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1、Financial Markets and Institutions, 6e (Mishkin/Eakins)Chapter 12 The Mortgage Markets12.1 Multiple Choice1) Which of the following are important ways in which mortgage markets differ from the stock and bond markets?A) The usual borrowers in the capital markets are government entities and businesses
2、, whereas the usual borrowers in the mortgage markets are individuals.B) Most mortgages are secured by real estate, whereas the majority of capital market borrowing is unsecured.C) Because mortgages are made for different amounts and different maturities, developing a secondary market has been more
3、difficult.D) All of the above are important deferences.E) Only A and B of the above are important differences.Answer: DQuestion Status: Previous Edition2) Which of the following are important ways in which mortgage markets differ from stock and bond markets?A) The usual borrowers in capital markets
4、are government entities, whereas the usual borrowers in mortgage markets are small businesses.B) The usual borrowers in capital markets are government entities and large businesses, whereas the usual borrowers in mortgage markets are small businesses.C) The usual borrowers in capital markets are gov
5、ernment entities and large businesses, whereas the usual borrowers in mortgage markets are small businesses and individuals.D) The usual borrowers in capital markets are businesses and government entities, whereas the usual borrowers in mortgage markets are individuals.Answer: DQuestion Status: Prev
6、ious Edition3) Which of the following are true of mortgages?A) A mortgage is a long-term loan secured by real estate.B) A borrower pays off a mortgage in a combination of principal and interest payments that result in full payment of the debt by maturity.C) Over 80 percent of mortgage loans finance
7、residential home purchases.D) All of the above are true of mortgages.E) Only A and B of the above are true of mortgages.Answer: DQuestion Status: Previous Edition43) A loan for borrowers who do not qualify for loans at the usual market rate of interest because of a poor credit rating or because the
8、loan is larger than justified by their income isA) a subprime mortgage.B) a securitized mortgage.C) an insured mortgage.D) a graduated-payment mortgage.Answer: AQuestion Status: New44) The percentage of the total loan paid back immediately when a mortgage loan is obtained and lowers the annual inter
9、est rate on the debt is calledA) discount points.B) loan terms.C) collateral.D) down payment.Answer: AQuestion Status: New45) Which of the following terms are found in mortgage loan contracts to protect the lender from financial loss?A) CollateralB) Down paymentC) Private mortgage insuranceD) All of
10、 the aboveAnswer: DQuestion Status: New46) What factors are used in determining a persons FICO score?A) Past payment historyB) Outstanding debtC) Length of credit historyD) All of the aboveAnswer: DQuestion Status: New47) What new debt instruments compete for funds with government bonds, corporate b
11、onds, and stocks that are low-risk securities that have higher yields than comparable government bonds and attract funds from around the world?A) Subprime mortgagesB) Private pass-throughsC) Securitized mortgagesD) Mortgage-backed mutual fundsAnswer: CQuestion Status: New12.2 True/False1) Down payme
12、nts are designed to reduce the likelihood of default on mortgage loans.Answer: TRUEQuestion Status: Previous Edition2) Discount points (or simply points) are interest payments made at the beginning of a loan. Answer: TRUEQuestion Status: Previous Edition3) A point on a mortgage loan refers to one mo
13、nthly payment of principal and interest. Answer: FALSEQuestion Status: Previous Edition4) Closing for a mortgage loan refers to the moment the loan is paid off.Answer: FALSEQuestion Status: Previous Edition5) Private mortgage insurance is a policy that guarantees to make up any discrepancy between t
14、he value of the property and the loan amount, should a default occur.Answer: TRUEQuestion Status: Previous Edition6) During the early years of the loan, the lender applies most of the payment to the principal on the loan.Answer: FALSEQuestion Status: Previous Edition7) One important advantage to a b
15、orrower who qualifies for an FHA or VA loan is the very low interest rate on the mortgage.Answer: FALSEQuestion Status: Previous Edition8) Adjustable-rate mortgages generally have lower initial interest rates than do fixed-rate mortgages.Answer: TRUEQuestion Status: Previous Edition9) Mortgage inter
16、est rates loosely track interest rates on three-month Treasury bills. Answer: FALSEQuestion Status: Previous Edition10) An advantage of a graduated-payment mortgage is that borrowers will qualify for a larger loan than if they requested a conventional mortgage.Answer: TRUEQuestion Status: Previous E
17、dition11) Nearly half the funds for mortgage lending come from mortgage pools and trusts. Answer: TRUEQuestion Status: Previous Edition12) Many institutions that make mortgage Ioans do not want to hold large portfolios of long-term securities, because it would subject them to unacceptably high inter
