TEST BANK
CAPITAL MARKETS: INSTITUTIONS AND INSTRUMENTS
FABOZZI/MODIGLIANI
Chapter 25
THE RESIDENTIAL MORTGAGE MARKET
MULTIPLE CHOICE
1. When a loan is based solely on the credit of the borrower and on the collateral for the
mortgage, the mortgage is said to be a:
[E]
2. Mortgage insurance to provide a guarantee for the fulfillment of the borrower’s
obligations is provided by the:
[M]
3. The principal originators of residential mortgage loans are:
[E]
4. Mortgage originators may generate income from mortgage activity in the form of:
5. The two principal factors in determining whether or not to lend funds are the:
[E]
6. A commitment letter is sent to the applicant:
[M]
7. The mortgage originator has several choices as to the mortgages acquired including:
[M]
8. A mortgage loan that meets an agency’s underwriting standards is referred to as a:
[M]
9. The risk(s) associated with originating mortgages include(s):
10. Fallout risk is the risk that:
[M]
11. The traditional type of mortgage is characterized by:
[E]
12. Traditional mortgages were financed mainly by depository institutions with very short-
term funds, even though a mortgage is a very long-term instrument. This mismatch of
maturities was solved with the:
13. In the presence of inflation-driven high interest rates, mortgage repayment in real terms is
no longer level, but instead starts high and ends low, shutting off many would-be-
borrowers. This problem is referred to as:
[D]
14. Mortgage designs, which have been offered to solve the tilt problem include the:
15. A growing-equity mortgage:
[M]
16. A mortgage design that is created for senior homeowners who want to convert their home
equity into cash is the.
[M]
17. For a commercial mortgage, prepayment protection is provided by:
[M]
18. By investing in mortgage loans, investors face:
[M]
19. Mortgage loans tend to be rather illiquid because:
20. The effect of the prepayment right is that the cash flows from a mortgage is not known
TRUE/FALSE
1. The commitment letter states that, for a fee, the applicant has the right but not the
obligation to require the lender to provide funds at a certain interest rate and on certain
terms.
[M]
2. A mortgage is a pledge of property to secure payment of a debt.
[E]
3. The fixed-rate mortgage is the most common type of mortgage design in the U.S.
[E]
4. Credit risk can be reduced if the mortgage is federally or privately insured.
[M]
5. Commercial properties are income-producing properties.
ESSAY QUESTIONS
1. Explain the deficiencies of the traditional mortgage loan.
Key Issues:
2. Describe the risks associated with investing in mortgages.
Key Issues:
3. Compare and contrast the fixed-rate mortgage and the adjustable-rate mortgage.
Key Issues: