Financing Flashcards
Which of the following agencies helps to increase availability of mortgage credit by maintaining a secondary market for residential conventional mortgages
Veterans Association Federal Home Loan Mortgage Corporation Federal Deposit Insurance Corporation National Association of Home Builders
Federal Home Loan Mortgage Corporation
Freddie Mac (Federal Home Loan Mortgage Corporation) buys and sells existing conventional home loans.
If a buyer applies equal payments to a long term home loan, what will happen to the payment of the principal over the life of the loan?
increase while interest payments decrease decrease at a constant rate decrease while interest payment increase increase at a consistent rate
increase while interest payments decrease
Interest charged will decrease with each payment made. The difference will be credited to the principal.
What does the “secondary mortgage market” refer to?
A marketplace for the resale of loans made only by pension funds All real property loans that have a junior loan for security or a mortgage Loans that are made by large insurance companies A marketplace for the resale of existing trust deed loans
A marketplace for the resale of existing trust deed loans
Existing loans are bought and sold on the secondary mortgage market. It is a resale marketplace for existing loans.
What is the primary source of funds for financing mortgages?
Insurance companies Federal savings and loan associations Fannie Mae all of these
Federal savings and loan associations
The bulk of the money for residential mortgages comes from federal savings and loan associations. The money ultimately comes from household savings and deposits that consumers place into the savings and loan associations.
Of the following, which would be a primary purpose of RESPA?
Regulates home loan industry Regulates lenders Regulates credit Requires disclosures made by lenders that make loans for 1-4 unit residences
Requires disclosures made by lenders that make loans for 1-4 unit residences
RESPA requires lenders to provide disclosures to borrowers of 1-4 unit residences.
How is the lender protected from a loss on a purchase-money second trust deed?
Approving the borrower’s creditworthiness The amount that is owed on the second trust deed The equity of the borrower Approving the borrower’s ability to pay
he equity of the borrower
The amount of equity in the real property may be sufficient to pay off the second trust deed.
What loan program would have the lowest closing costs paid by the buyer?
VA loan Conventional loan CAL-VET loan FHA loan
CAL-VET loan
There are no points for CAL-VET loans. FHA or VA loans can have a 1% origination fee where the buyer or seller can pay the points. A conventional loan could have points that are negotiable between the buyers and sellers.
What has the greatest influence on mortgage interest rates?
The conditions set by the FED The condition of the money markets The stock market Buyers and sellers
The condition of the money markets
The availability of money to make loans results from supply and demand in the money markets.
Generally speaking, an escrow agent is authorized to perform which of the following?
Change escrow instructions when the real estate agents asks them to be changed Call for the funding of the buyer’s loan Talk to the buyers about financing options and give advice Authorize termite companies to make repairs
Call for the funding of the buyer’s loan
Within the escrow instructions there is language that allows the escrow agent to call for funding of the buyer’s loan. Termite repairs are typically authorized by the party who will be paying for the repairs, and the escrow agent can only change the escrow instructions with the written agreement of the buyer and seller. The lenders, rather than the escrow company, would usually provide advice to the buyers concerning financing matters with the loan.
During the escrow process the escrow officer receives two pest control reports from two different companies. What should the escrow agent do immediately?
Ask the real estate agent to ask the seller which report to use Use the most favorable (inexpensive) report for the seller Notify the real estate agent and receive written instructions from the buyer and seller as to which report to use Use the most unfavorable (expensive) report for the seller
Notify the real estate agent and receive written instructions from the buyer and seller as to which report to use
The escrow agent should immediately receive instructions from both the buyer and seller as to how to proceed since the escrow agent is the agent for both the buyer and seller.
When does the Uniform Settlement (which is required by the Real Estate Settlement Procedures Act) need to arrive in the mail to the borrower?
Three business days before closing of the transaction One day before closing of the transaction Up to 30 days after the closing of the transaction At, or before the date of settlement
At, or before the date of settlement
It must be delivered to the borrower at, or before the closing.
What’s the best way for the FED (Federal Reserve Board) to create a tight money market?
