The mortgage market, the money supply, and federal regulatory bodies

Question 1

Which event occurs in the primary mortgage market?

Accepted Answer

A credit union makes a new home loan to a borrower.

Answer

An investor purchases an existing mortgage.

Answer

A pension fund purchases mortgage-backed securities.

Answer

An originator sells a closed loan to another institution.

Question 2

A lender sells recently closed mortgages and uses the proceeds to fund additional home loans. What function of the secondary market does this illustrate?

Accepted Answer

Replenishing funds available for new lending

Answer

Insuring the lender’s customer deposits

Answer

Establishing the lender’s national bank charter

Answer

Setting the Federal Reserve’s discount rate

Question 3

Which federal body directs open market policy?

Accepted Answer

Federal Open Market Committee

Answer

Federal Deposit Insurance Corporation

Answer

Office of the Comptroller of the Currency

Answer

Federal Housing Finance Agency

Question 4

Which set of goals is identified in 12 U.S.C. § 225a?

Accepted Answer

Maximum employment, stable prices, and moderate long-term interest rates

Answer

Maximum homeownership, stable housing prices, and minimum mortgage rates

Answer

Balanced federal budgets, stable tax rates, and maximum exports

Answer

Maximum bank profits, stable stock prices, and moderate down payments

Question 5

An intermediary compares lenders and arranges financing but does not fund the borrower’s loan. Which role is described?

Accepted Answer

Mortgage broker arranging the loan

Answer

Mortgage banker originating with borrowed funds

Answer

Investor purchasing a closed mortgage

Answer

Servicer collecting monthly payments

Question 6

What does mortgage servicing principally involve?

Accepted Answer

Collecting payments and administering a loan

Answer

Directing open market purchases

Answer

Chartering the originating bank

Answer

Insuring eligible bank deposits

Question 7

An investor buys a mortgage, but the borrower continues sending payments to the same company. What best explains this arrangement?

Accepted Answer

Loan ownership and loan servicing can be separated.

Answer

The unchanged payment address proves the mortgage was not sold.

Answer

A secondary-market purchase converts the loan into an insured deposit.

Answer

The payment collector becomes the Federal Reserve’s agent for monetary policy.

Question 8

What is Ginnie Mae’s role in the mortgage market?

Accepted Answer

Guaranteeing timely principal and interest payments on qualifying mortgage-backed securities

Answer

Chartering national mortgage lenders

Answer

Originating home loans directly to borrowers

Answer

Insuring deposit accounts held by mortgage borrowers

Question 9

The Federal Reserve purchases securities in an open market operation. What is the general immediate effect on reserve balances?

Accepted Answer

Reserve balances are added.

Answer

Reserve balances are drained.

Answer

Reserve balances become mortgage down payments.

Answer

Reserve balances become bank capital rather than reserves.

Question 10

A bank borrows from a Federal Reserve Bank. Which rate concept applies to that borrowing?

Accepted Answer

The discount rate

Answer

The rate charged to a homebuyer on a fixed-rate mortgage

Answer

The return paid to a mortgage-backed securities investor

Answer

The interest rate paid on reserve balances

Question 11

Which agency insures eligible deposits at insured banks and also has bank supervisory responsibilities?

Accepted Answer

Federal Deposit Insurance Corporation

Answer

Federal Housing Finance Agency

Answer

Ginnie Mae

Answer

Federal Open Market Committee

Question 12

A company originates mortgages using a borrowed funding line, then sells the loans. Which description best fits its origination role?

Accepted Answer

Mortgage banker because it funds loan originations

Answer

Mortgage broker because its funds are borrowed

Answer

Deposit insurer because it advances loan funds

Answer

Loan servicer because it sells closed mortgages

Question 13

Which agency charters and supervises national banks and federal savings associations?

Accepted Answer

Office of the Comptroller of the Currency

Answer

Consumer Financial Protection Bureau

Answer

Federal Housing Finance Agency

Answer

Ginnie Mae

Question 14

Credit becomes harder to obtain and borrowing costs rise during monetary tightening. Which response is most consistent with the policy’s general direction?

Accepted Answer

Borrowing and spending face restraint.

Answer

Borrowing and spending receive additional stimulus.

Answer

Loan underwriting ceases to affect credit availability.

Answer

Existing mortgage assets become bank deposits.

Question 15

A borrower says a Federal Reserve rate reduction means the lender must quote an identical reduction in a mortgage rate. What is the best assessment?

Accepted Answer

Incorrect, because mortgage pricing also reflects longer-term yields, inflation expectations, and lending risks.

