Deck 22: Mortgage Market and Mortgage Instruments

Question 1

The median purchase price of a conventional single-family residence in the U.S. in 2009 was just over $250,000.

Answer 1

False

Question 2

Over the past two decades, the median purchase price of the conventional single-family residence nearly tripled.

Answer 2

True

Question 3

The total of all mortgages outstanding in the U.S. in 2009 was more than $14 trillion.

Answer 3

True

Question 4

The mortgage market is the largest primary security market in the U.S.

Question 5

Multifamily and commercial mortgage loans have shown a significant increase in relative importance in recent years.

Question 6

Prior to World War II, individuals were the dominant mortgage investors.

Question 7

Commercial banks are the principal mortgage lending institutions in the U.S. today.

Question 8

Savings and loan associations are primarily local lenders.

Question 9

Savings and loan associations rank second in loan volume to commercial banks among all mortgage lenders.

Question 10

Savings and loan associations rarely service the mortgage loans they make.

Question 11

Savings and loan associations have preferred single-family home mortgages over the years.

Question 12

Life insurance companies have been placing more emphasis on single-family home mortgages in recent years.

Question 13

"Equity kickers" permit the lender to receive a portion of the earnings from the project being financed.

Question 14

Savings banks invest primarily in commercial mortgages.

Question 15

Mortgage bankers supply important financial services to both institutional investors and property developers.

Question 16

The Federal Housing Administration (FHA) was established by Congress in 1944.

Question 17

The development of a secondary market for mortgage instruments has led to greater participation in mortgage lending by "long-distance" lenders.

Question 18

The Federal Home Loan Bank System was created to supervise the activities of savings and loan associations.

Question 19

The collateralized mortgage obligation (CMO) creates different maturity classes from the cash flows coming from a pool of mortgages.

Question 20

The Servicemen's Readjustment Act in 1944 created the Veterans' Administration.

Question 21

FNMA has significantly improved the resale potential of most home mortgage loans.

Question 22

The Federal National Mortgage Association is presently authorized to trade only in VA and FHA-guaranteed mortgages.

Question 23

Fannie Mae raises funds for its mortgage purchases by selling short-term discount notes and medium-term debentures on the open market.

Question 24

During the 1980s FNMA began to issue and guarantee securities backed by conventional mortgage loans.

Question 25

Fannie Mae is the world's largest mortgage bank.

Question 26

Congress created the Mortgage Guarantee Insurance Corporation (MGIC) in 1978.

Question 27

The majority of GNMA pass-throughs are issued by savings banks.

Question 28

Fannie Mae has become a private, shareholder-owned corporation.

Question 29

Fannie Mae's asset portfolio soared in value during the 2007-2009 period.

Question 30

Securitized mortgages make it easier for mortgage lenders to get old, low-yielding mortgages off their books.

Question 31

GMCs pay interest to investors on a semiannual basis.

Question 32

The federal government's goals to stabilize the economy and support the housing industry are frequently in conflict with each other.

Question 33

The total amount of interest paid by the borrower will be much smaller with a Graduated-Payment Mortgage than it would be under a conventional fixed-rate mortgage.

Question 34

Adjustable mortgages unfortunately face severe legal restrictions that must first be overcome in order to make them a viable mortgage instrument.

Question 35

"Creative financing" techniques includes such practices and financial instruments as second mortgages, home-leasing plans, land leasing and property exchanges, according to your text.

Question 36

With the development of adjustable mortgage instruments and creative financing techniques fixed-rate mortgages have been almost completely supplanted by the newer financial instruments, according to the textbook.

Question 37

In the long run, average home prices have tended to match or even outstrip inflation.

Question 38

Until 1980 households were the leading mortgage borrower in the United States but they were passed by business mortgage borrowers in 1981 and continued to rank in second place through 2000, according to your text.

Question 39

Mortgage pools serve as a very effective hedge against risk, insulating their holders against fluctuations in the housing market.

Question 40

According to your text, savings and loans associations are expected to increase the portion of their asset portfolios devoted to residential mortgage loans in future years.

Question 41

Mortgage-backed securities in which an investor can receive either principal payments or interest payments from a pool of home mortgages are known as strips.

Question 42

New instruments in the mortgage market that have served to make mortgage securities more competitive with government and corporate securities and allowed mortgage lenders to reach national and global markets are called securitized mortgages.

Question 43

Variable-rate mortgages in the long-term usually result in a heavier interest-rate burden than is generally true with fixed-rate home mortgage loans.

Question 44

Most homeowners who refinance their home mortgages do not borrow additional funds when they take on the new, lower-rate mortgage.

Question 45

In general a home mortgage should be refinanced when the discounted after-tax savings exceed the after-tax refinancing cost.

Question 46

Loan fees on refinanced property are immediately tax deductible just as they are under a first mortgage.

Question 47

A mortgage loan is one of the most difficult of all financial instruments to establish a true value for.

Question 48

Savings and loans' share of the total mortgage market has declined in recent years.

Question 49

Claims against a pool of mortgages in which interest is paid semiannually like corporate bonds are known as GMCs.

Question 50

CMOs differ from other mortgage-backed securities in that they contain several different tranches.

Question 51

Conventional home mortgages are guaranteed by the government.

