A bank originates $150,000,000 worth of 30-year single-family mortgages funded by demand deposits and the required amount of capital. Reserve requirements are 10 percent and the bank pays 32 basis points in deposit insurance premiums. The bank is earning a 6.25 percent coupon on the mortgages. The mortgages are priced at par and total monthly payments on the mortgages are $923,576.
How much capital is required to back the mortgages if the minimum risk-based capital requirement is 8 percent?

Question

Quizplus · Accepted Answer

The minimum risk-based capital requirement is 8 percent of the total mortgage value. Therefore, the required capital is 8% of $150,000,000, which equals $12,000,000 or $12.0 million.

A Bank Originates $150,000,000 Worth of 30-Year Single-Family Mortgages Funded