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

Rising federal funds rates push up borrowing costs across the economy, which generally causes long-term mortgage rates to increase as well.

Question 2

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

Accepted Answer

Investors expect stronger future growth and potential inflation

Answer

A steepening yield curve — where long-term rates rise relative to short-term rates — generally reflects market expectations of stronger economic growth and higher inflation ahead.

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

Since LIBOR's phase-out, SOFR has become the primary benchmark index used for adjustable-rate mortgages in the United States.

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

With 10% down on, say, a $200,000 home, the loan is $180,000; if value drops 15% to $170,000, LTV = $180,000/$170,000 ≈ 106% (underwater).

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

Fannie Mae and Freddie Mac operate in the secondary market by purchasing loans from lenders, packaging them into MBS, and thereby replenishing lender capital to make more loans.

(CMPS) Certified Mortgage Planning Specialist Practice Test

(CMPS) Certified Mortgage Planning Specialist Practice Test

CMPS Financial and Housing Markets 2