1.

1. A borrower purchased a home for $300,000 with a 5% down payment. Since the LTV is higher than 80%, mortgage insurance is required. The mortgage insurance covers the first 25% of the loan. Now suppose the borrower defaults on the loan after paying it down to $275,000. The market value drops and is sold at a foreclosure sale for $200,000. After the insurance payment, how much is the net loss amount for the lender?

   		$1,250
   		$3,750
   		$5,000
   		$0

   2.

2. Which of the following best defines the secondary market?

   		A market consisting of lenders of FHA and VA loans
   		A market where loans are purchased, pooled, securitized and sold to investors
   		A market where lenders deal exclusively in second mortgages
   		A market for the major direct lenders of residential mortgages and deeds of trust

   3.

3. The following are true about Collateralized Debt Obligations (CDOs) EXCEPT:

   		The tranches of CDOs reflect their risk profiles
   		CDO is a type of derivative
   		CDOs become one of the worst-performing assets/instruments in the subprime crisis
   		If some loans default and the cash collected by the CDO is insufficient to pay all of its investors, those in the senior tranches suffer losses first.