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Flashcards in Briefing Exam 4 Deck (256):
1

1. The term "Secondary Market," as used in financing, refers to:

a. second loans
b. transferring of loans by mortgagors
c. transferring of loans by mortgagees
d. transferring of loans by sellers

c. transferring of loans by mortgagees

Broadly speaking, mortgage markets are classified as "primary" and "secondary." A secondary market is one in which existing mortgages are bought, sold, or borrowed against. The mortgagee (lender) transfers the loan.

2

2. The source of money for most home loans by institutional lenders is:

a. bonds
b. business profits
c. government funds
d. individual and family savings

d. individual and family savings

An institutional lender is a financial institution such as a bank, insurance company, savings and loan association, or any lending institution whose loan is regulated by law. Such institutions invest depositors' and customers' money.

3

3. Which of the following would NOT be illustrative of an institutional lender?

a. insurance company
b. savings and loan
c. commercial bank
d. mortgage company

d. mortgage company

Institutional lenders are those lenders who lend their own money. A mortgage company usually does not lend its own money, but rather acts in most cases as the representative of an institutional lender. They are sometimes referred to as "loan correspondents" or "loan brokerage firms."

4

4. When comparing mortgage bankers and mortgage brokers, which of the following is true?

a. both deal exclusively in the primary mortgage market
b. mortgage bankers usually lend their own funds, while mortgage brokers arrange loans
c. Both are corporations
d. All of the above

b. mortgage bankers usually lend their own funds, while mortgage brokers arrange loans

A mortgage banker is a person, corporation or firm that normally provides it's own funds for mortgage financing. A mortgage broker is a person or firm that acts as an intermediary between borrower and lender who negotiates, sells or arranges loans and sometimes continues to service the loans (also called a loan broker).

5

5. A broker negotiated a loan for a buyer. He will need to prepare a:

a. Mortgage Loan Disclosure Statement
b. Real Estate Transfer Disclosure Statement
c. Good Faith Estimate
d. Natural Hazard Disclosure Statement

a. Mortgage Loan Disclosure Statement

A person who acts as a Mortgage Loan Broker and negotiates a loan for which a license is required, and for compensation, which is secured directly or collaterally by a lien on real property, regardless of the size of the loan, must deliver a written disclosure statement to the borrower. The statement must be delivered within three business days of receipt of the borrower's written loan application, or before the borrower becomes obligated to the loan, whichever is earlier. This is true whether the loan is being processed manually or electronically.

6

6. Which of the following is a general difference between individual and institutional lenders?

a. individuals make larger loans than institutional lenders
b. individuals charge lower interest rates
c. individual lenders give loans for shorter terms
d. individual lenders do not undertake foreclosure proceedings

c. individual lenders give loans for shorter terms

Loans made by individual lenders are usually for a shorter loan term. Private individuals are the primary source of secondary financing.

7

7. Which of the following lenders invest more heavily in single-family home loans?

a. savings and loan associations
b. commercial banks
c. insurance companies
d. individuals

a. savings and loan associations

Savings and loan associations, also known as "thrifts," formerly accounted for more home loans than any other source. The distinction between banks and S&Ls has disappeared since deregulation, and all S&Ls have become banks.

8

8. From which of the following could you most likely secure the greatest amount of money for the longest period of time?

a. private lender
b. insurance company
c. savings and loan
d. commercial bank

b. insurance company

Insurance companies lend the largest amounts for the longest time.

9

9. A home owner would be least likely to obtain a $50,000 home improvement loan from a(n):

a. savings and loan association
b. credit union
c. commercial bank
d. insurance company

d. insurance company

In general, life insurance companies make conventional loans on most types of properties, but usually not on single family homes.

10

10. Commercial banks are interested in liquidity and marketability of their loans. Which of the following loans would they prefer?

a. secondary money market
b. short-term
c. long-term
d. home improvement

b. short-term

Liquidity means assets that can be turned into cash quickly. Since short term loans pay off quickly, the lender has access to a ready cash reserve.

11

11. A construction loan would most likely be made by a(n):

a. bank
b. insurance company
c. private individual
d. mortgage broker

a. bank

Commercial banks typically prefer short term, high interest rate construction loans.

12

12. The Federal National Mortgage Association (FNMA) was primarily created to:

a. increase the availability of secondary financing
b. standardize construction guidelines
c. serve as a secondary mortgage market
d. subsidize low income housing

c. serve as a secondary mortgage market

The Federal National Mortgage Association (Fannie Mae) was originally organized to create a secondary market in mortgage loans.

13

13. The primary activities of FNMA in the secondary market involves:

a. FHA loans only
b. all types of real estate loans
c. government insured and guaranteed loans
d. second mortgages and trust deeds up to $20,000

c. government insured and guaranteed loans

The Federal National Mortgage Association (Fannie Mae) was originally organized to create a secondary market in mortgage loans. The primary activities of the agency involve FHA Title II loans (insured) and VA loans (guaranteed).

14

14. The functions of Ginnie Me include all of the following EXCEPT:

a. guarantee for mortgage backed securities
b. special programs for low-interest home loans
c. liquidation of government owned mortgages
d. insuring home loans

d. insuring home loans

The Government National Mortgage Association (Ginnie Mae) is an agency under HUD that guarantees securities sold and issued by Fannie Mae. Gone Mae does not insure loans.

15

15. Which of the following statements is TRUE?

a. Fannie Mae provides a secondary mortgage market for FHA and VA loans
b. Fannie Mae is a prive corporation
c. Ginnie Mae funds federally assisted housing projects and guarantees FNMA securities
d. All of the above

d. All of the above

Choices a, b and c are all true statements.

16

16. A purchaser of a home five years ago is now interested in securing an FHA loan. A salesperson would most likely introduce the homeowner to:

a. a conventional bank or savings & loan
b. an appraiser
c. the FHA
d. the Federal Home Loan Bank

a. a conventional bank or savings & loan

The FHA insures the loan but does not actually lend the money. This would most likely occur through a conventional lender.

17

17. Which would most likely pay a premium for mutual mortgage insurance?

a. the homeowner who assured an FHA loan
b. a buyer with a Cal-Vet loan
c. a home buyer with a conventional loan from a life insurance company
d. a home buyer who wants to insure real and personal property

a. the homeowner who assured an FHA loan

Mutual Mortgage Insurance (MMI) is mandatory on all FHA loans.

18

18. All of the following are considered advantages of FHA financing EXCEPT:

a. low down payment
b. long-term loans with lower payments
c. easy to qualify for
d. buyer is protected with FHA insurance

d. buyer is protected with FHA insurance

The FHA neither builds homes nor lends money directly, rather it insures loans on real property. Should the homeowner default on the mortgage, the lender is protected, not the buyer.

19

19. Mutual Mortgage Insurance is paid for by:

a. the buyer under an FHA loan
b. the buyer under a VA loan
c. the buyer under a Cal-Vet loan
d. all of these

a. the buyer under an FHA loan

MMI is paid by the purchaser (buyer) under an FHA loan.

20

20. Title 1 FHA loans are for:

a. purchases of homes only
b. property improvement loans
c. purchases of multiple units
d. none of these

b. property improvement loans

Titile 1 FHA guidelines authorize insurance of repair and improvement loans.

21

21. All of the following are characteristics of FHA loans EXCEPT:

a. for housing only
b. guarantees loans
c. insures loans
d. high loan-to-value ratio

b. guarantees loans

The FHA does not guarantee loans, rather it insures loans on real property.

22

22. Which of the following would not require a down payment?

a. Cal Vet
b. FHA
c. VA
d. Conventional

c. VA

VA loans can be made with no down payment required. The other financing programs generally require a down payment.

23

23. Which of the following requires a CRV?

a. VA
b. FHA
c. Cal-Vet
d. all of these

a. VA

A Certificate of Reasonable Value (CRV) is issued by the Department of Veterans Affairs setting forth a properties current market value estimate, based on a VA appraisal. The CRV places a ceiling on the amount of a VA guaranteed loan allowed for a particular property.

24

24. All of the following are characteristics of VA loans EXCEPT:

a. used for housing or farm property
b. lower interest rates than conventional loans
c. ok to use for the purchase of rental units
d. guaranteed by the VA

c. ok to use for the purchase of rental units

VA loans can be made for a home, farm, or business. If the loan is for a home it must be for personal use, not rental purposes.

25

25. What distinguishes VA loans from FHA and other loans?

a. no points
b. maximum loan of $100,000
c. down payment determined by CRV
d. no down payment

d. no down payment

VA loans can be made with no down payment.

26

26. A veteran may purchase a home under Cal Vet by a:

a. contract of sale
b. trust deed
c. mortgage
d. any of these

a. contract of sale

The property the veteran wishes to buy is purchased by the Department of Veteran's Affairs and in turn, re-sold to the veteran on a Land Contract of Sale.

27

27. The government actually lends the money for a(n):

a. FHA loan
b. Cal-Vet loan
c. VA loan
d. all of these

b. Cal-Vet loan

The Department of Veteran's Affairs buys the property and then sells it to they veteran on a Land Contract of Sale.

