Unit 8 Quiz Questions

In ascertaining whether a borrower has the ability to pay off his loan over time, a mortgage bank may rely on calculating a total debt ratio as part of its underwriting process. Utilizing the following information, calculate the total debt-to-income ratio. Monthly principal and interest on mortgage loan: $1,906 Monthly Tax and insurance payments into escrow: $477 Monthly Car lease payment (lease term is 3 years): $318 Gross monthly income: $6,565

$1906 + $477 + $318 = 2,701 $6565 = 41%

Loan servicing includes a number of responsibilities such as collecting monthly mortgage payments from the borrower, remitting principal and interest payments to investors, ensuring sufficient escrow payments are being made by the borrower, and managing default if it should arise. In exchange for these services, mortgage bankers receive a fee. If the outstanding loan balance is $308,799 and the annual servicing fee is 0.24%, what is the monthly fee for servicing the loan?

$61.76

Utilizing the following information, calculate the housing expense ratio. Monthly Principal and interest on mortgage loan: $601 Monthly Tax and insurance payments into escrow: $135 Gross monthly income: $3,093

23.8

Loan servicing includes a number of responsibilities such as collecting monthly mortgage payments from the borrower, remitting principal and interest payments to investors, ensuring sufficient escrow payments are being made by the borrower, and managing default if it should arise. In exchange for these services, mortgage bankers receive a fee. If the outstanding loan balance is $233,907 and the annual servicing fee is 0.22%, what is the monthly fee for servicing the loan?

42.88

A lender is considering whether to approve a mortgage loan on a home recently appraised at a value of $531,501. If the borrower is willing to make a down payment of $134,305, determine the loan-to-value ratio associated with this property.

74.7

Suppose an institution has purchased a $215,955 mortgage loan from the loan originator and wishes to create a mortgage pass-through security. In doing so, this institution will generate revenue by charging a servicing fee of 29 basis points. If the monthly mortgage payment on the loan is $1,390, how much income is passed through to the investor in the mortgage pass through each month?

??

The Federal National Mortgage Association (Fannie Mae) was originally established to provide a secondary market for FHA-insured and VA-guaranteed loans. All of the following statements regarding Fannie Mae are true EXCEPT: A. Fannie Mae lends money directly to homebuyers B. Fannie Mae was once a private, self-supporting company with publicly traded stock that has now been placed into conservatorship by the United States government following the mortgage crisis of 2007-2008 C. Fannie Mae fully guarantees timely payment of interest and principal to investors in their mortgage securities D. Fannie Mae is authorized to buy both conventional home loans and government-sponsored residential mortgages.

A. Fannie Mae lends money directly to homebuyers

Mortgage banks typically will attempt to sell loans as quickly as possible after they are originated by either issuing mortgage securities or selling the loan to an intermediary that will subsequently sell the loan in the secondary market. The period between loan commitment and loan sale is referred to as the: A. mortgage pipeline B. mortgage note C. mortgage fallout D. mortgage term.

A. Mortgage pipeline

As of 2021, over 40% of all home mortgage loans are held either directly or indirectly (i.e., through mortgage-backed securities) by which of the following types of institution? A. banks and thrifts B. Federal Reserve C. mortgage REITs D. life insurance companies

A. banks and thrifts

Traditional home mortgage underwriting is said to rest on three elements, the "three C's." Empirical research (e.g., Archer and Smith, 2011) has confirmed that the underwriting characteristic most strongly associated with default is: A. collateral B. creditworthiness C. capacity D. capability.

