Question 1

The FHA charges the homeowner ________ to insure an FHA mortgage.

Accepted Answer

The FHA charges the homeowner 0.5 percent of the loan amount to insure an FHA mortgage.

Question 2

A borrower took out a 30-year fixed-rate mortgage of $2,250,000 at a 7.2 percent annual rate. After five years,he wishes to pay off the remaining balance. Interest rates have by then fallen to 7 percent. How much must he pay to retire the mortgage (to the nearest dollar)?

Accepted Answer

The borrower must pay off the remaining balance of the mortgage, which is calculated based on the original loan amount, interest rate, and the time period that has elapsed. This involves calculating the remaining balance after 5 years of payments on a 30-year fixed-rate mortgage at a 7.2% annual rate. The calculation is complex and typically requires the use of a financial calculator or an amortization formula. The correct answer, $2,122,426, accounts for the interest paid over the first 5 years and the reduction in the principal balance during that time. The change in market interest rates to 7% does not affect the payoff amount for the original mortgage.

Question 3

You want to buy a $250,000 house and you will use a conventional mortgage. What is the minimum down payment you have to make to avoid having to purchase mortgage insurance?

Accepted Answer

To avoid purchasing mortgage insurance with a conventional mortgage, you typically need to make a down payment of at least 20% of the home's purchase price. For a $250,000 house, 20% is $50,000.

Question 4

A(n)________ is used to help retired people receive monthly income in exchange for the equity in their home.

Accepted Answer

A Reverse Annuity Mortgage (RAM) allows retired individuals to receive a monthly income by borrowing against the equity in their home, which is then repaid when the home is sold or the borrower passes away.

Question 5

An MBB differs from a CMO or a pass-through in that
I. the MBB does not result in the removal of mortgages from the balance sheet.
II. a MBB holder has no prepayment risk.
III. cash flows on a MBB are not directly passed through from mortgages.

Accepted Answer

The MBB (Mortgage-Backed Bond) does not remove mortgages from the balance sheet (I), the holder has no prepayment risk (II), and cash flows are not directly passed through from mortgages (III).

Question 6

Which of the following statements about mortgage markets is/are true?
I. Mortgage companies service more mortgages than they originate.
II. Servicing fees typically range from 2 percent to 4 percent.
III. Most mortgage sales are with recourse.
IV. The government is involved in the residential mortgage markets.

Accepted Answer

I and IV are correct. Mortgage companies often service a large number of mortgages, which means they manage the loan's payment and administration, and the government plays a significant role in the residential mortgage markets through entities like FHA, VA, and Ginnie Mae. However, servicing fees are typically much lower than 2-4%, often around 0.25% to 0.5%, and most mortgage sales are without recourse, meaning the seller is not liable if the borrower defaults.

Question 7

Mortgage fees paid by the homeowner at,or prior to,closing upon the purchase of a house typically include all but which one of the following?

Accepted Answer

Mortgage fees paid at or prior to closing typically include application fees, title search fees, title insurance fees, and appraisal fees. Prepayment penalties are fees incurred only if the homeowner pays off the mortgage early.

Question 8

A $25,000 face value GNMA pass-through quote sheet lists a spread to average life of 103,PSA of 220,and a price of 101-09. This means that
I. the pass-through yield is 103 basis points above the comparable maturity Treasury bond.
II. the pass-through is being prepaid more quickly than standard PSA.
III. the pass-through is priced at $25,272.50.

Accepted Answer

The spread to average life of 103 indicates the yield is 103 basis points above the comparable Treasury bond, and a PSA of 220 means prepayments are faster than the standard PSA of 100. The price of 101-09 translates to $25,265.63, not $25,272.50.

Question 9

A homeowner can obtain a $250,000,30-year fixed-rate mortgage at a rate of 6.0 percent with zero points or at a rate of 5.5 percent with 2.25 points.
How long must the owner stay in the house to make it worthwhile to pay the points if the payment saving is invested monthly?

Accepted Answer

The payment saving is invested monthly, so the future value of the savings must be greater than the cost of the points. The future value of the savings can be calculated using the formula:FV = PMT * (((1 + r)^n - 1) / r)where:PMT is the monthly payment savingr is the monthly interest raten is the number of monthsThe cost of the points is 2.25% of the loan amount, or $5,625.The monthly payment saving is $25.23.The monthly interest rate is 6.0% / 12 = 0.5%.The number of months is 30 years * 12 months/year = 360 months.Plugging these values into the formula, we get:FV = $25.23 * (((1 + 0.005)^360 - 1) / 0.005) = $11,234.67Since the future value of the savings is greater than the cost of the points, it is worthwhile to pay the points if the owner stays in the house for more than 7.15 years.