28

28. Which of the following hold title under a Cal-Vet loan?

a. tustor
b. buyer
c. Veterans Administration
d. State of California

d. State of California

Cal-Vet loans are administered by the California Department of Veterans Affairs (CDVA). CDVA buys the selected property from the seller and resells the property to the veteran on a land contract.

29

29. A veteran is eligible to use either the VA program of the DVA program in purchasing his owner occupied house. In which of these programs would the governmental body retain legal title to the house?

a. VA
b. DVA
c. the buyer would have title regardless of which program he used
d. the VA and DVA both retain legal title

b. DVA

This is a CAL vet loan. Buyer is buying the property using a land contract. DVA retains title until the veteran pays off the loan.

30

30. Under which of the following yes of financing is the borrower required to purchase term life insurance?

a. conventional
b. VA
c. FHA
d. Cal-Vet

d. Cal-Vet

A veteran is required to secure life insurance under the Cal-Vet Home Protection Plan.

31

31. Upon full repayment of a Cal-Vet loan, the borrower receives a:

a. new loan commitment
b. reconveyance deed
c. grant deed
d. quitclaim deed

c. grant deed

The CDVA holds title until the veteran has repaid the amount owed. Upon repayment, title is conveyed to the veteran in the form of a grand deed.

32

32. Funds for Cal-Vet loans come from:

a. state bonds
b. property taxes
c. surplus funds
d. federal grants

a. state bonds

Funds for Cal-Vet loans come from voter approved State General Obligation Bonds and Revenue Bonds issued by the legislature.

33

33. Why would a lender be interested in making a government-insured or government-guaranteed loan over a traditional conventional loan?

a. faster repayment
b. lower risk
c. easier qualification
d. faster foreclosure

b. lower risk

A government guarantee or government insurance lowers the risk for the lender.

34

34. Which of the following would have the least impact on evaluating a man's income for a loan?

a. his spouse's income
b. stock investments
c. overtime earnings
d. salary from second job

c. overtime earnings

Since overtime is typically sporadic, it is of least concern to the lender.

35

35. The ratio of a loan's principal to the property's appraised value is called the:

a. income to value ratio
b. loan to value ratio
c. loan to appraisal ratio
d. payment to loan ratio

b. loan to value ratio

The loan to value ratio is the percentage of a property value that can or may loan to a borrower. For example, if the ratio is 87%, this means that a lender may loan 87% of the property's appraised value to a borrower. For instance, if someone borrows $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000 to $150,000 or $130,000/$150,000, or 87%. The remaining 13% represent the lender's haircut, adding up to 100% and being covered from the borrower's equity. The higher the LTV ratio, the riskier the loan is for a lender.

36

36. A low loan-to-value ratio indicates:

a. use of government financing
b. a low down payment
c. a large down payment
d. the presence of government insurance

c. a large down payment

A large down payment by the borrower would lower the loan to value ratio.

37

37. From the lenders perspective, a large down payment:

a. reduces the possibility of default
b. makes it more likely that the property will be properly maintained
c. streamlines the loan qualification process
d. all of the above

d. all of the above

Most lenders realize that the greater the equity a borrower has in a property, the less inclined he or she will be to default and lose the property through foreclosure. This should also encourage the borrower to keep the property in good shape. A large down payment usually streamlines the loan qualification process.

38

38. A buyer has a monthly gross income of $5,000, total mortgage payments of $1,171, and total long-term debts of $325 per month. The front end ratio is:

c. 23%
b. 28%
c. 30%
d. 36%

c. 23%

Lenders use the monthly payment on a property in determining a borrower's qualifications. This is in the relationship between the total mortgage payment and the monthly gross income called the "front end" ratio. The payment includes principal and interest, property taxes, and insurance (commonly referred to as PITI). The formula is: mortgage payment/gross income = front end ratio. $1,171/$5,000 = 23%.

39

39. A buyer has a monthly gross income of $5,000, total mortgage payments of $1,171, and total long-term debts of $325 per month. The back end ratio is:

a. 23%
b. 28%
c. 30%
d. 36%

c. 30%

Lenders also take into account the borrower's long term debt for loan qualification purposes. This is the relationship between the borrower's long term debt payments and the monthly income called the "back end" ratio. The formula is: total monthly expense/gross income = back end ratio. In this question, long term debts total $325 per month, which, added to the mortgage payment of $1,171, gives us the total monthly expense of $1,496. $1,496/$5,000 = 30%

40

40. Regarding a promissory note:

a. a promissory note secures the deed of trust
b. the deed of trust secures the promissory role
c. the promissory note is not part of the deed of trust
d. the grant deed secures the promissory note

b. the deed of trust secures the promissory role

The deed of trust secures the promissory note and the property. If payment is not made according to the terms of the note and deed of trust, the beneficiary may instruct the trustee to foreclosure as set forth in the deed of trust.

41

41. Which of the following is TRUE concerning promissory notes?

a. they are used as security trust deeds
b. they are recorded at the county recorder's office
c. they are always used when real estate is sold
d. the are the evidence of the debt

d. the are the evidence of the debt

The promissory note is the evidence of the debt. The trust deed is the security (or more incidence) of the debt.

42

42. A promissory note that provides for payment of interest only during the term of the note is a(n):

a. straight note
b. installment note
c. amortized note
d. non-negotiable note

a. straight note

A straight note is defined as one in which payments of interest only are made periodically during the term of the note, with the principal payment due in one lump sum upon maturity.

43

43. Why would the payor consider a straight note over an amortized note?

a. to collect maximum interest
b. to make minimum monthly payments
c. to put working capital back into his/her business
d. none of the above

b. to make minimum monthly payments

Since a straight note is an interest only note, the monthly payments would be smaller because there is no payment of principal. The drawback is a potential balloon payment at maturity.

44

44. A loan to be completely repaid, principal and interest, by a series of regular equal installments is a:

a. straight note
b. balloon payment loan
c. fully amortized note
d. variable rate mortgage loan

c. fully amortized note

Amortization is the gradual repayment or resting of a debt by means of systematic payments of principal and/or interest over a set period, so that at the end there is a zero balance.

45

45. When a loan is fully amortized by equal monthly payments of principal and interest, the amount applied to principal:

a. and interest remain constant
b. decreases while the interest payment increases
c. increases while the interest payment decreases
d. increases by a constant amount

c. increases while the interest payment decreases

Amortization is the gradual repayment or retiring of a debt bemoans of systematic payments of principal and/or interest over a set period, so that at the end there is a zero balance.

46

46. A loan that requires a balloon payment at its maturity is called a(n):

a. partially amortized loan
b. fully amortized loan
c. amortized loan
d. hard money loan

a. partially amortized loan

Under a partially amortized loan, the balance at maturity has only been partially reduced. The remaining balance due at maturity is referred to as a balloon payment.

47

47. A mortgage is a:

a. loan secured by collateral of real property
b. loan secured by the credit rating of the borrower only
c. loan without collateral to secure the loan
d. three party instrument with power of sale

a. loan secured by collateral of real property

A mortgage is an instrument recognized by law by which property is pledged as security for the loan without the necessity of giving up possession of it.

48

48. With a mortgage, who signs the note?

a. trustee
b. beneficiary
c. mortgagor
d. mortgagee

c. mortgagor

The mortgagor (borrower) signs the note.

49

49. Mortgages and deeds of trust differ in every respect EXCEPT:

a. security
b. parties
c. statute of limitations
d. title

a. security

The property is security for a loan under both a mortgage and deed of trust. A mortgage has two parties while a trust deed has three. A mortgage promises the title --- a trust deed conveys legal title from the truster to trustee.

50

50. The beneficiary of a trust deed is usually a:

a. Realtor
b. borrower
c. bank
d. trustee

c. bank

In a trust deed, the beneficiary is the lender (usually a bank).

51

51. Mortgages and trust deeds are both considered:

a. three-party documents
b. real property
c. personal property
d. mortgage release

c. personal property

Both a mortgage and trust deed are considered personal property.

52

52. A document used by the mortgagee when a mortgage is paid in full is called a:

a. deed of reconveyance
b. certificate of fulfillment
c. satisfaction of mortgage
d. mortgage release

c. satisfaction of mortgage

A satisfaction mortgage is a certificate issued by the mortgagee when a mortgage is paid in full. It describes the mortgage, recites where it is recorded and certifies that it has been paid and that the mortgagee consents that it be discharged of record.

53

53. The first step a mortgagee would take to foreclosure on a mortgage would be to:

a. initiate court action
b. publish a notice of default
c. hold a public auction
d. pay off the loan

a. initiate court action

In the event of the mortgagor's default before final payment, the mortgagee's remedy is judicial (court-ordered) foreclosure. The mortgagee's first step would be to initiate the court action.

54

54. Naked legal title is held by the;

a. trustor
b. trustee
c. beneficiary
d. lender

b. trustee

A trustee in a deed of trust holds naked legal title to a secured property. Naked legal title is only such title as is needed to carry out the terms of the lien document, and is lacking the usual rights and privileges of ownership.

