Chapter 9
Mortgage Markets
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1. Which of the following is not typically included in a mortgage contract?
a. whether the mortgage is federally insured
b. the amount of the loan
c. whether the interest rate is fixed or adjustable
d. the tenure of the bank manager drawing up the contract
2. The _________ is a guarantor of federally insured mortgages.
a. Federal Housing Administration (FHA)
b. Federal Reserve System
c. U.S. Treasury
d. Internal Revenue Service
3. Most of the monthly mortgage payment reflects ________ during the later years of a mortgage.
a. principal reduction
b. interest payments
c. dividend payments
d. cannot answer without more information
4. With a _________ mortgage, initially interest payments are made for a three- to five-year period. At the end of this period, the borrower must pay the full amount of the principal.
a. shared-appreciation
b. balloon-payment
c. graduated-payment
d. growing-equity
5. A ______________ mortgage offers initially low payments; the payments continue to increase throughout the life of the loan.
a. balloon-payment
b. shared-appreciation
c. graduated-payment
d. growing-equity
6. Savings institutions and commercial banks are most active in the __________ mortgage market.
a. one- to four-family
b. multi-family
c. commercial
d. farm
7. Which of the following institutions hold the largest percentage of mortgages?
a. savings institutions
b. commercial banks
c. life insurance companies
d. credit unions
8. A relatively _______ level of money supply growth tends to place _______ pressure on the risk-free interest rate.
a. high; upward
b. low; downward
c. high; downward
d. none of the above
9. Mortgage prices are affected by all of the following, except:
a. expectations of inflation.
b. economic growth.
c. the budget deficit.
d. Mortgage prices are affected by all of the above.
10. ____________ risk is the risk that a borrower may prepay the mortgage in response to a decline in interest rates.
a. Prepayment
b. Interest rate
c. Credit
d. none of the above
11. ____________ are mortgage pass-through securities that are similar to Ginnie Mae mortgage-backed securities, except that they are backed by conventional rather than FHA or VA mortgages.
a. Fannie Mae mortgage-backed securities
b. Participation certificates (PCs)
c. Publicly issued pass-through securities (PIPs)
d. Collateralized mortgage obligations (CMOs)
12. Publicly issued pass-through securities are issued by _____________.
a. Ginnie Mae
b. private insurance companies
c. Fannie Mae
d. Freddie Mac
13. For the lending institution, interest rate risk is higher for fixed-rate mortgages than for adjustable-rate mortgages.
a. True
b. False
14. A second mortgage must be used independently of the first mortgage.
a. True
b. False
15. Securitization refers to the pooling and repackaging of loans into securities.
a. True
b. False
16. The price of a mortgage increases as a result of a strong economic growth.
a. True
b. False
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