Mortgage Markets

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Question 1
Free
True/False

Mortgage-backed securities are commonly contained within collateralized debt obligations.

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True

False

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Question 2
Free
Multiple Choice

Federally insured mortgages guarantee

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A

loan repayment to the lending financial institution.

B

that the interest rate will not increase during the life of the mortgage.

C

the lending financial institution a selling price for the mortgage in the secondary market.

D

all of the above

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Question 3
Free
Multiple Choice

At a given point in time, the interest rate offered on a new fixed-rate mortgage is typically ____ the initial interest rate offered on a new adjustable-rate mortgage.

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A

below

B

above

C

equal to

D

all of the above are very common

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Question 4
Free
Multiple Choice

An institution that originates and holds a fixed-rate mortgage is adversely affected by ____ interest rates; the borrower who was provided the mortgage is adversely affected by ____ interest rates.

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A

stable; decreasing

B

increasing; stable

C

increasing; decreasing

D

decreasing; increasing

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Question 5
Free
Multiple Choice

Rates for adjustable-rate mortgages are commonly tied to the

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A

average prime rate over the previous year.

B

Fed's discount rate over the previous year.

C

average Treasury bill rate over the previous year.

D

average Treasury bond rate over the previous year.

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Question 6
Multiple Choice

Caps on mortgage rate fluctuations with adjustable-rate mortgages (ARMs) are typically

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A
2 percent per year and 5 percent for the mortgage lifetime.
B
5 percent per year and 15 percent for the mortgage lifetime.
C
0 percent per year and 10 percent for the mortgage lifetime.
D
3 percent per year and 8 percent for the mortgage lifetime.
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Question 7
Multiple Choice

From the perspective of the lending financial institution, interest rate risk is

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A
lower on a 30-year fixed-rate mortgage than on a 15-year fixed-rate mortgage.
B
lower on a 15-year fixed-rate mortgage than on a 30-year fixed-rate mortgage.
C
higher on a 15-year fixed-rate mortgage than on a 30-year fixed-rate mortgage.
D
higher on a 15-year adjustable-rate mortgage than on a 30-year adjustable-rate mortgage.
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Question 8
Multiple Choice

Mortgage companies specialize in

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A
purchasing mortgages originated by other financial institutions.
B
investing and maintaining mortgages that they create.
C
originating mortgages and selling those mortgages.
D
borrowing money through the creation of mortgages that is used to invest in real estate.
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Question 9
Multiple Choice

For any given interest rate, the shorter the life of the mortgage, the ____ the monthly payment and the ____ the total payments over the life of the mortgage.

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A
greater; greater
B
greater; lower
C
lower; greater
D
lower; lower
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Question 10
Multiple Choice

A financial institution has a higher degree of interest rate risk on a ____ than a ____ .

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A
30-year fixed-rate mortgage; 15-year fixed-rate mortgage
B
30-year variable-rate mortgage; 30-year fixed-rate mortgage
C
15-year fixed-rate mortgage; 30-year fixed-rate mortgage
D
15-year variable-rate mortgage; 15-year fixed-rate mortgage
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Question 11
True/False

A balloon-payment mortgage requires interest payments for a 10- to 20-year period, at the end of which the borrower must pay the full amount of the principal.

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True
False
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Question 12
Multiple Choice

Use an amortization schedule. A 15-year $100,000 mortgage has a fixed mortgage rate of 9 percent. In the first month, the total mortgage payment is $ ____ , and $ ____ of this amount representspayment of interest.

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A
1,014; 264
B
1,241; 750
C
1,014; 750
D
none of the above
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Question 13
Multiple Choice

A mortgage that requires interest payments for a three- to five-year period, then full payment of principal, is a(n)

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A
chattel mortgage.
B
balloon-payment mortgage.
C
variable-rate mortgage.
D
open-ended mortgage bond.
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Question 14
Multiple Choice

A mortgage with low initial payments that increase over time without ever leveling off is a

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A
graduated payment mortgage.
B
growing-equity mortgage.
C
second mortgage.
D
shared-appreciation mortgage.
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Question 15
Multiple Choice

The interest rate on a second mortgage is ____ on a first mortgage created at the same time, because the second mortgage is ____ the existing first mortgage in priority claim against the propertyin the event of default.

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A
higher than; behind
B
equal to that; equal to
C
lower than; ahead of
D
higher than; ahead of
E
lower than; behind
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Question 16
Multiple Choice

Which of the following mortgages allows the home purchaser to obtain a mortgage at a below-market interest rate throughout the life of the mortgage?

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A
second mortgage
B
growing-equity mortgage
C
graduated-payment mortgage
D
shared-appreciation mortgage
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Question 17
Multiple Choice

A ____ mortgage allows the borrower to initially make small payments on the mortgage. The payments then increase over the first 5 to 10 years and then level off.

Choose correct answer/s
A
graduated-payment mortgage
B
growing-equity mortgage
C
second mortgage
D
shared-appreciation mortgage
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Question 18
Multiple Choice

____ was created in 1968 as a corporation that is wholly owned by the federal government. It guarantees payment on mortgages that meet specific criteria.

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A
Freddie Mac
B
Ginnie Mae
C
Fannie Mae
D
None of the above
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Question 19
True/False

"Securitization" refers to the private insurance of conventional mortgages.

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True
False
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Question 20
Multiple Choice

The difference between the 30-year mortgage rate and the 30-year Treasury bond rate is primarily attributable to

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A
interest rate risk.
B
reinvestment rate risk.
C
credit risk.
D
insurance risk.
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