18、est-rate risk. Answer: TRUEQuestion Status: Previous Edition13) A problem that initially hindered the marketability of mortgages in a secondary market was that they were not standardized.Answer: TRUEQuestion Status: Previous Edition14) Mortgage-backed securities have declined in popularity in recent
19、 years as institutional investors have sought higher returns in other markets.Answer: FALSEQuestion Status: Previous Edition15) Mortgage-backed securities are marketable securities collateralized by a pool of mortgages. Answer: TRUEQuestion Status: Previous Edition16) Fannie Mae and Freddie Mac toge
20、ther either own or insure the risk on nearly one-fourth of America s residential mortgages.Answer: FALSEQuestion Status: Previous Edition17) A FICO score below 660 is considered good while a score above 720 is likely to cause problems in obtaining a loan.Answer: FALSEQuestion Status: New18) Subprime
21、 loans are those made to borrowers who do not qualify for loans at the usual market rate of interest because of a poor credit rating or because the loan is larger than justified by their income.Answer: TRUEQuestion Status: New19) Securitized mortgages are low-risk securities that have higher yields
22、than comparable government bonds and attract funds from around the world.Answer: TRUEQuestion Status: New12.3 Essay1) How has the modern mortgage market changed over recent years?Question Status: Previous Edition2) Explain the features of mortgage loans that are designed to reduce the likelihood of
23、default. Question Status: Previous Edition3) What are points? What is their purpose?Question Status: Previous Edition4) How does an amortizing mortgage loan differ from a balloon mortgage loan?Question Status: Previous Edition5) Evaluate the advantages and disadvantages, from both the lenders and th
24、e borrowers perspectives, of fixed-rate and adjustable-rate mortgages.Question Status: Previous Edition6) Why has the online lending market developed in recent years and what are the advantages and disadvantages of this development?Question Status: Previous Edition7) Why may Fannie Mae and Freddie M
25、ac pose a threat to the health of the financial system?Question Status: Previous Edition8) What are mortgage-backed securities, why were they developed, what types of mortgage-backed securities are there, and how do they work?Question Status: Previous Edition9) What are the benefits and side effects
26、 of securitized mortgages?Question Status: New4) Which of the following are true of mortgages?A) A mortgage is a long-term loan secured by real estate.B) Borrowers pay o仔 mortgages over time in some combination of principal and interest payments that result in full payment of the debt by maturity.C)
27、 Less than 65 percent of mortgage loans finance residential home purchases.D) All of the above are true of mortgages.E) Only A and B of the above are true of mortgages.Answer: EQuestion Status: Previous Edition5) Which of the following are true of mortgages?A) Prior to the 1920s, U.S. banking legisl
28、ation discouraged mortgage lending by banks.B) In the 1920s, most mortgages were balloon loans, which required the borrower to pay the entire loan amount after three to five years.C) Because mortgages are long-term loans secured by real estate, mortgage lenders tended to fail when land prices declin
29、ed, as was often the case during economic recessions.D) All of the above are true.E) Only A and B of the above are true.Answer: DQuestion Status: Previous Edition6) Which of the following is true of mortgage interest rates?A) Interest rates on mortgage loans are determined by three factors: current
30、long-termmarket rates, the term of the mortgage, and the number of discount points paid.B) Mortgage interest rates tend to track along with Treasury bond rates.C) The interest rate on 15-year mortgages is lower than the rate on 30-year mortgages, all else the same.D) All of the above are true.E) Onl
31、y A and B of the above are true.Answer: DQuestion Status: Previous Edition7) Which of the following are true of mortgages?A) More than 80 percent of mortgage loans finance residential home purchases.B) The National Banking Act of 1863 rewarded banks that increased mortgage lending.C) Most mortgages
32、during the 1920s and 1930s were balloon loans.D) All of the above are true.E) Only A and C of the above are true.Answer: EQuestion Status: Previous Edition8) Which of the following is true of mortgage interest rates?A) Longer-term mortgages have lower interest rates than shorter-term mortgages.B) Mo
33、rtgage rates are lower than Treasury bond rates, because of the tax-deductibility of mortgage interest rates.C) In exchange for points, lenders reduce interest rates on mortgage loans.D) All of the above are true.E) Only A and B of the above are true.Answer: CQuestion Status: Previous Edition9) Typi
34、cally, discount points should not be paid if the borrower will pay off the loan in years or less.A) 5B) 10C) 15D) 20Answer: AQuestion Status: Previous Edition10) Which of the following is true of mortgage interest rates?A) Longer-term mortgages have higher interest rates than shorter-term mortgages.
