Unit 4 - The Secondary Mortgage Market (Questions)

The scoring system that assesses risk that is MOST often used in credit reporting today is A) Experian. B) FICO. C) TransUnion. D) Equifax.

FICO

Freddie Mac issues loans to applicants turned down by Fannie Mae. True False

False

Nonconforming loans meet Freddie Mac's qualifying guidelines. True False

False

Mortgage-backed securities (MBSs) based on FHA and VA loans are insured by A) Farmer Mac. B) Ginnie Mae. C) Freddie Mac. D) Fannie Mae.

Ginnie Mae.

Fannie Mae's newest affordable loan product is called A) MyCommunityMortgage®. B) Home Possible®. C) HomeReady®. D) HomeStyle® Renovation.

HomeReady®.

Which of the following statements regarding Fannie Mae's administered price system is FALSE? A) The lender calls a separate line to place an order to sell. B) The lender calls a special Fannie Mae rate line to secure current yield quotes. C) Lenders may order a mandatory commitment or standby commitment. D) Lenders place orders to sell under a free-market-system auction.

Lenders place orders to sell under a free-market-system auction.

The principal and interest payments on pass-through certificates are "passed through" to A) investors. B) Ginnie Mae. C) HUD. D) U.S. Treasury.

investors

Freddie Mac's Home Possible® mortgages offer a low down payment option for any of the following EXCEPT A) teachers and health care workers. B) firefighters and law enforcement officers. C) jumbo loans. D) first-time and low- to moderate-income homebuyers.

jumbo loans.

The BEST description of loans issued in excess of conforming loan limits is A) government loans. B) unsecured loans. C) jumbo loans. D) adjustable loans.

jumbo loans.

The highest amount of loan limit that is allowed by Fannie Mae is in A) California. B) New York. C) Alaska. D) Dallas.

Alaska.

The financial market for real estate loans is based on how fast lenders can build up their own portfolios. True False

False

Which of the following descriptions of real estate mortgage investment conduits (REMICs) is FALSE? A) Ownership is limited to one category of regular interests. B) MBSs are broken into different classes called tranches. C) They offer tax advantages not available before the Tax Reform Act of 1986. D) They may be a commercial mortgage-backed pool.

Ownership is limited to one category of regular interests.

Which of the following BEST describes why the public had the perception that the government would not allow Fannie Mae and Freddie Mac to default on their obligations? A) Fannie Mae and Freddie Mac were not required to register their securities. B) Fannie Mae and Freddie Mac were allowed to carry a large line of credit with the U.S. Treasury. C) Fannie Mae and Freddie Mac were the largest purchasers of mortgage-backed securities in the secondary market. D) Fannie Mae and Freddie Mac did not have to pay local or state corporate income taxes.

Fannie Mae and Freddie Mac were allowed to carry a large line of credit with the U.S. Treasury.

In addition to Fannie Mae and Freddie Mac, the Federal Housing Finance Agency was also made responsible for the A) Office of Thrift Supervision. B) Federal Housing Administration. C) Federal Home Loan Bank. D) Federal Reserve.

Federal Home Loan Bank.

All of the following are the major players in the mortgage secondary market EXCEPT A) Fannie Mae. B) Freddie Mac. C) Ginnie Mae. D) Federal Housing Administration.

Federal Housing Administration.

Which act allowed the creation of the Federal Housing Finance Agency (FHFA)? A) Community Reinvestment Act B) Dodd-Frank Act C) Federal Housing Reform Act of 2007 D) Equal Credit Opportunity Act

Federal Housing Reform Act of 2007

Participation certificates (PCs) are packages of mortgages that meet specific guidelines that are sold to investors in the secondary market by which entity? A) Fannie Mae B) Farmer Mac C) Ginne Mae D) Freddie Mac

Freddie Mac

Freddie Mac was originally chartered to do which of the following? A) Provide mortgage loans for qualified applicants B) Purchase government loans C) Provide a secondary market for conventional loans D) Compete with Fannie Mae

Provide a secondary market for conventional loans

How does Freddie Mac get more funds to purchase loans from primary lenders? A) Sells mortgage-backed securities B) Borrows from Ginne Mae C) Grants from the OCC D) Borrows from the Fed

Sells mortgage-backed securities

What aggressive action has the FHFA taken in an attempt to recover some of the losses to Fannie Mae's and Freddie Mac's portfolios? A) Restructured both agencies B) Required oversight by a new advisory board C) Requested a moratorium on foreclosures D) Sued financial institutions

Sued financial institutions

Which of the government-sponsored enterprises (GSEs) was cited by the FHFA as having emerged from the recent financial crisis in generally good condition and is now profitable with increasing annual earnings? A) Fannie Mae B) The FHLB C) Freddie Mac D) Farmer Mac

The FHLB

Using standard Fannie Mae guidelines, a borrower with a total gross monthly income of $8,000 may have total monthly debt obligations that do NOT exceed A) $2,880. B) $2,000. C) $2,440. D) $3,280.

