FIN 364 DeVry Week 7 Homework

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FIN 364 DeVry Week 7 Homework

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FIN 364 DeVry Week 7 Homework


FIN 364 DeVry Week 7 Homework

FIN 364 DeVry Week 7 Homework

  1. Question : (TCO 8)A contract designed to use the equity in a home for retirement income without any required payments is called a(n) _____.
  • rollover mortgage
  • reverse annuity mortgage
  • adjustable-rate mortgage
  • home equity loan

Question 2. Question : (TCO 8) State and local governments make mortgage loans at below-market rates of interest because

  • they want to compete with the thrifts.
  • they want to help local thrift institutions.
  • they can obtain funds for mortgage financing cheaply by selling tax-exempt securities.
  • they lend to lower income, larger home buyers.

Question 3. Question : (TCO 8) Which of the following is not a reasonable expectation for investors in pass-through mortgage securities?

  • The securities are readily marketable.
  • They have little default risk.
  • The investor receives cash flows in proportion to his/her ownership proportion.
  • The timing of the cash flow return from the securities is quite predictable.

Question 4. Question : (TCO 8) Which of the following is not used to adjust ARM rates?

  • Treasury security rates
  • Dow Jones Mortgage Rate Index
  • S & L cost of funds index

Question 5. Question : (TCO 8) Which of the following is not a mortgage-backed security?

  • A jumbo mortgage
  • A Ginnie Mae pass-through
  • A collateralized mortgage obligation
  • A real estate mortgage investment conduit (REMIC)

Question 6. Question : (TCO 8) If you were a manager of a thrift institution and you expected interest rates to increase, what type of mortgage would you most like to hold?

  • Balloon payment, 10 years
  • Rollover mortgage, two years
  • Adjustable-rate mortgage, monthly
  • Fixed-rate mortgage, 15 years

Question 7. Question : (TCO 8) Which of the following is not associated with tightened mortgage credit standards?

  • More time on the current job required.
  • An increase in the loan/value ratio.
  • A decrease in the maximum total debt payments per month per amount of monthly income.
  • Decreased maximums in the payment/income ratio of borrowers.

Question 8. Question : (TCO 8) Which of the following is not true about construction-to-permanent mortgages?

  • Bridge financing is provided by lender over the time frame required by the borrower to purchase land and construct the house.
  • Both interest and principal payments are made until construction is completed.
  • Loan is financed in increments as construction payments have to be made.
  • On completion of the construction, loan balance is rolled over into the type of mortgage contract desired by borrower.

Question 9. Question : (TCO 8) Mortgage bankers usually do not

  • permanently fund mortgages.
  • originate mortgages.
  • service mortgages.
  • collect monthly payments from borrowers.

Question 10. Question : (TCO 8) The Tax Reform Act of 1986 increased the popularity of home equity lines of credit because

  • tax deductibility of interest for homeowners was reduced.
  • interest incurred under home equity lines was made tax deductible, but interest on other household financing was not.
  • banks and savings and loans were given tax incentives to make home equity lines of credit.
  • the law reduced the rates charged on home equity loans.

Question 11. Question : (TCO 8) Which of the following statements is true?

  • All fixed-rate mortgages have interest rate caps.
  • All adjustable rate mortgages have interest rate caps.
  • An interest rate cap on a mortgage reduces the lender’s interest rate risk exposure.
  • Usually, an annual interest rate cap on a mortgage is 5%, and a lifetime cap is 1-2%.

Question 12. Question : (TCO 8) The original purpose of the Federal Home Loan Mortgage Corporation (Freddie Mac) was to

  • make home loans to low income individuals.
  • purchase the conventional mortgages from thrift institutions.
  • purchase the insured conventional mortgages from financial institutions.
  • purchase the government insured mortgages from thrift institutions.

Question 13. Question : (TCO 8) What is the monthly payment on a $200,000 conventional fixed-rate mortgage, 9 percent, financed for 15 years?

  • $2,028
  • $1,500
  • $1,389
  • $2,067

Question 14. Question : (TCO 8) For a $200,000 conventional fixed-rate mortgage, 7 percent, financed for 15 years, what is the loan balance after 10 years if paid as agreed?

  • $92,721
  • $83,581
  • $85,492
  • $90,785

Question 15. Question : (TCO 8) What is the monthly payment on a home costing $150,000, 30 percent down, 25 years at 9 percent?

  • $636.09
  • $881.16
  • $763.31
  • $677.82