay each month will _____ and the amount of principal you pay each month will ____.

Accepted Answer

Each month, a portion of your fixed monthly payment goes towards paying off the principal, while the remainder goes towards paying interest. In the beginning, a larger portion of your payment goes towards interest, while a smaller portion goes towards principal. As time goes on and you continue making payments, the proportion shifts and more goes towards principal and less towards interest. Therefore, the amount of interest you pay each month decreases over time, while the amount of principal you pay each month increases.

Question 10

Which one of the following is a mortgage-backed security that has first priority to scheduled principal payments?

Accepted Answer

A protected amortization class (PAC) bond is a type of mortgage-backed security (MBS) that has a priority claim on a portion of the scheduled principal payments of a pool of mortgages. PAC bonds are designed to provide investors with more predictable cash flows by protecting against prepayment risk. The PAC bond receives a stable stream of principal payments until a certain prepayment threshold is reached, at which point the remaining principal payments are redirected to other MBS classes.

Question 11

Which one of the following is defined as the yield to maturity for a mortgage-backed security computed on an assumed prepayment pattern?

Accepted Answer

The answer of Which one of the following is defined...

Question 12

A mortgage-backed security that has only a subordinate claim to principal payments is referred to as which type of bond?

Accepted Answer

The answer of A mortgage-backed security that has only a...

Question 13

Which of the following affect the amount of funds available to a homeowner from a reverse mortgage?
I.current mortgage balance on the home
II.age of homeowner
III.location of the home
IV.appraised value of the home

Accepted Answer

All four factors listed affect the amount of funds available from a reverse mortgage. The current mortgage balance can reduce the available equity, the homeowner's age can influence the loan amount (older homeowners may receive more funds), the location can affect the home's value and thus the loan amount, and the appraised value directly impacts the equity available for a reverse mortgage.

Question 14

You have a 15-year,fixed-rate,$150,000 mortgage.The monthly payment amount is constant and the mortgage is amortized on a monthly basis.How much will the principal balance be after the 90^th payment has been paid?

Accepted Answer

The answer of You have a 15-year,fixed-rate,$150,000 mortgage.The monthly payment...

Question 15

You own a mortgage passthrough.Which one of the following statements correctly describes the payments you will receive on that security?

Accepted Answer

Mortgage pass-through securities pay out based on the underlying mortgages. As the homeowners pay back their mortgages, the pass-through security holder receives a pro-rata portion of those payments. Therefore, the payments will vary depending upon the amount paid on the underlying mortgages each period.

Question 16

Which one of the following statements correctly relates to reverse mortgages?

Accepted Answer

Reverse mortgages do not require monthly payments from the borrower. Instead, the borrower receives payments from the lender as long as they continue to live in the mortgaged property. The loan is typically paid back when the borrower sells the property or passes away.

Question 17

Which one of the following is a security that only pays the principal cash flows to investors?

Accepted Answer

A principal-only strip is a type of security that only pays the principal cash flows to investors. This means that investors receive payments only on the principal amount of the underlying debt instrument, and do not receive any interest payments. This type of security is often used in mortgage-backed securities, where investors can select specific tranches or strips that align with their investment goals and risk preferences.

Question 18

Mortgage prepayments are generally a(n)______ to the mortgage borrower and a(n)____ to the mortgage investor.

Accepted Answer

Mortgage prepayments can be advantageous to the borrower as it helps them save on interest payments and allows them to pay off the mortgage earlier. However, it can be a disadvantage to the mortgage investor as they lose out on the interest payments that they would have received over the course of the loan term. Therefore, option B, advantage to the borrower and disadvantage to the investor, is the best answer.

Question 19

When can a homeowner prepay on his or her home mortgage?

Accepted Answer

Homeowners can prepay on their home mortgage at any time without penalty.

Question 20

Which one of the following is most apt to create an environment that increases mortgage prepayments?

Accepted Answer

As home mortgage rates decline significantly, homeowners have more incentive to refinance their mortgages at a lower interest rate, which often results in increased prepayments on their existing mortgages.

Quiz 20: Mortgage-Backed Securities

Which one of the following is the range defined by the upper and lower prepayment schedules of a PAC bond?

