Question 1

A loan in which the seller or another third party agrees to pay an amount to the lender in order to reduce the borrower's payments,or to reduce the interest rate for a portion of the loan's term,is called a(n):

Accepted Answer

A buy down mortgage involves a third party, often the seller, paying an amount upfront to reduce the borrower's payments or interest rate. The other options, such as an adjustable rate or graduated payment mortgage, do not involve a third party paying to reduce the borrower's costs. A shared appreciation mortgage involves the lender benefiting from a portion of the home's appreciation, which is not the case here.

Question 2

Under Federal Regulation Q,the individual states were allowed to impose a ceiling on the rates that lenders were allowed to charge on mortgages.The effect of this regulation was:

Accepted Answer

When interest rates rose to cyclical peaks, the ceiling on mortgage rates imposed by the states made it unprofitable for lenders to offer mortgages. As a result, the supply of mortgage money decreased, and it became harder for borrowers to obtain financing. This led to a slowdown in the housing market and a decrease in homeownership rates.

Question 3

A loan that involves regular increases in payment at a fixed rate,is called a(n):

Accepted Answer

A graduated payment mortgage is a type of loan where the payments gradually increase over time, typically five to ten years, before leveling off at a fixed rate. This type of loan is often used by borrowers who expect to earn more income in the coming years, allowing them to gradually pay more towards their mortgage as their income increases. The other options listed, adjustable rate mortgages, buy down mortgages, and shared appreciation mortgages, do not involve regular increases in payment at a fixed rate.

Question 4

The rate charged on a Home Equity Loan is almost always:

Accepted Answer

The answer of The rate charged on a Home Equity...

Question 5

The flat-rate insurance provided by the FDIC has two faults.First,it misprizes risk.Second,

Accepted Answer

The flat-rate insurance does not differentiate between conservatively managed thrifts and those with more risky investments, forcing the former to subsidize the latter. It also misprizes risk, which means that institutions with riskier investments are paying the same rate as those with safer investments. The answer choice that addresses both these faults is B.

Question 6

Under the Housing and Urban Development Act,the Federal National Mortgage Association (FNMA)buys loans and holds them in it's own portfolio.The Government National Mortgage Association (GNMA)does which of the following?

Accepted Answer

The Government National Mortgage Association (GNMA) guarantees the payment of principal and interest on the securities that are created and backed by mortgages.

Question 7

Federal Home Loan Banks obtain a significant amount of the funds they lend to thrifts from the sale of FHLB bonds in the capital market.These bonds are:

Accepted Answer

Federal Home Loan Banks (FHLBs) are not guaranteed by the US government directly. However, they operate under a federal charter and are supervised by the government, which provides a level of oversight and regulation, enhancing their credibility in the capital markets.

Question 8

Under Regulation Z,the borrower must be informed about the total finance charges associated with a residential mortgage.Which of the following charges are not mandated to be included in this report?

Accepted Answer

The answer of Under Regulation Z,the borrower must be informed...

Question 9

If the current tax law was changed,and the individual had to pay tax on the appreciation in housing values,and the interest costs and property taxes were not deductible,what would the annual cost of housing be for a person with a house valued at $150,000,a mortgage rate of 11 percent,property taxes of 3 percent,miscellaneous expenses and depreciation of 1 percent,and housing inflation of 7 percent? The person is in the 30 percent tax bracket.

Accepted Answer

First, calculate the annual interest cost for the mortgage:

$150,000 x 0.11 = $16,500

Next, calculate the annual property tax:

$150,000 x 0.03 = $4,500

Then, calculate the annual miscellaneous expenses:

$150,000 x 0.01 = $1,500

Calculate the total annual cost without factoring in housing inflation:

$16,500 + $4,500 + $1,500 = $22,500

Since the person is in the 30% tax bracket, they will only be able to deduct 70% of their $4,500 property tax, or $3,150.

Add this deduction back to the total annual cost:

$22,500 - $3,150 = $19,350

Finally, factor in the 7% inflation rate:

$19,350 x 1.07 = $20,764.50

Therefore, the annual cost of housing for this person would be:

$20,764.50 rounded to the nearest hundred is $15,150.

Question 10

Under the current tax law,what would the annual cost of housing be for a person with a house valued at $150,000,a mortgage rate of 11 percent,property taxes of 3 percent,miscellaneous expenses and depreciation of 1 percent,and housing inflation of 7 percent.The person is in the 30 percent tax bracket.

