CA Real Estate Finance Course » 2021 » Sec 6 Unit 1 Exam

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Question #1
How do falling interest rates impact investors in mortgage-backed securities?
A.   Returns on investments decrease.
B.   Returns on investments increase.
C.   There is no impact.
D.   Investor payments cease.
Question #2
Which of the following contributed to the 2007 financial crisis?
A.   Falling interest rates
B.   More home sales
C.   Falling home prices
D.   Rising home prices
Question #3
Why did investors purchase CMOs prior to the 2007 financial crisis?
A.   They were offered for free from thrifts and savings and loan institutions.
B.   Housing price appreciation appeared to be a sure thing.
C.   More borrowers were in default, leading to additional late payment penalty fees.
D.   hey were AAA rated for safety.
Question #4
What's the term for a group of loans packaged together and then sold to investors on the secondary market?
A.   Mortgage-backed security
B.   Home equity line of credit
C.   Reverse annuity mortgage
D.   Lien
Question #5
Assuming a CMO uses the sequential pay structure, how is interest passed through from borrowers paid to investors?
A.   Interest is first paid to investors holding the greatest number of shares.
B.   Only the first tranche receives interest payments.
C.   Only the last tranche receives interest payments.
D.   All tranches receive interest payments.
Question #6
What could be a consequence if there were no secondary mortgage market?
A.   Lenders might not have funds available to make new loans to the public.
B.   Interest rates would fall.
C.   There wouldn't be any institutions available to service loans.
D.   Unemployment would rise.
Question #7
Assuming a CMO uses the sequential pay structure, how is principal passed through from borrowers paid to investors?
A.   All tranches receive principal payments.
B.   Principal is first paid to investors holding the greatest number of shares.
C.   Principal payments are only made to the first tranche until it retires, then to the second tranche, and so on.
D.   Principal payments are only made to the last tranche until it retires, then to the second-to-last tranche, and so on.
Question #8
Horace recently purchased 1,000 shares of a security that's made up of hundreds of mortgages. The principal and interest that borrowers of these underlying mortgages pay are eventually passed through to Horace and the other investors. What did Horace purchase?
A.   Real property
B.   A cooperative
C.   A mortgage-backed security
D.   A mortgage

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