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Exam 9: Mortgage Markets

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Question 51

Multiple Choice

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Mortgages with government or private mortgage insurance

A) are likely to sell at lower prices and lower rates than comparable conventional mortgages.
B) are less likely to default that conventional mortgages.
C) offer the investor less default risk than conventional mortgages.
D) will be written under the credit standards of the originator, and not the standards of the agency or insurance company.

E) A) and B)
F) All of the above

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Question 52

Multiple Choice

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Hybrid ARMs protect both lender and borrower from interest rate risk because

A) the mortgage payment stays fixed for a time before it begins to vary with interest rates.
B) hybrid ARMs guarantee the lender a fixed return and borrowers a fixed payment for the life of the contract.
C) rates and house payments will vary quite frequently.
D) these mortgages are insured by the FHA.

E) A) and B)
F) All of the above

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Question 53

Multiple Choice

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Which of the following mortgages would you prefer to hold if you were a lender and you expected inflation of uncertain magnitude?

Two mortgage investors, who have increased the percentage of mortgages outstanding in the last 20 years, are

Formosan Freedom Co. purchased an office at newly built World Trade Center at $2,812,500. The Company obtained a 30 year fixed rate mortgage at a 7.2% annual rate and pay 20% down. After five years, the Company has excess cash and decides to pay off the remaining balance. Due to several QEs in the past years, the Company can obtain a mortgage of annual interest rates at 7%. How much must the Company pay to retire the mortgage (to the nearest dollar) ?

Mortgage bankers usually do not

The process of packaging and/or selling mortgages which are then used to back publicly traded debt securities is collateralization.

Which of the following is not an advantage of investing in mortgage-backed bonds (MBBs) compared to investing in direct mortgages?

As interest rates rise, the value of PO strips _______ and the value of IO strips _______.

You have just purchased a home and borrowed $50,000, 7 percent for 25 years, payable monthly. What is your monthly payment?