Question 1

In a mortgage loan, the ______________is a public record that gives the lender the right to repossess the property if the borrower defaults&#10;A) amortization&#10;B) collateral&#10;C) closing costs&#10;D) lien

Accepted Answer

The lien is the correct answer because it is a legal right or interest that a lender has in the borrower's property, given until the debt obligation is satisfied. In the context of a mortgage, if the borrower defaults on the loan, the lien allows the lender to repossess or foreclose on the property.

Question 2

Mortgages are ____________ to the issuer and _______________ to the holder..&#10;A) assets, liabilities&#10;B) collateral, investment&#10;C) liabilities, assets&#10;D) investment, collateral

Accepted Answer

assets, liabilities&#10;

Question 3

The; major borrowers in the mortgage markets are&#10;A) municipalities.&#10;B) households.&#10;C) federal and local governments.&#10;D) farmers.&#10;

Accepted Answer

Households typically take out mortgages to purchase residential property, making them the primary borrowers in the mortgage market. Mortgages are loans that are secured by real estate property, and they are a key financial tool for individuals and families looking to buy homes. Municipalities, federal and local governments, and farmers may also engage in borrowing for various purposes, but they are not the primary borrowers in the mortgage markets.

Question 4

A mortgage lender would evaluate the _______ ratio to know how easily the borrower can pay the monthly payments.&#10;A) loan-to-value ratio&#10;B) income-to-debt ratio&#10;C) risk-premium&#10;D) debt-to-income

Accepted Answer

The debt-to-income ratio is used by mortgage lenders to assess a borrower's ability to manage monthly payments and repay debts. It compares the borrower's total monthly debt payments to their gross monthly income.

Question 5

A fixed interest rate mortgage has all of the following characteristics except&#10;A) The interest rate does not vary over the life of the loan.&#10;B) The lender has higher interest rate risk compared to a variable interest rate mortgage.&#10;C) The interest rate is set relative to a benchmark.&#10;D) If interest rates fall, mortgages may be prepaid.

Accepted Answer

Fixed interest rate mortgages have interest rates that do not change over the life of the loan, making them predictable for borrowers. They do not set their interest rates relative to a benchmark; this characteristic applies to variable or adjustable-rate mortgages, which adjust their rates based on changes to a specific benchmark or index.

Question 6

The _________ risk that nominal rates rise and the value of long-term assets fall.&#10;A) default&#10;B) interest rate&#10;C) liquidity&#10;D) prepayment.

Accepted Answer

Interest rate risk is the risk that interest rates will increase, leading to a decrease in the value of long-term assets as their yields become less attractive compared to new issues with higher rates.

Question 7

_________________ includes the real property that backs the mortgage loan.&#10;A) Amortization&#10;B) Collateral&#10;C) Securitization&#10;D) Indexation

Accepted Answer

Collateral refers to the asset that a borrower offers to a lender to secure a loan. In the case of a mortgage loan, the real property (house or land) being purchased or refinanced serves as the collateral for the loan. If the borrower fails to repay the loan according to the terms agreed upon, the lender has the right to seize the collateral (through foreclosure) to recover the owed amount.

Question 8

Which of the following is false?&#10;A) The longer the term-to-maturity, the smaller will be the mortgage payment for any given mortgage.&#10;B) The lower the downpayment on a mortgage, the greater the default risk.&#10;C) Fannie Mae and Freddie Mac were put into conservatorship in mid 2008.&#10;D) Variable rate loans have higher initial interest rates than fixed rate loans.

Accepted Answer

Variable rate loans typically start with lower initial interest rates compared to fixed rate loans. The interest rates for variable rate loans can fluctuate over time based on changes in market interest rates, whereas fixed rate loans maintain the same interest rate throughout the term of the loan.

Question 9

A mortgage borrower may choose to pay points on a loan or&#10;A) have a higher interest rate on the loan..&#10;B) obtain default risk insurance&#10;C) pay higher closing costs&#10;D) All of the above are correct.

Accepted Answer

Paying points on a loan typically allows a borrower to lower the interest rate on the loan, as opposed to having a higher interest rate. Points are essentially prepaid interest, and paying them can secure a lower rate. Options B and C are not directly related to the choice between paying points and the interest rate on a loan.

Question 10

The annualized discount factor that is used to determine the price of a mortgage in the secondary markets does not include&#10;A) the risk free return.&#10;B) a risk premium.&#10;C) a premium for the servicing costs of the mortgage..&#10;D) a liquidity premium.

Accepted Answer

The answer of The annualized discount factor that is used...

Question 11

Which of the following is false?&#10;A) Subprime mortgages were made to borrowers with bad credit and low down payments.&#10;B) Subprime mortgages often had payments that accelerated after the first few years of the loan.&#10;C) Fannie Mae and Freddie Mac were put into conservatorship in mid 2008.&#10;D) Stated-income loans were made to people with low credit scores.

Accepted Answer

The answer of Which of the following is false?&#10;A) Subprime...

Question 12

The financial crisis of 2007-2009&#10;A) began with defaults in the subprime mortgage market..&#10;B) spread to global financial markets&#10;C) led to the failure or take over of many large financial institutions&#10;D) All of the above are correct.

Accepted Answer

The answer of The financial crisis of 2007-2009&#10;A) began with...

Question 13

Which of the following is false?&#10;A) Most mortgages today are interest only for the first few years.&#10;B) Alt-A (stated income) loans are made to borrowers with good credit scores who cannot document their incomes.&#10;C) Fannie Mae and Freddie Mac were put into conservatorship in mid 2008.&#10;D) The mortgage market involves the originating, funding, and servicing of mortgages.

Accepted Answer

The answer of Which of the following is false?&#10;A) Most...

Question 14

Which of the following is true?&#10;A) The price of a previously issued mortgage is the present value of the future stream of monthly payments discounted at the current interest rate on a comparable mortgage.&#10;B) The discount rate for mortgages includes the risk free rate plus the appropriate risk premium, plus a premium for servicing the mortgage.&#10;C) A mortgage lender generally requires that monthly mortgage payments be made.&#10;D) All of the above are true.

Accepted Answer

The answer of Which of the following is true?&#10;A) The...

Question 15

Which of the following is false?&#10;A) The price of a mortgage in the secondary market is the discounted value of the future stream of monthly payments over the remaining life of the mortgage. .&#10;B) The price of a mortgage-backed security is based on the credit worthiness of the original lender.&#10;C) The premium for the servicing costs of mortgages has been significantly reduced in recent years due to changes in technology.&#10;D) The risks of investing in mortgages includes the risk that the mortgage may be paid early when investment opportunities for the lender are less favorable.

Accepted Answer

The answer of Which of the following is false?&#10;A) The...

Deck 7: The Mortgage Market