Unit 8 Part 1

Term
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Which of the following developments assure mortgage investors they will receive interest and principal payments at little or no risk?
All of the above
The availability of hazard and title insurance
The development of standardized loan underwriting, processing, and servicing
The availability of mortgage default insurance and loan guarantees
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Terms in this set (20)
Which of the following developments assure mortgage investors they will receive interest and principal payments at little or no risk?
All of the above
The availability of hazard and title insurance
The development of standardized loan underwriting, processing, and servicing
The availability of mortgage default insurance and loan guarantees
All of the above
The Government National Mortgage Association (GNMA) was organized to perform three principal functions. Which of the following was NOT a function of GNMA?
Provide a guarantee for FHA - VA mortgage pools that would provide a guarantee for mortgage backed securities
Manage and liquidate mortgages previously acquired by FNMA
Provide special assistance lending in support of federal programs
Manage all secondary mortgage market operations
Manage all secondary mortgage market operations
Which of the following statements regarding mortgage-backed bonds is generally true?
All of the above
Unlike corporate bonds, MBBs usually are issued with variable coupon rates of interest
Overcollateralization of the mortgage pool assures investors that the income from mortgage will be sufficient to pay the interest on bonds, as well as, the principal upon maturity
The total value of the MBBs issued usually equals the value of the mortgages in the underlying pool
Overcollateralization of the mortgage pool assures investors that the income from mortgage will be sufficient to pay the interest on bonds, as well as, the principal upon maturity
When pricing mortgage pass-through securities, issuers use all of the following methods to include prepayment assumptions except:
constant rates of prepayment
the pool factor technique
FHA prepayment experiences
the PSA prepayment model
the pool factor technique
Compared to mortgage pass-through securities (MPTs), MBBs should be priced to provide:
Lower yields, because the MBB issuer bears lower prepayment risk
none of the above
The same yields, because of equivalent amounts of prepayment risk
Higher yields, because the MBB issuer bears higher prepayment risks
Lower yields, because the MBB issuer bears lower prepayment risk
If a mortgage pool consists of five 10% FRMs totaling $500,000, five 9% FRMs totaling $450,000 and ten 8% FRMs totaling $750,000, what is the weighted average coupon (WAC) rate?
9.00%
None of the above
8.85%
8.75%
8.75%
The pass-through rate is the coupon rate of interest promised by the issuer of a pass-through security to the investor. In most instances, the pass-through rate is:
lower than the lowest rate of interest on any mortgage in the underlying mortgage pool
higher than the highest rate of interest on any mortgage in the underlying mortgage pool
None of the above
equal to the average rate of interest on all mortgages in the underlying pool
lower than the lowest rate of interest on any mortgage in the underlying mortgage pool
A 10-year maturity mortgage-backed bond is issued. The bond is a zero coupon bond that promises to pay $10,000 (par) after 10 years. At issue, bond market investors require a 15 percent interest rate on the bond. What is the initial price on the bond?
$2,252
$2,472
$10,000
$8,696
$2,472
The primary purpose of FHLMC (or Freddie Mac) is to
Provide a secondary market for mortgage originators
Provide investors with a guaranteed rate of return
Create competition for Fannie Mae and Ginnie Mae
Provide consumers with more options when deciding on a mortgage loan
Provide a secondary market for mortgage originators
The investment rating for mortgage-backed bonds depends on all but which of the following?
Appraised value and DCR
Extent of overcollateralization
Initial price paid for the security
Interest rates in mortgage pool
Initial price paid for the security
A 25-year maturity mortgage-backed bond is issued. The bond has a par value of $10,000 and promises to pay an 8 percent annual coupon. At issue, bond market investors require a 12 percent interest rate on the bond. What is the initial price on the bond? $14,270 $5,686 $588 $6,863$6,863A 25-year maturity mortgage-backed bond is issued. The bond has a par value of $10,000 and promises to pay an 8 percent annual coupon. At issue, bond market investors require a 12 percent interest rate on the bond. Assume that 20 years after the bond is issued, bond market investors require a 15 percent interest rate on the bond. What is the market price of the bond? $7,653 $5,686 $6,863 $14,270$7,653When issuing mortgage-backed bonds, the bond issuer (such as Fannie Mae) ___________________ ownership of the underlying mortgages to the bond investors. does not transfer transfers is allowed to transfer up to 90% transfers ownership but always less than 50% ownershipdoes not transferWhen market interest rates exceed the coupon rate of a MBB, the price of the bond will be ____________greater than its par value. neither, the market value will always be greater than the par value neither, the market value will always be less than the par value greater lesslessWhen mortgages are marked-to-market, this is the process of ___________________________________. establishing the market value of the pledged mortgages marking those mortgages that have been significantly prepaid dividing the mortgage pool for institutional and individual ownership accumulating mortgage pools and marketing them to institutional investors as mortgage-backed bondsestablishing the market value of the pledged mortgagesA mortgage pass-through security represents a(n) __________________ ownership interest in a pool of mortgages. undivided equal undivided divided equal dividedundividedA nuisance call is is also referred to as a cleanup call. when a pass-through security investor makes repetitive requests of a mortgagor. two of the above used when the cost of servicing becomes large relative to servicing income.two of the aboveIn general, prices for zero coupon mortgage-backed bonds are ___________ sensitive to interest rate changes than interest bearing MBBs. less zero coupon mortgage-backed bonds are not sensitive to interest rate changes more less sensitive since the price will always be above parmoreThe standard PSA prepayment curve assumes prepayments of ________ per month for the first 30 months and then _________ per month thereafter. 0.5%, 0.2% 0.2%, 0.10% 0.1%, 0.5% 0.2%, 0.5%0.2%, 0.5%Under an optional delivery commitment, originators pay a fee to Fannie Mae for the option to buy back their mortgages Fannie has the right but not the obligation to purchase mortgages from originators Fannie Mae has the right and obligation to purchase mortgages from originators mortgage originators pay Fannie Mae a fee for the option to deliver their mortgages to Fannie Maemortgage originators pay Fannie Mae a fee for the option to deliver their mortgages to Fannie Mae