CMPS Financial and Housing Markets 2

Question 1

When the Federal Reserve increases the federal funds rate, what typically happens to long-term mortgage rates?

Accepted Answer

They generally rise over time

Answer

They decrease immediately

Answer

They are unaffected because mortgages use different benchmarks

Answer

They only change for adjustable-rate mortgages

Question 2

What does a steepening yield curve typically signal about the economy?

Accepted Answer

Investors expect stronger future growth and potential inflation

Answer

Recession is imminent

Answer

Short-term rates are rising faster than long-term rates

Answer

The housing market is declining

Question 3

Which index is most commonly used as the benchmark for 5/1 adjustable-rate mortgages in the U.S.?

Accepted Answer

SOFR (Secured Overnight Financing Rate)

Answer

Prime Rate

Answer

LIBOR

Answer

Treasury Constant Maturity Rate (CMT)

Question 4

A borrower's home value drops 15% after purchase with a 10% down payment. What is their approximate current loan-to-value ratio?

Accepted Answer

106%

Answer

90%

Answer

100%

Answer

115%

Question 5

What is the primary purpose of Fannie Mae and Freddie Mac in the housing finance system?

Accepted Answer

To purchase mortgages and create mortgage-backed securities, providing liquidity

Answer

To originate mortgage loans directly to consumers

Answer

To insure loans against borrower default

Answer

To set maximum conforming loan limits for all states

Question 6

Which economic indicator most directly measures construction activity in the new housing market?

Accepted Answer

Housing Starts

Answer

Existing Home Sales

Answer

Case-Shiller Home Price Index

Answer

Mortgage Delinquency Rate

Question 7

How does rising consumer price inflation (CPI) typically affect fixed-rate mortgage demand?

Accepted Answer

It increases demand as buyers rush to lock in rates before further increases

Answer

It reduces demand because purchasing power falls and rates rise

Answer

It has no measurable effect on mortgage demand

Answer

It only affects demand for jumbo loans