The answer is $2,880. The total debt ratio is 36%, so $8,000 × 36% = $2,880.

Borrowers with less than perfect credit or limited funds for down payment are usually forced into lower-cost financing programs. True False

The statement is false. They are forced into higher-cost financing programs.

Ginnie Mae is responsible for providing financing for special assistance programs, urban renewal projects, and housing for the elderly. True False

The statement is true. Created as a wholly owned government corporation in 1968, Ginnie Mae is under the jurisdiction of HUD. It finances special assistance programs and participates in the secondary market through its mortgage-backed securities pools.

Fannie Mae is BEST described today as a government-sponsored entity. True False

True

Farmer Mac underwrites, purchases, and sells farm and ranch loans. True False

True

The scores on the FICO test assign relative risk rankings to applicants based on statistical analyses of their credit histories. True False

True

The Federal Housing Finance Agency (FHFA) regulates all of the following EXCEPT A) Fannie Mae. B) Freddie Mac. C) U.S. Department of Housing and Urban Development (HUD). D) Federal Home Loan Banks.

U.S. Department of Housing and Urban Development (HUD).

The Housing and Urban Development Act of 1968 changed Fannie Mae to allow it to be reorganized as A) an entity of the Federal Reserve. B) a fully private corporation. C) a division of HUD. D) a Federal Home Loan Bank.

a fully private corporation.

Freddie Mac's Home Possible® mortgages offer low down payments for first-time and low- to moderate-income homebuyers and provides flexibility to all of the following groups EXCEPT A) teachers. B) firefighters and law enforcement officers. C) members of the U.S. armed forces. D) borrowers who lost their homes to foreclosure.

borrowers who lost their homes to foreclosure.

Steps taken by the U.S. Treasury Department as part of the Fannie Mae and Freddie Mac bailout included all of the following EXCEPT A) changing terms governing the GSE dividend obligations. B) closing of all Fannie Mae and Freddie Mac offices. C) purchasing up to $100 billion in preferred stock and mortgage-backed securities. D) the Treasury claiming all profits at the end of each quarter.

closing of all Fannie Mae and Freddie Mac offices.

A jumbo loan is a mortgage loan that A) exceeds the current conforming loan maximum loan limit. B) exceeds the FHA maximum loan limit. C) covers multiple properties. D) exceeds $500,000.

exceeds the current conforming loan maximum loan limit.

Nonconforming conventional loans are A) subprime loans. B) loans that do not conform to Fannie Mae and Freddie Mac guidelines. C) loans that exceed secondary lender loan limits. D) high-risk loans.

loans that do not conform to Fannie Mae and Freddie Mac guidelines.

A new trend in the secondary market occurred when Wall Street developed a market for collateralized mortgage obligations (CMOs). These CMOs generally consisted of A) jumbo loans. B) REMICs. C) loans tied to short-term interest rates. D) FHA or VA loans.

loans tied to short-term interest rates.

Ginnie Mae mortgage-backed securities are pools of mortgages used as collateral for the issuance of securities, commonly called A) pass-through certificates. B) platinum securities. C) Treasury bonds. D) Treasury notes.

pass-through certificates.

All of the following are related in some way to Ginnie Mae EXCEPT A) pass-through certificates. B) platinum securities. C) collateralized mortgage obligation. D) qualified residential mortgages.

qualified residential mortgages.

All of the following statements regarding the Federal Home Loan Bank (FHLB) are true EXCEPT A) FHLBanks receive no direct taxpayer assistance. B) FHLBanks are self-capitalizing and exempt from state and local income taxes. C) there are currently 12 FHLB district banks. D) equity in FHLB district banks is held by the owner-members.

there are currently 12 FHLB district banks.

As government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac enjoy all of the following benefits EXCEPT A) they pay state and local corporate income tax. B) they have the full official backing by the federal government. C) they are allowed to carry a large line of credit with the U.S. Treasury Department. D) they are not required to register their securities with the Securities and Exchange Commission

they have the full official backing by the federal government.