Sell government bonds and raise the discount rate Buy government bonds Sell government bonds Buy government bonds and sell government bonds
Sell government bonds and raise the discount rate
To tighten the money market, the FED would raise the discount rate and sell government bonds. These two actions would draw money out of the market place, which will make it harder to get loans.
What would provide an investor the best protection against inflation?
Savings account Real property secured by a note Mutual funds Ownership of real property
Ownership of real property
Real property increases in value during a period of inflation.
What does a GPAM mortgage provide?
The ability to take out more money without re applying for a loan The deferment of payments of principal in the beginning period of the loan The ability to make multiple payments each month The ability to repay the loan at any time
The deferment of payments of principal in the beginning period of the loan
GPAM stands for Graduated Payment Adjustable Mortgage. It begins with low payments and then increases over time as the loan matures.
Regulation Z gives the borrower of a loan a 3 day right of rescission when the loan is:
a government backed loan such as a VA or FHA loan a conventional loan secured by the purchase of real property the money borrowed is secured by a deed of a 4 or more-unit apartment building a loan that is secured by a second deed of trust of an owner occupied single family residence when money is borrowed for use of that purchase
a loan that is secured by a second deed of trust of an owner occupied single family residence when money is borrowed for use of that purchase
A first trust deed loan that is used to purchase an owner occupied single family residence usually does not allow for a 3 day right of recession.
An investor who wants to hedge against the erosion of capital caused by inflation would invest money into:
government bonds bond market mutual funds equity interest
equity interest
One who wants protection from the loss of value of the dollar due to inflation would place funds into equity interests.
Regulation Z (Federal Truth in Lending Act) says that the cost of credit on certain loans are expressed as
a bi-monthly percentage rate a monthly percentage rate a daily percentage rate an annual percentage rate
an annual percentage rate
Reg. Z requires lenders to state interest rates as an annual percentage (APR). This is to allow borrowers to shop for the very best rate.
Of the following, all may be in the lender’s monthly impound requirements for a borrower, except:
property insurance prorations mortgage interest prorations property tax proration prorated annual payments for a street improvement act bond
mortgage interest prorations
The interest on a loan is not part of a borrower’s impound account
A trustee has begun the legal process of selling property that is secured by a trust deed once the notice of default is recorded. The trustee must wait 3 months before they can:
convey title to the beneficiary put a lock on the door publish a notice of sale finalize the foreclosure
publish a notice of sale
Once the waiting period has elapsed (3 months after recording the NOD, notice of default) the trustee can publish the notice of sale.
There are services that can be charged to a borrower, according to RESPA (Real Estate Settlement Procedures Act). The buyer or the seller can pay for the following, except:
the loan documents the uniform disclosure or the settlement statements a credit report the appraisals and notary fee
the uniform disclosure or the settlement statements
A lender cannot charge for the preparation of disclosures.
An advertisement on a house that is for sale mentions the annual percentage rate for a home loan to purchase the property. What other information must be included?
The down payment amount Additional disclosures are not required The total amount that will be financed The term of the loan
Additional disclosures are not required
The Truth-in-Lending law states that if only the APR (annual percentage rate) is disclosed in the advertising additional disclosures are not required.
Which of the following statements about the Federal Truth-in-Lending Act is correct?
It limits what lenders can charge It limits how much can be borrowed It provides clarity on how much you can borrow, what the lender will make, and your creditworthiness It provides consumers with information about their loan and the true cost of credit
It provides consumers with information about their loan and the true cost of credit
The purpose of the Federal Truth-in-Lending Act is to show consumers what the true cost of the credit is and give all the information up front, therefore the consumer can make the very best decision based on that information.
What is the lender’s goal when determining whether or not to provide a real estate loan?
The loan to debt ratio Analyzing the chances of a substandard loan becoming a part of their loan portfolio To make the most money possible from each person The ability to pay back
Analyzing the chances of a substandard loan becoming a part of their loan portfolio
A loan that is substandard is more likely to default and a lender wants to avoid taking such a risk.
