You have a 30-year, fixed-rate mortgage with equal monthly payments. The amount of interest you pay each month will _____ and the amount of principal you pay each month will ____.

31.    You have a 30-year, fixed-rate mortgage with equal monthly payments. The amount of interest you pay each month will _____ and the amount of principal you pay each month will ____.

 

A.     decrease; decrease

B.     decrease; increase

C.     increase; decrease

D.     increase; increase

E.     remain constant; remain constant

Answer

decrease; increase

 

32.    You have a 15-year, fixed-rate, $150,000 mortgage. The monthly payment amount is constant and the mortgage is amortized on a monthly basis. How much will the principal balance be after the 90th payment has been paid?

 

A.     zero

B.     < $75,000

C.     $75,000

D.     > $75,000

E.     cannot be determined from the information provided

Answer

> $75,000

 

33.    When can a homeowner prepay on his or her home mortgage?

 

A.     only on prespecified dates

B.     only during the last five years of the loan period

C.     only if the prepayment pays the mortgage balance in full

D.     at any time

E.     only if the property securing the mortgage is being sold

Answer

at any time

 

34.    Borrowers must pay which one of the following if they are to pay off their home mortgage?

 

A.     remaining principal balance plus any accrued interest

B.     present value of all future payments discounted at the current market rate

C.     all remaining payments in full

D.     remaining principal balance plus one year's interest

E.     present value of the remaining principal balance

 

35.    A mortgage prepayment is similar to which one of the following features of a corporate bond?

 

A.     collateral provision

B.     put provision

C.     call provision

D.     conversion provision

E.     protective covenants provision

 

36.    Which one of the following is NOT a reason why mortgage prepayments occur?

 

A.     house securing the mortgage is sold

B.     increase in interest rates

C.     homeowner's spouse dies

D.     homeowner faces job transfer

E.     home is refinanced

 

37.    Mortgage prepayments are generally a(n) ______ to the mortgage borrower and a(n) ____ to the mortgage investor.

 

A.     advantage; advantage

B.     advantage; disadvantage

C.     disadvantage; advantage

D.     disadvantage; disadvantage

E.     advantage; neutral event

 

38.    Which one of the following is most apt to create an environment that increases mortgage prepayments?

 

A.     home mortgage rates remain relatively steady

B.     home mortgage rates decline significantly

C.     number of homeowner's defaulting on their mortgages rises

D.     homeowner's have steady, secure employment at their current jobs

E.     number of employees being transferred for employment purposes declines

 

39.    Which one of the following statements correctly relates to reverse mortgages?

 

A.     The loans allow homeowners to build equity in their property.

B.     The total costs associated with the loans are relatively low.

C.     Borrowers only qualify if they are 65 years of age or older.

D.     Homeowner's make monthly payments of principal and interest.

E.     No payments are required from the borrower as long as the borrower lives in the mortgaged property.

 

40.    Which of the following affect the amount of funds available to a homeowner from a reverse mortgage?

I. current mortgage balance on the home

II. age of homeowner

III. location of the home

IV. appraised value of the home

 

A.     I and IV only

B.     II and III only

C.     I, II, and IV only

D.     I, III, and IV only

E.     I, II, III, and IV

 

41.    Which one of the following is the key function of GNMA?

 

A.     providing direct financing for first-time home buyers only

B.     directly refinancing existing home mortgages

C.     providing mortgage funds to military personnel only

D.     providing direct financing to first-time home buyers, military personnel, and farmers

E.     sponsoring the repackaging of mortgages into mortgage-backed securities pools

 

42.    Which one of the following statements correctly relates to GNMA securities?

 

A.     The primary risk associated with GNMAs is default risk.

B.     The minimal denomination of a GNMA when issued is $10,000.

C.     GNMA mortgages are guaranteed solely by the FHA.

D.     GNMAs were originally established as an agency within the Department of Veteran's Affairs.

E.     If you buy a GNMA you are accepting the risk of prepayment.

 

43.    GNMA mortgage pools are based on mortgages issued by which of the following?

I. FHLMC

II. FNMA

III. FHA

IV. FmHA

 

A.     I and II only

B.     II and III only

C.     III and IV only

D.     I, II, and IV only

E.     I, II, III, and IV

 

44.    Which one of the following is a government agency?

 

A.     FHLMC

B.     Fannie Mae

C.     Freddie Mac

D.     GNMA

E.     FNMA

 

45.    The greater the prepayment rate for a mortgage pool, the:

 

A.     slower the payments to the holders of the bonds supported by the pool.

B.     greater the decline in the bond principal for bonds supported by the pool.

C.     longer the age of the mortgages held in the underlying pool.

D.     lower the PSA benchmark rate.

E.     greater the default risk.

 

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