Question 1

A maturity mismatch occurs when:&#10;A) over one half of all mortgage debt is held by depository institutions&#10;B) mortgage loan interest rates are high&#10;C) a financial institution has originated more conventional loans than government insured loans&#10;D) there is a large difference in the maturity of a financial institutions assets and liabilities

Accepted Answer

A maturity mismatch occurs when a financial institution's assets and liabilities have significantly different maturities, meaning that they don't mature at the same time. This can create liquidity risks for the institution, as they may not have sufficient cash on hand to meet unexpected withdrawals or obligations. This is not directly related to the percentage of mortgage debt held by depository institutions or the interest rates on mortgage loans, nor is it connected to the types of loans originated.

Question 2

Disintermediation refers to:&#10;A) the withdrawal of funds from financial institutions by depositors in excess of deposits&#10;B) financial institutions withdrawing from the Federal Reserve System&#10;C) financial institutions shifting from FHA loans to conventional loans&#10;D) none of the above

Accepted Answer

Disintermediation refers to the withdrawal of funds from financial institutions by depositors in excess of deposits, often due to a lack of attractive investment options or dissatisfaction with the rates offered by financial institutions. This can lead to a reduction in the supply of loanable funds available for financial institutions to lend out, which can then lead to an increase in interest rates.

Question 3

Assumable loans and carry backs:&#10;A) have totally replaced FHA and VA financing&#10;B) are examples of what is termed creative financing&#10;C) are short-term loans with balloon payments&#10;D) are two forms of FHA financing

Accepted Answer

Assumable loans and carry backs are both examples of creative financing, which refers to non-traditional methods of financing a property purchase. Assumable loans allow the buyer to take over the seller's existing mortgage, while carry backs involve the seller financing a portion of the purchase price. Neither of these options has replaced FHA and VA financing, and they are not necessarily short-term loans with balloon payments.

Question 4

Negative amortization refers to the fact that:&#10;A) the balance of a loan grows larger rather than smaller&#10;B) the amount of interest on a loan becomes larger rather than smaller&#10;C) the reduction in the value of a property falls below the loan amount&#10;D) none of the above

Accepted Answer

Negative amortization occurs when the borrower's payments are not high enough to cover the interest due on the loan, resulting in the balance of the loan increasing instead of decreasing. This can lead to the borrower owing more than the original loan amount, which is a negative situation.

Deck 5: Modern Residential Finance