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Unformatted text preview: Chapter 7 Mortgage Markets True/False Questions 1. The largest category of mortgages by dollar volume is commercial mortgages. Answer: False Page: 194 Level: Easy 2. A shared appreciation mortgage is one where the borrower must prepay the mortgage in 15 years so that the lender may share in the appreciation by charging a higher interest rate. Answer: False Page: 206 Level: Easy 3. The process of mortgage securitization results in a separation between mortgage origination and mortgage financing. Answer: True Page: 215-216 Level: Easy 4. The secondary market for mortgages influences the accept/reject decision in originally granting a mortgage. Answer: True Page: 194 Level: Easy 5. Federally insured mortgages are called conventional mortgages. Answer: False Page: 196 Level: Easy 6. The duration of a balloon payment mortgage is less than the duration of a fully amortized 30 year fixed rate mortgage. Answer: True Page: 196-197 Level: Medium 7. A borrower using a conventional mortgage will have to put up at least a 20% down payment or purchase private mortgage insurance. Answer: True Page: 196 Level: Easy 8. Discount points are paid to reduce the down payment required. Answer: False Page: 198 Level: Easy 9. In a growing equity mortgage the borrower pays the real rate of interest and the principle and equity grow with inflation. Answer: False Page: 205 Level: Easy 10. A common rule of thumb is to not refinance your mortgage unless interest rates decline by at least 2 1/2%. Answer: False Page: 199 Level: Easy Multiple Choice Questions 11. Rank the following types of mortgages by amount outstanding from largest to smallest. 86 I. Home mortgages II. Multifamily mortgages III. Farm mortgages IV. Commercial mortgages A) I, II, III, IV B) I, II, IV, III C) II, I IV, III D) IV, II, III, I E) I, IV, II, III Answer: E Page: 194 Level: Medium 12. The process of packaging and/or selling mortgages which are then used to back publicly traded debt securities is called A) Collateralization B) Securitization C) Market capitalization D) Stock diversification E) Mortgage globalization Answer: B Page: 193 Level: Easy 13. A ___________ placed against mortgaged property ensures that the property cannot be sold (except by the lender) until the mortgage is paid off. A) Collateral B) Lien C) Habeas corpus D) Down payment E) Writ of certiorari Answer: B Page: 194 Level: Medium 14. If a borrower makes a 20% down payment on a conventional mortgage they will be required to obtain A) FHA insurance B) VA insurance C) Private mortgage insurance D) GNMA payment guarantees E) None of the above Answer: E Page: 194 Level: Easy 15. 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 A) Lower; less interest B) Lower; less principal C) Higher; less interest D) Higher; more principal E) Higher; more interest Answer: C Page: 203 Level: Medium 16. With a fixed rate mortgage the _____ bears the interest rate risk and with an ARM the ______ bears the interest rate risk....
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- Spring '11