1. In a Graduation Payment mortgage arrangement:
a. there is negative amortization in the earlier years.
b. the borrower has to renegotiate the mortgage contract on a specified future data.
c. there is an automatic reset of the contract rate at some point prior to maturity.
d. only b and c are true.
2. The PSA model of prepayment:
a. suggests that all mortgages in the pool will be prepaying at a constant 0.2% rate.
b. seeks to determine the prepayment rate on the basis of complex calculations taking economic and mortgage variables into consideration.
c. saying that a normal level, prepayment will be 0.2% in the first month and increasing by 0.2% every month until the 30th month where it levels to 6%.
d. saying that at a normal level, prepayments will be 0.2% per month for the first 30 months and increasing to 6% per month from the 30th month.
3. prepayment affects price in different ways for different coupon mortgage securities.
a. discount coupon securities get affected by the early return while premium securities benefit.
b. premium coupon securities benefit from the early return while discount securities get affected.
c. discount coupon securities benefit from the early return while premium securities get affected.
d. none of the above are true.
4. the two main determinants of credibility of the borrower is the payment to income PTI ratio and the loan to value LTV ratio:
a. the higher the PTI and /or lower the LTV, the more the chance of getting the mortgage loan.
b. the lower the PTI and /or higher the LTV, the more the chance of getting the mortgage loan.
c. the lower the LTV and /or lower the PTI, the more the chance of getting the mortgage loan.
d. none of these are true.