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Explain the use of a balloon-payment mortgage. Why might a financial institution prefer to offer this type of mortgage?
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- Define the term amortized but write down its meaning in your own words in reference to amortized mortgages. Explain what an interest only mortgage is and who is eligible for these types of mortgages Is a mortgage contract an asset or a liability to the lender? Are all mortgages secured debt instruments? Mortgages can be insured? Who insures mortgages and why? Mortgage companies, savings institutions and commercial banks originate mortgages. Do mortgage brokers originate mortgages? If not, what do they do? Can mortgages be sold? If so, who buys mortgages?Explain the difference between conventional mortgages, reverse mortgages, and second mortgages.In what ways is a CMBS structure different from a CMO backed by residential mortgages? Why
- Explain subprime mortgages. Why were mortgage companies aggressively offering subprime mortgages?Explain the influence of the pricing of a mortgage pass-through security?What is private mortgage insurance? How does it work to protect a lender from risk? What are the three 'C's' of mortgage underwriting? What is one way in which each of the 'C's' is measured?
- Give an example of a real estate mortgage and chattel mortgage. What are the obligations being secured by the mortgages?Explain why adjustable rate mortgages (ARMs) are considered to be a more suitable alternative for mortgage lending than PLAMs?understand how the secondary mortgage market functions, remember that the primary function of this market is to provide a mechanism for replenishing funds used by mortgage?
- Given the role of the loan originator in the securitization process of a mortgage loan described in the text,do you think the loan originator will be worried aboutthe ability of a household to meet its monthly mortgagepayments?Explain the reason why the wraparound lender should be willing to make the loan at a rate that is more attractive than a second mortgage?Explain why it's possible for tranching to make invest ing in a mortgage -backed security more risky than investing in a single subprime loan?