End of Chapter 17 Questions and Answers

End of Chapter 17 Questions and Answers - End of Chapter 17...

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End of Chapter 17 Questions and Answers 1. Where does mortgage money come from? Answer: Mortgage money competes with other capital market investments. While some mortgage money comes from financial institutions through savings and checking account deposits, much comes from the secondary market agencies Freddie Mac and Fannie Mae who buy mortgages made by primary lenders. These secondary market agencies in turn secure money from mortgage bond investors. Primary mortgage lenders include banks, savings institutions as well as mortgage bankers, and credit unions. Commercial mortgage lenders include life insurance companies, Mortgage REITs and pension funds as well as the above. 2. What influences mortgage interest rates? How are mortgages usually priced? Answer: Mortgage rates go up and down with expected inflation and real risk free rates based on Treasury security yields. The Federal Reserve Bank influences inflation by controlling the money supply relative to the production in the economy. The government also influences rates through the treasury bonds. If the Government pays more or less to borrow all rates go up or down in proportion. Most mortgages will be priced to yield something about the comparable term Treasury Bond, such as 150 basis points over 10
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This note was uploaded on 02/07/2012 for the course FIN 4380 taught by Professor Staff during the Spring '08 term at Texas State.

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End of Chapter 17 Questions and Answers - End of Chapter 17...

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