One of the primary purposes of RESPA is:
sets limits to the price of the settlement costs on 1-4-unit residential property provides the prospective buyer the ability to shop for the very best price standardize closing settlement is easy to read sets limits on costs in the real estate transaction
provides the prospective buyer the ability to shop for the very best price
RESPA requires certain information to be given to the buyer so that they can shop for the very best price for settlement services.
How would a balloon loan be described?
A loan that is fully amortized A loan due on sale A loan that is partially amortized A loan that is due upon sale
A loan that is partially amortized
A balloon loan is a partially amortized loan that is due in full at the end of the term.
With regards to portfolio risk management, lenders would be most concerned about:
liquidity of money any of these diversification of assets reserves on hand
any of these
To minimize risk of a portfolio, lenders will have diverse loans, make them as liquid as possible, and keep a certain amount of reserves on hand.
What does it mean when a lender “calls” a loan?
Gives a phone number so that people can call in to get tips about their loan Accelerates the amount due on the loan Takes all the people who are behind in their mortgage payments to court Calls people who are delinquent to pay up
Accelerates the amount due on the loan
Calling a loan means accelerating the outstanding balance and making the principal and interest due immediately.
A trust deed can have a clause that allows for future loans on the property to have priority. What is this called?
A release clause A assignment clause A subordination clause A balloon payment
A subordination clause
A subordination clause allows for other trust deeds or liens to take priority over the trust deed that has the subordination clause.
Who has the authority to sell real property in a default situation?
trustor to trustee seller to the buyer beneficiary to trustor trustee to trustor
trustor to trustee
In a deed of trust, the trustor (borrower) agrees to and gives the trustee (third party) the power to sell the property given as security for the note, in the event the borrower/trustor has financial troubles and defaults on his payments to the lender.
In comparison to an installment note, an straight note will:
have its total effective interest rate higher than if it was a normal installment loan. have equal principal and interest payments due. have no principal payments due during the term of the loan. It will have interest only installments and then the last payment will be the entire principal payment. all of the above
have no principal payments due during the term of the loan. It will have interest only installments and then the last payment will be the entire principal payment.
A straight note is a note that has no payments due until the end of the loan. Payments of interest may be due during the term of the loan or in some cases the principal and all the interest is due at the same time at the end of the loan. The rate that is charged for interest doesn’t have to be higher.
The Stars entered into a purchase agreement to buy the Smiths’ property. The Stars agreed to take title “subject to” an existing VA loan that the Smiths had when they bought the home. If the sale goes through and the Smiths sell to the Stars, of the following which is true concerning liability for losses that the government can recover in a foreclosure situation?
The Stars would be liable The Star’s would not be liable and the Smiths would not be liable either The Smiths would be liable No one is at fault since title was taken as “subject to” the existing loan
The Smiths would be liable
When a property is sold “subject to” an existing loan, the seller remains primarily liable for the note since they were the one who originally signed for the note.
The supply of real estate loans tends to increase by all of the following, except:
increased desire to provide for retirement deposits into saving accounts go up increased demand for liquid assets national income increases
increased demand for liquid assets
Real estate loans are not as liquid as other assets or investments. Loan funds are increased by the other three examples, not by an increased demand for more liquid assets or investments.
In order to record a contract for real property, it must:
be signed by the seller and acknowledged be signed by the buyer and acknowledged be signed by both the buyer and the seller and must have acknowledgement be notarized only
be signed by both the buyer and the seller and must have acknowledgement
Real property to be recorded at the clerk’s office must be signed by both parties and acknowledged by both of them.
A buyer takes title to a property with the verbiage “subject to” the existing loan and does not receive the lender’s consent. Which of the following are potential outcomes?
The buyer could lose the property in foreclosure if they cannot get new financing The lender can accelerate the loan The seller can be personally responsible All are possible
All are possible
All of these things can happen when the lender finds out that the title of real property is about to transfer.
Real property requires more time to market, requires more care, and comes in larger amounts than securities in the stock market. Therefore, returns on real property should be:
higher than that of bonds or first mortgages about the same as bonds lower than that of bonds or first mortgages equal to the return from a first mortgage
higher than that of bonds or first mortgages
Returns from real property should be higher than the returns you would receive from bonds or first trust deeds.
