Chapter 14

Question 1

amortized

Answer 1

Paid off in stages over a period of time.
Each payment on a loan consists of the accrued
interest and an amount that is applied to
repay the principal. When all of the payments
have been made, the loan is paid off (fully
amortized).

Question 2

balloon loans

Answer 2

A loan on which the payments do not
fully pay off the principal balance, meaning
that the final payment must be larger than the
rest.

Question 3

collaterized mortage obligation (CMO)

Answer 3

: Securities
classified by when prepayment is likely to occur.
Investors may buy a group of CMOs that are
likely to mature at a time that meets the investors’ needs.

Question 4

conventional mortgages

Answer 4

: Mortgage contracts originated by banks and other mortgage lenders
that are not guaranteed by the FHA or the VA.
They are often insured by private mortgage
insurance.

Question 5

discount points

Answer 5

Percentage of the total loan paid
back immediately when a mortgage loan is
obtained. Payment of discount points lowers the
annual interest rate on the debt.

Question 6

down payment

Answer 6

A portion of the original purchase
price that is paid by the borrower so that the
borrower will have equity (ownership interest) in
the asset pledged as collateral.

Question 7

FICO scores

Question 8

insured mortgages

Answer 8

Mortgages guaranteed by
either the Federal Housing Administration
or the Veterans Administration. These agencies guarantee that the bank making the
loan will not suffer any losses if the borrower
defaults.

Question 9

lien

Answer 9

A legal claim against a piece of property that
gives a lender the right to foreclose or seize the
property if a loan on the property is not repaid as
promised

Question 10

mortgage

Answer 10

A long-term loan secured by real
estate.

Question 11

mortgage pass through

Answer 11

A security that has the
multiple borrowers’ mortgage payments pass
through a trustee before being disbursed to the
investors.

Question 12

mortgage backed security

Answer 12

A security that is collateralized by a pool of mortgage loans. (Also called a
securitized mortgage.)

Question 13

private mortgage insurance (PMI)

Question 14

reserve accounts

Answer 14

An account used to make insurance
and tax payments due on property securing a
mortgage loan. A portion of each monthly loan
payment goes into the reserve account.

Question 15

securized mortgage