CH 13 - Types of Mortgages & Sources of Financing

Question 1

FHA insured
VA guaranteed
Conventional

Answer 1

3 types of mortgages

Question 2

FHA

Answer 2

Federal Housing Authority, created in 1934

Question 3

What does the FHA do/NOT do?

Answer 3

DOES NOT make loans
DOES insure loans
Protects lender in foreclosure

Question 4

Basic mortgage insurance for purchase/refinance of owner-occupied 1-4 family properties

Answer 4

203(b) mortgage insurance

Question 5

Financing of the purchase of a 1-4 family dwelling and the cost of its rehab w/ a single mortgage

Answer 5

203(k) Rehabilitation Mortgage Insurance

Question 6

Insurance for 30-yr loans to purchase a single-unit condo

Answer 6

234(c) condominiums

Question 7

Mortgage insurance on adjustable rate financing

Answer 7

251 Adjustable rate mortgage

Question 8

PMI

Answer 8

Private Mortgage Insurance

Fee charged by lender, that borrower pays to offset the increased risk of conventional mortgage loan

Question 9

PMI is usually required when

Answer 9

loan exceeds 80% of property value

Question 10

Automatic cancellation of PMI when

Answer 10

LTV is 78% or less of property’s original value

Question 11

Borrower can request PMI cancellation when

Answer 11

Loan paid down to 80%

Question 12

what does FS 687 do?

Answer 12

limits the interest rate that can be charged for a loan

Question 13

loan amounts up to 500k = __% interest rate

loan amounts of 500k or more = __% interest rate

Answer 13

18%

25%

Question 14

UFMIP

Answer 14

Upfront Mortgage Insurance Premium

paid at time of closing of loan

can be paid annually

1.75% of mortgage amount

can be paid by borrower, seller, or third party

Question 15

.85% of annual outstanding FHA loan balance divided into 12 monthly payments

Answer 15

AMIP (Annual Mortgage Insurance Premium)

Question 16

What does PMI do?

Answer 16

Protects the lender

Question 17

charging an excessive rate of interest is called ____

Answer 17

usury

Question 18

VA guaranteed mortgage loan DOES NOT _____

Answer 18

set a max loan amount

Question 19

_____ mortgage loans are harder for borrower to get than the other kinds

require a ____ down payment and carry a ____ interest rate

these loans are ___ ______ or _____

Answer 19

Conventional

higher; higher

not insured or guaranteed

Question 20

Amortized mortgage (scheduled periodic payments that include portion to interest and principal)

Answer 20

Interest portion + Principal portion =

Monthly mortgage payment

Question 21

I
P
R
T

Answer 21

I - Interest portion of monthly payment
P - Principal amount of loan (loan balance)
R - Rate of ann. interest charged on loan (%)
T - Time expressed in fractions of a year

Question 22

Formula for calculating interest portion of loan payment

Answer 22

I = PxRxT

Question 23

Characteristics of an Amortized Loan

Answer 23

• interest paid each month is LESS than amount paid the previous month
• principal portion paid each month is MORE than the amount paid previous month
• principal balance of loan decreases each month, resulting in zero balance at end of loan term

Question 24

mortgage that includes real and personal property as security for loan (includes fridge, dishwasher etc)

Answer 24

package mortgage

Question 25

mortgage that uses ONLY personal property for security of loan

Answer 25

chattel mortgage

Question 26

Payments on a fixed rate amortized loan consist of what two components?

Answer 26

Principal and interest

Question 27

Which type of loan has payments that are sufficient to repay the loan amount and the interest owed over the life of the loan?

Answer 27

fully amortizing

Question 28

What is NOT TRUE about a fixed rate or level payment mortgage loan?

Answer 28

the amount of each payment that is applied to paying interest increases over the life of the loan

Question 29

the rate of a specific, published index as of a specified date, plus a fixed margin, DETERMINES _____

Answer 29

interest rate that a borrower must pay on an adjustable rate

Question 30

What are the advantages of a shorter-term mortgage loan over a 30 year loan?

Answer 30

the borrower pays less interest of the life of the loan and the interest rate is likely to be lower

Question 31

a mortgage that pledges multiple properties as security for a loan

Answer 31

Blanket mortgage

Question 32

flow of deposits into lending institutions, creating mortgage money supply

Answer 32

Intermediation

Question 33

when depositors bypass traditional depository institutions and withdraw from accounts w/ low fixed interest rates, then transfer those funds into alt investments w/ higher interest rates (yields) like the stock market, mutual funds, artwork, etc

Answer 33

Disintermediation

Question 34

Large scale Disintermediation, can ______

Answer 34

Reduce the mortgage money supply and cause interest rates to rise

Question 35

5 parts of Federal Reserve System

Answer 35

- Board of Governors - 12 Federal Reserve banks and branches - Federal Open Market Committee - Federal Advisory Council - Member banks

Question 36

Board of Governors

Answer 36

7 members appointed by president and confirmed by congress | - 14 year term

Question 37

actions of board of governors that regulates cost and availability of credit in the US

Answer 37

monetary policy

Question 38

% of money on deposit in a bank that cannot be used for lending, must be transferred to district federal reserve bank

Answer 38

reserve requirement

Question 39

if reserve requirement is increased the amount of money available for lending is _____, causing interest rates to ______

Answer 39

decreased | increase

Question 40

rate of interest the Federal Reserve charges a member bank for funds loaned

Answer 40

discount rate

Question 41

where loans are originated

Answer 41

primary mortgage market

Question 42

provides constant source of funds to make real estate loans. loans originated in primary market are SOLD HERE

Answer 42

secondary mortgage market

Question 43

benefits of a secondary mortgage market

Answer 43

- provides liquidity to primary market so primary lender doesnt run out of funds

Question 44

final payment on an interest only loan, that includes the full amount borrowed is called a "____" payment

Answer 44

Balloon payment

Question 45

required by the Real Estate Settlement Procedures (RESPA) Act

Answer 45

That borrowers be informed of all settlement costs involved in the purchase of a home when funds are obtained from a federally regulated lender.