Concerning a promissory note, which is true?
It is used when real property is sold It is evidence of a debt It is acknowledged when it is recorded It is used to secure a trust deed
It is evidence of a debt
A promissory note is evidence that money is owed from one person to another.
RESPA (Real Estate Settlement Procedures Act) only applies to certain types of property. Which of the following must comply with RESPA?
condominiums and other common interest properties 1-4 family residential dwellings single family homes, owner occupied commercial properties
1-4 family residential dwellings
RESPA rules and regulations apply to loans for 1-4 family residential dwellings.
If a buyer wishes to take title of a residential property “subject to” the existing loan and the lender does not allow the loan to go forward, what are the potential penalties?
The buyer can lose the property if they cannot get other financing, up until the foreclosure of the property all of these The seller may be responsible personally for the amount of the loan and any costs accrued with it The lender can accelerate the loan and payment is due immediately
all of these
All of the above can happen once the lender becomes aware of the transfer of title
“Security interest” means:
packaged mortgages sold in the secondary mortgage market a creditor’s interest in the borrower’s property something of value that is used to buy real property collateral for real property
a creditor’s interest in the borrower’s property
“Security interest” is the creditor’s (lender) right to foreclose on the borrower’s property if the loan is not satisfied or repaid.
Of all the cost associated with purchasing a property under the Federal Truth-in-Lending Act, which is considered a finance charge and must be included in the disclosure statement?
Title insurance fee Escrow fee Assumption fee Document preparation fee
Assumption fee
Assumption fees are considered a finance charge.
Sarah bought 20 acres of land for $40,000 an acre. Sarah placed a down payment of $40,000 for a straight note blanket deed of trust for the remaining balance. The lender agreed, as part of the terms and conditions of the note, that if Sarah makes additional payments of $40,000 towards the principal, the bank would do a partial reconveyance of one acre for each payment. Sarah has made a total of $80,000 in payments and now owns 2 acres free and clear. How has the equity position changed for the encumbered property?
increased decreased Sarah has no equity remains the same (she still owes money to the bank)
increased
Sarah’s equity was $40,000 on a price of $800,000 (20%). As Sarah made additional payments, her equity increased.
Of the following, which would not directly effect change for mortgage interest rates?
National unemployment rate Easy supply of money Supply and demand of money National inflation
National unemployment rate
The unemployment rate may (over a long time) influence the mortgage interest rate, but it would be an indirect effect.
A buyer wishing to get a FHA loan must do all of the following, except:
find the FHA office and apply for an appraisal for the home you want to buy buy a property that meets the requirements for a FHA loan find a lender who will grant the buyer or borrower the FHA loan have a way to pay for the loan, as well as insurance for the property
find the FHA office and apply for an appraisal for the home you want to buy
A buyer who wishes to use a FHA loan for the purchase of a property must find a lender who loans FHA approved loans, find a property that meets the FHA requirements, be able to pay for the mortgage, and maintain insurance for the property.
A tight money policy implemented by the FED (Federal Reserve System) would have the net effect of increasing the:
first trust deed for financing real estate transactions use of secondary trust deed financing for real estate purchases amount of single family homes available supply of money available for new construction and development
use of secondary trust deed financing for real estate purchases
A tight money policy would tighten up the amount of money available to lend and more individuals would use secondary trust deeds in order to fund their real estate transactions.
Capital turnover in real estate investments is:
average with the stock market slower than the average commodity average with commodities faster than the average commodity
slower than the average commodity
Real estate investments are held for a longer time than other type of investments.
In real estate finance, the term “beneficiary statement”:
is made by the title company and refers to the value of the title policy. refers to the current balance due to the lender and the pay off amount. refers to the property owner stating the benefits of owning the property defines who will get the property in the event that the owner dies
refers to the current balance due to the lender and the pay off amount.
A beneficiary statement is used by the lender to show the payoff amount of a loan.