55

55. The truster under a trust deed is the party who:

a. signs the note as maker
b. holds the title to the property
c. acknowledges the note for recording
d. lends the money

a. signs the note as maker

The trustor is the borrower under a deed of trust and is the one who signs the note and deed of trust.

56

56. Under the "power of sale" clause in a trust deed, the authority to sell is placed with the:

a. County Sheriff by court order
b. clerk of the County Court by court order
c. trustee by trustor
d. beneficiary by trustee

c. trustee by trustor

A power of sale clause is found in a trust deed where the trustor gives the trustee authority to sell the trust property under certain circumstances.

57

57. Which of the following would be security for note and deed of trust?

a. credit of borrower
b. value of property
c. stability of the money market
d. all of these

b. value of property

The value of the property serves as a security for a note and deed of trust.

58

58. Default in a mortgage may be caused by:

a. failure to pay taxes
b. failure to maintain insurance
c. failure to make payments
d. all of the above

d. all of the above

A default is generally defined as nonperformance of a duty or obligation that is part of a contract.

59

59. Which of the following gives the most protection to a property owner in default?

a. mortgage
b. trust deed
c. second trust deed
d. land contrace

a. mortgage

The one year redemption period under a mortgage gives the greatest protection to the owner.

60

60. A document used to transfer legal tittle from the trustee back to the borrower (truster) after the debt has been repaid is called a:

a. quitcaim deed
b. deed of reconveyance
c. payoff deed
d. deed of confirmation

b. deed of reconveyance

A deed of reconveryance is used to transfer legal title from the trustee back to the borrower (truster) after a debt secured by a deed of trust has been paid to the lender (beneficiary).

61

61. Total foreclosure time under a trust deed most nearly approaches:

a. one year
b. 18 months
c. three months
d. four months

d. four months

A three month reinstatement period plus 20 days advertising of the sale by publishing the Notice of Sale.

62

62. A trust deed foreclosed as a mortgage would be foreclosed by:

a. municipal court
b. superior court
c. court of appeals
d. none of these

b. superior court

A deed of trust may be foreclosed upon by judicial proceedings in superior court.

63

63. During the one-year redemption period of a mortgagor in default:

a. the mortgagee can sue for rent
b. the mortgagee is not entitled to possession
c. both (a) and (b)
d. neither (a) or (b)

c. both (a) and (b)

The redemption period is a period of time established by state law during which a property owner has a right to redeem real estate after a judicial foreclosure by paying the sales price, interest and costs.

64

64. After a trustee's sale, there is money left over after paying the beneficiary of the first trust deed. This money would go first to the:

a. trustor
b. beneficiary of the second
c. state
d. beneficiary of the first

b. beneficiary of the second

A deficiency occurs hen the foreclosure sale of a property produces less than the amount needed to pay the costs and expenses of the action and to pay off the balance of the loan. The parties to the transaction are paid in order of their priority.

65

65. Proceeds from a trustee's sale go to the:

a. costs of sale first, then first lien holder, then junior lien holders, with the balance to the truster
b. first lien holder, with the balance to junior lien holders
c. costs of sale first, with the balance to the beneficiary
d. none of the above

a. costs of sale first, then first lien holder, then junior lien holders, with the balance to the truster

Costs and expenses of the action are paid first, then the sprites to the transaction are paid in order of their priority.

66

66. A deficiency judgment is possible:

a. where foreclosure is by sale
b. where foreclosure is by court action
c. on a purchase money mortgage
d. all of these

b. where foreclosure is by court action

A deficiency judgment is a judgment against a borrower of rat balance of a debt owed when the security for a loan is insufficient to satisfy the debt. A deficiency occurs when the foreclosure sale of a property produces less than the amount due on the loan. In California, a mortgagee cannot recover a deficiency judgment on a purchase money loan. In those states where mortgagees generally carry a "power of sale," creditors must bring a separate action to obtain a deficiency judgment.

67

67. A first trust deed can be distinguished from a second trust deed by:

a. the way the documents look
b. the specifics of the note
c. the time and date of recording
d. none of these

c. the time and date of recording

The time and date of recording establishes the priority of the lien. The first trust deed would have an earlier time and date of recording.

68

68. Upon receiving notification of default on the first trust deed, the holder of a second trust deed would most likely:

a. wait until the sale to buy the property at a bargain price
b. redeem the first mortgage and foreclose under the second
c. foreclosure on the first to eliminate the second
d. none of the above

b. redeem the first mortgage and foreclose under the second

In the event of default under the first trust deed, the holder of a second trust deed can elect to make the trustor's payments and thereby stop foreclosure. The junior lien holder may then foreclose on his or her own lien and take title subject to prior liens. If the junior lien holder does nothing, he/she will have to bid cash for the purchase price at the foreclosure sale or risk losing out completely, since foreclosure wipes out all junior liens. This is an inherent risk associated with junior loan.

69

69. A request for notice of default would be of most help to the:

a. beneficiary of a second trust deed
b. trustor
c. beneficiary of a first trust deed
d. trustee

a. beneficiary of a second trust deed

Since foreclosure wipes out all junior liens, the holder of a junior lien should request the recording of a request for notice of default announcing that a default has occurred.

70

70. Mr. Johnson agrees to assume a trust deed from Mr. Jones. Which of the following is correct?

a. Mr. Johnson is solely liable
b. Mr. Johnson is primarily liable and Mr. Jones would remain secondary liable
c. Mr. Jones would remain primarily liable
d. Mr. Johnson and Mr. Jones would agree to liability

b. Mr. Johnson is primarily liable and Mr. Jones would remain secondary liable

When the buyer agrees to assume the seller's liability on a trust deed, the seller (Mr. Jones) would remain secondarily liable on the loan unless there is a substitution of liability, which would relieve the seller of all liability.

71

71. The relationship of the truster to the beneficiary in a deed of trust is comparable to:

a. grantor to grantee
b. lessor to lessee
c. optionor to optionee
d. borrower to lender

d. borrower to lender

The relationship of the trustor to the beneficiary is similar to the borrower/lender relationship in that the mortgagees (lender) extends credit to the mortgagor (borrower). Memory Aid: The "OR" gives something of value to the "EE" in exchange for money.

72

An "assignment of rents" clause in a trust deed benefits the:

a. trustor
b. trustee
c. beneficiary
d. buyer

c. beneficiary

An assignment of rents clause in a trust deed is an agreement between the trustor (property owner) and the beneficiary by which the beneficiary receives, as security, the right to collect rents from the trustor's tenants.

73

73. The Real Estate Settlement Procedures Act provides for violation penalties of:

a. a fine of up to $10,000
b. up to one year in jail
c. loss of real estate license
d. both a and b

d. both a and b

Violation of RESPA may result in a monetary fine and/or jail time.

74

74. RESPA would apply to:

a. first mortgages
b. second mortgages
c. commercial loans
d. loans of a five unit apartment complex

a. first mortgages

RESPA applies to federally related first mortgagees for the purchase of one to four residential units.

75

75. Which of the following laws applies to federally related transactions?

a. RESPA
b. Holden Act
c. ECOA
d. Truth in Lending Act

a. RESPA

RESPA applies when the purchase of a one to four family residential dwelling is financed by a federally related mortgage loan.

76

76. A broker mentioned the APR in one of his ads but did not include any other financing terms. This ad was:

a. ok under RESPA
b. a RESPA violation
c. a violation of Regulation Z
d. a violation of the Truth in Lending Act

a. ok under RESPA

If the advertisement contains certain "triggering terms," then the ad must also contain other credit terms. If only the Annual Percentage Rate (APR) is disclosed in an ad, additional disclosures are NOT required.

77

77. An agent places an ad in the newspaper saying that he will give $50 to anyone who sells or buys a property through him. Which of the following is TRUE?

a. the broker cannot give $50 to the buyer or seller
b. the broker cannot give $50 to the buyer only
c. this would violate the real estate law concerning compensation of unlicensed persons performing real estate acts
d. the agent can give $50 to the buyer or seller

d. the agent can give $50 to the buyer or seller

The agent can five a monetary incentive to prospective clients as long as a full disclosure is made to all parties to the transaction.

78

78. Which of the following is the purpose of the Federal Truth in Lending Act?

a. to limit interest rates
b. to regulate fees charged by lenders
c. to assure a meaningful disclosure of credit terms
d. all of the above

c. to assure a meaningful disclosure of credit terms

The purpose of the Federal Truth In Lending Act is to assure consumers that they are provided information on the costs of credit by disclosing credit terms.

79

79. The right of rescission under truth in lending would apply to a(n):

a. home equity loan
b. agricultural loan
c. purchase money loan
d. none of these

a. home equity loan

The borrowers rescission rights apply on non business loans only.

80

80. Deregulation of financial institutions most nearly means:

a. government controls no longer apply to financial institutions
b. the amount of interest paid on savings accounts is no longer regulated
c. financial institutions can no longer respond to market conditions
d. examining the enforcement responsibilities of regulators have been relaxed

b. the amount of interest paid on savings accounts is no longer regulated

Under deregulation, financial institutions may now pay any amount of interest on deposits.

