1. 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, 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 difficult.
D. All of the above are important differences.
E. Only A and B of the above are important differences.
2. 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 residential home purchases.
D. All of the above are true of mortgages.
E. Only A and B of the above are true of mortgages.
3. Which of the following is true of mortgage interest rates?
A. Longer-term mortgages have lower interest rates than shorter-term mortgages.
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 rates.
D. All of the above are true.
E. Only A and B of the above are true.
4. Second mortgages serve the following purposes:
A. they give borrowers a way to use the equity they have in their homes as security for another loan.
B. they allow borrowers to get a tax deduction on loans secured by their primary residence or vacation home.
C. they allow borrowers to convert their conventional mortgages into GEMs.
D. all of the above.
E. only A and B of the above.
Short Answer Questions
1. Briefly discuss the factors that affect a borrower’s ability to qualify for a mortgage.
2. Discuss the types of Mortgage Loans.
3. Discuss the characteristics of residential Mortgages.
4. Consider a 30-year-fixed-rate mortgage for $200,000 at a nominal rate of 8%. A mortgage broker closes this deal on August 30th. If the broker wants to sell this mortgage to a bank on August 31st and rates have decreased to 7.5%, how much would this broker ask for the mortgage?
5. Compute the required monthly payment on a $150,000 30-year-fixed-rate mortgage with a nominal interest rate of 8%.