CMB - Certified Mortgage Banker Secondary Markets and Investors Questions and Answers

Question 1

Which of the following best describes the primary role of Ginnie Mae in the secondary mortgage market?

Accepted Answer

To guarantee the timely payment of principal and interest on mortgage-backed securities (MBS) backed by government-insured or guaranteed loans.

Answer

To purchase and securitize conventional mortgage loans from large commercial banks.

Answer

To originate and service mortgage loans for low- and moderate-income borrowers in underserved areas.

Answer

To set the underwriting standards and loan limits for all conforming loans sold in the secondary market.

Question 2

A mortgage banker has a large pipeline of locked loans that are scheduled to be sold to an investor in 60 days. To mitigate the risk of interest rates rising before the sale, which would decrease the value of the loans, the banker would most likely employ what strategy?

Accepted Answer

Pipeline hedging using TBA securities

Answer

Best-efforts delivery commitment

Answer

Retaining the loans in portfolio

Answer

Selling the Mortgage Servicing Rights (MSRs) upfront

Question 3

What is a primary distinction between an 'Agency' Mortgage-Backed Security (MBS) and a 'Private-Label' (or non-agency) MBS?

Accepted Answer

Agency MBS carry a guarantee from a Government-Sponsored Enterprise (GSE) or a government agency, whereas private-label MBS do not.

Answer

Agency MBS are exclusively backed by commercial properties, while private-label MBS are backed by residential properties.

Answer

The minimum investment for Agency MBS is significantly higher than for private-label MBS.

Answer

Private-label MBS can only be sold to institutional investors, while Agency MBS are available to individual retail investors.

Question 4

A mortgage originator decides to sell a pool of recently closed loans on a 'servicing-released' basis. What does this mean for the originator?

Accepted Answer

The originator is transferring both the loan principal and the right to service the loans to the buyer in the secondary market.

Answer

The originator will continue to collect principal and interest payments from the borrowers.

Answer

The originator is selling only the right to collect servicing fees, not the loans themselves.

Answer

The originator must place the servicing fees into an escrow account managed by the loan purchaser.

Question 5

Which of the following investors is a primary purchaser of mortgages in the secondary market, creating liquidity for lenders by packaging loans into mortgage-backed securities (MBS)?

Accepted Answer

Government-Sponsored Enterprises (GSEs) like Fannie Mae and Freddie Mac

Answer

The Federal Housing Administration (FHA)

Answer

Retail commercial banks originating loans

Answer

The Securities and Exchange Commission (SEC)

Question 6

An investor is analyzing a mortgage-backed security. A key risk they must evaluate, which is unique to MBS compared to a standard corporate bond, is the uncertainty regarding the timing of principal repayment due to homeowners selling their homes or refinancing. What is this risk called?

Accepted Answer

Prepayment risk

Answer

Interest rate risk

Answer

Credit risk

Answer

Liquidity risk