Chapter 17 Math Random Flashcards
A pre-approved mortgage for a residential property:
(1) will always guarantee the borrower’s interest rate for 365 days.
(2) calculates the minimum loan that the borrower qualifies for.
(3) is based on the borrower’s current financial situation and a satisfactory credit review.
(4) is based on a formula provided by the Fair Isaac Corporation
3
Which of the following are included in the residential borrower qualification process?
A. the collection of information about the borrower and the property
B. the evaluation of the applicants’ ability to meet the terms of a mortgage and the amount of their income
C. the analysis of the real property pledged as security for the loan
D. the analysis of the applicants’ credit report
(1) A and C only
(2) B and C only
(3) A and D only
(4) All of the above
4
Lenders who are attempting to ration mortgage funds could:
(1) decrease their gross debt service ratio.
(2) decrease their interest rate on mortgage loans.
(3) increase their maximum loan to value ratio.
(4) increase the maximum amortization period available on mortgage loans.
1
With respect to an insured mortgage loan, which one of the following statements is FALSE?
(1) Default insurance is paid for by the borrower.
(2) The borrower can add the premium to the mortgage amount.
(3) If the borrower defaults, the insurance company will guarantee that the lender will recover all capital invested.
(4) The lender has only the personal covenant of the borrower and the value of the property for security.
4
The loan-to-value ratio is the ratio of:
(1) the annual payments on the loan divided by the market value of the mortgage.
(2) the actual amount of the mortgage (the amount paid to the borrower net of bonus or brokerage fees) divided by the actual value of the property.
(3) the market value of the mortgage divided by the market value of the property.
(4) the face value of the mortgage loan divided by the lending value of the property.
4
Among other factors, the maximum amount that the buyer of a residential property may borrow is affected by:
(1) the buyer’s income.
(2) the lending value of the property.
(3) the prevailing mortgage interest rate.
(4) all of the above factors.
4
Which of the following is NOT a procedure commonly used by a large institutional lender in order to reduce the risk associated with a particular mortgage loan?
(1) reduction of the loan-to-value ratio
(2) increase in the interest rate charged
(3) reduction in the gross debt service ratio
(4) all of the above methods are commonly used
2
In commercial mortgage underwriting, the factor calculated by dividing the annual net operating income by the annual sum of monthly mortgage payments is referred to as the:
(1) safety margin factor.
(2) mortgage ratio.
(3) debt coverage ratio.
(4) annual mortgage constant.
3
Lending value is:
(1) equal to market value.
(2) a long term conservative estimate of the value of the interest in land pledged as security.
(3) an estimate of the mortgage loan a buyer will be able to obtain.
(4) equal to 95% of purchase price
2
When borrowers increase their maximum allowable loan by accepting a shorter term and a lower interest rate, the borrowers have:
(1) an increased degree of risk regarding changes in the interest rate over time.
(2) the security of never having to incur another set of transaction costs (legal, appraisal) when arranging a new loan with another lender.
(3) a decreased degree of risk regarding changes in the interest rate over time.
(4) committed to paying more interest during the shorter term loan than the longer term loan.
1
Which of the following statements regarding financial covenants of the mortgagor (borrower) is FALSE?
(1) The three main financial obligations of the borrower in addition to repayment of the loan amount include payment of property taxes, property insurance, and property maintenance.
(2) Lenders always make the property tax payments for the borrower to ensure that the property taxes do not fall into arrears.
(3) The mortgage loan agreement should contain a covenant by the borrower to insure the property against fire and other specified hazards to the full insurable value of the security.
(4) The borrower should maintain the property in a manner that will preserve the value of the security in order to reduce the capital risk.
2
The risk to a mortgagee can be reduced by:
(1) increasing the amortization period.
(2) reducing the monthly payments.
(3) reducing the loan-to-value ratio.
(4) reducing the debt coverage ratio.
3
The process used in underwriting income-producing properties is similar to that for residential borrower qualification except that in underwriting commercial properties:
(1) a loan-to-value constraint is never used.
(2) the income from the property is more important than the personal income of the borrower.
(3) a gross debt service ratio is commonly employed.
(4) a safety margin is not necessary.
2
With respect to an insured mortgage loan, which of the following statements is FALSE?
(1) In Canadian mortgage loan insurance, the lender pays the insurer a single premium, the cost of which is generally passed on to the borrower.
(2) Borrowers can add the mortgage loan insurance premium to the mortgage amount.
(3) Canada Mortgage and Housing Corporation (CMHC) is the only institution in Canada that provides mortgage loan insurance.
(4) Federally regulated financial institutions require mortgage insurance in order to make loans with loan-to-value ratios higher than 80%
3
The purpose of a credit analysis of a mortgagor is:
(1) to ensure that the borrower has both the ability and the intention of complying with the mortgage agreement.
(2) to determine if the borrower is worth suing if he defaults on the mortgage.
(3) to determine the proper interest rate to charge the borrower.
(4) all of the above.
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