(please use same numbers given in question, need answer) 1) You are a new loan officer with Alpha Mortgage, and the manager of the loan department has just presented a problem to you. He is unable to complete the APR calculation on an adjustable rate mortgage that a borrower applied for yesterday. The loan features initial payments based on a 5 percent rate of interest at loan closing. The current composite rate on the loan is 7 percent. Two discount points have been paid by the borrower. Any difference between borrower payments and the interest payment required at the composite rate will be accrued in the mortgage balance in the form of negative amortization. The mortgage amount desired by the borrower is $65,000 for a 30-year term. Determine the APR, assuming that the ARM is made with a 2 percent annual and 5 percent over-the-life interest rate cap. In what way does the APR disclosure aid the borrower in understanding the terms of this specific loan agreement? What are some of the problems with the APR calculations on ARMs?

2) A loan with the following terms is being made: Fixed rate, constant monthly payment. Closing date February 9th. Five percent interest rate. Prepaid interest due at closing.

$70,000 mortgage loan mortgage.

$1,500 loan discount points to be paid by the buyer/borrower to the lender.

25-year term, monthly payments, fully amortizing. a) Calculate the APR for federal truth-in-lending purposes.

b) Do you think that the APR calculated in (a) reflects the likely return that the lender will receive over the term of the loan? List specific reasons that the lenders actual return might be different from the APR.