Answer

Correct, because the discount rate is the required consumer mortgage rate.

Answer

Correct, because deposit insurance fixes mortgage pricing.

Answer

Incorrect, because monetary policy has no connection to mortgage credit conditions.

Question 16

What activity is characteristic of Fannie Mae and Freddie Mac?

Accepted Answer

Purchasing eligible mortgages and supporting securitization

Answer

Setting interest on Federal Reserve reserve balances

Answer

Chartering national banks and federal savings associations

Answer

Insuring eligible consumer bank deposits

Question 17

Which body regulates and supervises Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System?

Accepted Answer

Federal Housing Finance Agency

Answer

Federal Open Market Committee

Answer

Office of the Comptroller of the Currency

Answer

Federal Deposit Insurance Corporation

Question 18

A bank makes a loan and credits the borrower’s deposit account. Which concept best explains the creation of that deposit balance?

Accepted Answer

Commercial bank lending can create deposit money.

Answer

A mortgage sale must occur before deposit money can be created.

Answer

Deposit insurance creates the loan’s principal.

Answer

Bank lending changes ownership of currency but cannot create deposits.

Question 19

Which agency administers and enforces federal consumer financial protections, including mortgage-related protections, within its authority?

Accepted Answer

Consumer Financial Protection Bureau

Answer

Ginnie Mae

Answer

Federal Housing Finance Agency

Answer

Federal Open Market Committee

Question 20

A training note says the Federal Reserve supports stable prices by preserving each home’s market value. Which correction is best?

Accepted Answer

Stable prices is a broad economic goal, not a promise about each home’s value.

Answer

Stable prices means holding mortgage-backed security prices constant.

Answer

Stable prices replaces the statutory goal of maximum employment.

Answer

Stable prices means setting a uniform sale price for comparable homes.

Question 21

A lender funds a borrower’s purchase on Monday and sells that mortgage to an investor on Friday. How should these events be classified?

Accepted Answer

Monday is primary-market origination; Friday is a secondary-market sale.

Answer

Both events are primary-market transactions.

Answer

Both events are secondary-market transactions.

Answer

Monday is a secondary-market transaction; Friday is primary-market origination.

Question 22

Which statement correctly distinguishes money supply from credit availability?

Accepted Answer

Money supply concerns available money; credit availability concerns access to borrowing.

Answer

Money supply measures mortgage approvals; credit availability measures currency in circulation.

Answer

Money supply concerns bank charters; credit availability concerns deposit insurance.

Answer

Money supply and credit availability both mean the number of outstanding home loans.

Question 23

A borrower believes an insured bank’s deposit insurance will pay off the borrower’s mortgage after missed payments. What is the central error?

Accepted Answer

Confusing protection of eligible deposits with protection against mortgage default

Answer

Confusing the primary market with the secondary market

Answer

Confusing loan servicing with origination

Answer

Confusing the discount rate with interest on reserves

Question 24

The Federal Reserve sells securities in an open market operation. Which result is generally associated with that sale?

Accepted Answer

Reserve balances are drained from the banking system.

Answer

Reserve balances increase through the purchase payment.

Answer

A new mortgage is originated for each security sold.

Answer

Deposit insurance becomes a securities guarantee.

Question 25

Which is an administered rate the Federal Reserve uses to influence short-term interest rates?

Accepted Answer

Interest on reserve balances

Answer

A particular lender’s thirty-year mortgage rate

Answer

A negotiated commercial lease escalation rate

Answer

An appraiser’s selected capitalization rate

Question 26

A bank has ample reserves but rejects a loan because the borrower cannot demonstrate repayment capacity. What does this illustrate?

Accepted Answer

Available reserves do not remove credit-risk and underwriting constraints.

Answer

A bank with ample reserves must originate through a mortgage broker.

Answer

Borrower demand is the same thing as qualification for credit.

Answer

Reserve balances are held for borrowers as prepaid mortgage installments.

Question 27

A firm arranges a mortgage, another funds it, a third buys it, and a fourth collects payments. Which sequence correctly names those functions?

Accepted Answer

Brokering, originating, investing, servicing

Answer

Servicing, investing, brokering, originating

Answer

Originating, servicing, brokering, investing

Answer

Investing, brokering, servicing, originating

Question 28

Under 12 U.S.C. § 225a, long-run growth of monetary and credit aggregates should be commensurate with what?