Accepted Answer

The annual cost of housing can be calculated by considering the mortgage interest, property taxes, miscellaneous expenses, and depreciation, while also accounting for the tax deduction benefits and the effect of housing inflation. Here's the breakdown:1. Mortgage interest: 11% of $150,000 = $16,5002. Property taxes: 3% of $150,000 = $4,5003. Miscellaneous expenses and depreciation: 1% of $150,000 = $1,5004. Total expenses before tax benefits: $16,500 + $4,500 + $1,500 = $22,5005. Tax benefits (30% of (mortgage interest + property taxes)): 0.30 * ($16,500 + $4,500) = 0.30 * $21,000 = $6,3006. Net cost after tax benefits: $22,500 - $6,300 = $16,2007. Housing inflation adjustment (reduces the real cost): 7% of $150,000 = $10,5008. Final annual cost considering inflation: $16,200 - $10,500 = $5,700

Question 11

A loan in which the lender receives a share of the increase in value of the property in return for a reduction in the initial rate of interest,is called a(n):

Accepted Answer

A shared appreciation mortgage is a type of loan in which the lender agrees to receive a portion of any increase in the value of the property in exchange for a lower initial interest rate. This can be a good option for borrowers who want to reduce their monthly payments in the short term, while potentially benefiting from any long-term increase in the property's value.

Question 12

"Points" are defined as:

Accepted Answer

Points are fees charged by the lender to the borrower for extending the loan. They are typically stated as a percentage of the loan amount and are used to lower the interest rate of the loan. One point equals 1% of the loan amount. When a borrower pays points, this means they are paying more upfront to lower their monthly mortgage payment.

Question 13

After the securitization of residential mortgages,the relative yield that lenders require has

Accepted Answer

Securitization of residential mortgages has generally led to a lowering of the relative yield that lenders require. This is because securitization increases liquidity and spreads risk, making lending less risky and more attractive, thus reducing the interest rates lenders need to charge to compensate for risk.

Question 14

Consider a person with a house valued at $150,000,a mortgage rate of 11 percent, property taxes of 3 percent,miscellaneous expenses and depreciation of 1 percent
Housing inflation of 7 percent,and the person is in the 30 percent tax bracket.If the
Housing inflation rate was raised to 8 percent,how much would the annual cost of
Housing change?

Accepted Answer

The annual cost of housing would increase by $1,500 due to the 1 percent increase in housing inflation on a $150,000 house. This is calculated by taking 1 percent of $150,000, which equals $1,500.

Question 15

A loan in which the payments go up or down with movements in the index,is called a(n):

Accepted Answer

An adjustable rate mortgage (ARM) is a type of loan in which the interest rate fluctuates with changes in the index, such as the prime rate or the Treasury bill rate. As a result, the monthly payment amount can go up or down accordingly. Graduated payment mortgages, buy down mortgages, and shared appreciation mortgages are all different types of loans with distinct payment structures that do not depend on changes in the index.

Question 16

What conclusions can you draw about the influence of housing inflation on the annual cost of housing?

Accepted Answer

The answer of What conclusions can you draw about the...

Question 17

Mortgage insurance is designed to:

Accepted Answer

Mortgage insurance is designed to protect the lender from the possible dual events that the borrower defaults and the value of the residence is less than the loan balance at the time of default. This insurance guarantees that the lender will receive the unpaid balance of the loan if the borrower defaults.

Question 18

Before the integration of the mortgage market into the larger capital market,rates on residential mortgages relative to bonds were:

Accepted Answer

Before the integration of the mortgage market into the larger capital market, rates on residential mortgages relative to bonds were relatively higher. This was because residential mortgages were considered riskier and less liquid than bonds, leading to the need for higher yields to compensate investors for the increased risk. Integration into the larger capital market has led to increased liquidity and standardization, reducing the risk and driving down relative yields on residential mortgages.

Question 19

Escrow accounts are designed to:

Accepted Answer

Escrow accounts are primarily used to ensure that property taxes and insurance premiums (such as homeowners' insurance, which can include hazard insurance) are paid. They act as a safeguard, collecting these funds in advance to prevent defaults on these critical payments.

Quiz 8: Federal Housing Policies: Part 1

A loan in which the seller or another third party agrees to pay an amount to the lender in order to reduce the borrower's payments,or to reduce the interest rate for a portion of the loan's term,is called a(n) :