81

81. When the Federal Reserve Board wants to tighten the money supply, it would:

a. raise the amount of reserves required for member banks
b. raise the discount rate for member banks.
c. sell government bonds or treasury bills on the open market
d. all of the above

d. all of the above

The Federal Reserve Board (Fed) would take all of the above actions to curb inflation.

82

82. During periods of tight money:

a. interest rates go down
b. interest rates stay the same
c. interest rates go up
d. none of these

c. interest rates go up

A tight money market is an economic situation in which the supply of money is limited and the demand of money is high. Due to the economic forces of supply and demand, interest rates typically go up during a period of tight money.

83

83. Who enforces the Truth in Lending Act?

a. local government
b. state governor
c. Federal Trade Commission
d. Fair Housing Administration

c. Federal Trade Commission

The Federal Trade Commission is in charge of enforcing the Truth in Lending Act (Regulation Z).

84

84. The clause in mortgage note which permits the lender to declare the unpaid balance due and payable upon default by the borrower is called a(n):

a. defeasance clause
b. acceleration clause
c. due on sale clause
d. none of these

b. acceleration clause

An acceleration clause is a provision in a mortgage, trust deed, promissory note or land contract that, upon the occurrence of a specified event, gives the lender the right to call all sums due and payable in advance of the fixed payment term.

85

85. To subordinate means to:

a. subrogate
b. sell
c. lease
d. be secondary

d. be secondary

Subordinate means to occupy a lower position in a regular descending series.

86

86. A release clause associated with a blanket mortgage is a provision which:

a. causes the first loan to become subordinate to junior loans
b. bridges the interim financing
c. releases a portion of property covered by the blanket encumbrance when certain conditions are met
d. all of the above

c. releases a portion of property covered by the blanket encumbrance when certain conditions are met

This is referring to a partial release clause which enables the mortgagor to obtain partial releases of specific parcels from the mortgage upon a payment larger than the pro rata portion of the loan.

87

87. To pledge a thing as security for an obligation without surrendering possession of it refers to:

a. hypothecation
b. alienation
c. transformation
d. substitution

a. hypothecation

Hypothecate means to pledge specific real or personal property as security for an obligation without surrendering possession of it.

88

88. A package mortgage is a loan in which:

a. more than one parcel of land in subdivision is covered
b. the first and second trust deeds are included in one instrument
c. personal property is included in the real estate loan
d. additional financing is secured from a lender at a later date

c. personal property is included in the real estate loan

A package mortgage is a method of financing in which the loan that finances the purchase of a home also finances the purchases of items of personal property.

89

89. A contractor obtained a construction loan and the loan funds are to be released in a series of progressive payments. Most lenders disburse the last payment when the:

a. building is completed
b. Notice of Completion is filed
c. buyer approves the construction
d. period to file a lien has expired

d. period to file a lien has expired

The usual waiting period for the final disbursement is 35 days after the recording of the Notice of Completion. It would be hazardous to advance the final disbursement before that time for fear that there might be subcontractors who have not been paid and will file mechanic's liens. The subcontractors are wiped out 31 days after recording the Notice of Completion.

90

90. The type of mortgage loan which permits borrowing additional funds at a later date is called a(n):

a. equitable mortgage
b. junior mortgage
c. open-end mortgage
d. extendible mortgage

c. open-end mortgage

An open end provision in a mortgage allows the borrower to borrow additional amounts in the future without rewriting the loan documents.

91

91. The nominal rate of interest is the:

a. legal rate
b. rate set forth in the note
c. maximum rate allowed by law
d. discount rate

b. rate set forth in the note

The nominal rate of interest is the rate set forth in the promissory note.

92

92. The term mortgage warehousing refers to:

a. long term loans
b. selling loans
c. low interest rate loans
d. unsecured loans

b. selling loans

Mortgage warehousing is the process by which a mortgage banker or mortgage broker assembles mortgages that he/she has made and prepares the mortgages to be sold in the secondary market.

93

93. A seasoned loan is a:

a. loan with a payment record
b. long term loan
c. first encumbrance
d. none of these

a. loan with a payment record

A seasoned loan is one with a payment history. If a note shows a good payment record by the payor, it is considered more desirable and usually sells for more in the secondary market.

94

94. Equity financing refers to:

a. purchase money loans
b. financing that is fair
c. cash purchases
d. borrowing on the difference between property value and liens

d. borrowing on the difference between property value and liens

Equity is the difference between the property value and the amount of remaining debt. A property owner's equity will bid up gradually though periodic amortized payments. Equity financing refers to borrowing against this value.

95

95. The instrument used to secure a loan on personal property is call a:

a. bill of sale
b. trust deed
c. security agreement
d. bill of transfer

c. security agreement

A security agreement is a document that creates a lien on personal property. To perfect a security interest, a form called a financing statement should be recorded.

96

96. A prepayment penalty clause found in a contract is often:

a. written into the contract for the trustee's protection
b. a charge to the buyer if he/she is late in making monthly payment
c. for the benefit of the trustor
d. a penalty the buyer is charged for paying the contract off early

d. a penalty the buyer is charged for paying the contract off early

A prepayment penalty clause is charged against the borrower for early retirement of the loan. The main reason for the charge is that money paid early to the lender often sits dormant and does not earn interest. To avoid this, the lender charges the borrower a penalty.

97

97. The owner of a property encumbered with a first and second trust deed wants to refinance the first trust deed. What should the second trust deed contain?

a. a subordination clause
b. an exculpatory clause
c. a release clause
d. an acceleration clause

a. a subordination clause

A subordination clause is a clause in which the holder of a mortgage or trust deed holder permits a subsequent lien to take priority. Subordination is the act of yielding priority. This clause provides that fi a prior mortgage is paid off or renewed, the junior mortgage will continue in its subordinate position and will not automatically become a higher or first mortgage.

98

98. When lenders us the term "mortgage yield," they are describing:

a. an increase in the value of a property which has a mortgage
b. the effective interest return obtained from a first trust deed by an investor
c. all of the money received by a lender after deducting closing costs and loan fees
d. what the lender receives when a mortgage is paid off

b. the effective interest return obtained from a first trust deed by an investor

The mortgage yield is the return on an investment or the amount of profit, stated as a percentage of the amount invested; the rate of return. In real estate, yield refers to the effective annual amount of income that is being accrued on an investment. The yield, or profit, to a lender is the spread of differential between the cost of acquiring the funds lent and the interest rate charged.

99

99. The beneficiary of a second trust deed sold his interest in the property for less than the unpaid balance of the note. This action is most commonly described as:

a. leveraging
b. liquidating
c. discounting
d. subrogating

c. discounting

To discount means to sell at a reduced value. When an investor sells a note at a discount, he/she is converting investment inflows to a present value. Since money has a time value, every dollar of that note to be received in the future is worth less than one dollar now, thus the discount.

100

100. The conscious charging by a private lender of more than the maximum amount of interest allowed by law is known as:

a. penury
b. leverage
c. usury
d. assemblage

c. usury

Usury is defined as a conscious taking by a lender of more than the maximum amount of interest as allowed by law.

101

101. Most real estate loans charge the following kind of interest rate:

a. simple
b. compound
c. usurious
d. any of these

a. simple

Interest is termed "simple" or "compound." Simple interest paid only on the principal owed. Compound interest is interest paid o accrued interest as well as on the principal owed. Most real estate loans charge simple interest rates.

102

102. A subdivider and developer purchased considerable acreage and now plan to construct a tract of 50 homes. In arranging the financing for the new construction, the lender has agreed to advance part of the funds immediately and will release a set of additional money as each home is completed. The funds that will be forthcoming as construction progresses are know as:

a. obligatory advances
b. reconveyance funds
c. release monies
d. open end mortgage payments

a. obligatory advances

Obligatory advances represent one form of construction loan distribution, often used in subdivision financing activities.

103

103. When a lender "calls" a loan, he/she:

a. accelerates all sums owing
b. liquidates the obligation by amortization
c. seizes the property securing the loan by court action
d. calls upon the maker to pay delinquent installments

a. accelerates all sums owing

The phrase "calling a loan" refers to accelerating the remaining payments of the loan and making them all due and payable at the present time.

104

104. From a financing standpoint, the relationship of the parties to a Land Contract would be closest to:

a. landlord/tenant
b. grantor/grantee
c. beneficiary/trustor
d. vendor/vendee

c. beneficiary/trustor

The Real Property Sales Contract, also known as the Land Contract, is an agreement between two parties in which the seller (vendor) passes possession and equitable title of the property to the buyer (vendee) but retains title until the total or a substantial portion of the purchase price is paid. This type of contract usually does not require conveyance of title within one year. It is similar to the beneficiary/trustor relationship in that the buyer only has a possessory interest with equitable title and is making monthly installment payments over a period time.

105

105. The buyer under the terms of a land contract is referred to as:

a. vendee
b. purchaser
c. equitable owner
d. all of these

d. all of these

Under the terms of a Land Contract, the seller (vendor) passes possession and equitable title of the property to the buyer (vendee) but retains title until the total or a substantial portion of the purchase price is paid.

