CMPS - Certified Mortgage Planning Specialist Financial and Housing Markets Questions and Answers

Question 1

A Certified Mortgage Planning Specialist (CMPS) is advising a client who is concerned about rising interest rates. Which of the following is the MOST direct influencer of 30-year fixed mortgage rates?

Accepted Answer

The 10-Year Treasury yield.

Answer

While the federal funds rate, unemployment, and inflation all influence the economy, the 10-Year Treasury yield has the most direct and correlated relationship with 30-year fixed mortgage rates. Investors in mortgage-backed securities (MBS) view the 10-Year Treasury as a benchmark for safe, long-term investment. Therefore, mortgage rates typically move in the same direction as this yield, with a spread added on to account for additional risks associated with mortgages.

Question 2

What is the primary function of the secondary mortgage market?

Accepted Answer

To replenish lender capital by purchasing originated mortgages, thereby promoting liquidity.

Answer

The secondary mortgage market's main purpose is to buy mortgages from the primary lenders who originate them. This process provides lenders with fresh capital, allowing them to make more loans to other borrowers. This creates liquidity in the housing finance system.

Question 3

A client notices on their statement that their mortgage, originally from a local bank, has been sold to Fannie Mae. As a CMPS, how would you BEST explain this common practice?

Accepted Answer

This is part of the secondary market process where lenders sell loans to replenish their funds for future lending; the loan's terms for the client remain unchanged.

Answer

It is a standard and crucial practice for lenders to sell mortgages on the secondary market to entities like Fannie Mae. This action allows the original lender to recoup its capital to originate new loans. The sale does not alter the original terms and conditions of the borrower's mortgage.

Question 4

When investor demand for Mortgage-Backed Securities (MBS) increases, what is the likely impact on mortgage interest rates?

Accepted Answer

Interest rates will decrease.

Answer

Mortgage rates and MBS have an inverse relationship. When demand for MBS is high, their price increases. This price increase leads to a lower yield for the investors. Since mortgage rates are based on MBS yields, a lower yield translates to lower interest rates for borrowers.

Question 5

Which of the following economic indicators would likely signal a potential slowdown in the housing market?

Accepted Answer

A sustained increase in the Consumer Price Index (CPI), suggesting higher inflation.

Answer

A sustained increase in the CPI indicates rising inflation. High inflation typically leads the Federal Reserve to raise interest rates to cool the economy, making borrowing more expensive. This action generally results in higher mortgage rates, which reduces purchasing power and can lead to a slowdown in housing market activity.

(CMPS) Certified Mortgage Planning Specialist Practice Test

(CMPS) Certified Mortgage Planning Specialist Practice Test

CMPS - Certified Mortgage Planning Specialist Financial and Housing Markets Questions and Answers