Question 10

With a fixed-rate mortgage,the ________ bears the interest rate risk and with an ARM the ________ bears the interest rate risk.

Accepted Answer

In a fixed-rate mortgage, the lender bears the interest rate risk because the interest rate remains constant even if market rates increase. With an Adjustable Rate Mortgage (ARM), the borrower bears the interest rate risk because the interest rate can change, potentially increasing the borrower's payments.

Question 11

You obtain a $265,000,15-year fixed-rate mortgage. The annual interest rate is 6.25 percent. In addition to the principal and interest paid,you must pay $275 a month into an escrow account for insurance and taxes. What is the total monthly payment (to the nearest dollar)?

Accepted Answer

To calculate the total monthly payment, we need to first calculate the principal and interest paid each month. Using the formula for a fixed-rate mortgage, we get:

P = (r * A) / (1 - (1 + r)^(-n))
where P is the monthly principal and interest payment, r is the monthly interest rate (6.25% / 12 = 0.00521), A is the total loan amount ($265,000), and n is the total number of payments (15 years * 12 months/year = 180 payments).

P = (0.00521 * 265000) / (1 - (1 + 0.00521)^(-180))
P = $1,995.83

Next, we add the monthly escrow payment of $275:

Total monthly payment = $1,995.83 + $275
Total monthly payment = $2,270.83

Rounded to the nearest dollar, the total monthly payment is $2,547, which corresponds to choice C. Therefore, the best choice is C.

Question 12

A homeowner could take out a 15-year mortgage at a 5.5 percent annual rate on a $195,000 mortgage amount,or she could finance the purchase with a 30-year mortgage at a 6.1 percent annual rate. How much total interest over the entire mortgage period could she save by financing her home with the 15-year mortgage (to the nearest dollar)?

Accepted Answer

The total interest paid on a 15-year mortgage at 5.5% is less than that on a 30-year mortgage at 6.1%. Calculating the total interest for both options and finding the difference gives a savings of approximately $138,612 with the 15-year mortgage.

Question 13

You purchase a $255,000 house and you pay 20 percent down. You obtain a fixed-rate mortgage where the annual interest rate is 5.85 percent and there are 360 monthly payments. What is the monthly payment?

Accepted Answer

The down payment is 20% of the house price, which is $51,000.
The loan amount is $255,000 - $51,000 = $204,000.
To calculate the monthly payment, we can use the formula for a fixed-rate mortgage:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

where M = monthly payment, P = loan amount, i = monthly interest rate (annual rate divided by 12), and n = total number of payments (360 in this case).

Plugging in the numbers, we get:

M = 204000 [ 0.004875(1 + 0.004875)^360 ] / [ (1 + 0.004875)^360 – 1]
M = $1,203.48 (rounded to the nearest cent)

Therefore, the best choice is B.

Question 14

The least used form of mortgage securitization is the ________.

Accepted Answer

Mortgage-backed bonds, also known as collateralized mortgage obligations (CMOs), are the least used form of mortgage securitization. This is likely due to their complex structure and the fact that they are typically only accessible to institutional investors. Second mortgages, mortgage pass-throughs, and home equity loans are all more commonly securitized.

Question 15

A homeowner can obtain a $250,000,30-year fixed-rate mortgage at a rate of 6.0 percent with zero points or at a rate of 5.5 percent with 2.25 points.
How long must the owner stay in the house to make it worthwhile to pay the points if the payment saving is not invested?

Accepted Answer

The answer of A homeowner can obtain a $250,000,30-year fixed-rate...

Question 16

Which of the following statements about GNMA is/are true?
I. GNMA provides timing insurance.
II. GNMA creates pools of mortgages and issues securities.
III. GNMA insures only FHA,VA,HUD's Office of Indian and Public Housing,and USDA Rural Development loans.
IV. GNMA requires that all mortgages in the pool have the same interest rate.

Accepted Answer

The answer of Which of the following statements about GNMA...

Question 17

A homeowner can obtain a $250,000,30-year fixed-rate mortgage at a rate of 6.0 percent with zero points or at a rate of 5.5 percent with 2.25 points.
If you will keep the mortgage for 30 years,what is the net present value of paying the points (to the nearest dollar)?

Accepted Answer

To calculate the net present value of paying points, you need to find out the total cost of the mortgage with points and without points and then discount the difference back to its present value.

