Chapter 9 - Mortgage Finance

Question 1

characteristics of mortgage loans

Answer 1

uniqueness, liquidity, reinvestment problem, administration, capital cost, mortgage-backed securities

Question 2

mortgage backed securities

Answer 2

pools of amortized insured residential mortgage loans that are converted into securities then marketed to investors in small individual units

Question 3

4 classification of mortgage loans

Answer 3

type of property (residential v. non residential)
mortgage default insurance (insured v. conventional)
source of mortgage funds
priority of the mortage

Question 4

face value of mortgage

Answer 4

amount of money borrower promises to pay (at contract rate of interest)

Question 5

book value of a mortgage

Answer 5

outstanding balance at a particular time

Question 6

interest accrual loans

Answer 6

no payment on interest or principle until end of term

Question 7

graduated payment mortgage

Answer 7

lower payments in early years and increase over time to facilitate financing. used with federal government home ownership mortgage lending program.

Question 8

combination mortgage

Answer 8

fixed mortgage then variable rate mortgage, 2-10 years

Question 9

improvement mortgages

Answer 9

CMHC and Sagen - down payment

Question 10

shared appreciation mortgages

Answer 10

lender participates in appreciation of property and payable usually at 10 years or sale of property

Question 11

sinking fund

Answer 11

a stream of cash flows where regular payments are set aside to accumulate funds for a specific purpose in the future

Question 12

Calculator keys: I/YR
P/YR
N
PV
FV
PMT

Answer 12

I/YR - nominal interest rate per year - entered as a percent amount, not decimal
P/YR - “periods per year” - indicates compounding frequency of nominal rate in “I/YR”
N - number of compounding or payment periods (if P/YR=12, then N=number of months)
PV - present value
FV - Future
PMT - payment per period - same frequency as P/YR and N (ie. if N is months, PMT= payment per month)