Finance S5: Secondary Mortgage Market

In the 2000's investor started investing in _________ because the rate of return was higher than that of government bonds.

• stocks

• mortgages

• certificates of deposit (CDs)

• futures

What are sub-prime mortgages?

• loans made below the prime home price

• loans made on below standard houses

• mortgages made below the average interest rate

• mortgages made to people with low incomes and poor credit

Predatory lending practices actually made the mortgage backed investment riskier.

• true

• false

What is a mortgage backed security?

• Bundling 1000s of mortgages together into a single bond.

• Mortgaging a home to use as collateral.

• A security you can only buy if you currently have a mortgage.

• a share of a company.

Eventually, banks ran out of good mortgages to place into mortgage backed securities (MBSs). How did they continue to produce MBS bonds?

• Banks reused mortgages they had already put into an MBS.

• Banks manufactured loans using the identities of dead people.

• Banks filled the bonds with subprime mortgages.

• They couldn't sell MBSs anymore which led to a severe loss of income, resulting in the 2008 economic crisis.

What did banks do with the high risk B-rated bonds of mortgages they couldn't fit into a MBS?

• The banks offered higher coupon rates to incentivize investors.

• The banks were sad they couldn't sell the bonds and took the loss.

• The banks sold the bonds to Michael Milken, the Junk bond king.

• The banks repackaged the risky bonds together as a collateralized debt obligation (CDO).

Which agency insures accounts at commercial banks and has the power to take over failed commercial banks?

• Federal Deposit Insurance Corporation (FDIC)

• National Credit Union Administration (NCUA)

• Securities Investor Protection Corporation (SIPC)

• Securities and Exchange Commission (SEC)

Which not-for-profit organization is authorized by Congress and ensures that banks, lenders, and other financial companies treat customers fairly?

• Department of Commerce

• General Services Administration (GSA)

• Consumer Product Banking Commission CPBC)

• Consumer Financial Protection Bureau (CFPB)

If the buyer with a low credit score is willing to pay a higher rate of interest, what type of mortgages are they able to get?

• prime mortgages

• reverse mortgages

• subprime mortgages

Which of the following participates in the secondary mortgage market…?

• Fannie Mae

• All of the Above

• Ginnie Mae

• Freddie Mac