REE 4204 TEST QUESTIONS WITH
CERTIFIED ANSWERS – UPDATED
Related Persons Rule - Answer-If an installment sale is made to a related person who
sells the property within a two-year period, the original seller must recognize the
balance of the gain at the time the related person makes the sale.
If the seller makes an installment sale to a related person who sells the property within
two years,
the original seller must recognize the full capital gain at the time of the original sale to
the related person by an amended return. - Answer-False
Federal Home Loan Mortgage Corporation (Freddie Mac) - Answer-Established in 1970
to create a secondary mortgage market for conventional mortgages
Operates as a private corporation
Currently buys FHA, VA, and conventional mortgages
Freddie Mac purchases both newly issued and seasoned (those with some expired
term) mortgages.
Freddie Mac will also purchase construction/permanent loans that are FRMs, ARMs, or
balloon/reset. - Answer-Freddie Mac issues a wide variety of securities:
Discount Notes and Debentures
Mortgage Participation Certificates (Pass-throughs) on FRMs, ARMs, and multifamily
Collateralized Mortgage Obligations in several classes or tranches
Secondary Mortgage Market - Answer--A market for the purchase and sale of existing
mortgages,
- solved the miss-match problem where institutions were borrowing on a very short-term
basis and lending on a long-term basis
- Agencies and firms that purchase mortgages in the secondary market often raise
funds by issuing bonds or other debt instruments, pledging the mortgages as collateral
(mortgage-backed securities) so fan & fred by some with equity the rest with MBS
Fannie Mae (FNMA) - Answer-Created in 1938 to buy FHA loans
As of 1970, allowed to buy FHA,VA, and conventional mortgages
MBS Credit Enhancement?? - Answer-MBS will have less default risk than the
underlying mortgages that serve as collateral.
MBS Avoid Double taxation - Answer-MBS issuers must make sure that their revenues
and cash flows to the investor are not both taxes
, MBS need to tailor cash flows to be attractive to investors - Answer-
Mortgage Pass-Through Securities - Answer-pass through payments of principal and
interest (any revenue stream) on pools of mortgages to holders of MBS. The investor
has an undivided interest in the pool
on a prorated basis get ur % not equal
Cash flows are not rearranged and paid monthly as if they originated the mortgage
Mortgage Backed-Bonds - Answer-are paid semi-annually interest only until maturity
(one issue of them)
owned by the issuer of MBB (yield lower than underlying mortgages)
The maturity of the bonds is less than that of the underlying mortgages.
Credit Enhancement is done through over-collateralization
Moody (rating agencies set yield) looks for:
CERTIFIED ANSWERS – UPDATED
Related Persons Rule - Answer-If an installment sale is made to a related person who
sells the property within a two-year period, the original seller must recognize the
balance of the gain at the time the related person makes the sale.
If the seller makes an installment sale to a related person who sells the property within
two years,
the original seller must recognize the full capital gain at the time of the original sale to
the related person by an amended return. - Answer-False
Federal Home Loan Mortgage Corporation (Freddie Mac) - Answer-Established in 1970
to create a secondary mortgage market for conventional mortgages
Operates as a private corporation
Currently buys FHA, VA, and conventional mortgages
Freddie Mac purchases both newly issued and seasoned (those with some expired
term) mortgages.
Freddie Mac will also purchase construction/permanent loans that are FRMs, ARMs, or
balloon/reset. - Answer-Freddie Mac issues a wide variety of securities:
Discount Notes and Debentures
Mortgage Participation Certificates (Pass-throughs) on FRMs, ARMs, and multifamily
Collateralized Mortgage Obligations in several classes or tranches
Secondary Mortgage Market - Answer--A market for the purchase and sale of existing
mortgages,
- solved the miss-match problem where institutions were borrowing on a very short-term
basis and lending on a long-term basis
- Agencies and firms that purchase mortgages in the secondary market often raise
funds by issuing bonds or other debt instruments, pledging the mortgages as collateral
(mortgage-backed securities) so fan & fred by some with equity the rest with MBS
Fannie Mae (FNMA) - Answer-Created in 1938 to buy FHA loans
As of 1970, allowed to buy FHA,VA, and conventional mortgages
MBS Credit Enhancement?? - Answer-MBS will have less default risk than the
underlying mortgages that serve as collateral.
MBS Avoid Double taxation - Answer-MBS issuers must make sure that their revenues
and cash flows to the investor are not both taxes
, MBS need to tailor cash flows to be attractive to investors - Answer-
Mortgage Pass-Through Securities - Answer-pass through payments of principal and
interest (any revenue stream) on pools of mortgages to holders of MBS. The investor
has an undivided interest in the pool
on a prorated basis get ur % not equal
Cash flows are not rearranged and paid monthly as if they originated the mortgage
Mortgage Backed-Bonds - Answer-are paid semi-annually interest only until maturity
(one issue of them)
owned by the issuer of MBB (yield lower than underlying mortgages)
The maturity of the bonds is less than that of the underlying mortgages.
Credit Enhancement is done through over-collateralization
Moody (rating agencies set yield) looks for:
