Real Estate Finance Exam 2
For 95% loan-to-value loans FNMA requires that, as a percent of gross income, the payment not exceed:
25%
Government Sponsored Enterprises refers to
FNMA and FHLMC
In 1938 Congress established as a subsidiary of the Reconstruction Finance Corporation the
Federal National Mortgage Association
In 1938 Congress established as a unit of the Reconstruction Finance Corporation the
Federal National Mortgage Association
The following is not an alternative mortgage instrument
HFR
Fannie Mae supports the secondary mortgage market by
Issuing mortgage related securities and buying mortgages
CDSs were originated in the 1997 as a result of regulatory loophole by
JPMorgan Chase
The act that promotes the establishment by states of a National Mortgage Licensing System is
SAFE Mortgage Licensing Act of 2008
A secondary mortgage transaction that occurs when a lender sells mortgages to an agency that, in turn, issues an MRS, such as a pass-through, back to the lender is referred to as a
SWAP
In any one period (month) the cash flows from a pool of several hundred mortgages will consist of:
a,b, and c
Desirable characteristics of mortgage-related securities include
all of the above
Mark-to-market accounting refers to
all of the above
Players that facilitate transactions in the secondary market include
all of the above
The index on an adjustable rate mortgage must be:
all of the above
To be successful, MRSs need
all of the above
Variables that affect the sinking fund balance include
all of the above
The cash flows of mortgage-backed bonds
b and c
An increase in the market rate of interest will
both a and b
Default occurs when the borrower fails to
both a and b
Prior to the secondary mortgage market it was difficult for thrifts to sell mortgages because
both a and b
When the owner of an MBS receives from a CDS owner an amount eaqual to the difference between the market value and face value of the MBS it is called:
cash settlement
The mortgage-related security that goes the furthest in rearranging the cash flows from a pool of mortgages is:
collateralized mortgage obligations
The CPR of passthroughs refers to:
constant prepayment rate
FNMA and FHLMC are
corporations originated through federal legislation
An owner of an MBS agrees to make a series of payments for five years on a CDS. The annual payments are called
either price or spread
Which of the following is true?
even a slight increase in the default rate of a sinking fund has a dramatic impact on its balance
The secondary mortgage market is one in which
existing mortgages are bought and sold
Which of the following is false?
for a premium security, an acceleration in prepayments increases the yield
The Emergency Economic Stabilization Act of 2008
gives the SEC the authority to suspend mark-to-market accounting if it determines the suspension is in the best interest of the public and will protect investors
When a loan is originated the lender will make certain that the appraised value of the house is:
greater than the amount of the loan
The tilt problem causes the real payment on a fixed rate mortgage to be
high at the beginning and low at the end
Rating agencies review the credit risk of the collateral of CMOs for all of the following except
interest rates
Credit risk refers to
is the risk that an MBS issuer may default on the obligations
The following is NOT characteristic of an adjustable rate mortgage
it has lower risk for the borrower than do fixed rate mortgages
If prepayments of a mortgage pool accelerate
it is advantageous to the PO investor
One of the non-economic factors affecting the prepayment behavior of a mortgage pool is:
job relocation
Borrower qualification considers all of the following except:
location of the borrower
Mortgage related securities that offer cash flows similar to corporate bonds are
mortgage backed bonds
Mortgage-related securities that promise payments similar to corporate bonds are called
mortgage backed bonds
To understand the ARM reset problem you should consider the agency problem between _________ and _________:
mortgage brokers and the secondary mortgage market
The first popular MRSs were
mortgage pass-through bonds
The investor is said to have an undivided interest in the pool of mortgages or ownership in the mortgages in the following type of mortgage-related security
mortgage passthrough securities
The following are mortgage-related securities that are a cross between passthroughs and MBBs
mortgage pay-through bonds
A security for which the cash flows derived from mortgages are rearranged in terms of amount and timing is a
mortgage-derivative security
A security for which the cash flows derived from mortgages are rearranged in terms of amount and timing is referred to as:
mortgage-derivative security
When there is an increase in the loan balance due to payments less than the interest charge on an adjustable rate mortgage, the result will be
negative amortization
If the value of an Interest-Only strip moves in the same direction as market interest rates, this means that an Interest-Only strip has:
negative duration
Ginnie Mae
none of the above
Deficiency judgements are often hard to obtain because
of the ability of borrowers to declare personal bankruptcy
Grantor trusts were developed for use with
pass-through bonds
The value of a PO will fall as a net effect if:
the market interest rate is up and the prepayment rate is down
