Deck 10: The Secondary Mortgage Market

Question 1

10-15.Low interest mortgages are less likely to prepay if market interest rates have:

A) risen
B) fallen
C) remained the same for a long period of time
D) interest rates have no effect on prepayments

Answer 1

risen

Question 2

10-10.The purpose of the Farm Credit Assistance Financial Corporation is to:

A) provide capital to Federal Land Banks
B) provide capital to Farm Credit Banks
C) provide capital to banks for cooperatives
D) all of the above

Answer 2

provide capital to Farm Credit Banks

Question 3

10-16.Mortgage quality can be affected by all of the following except:

A) mortgage insurance status
B) loan-to-value ratio
C) status as residential or commercial
D) location
E) term of the loan

Answer 3

term of the loan

Question 4

Mortgage pay-through bonds are a cross between the following two mortgage related securities:

A) pass-throughs and MBBs
B) MBBs and CMOs
C) pass-throughs and CMOs
D) none of the above

Question 5

10-14.With a mortgage pass-through security the investor is said to have a(n):

A) undivided interest in the mortgage pool
B) divided interest in the mortgage pool
C) partnership interest in the mortgage pool
D) principal interest in the mortgage pool

Question 6

10-20.Valuing mortgages on a frequent basis as a result of the changes in interest rates is referred to as:

A) tailor
B) mark-to-market
C) tranches
D) SWAPs

Question 7

Ginnie Mae:

A) purchases mortgages
B) issues securities
C) both a and b
D) none of the above

Question 8

Investors are attracted to pass-through bonds because of all of the following except:

A) high yield
B) timing of the cash flows
C) liquidity
D) risk-free quality

Question 9

A rise in interest rates will cause the market value of existing mortgages to:

A) rise
B) remain the same
C) fall
D) undetermined

Question 10

10-11.FNMA and FHLMC are:

A) official departments of the U.S. government
B) official branches of the U.S. government
C) corporations originated through federal legislation
D) all of the above

Question 11

The first popular MRSs were:

A) mortgage pay-through bonds
B) mortgage-backed bonds
C) collateralized mortgage obligations
D) mortgage pass-through bonds

Question 12

Fannie Mae supports the secondary mortgage market by:

A) issuing mortgage related securities
B) purchasing mortgages
C) selling mortgages
D) issuing mortgage related securities and buying mortgages

Question 13

A secondary mortgage market is where existing mortgages are:

A) bought
B) sold
C) distributed
D) bought and sold

Question 14

10-13.Rating agencies review the credit risk of the collateral of CMOs for all of the following except:

A) type of property
B) location of property
C) interest rates d loan-to-value ratio of property

Question 15

10-12.To be successful,MRSs need:

A) to avoid double taxation
B) to have credit enhancement
C) to tailor cash flows to investors' needs
D) all of the above
E) a and b

Question 16

10-18.The investor is said to have an undivided interest in the pool of mortgages or ownership in the mortgages in the following type of mortgage-related security:

A) mortgage pay-through bonds
B) mortgage-backed bonds
C) mortgage passthrough securities d . collateralized mortgage obligations

Question 17

10-19.Mortgage-related securities that promise payments similar to corporate bonds are called:

A) mortgage backed bonds
B) mortgage pass-through securities
C) mortgage pay-through bonds
D) credit enhancements

Question 18

10-17.Players that facilitate transactions in the secondary market include:

A) government National Mortgage Association
B) federal National Mortgage Association
C) private firms
D) all of the above
E) a and b

Question 19

With the secondary mortgage market,the number of assets and liabilities are:

A) limited
B) unlimited
C) transferred
D) not related

Question 20

The Federal National Mortgage Association reduced interest rates on mortgages relative to other securities in the mid-eighties by issuing:

A) CMOs
B) passthroughs and MBBs
C) CMOs and passthroughs
D) MBBs and CMOs

Question 21

10-30.Mortgage related securities that offer cash flows similar to corporate bonds are:

A) mortgage pay-through bonds
B) mortgage backed bonds
C) mortgage passthroughs
D) collateralized mortgage obligations
E) none of the above

