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Financial Markets and Institutions Ch. 7 QUIZ
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Financial Markets and Institutions, Saunders, 6e: Chapter 7: Mortgage Markets; CONNECT
Terms in this set (20)
The process of packaging and/or selling mortgages that are then used to back publicly traded debt securities is called
securitization.
A ___________ placed against mortgaged property ensures that the property cannot be sold (except by the lender) until the mortgage is paid off.
lien
Mortgage payments are ____________ on a 15-year fixed-rate mortgage than on a 30-year fixed-rate mortgage, and ____________ is paid on a 15-year mortgage than on a 30-year mortgage; ceteris paribus.
higher; less interest
You purchase a $255,000 house and you pay 20 percent down. You obtain a fixed-rate mortgage where the annual interest rate is 5.85 percent and there are 360 monthly payments. What is the monthly payment?
$1,203.48
You obtain a $265,000, 15-year fixed-rate mortgage. The annual interest rate is 6.25 percent. In addition to the principal and interest paid, you must pay $275 a month into an escrow account for insurance and taxes. What is the total monthly payment (to the nearest dollar)?
$2,547
You purchase a $325,000 town home and you pay 25 percent down. You obtain a 30-year fixed-rate mortgage with an annual interest rate of 5.75 percent. After five years you refinance the mortgage for 25 years at a 5.1 percent annual interest rate. After you refinance, what is the new monthly payment (to the nearest dollar)?
$1,335
A borrower took out a 30-year fixed-rate mortgage of $2,250,000 at a 7.2 percent annual rate. After five years, he wishes to pay off the remaining balance. Interest rates have by then fallen to 7 percent. How much must he pay to retire the mortgage (to the nearest dollar)?
$2,122,426
A homeowner could take out a 15-year mortgage at a 5.5 percent annual rate on a $195,000 mortgage amount, or she could finance the purchase with a 30-year mortgage at a 6.1 percent annual rate. How much total interest over the entire mortgage period could she save by financing her home with the 15-year mortgage (to the nearest dollar)?
$138,612
A homeowner can obtain a $250,000, 30-year fixed-rate mortgage at a rate of 6.0 percent with zero points or at a rate of 5.5 percent with 2.25 points.
If you will keep the mortgage for 30 years, what is the net present value of paying the points (to the nearest dollar)?
$8,360
A homeowner can obtain a $250,000, 30-year fixed-rate mortgage at a rate of 6.0 percent with zero points or at a rate of 5.5 percent with 2.25 points.
How long must the owner stay in the house to make it worthwhile to pay the points if the payment saving is invested monthly?
7.15 years
The least used form of mortgage securitization is the ______________________.
mortgage-backed bond
You want to buy a $250,000 house and you will use a conventional mortgage. What is the minimum down payment you have to make to avoid having to purchase mortgage insurance?
$50,000
The FHA charges the homeowner __________________ to insure an FHA mortgage.
0.5 percent of the loan amount
A(n) ___________________ is used to help retired people receive monthly income in exchange for the equity in their home.
RAM
Which of the following statements about GNMA is/are true?
I. GNMA provides timing insurance.
II. GNMA creates pools of mortgages and issues securities.
III. GNMA insures only FHA, VA, and FMHA loans.
IV. GNMA requires that all mortgages in the pool have the same interest rate.
I, III, and IV only
Mortgage fees paid by the homeowner at, or prior to, closing upon the purchase of a house typically include all but which one of the following?
prepayment penalty
An MBB differs from a CMO or a pass-through in that
I. the MBB does not result in the removal of mortgages from the balance sheet.
II. a MBB holder has no prepayment risk.
III. cash flows on a MBB are not directly passed through from mortgages.
I, II, and III
One fixed-rate mortgage pool has a 750 PSA and a second fixed-rate pool has 150 PSA. The pool with the higher PSA ______________________ than the pool with the lower PSA.
I. probably has a higher coupon
II. probably has lower default risk
III. will mature more quickly
I and III only
As compared to fixed-rate mortgages, ARMs result in which of the following for the lender?
I. Higher interest rate risk
II. Lower default risk
III. Greater prepayment penalty fees
none of the options
Which one of the following types of mortgages is likely to become more popular as the average age of the U.S. population increases?
RAM
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