Accepted Answer

The economy’s long-run potential to increase production

Answer

The annual increase in residential listing prices

Answer

The number of newly chartered national banks

Answer

The volume of mortgages sold by an individual originator

Question 29

A borrower asks Ginnie Mae to approve and fund a new home loan. Which response best distinguishes Ginnie Mae’s role?

Accepted Answer

A lender originates the loan; Ginnie Mae’s role concerns guarantees on qualifying mortgage-backed securities.

Answer

Ginnie Mae originates the loan after the Federal Housing Finance Agency sets the rate.

Answer

Ginnie Mae insures the borrower’s checking account before making the mortgage.

Answer

Ginnie Mae charters the lender and then acts as the borrower’s mortgage broker.

Question 30

An investor purchases mortgage-backed securities instead of making loans directly to homebuyers. Where is the investor participating?

Accepted Answer

The secondary mortgage market as a securities investor

Answer

The primary mortgage market as an originating lender

Answer

The mortgage servicing market as a payment collector

Answer

The bank chartering process as a supervisory agency

Question 31

A study guide claims that each Federal Reserve policy change works by changing the required reserve percentage. What is the best revision?

Accepted Answer

Reserve requirements are a traditional tool, but policy also uses open market operations and administered rates.

Answer

Each policy change instead requires a new national bank charter.

Answer

Reserve requirements determine the mortgage rate charged to each borrower.

Answer

Open market operations are performed by mortgage brokers instead of the Federal Reserve.

Question 32

Which pairing correctly separates a housing-finance institution from its regulator?

Accepted Answer

Freddie Mac purchases eligible mortgages; the Federal Housing Finance Agency supervises it.

Answer

Fannie Mae purchases mortgages; the Federal Open Market Committee is its housing-finance regulator.

Answer

The Federal Housing Finance Agency purchases mortgages; Freddie Mac regulates it.

Answer

The Office of the Comptroller of the Currency purchases mortgages; Ginnie Mae charters it.

Question 33

Under 12 U.S.C. § 225a, which pair is charged with maintaining the described long-run growth of monetary and credit aggregates?

Accepted Answer

The Federal Reserve Board of Governors and the Federal Open Market Committee

Answer

Fannie Mae and Freddie Mac

Answer

The Consumer Financial Protection Bureau and Ginnie Mae

Answer

The Federal Housing Finance Agency and the Office of the Comptroller of the Currency

Question 34

An originator wants to free funds tied up in closed loans without requiring borrowers to repay early. Which transaction best serves that purpose?

Accepted Answer

Sell the closed mortgages to a secondary-market purchaser.

Answer

Transfer payment collection duties while retaining all loan assets and receiving no loan-sale proceeds.

Answer

Request a new bank charter for the same outstanding loans.

Answer

Ask the deposit insurer to convert the loans into insured deposits.

Question 35

Mortgage rates rise even though a Federal Reserve short-term policy rate has not changed. Which explanation is most consistent with mortgage-market principles?

Accepted Answer

Inflation expectations, longer-term yields, or lending risks may have increased.

Answer

Mortgage rates must remain fixed until the Federal Reserve changes its rate.

Answer

The Federal Deposit Insurance Corporation has become the loan servicer.

Answer

Trading in the secondary mortgage market has converted the loans into bank reserves.

Question 36

Which pair correctly matches an agency to its function?

Accepted Answer

Consumer Financial Protection Bureau—consumer financial protection; Office of the Comptroller of the Currency—national bank chartering

Answer

Federal Deposit Insurance Corporation—guaranteeing Ginnie Mae securities; Ginnie Mae—insuring bank deposits

Answer

Federal Housing Finance Agency—originating consumer mortgages; mortgage broker—supervising Freddie Mac

Answer

Federal Open Market Committee—collecting borrower payments; loan servicer—directing open market policy

Question 37

A mortgage broker says that because an investor bought a loan, the investor must now collect the borrower’s monthly payments. Which response is best?

Accepted Answer

Incorrect, because the investor may own the loan while another company services it.

Answer

Correct, because purchasing and servicing are the same secondary-market function.

Answer

Correct, because loan sales eliminate servicing arrangements.

Answer

Incorrect, because loan ownership remains with the borrower after a sale.

Question 38

Which federal body combines monetary-policy responsibilities with supervision of certain banks?

Accepted Answer

Federal Reserve

Answer

Ginnie Mae

Answer

Consumer Financial Protection Bureau

Answer

Federal Housing Finance Agency

Question 39

A student argues that maximum employment under 12 U.S.C. § 225a requires disregarding inflation when choosing monetary policy. Which answer best evaluates the argument?