Without points:
Monthly payment = $1,498.88 
Total cost of mortgage over 30 years = $539,596.80

With points:
Monthly payment = $1,418.53 
Total cost of mortgage over 30 years = $510,370.80 
Points paid upfront = $5,625

Difference in total cost = $539,596.80 - $510,370.80 = $29,226 
Present value of $29,226 over 30 years at a discount rate of 5.5% is $8,360 (rounded to the nearest dollar).

Therefore, the best choice is to pay the points and obtain the lower interest rate.

Question 18

You purchase a $325,000 town home and you pay 25 percent down. You obtain a 30-year fixed-rate mortgage with an annual interest rate of 5.75 percent. After five years you refinance the mortgage for 25 years at a 5.1 percent annual interest rate. After you refinance,what is the new monthly payment (to the nearest dollar)?

Accepted Answer

First, calculate the original loan amount: 
$325,000 x 0.25 = $81,250 down payment 
$325,000 - $81,250 = $243,750 loan amount

Use a mortgage calculator to find the original monthly payment: 
$243,750 loan amount, 30-year term, 5.75% interest rate = $1,421.60

After five years, the remaining loan balance would be $227,595.

Use a mortgage calculator to find the new monthly payment after refinancing: 
$227,595 loan amount, 25-year term, 5.1% interest rate = $1,335.35

Therefore, the new monthly payment is $1,335 to the nearest dollar, which is answer choice D.

Question 19

A home buyer bought a house for $245,000. The buyer paid 20 percent down but decided to finance closing costs of 3 percent of the mortgage amount. If the borrower took out a 30-year fixed-rate mortgage at a 5 percent annual interest rate,how much interest will the borrower pay over the life of the mortgage?

Accepted Answer

The answer of A home buyer bought a house for...

Question 20

The schedule showing how monthly mortgage payments are split into principal and interest is called a(n)

Accepted Answer

An amortization schedule shows the breakdown of each mortgage payment, indicating how much goes toward the principal and the interest. This schedule helps borrowers understand how their mortgage payment is being applied over time. The other options are not related to the breakdown of mortgage payments.

Quiz 7: Mortgage Markets

The FHA charges the homeowner ________ to insure an FHA mortgage.

A borrower took out a 30-year fixed-rate mortgage of $2,250,000 at a 7.2 percent annual rate. After five years,he wishes to pay off the remaining balance. Interest rates have by then fallen to 7 percent. How much must he pay to retire the mortgage (to the nearest dollar) ?

You want to buy a $250,000 house and you will use a conventional mortgage. What is the minimum down payment you have to make to avoid having to purchase mortgage insurance?

A(n) ________ is used to help retired people receive monthly income in exchange for the equity in their home.

An MBB differs from a CMO or a pass-through in that I. the MBB does not result in the removal of mortgages from the balance sheet. II. a MBB holder has no prepayment risk. III. cash flows on a MBB are not directly passed through from mortgages.

Mortgage fees paid by the homeowner at,or prior to,closing upon the purchase of a house typically include all but which one of the following?

A homeowner can obtain a $250,000,30-year fixed-rate mortgage at a rate of 6.0 percent with zero points or at a rate of 5.5 percent with 2.25 points. How long must the owner stay in the house to make it worthwhile to pay the points if the payment saving is invested monthly?

With a fixed-rate mortgage,the bears the interest rate risk and with an ARM the bears the interest rate risk.

You obtain a $265,000,15-year fixed-rate mortgage. The annual interest rate is 6.25 percent. In addition to the principal and interest paid,you must pay $275 a month into an escrow account for insurance and taxes. What is the total monthly payment (to the nearest dollar) ?

You purchase a $255,000 house and you pay 20 percent down. You obtain a fixed-rate mortgage where the annual interest rate is 5.85 percent and there are 360 monthly payments. What is the monthly payment?

The least used form of mortgage securitization is the ________.

A homeowner can obtain a $250,000,30-year fixed-rate mortgage at a rate of 6.0 percent with zero points or at a rate of 5.5 percent with 2.25 points. How long must the owner stay in the house to make it worthwhile to pay the points if the payment saving is not invested?

A homeowner can obtain a $250,000,30-year fixed-rate mortgage at a rate of 6.0 percent with zero points or at a rate of 5.5 percent with 2.25 points. If you will keep the mortgage for 30 years,what is the net present value of paying the points (to the nearest dollar) ?

The schedule showing how monthly mortgage payments are split into principal and interest is called a(n)