Question 22

10-27.Prior to the secondary mortgage market it was difficult for thrifts to sell mortgages because:

A) their mortgage assets were not homogeneous
B) potential buyers were concerned with default risk
C) both a and b
D) none of the above

Question 23

10-25.The secondary mortgage market is one in which:

A) existing mortgages are bought and sold
B) securities are offered through private brokers
C) bonds are bought but not sold
D) stock in thrifts are bought and sold

Question 24

10-24.In 1938 Congress established as a subsidiary of the Reconstruction Finance Corporation the:

A) Government National Mortgage Association
B) Federal National Mortgage Association
C) Federal Home Loan Mortgage Corporation
D) Housing and Home Finance Agency

Question 25

10-31.The mortgage-related security that goes the furthest in rearranging the cash flows from a pool of mortgages is:

A) mortgage pay-through bonds
B) collateralized mortgage obligations
C) mortgage backed bonds
D) mortgage pass-through securities

Question 26

10-37.The federal agency that guarantees the timely payment of 90% of the principal and interest from a pool of mortgages is:

A) FNMA.
B) GNMA.
C) Federal Agricultural Mortgage Corporation d FHLMC

Question 27

10-21.The following are mortgage-related securities that are a cross between passthroughs and MBBs.

A) mortgage pay-through bonds:
B) tranches
C) mark-to-market
D) SWAPs

Question 28

10-33.Grantor trusts were developed for use with:

A) mortgage backed bonds
B) pay-through bonds
C) pass-through bonds
D) none of the above

Question 29

10-28.The secondary mortgage market developed because it solved:

A) regional mismatch of sources and uses of funds
B) interest rate risk for mortgage originators
C) a and b
D) none of the above

Question 30

10-36.Government Sponsored Enterprises refers to:

A) FNMA and FHLMC
B) FNMA and GNMA
C) FHLMC and GNMA
D) federal credit agencies and state credit agencies

Question 31

Deep Check
10-40.Desirable characteristics of mortgage-related securities include:

A) credit enhancement
B) rearrangement of cash flows to meet demands of investors
C) avoiding double taxation
D) a and b
E) all of above

Question 32

10-34.Congress passed the Housing and Urban Development Act in:

A) 1970
B) 1968
C) 1954
D) 1953

Question 33

10-29.Investors are attracted to pass-through securities because:

A) of their relatively high yield and liquidity
B) they are relatively risk free
C) the timing of the cash flows is certain
D) a and b
E) none of the above

Question 34

10-26.The term,mortgage-related security,refers to:

A) collateral securities
B) mortgages originated by thrifts
C) securities backed up by mortgages
D) thrift securities

Question 35

10-35.The agriculturally related system that merged into 37 farm credit banks was:

A) Federal Land Banks and Federal Intermediate Credit Banks
B) Federal Land Banks and Banks for Cooperatives
C) Federal Intermediate Credit Banks and Banks for Cooperatives
D) none of the above

Question 36

10-22.In 1938 Congress established as a unit of the Reconstruction Finance Corporation the:

A) Government National Mortgage Association.
B) Federal National Mortgage Association.
C) Federal Home Loan Mortgage Corporation.
D) Housing and Home Finance Agency

Question 37

10-39.The purpose of Housing Finance Agencies (HFAs)is to:

A) issue mortgage bonds that carry a low rate of interest because of their tax-exempt status
B) lend funds to low- and moderate-income homeowners
C) a and b
D) none of the above

Question 38

10-32.A secondary mortgage market transaction that occurs when a lender sells mortgages to an agency which,in turn issues an NMS back to the lender is called:

A) a swap
B) a repurchase agreement
C) mark-to-market
D) none of the above

Question 39

10-38.An agency that extends loans to rural areas of farms,houses,and community facilities is:

A) Federal Agricultural Mortgage Corporation
B) Farmers Home Administration
C) Financing Corporation (FICO)
D) Federal Financing bank (FFB)

Question 40

10-23.A secondary mortgage transaction that occurs when a lender sells mortgages to an agency that,in turn,issues an MRS,such as a pass-through,back to the lender is referred to as

A) SWAP
B) tailor
C) collateralized mortgage obligation
D) credit enhancement