Question 52

Pension funds, finance companies and government agencies account for a growing share of outstanding mortgage loans.

Question 53

Savings and loans make mortgage loans at branches throughout the United States.

Question 54

Most bank mortgage loans are made to finance residential, single family homes.

Question 55

Ginnie Mae guarantees both the principal and interest payments on mortgages in its pools.

Question 56

The purchase price of a conventional single family residence in the U.S. has more than quadrupled over the past two decades.

Question 57

The average maturity of conventional home mortgage loans had declined to less than 25 years by 2009.

Question 58

Points in home mortgage lending have declined as a percentage of loan size in the most recent period.

Question 59

Today mortgage bankers originate just under half of all home mortgages.

Question 60

Government agencies today dominate the mortgage market for low and moderately priced loans.

Question 61

The average contract interest rate on conventional mortgage loans dipped to about 6 percent as the twentieth century drew to a close. By late in the year 2001 home mortgage interest rates had dropped further to the lowest levels experienced since the 1960s.

Question 62

Loans granted to the residential properties sector account for about 80 percent of the total outstanding mortgage loans in 2009.

Question 63

The convertible mortgage instrument (CMI) starts out with an adjustable interest rate, but later the home buyer can switch to a fixed-rate mortgage if interest rates look more favorable. However, some loan contracts carry a mandatory holding period before conversion to a fixed-rate loan is permitted and also prohibit switching after a certain length of time has elapsed (such as five years).

Question 64

The convertible mortgage instruments (CMIs) have initial adjustable interest rates that are usually lower than those on new fixed-rate mortgages and the switch to a fixed-rate loan in the future typically is cheaper than refinancing an old mortgage.

Question 65

In 21st-century the conventional home mortgage loan has an average maturity around 29 years and in 2009 the average loan amount was $258,900.

Question 66

The loan mortgage debt outstanding in the United States at year-end 2009 was over $19 trillion.

Question 67

Tens of thousands of homeowners refinanced their mortgages to take advantage of lower interest rates, reducing the expected return on Fannie and Freddie's asset portfolios and creating a bigger mismatch between the maturities of their assets and liabilities.

Question 68

Fixed-rate home mortgages are among the oldest forms of home loans.

Question 69

The Chicago mercantile exchange has developed housing futures and options that are settled in cash based on real estate prices in 10 large American cities.

Question 70

A weak and failing housing market can cause ripples in the aggregate economy.

Question 71

Residential mortgages represent about ____ of all mortgage loans outstanding in the U.S.

A) 25%
B) 35%
C) 50%
D) 80%
E) 90%

Question 72

The type of financial institution which provides more residential mortgage credit than any other institutional lender is the:

A) Commercial bank
B) Savings and loan association
C) Life insurance company
D) Savings bank
E) None of the above

Question 73

The organization that was established for the purpose of buying and selling FHA-guaranteed mortgages in the secondary market is the:

A) Government National Mortgage Association
B) Federal Home Loan Mortgage Corporation
C) Federal National Mortgage Association
D) Mortgage Guarantee Insurance Corporation
E) None of the above

Question 74

The organization set up to insure conventional home mortgage loans carrying down payments as low as five percent was the:

A) Government National Mortgage Association
B) Federal Home Loan Mortgage Corporation
C) Federal National Mortgage Association
D) Mortgage Guarantee Insurance Corporation
E) None of the above

Question 75

The organization established to offer "assistance mortgages" was the:

A) Government National Mortgage Association
B) Federal Home Loan Mortgage Corporation
C) Federal National Mortgage Association
D) Mortgage Guarantee Insurance Corporation
E) None of the above

Question 76

The creation of this organization reflected a desire by the federal government to develop a stronger secondary market for conventional home mortgages. This organization's name is the:

A) Government National Mortgage Association
B) Federal Home Loan Mortgage Corporation
C) Federal National Mortgage Association
D) Mortgage Guarantee Insurance Corporation
E) None of the above

Question 77

This type of mortgage instrument is characterized by installment payments which are set lower than those required under a comparable fixed-rate mortgage, but rise over time with inflation, borrower income or some other index. It is a/an:

A) Variable Rate Mortgage
B) Adjustable Mortgage Loan
C) Renegotiated-Rate Mortgage
D) Graduated Payment Mortgage
E) None of the above

Question 78

This type of mortgage instrument is created by tying the mortgage contract interest rate to another interest rate which is sensitive to current supply and demand conditions in the open market. This instrument is the:

A) Variable Rate Mortgage
B) Adjustable Mortgage Loan
C) Renegotiated-Rate Mortgage
D) Graduated Payment Mortgage
E) None of the above

Question 79

A type of mortgage instrument in which changes in the interest rate attached to the mortgage loan can be passed along to the borrower by changing the loan principal, loan maturity, monthly payment or any combination of these is the:

A) Canadian Rollover Mortgage
B) Adjustable Mortgage Loan
C) Variable Rate Mortgage
D) Graduated Payment Mortgage
E) None of the above

Question 80

This mortgage loan is of much shorter term than a conventional fixed-rate mortgage and usually requires the borrower to renegotiate and refinance the loan on the due date. This instrument is the:

A) Canadian Rollover Mortgage
B) Adjustable Mortgage Loan
C) Variable Rate Mortgage
D) Graduated Payment Mortgage
E) None of the above