Test 2- Chapter 9: Mortgage Markets Flashcards
The housing market is an ________ engine.
economic
lender; bank or institution that provides the loan
originator
debt obligation to purchase property; 15-30 year
mortgage
Is the interest you pay on your mortgage tax deductible or not?
yes
An ARM or adjustable rate mortgage gives you a really low rate today, but that rate will change with the market, but rates will usually?
rise quickly
ARMs are good if rates are high and you plan on them
dropping
ARMs are better for short or long term?
short
What does this describe?
loan secured by the equity in a home
home equity loan
What are the two kinds of home equity loans?
fixed loans and home equity lines of credit (HELOC)
Home equity means if your home is worth 300,000 and you have a remaining mortgage balance of 200,000. then what would your equity be?
100,000
Which type of home equity loan does this describe:
lump sum upfront, set rate, usually repaid within 15 years
fixed loan
Which type of home equity loan does this describe:
used like a credit card( can tap into equity for 5 years-or up to 25 years. Repay loan with interest(if you didn’t take any money out on a line of credit, you don’t have to pay interest)
home equity line of credit
What term does this describe:
repaying old mortgage using new mortgage at a lower rate; saves money
refinancing
Does the new mortgage typically have the same outstanding balance as the old mortgage or no?
same outstanding balance
What term does this describe:
repay old mortgage with new mortgage, now getting a lower interest rate, but a higher mortgage balance than previously
cash-out refinancing
People would do a cash-out refinance because they want more ______ to spend.
money
If this describes you than you get what kind of loan?
borrower is credit worthy (has high quality credit)
prime loan
IF this describes you than you get what kind of loan?
borrower has low credit. riskier loan to lender and charges a higher rate
subprime loan
There are how many federal mortgage agencies?
three
These mortgage agencies were set up by Congress; they issue bonds to raise money; provide liquidity to mortgage market. They were initially public, then converted to private entities. Now they are?
Public and held by government
Why are the mortgage agencies beneficial to banks?
because banks make money on giving a homeowner a loan, with service fees, etc. and then they get to sell those loans to the another entity
How do Fannie Mae and Freddie Mac work?
purchase mortgage loans from banks, convert those loans to mortgage backed securities to sell to investors globally
When did the government bail out both Freddie Mac and Fannie Mae
2008
Haas the government recovered all the money from bailing out Fannie Mae and Freddie Mac?
yes
Has Ginnie Mae always been owned by the government?
yes
Does Ginnie Mae use bonds or buy loans?
no
In terms of Ginnie Mae, other banks buy individual loans who have had VA or GHA loans and then _____ them together.
pool
When the government took over Fannie Mae and Freddie Mac, this is an example of?
conservatorship
What term does this describe:
process that creates marketable securities from illiquid assets
securitization
What term does this describe:
debt obligations that represent claims to underlying mortgage loans. Proceeds come from monthly mortgage payments by people.
mortgage backed securities
Why do entities have mortgage backed securities?
provide liquidity to banks
lowers risk of mortgage market
What are common institutions that sell Mortgage backed securities?
Fannie, Freddie, and Ginnie
Banks
Mortgage backed securities consisting of many loans are supposed to be _______.
safer
What does this describe?
banks resecuritize Mortgage backed securities by pooling numerous bonds into a new security. the credit rating agencies often provided AAA ratings to these new securities
collateralized mortgage obligation
What does this describe?
investment security that may contain Mortgage backed securities, loans, and other deb items
collateralized debt obligations
What does under water of upside down mean in regards to the current mortgage market?
homeowners owe more on their mortgages than their homes are worth
Why is being underwater or upside down problematic?
You have no equity and you can’t move until you satisfy your loan