What is one of the unique features of a VA loan?
never more than 6% of the CRV low down payment no down payment high down payment
no down payment
VA loans have no down payment
Which of the following would pay a premium for mutual mortgage insurance?
homeowner who assumed a FHA loan homeowner who has conventional loan from a life insurance company Cal-Vet loan a homeowner who insures their personal property with insurance
homeowner who assumed a FHA loan
A buyer who uses a FHA loan will pay .5% per year based on the amount of the loan for an insurance premium.
How is the Federal Housing Administration different from other lending institutions?
FHA insures loans, it doesn’t make loans FHA has longer terms for the length of the loan FHA loans to elite members of society only FHA offers better rates
FHA insures loans, it doesn’t make loans
The FHA insures the loans that lenders make. The FHA does not make loans.
A single family home is being sold and the new buyer will be assuming the existing loan. In order for the new buyer to assume the loan without any penalties, what should the real estate agent check to make certain that this is not included with the loan?
A condition precedent A blanket mortgage A subrogation clause An acceleration clause
An acceleration clause
A loan that has an acceleration clause would make the loan due in full upon alienation of the title and this would not allow the loan to be assumed by someone else.
Of the following which is the truer statement about the activities of a mortgage company?
They never service the loans they fund They keep and service the loans they fund They never fund a government backed loan They prefer to fund loans that can be sold in the secondary market
They prefer to fund loans that can be sold in the secondary market
Mortgage companies will often fund a loan that can be sold into the secondary market.
Truth-in-Lending says consumers must be informed of credit terms by:
the real estate agent the broker the escrow company the lender
the lender
The lender must inform the buyer of the credit terms.
A loan that is secured by real property of 1-4 units must comply with RESPA rules and regulations if made by:
lenders whose deposits are insured by a government entity the seller of the property who carries back the note for the buyer and is secured with a first deed of trust a private money lender none of these
lenders whose deposits are insured by a government entity
This law only applies to federally regulated institutions.
Concerning the relationship between an effective and nominal interest rate, which of the following is correct?
The effective interest rate is paid by the borrower for the use of the money and the nominal rate is a rate specified within the note none of these The effective interest rate is typically lower and the nominal rate includes closing costs The effective rate will be charged to a buyer and the nominal rate is the rate that is referred to in the loan documents
The effective interest rate is paid by the borrower for the use of the money and the nominal rate is a rate specified within the note
The nominal rate is the rate stated on the note, and the effective rate is the rate that is actually paid and is typically higher because it contains the points (fees).
On August 1, 2011, William agreed to purchase Harry’s home. Both parties agreed that possession would be transferred on September 30, 2011, and that the property taxes on the property would be prorated as of the date of possession. On November 1, 2011, William paid the property taxes for the tax year 2011-2012. According to the closing escrow statement, which of the following would be true:
William paid Harry for 3 months of taxes Harry paid William for 9 months of taxes Harry paid William for 3 months of taxes William paid Harry for 9 months of taxes
Harry paid William for 3 months of taxes
The property tax year runs from July 1 to June 30 and since Harry had use of the property between July and September 2011, he would owe William for 3 months of taxes.
Who pays the points on a CAL VET loan?
buyer seller lender no one
no one
There are no points for a CAL VET loan. The Department of Veterans Affairs purchases the property then resells it to the qualifying veteran with a land contract.
A straight note with the same term and interest rate would
have less interest than an installment note including interest have more interest than an installment note have the same amount of interest as an installment note plus interest none of these
have more interest than an installment note
A straight note has more interest than installment notes.
A partial release clause is used in conjunction with:
a construction loan a single family home with a first and second trust deed a blanket mortgage an installment contract
a blanket mortgage
A blanket mortgage is a loan secured by more than one piece of land. When part of the loan is paid off, parts of the property can be reconveyed or released.
Lots of things can be prorated in real estate during the escrow process. Which of the following would be something buyers and sellers would agree to prorate during the sale process using escrow?
fees for title and escrow rent the cost to prepare the country transfer tax termite and dry rot work that needs to be completed
rent
The seller would be entitled to any rent from the property up to the close of escrow; the buyer would be entitled to the rent thereafter.
