EOCP11_102409 - CHAPTER 11 Sources of Funds for Residential...

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CHAPTER 11 Sources of Funds for Residential Mortgages Test Problems 1. Mortgage banking companies: a . Collect monthly payments and forward them to the mortgage investor. 2. In recent years, the mortgage banking industry has experienced: d. Rapid consolidation. 3. Currently, which type of financial institution in the primary mortgage market provides the most funds for the residential (owner-occupied) housing market? d. Commercial banks 4. For all except very high loan-to-value conventional home loans the standard payment ratios for underwriting are: a. 28 percent and 36 percent 5. The numerator of the standard housing expense (front-end) ratio in home loan underwriting includes: c. Monthly principal, interest, property taxes, and hazard insurance. 6. The most profitable activity of residential mortgage bankers is typically b. Loan servicing. 7. Potential justifiable subprime borrowers include persons who: d. All of these. 8. The normal securitization channel for jumbo conventional loans is: c. Private conduits. 9. The reduced importance of certain institutions in the primary mortgage market has been largely offset by an expanded role for others. Which has diminished and which has expanded? d. Savings and loan associations; mortgage bankers. 10. Warehousing in home mortgage lending refers to b. Short-term loans made by commercial banks to mortgage bankers. 1
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Study Questions 1. What is the primary purpose of the risk-based capital requirements that Congress enacted as part of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)? Solution: The goal of the Financial Institutions Reform, Recovery, and Enforcement Act is to charge banks and thrifts for risky lending practices and to reward safer practices. It supplanted the conventional regulatory approach of simply attempting to prohibit risky behavior even though banks and thrifts found the risk-taking profitable. 2.
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EOCP11_102409 - CHAPTER 11 Sources of Funds for Residential...

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