Accepted Answer

It overlooks that stable prices and moderate long-term interest rates are also statutory goals.

Answer

It is correct because maximum employment is the sole goal named in the statute.

Answer

It is correct because stable prices refers only to real estate commissions.

Answer

It is incorrect because the statute substitutes maximum bank profits for maximum employment.

Question 40

During easier monetary conditions, a lender sells mortgages to investors and then makes additional loans. Which explanation correctly separates the two influences?

Accepted Answer

Monetary policy influences overall credit conditions, while secondary-market sales replenish the lender’s funds.

Answer

Secondary-market sales set the lender’s interest rates, while monetary policy supplies the lender’s funds.

Answer

Easier monetary policy funds the new loans directly, while the sale to investors only transfers servicing.

Answer

The investors’ purchase is primary-market lending, while monetary policy sets each borrower’s mortgage rate.

Which event occurs in the primary mortgage market?

A lender sells recently closed mortgages and uses the proceeds to fund additional home loans. What function of the secondary market does this illustrate?

Which federal body directs open market policy?

Which set of goals is identified in 12 U.S.C. § 225a?

An intermediary compares lenders and arranges financing but does not fund the borrower’s loan. Which role is described?

What does mortgage servicing principally involve?

An investor buys a mortgage, but the borrower continues sending payments to the same company. What best explains this arrangement?

What is Ginnie Mae’s role in the mortgage market?

The Federal Reserve purchases securities in an open market operation. What is the general immediate effect on reserve balances?

A bank borrows from a Federal Reserve Bank. Which rate concept applies to that borrowing?

Which agency insures eligible deposits at insured banks and also has bank supervisory responsibilities?

A company originates mortgages using a borrowed funding line, then sells the loans. Which description best fits its origination role?

Which agency charters and supervises national banks and federal savings associations?

Credit becomes harder to obtain and borrowing costs rise during monetary tightening. Which response is most consistent with the policy’s general direction?

A borrower says a Federal Reserve rate reduction means the lender must quote an identical reduction in a mortgage rate. What is the best assessment?

What activity is characteristic of Fannie Mae and Freddie Mac?

Which body regulates and supervises Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System?

A bank makes a loan and credits the borrower’s deposit account. Which concept best explains the creation of that deposit balance?

Which agency administers and enforces federal consumer financial protections, including mortgage-related protections, within its authority?

A training note says the Federal Reserve supports stable prices by preserving each home’s market value. Which correction is best?

A lender funds a borrower’s purchase on Monday and sells that mortgage to an investor on Friday. How should these events be classified?

Which statement correctly distinguishes money supply from credit availability?

A borrower believes an insured bank’s deposit insurance will pay off the borrower’s mortgage after missed payments. What is the central error?

The Federal Reserve sells securities in an open market operation. Which result is generally associated with that sale?

Which is an administered rate the Federal Reserve uses to influence short-term interest rates?

A bank has ample reserves but rejects a loan because the borrower cannot demonstrate repayment capacity. What does this illustrate?

A firm arranges a mortgage, another funds it, a third buys it, and a fourth collects payments. Which sequence correctly names those functions?

Under 12 U.S.C. § 225a, long-run growth of monetary and credit aggregates should be commensurate with what?

A borrower asks Ginnie Mae to approve and fund a new home loan. Which response best distinguishes Ginnie Mae’s role?

An investor purchases mortgage-backed securities instead of making loans directly to homebuyers. Where is the investor participating?

A study guide claims that each Federal Reserve policy change works by changing the required reserve percentage. What is the best revision?

Which pairing correctly separates a housing-finance institution from its regulator?

Under 12 U.S.C. § 225a, which pair is charged with maintaining the described long-run growth of monetary and credit aggregates?

An originator wants to free funds tied up in closed loans without requiring borrowers to repay early. Which transaction best serves that purpose?

Mortgage rates rise even though a Federal Reserve short-term policy rate has not changed. Which explanation is most consistent with mortgage-market principles?

Which pair correctly matches an agency to its function?

A mortgage broker says that because an investor bought a loan, the investor must now collect the borrower’s monthly payments. Which response is best?

Which federal body combines monetary-policy responsibilities with supervision of certain banks?

A student argues that maximum employment under 12 U.S.C. § 225a requires disregarding inflation when choosing monetary policy. Which answer best evaluates the argument?

During easier monetary conditions, a lender sells mortgages to investors and then makes additional loans. Which explanation correctly separates the two influences?

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