All else being equal, with a fixed-rate mortgage compared to an adjustable-rate mortgage, there is _______ default risk and _______ prepayment risk.

A. greater; less B. greater; greater C. less; less D. less; greater E. equal; equal

7. Which of the following statements about mortgage markets is/are true?

I. Mortgage companies service more mortgages than they originate. II. Servicing fees typically range from 2% to 4%. III. Most mortgage sales are with recourse. IV. The government is involved in the residential mortgage markets.

A. I, III, and IV only B. II, III, and IV only C. I, II, and IV only D. II and III only E. I and IV only

8. _______ is the process of creating publicly-traded debt securities that are backed by sold and/or packaged mortgages.

A. Collateralization B. Securitization C. Market capitalization D. Stock diversification E. Mortgage globalization

9. Which of the following statements about GNMA is/are true?

I. GNMA provides timing insurance. II. GNMA creates pools of mortgages and issues securities. III. GNMA insures only FHA, VA, and FmHA loans. IV. GNMA requires that all mortgages in the pool have the same interest rate.

A. I, II, III, and IV are true B. I, III, and IV only C. I, II, and III only D. II, III, and IV only E. III and IV only

10. A CMO or a pass-through differs from an Mortgage Backed Bond (MBB) in that

I. the MBB does not result in the removal of mortgages from the balance sheet. II. a MBB holder has no prepayment risk. III. cash flows on a MBB are not directly passed through from mortgages.

A. I, II, and III B. I and II only C. II and III only D. I and III only E. I only