Finance

Question 1

In a traditional second mortgage, a borrower would take all of the money loaned to them at one time. In a ____________ the borrower may take up to a specified amount, but they do not need to take that amount in full or all at one time.

Answer 1

home equity line of credit

Question 2

a document from the lender that states the property has been paid off and is released from the lien.

Answer 2

satisfaction piece

Question 3

Which government entity was created to encourage low-income housing?

Answer 3

GNMA (Ginnie Mae)

Question 4

equal to 1% of the total loan amount.

Answer 4

point

Question 5

Mortgage lenders use this process to assess the risks of making a loan. To assess a potential borrower’s risk, they look at factors such as salary, credit history, and terms of employment.

Answer 5

underwriting

Question 6

a short term loan that allows borrowers to borrow against their current property in order to buy a new one.

Answer 6

swing loan (bridge, gap)

Question 7

The three C’s of underwriting

Answer 7

Collateral, Capacity, Credit

Question 8

the lender gives money to the borrower using the home itself as collateral. The loan typically does not require repayment until death or until the homeowner moves out.

Answer 8

reverse mortgage (reverse annuity mortgage)

Question 9

an intermediary and does not create, sell, or underwrite loans

Answer 9

mortgage broker

Question 10

Three ways lenders make money

Answer 10

1. loan application fees
2. annual loan service fees
3. loan origination fees

Question 11

These loans carry a higher interest rate because the bank/lender feels they carry greater risk of full repayment.

Answer 11

subprime loans

Question 12

The annual interest is the balance of the loan multiplied by the interest rate.

Answer 12

simple interest

Question 13

Which ways can the Federal Reserve use to control/influence monetary policy and supply?

Answer 13

1. Buy/sell securities on open market
2. set discount rate
3. raise/lower reserve requirements for banks

Question 14

What financial instrument is given by a borrower to the lender as promise to repay a debt?

Answer 14

(promissory) note

Question 15

written contract pledging real property owned to secure a debt

The mortgage along with the note are given to the lender to obtain a loan.

Answer 15

mortgage

Question 16

Gradual liquidation through periodic payments of principal and interest is called

Answer 16

amortized loans

Question 17

Fixed rate mortgages are locked in at the same rate for the life of the loan, while _______ mortgages have a rate that can “float” or “ride” market rates.

Answer 17

adjustable rate mortgage (ARM)

Question 18

occurs when the owner cannot sell the property via short sale. If it doesn’t sell in a foreclosure auction, it becomes property of the lending institution.

Answer 18

foreclosure sale

Question 19

placed on real estate by a lender in exchange for funds to buy the real estate

Answer 19

mortgage lien

Question 20

A promissory note must contain the following three things: ____.

Answer 20

1. amount of loan
2. term of the loan
3. interest rate of the loan

Question 21

the mortgagor (borrower) receives legal and equitable title to the real property, and the mortgagee (lender) receives the right to place a lien on the property.

Answer 21

lien theory

Question 22

most likely be used by a veteran or active-duty member of the U.S. military

Answer 22

VA loan

Question 23

FHA loans are insured by the Federal Housing Administration and allow for a down payment as low as _____. For this reason, FHA loans are favored by many first-time home buyers.

Answer 23

3.5%

Question 24

refers to the process by which monthly payments are calculated so that the principal is paid off over the life of the loan

Answer 24

amortization

Question 25

a loan made on a movable piece of property. a car, or in this case, a mobile home.

Answer 25

chattel loan

Question 26

founded to expand the secondary mortgage market in the United States. It is one of the largest corporations in the U.S. when measured by assets.

Answer 26

Fannie Mae

Question 27

a judicial foreclosure where the lender gets the property instead of a sale

Answer 27

strict foreclosure

Question 28

the type most often used in large commercial projects where the lender/bank gets part ownership

Answer 28

participation mortgage

Question 29

a mortgage that covers more than one parcel of real estate

Answer 29

blanket mortgage

Question 30

a second mortgage that includes the amount of the first mortgage

Answer 30

wraparound mortgage

Question 31

a mortgage in which a borrower uses both real and personal property as security for a loan

Answer 31

package mortgage

Question 32

A provision in a loan where a large payment is either due at the end of the term or if a default occurs.

Answer 32

balloon payment

Question 33

If a note is transferred or sold to another party, to protect their risk, the lender can call the amount of the note due.

Answer 33

alienation clause

Question 34

it allows lender to declare an unpaid balance due upon the default of any/all terms.

Answer 34

acceleration clause

Question 35

a loan for an amount in excess of Fannie Mae and Freddie Mac standards

Answer 35

jumbo loan

Question 36

The loans meet Fannie Mae and Freddie Mac standards.

Answer 36

conforming

Question 37

prepaid interest charges to get a mortgage at a lower interest rate

Answer 37

points or discount points

Question 38

the process in which lenders assemble loans and pledge them with a commercial bank to serve as security for a line of credit

Answer 38

warehousing