Residential Mortgages Quiz

Credit Score and Mortgage Basics

• FICO credit score range in the US is not specified, but generally, it ranges from 300 to 850.
• A mortgage is a loan from a lender to a borrower to purchase a home or other real estate property.

Mortgage Components

• Amortization in a mortgage refers to the process of gradually paying off the loan through regular payments.
• Collateral in a mortgage contract is the property itself, which serves as security for the loan.
• Private mortgage insurance (PMI) is used to protect the lender in case the borrower defaults on the loan, typically required when the down payment is less than 20%.

Mortgage Types and Characteristics

• An adjustable rate mortgage (ARM) is characterized by a fluctuating interest rate over time.
• Longer-term mortgages typically have higher interest rates due to the increased risk of inflation and other market factors.

Mortgage Process and Market

• In the secondary mortgage market, most mortgages are packaged into securities and sold to investors.
• The purpose of discount points in a mortgage is to allow borrowers to pay an upfront fee in exchange for a lower interest rate.
• Loan terms refer to the specific conditions and features of a mortgage, such as the interest rate, repayment period, and fees.

Mortgage Qualifications and History

• The main function of qualifications in a mortgage contract is to assess the borrower's creditworthiness and ability to repay the loan.
• Credit history and employment history are included in mortgage qualifications to evaluate the borrower's creditworthiness and ability to repay the loan.

Subprime Lending and Crisis

• The average FICO score for subprime borrowers is around 620.
• The purpose of creating collateralized debt obligations (CDOs) in the context of subprime lending is to package subprime mortgages into securities and sell them to investors.
• The run-up in home prices between 2000-2005 was contributed to by lax lending standards and excessive speculation in the housing market.
• CDO issuance declined significantly in the aftermath of the crisis.
• The relative stability of house prices during the COVID-19 pandemic was contributed to by government intervention, low interest rates, and a shift to remote work.

Mortgage Terms

• An amortized loan is a loan that is repaid through a series of regular payments, with a portion of each payment going towards interest and the remainder towards principal.
• A lien in a mortgage context is a legal claim on the property, giving the lender the right to seize the property if the borrower defaults on the loan.
• The purpose of a down payment in a mortgage is to reduce the amount borrowed and demonstrate the borrower's commitment to the purchase.