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Financial Markets and Institutions Test 2 > Mortgage Market Slides > Flashcards

Mortgage Market Slides Flashcards

1
Q

_______ are loans to individuals or businesses to purchase homes, land, or other real property

A

Mortgages

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2
Q

Many mortgages are pooled and sold and then the mortgage payments are used to collateralize ______________

A

Mortgage-backed securities

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3
Q

What are the four basic types of mortgages are issued by financial institutions?

A

Home, multifamily dwellings, commercial, and farm mortgages

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4
Q

What are lenders place liens against properties that remain in place until loans are fully paid off?

A

Collateral

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5
Q

A ________ is a portion of the purchase price of the property a financial institution requires the borrower to pay up front

A

Down payment

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6
Q

__________ is generally required when the loan-to-value ratio is more than 80%

A

Private mortgage insurance (PMI)

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7
Q

________ is guaranteed by either the Federal Housing Administration (FHA) or the Veterans Administration (VA)

A

Repayment

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8
Q

__________ mortgages are mortgages that are not federally insured

A

Conventional

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9
Q

__________ mortgages have fixed principal and interest payments that fully pay off the mortgage by its maturity date

A

Amortized

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10
Q

Fully amortized mortgage maturities are usually ________

A

Either 15 or 30 years

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11
Q

___________ mortgages require fixed monthly interest payments for 3 to 5 years whereupon full payment of the mortgage principal is due

A

Balloon payment

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12
Q

__________ mortgages lock in the borrower’s interest rate

A

Fixed-rate

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13
Q

______________ tie the borrower’s interest rate to some market interest rate or interest rate index

A

Adjustable-rate mortgages (ARMs)

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14
Q

Borrowers assume __________ risk with an ARM

A

interest rate

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15
Q

ARMs can increase ______ risk

A

default

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16
Q

_________ are fees or payments made when a mortgage loan is issued

A

Discount points

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17
Q

Mortgages are most often __________ when an existing mortgage has a higher interest rate than current rates

A

Refinanced

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18
Q

An ______________ shows how the fixed monthly payments are split between principal and interest

A

Amortization schedule

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19
Q

________ mortgages are mortgages for loan amounts that exceed the maximum ‘conforming’ limits allowed by the mortgage agencies Fannie Mae and Freddie Mac

A

Jumbo

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20
Q

________ mortgages are mortgages where the borrowers do not qualify for a ‘prime’ credit rating because of a low credit score arising from prior credit problems such as delinquencies and defaults. Or they may simply lack sufficient credit history or have insufficient income.

A

Subprime

21
Q

____________ are mortgages that are riskier than prime but not as risky as subprime

A

Alternative A-papers

22
Q

Interest rates on _________ are usually between prime and subprime rates

A

Alt-A loans

23
Q

Give homebuyers an initial choice of payment options

A

Option ARMs (‘Pick-n-Pay’ mortgages)

24
Q

__________ are subordinated claims to senior mortgages

A

Second mortgages

25
Q
  • Retirees or homeowners with a substantial amount of equity in their home can sell the equity back to a bank over time
  • Various payment options are available
  • Costs and servicing fees are high
A

Reverse-annuity mortgages (RAMs)

26
Q

What two mechanisms are used by FIs to remove mortgages from their balance sheets?

A

By pooling recently originated mortgages together and selling them in the secondary market
By securitizing mortgages

27
Q

What are two advantages of securitization?

A
  • FIs can reduce the liquidity risk, interest rate risk, and credit risk of their loan portfolios
  • FIs generate income from origination and service fees
28
Q

What are some examples of mortgage sellers?

A

Money center banks, smaller banks, foreign banks, investment banks

29
Q

_________ allow FIs to manage credit risk, achieve better asset diversification, and improve their liquidity and interest rate risk positions

A

Mortgage sales

30
Q

What are some examples of mortgage buyers?

A

Foreign and domestic banks, insurance companies, pension funds, closed-end bank loan mutual funds, and nonfinancial corporations

31
Q

The U.S. government established the _____________________ in the 1930s to buy FHA and VA mortgages from thrifts so they could make more mortgage loans

A

Federal National Mortgage Association (FNMA or Fannie Mae)

32
Q

_____________________ was formed in 1968 to facilitate financing of conventional mortgages

A

The Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)

33
Q

_________ promised principal and interest payments to investors

A

Pass-through securities “pass through”

34
Q

What three agencies are directly involved in the creation of pass-through securities?

A

Ginnie Mae, Fannie Mae, Freddie Mac

35
Q

_______________ create pass-throughs from nonconforming mortgages

A

Private mortgage pass-through issuers

36
Q

The U.S. government established the _________________ in 1938 to buy mortgages from thrifts so they could make more mortgage loans

A

Federal National Mortgage Association (FNMA or Fannie Mae)

37
Q

What is the main function of Fannie Mae?

A

issues MBS and guarantees full and timely principle and interest payments

38
Q

___________ buys and holds mortgages on its balance sheet and issues bonds directly to finance purchases

A

FNMA

39
Q

Creates MBS by purchasing packages of mortgages from originators and/or banks and thrifts. It also swaps MBS with a bank or thrift for mortgages

A

FNMA

40
Q

____________ is similar to Fannie Mae

  • Stockholder owned (though currently in conservatorship of the Federal Housing Finance Agency(FHFA)).
  • Has line of credit with Treasury
  • Bonds rated AAA
  • Buys mortgages, issues MBS
A

Federal home Loan Mortgage Corporation (FHLMC or Freddie Mac)

41
Q

__________ primarily deals with thrifts

A

Federal home Loan Mortgage Corporation (FHLMC or Freddie Mac)

42
Q

The ________________ was started in 1968 when it split off from Fannie Mae

A

Government National Mortgage Association (GNMA or Ginnie Mae)

43
Q

What are the two major functions of Ginnie Mae?

A

Sponsor MBS securities programs by Financial Institutions and Guarantees timing of investments

44
Q

What is the main function of Ginnie Mae?

A

Timing insurance

45
Q

What does Ginnie Mae not insure?

A

The default risk

46
Q

Only supports pools of mortgage loans that are insured against default FHA or VA

A

Ginnie Mae

47
Q

_____________ are multiclass pass-throughs with multiple bond holder classes or tranches

A

Collateralized mortgage obligations (CMOs)

48
Q

___________ allow FIs to raise long-term low-cost funds without removing mortgages from their balance sheets

A

Mortgage-backed bonds (MBBs)

49
Q

______ is the world’s second largest and most developed securitization market

A

Europe is the world’s second largest and most developed securitization market

Financial Markets and Institutions Test 2 (7 decks)

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