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Which of the following is FALSE regarding adjustable-rate mortgages (ARMs)? The interest rate in an ARM changes every year according to a certain index such
Which of the following is FALSE regarding adjustable-rate mortgages (ARMs)? The interest rate in an ARM changes every year according to a certain index such as the prime rate Many subprime ARMs are hybrids that start with a low "teaser" rate for 2-3 years, but afterward will reset every year according to a certain interest rate benchmark The interest rate on ARM may reset at irregular intervals based on the lender's calculation of the funding cost of the loan Many mortgage companies lure borrowers with the low "teaser" rate on the ARM to make the loan attractive, but in the long run these loans are harmful to the borrowers Which of the following is TRUE regarding the securitization process of mortgage loans? Securitization of mortgage loans involves pooling together business loans used for funding of leveraged buyouts and other purposes, and selling the claims of the cash flows to investors. Securitization involves pooling mortgage loans with different characteristics together to appeal to investors as a diversified investment. Securitization of mortgage loans involves pooling mortgage loans with similar characteristics together and selling the claims of the cash flows to investors. The securities created by the securitization of mortgage loans are known as collateralized loan obligations
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