When using a purchase money trust deed, the trustor:
receives a note for the amount borrowed signs the trust deed as security for the loan lends money for the purchase of real property gives the money and no payment is needed
signs the trust deed as security for the loan
The trustor signs the trust deed, and will typically also sign the promissory note.
Which of the following best describes equity?
all of these A down payment on a property. The periodic repayments of the amount owed on a loan, minus the total loan amount. The value a property owner has in the property, minus any liens against it.
all of these
Equity can be described by any of the ways above.
What is the best way to describe the function of a mortgage company?
short term credit and limiting the loans they carry in their portfolio to equal the amount of deposits they have on hand purchase loans in the secondary market with the idea of holding the loans until maturity pay higher amounts for savings and deposits to drive and promote savings. Their goal is to acquire vast amounts of real estate mortgages part of the money market acting as a conduit for other lenders, they originate and service loans, however do not hold the loans themselves in their own portfolio
part of the money market acting as a conduit for other lenders, they originate and service loans, however do not hold the loans themselves in their own portfolio
Mortgage companies originate loans then sell them off to other lenders, but retain the servicing of the loan.
The measure of goods and services produced by the nation in one calendar year is known as:
gross national index inflation gross national product economic conditions
gross national product
Definition of gross national product
When real property is sold, escrow will be used in order to:
make sure laws are followed make sure all of the conditions and terms are met before the transaction closes be a 3rd party witness for the transaction make sure the real estate agent gets paid
make sure all of the conditions and terms are met before the transaction closes
Escrow makes certain that all of the details of the transaction are complete before the deal closes.
How can the Federal Reserve Board increase the supply of money and credit in the economy?
Any of these Lower the cash reserves required for banks that are part of the Federal Reserve Bank System Raise the discount rate charged to banks what are part of the Federal Reserve Bank System Increase the reserve requirements for banks that are part of the Federal Reserve Bank System
Lower the cash reserves required for banks that are part of the Federal Reserve Bank System
When the Federal Reserve Board lowers the reserve requirements for banks, it allows for more money to flow into the economy.
How would an existing seller’s mortgage that is assumed by a buyer appear on the closing statement?
a credit to the seller a credit to the buyer a debit to the seller a debit to the buyer
a debit to the seller
A seller’s mortgage that assumed by a buyer shows up against the seller’s proceeds and does not relieve the original mortgagor (original borrower) from their financial liability.
Of the following which would show up on the seller’s closing statement as a credit?
commission to the agents proration of prepaid taxes proration of prepaid rent payoff of an existing loan
proration of prepaid taxes
When the seller paid taxes that go beyond the close of escrow, the difference would show up as a credit in their closing statement.
Of the following, which is a cost of home ownership?
Loss of interest of the owners’ equity Approbation of improvements made to the real property Appreciation of the land Appreciation of rental costs
Loss of interest of the owners’ equity
If the owner loses the interest that they earned from the equity of the property, this would be a cost of ownership.
According to the Real Estate Settlement Procedures Act, when a lender makes a loan they must first provide:
a good faith estimate the closing costs only a mortgage fee only a credit score
a good faith estimate
RESPA requires the lender (within 3 days) to deliver to the loan applicant a good faith estimate which shows the estimated closings costs associated with the loan.
When a borrower is interested in applying for a FHA loan, which of the following would be able to assist them?
the mortgagee the real estate agent the broker the FHA directly
the mortgagee
A person who wants to use a FHA loan to finance the purchase of real property would apply to a lender (bank, savings and loan). They would be the mortgagee or beneficiary.
Who can execute escrow instructions?
sellers 3rd parties buyers all of these
all of these
All three can execute escrow instructions.
During the loan application process a lender would gather information about the borrower, the loan, and the property to make a:
true cost of credit appraisal loan commitment credit score
loan commitment
The loan commitment includes all the information about the borrower, the loan, and the property.
What is the vacancy rate (under normal conditions) a result of?
supply and demand of the housing market employment numbers rental costs in the immediate area cost of money in the free market
supply and demand of the housing market
Housing supply fluctuations will have a direct effect on vacancy rates.
