CMB CMB - Certified Mortgage Banker Capital Markets and Hedging Strategies Questions and Answers

Question 1

What is a Mortgage-Backed Security (MBS) and who issues agency MBS in the United States?

Accepted Answer

A security backed by a pool of mortgage loans; issued by Fannie Mae, Freddie Mac, and Ginnie Mae

Answer

A short-term commercial paper issued by banks; issued by the Federal Reserve

Answer

A corporate bond backed by real estate collateral; issued by private banks

Answer

A savings certificate backed by jumbo loans; issued by the FDIC

Question 2

What is 'pipeline risk' in mortgage banking capital markets?

Accepted Answer

The interest rate risk that accumulates between loan application and loan sale in the secondary market

Answer

The risk of a loan officer's applications not converting to closings due to technology failures

Answer

The risk of title defects discovered after a loan is funded

Answer

The liquidity risk from holding MSRs on the balance sheet

Question 3

Which hedging instrument is most commonly used by mortgage bankers to hedge pipeline and warehouse interest rate risk?

Accepted Answer

To-Be-Announced (TBA) forward MBS contracts

Answer

Credit Default Swaps (CDS)

Answer

Treasury bond futures only

Answer

Interest rate caps and floors

Question 4

What does 'best efforts' delivery mean in the context of mortgage loan sales to investors?

Accepted Answer

The lender commits to deliver a loan only if it closes, with no penalty for fallout

Answer

The lender guarantees delivery of the exact loans committed regardless of fallout

Answer

The lender must deliver all loans at par with no pricing adjustment

Answer

The lender delivers loans to the highest bidder regardless of prior commitments

Question 5

What is 'mandatory delivery' in mortgage secondary market transactions and what risk does it create for lenders?

Accepted Answer

A commitment where the lender must deliver a specified volume of loans or pay a pair-off fee

Answer

A requirement to deliver any loan that receives an AUS approval regardless of closing

Answer

A GSE rule requiring same-day funding for all conforming loans

Answer

An investor requirement to accept all loans regardless of guidelines

Question 6

What is a 'pair-off fee' in mortgage capital markets?

Accepted Answer

A penalty paid by a lender when it fails to deliver the committed loan volume under a mandatory delivery agreement

Answer

A fee charged to borrowers for locking two loans simultaneously

Answer

A charge assessed by GSEs for over-delivering on MBS pools

Answer

A fee paid to the hedging desk for executing TBA trades