35、B) In exchange for points, lenders reduce interest rates on mortgage loans.C) Mortgage rates are lower than Treasury bond rates because of the tax deductibility of mortgage interest payments.D) All of the above are true.E) Only A and B of the above are true.Answer: EQuestion Status: Previous Edition
36、11) Which of the following reduces moral hazard for the mortgage borrower?A) CollateralB) Down paymentsC) Private mortgage insuranceD) Borrower qualificationsAnswer: BQuestion Status: Previous Edition12) Which of the following protects the mortgage lenders right to sell property if the underlying lo
37、an defaults?A) A lienB) A down paymentC) Private mortgage insuranceD) Borrower qualificationE) AmortizationAnswer: AQuestion Status: Previous Edition13) Which of the following is true of mortgage interest rates?A) Mortgage rates are closely tied to Treasury bond rates, but mortgage rates tend to sta
38、y below Treasury rates because mortgages are secured with collateral.B) Longer-term mortgages have higher interest rates than shorter-term mortgages.C) Interest rates are higher on mortgage loans on which lenders charge points.D) All of the above are true.E) Only A and B of the above are true.Answer
39、: BQuestion Status: Previous Edition14) During the early years of an amortizing mortgage loan, the lender appliesA) most of the monthly payment to the outstanding principal balance.B) all of the monthly payment to the outstanding principal balance.C) most of the monthly payment to interest on the lo
40、an.D) all of the monthly payment to interest on the loan.E) the monthly payment equally to interest on the loan and the outstanding principal balance.Answer: CQuestion Status: Previous Edition15) During the last years of an amortizing mortgage loan, the lender appliesA) most of the monthly payment t
41、o the outstanding principal balance.B) all of the monthly payment to the outstanding principal balance.C) most of the monthly payment to interest on the loan.D) all of the monthly payment to interest on the loan.E) the monthly payment equally to interest on the loan and the outstanding principal bal
42、ance.Answer: AQuestion Status: Previous Edition16) During the last years of a balloon mortgage loan, the lender appliesA) most of the monthly payment to the outstanding principal balance.B) all of the monthly payment to the outstanding principal balance.C) most of the monthly payment to interest on
43、the loan.D) all of the monthly payment to interest on the loan.E) the monthly payment equally to interest on the loan and the outstanding principal balance.Answer: DQuestion Status: Previous Edition17) During the early years of a balloon mortgage loan, the lender appliesA) most of the monthly paymen
44、t to the outstanding principal balance.B) all of the monthly payment to the outstanding principal balance.C) most of the monthly payment to interest on the loan.D) all of the monthly payment to interest on the loan.E) the monthly payment equally to interest on the loan and the outstanding principal
45、balance.Answer: DQuestion Status: Previous Edition18) A borrower who qualifies for an FHA or VA loan enjoys the advantage thatA) the mortgage payment is much lower.B) only a very low or zero down payment is required.C) the cost of private mortgage insurance is lower.D) the government holds the lien
46、on the property.Answer: BQuestion Status: Previous Edition19) (I) Conventional mortgages are originated by private lending institutions, and FHA or VA loans are originated by the government. (II) Conventional mortgages are insured by private companies, and FHA or VA Ioans are insured by the governme
47、nt.A) (I) is true, (II) is false.B) (I) is false, (II) is true.C) Both are true.D) Both are false.Answer: BQuestion Status: Previous Edition20) Borrowers tend to prefer to, whereas lenders preferA) fixed-rate loans; ARMs; fixed-rate loans.B) ARMs; fixed-rate loans; fixed-rate loans.C) fixed-rate loa
48、ns; ARMs; ARMs.D) ARMs; fixed-rate loans; ARMs.Answer: CQuestion Status: Previous Edition21) (I) ARMs offer lower initial rates and the rate may fall during the life of the loan. (II) Conventional mortgages do not allow a borrower to take advantage of falling interest rates.A) (I) is true, (II) is false.B) (I) is false, (II) is true.C) Both are true.D) Both are