The longer the time between rate adjustments on an adjustable rate mortgage
the more risk assumed by the lender
The current industry standard for the model of expected prepayments is:
the public securities association model
Counter party risk is
the risk that either party to a contract may default
A secondary mortgage market is where existing mortgages are
Bought and sold
The Federal National Mortgage Association reduced interest rates on mortgages relative to other securities in the mid-eighties by issuing
CMOs and passthroughs
In regards to a CDS a reference entity is
MBS
Valuing mortgages on a frequent basis as as result of the changes in interest rates is referred to as
Mark-to-market
For mortgage securities
a,b, and c
Congress passed the housing and urban development act in
1968
A lengthy foreclosure process can lead a loss as a percent of the balance of:
40% to 50%
The purpose of Housing Finance Agencies (HFAs) is to:
A and B
The alternative mortgage instrument that has the least amount of interest rate risk for the lender is
ARM
Today's mortgage market is dominated by
FRMs and ARMs
A rise in interest rates will cause the market value of existing mortgages to
Fall
An agency that extends loans to rural areas of farms, houses, and community facilities is:
Federal Agricultural Mortgage Corporation
The federal agency that guarantees the timely payment of 90% of the principal and interest from a pool of mortgages is:
Federal Agricultural Mortgage Corporation
The agriculturally related system that merged into 37 farm credit banks was
Federal Land Banks and Federal Intermediate Credit Banks
Mortgage pay-through bonds are a cross between the following two mortgage related securities
Pass-throughs and MBBs
Servicing a pool of loans may NOT include:
Sending notices of default to the government
A Price Level Adjusted Mortgage (PLAM)
Solves the problem of the tilt effect and interest rate risk
The main advantage of a Pledged Account Mortgage for the borrower is:
The lower initial payment and affordability
The longer the adjustment period on an ARM
The lower the value of the ARM to the lender
The following is NOT true of a Shared Appreciation Mortgage
There are annual adjustments to the contract rate
A secondary mortgage market transaction that occurs when a lender sells mortgages to an agency which, in turn issues an NMS back to the lender is called
a swap
The secondary mortgage market developed because it solved
a and b
A reason not to refinance a loan is
a higher level of income for the borrower
The following is NOT a characteristic of a graduated payment mortgage:
payments are higher at the beginning and lower at the end
When the owner of an MBS renders it in return for a cash payment equal to its par or face value it is called a
physical settlement
Payments of principal from a pool of mortgages in excess of scheduled amortization is referred to as
prepayment
Maintaining a certain value of an adjustable rate mortgage by trading off caps and discount points can be referred to as:
pricing ARM terms
The purpose of the Farm Credit Assistance Financial Corporation is to
provide capital to Farm Credit Banks
Low interest mortgages are less likely to prepay if market interest rates have
risen
The term, mortgage-related security, refers to
securities backed up by mortgages
A promissory note should be
sold with the mortgage transferred with it
A promissory note should be:
sold with the mortgage transferred with it
A homeowner with negative equity in his or her house will:
sometimes default
If the value of the IO strip is most sensitive to changes in the market rate when this rate is between 100 and 300 basis points below the coupon on the pool, then those investors who desire to obtain the hedging benefits of the IO strip should purchase:
strips of passthroughs 100-300 points above the market rate
Mortgage quality can be affected by all of the following except
term of the loan
The revenues associated with servicing loans include all except
the administrative and overhead costs associated with servicing the pool
With a Reverse Annuity Mortgage
the borrower receives monthly payments and makes a large repayment at the end of the mortgage term
For traditional debt securities which of the following is false?
the longer the duration (similar to maturity) of the obligation, the less the changes in value as a result of a change in market rates
For a pool of mortgages (with no defaults), which of the following is false?
the total amount of principal (both scheduled and prepayments) that will be paid from the pool will depend upon changes in the interest rates
Which is true
the value of a pass-through is the sum of the component IO and PO
For premium passthrough securities, which of the following is false?
the value of the high coupon is somewhat offset by a lower expected prepayment rate
The duration of passthroughs can be measured by:
they are impossible to calculate because of uncertain prepayments
A graph of the PSA model for the prepayment rate on a pool of mortgages will produce a spike in the _________ year of cash flows
third
Investors are attracted to pass-through bonds because of all of the following except
timing of the cash flows
With a mortgage pass-through security the investor is said to have a
undivided interest in the mortgage pool
With the secondary mortgage market, the number of assets and liabilities are
unlimited
