Test 2- Chapter 9: Mortgage Markets

Question 1

The housing market is an ________ engine.

Answer 1

economic

Question 2

lender; bank or institution that provides the loan

Answer 2

originator

Question 3

debt obligation to purchase property; 15-30 year

Answer 3

mortgage

Question 4

Is the interest you pay on your mortgage tax deductible or not?

Answer 4

yes

Question 5

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?

Answer 5

rise quickly

Question 6

ARMs are good if rates are high and you plan on them

Answer 6

dropping

Question 7

ARMs are better for short or long term?

Answer 7

short

Question 8

What does this describe?

loan secured by the equity in a home

Answer 8

home equity loan

Question 9

What are the two kinds of home equity loans?

Answer 9

fixed loans and home equity lines of credit (HELOC)

Question 10

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?

Answer 10

100,000

Question 11

Which type of home equity loan does this describe:

lump sum upfront, set rate, usually repaid within 15 years

Answer 11

fixed loan

Question 12

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)

Answer 12

home equity line of credit

Question 13

What term does this describe:

repaying old mortgage using new mortgage at a lower rate; saves money

Answer 13

refinancing

Question 14

Does the new mortgage typically have the same outstanding balance as the old mortgage or no?

Answer 14

same outstanding balance

Question 15

What term does this describe:

repay old mortgage with new mortgage, now getting a lower interest rate, but a higher mortgage balance than previously

Answer 15

cash-out refinancing

Question 16

People would do a cash-out refinance because they want more ______ to spend.

Answer 16

money

Question 17

If this describes you than you get what kind of loan?

borrower is credit worthy (has high quality credit)

Answer 17

prime loan

Question 18

IF this describes you than you get what kind of loan?

borrower has low credit. riskier loan to lender and charges a higher rate

Answer 18

subprime loan

Question 19

There are how many federal mortgage agencies?

Answer 19

three

Question 20

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?

Answer 20

Public and held by government

Question 21

Why are the mortgage agencies beneficial to banks?

Answer 21

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

Question 22

How do Fannie Mae and Freddie Mac work?

Answer 22

purchase mortgage loans from banks, convert those loans to mortgage backed securities to sell to investors globally

Question 23

When did the government bail out both Freddie Mac and Fannie Mae

Answer 23

2008

Question 24

Haas the government recovered all the money from bailing out Fannie Mae and Freddie Mac?

Answer 24

yes

Question 25

Has Ginnie Mae always been owned by the government?

Answer 25

yes

Question 26

Does Ginnie Mae use bonds or buy loans?

Answer 26

no

Question 27

In terms of Ginnie Mae, other banks buy individual loans who have had VA or GHA loans and then _____ them together.

Answer 27

pool

Question 28

When the government took over Fannie Mae and Freddie Mac, this is an example of?

Answer 28

conservatorship

Question 29

What term does this describe:

process that creates marketable securities from illiquid assets

Answer 29

securitization

Question 30

What term does this describe:
debt obligations that represent claims to underlying mortgage loans. Proceeds come from monthly mortgage payments by people.

Answer 30

mortgage backed securities

Question 31

Why do entities have mortgage backed securities?

Answer 31

provide liquidity to banks

lowers risk of mortgage market

Question 32

What are common institutions that sell Mortgage backed securities?

Answer 32

Fannie, Freddie, and Ginnie

Banks

Question 33

Mortgage backed securities consisting of many loans are supposed to be _______.

Answer 33

safer

Question 34

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

Answer 34

collateralized mortgage obligation

Question 35

What does this describe?

investment security that may contain Mortgage backed securities, loans, and other deb items

Answer 35

collateralized debt obligations

Question 36

What does under water of upside down mean in regards to the current mortgage market?

Answer 36

homeowners owe more on their mortgages than their homes are worth

Question 37

Why is being underwater or upside down problematic?

Answer 37

You have no equity and you can’t move until you satisfy your loan