SOMB II Practice Test | questions and answers with complete solution

SOMB II Practice Test | questions and answers with complete solution When refinances as a percentage of total originations rise, does profitability at large banks tend to rise or to fall? - Fall What are the top three Mortgage lender's main sources of income? - - Fees negotiated at origination - Gain on sale - Interest Income Interest income earned at the note rate from the date a loan closes until it is sold belongs to? - The lender Which type of loan sale generates the most revenue for the lender on the date the loan is sold? - Servicing released What are the two additional mortgage lender's main sources of income? - Servicing Release Premium (SRP) Servicing Income What are the feature adjustments that could change the price an investor will pay for a loan? - - Geography - Loan Amo. - FICO score - LTV - Property Type - Loan features - CRA eligibility A loan for which an investor pays exactly 100% of the loan's unpaid principal balance is said to have sold for - Par As interest rates fall, bond/security/MBS prices - Rise In a basic REMIC structure, when do the B class holders receive their principal payments? - After the A class holders have been completely repaid When short-term interest rates are higher than long-term interest rates, what is the yield curve is said to be? - Inverted Is inflation a type of fixed-income risk? - Yes Which type of a strip security is a natural hedge for a portfolio of MSRs? - A principal-only strip Under what conditions are borrowers most likely to "float" a rate quote for a mortgage? - When interest rates are declining What loan attributes create a pricing adjustment that increases the rate charged to the borrower? - - Occupancy status - Geographical location For what does SRP stand? - Servicing Released Premium When you sell a loan "servicing-retained" into the capital markets, for what are you responsible? - - Pay property taxes and insurance on behalf of the loan borrowers - Remitting principal and interests to the investor - Receive and account for monthly payments received from the borrower Under what circumstances would you buyup a guarantor fee (G-Fee)? - When your excess servicing is a positive number What loan attributes cause investors to pay-up for certain loan pools? - - Small loan balances - Geographic location - Low LTV's Which delivery commitment offers a lower purchase price and the least amount of income? - Best efforts If you fail to deliver loans under a best efforts delivery, are you required to pay a pair-off fee? - No Firms are allowed to deliver whole loans to FNMA or FHLMC without being an approved seller: - Never What do mortgage banking firms gain from using "best execution" software for pricing? - - Real-time investor pricing comparisons - Access to more products - The ability to evaluate servicing price from both a servicing-released and servicing-retained point of view What is the ratio of the number of interest rate lock commitments in the pipeline that close to the number of interest rate lock commitments that were started? - Pull-thru What type of risk is involved when the market moves, causing a change in the value of locked or closed loans? - Price (or market risk Is a pair-off fee due when a best efforts loan is committed to an investor and the loan does not close and cannot be delivered? - No If interest rates are going up, what will the pipeline pull-thru rate (%) be expected to do? - Increase When given an interest rate lock commitment, the borrower has the right, but not the obligation, to take the loan at the specified price and terms. What, in effect, has been provided to the borrower? - A free put option What types of tools should all secondary market groups have to manage and hedge a mortgage pipeline? - - Interest rate sensitivity models - Compliance monitoring and management reports Your mortgage pipeline is currently $50MM. Based on the pipeline analysis that estimates an expected pull-thru of 70%, what dollar amount is expected to fall out? - $15MM In order to lock in a sale of your pipeline, you obtain a UMBS TBA contract. What risk has been add