Chapter 11

Fannie Mae became a quasi-private, self-supporting, stock issuing company in ____.

1968

At their peak, private mortgage conduits accounted for _________ percent of all home outstanding mortgages.

20

In 1989, the top 20 mortgage lenders accounted for about ______ percent of all home loan originations, but in 2011 accounted for approximately ______ percent.

20. 85.

With the widespread default on home mortgages after 2007, it has been asked: what happened to underwriting? The answer seems to be that normal underwriting standards were widely abandoned. A major study found that as much as ____ percent of subprime borrowers failed to document income or assets.

50

The arrival of the Great Recession brought an unprecedented increase in home mortgage defaults despite years of efforts to create more sophisticated underwriting methods and standards. This can be attributed to:

Collapse in enforcement of the new methods and standards

Freddie Mac has always focused primarily on the purchase of ____ fixed rate home loans.

Conventional

The denominator of the two "ability-to-pay ratios, gross income, is very complex, and sensitive to interpretations of what is allowable. This led the Congress to enact a law to prevent bias in determining allowable income. That law, by initials is ____.

ECOA

Ginnie Mae securities are for pools of ____ and ____ home mortgages, plus a very small amount of US Rural Housing Services home loans.

FHA (or FHA-insured). VA (or VA-guaranteed).

In modern home mortgage underwriting, the credit score most widely used is the ____ from the Fair Isaac Company. A score above ____ is generally regarded as high, while a score below ____ is generally regarded as risky.

FICO. 660. 620.

Almost all loans created by mortgage banking find their way into mortgage securities. Conforming conventional loans will end up in securities of ____ ____ or ____ ____.

Fannie. Mae. Freddie. Mac.

Many state and local housing authorities are able to fund low and moderate income housing with below-market interest rate loans. They can do this because they are allowed to:

Fund the loans with tax-exempt bonds

The first modern mortgage security was the ____ ____ MBS.

Ginnie. Mae.

The most recent kind of lender to engage significantly in home mortgage lending is the:

Large online mortgage lender

Fannie Mae has become a major issuer of ____.

MBS

Capacity - ability to pay - has long been judged by two ratios. The simplest and most widely used is the housing expense ratio ("front-end" ratio), which, using the customary initials is ____ divided by ____.

PITI. GMI.

For judging "capacity" - ability to pay - the more complex of the two traditional ratios has long been the debt-to-income ratio ("back-end" ratio). Using the customary initials, the numerator of the ratio is ____ +____ .

PITI. LTO.

Among the investors that MBS have attracted to greater mortgage investment are:

Pension funds. mutual funds. life insurance companies. foreign institutional investors.

In mortgage lending to marginal borrowers during the years preceding the Great Recession three kinds of accommodative loans were "affordable housing" loans, Alt-A and subprime. The most cautious and systematic underwriting among these types was for:

affordable housing loans

In the years preceding the Great Recession, there were three types of accommodative home loans programs for borrowers unable to qualify for standard home loans. The type that showed the least evidence of failure was:

affordable housing loans

Currently, Freddie Mac channels virtually all of it acquired loans into mortgage securities, and purchases the loans from:

all types of lenders

The Dodd-Frank Act sets out a standard of "ability-to-repay" for home mortgages. This standard is required of ______ lender underwriting ______ home mortgage loan(s).

any; any

Mortgage loan underwriters traditionally use a(n) ____ to confirm the value of the securing property. More recently this frequently has been replaced by ____ ____ models.

appraisal. automated. valuation.

The Federal Home Loan Bank System, originally banker for savings and loan associations, now extends membership to:

banks. all thrifts. insurance companies. credit unions.

The original candidates for subprime loans included:

borrowers seeking 100 percent financing. borrowers who could not document their income. borrowers with a poor credit rating.

Problems that led to serious difficulties in mortgage brokerage included:

broker fees were biased toward least desirable loans for the borrower. broker compensation is purely "front end" for a service that has lasting consequences. broker qualification requirements and monitoring were extremely deficient.

Mortgage ____ is a business of simply bringing a mortgage borrower and a mortgage lender together and collecting a fee for that service.

brokerage (brokering, or broker)

Mortgage loan servicing includes:

collecting and forwarding monthly payments to security investors. managing loan escrow accounts: paying taxes, insurance, etc.. managing delinquencies. managing defaults and foreclosures.

Agencies and private companies that pool and securitize mortgages are sometimes called ____:

conduits

In 2008, loan losses and loss reserves eroded the capital of Fannie Mae and Freddie Mac to the point that they were placed under ____ of the U.S. Government.

conservatorship

Modern electronic underwriting for home mortgages has displaced traditional "three Cs" underwriting due to several advantages. These include:

cost, because it is purely electronic. speed, because it is purely electronic. more accurate than the average underwriter.

Under the Dodd-Frank "ability-to-repay" standard, which of these must a lender consider in underwriting a home mortgage loan?

credit history

The dominating role of banks in home mortgage lending in 2017 was enabled by important changes in the 1980s and 1990s, including steady ____ of banks through that period, permitting extensive bank ____ and unprecedented business freedom.

deregulation. consolidation.

Commercial property debt accounted for ______ percent of all mortgage debt in the US in 2015.

eighteen

Overall impacts on home mortgage lending that are attributable to Fannie Mae and Freddie Mac include:

elimination of mortgage interest rate differentials across regions of the US. lower average home mortgage interest rate for conforming conventional home loans. elimination of sudden mortgage market disruptions when interest rates rise.