A. collateral

In the process of deciding whether to extend a mortgage loan to a prospective borrower, lenders typically examine three elements, more commonly referred to as the "3 C's." Which of the following metrics does a bank use to evaluate the collateral piece of the loan agreement? A. loan-to-value ratio B. payment-to-income ratio C. credit score D. housing expense ratio

A. loan-to-value ratio

As of the end of 2022, which of the following types of mortgage loans accounts for the greatest percentage of mortgage debt outstanding? A. residential (1-4 family) B. apartment (multifamily) C. commercial D. farm

A. residential (1-4 family)

When the mortgage banker originates a home loan, she actually creates two assets: the loan and the servicing rights. Servicing fees typically range from: A. 0.00-0.18 percent of the outstanding loan balance B. 0.19-0.44 percent of the outstanding loan balance C. 0.45-0.74 percent of the outstanding loan balance D. 0.75-0.99 percent of the outstanding loan balance

B. 0.19 - 0.44 percent of the outstanding loan balance

In the late 1960's, Congress created a number of agencies designed to address a struggling secondary market for residential mortgages. Which of the following organizations was developed primarily to guarantee mortgage-backed securities based on pools of FHA, VA and Rural Housing Service loans, rather than issue, buy or sell mortgages? A. Federal National Mortgage Association (Fannie Mae) B. Government National Mortgage Association (Ginnie Mae) C. Federal Home Loan Mortgage Corporation (Freddie Mac) D. Federal Agricultural Mortgage Corporation (Farmer Mac) Next

B. Government National Mortgage Association (Ginnie Mae)

In the early 1970's, home mortgage lenders were predominantly depository institutions. By the end of the decade, the growth of deposits at these institutions became negative due to the emergence of more attractive investment opportunities such as money market funds. This change in the distribution chain of funds is more commonly referred to as: A. deregulation B. disintermediation C. warehousing D. underwriting.

B. disintermediation

Suppose that a mortgage bank "locked in" an interest rate for a prospective borrower at 8.5%. However, prior to the loan closing, the market mortgage rate falls to 7.5 %. In this scenario, the mortgage banker would be most concerned with which of the following risks? A. prepayment risk B. fallout risk C. default risk D. liquidity risk

B. fallout risk

The housing expense ratio equals PITI divided by GMI. GMI is a measure of the borrower's: A. credit worthiness B. monthly income C. loan size D. hazard insurance.

B. monthly income

Which of the following entities is responsible for bringing borrowers and lenders together, but never owns the resulting loans nor funds them? A. thrifts B. mortgage brokers C. mortgage banks D. commercial banks

B. mortgage brokers

Approximately what percentage of all existing first-lien home mortgage loans are securitized as of 2021? A. 25% B. 50% C. 70% D. 100%

C. 70%

When a mortgage is used as collateral for the issuance of a mortgage-backed security (MBS), the underlying mortgage is said to be "securitized." In some years, _________ percent of conventional conforming and FHA or VA loans in the U.S. have been sold into the secondary market and being used as collateral for the issuance of MBS? A. 25% B. 50% C. 90% C. 100%

C. 90%

In the securitization process, mortgages are pooled together, and cash flows are packaged into securities to be sold in the secondary market. Agencies and private companies that pool mortgages and sell mortgage-backed securities (MBS) are often referred to as: A. thrifts B. credit unions C. conduits D. automated underwriters

C. conduits

Within the mortgage lending process, which of the following roles serves as the primary revenue source for mortgage banks? A. loan commitment B. loan funding C. loan servicing D. loan sales

C. loan servicing

Traditional home mortgage underwriting is said to rest on three elements, the "three C's." The "three C's" include all of the following EXCEPT: A. collateral B. creditworthiness C. capacity D. capability.

D. capability

The housing expense ratio equals PITI divided by GMI. PITI includes monthly payments of all of the following EXCEPT: A. principal and interest on the loan B. property taxes C. hazard insurance D. capital expenditures.

D. capital expenditures

Throughout the process of originating and selling mortgages, mortgage companies face a number of risks. Therefore, it is important for a lending institution to evaluate the risks of mortgage loan default through a process commonly referred to as: A. mortgage fallout B. loan servicing C. warehousing D. loan underwriting.

D. loan underwriting

In the modern framework of home mortgage lending, there are four channels by which first mortgage home loans are created. Within which of the following channels would you typically find a Wall Street investment bank obtaining loans, pooling loans, and creating a senior-subordinate security structure? A. traditional direct (portfolio) lending B. FHA/VA loan securitization C. conforming conventional loan securitization D. nonconforming conventional loan securitization

D. nonconforming conventional loan securitization