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Real Estate > Ch. 13 The Mortgage Market > Flashcards

Ch. 13 The Mortgage Market Flashcards

This chapter discusses the money supply; primary and secondary markets; the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA); and potential borrowers. The very strong three that connects all of the these individuals, institutions, and agencies is money, in the form of mortgage loans.

1
Q

A standardized conventional loan written on uniform documents that meets the purchase requirements of Fannie Mae and Freddie Mac.

A

conforming loans

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2
Q

Checking accounts; payable on demand by holder.

A

demand deposits

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3
Q

A method for increasing a lender’s yield.

A

discount points

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4
Q

The amount of interest the Federal Reserve charges to lend money to its eligible banks.

A

discount rate

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5
Q

A disengagement process when depositors withdraw money from savings for direct investment in stocks, money market funds, and other securities.

A

disintermediation

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6
Q

The process whereby financial middlemen consolidate many small savings accounts belonging to individual depositors and invest those funds in large, diversified projects.

A

intermediation

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7
Q

The actions undertaken by the Fed of a material fact; concealment of a material fact.

A

monetary policy

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8
Q

A company that makes loans with the expectation of reselling them to institutional lenders.

A

mortgage lender

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9
Q

One who finds a lender for a potential borrower, and vice versa.

A

mortgage loan originator

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10
Q

A business entity that originates, sells, and then services mortgage loans. Mortgage broker companies are not depository institutions. They originate loans and then package the loans together and sell the entire package.

A

mortgage broker company

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11
Q

A branch of the U.S. Treasury Department that replaced the Federal Home Loan Bank Board as regulator of the thrift industry.

A

Office of Thrift Supervision (OTS)

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12
Q

Purchase and sale of U.S. Treasury and federal agency securities.

A

open market operations

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13
Q

A source for the purchase of a mortgage loan by borrower.

A

primary market

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14
Q

The amount of funds that an institution must hold in reserve against deposit liabilities.

A

reserve requirements

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15
Q

Secure and Fair Enforcement of Mortgage Licensing Act (SAFE Act) sets a minimum standard for licensing and registering mortgage loan originators. (MLOs were previously licensed as mortgage brokers.)

A

SAFE Act

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16
Q

A loan that is junior or subordinate to a first mortgage, normally taken out when the borrower needs more money.

A

secondary mortgage market

17
Q
  1. A couple purchased their home for $125,000. They financed the purchased with an 80 percent conventional loan. The mortgagee charged 2 1/2 points. Calculate the actual cost in dollars of the points.
    a. $1,600
    b. $2,000
    c. $2,500
    d. $3,125
A

C

18
Q
  1. Which individual must be state-licensed as a mortgage loan originator?
    a. Employee who processes loans for First National Bank of Orlando
    b. Employee of Bank of FLorida who works as a bank teller
    c. Employee who works as a loan originator for a mortgage brokerage company that is not federally regulated.
    d. Employee who works as a loan originator for First USA Credit Union
A

C

19
Q
  1. When the Fed increases the reserve requirement
    a. the supply of money increases.
    b. the supply of money decreases.
    c. inflation usually immediately follows.
    d. mortgage interest rates decline immediately.
A

B

20
Q
  1. A commercial bank sold a group of 2,000 mortgages directly to Fannie Mae. This is an example of
    a. primary market activity.
    b. secondary market activity.
    c. loan correspondence.
    d. intermediation.
A

B

21
Q
  1. Fannie Mae currently buys and sells
    a. FHA mortgages.
    b. VA mortgages.
    c. conventional mortgages.
    d. all three types of mortgages.
A

D

22
Q
  1. Which statement does NOT apply to Fannie Mae?
    a. Loans that meet Fannie Mae guidelines are called conforming loans.
    b. Fannie Mae provides master commitments for large real estate projects.
    c. Fannie Mae created the first secondary market for mortgage loans.
    d. Fannie Mae deals directly with homebuyers.
A

D

23
Q
  1. Which entity originates loans and typically services the loans but is NOT a financial intermediary?
    a. Mortgage company
    b. Mortgage loan originator
    c. Life insurance company
    d. Fannie Mae
A

A

24
Q
  1. When the Fed purchases securities, what happens?
    a. The supply of money in circulation is reduced.
    b. Interest rates begin to rise.
    c. Loanable funds are released into circulation.
    d. Pressure is applied to increase the discount rate.
A

C

25
Q
  1. How does the Federal Reserve compete with other financial institutions for consumer funds?
    a. Sells mortgages on the secondary market
    b. Increases the federal deficit
    c. Regulates thrift institutions
    d. Sells treasury bonds
A

D

26
Q
  1. The market where mortgage loans are created, supplying funds to finance real estate purchases directly to borrowers, is referred to as the
    a. primary market.
    b. secondary market.
    c. capital market.
    d. real estate market.
A

A

27
Q
  1. The primary purpose of Fannie Mae is to
    a. reduce and stabilize mortgage interest rates.
    b. purchase real estate loans to replenish the supply of mortgage money.
    c. make loans to low-income families.
    d. do all of the above.
A

B

28
Q
  1. The demand for residential real estate mortgage money is influenced by
    a. household formations.
    b. shifts in geographical preference for housing.
    c. household income.
    d. any of the above.
A

D

29
Q
  1. The Office of Thrift Supervision regulates
    a. savings associations.
    b. commercial banks.
    c. credit unions.
    d. the Rural Housing Service.
A

A

30
Q
  1. The discount rate is
    a. 1 percent of the loan amount.
    b. a rate adjustment factor used to increase the lender’s yield on a loan.
    c. the interest rate charged member banks for borrowing funds from the Federal Reserve Bank.
    d. approximately 1/8 of 1 percent for each point charged.
A

C

31
Q
  1. The primary purpose of Freddie Mac is to
    a. purchase conventional loans from savings associations.
    b. regulate savings associations.
    c. insure mortgage loans.
    d. regulate conventional mortgage loan interest rates.
A

A

32
Q
  1. The discount rate is
    a. 1 percent of the loan amount.
    b. a rate adjustment factor used to increase the lender’s yield on a loan.
    c. the interest rate charged member banks for borrowing funds from the Federal Reserve Bank.
    d. approximately 1/8 of 1 percent for each point charged.
A

C

33
Q
  1. The primary purpose of Freddie Mac is to
    a. purchase conventional loans from savings associations.
    b. regulate savings associations.
    c. insure mortgage loans.
    d. regulate conventional mortgage loan interest rates.
A

A

34
Q
  1. When investors bypass thrift institutions for direct investment elsewhere, the process is called
    a. loan correspondence.
    b. intermediation.
    c. disintermediation.
    d. capital-deficit are support.
A

C

35
Q
  1. Sources of income to lenders include all of the following EXCEPT
    a. the discount rate.
    b. origination fees.
    c. servicing fees.
    d. commitment fees.
A

A

36
Q
  1. The rule of thumb used to convert discount points to an annual percentage rate is that each discount point increases the yield by approximately
    a. 1/8 of 1 percent.
    b. 1/4 of 1 percent.
    c. 1/2 of 1 percent.
    d. 1 percent.
A

A

37
Q
  1. A lender charged 7 percent plus 3 points. What is the approximate yield on this loan?
    a. 7 1/4 percent
    b. 7 3/8 percent
    c. 7 1/2 percent
    d. 7 3/4 percent
A

B

38
Q
  1. The most commonly used method of controlling the national money supply is for the Fed to
    a. engage in open-market activities.
    b. change the discount rate.
    c. change the reserve requirement.
    d. issue new currency.
A

A

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