106

106. At the close of a Land Contract, the vendee is entitled to:

a. legal title
b. equitable title
c. naked title
d. nothing

a. legal title

During the term of a Land Contract, title remains in the name of the seller (vendor) until the provisions of the contract have been met. Upon satisfactory performance, the vendor conveys legal title to the buyer (vendee). During the term of the contract, the vendee holds the equitable title or equitable ownership.

107

107. A home sold for $210,000 but appraised for only $203,000. the lender is willing to finance up to 80%. How much will the buyer need to pay as a down payment?

a. ($210,000 - $203,000) + ($210,000 x 20%)
b. ($210,000 - $203,000) + ($203,000 x 20%)
c. ($203,000) + ($210,000 x 80%)
d. ($210,000) + ($210,000 x 20%)

b. ($210,000 - $203,000) + ($203,000 x 20%)

The lender always uses the appraised value, not purchase price. Since the lender is willing to finance 80% of the appraised value, the down payment calculation is ($210,000 - $230,000) + ($203,000 x 20%) or $47,600 down payment.

108

100. The conscious charging by a private lender of more than the maximum amount of interest allowed by law is known as:

a. penury
b. leverage
c. usury
d. assemblage

c. usury

109

24. All of the following are characteristics of VA loans EXCEPT:

a. used for housing or farm property
b. lower interest rates than conventional loans
c. ok to use for the purchase of rental units
d. guaranteed by the VA

c. ok to use for the purchase of rental units

110

8. From which of the following could you most likely secure the greatest amount of money for the longest period of time?

a. private lender
b. insurance company
c. savings and loan
d. commercial bank

b. insurance company

111

1. The term "Secondary Market," as used in financing, refers to:

a. second loans
b. transferring of loans by mortgagors
c. transferring of loans by mortgagees
d. transferring of loans by sellers

c. transferring of loans by mortgagees

112

2. The source of money for most home loans by institutional lenders is:

a. bonds
b. business profits
c. government funds
d. individual and family savings

d. individual and family savings

113

3. Which of the following would NOT be illustrative of an institutional lender?

a. insurance company
b. savings and loan
c. commercial bank
d. mortgage company

d. mortgage company

114

4. When comparing mortgage bankers and mortgage brokers, which of the following is true?

a. both deal exclusively in the primary mortgage market
b. mortgage bankers usually lend their own funds, while mortgage brokers arrange loans
c. Both are corporations
d. All of the above

b. mortgage bankers usually lend their own funds, while mortgage brokers arrange loans

115

5. A broker negotiated a loan for a buyer. He will need to prepare a:

a. Mortgage Loan Disclosure Statement
b. Real Estate Transfer Disclosure Statement
c. Good Faith Estimate
d. Natural Hazard Disclosure Statement

a. Mortgage Loan Disclosure Statement

116

6. Which of the following is a general difference between individual and institutional lenders?

a. individuals make larger loans than institutional lenders
b. individuals charge lower interest rates
c. individual lenders give loans for shorter terms
d. individual lenders do not undertake foreclosure proceedings

c. individual lenders give loans for shorter terms

117

7. Which of the following lenders invest more heavily in single-family home loans?

a. savings and loan associations
b. commercial banks
c. insurance companies
d. individuals

a. savings and loan associations

118

8. From which of the following could you most likely secure the greatest amount of money for the longest period of time?

a. private lender
b. insurance company
c. savings and loan
d. commercial bank

b. insurance company

119

9. A home owner would be least likely to obtain a $50,000 home improvement loan from a(n):

a. savings and loan association
b. credit union
c. commercial bank
d. insurance company

d. insurance company

120

10. Commercial banks are interested in liquidity and marketability of their loans. Which of the following loans would they prefer?

a. secondary money market
b. short-term
c. long-term
d. home improvement

b. short-term

121

11. A construction loan would most likely be made by a(n):

a. bank
b. insurance company
c. private individual
d. mortgage broker

a. bank

122

12. The Federal National Mortgage Association (FNMA) was primarily created to:

a. increase the availability of secondary financing
b. standardize construction guidelines
c. serve as a secondary mortgage market
d. subsidize low income housing

c. serve as a secondary mortgage market

123

13. The primary activities of FNMA in the secondary market involves:

a. FHA loans only
b. all types of real estate loans
c. government insured and guaranteed loans
d. second mortgages and trust deeds up to $20,000

c. government insured and guaranteed loans

124

14. The functions of Ginnie Me include all of the following EXCEPT:

a. guarantee for mortgage backed securities
b. special programs for low-interest home loans
c. liquidation of government owned mortgages
d. insuring home loans

d. insuring home loans

125

15. Which of the following statements is TRUE?

a. Fannie Mae provides a secondary mortgage market for FHA and VA loans
b. Fannie Mae is a prive corporation
c. Ginnie Mae funds federally assisted housing projects and guarantees FNMA securities
d. All of the above

d. All of the above

126

16. A purchaser of a home five years ago is now interested in securing an FHA loan. A salesperson would most likely introduce the homeowner to:

a. a conventional bank or savings & loan
b. an appraiser
c. the FHA
d. the Federal Home Loan Bank

a. a conventional bank or savings & loan

127

17. Which would most likely pay a premium for mutual mortgage insurance?

a. the homeowner who assured an FHA loan
b. a buyer with a Cal-Vet loan
c. a home buyer with a conventional loan from a life insurance company
d. a home buyer who wants to insure real and personal property

a. the homeowner who assured an FHA loan

128

18. All of the following are considered advantages of FHA financing EXCEPT:

a. low down payment
b. long-term loans with lower payments
c. easy to qualify for
d. buyer is protected with FHA insurance

d. buyer is protected with FHA insurance

129

19. Mutual Mortgage Insurance is paid for by:

a. the buyer under an FHA loan
b. the buyer under a VA loan
c. the buyer under a Cal-Vet loan
d. all of these

a. the buyer under an FHA loan

130

20. Title 1 FHA loans are for:

a. purchases of homes only
b. property improvement loans
c. purchases of multiple units
d. none of these

b. property improvement loans

131

21. All of the following are characteristics of FHA loans EXCEPT:

a. for housing only
b. guarantees loans
c. insures loans
d. high loan-to-value ratio

b. guarantees loans

132

22. Which of the following would not require a down payment?

a. Cal Vet
b. FHA
c. VA
d. Conventional

c. VA

133

23. Which of the following requires a CRV?

a. VA
b. FHA
c. Cal-Vet
d. all of these

a. VA

134

24. All of the following are characteristics of VA loans EXCEPT:

a. used for housing or farm property
b. lower interest rates than conventional loans
c. ok to use for the purchase of rental units
d. guaranteed by the VA

c. ok to use for the purchase of rental units

135

25. What distinguishes VA loans from FHA and other loans?

a. no points
b. maximum loan of $100,000
c. down payment determined by CRV
d. no down payment

d. no down payment

136

26. A veteran may purchase a home under Cal Vet by a:

a. contract of sale
b. trust deed
c. mortgage
d. any of these

a. contract of sale

137

27. The government actually lends the money for a(n):

a. FHA loan
b. Cal-Vet loan
c. VA loan
d. all of these

b. Cal-Vet loan

138

28. Which of the following hold title under a Cal-Vet loan?

a. tustor
b. buyer
c. Veterans Administration
d. State of California

d. State of California

139

29. A veteran is eligible to use either the VA program of the DVA program in purchasing his owner occupied house. In which of these programs would the governmental body retain legal title to the house?

a. VA
b. DVA
c. the buyer would have title regardless of which program he used
d. the VA and DVA both retain legal title

b. DVA

140

30. Under which of the following yes of financing is the borrower required to purchase term life insurance?

a. conventional
b. VA
c. FHA
d. Cal-Vet

d. Cal-Vet

141

31. Upon full repayment of a Cal-Vet loan, the borrower receives a:

a. new loan commitment
b. reconveyance deed
c. grant deed
d. quitclaim deed

c. grant deed

142

32. Funds for Cal-Vet loans come from:

a. state bonds
b. property taxes
c. surplus funds
d. federal grants

a. state bonds

143

33. Why would a lender be interested in making a government-insured or government-guaranteed loan over a traditional conventional loan?

a. faster repayment
b. lower risk
c. easier qualification
d. faster foreclosure

b. lower risk

144

34. Which of the following would have the least impact on evaluating a man's income for a loan?

a. his spouse's income
b. stock investments
c. overtime earnings
d. salary from second job

c. overtime earnings

145

35. The ratio of a loan's principal to the property's appraised value is called the:

a. income to value ratio
b. loan to value ratio
c. loan to appraisal ratio
d. payment to loan ratio

b. loan to value ratio

146

36. A low loan-to-value ratio indicates:

a. use of government financing
b. a low down payment
c. a large down payment
d. the presence of government insurance

c. a large down payment

147

37. From the lenders perspective, a large down payment:

a. reduces the possibility of default
b. makes it more likely that the property will be properly maintained
c. streamlines the loan qualification process
d. all of the above

d. all of the above

148

38. A buyer has a monthly gross income of $5,000, total mortgage payments of $1,171, and total long-term debts of $325 per month. The front end ratio is:

c. 23%
b. 28%
c. 30%
d. 36%

c. 23%

149

39. A buyer has a monthly gross income of $5,000, total mortgage payments of $1,171, and total long-term debts of $325 per month. The back end ratio is:

a. 23%
b. 28%
c. 30%
d. 36%

c. 30%

150

40. Regarding a promissory note:

a. a promissory note secures the deed of trust
b. the deed of trust secures the promissory role
c. the promissory note is not part of the deed of trust
d. the grant deed secures the promissory note

b. the deed of trust secures the promissory role

151

41. Which of the following is TRUE concerning promissory notes?

a. they are used as security trust deeds
b. they are recorded at the county recorder's office
c. they are always used when real estate is sold
d. the are the evidence of the debt

d. the are the evidence of the debt

152

42. A promissory note that provides for payment of interest only during the term of the note is a(n):

a. straight note
b. installment note
c. amortized note
d. non-negotiable note

a. straight note

153

43. Why would the payor consider a straight note over an amortized note?

a. to collect maximum interest
b. to make minimum monthly payments
c. to put working capital back into his/her business
d. none of the above

b. to make minimum monthly payments

154

44. A loan to be completely repaid, principal and interest, by a series of regular equal installments is a:

a. straight note
b. balloon payment loan
c. fully amortized note
d. variable rate mortgage loan

c. fully amortized note

155

45. When a loan is fully amortized by equal monthly payments of principal and interest, the amount applied to principal:

a. and interest remain constant
b. decreases while the interest payment increases
c. increases while the interest payment decreases
d. increases by a constant amount

c. increases while the interest payment decreases

156

46. A loan that requires a balloon payment at its maturity is called a(n):

a. partially amortized loan
b. fully amortized loan
c. amortized loan
d. hard money loan

a. partially amortized loan

157

47. A mortgage is a:

a. loan secured by collateral of real property
b. loan secured by the credit rating of the borrower only
c. loan without collateral to secure the loan
d. three party instrument with power of sale

a. loan secured by collateral of real property

158

48. With a mortgage, who signs the note?

a. trustee
b. beneficiary
c. mortgagor
d. mortgagee

c. mortgagor

159

49. Mortgages and deeds of trust differ in every respect EXCEPT:

a. security
b. parties
c. statute of limitations
d. title

a. security

160

50. The beneficiary of a trust deed is usually a:

a. Realtor
b. borrower
c. bank
d. trustee

c. bank

161

51. Mortgages and trust deeds are both considered:

a. three-party documents
b. real property
c. personal property
d. mortgage release

c. personal property

162

52. A document used by the mortgagee when a mortgage is paid in full is called a:

a. deed of reconveyance
b. certificate of fulfillment
c. satisfaction of mortgage
d. mortgage release

c. satisfaction of mortgage

163

53. The first step a mortgagee would take to foreclosure on a mortgage would be to:

a. initiate court action
b. publish a notice of default
c. hold a public auction
d. pay off the loan

a. initiate court action

164

54. Naked legal title is held by the;

a. trustor
b. trustee
c. beneficiary
d. lender

b. trustee

165

55. The truster under a trust deed is the party who:

a. signs the note as maker
b. holds the title to the property
c. acknowledges the note for recording
d. lends the money

a. signs the note as maker

166

56. Under the "power of sale" clause in a trust deed, the authority to sell is placed with the:

a. County Sheriff by court order
b. clerk of the County Court by court order
c. trustee by trustor
d. beneficiary by trustee

c. trustee by trustor

167

57. Which of the following would be security for note and deed of trust?

a. credit of borrower
b. value of property
c. stability of the money market
d. all of these

b. value of property

168

58. Default in a mortgage may be caused by:

a. failure to pay taxes
b. failure to maintain insurance
c. failure to make payments
d. all of the above

d. all of the above

169

59. Which of the following gives the most protection to a property owner in default?

a. mortgage
b. trust deed
c. second trust deed
d. land contrace

a. mortgage

170

60. A document used to transfer legal tittle from the trustee back to the borrower (truster) after the debt has been repaid is called a:

a. quitcaim deed
b. deed of reconveyance
c. payoff deed
d. deed of confirmation

b. deed of reconveyance

171

61. Total foreclosure time under a trust deed most nearly approaches:

a. one year
b. 18 months
c. three months
d. four months

d. four months

172

62. A trust deed foreclosed as a mortgage would be foreclosed by:

a. municipal court
b. superior court
c. court of appeals
d. none of these

b. superior court

173

63. During the one-year redemption period of a mortgagor in default:

a. the mortgagee can sue for rent
b. the mortgagee is not entitled to possession
c. both (a) and (b)
d. neither (a) or (b)

c. both (a) and (b)

174

64. After a trustee's sale, there is money left over after paying the beneficiary of the first trust deed. This money would go first to the:

a. trustor
b. beneficiary of the second
c. state
d. beneficiary of the first

b. beneficiary of the second

175

65. Proceeds from a trustee's sale go to the:

a. costs of sale first, then first lien holder, then junior lien holders, with the balance to the truster
b. first lien holder, with the balance to junior lien holders
c. costs of sale first, with the balance to the beneficiary
d. none of the above

a. costs of sale first, then first lien holder, then junior lien holders, with the balance to the truster

176

66. A deficiency judgment is possible:

a. where foreclosure is by sale
b. where foreclosure is by court action
c. on a purchase money mortgage
d. all of these

b. where foreclosure is by court action

177

67. A first trust deed can be distinguished from a second trust deed by:

a. the way the documents look
b. the specifics of the note
c. the time and date of recording
d. none of these

c. the time and date of recording

178

68. Upon receiving notification of default on the first trust deed, the holder of a second trust deed would most likely:

a. wait until the sale to buy the property at a bargain price
b. redeem the first mortgage and foreclose under the second
c. foreclosure on the first to eliminate the second
d. none of the above

b. redeem the first mortgage and foreclose under the second

179

69. A request for notice of default would be of most help to the:

a. beneficiary of a second trust deed
b. trustor
c. beneficiary of a first trust deed
d. trustee

a. beneficiary of a second trust deed

180

70. Mr. Johnson agrees to assume a trust deed from Mr. Jones. Which of the following is correct?

a. Mr. Johnson is solely liable
b. Mr. Johnson is primarily liable and Mr. Jones would remain secondary liable
c. Mr. Jones would remain primarily liable
d. Mr. Johnson and Mr. Jones would agree to liability

b. Mr. Johnson is primarily liable and Mr. Jones would remain secondary liable

181

71. The relationship of the truster to the beneficiary in a deed of trust is comparable to:

a. grantor to grantee
b. lessor to lessee
c. optionor to optionee
d. borrower to lender

d. borrower to lender

182

An "assignment of rents" clause in a trust deed benefits the:

a. trustor
b. trustee
c. beneficiary
d. buyer

c. beneficiary

183

73. The Real Estate Settlement Procedures Act provides for violation penalties of:

a. a fine of up to $10,000
b. up to one year in jail
c. loss of real estate license
d. both a and b

d. both a and b

184

74. RESPA would apply to:

a. first mortgages
b. second mortgages
c. commercial loans
d. loans of a five unit apartment complex

a. first mortgages

185

75. Which of the following laws applies to federally related transactions?

a. RESPA
b. Holden Act
c. ECOA
d. Truth in Lending Act

a. RESPA

186

76. A broker mentioned the APR in one of his ads but did not include any other financing terms. This ad was:

a. ok under RESPA
b. a RESPA violation
c. a violation of Regulation Z
d. a violation of the Truth in Lending Act

a. ok under RESPA

187

77. An agent places an ad in the newspaper saying that he will give $50 to anyone who sells or buys a property through him. Which of the following is TRUE?

a. the broker cannot give $50 to the buyer or seller
b. the broker cannot give $50 to the buyer only
c. this would violate the real estate law concerning compensation of unlicensed persons performing real estate acts
d. the agent can give $50 to the buyer or seller

d. the agent can give $50 to the buyer or seller

188

78. Which of the following is the purpose of the Federal Truth in Lending Act?

a. to limit interest rates
b. to regulate fees charged by lenders
c. to assure a meaningful disclosure of credit terms
d. all of the above

c. to assure a meaningful disclosure of credit terms

189

79. The right of rescission under truth in lending would apply to a(n):

a. home equity loan
b. agricultural loan
c. purchase money loan
d. none of these

a. home equity loan

190

80. Deregulation of financial institutions most nearly means:

a. government controls no longer apply to financial institutions
b. the amount of interest paid on savings accounts is no longer regulated
c. financial institutions can no longer respond to market conditions
d. examining the enforcement responsibilities of regulators have been relaxed

b. the amount of interest paid on savings accounts is no longer regulated

191

81. When the Federal Reserve Board wants to tighten the money supply, it would:

a. raise the amount of reserves required for member banks
b. raise the discount rate for member banks.
c. sell government bonds or treasury bills on the open market
d. all of the above

d. all of the above

192

82. During periods of tight money:

a. interest rates go down
b. interest rates stay the same
c. interest rates go up
d. none of these

c. interest rates go up

193

83. Who enforces the Truth in Lending Act?

a. local government
b. state governor
c. Federal Trade Commission
d. Fair Housing Administration

c. Federal Trade Commission

194

84. The clause in mortgage note which permits the lender to declare the unpaid balance due and payable upon default by the borrower is called a(n):

a. defeasance clause
b. acceleration clause
c. due on sale clause
d. none of these

b. acceleration clause

195

85. To subordinate means to:

a. subrogate
b. sell
c. lease
d. be secondary

d. be secondary

196

86. A release clause associated with a blanket mortgage is a provision which:

a. causes the first loan to become subordinate to junior loans
b. bridges the interim financing
c. releases a portion of property covered by the blanket encumbrance when certain conditions are met
d. all of the above

c. releases a portion of property covered by the blanket encumbrance when certain conditions are met

197

87. To pledge a thing as security for an obligation without surrendering possession of it refers to:

a. hypothecation
b. alienation
c. transformation
d. substitution

a. hypothecation

198

88. A package mortgage is a loan in which:

a. more than one parcel of land in subdivision is covered
b. the first and second trust deeds are included in one instrument
c. personal property is included in the real estate loan
d. additional financing is secured from a lender at a later date

c. personal property is included in the real estate loan

199

89. A contractor obtained a construction loan and the loan funds are to be released in a series of progressive payments. Most lenders disburse the last payment when the:

a. building is completed
b. Notice of Completion is filed
c. buyer approves the construction
d. period to file a lien has expired

d. period to file a lien has expired

200

90. The type of mortgage loan which permits borrowing additional funds at a later date is called a(n):

a. equitable mortgage
b. junior mortgage
c. open-end mortgage
d. extendible mortgage

c. open-end mortgage

201

91. The nominal rate of interest is the:

a. legal rate
b. rate set forth in the note
c. maximum rate allowed by law
d. discount rate

b. rate set forth in the note

202

92. The term mortgage warehousing refers to:

a. long term loans
b. selling loans
c. low interest rate loans
d. unsecured loans

b. selling loans

203

93. A seasoned loan is a:

a. loan with a payment record
b. long term loan
c. first encumbrance
d. none of these

a. loan with a payment record

204

94. Equity financing refers to:

a. purchase money loans
b. financing that is fair
c. cash purchases
d. borrowing on the difference between property value and liens

d. borrowing on the difference between property value and liens

205

95. The instrument used to secure a loan on personal property is call a:

a. bill of sale
b. trust deed
c. security agreement
d. bill of transfer

c. security agreement

206

96. A prepayment penalty clause found in a contract is often:

a. written into the contract for the trustee's protection
b. a charge to the buyer if he/she is late in making monthly payment
c. for the benefit of the trustor
d. a penalty the buyer is charged for paying the contract off early

d. a penalty the buyer is charged for paying the contract off early

207

97. The owner of a property encumbered with a first and second trust deed wants to refinance the first trust deed. What should the second trust deed contain?

a. a subordination clause
b. an exculpatory clause
c. a release clause
d. an acceleration clause

a. a subordination clause

208

96. A prepayment penalty clause found in a contract is often:

a. written into the contract for the trustee's protection
b. a charge to the buyer if he/she is late in making monthly payment
c. for the benefit of the trustor
d. a penalty the buyer is charged for paying the contract off early

d. a penalty the buyer is charged for paying the contract off early

209

The owner of a property encumbered with a first and second trust deed wants to refinance the first trust deed. What should the second trust deed contain?

a. a subordination clause
b. an exculpatory clause
c. a release clause
d. an acceleration clause

a. a subordination clause

210

The owner of a property encumbered with a first and second trust deed wants to refinance the first trust deed. What should the second trust deed contain?

a. a subordination clause
b. an exculpatory clause
c. a release clause
d. an acceleration clause

a. a subordination clause

211

98. When lenders us the term "mortgage yield," they are describing:

a. an increase in the value of a property which has a mortgage
b. the effective interest return obtained from a first trust deed by an investor
c. all of the money received by a lender after deducting closing costs and loan fees
d. what the lender receives when a mortgage is paid off

b. the effective interest return obtained from a first trust deed by an investor

212

99. The beneficiary of a second trust deed sold his interest in the property for less than the unpaid balance of the note. This action is most commonly described as:

a. leveraging
b. liquidating
c. discounting
d. subrogating

c. discounting

213

100. The conscious charging by a private lender of more than the maximum amount of interest allowed by law is known as:

a. penury
b. leverage
c. usury
d. assemblage

c. usury

214

101. Most real estate loans charge the following kind of interest rate:

a. simple
b. compound
c. usurious
d. any of these

a. simple

215

102. A subdivider and developer purchased considerable acreage and now plan to construct a tract of 50 homes. In arranging the financing for the new construction, the lender has agreed to advance part of the funds immediately and will release a set of additional money as each home is completed. The funds that will be forthcoming as construction progresses are know as:

a. obligatory advances
b. reconveyance funds
c. release monies
d. open end mortgage payments

a. obligatory advances

216

102. A subdivider and developer purchased considerable acreage and now plan to construct a tract of 50 homes. In arranging the financing for the new construction, the lender has agreed to advance part of the funds immediately and will release a set of additional money as each home is completed. The funds that will be forthcoming as construction progresses are know as:

a. obligatory advances
b. reconveyance funds
c. release monies
d. open end mortgage payments

a. obligatory advances

217

107. A home sold for $210,000 but appraised for only $203,000. the lender is willing to finance up to 80%. How much will the buyer need to pay as a down payment?

a. ($210,000 - $203,000) + ($210,000 x 20%)
b. ($210,000 - $203,000) + ($203,000 x 20%)
c. ($203,000) + ($210,000 x 80%)
d. ($210,000) + ($210,000 x 20%)

b. ($210,000 - $203,000) + ($203,000 x 20%)

218

103. When a lender "calls" a loan, he/she:

a. accelerates all sums owing
b. liquidates the obligation by amortization
c. seizes the property securing the loan by court action
d. calls upon the maker to pay delinquent installments

a. accelerates all sums owing

219

104. From a financing standpoint, the relationship of the parties to a Land Contract would be closest to:

a. landlord/tenant
b. grantor/grantee
c. beneficiary/trustor
d. vendor/vendee

c. beneficiary/trustor

220

105. The buyer under the terms of a land contract is referred to as:

a. vendee
b. purchaser
c. equitable owner
d. all of these

d. all of these

221

106. At the close of a Land Contract, the vendee is entitled to:

a. legal title
b. equitable title
c. naked title
d. nothing

a. legal title

222

107. A home sold for $210,000 but appraised for only $203,000. the lender is willing to finance up to 80%. How much will the buyer need to pay as a down payment?

a. ($210,000 - $203,000) + ($210,000 x 20%)
b. ($210,000 - $203,000) + ($203,000 x 20%)
c. ($203,000) + ($210,000 x 80%)
d. ($210,000) + ($210,000 x 20%)

b. ($210,000 - $203,000) + ($203,000 x 20%)

223

108. The seller (vendor) under a real property sales contract CANNOT:

a. sell his or her interest
b. encumber the property
c. use something other than a legal description
d. all of these

c. use something other than a legal description

224

109. An adjustable rate mortgage loan is tied to an interest rate called the:

a. margin
b. index rate
c. cap rate
d. max rate

b. index rate

225

110. In an adjustable rate loan, the amount added to the index rate that represents the lender's cost of doing business is called the:

a. marginal rate
b. margin
c. discount
d. overage

b. margin

226

111. An adjustable rate loan stabilizes at an interest rate above the loan index. This increase above the index rate is known as the:

a. cap
b. overage
c. margin
d. annual percentage rate

c. margin

227

112. In purchasing a home, the purchaser generally gives a note secured by a first deed of trust to a lending institution. In addition, he may give the seller cash and a note secured by a second deed of trust on the property. A "request for notice" would be filed for the benefit of the:

a. mortgagor
b. holder of the second
c. trustor
d. holder of the first

b. holder of the second

228

113. Why are housing prices so heavily weighted when calculating the Consumer Price Index?

a. increasing down payment amounts contribute significantly to inflation
b. the most significant portion of the CPI is building costs
c. housing prices and the associated interest costs form the bulk of most homeowners' outlay
d. all of the above

c. housing prices and the associated interest costs form the bulk of most homeowners' outlay

229

114. When the FED takes measures to implement a "tight money" market, the net effect usually results in an increase in the:

a. loan funds for new home construction
b. use of second trust deeds in real estate financing
c. sales volume of single family residences
d. use of new first trust deed financing in real estate transactions

b. use of second trust deeds in real estate financing

230

115. A legal act to bring about a trust deed sale can be:

a. judicial
b. judicial or trustee's sale
c. trustee's sale
d. public taking

b. judicial or trustee's sale

231

116. What is the purpose of the Equal Credit Opportunity Act?

a. to standardize the minimum requirements for loan eligibility
b. to standardize the down payment amounts to prevent discrimination
c. to prohibit lenders from discriminating on the basis of race, color, religion, national origin, age, sex, family size, handicap, or marital status
d. all of the above

c. to prohibit lenders from discriminating on the basis of race, color, religion, national origin, age, sex, family size, handicap, or marital status

232

117. Who funds private mortgage companies?

a. Government National Mortgage Association
b. Federal Deposit Insurance Corporation
c. Private premiums of insurance and pools of insurance policies
d. Federal Home Loan Mortgage Corporation

c. Private premiums of insurance and pools of insurance policies

233

118. Mr. and Mrs. Lee sell their house and agree to carry back a second trust deed from the buyer to help complete the financing for the sale. This is most likely due to:

a. the first trust deed is a VA loan
b. the money market is tight
c. the buyer has no cash
d. the seller doesn't need the immediate cash

b. the money market is tight

234

119. Who would be responsible for paying the 1% origination fee on an FHA loan?

a. escrow officer
b. the seller
c. the buyer
d. the lender

c. the buyer

235

120. For FHA purposes, acquisition costs include nonrecurring closing expenses. Which of the following would not be included:

a. discount points
b. FHA appraisal fee
c. credit report fee
d. impounds for property taxes

d. impounds for property taxes

236

121. The purchasing power of a dollar is measured:

a. by reference to price indexes
b. by the interest paid on savings
c. by the Federal Reserve Board
d. by reference to the local real estate market

a. by reference to price indexes

237

122. The Gonzales family wanted to purchase a property and wanted to assume the seller's VA loan, "subject to." Which of the following is correct:

a. the seller will be relieved of all liability for the loan
b. both the buyer and seller will be liable for the loan
c. the seller will remain liable for the loan
d. none of the above

c. the seller will remain liable for the loan

238

123. On a fully amortized loan payment, principal ______ as interest _______.

a. increases, increases
b. decreases, increases
c. remains, constant
d. increases, decreases

d. increases, decreases

239

124. Which of the following best describes "Cash On Cash" return?

a. annual dollar income
b. total amount of investment
c. total amount of distributions
d. income earned on investment

d. income earned on investment

240

108. The seller (vendor) under a real property sales contract CANNOT:

a. sell his or her interest
b. encumber the property
c. use something other than a legal description
d. all of these

c. use something other than a legal description

A land contract must contain the names of the buyer and seller, the sales price, the terms of payment, a full legal description, and a lengthy statement of the rights and obligations of the parties.

241

109. An adjustable rate mortgage loan is tied to an interest rate called the:

a. margin
b. index rate
c. cap rate
d. max rate

b. index rate

The index rate is the rate to which the interest rate on an adjustable rate mortgage is tied. At set adjustment periods, the borrower's interest rate will move up or down as the index rate changes.

242

110. In an adjustable rate loan, the amount added to the index rate that represents the lender's cost of doing business is called the:

a. marginal rate
b. margin
c. discount
d. overage

b. margin

The margin is the amount added to the interest rate of an adjustable rate loan that represents the lender's cost of doing business (includes costs, profits and risk of loss of the loan). Generally, the margin stays constant during the life of the loan.

243

111. An adjustable rate loan stabilizes at an interest rate above the loan index. This increase above the index rate is known as the:

a. cap
b. overage
c. margin
d. annual percentage rate

c. margin

Another variation to test your knowledge of the term margin.

244

112. In purchasing a home, the purchaser generally gives a note secured by a first deed of trust to a lending institution. In addition, he may give the seller cash and a note secured by a second deed of trust on the property. A "request for notice" would be filed for the benefit of the:

a. mortgagor
b. holder of the second
c. trustor
d. holder of the first

b. holder of the second

A "request for notice of default" is filed with the county recorder when the second trust deed is recorded. If there is a default on the first trust deed, the recorder will send a copy of the "Notice of Default" to the holder of the second. This gives the holder of the second time to reinstate the first and begin foreclosure on the second.

245

113. Why are housing prices so heavily weighted when calculating the Consumer Price Index?

a. increasing down payment amounts contribute significantly to inflation
b. the most significant portion of the CPI is building costs
c. housing prices and the associated interest costs form the bulk of most homeowners' outlay
d. all of the above

c. housing prices and the associated interest costs form the bulk of most homeowners' outlay

The Consumer Price Index (CPI) is designed to measure the change in the average level of prices paid for consumer goods and services by all private households. In measuring the CPI, not all goods and services are treated equally or, in other words, given the same weight. Since housing prices and the associated interest costs form the bulk of most homeowners' outlay, changes in mortgage interest rates are heavily weighted when calculating the CPI.

246

114. When the FED takes measures to implement a "tight money" market, the net effect usually results in an increase in the:

a. loan funds for new home construction
b. use of second trust deeds in real estate financing
c. sales volume of single family residences
d. use of new first trust deed financing in real estate transactions

b. use of second trust deeds in real estate financing

The use of second trust deeds is most prevalent when there is a tight money market. This means that interest rates are high and money is more difficult to get.

247

115. A legal act to bring about a trust deed sale can be:

a. judicial
b. judicial or trustee's sale
c. trustee's sale
d. public taking

b. judicial or trustee's sale

A mortgage without a power of sale can only be foreclosed judicially (i.e. by owner proceeding). A mortgage or deed of trust which expressly provides for power of sale may be foreclosed judicially or by trustee's sale.

248

116. What is the purpose of the Equal Credit Opportunity Act?

a. to standardize the minimum requirements for loan eligibility
b. to standardize the down payment amounts to prevent discrimination
c. to prohibit lenders from discriminating on the basis of race, color, religion, national origin, age, sex, family size, handicap, or marital status
d. all of the above

c. to prohibit lenders from discriminating on the basis of race, color, religion, national origin, age, sex, family size, handicap, or marital status

The main purpose of the Equal Credit Opportunity Act is to prohibit lenders from discriminating on the basis of race, color, religion, national origin, age, sex, family size, handicap, or marital status or on the grounds of receipt of income from a public assistance program.

249

117. Who funds private mortgage companies?

a. Government National Mortgage Association
b. Federal Deposit Insurance Corporation
c. Private premiums of insurance and pools of insurance policies
d. Federal Home Loan Mortgage Corporation

c. Private premiums of insurance and pools of insurance policies

Private mortgage companies are really Mortgage Bankers. Most Mortgage Bankers fund loans themselves through a contract with an insurance company.

250

118. Mr. and Mrs. Lee sell their house and agree to carry back a second trust deed from the buyer to help complete the financing for the sale. This is most likely due to:

a. the first trust deed is a VA loan
b. the money market is tight
c. the buyer has no cash
d. the seller doesn't need the immediate cash

b. the money market is tight

When the Fed takes steps to implement a "tight money" market, it usually means an increase in interest rates and a decrease in available loan funds. The sales volume of existing home sales decreases and borrowers have more difficulty in obtaining loans. The net effect is that sellers are forced to take back seconds to sell their property.

251

119. Who would be responsible for paying the 1% origination fee on an FHA loan?

a. escrow officer
b. the seller
c. the buyer
d. the lender

c. the buyer

The 1% loan origination fee is required by FHA and is paid by the borrower.

252

120. For FHA purposes, acquisition costs include nonrecurring closing expenses. Which of the following would not be included:

a. discount points
b. FHA appraisal fee
c. credit report fee
d. impounds for property taxes

d. impounds for property taxes

Non recurring costs are only paid one time in escrow. Impounds for property taxes are recurring. They may collect a couple months in advance during escrow, but impounds will continue for the life of the loan.

253

121. The purchasing power of a dollar is measured:

a. by reference to price indexes
b. by the interest paid on savings
c. by the Federal Reserve Board
d. by reference to the local real estate market

a. by reference to price indexes

The purchasing power of a dollar is measured by the Consumer Price Index.

254

122. The Gonzales family wanted to purchase a property and wanted to assume the seller's VA loan, "subject to." Which of the following is correct:

a. the seller will be relieved of all liability for the loan
b. both the buyer and seller will be liable for the loan
c. the seller will remain liable for the loan
d. none of the above

c. the seller will remain liable for the loan

If the VA does not approve the assumption, the loan is taken "subject to" the existing loan. This means the original borrower will remain liable for the loan. If there is a foreclosure it will be against the original borrower (the seller).

255

123. On a fully amortized loan payment, principal ______ as interest _______.

a. increases, increases
b. decreases, increases
c. remains, constant
d. increases, decreases

d. increases, decreases

With an amortized loan, interest is charged on the unpaid balance each month. The principal is being pad down each month. The payment remains constant over the entire life of the loan. The interest part of the payment decreases each month and the amount applied to principal increases each month.

256

124. Which of the following best describes "Cash On Cash" return?

a. annual dollar income
b. total amount of investment
c. total amount of distributions
d. income earned on investment

d. income earned on investment

Cash on Cash Return is the ratio of income received by the investor based only on the cash invested. It is expressed as a percentage and does not include appreciation. Calculated as Annual Dollar Income/ Total Dollar Investment. For example when you purchase a rental property, you might put down only 10% for a cash down payment. Cash on cash return would measure the annual return you made on the property in relation to the down payment.