CMA Interest Rates & Economic Factors 3

Question 1

How does a decrease in the money supply typically affect mortgage interest rates?

Accepted Answer

Rates increase because lenders have less capital to deploy

Answer

A contracting money supply reduces available credit, forcing lenders to raise rates to ration the limited funds among competing borrowers.

Question 2

What does a rising Mortgage Bankers Association (MBA) refinance index typically indicate?

Accepted Answer

Interest rates have recently declined, spurring refinance activity

Answer

The MBA refinance index surges when current mortgage rates drop below existing borrowers' rates, making refinancing financially attractive.

Question 3

In a rising rate environment, which mortgage product carries the LEAST interest rate risk for the borrower?

Accepted Answer

30-year fixed-rate mortgage

Answer

A 30-year fixed-rate mortgage locks in the rate for the entire loan term, completely insulating the borrower from future rate increases.

Question 4

The Federal Open Market Committee (FOMC) meets approximately how many times per year to set monetary policy?

Accepted Answer

8

Answer

The FOMC meets eight times per year (roughly every six weeks) to review economic conditions and set the federal funds rate target.

Question 5

Which of the following would most likely cause the Fed to LOWER interest rates?

Accepted Answer

A recession with rising unemployment and slowing GDP

Answer

The Fed cuts rates to stimulate economic activity when growth slows and unemployment rises, as lower rates encourage borrowing and investment.

(CMA) Certified Mortgage Advisor Practice Test