Question 1

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

Accepted Answer

Fannie Mae (FNMA) provides liquidity and stability to the mortgage market, but it does not directly improve the resale potential of individual home mortgage loans.

Question 2

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

Accepted Answer

The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is authorized to trade in a broader range of mortgage products beyond just VA (Veterans Affairs) and FHA (Federal Housing Administration)-guaranteed mortgages. This includes conventional mortgages that are not government-insured.

Question 3

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

Accepted Answer

Fannie Mae raises funds to purchase mortgages by issuing various debt securities, including short-term discount notes and medium-term debentures, on the open market. This process allows Fannie Mae to provide liquidity to the mortgage market, enabling lenders to offer more mortgages to borrowers.

Question 4

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

Accepted Answer

During the 1980s, the Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, began to issue and guarantee mortgage-backed securities (MBS) that were backed by pools of conventional (not just government-insured) mortgage loans, expanding its role in the secondary mortgage market and contributing to the growth of this market.

Question 5

Fannie Mae is the world's largest mortgage bank.

Accepted Answer

Fannie Mae is a government-sponsored enterprise that purchases mortgages from banks and other lenders, and then packages them into securities that are sold to investors. This process helps to make mortgages more affordable for borrowers.

Question 6

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

Accepted Answer

MGIC, the first private mortgage insurer in the United States, was actually founded in 1957 by Max Karl, not created by Congress.

Question 7

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

Accepted Answer

The majority of GNMA (Government National Mortgage Association or Ginnie Mae) pass-through securities are issued by mortgage banks, not savings banks. GNMA guarantees these securities, which are backed by pools of FHA or VA loans.

Question 8

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

Accepted Answer

Fannie Mae (Federal National Mortgage Association) was originally a government agency when it was established in 1938 but became a private, shareholder-owned corporation in 1968.

Question 9

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

Accepted Answer

During the 2007-2009 period, the value of Fannie Mae's asset portfolio significantly declined due to the housing market crash and the financial crisis, not soared.

Question 10

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

Accepted Answer

Securitized mortgages allow lenders to bundle and sell mortgages as securities to investors, thus freeing up capital and enabling them to issue new loans.

Question 11

GMCs pay interest to investors on a semiannual basis.

Accepted Answer

GMCs, or Guaranteed Mortgage Certificates, typically pay interest to investors on a semiannual basis, aligning with the standard practice for many fixed-income securities.

Question 12

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

Accepted Answer

The federal government often faces a balancing act between stabilizing the economy, which can involve adjusting interest rates and controlling inflation, and supporting the housing industry, which may benefit from lower interest rates and specific policies that can, in turn, conflict with broader economic stabilization efforts.

Question 13

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.

Accepted Answer

In a Graduated-Payment Mortgage, initial payments are lower but increase over time, potentially leading to more interest paid over the life of the loan compared to a conventional fixed-rate mortgage where payments remain constant.

Question 14

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

Accepted Answer

Adjustable-rate mortgages (ARMs) are a common and viable mortgage option that adjust the interest rate periodically based on changes in a corresponding financial index. They are not subject to severe legal restrictions that make them nonviable; rather, they are regulated to ensure fair lending practices.

Question 15

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

Accepted Answer

Creative financing refers to innovative, non-traditional methods of financing real estate transactions, and indeed includes practices such as second mortgages, home-leasing plans, land leasing, and property exchanges to facilitate deals that might not be possible through conventional financing methods.

Question 16

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.

Accepted Answer

Fixed-rate mortgages remain popular and have not been almost completely supplanted by adjustable mortgage instruments or creative financing techniques. They continue to be a preferred choice for many homeowners seeking stability in their monthly payments over the life of the loan.

Question 17

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

Accepted Answer

Historically, average home prices have generally increased over time, often at a rate that matches or surpasses the rate of inflation, reflecting the tendency of real estate to serve as a hedge against inflation.

Question 18

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.

Accepted Answer

Households have consistently been the leading mortgage borrowers in the United States, not businesses. Mortgages are primarily associated with residential properties, which are typically owned by individuals or families rather than businesses.

Question 19

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

Accepted Answer

Mortgage pools, while diversifying risk among multiple loans, do not insulate holders completely against fluctuations in the housing market; they are still subject to risks like defaults and changes in interest rates.

Question 20

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.

Accepted Answer

Savings and loan associations traditionally focus on residential mortgages, but due to diversification strategies and regulatory changes, they are not necessarily expected to increase the portion of their asset portfolios devoted to residential mortgage loans in future years. They may instead diversify into other types of loans and investments.

Quiz 22: Mortgage Market and Mortgage Instruments