Financial Markets and Institutions – Exam 2, 2026 – Study
Material and Practice Questions
Mortgage - ANS✔✔ Loans to individuals or businesses to purchase homes, land, or other real
property.
-they are securitized
-backed by a specific piece of real property
Mortgages Characteristics: - ANS✔✔ -Collateral: lenders place liens against properties that
remain in place until loans are fully paid off
-A down payment is a portion of the purchase price of the property a financial institution
requires the borrower to pay up front
-Federally insured mortgages
Conventional Mortgages - ANS✔✔ mortgages that are NOT federally insured
Amortized mortgages - ANS✔✔ have fixed principal and interest payments that fully pay off the
mortgage by its maturity date
-Maturities are usually either 15 or 30 years
Fixed-rate mortgages - ANS✔✔ lock in borrower's interest rate
-required monthly payments are fixed over the life of the mortgage
-lenders assume interest risk
, Adjustable-rate mortgage (ARMs) - ANS✔✔ tie the borrower's interest rate to some market
interest rate or interest rate index
-required monthly pmts can change over the life of the mortgage
-rates or pmt changes must be 'capped'
-borrowers assume interest risk
-Can increase default risk
Subprime Mortgage - ANS✔✔ are mortgages where the borrower's do not qualify for a 'prime'
credit rating because of a low credit score arising from prior credit problems such as
delinquencies and defaults
Collateral - ANS✔✔ lenders place liens against properties that prevent sale until loans are fully
paid off
Down Payment - ANS✔✔ a portion of the purchase price of the property a financial institution
requires the borrower to pay up from
Private Mortgage Insurance (PMI) - ANS✔✔ generally required when the loan-to-value ratio is
more than 80%
Discount points - ANS✔✔ fees or pmts made when a mortgage loan is issued
Mortgage Refinancing - ANS✔✔ When a borrower takes out a new mortgage and uses the
proceeds to pay off an existing mortgage
Jumbo Mortgages - ANS✔✔ mortgages for loan amounts that exceed the max "conforming"
limits allowed by the mortgage agencies Fannie Mae and Freddie Mac
Alt-A mortgages - ANS✔✔ mortgages that are riskier than prime but not as risky as subprime
Material and Practice Questions
Mortgage - ANS✔✔ Loans to individuals or businesses to purchase homes, land, or other real
property.
-they are securitized
-backed by a specific piece of real property
Mortgages Characteristics: - ANS✔✔ -Collateral: lenders place liens against properties that
remain in place until loans are fully paid off
-A down payment is a portion of the purchase price of the property a financial institution
requires the borrower to pay up front
-Federally insured mortgages
Conventional Mortgages - ANS✔✔ mortgages that are NOT federally insured
Amortized mortgages - ANS✔✔ have fixed principal and interest payments that fully pay off the
mortgage by its maturity date
-Maturities are usually either 15 or 30 years
Fixed-rate mortgages - ANS✔✔ lock in borrower's interest rate
-required monthly payments are fixed over the life of the mortgage
-lenders assume interest risk
, Adjustable-rate mortgage (ARMs) - ANS✔✔ tie the borrower's interest rate to some market
interest rate or interest rate index
-required monthly pmts can change over the life of the mortgage
-rates or pmt changes must be 'capped'
-borrowers assume interest risk
-Can increase default risk
Subprime Mortgage - ANS✔✔ are mortgages where the borrower's do not qualify for a 'prime'
credit rating because of a low credit score arising from prior credit problems such as
delinquencies and defaults
Collateral - ANS✔✔ lenders place liens against properties that prevent sale until loans are fully
paid off
Down Payment - ANS✔✔ a portion of the purchase price of the property a financial institution
requires the borrower to pay up from
Private Mortgage Insurance (PMI) - ANS✔✔ generally required when the loan-to-value ratio is
more than 80%
Discount points - ANS✔✔ fees or pmts made when a mortgage loan is issued
Mortgage Refinancing - ANS✔✔ When a borrower takes out a new mortgage and uses the
proceeds to pay off an existing mortgage
Jumbo Mortgages - ANS✔✔ mortgages for loan amounts that exceed the max "conforming"
limits allowed by the mortgage agencies Fannie Mae and Freddie Mac
Alt-A mortgages - ANS✔✔ mortgages that are riskier than prime but not as risky as subprime
