TEST BANK
CAPITAL MARKETS: INSTITUTIONS AND INSTRUMENTS
FABOZZI/MODIGLIANI
Chapter 26
THE MARKET FOR RESIDENTIAL MORTGAGE-BACKED SECURITIES
MULTIPLE CHOICE
1. The basic mortgage-backed security is the:
[E]
2. The driving force in the development of a strong secondary market for residential
mortgage loans was a financial innovation, which involves:
[M]
3. Asset securitization calls for a financial intermediary to:
[M]
4. With asset securitization more than one institution may be involved so that a thrift or
bank does not have to:
5. In response to the Great Depression and its effects on financial markets, the Federal
Reserve provided liquidity for thrifts by the creation of the:
[M]
6. The agency charged with the responsibility to create a liquid secondary market for FHA-
and VA-insured mortgages is:
[M]
7. Fannie Mae, Ginnie Mae, and Freddie Mac helped to create a secondary market for
mortgages by:
[M]
8. Freddie Mac and Fannie Mae created mortgage pass-through securities by:
[E]
9. When a mortgage is included in a pool of mortgages that is used as collateral for a
mortgage pass-through security, the mortgage is said to be:
10. The cash flows of a mortgage pass-through security consist of:
[M]
11. The pass-through securities issued by Ginnie Mae, Freddie Mac, and Fannie Mae:
[M]
12. The security issued by Freddie Mac is called a:
[M]
13. Non-agency pass-throughs have been issued by conduits of:
[M]
14. Non-agency mortgage pass-through securities are supported by credit enhancements such
as:
15. Prepayment risk, which is associated with the risk of prepayments, consists of:
[M]
16. A collateralized mortgage obligation (CMO):
[D]
17. A CMO is structured with various bond classes referred to as:
[M]
18. The risk resulting from a decline in mortgage rates that will shorten the life of a mortgage
is called:
[M]
19. Computing a yield for a mortgage-backed security is difficulty because:
20. Commercial mortgage-backed securities:
TRUE/FALSE
1. A stripped mortgage-backed security is a type of derivative mortgage-backed security.
[E]
2. The cash flow of a mortgage pass-through security depends on the cash flows of the
underlying mortgages.
[E]
3. Mortgage loans that are greater than the maximum permissible loan size are referred to as
nonconforming loans.
[M]
4. Prepayment risk makes pass-throughs unattractive for certain financial institutions to hold
from an asset/liability perspective.
[M]
5. Tranche types that have been included in CMO structures are sequential-pay trances,
accrual tranches, and planned amortization class bonds.
ESSAY QUESTIONS
1. Discuss the development of the current mortgage market.
Key Issues:
2. Describe the risks an investor in mortgage pass-throughs is exposed to.
Key Issues:
3. Compare and contrast mortgage-backed securities and commercial mortgage-backed
securities.
Key Issues: