Mortgage Rate And Risks

1. Mortgage Rates and Risk What is the general relationship between mortgage rates and long-term

government security rates? Explain how mortgage lenders can be affected by interest rate movements.

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Also explain how they can insulate against interest rate movements.

2. ARMs How does the initial rate on adjustable-rate mortgages (ARMs) differ from the rate on fixed-rate

mortgages? Why? Explain how caps on ARMs can affect a financial institution’s exposure to interest

rate risk.

3. Mortgage Maturities Why is the 15-year mortgage attractive to homeowners? Is the interest rate

risk to the financial institution higher for a 15-year or a 30-year mortgage? Why?

10. Exposure to Interest Rate Movements Mortgage lenders with fixed-rate mortgages should

benefit when interest rates decline, yet research has shown that this favorable impact is dampened.

By what?

5. Mortgage Valuation Describe the factors that affect mortgage prices.

6. Selling Mortgages Explain why some financial institutions prefer to sell the mortgages they originate.

7. Mortgage-Backed Securities Describe how mortgage-backed securities (MBS) are used.

8. Subprime versus Prime Mortgage Problems How did the repayment of subprime mortgages

compare to that of prime mortgages during the credit crisis?