What are the securities that are created when a mortgage pool is divided into a number of tranches called?

Which one of the following is NOT a reason why mortgage prepayments occur?

Which one of the following financing terms will provide the lowest monthly payment for a fixed-rate $175,000 mortgage? (No calculations are required.)

A mortgage prepayment is similar to which one of the following features of a corporate bond?

Borrowers must pay which one of the following if they are to pay off their home mortgage?

Which one of the following correctly applies to a mortgage passthrough bond?

Which one of the following set of mortgage terms will cause the borrower to pay the most interest,assuming the mortgage is paid according to the amortization schedule?

You have a 30-year,fixed-rate mortgage with equal monthly payments.The amount of interest you pay each month will _ and the amount of principal you pay each month will .

Which one of the following is a mortgage-backed security that has first priority to scheduled principal payments?

Which one of the following is defined as the yield to maturity for a mortgage-backed security computed on an assumed prepayment pattern?

A mortgage-backed security that has only a subordinate claim to principal payments is referred to as which type of bond?

Which of the following affect the amount of funds available to a homeowner from a reverse mortgage? I.current mortgage balance on the home II.age of homeowner III.location of the home IV.appraised value of the home

You have a 15-year,fixed-rate,$150,000 mortgage.The monthly payment amount is constant and the mortgage is amortized on a monthly basis.How much will the principal balance be after the 90^th payment has been paid?

You own a mortgage passthrough.Which one of the following statements correctly describes the payments you will receive on that security?

Which one of the following statements correctly relates to reverse mortgages?

Which one of the following is a security that only pays the principal cash flows to investors?

Mortgage prepayments are generally a(n) __ to the mortgage borrower and a(n) to the mortgage investor.

When can a homeowner prepay on his or her home mortgage?

Which one of the following is most apt to create an environment that increases mortgage prepayments?

Quiz 20: Mortgage-Backed Securities

Which one of the following is the range defined by the upper and lower prepayment schedules of a PAC bond?

What are the securities that are created when a mortgage pool is divided into a number of tranches called?

Which one of the following is NOT a reason why mortgage prepayments occur?

Which one of the following financing terms will provide the lowest monthly payment for a fixed-rate $175,000 mortgage? (No calculations are required.)

A mortgage prepayment is similar to which one of the following features of a corporate bond?

Borrowers must pay which one of the following if they are to pay off their home mortgage?

Which one of the following correctly applies to a mortgage passthrough bond?

Which one of the following set of mortgage terms will cause the borrower to pay the most interest,assuming the mortgage is paid according to the amortization schedule?

You have a 30-year,fixed-rate mortgage with equal monthly payments.The amount of interest you pay each month will _____ and the amount of principal you pay each month will ____.

Which one of the following is a mortgage-backed security that has first priority to scheduled principal payments?

Which one of the following is defined as the yield to maturity for a mortgage-backed security computed on an assumed prepayment pattern?

A mortgage-backed security that has only a subordinate claim to principal payments is referred to as which type of bond?

Which of the following affect the amount of funds available to a homeowner from a reverse mortgage? I.current mortgage balance on the home II.age of homeowner III.location of the home IV.appraised value of the home

You have a 15-year,fixed-rate,$150,000 mortgage.The monthly payment amount is constant and the mortgage is amortized on a monthly basis.How much will the principal balance be after the 90th payment has been paid?

You own a mortgage passthrough.Which one of the following statements correctly describes the payments you will receive on that security?

Which one of the following statements correctly relates to reverse mortgages?

Which one of the following is a security that only pays the principal cash flows to investors?

Mortgage prepayments are generally a(n) ______ to the mortgage borrower and a(n) ____ to the mortgage investor.

When can a homeowner prepay on his or her home mortgage?

Which one of the following is most apt to create an environment that increases mortgage prepayments?

You have a 30-year,fixed-rate mortgage with equal monthly payments.The amount of interest you pay each month will _ and the amount of principal you pay each month will .

You have a 15-year,fixed-rate,$150,000 mortgage.The monthly payment amount is constant and the mortgage is amortized on a monthly basis.How much will the principal balance be after the 90^th payment has been paid?

Mortgage prepayments are generally a(n) __ to the mortgage borrower and a(n) to the mortgage investor.