Residential Mortgages Quiz

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Questions and Answers

What is the range for the FICO credit score in the US?

400 to 900

500 to 950

200 to 800

300 to 850 (correct)

In a mortgage, what does amortization refer to?

The process of refinancing the mortgage

The process of paying off the loan with fixed payments (correct)

The process of obtaining mortgage insurance

The process of selling the mortgage in the secondary market

What type of mortgage typically requires insurance if the down payment is less than 20%?

Adjustable rate mortgage

Conventional mortgage (correct)

Insured mortgage

Fixed rate mortgage

What is the main characteristic of an adjustable rate mortgage?

Fluctuating interest rate within certain parameters Signup and view all the answers

In the secondary mortgage market, what typically happens to most mortgages?

They are immediately sold to another investor Signup and view all the answers

What was the average FICO score for subprime borrowers?

624 Signup and view all the answers

What is the purpose of creating collateralized debt obligations (CDOs) in the context of subprime lending?

To transfer risk to other parties and generate fees Signup and view all the answers

What contributed to the run-up in home prices between 2000-2005?

Increase in subprime loans Signup and view all the answers

What happened to CDO issuance in the aftermath of the crisis?

It peaked in 2006 and fell in 2009 Signup and view all the answers

What contributed to the relative stability of house prices during the COVID-19 pandemic?

Monetary policy rate cuts and fiscal policy subsidies Signup and view all the answers

What is a mortgage?

A long term loan secured by real estate Signup and view all the answers

What determines mortgage interest rates?

Market rates, loan terms, and discount points Signup and view all the answers

What is collateral in a mortgage contract?

The estate being financed Signup and view all the answers

What is private mortgage insurance (PMI) used for?

To insure the lender against borrower default Signup and view all the answers

Why do longer term mortgages typically have higher interest rates?

Because market rates are generally higher for longer terms Signup and view all the answers

What is the purpose of discount points in a mortgage?

To lower the interest rate by paying cash upfront Signup and view all the answers

What does the term 'amortized loan' mean?

A loan with fixed payments of both principal and interest each month Signup and view all the answers

What does 'loan terms' refer to in the context of mortgages?

The duration of the loan Signup and view all the answers

What is the purpose of a down payment in a mortgage?

To reduce the loan amount and demonstrate borrower's commitment Signup and view all the answers

What is the main function of the qualifications in a mortgage contract?

To assess the borrower's eligibility for a mortgage Signup and view all the answers

What is the purpose of including credit history and employment history in mortgage qualifications?

To assess the borrower's ability to make monthly payments Signup and view all the answers

What is the significance of the term 'lien' in a mortgage context?

It prevents anyone from buying the property from the borrower Signup and view all the answers

Study Notes

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.

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Description

Test your knowledge of residential mortgages with this quiz! Explore topics such as mortgage interest rates, loan terms, types of residential properties, and more. See how much you know about this essential aspect of real estate financing.