Important steps in laying the foundation for a modern home mortgage secondary market, starting in 1968, included:

establishment of Fannie Mae as a quasi-private purchaser of FHA and VA loans. creation of GNMA as a US Government guarantor of FHA/VA mortgage securities. creation of Freddie Mac as a purchaser of conforming conventional loans.

Mortgage bankers make commitments to potential borrowers at a fixed interest rate. If market rates fall, the potential borrowers will tend to abandon the commitment for a better rate elsewhere. This risk is known as ____ risk.

fallout

In reflecting on the "subprime meltdown" following 2007, it has been argued that virtually every investor, builder, lender, securitizer, and institution involved was depending on one "bet," namely, that:

housing prices would never fall

Features of a standard "pass-through" mortgage backed security include:

it is based on a pool of similar mortgages. each investor receives a pro-rata share of each dollar of interest, scheduled amortization and prepayment that flows into the pool. guarantees protect the investor from losses due to default.

Issuers of private residential mortgage securities since 2000 have included:

large banks. investment banking houses. large finance companies.

Fannie Mae and/or Freddie Mac pioneered the development of several advances in home mortgage lending, including:

large reduction sin the time for the loan application process. automated underwriting. automated valuation models.

Commercial banks before the 1990s had three main kinds of real estate lending business:

large-scale construction lending. "warehouse" lending to mortgage bankers. incidental mortgage lending to their business customers.

The fatal vulnerability of thrift institutions was the mismatch created by funding ____-term mortgage assets with ____-term deposit liabilities.

long. short.

In private senior-subordinate mortgage securities, the subordinate securities absorb all default ____, thus protecting the senior securities.

losses

State and local housing finance agencies predominantly provide housing finance assistance to:

low and moderate income households. First-time home buyers.

The mortgage banking cycle involves a balancing of tasks, including:

maintaining sufficient quality in new loans to prevent excessive delinquencies and defaults. creating enough new loans to offset amortization and repayments.

By 2015, U.S. home mortgage finance is characterized by:

megabanks. securitization. mortgage banking. the secondary mortgage market.

In today's complex and confusing home mortgage world, some possible guides to shopping for a loan are these:

mortgage brokers and mortgage bankers are commission compensated and motivated to provide strong service. the shorter the lending chain, the lower should be the cost. shop! banks have an affinity for ARM loans and might be expected to make the best ARM offers.

Direct home mortgage lending resurged to about 25 percent of home loans in 2015, reflecting lending by banks for ____ conventional loans, with some 40 percent being ____ loans.

nonconforming (jumbo, or non-conforming). ARM (or adjustable).

Numerous "affordable housing" loan programs were created in the mid-1990s. The dominant strategy for such programs was to alter the "three Cs" of traditional underwriting by relaxing ____ of the three standards while maintaining all else at conventional norms.

one (or 1)

The two-edged risk from interest rates that mortgage banking encounters - one risk if interest rates fall and another risk if interest rates rise - is called ____ risk.

pipeline

While banks are ____ mortgage lenders, originating mortgages that are held and funded with deposits, mortgage ____ is a process of originating mortgages strictly to be sold as quickly as possible.

portfolio. banking.

Subprime lending was the subject of controversy from early on in its history. Defenders argued that a high loan-to-value subprime loan was better for many borrowers than accumulating large amounts of credit card debt or personal loans. But critics focused on a high incidence of ____ lending due to absence of adequate regulation.

predatory

In the failure of home mortgage underwriting preceding the Great Recession, a major factor that disrupted established underwriting practice was the explosive growth of mortgages created and channeled to ________.

private securities

The enactment of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) in 1989 instituted for the first time ____ - based capital standards for depository institutions, contributing further to the disappearance of thrifts.

risk

Freddie Mac was originally created to provide a secondary mortgage market for:

savings and loan associations

The absence of an efficient secondary mortgage market before 1968 had numerous consequences, including:

sharp variation by region in the level of interest rates. higher mortgage interest rates. fewer home loans. vulnerability of local mortgage lenders to "shut-downs" when interest rates increased.

Views diverge on the importance of a down payment in underwriting a home mortgage loan. Underwriters tend to believe that the down payment is a ____ of the buyer's sincerity or intention to meet the obligation. Economists tend to believe that what matters is not the cash a borrower has put into a house, but what the borrower can ____ from it.

signal (indicator, or gauge) recover (get, or gain).

The importance of requiring a down-payment for a mortgage loan is debated. An important argument for it is that making any cash down payment:

signals sincere intent to perform

Federal Home Loan Banks, originally created to provide liquidity to savings and loan associations, now are charged with providing liquidity to any ____ scale mortgage lending institutions.

small

Common entities operating as mortgage brokers include:

small banks or thrifts. individual persons. credit unions.

Private home mortgage conduits grew rapidly in the period from 2002 to 2007, and then almost disappeared, reflecting that they were driven at that time mainly by ____ loans.

subprime

Multifamily debt (apartments) comprised just under ______ percent of all mortgage debt in the US in 2015.

ten

As late as the 1970s 60 percent of all home mortgages were held by ____, and 15 percent were held by local ____.

thrifts. banks.

By 2011, five large banks accounted for ______ of all home loan originations.

two-thirds

On the question of whether a down payment is a necessary part of home mortgage lending, the strictly rational view is that:

value is the amount one can recover at sale and the initial down payment is irrelevant