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Chapter 07

Chapter 07



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Published by: skwagwok on Feb 13, 2010
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Chapter 7 Mortgage Markets
True/False Questions
1.The largest category of mortgages by dollar volume is commercial mortgages.Answer: False Page: 194 Level: Easy2.A shared appreciation mortgage is one where the borrower must prepay the mortgagein 15 years so that the lender may share in the appreciation by charging a higher interest rate.Answer: False Page: 206 Level: Easy3.The process of mortgage securitization results in a separation between mortgageorigination and mortgage financing.Answer: True Page: 215-216 Level: Easy4.The secondary market for mortgages influences the accept/reject decision in originallygranting a mortgage.Answer: True Page: 194 Level: Easy5.Federally insured mortgages are called conventional mortgages.Answer: False Page: 196 Level: Easy6.The duration of a balloon payment mortgage is less than the duration of a fullyamortized 30 year fixed rate mortgage.Answer: True Page: 196-197 Level: Medium7.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: Easy8.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: Easy10.A common rule of thumb is to not refinance your mortgage unless interest ratesdecline 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 tosmallest.I.Home mortgagesII.Multifamily mortgagesIII.Farm mortgagesIV.Commercial mortgagesA)I, II, III, IVB)I, II, IV, IIIC)II, I IV, IIID)IV, II, III, IE)I, IV, II, IIIAnswer: E Page: 194 Level: Medium12.The process of packaging and/or selling mortgages which are then used to back  publicly traded debt securities is calledA)CollateralizationB)SecuritizationC)Market capitalizationD)Stock diversificationE)Mortgage globalizationAnswer: B Page: 193 Level: Easy
13.A ___________ placed against mortgaged property ensures that the property cannot besold (except by the lender) until the mortgage is paid off.A)CollateralB)LienC)Habeas corpusD)Down paymentE)Writ of certiorariAnswer: B Page: 194 Level: Medium14.If a borrower makes a 20% down payment on a conventional mortgage they will berequired to obtainA)FHA insuranceB)VA insuranceC)Private mortgage insuranceD)GNMA payment guaranteesE)None of the aboveAnswer: E Page: 194 Level: Easy15.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 paribusA)Lower; less interestB)Lower; less principalC)Higher; less interestD)Higher; more principalE)Higher; more interestAnswer: C Page: 203 Level: Medium16.With a fixed rate mortgage the _____ bears the interest rate risk and with an ARM the ______ bears the interest rate risk.A)Borrower; lender B)Borrower; borroweC)Lender; lendeD)Lender; borroweE)Federal government; pool organizer Answer: D Page: 197-198 Level: Medium

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