Financing Flashcards
(183 cards)
1
Q
Which of the following agencies helps to increase availability of mortgage credit by maintaining a secondary market for residential conventional mortgages
Veterans Association Federal Home Loan Mortgage Corporation Federal Deposit Insurance Corporation National Association of Home Builders
A
Federal Home Loan Mortgage Corporation
Freddie Mac (Federal Home Loan Mortgage Corporation) buys and sells existing conventional home loans.
2
Q
If a buyer applies equal payments to a long term home loan, what will happen to the payment of the principal over the life of the loan?
increase while interest payments decrease decrease at a constant rate decrease while interest payment increase increase at a consistent rate
A
increase while interest payments decrease
Interest charged will decrease with each payment made. The difference will be credited to the principal.
3
Q
What does the “secondary mortgage market” refer to?
A marketplace for the resale of loans made only by pension funds All real property loans that have a junior loan for security or a mortgage Loans that are made by large insurance companies A marketplace for the resale of existing trust deed loans
A
A marketplace for the resale of existing trust deed loans
Existing loans are bought and sold on the secondary mortgage market. It is a resale marketplace for existing loans.
4
Q
What is the primary source of funds for financing mortgages?
Insurance companies Federal savings and loan associations Fannie Mae all of these
A
Federal savings and loan associations
The bulk of the money for residential mortgages comes from federal savings and loan associations. The money ultimately comes from household savings and deposits that consumers place into the savings and loan associations.
5
Q
Of the following, which would be a primary purpose of RESPA?
Regulates home loan industry Regulates lenders Regulates credit Requires disclosures made by lenders that make loans for 1-4 unit residences
A
Requires disclosures made by lenders that make loans for 1-4 unit residences
RESPA requires lenders to provide disclosures to borrowers of 1-4 unit residences.
6
Q
How is the lender protected from a loss on a purchase-money second trust deed?
Approving the borrower’s creditworthiness The amount that is owed on the second trust deed The equity of the borrower Approving the borrower’s ability to pay
A
he equity of the borrower
The amount of equity in the real property may be sufficient to pay off the second trust deed.
7
Q
What loan program would have the lowest closing costs paid by the buyer?
VA loan Conventional loan CAL-VET loan FHA loan
A
CAL-VET loan
There are no points for CAL-VET loans. FHA or VA loans can have a 1% origination fee where the buyer or seller can pay the points. A conventional loan could have points that are negotiable between the buyers and sellers.
8
Q
What has the greatest influence on mortgage interest rates?
The conditions set by the FED The condition of the money markets The stock market Buyers and sellers
A
The condition of the money markets
The availability of money to make loans results from supply and demand in the money markets.
9
Q
Generally speaking, an escrow agent is authorized to perform which of the following?
Change escrow instructions when the real estate agents asks them to be changed Call for the funding of the buyer’s loan Talk to the buyers about financing options and give advice Authorize termite companies to make repairs
A
Call for the funding of the buyer’s loan
Within the escrow instructions there is language that allows the escrow agent to call for funding of the buyer’s loan. Termite repairs are typically authorized by the party who will be paying for the repairs, and the escrow agent can only change the escrow instructions with the written agreement of the buyer and seller. The lenders, rather than the escrow company, would usually provide advice to the buyers concerning financing matters with the loan.
10
Q
During the escrow process the escrow officer receives two pest control reports from two different companies. What should the escrow agent do immediately?
Ask the real estate agent to ask the seller which report to use Use the most favorable (inexpensive) report for the seller Notify the real estate agent and receive written instructions from the buyer and seller as to which report to use Use the most unfavorable (expensive) report for the seller
A
Notify the real estate agent and receive written instructions from the buyer and seller as to which report to use
The escrow agent should immediately receive instructions from both the buyer and seller as to how to proceed since the escrow agent is the agent for both the buyer and seller.
11
Q
When does the Uniform Settlement (which is required by the Real Estate Settlement Procedures Act) need to arrive in the mail to the borrower?
Three business days before closing of the transaction One day before closing of the transaction Up to 30 days after the closing of the transaction At, or before the date of settlement
A
At, or before the date of settlement
It must be delivered to the borrower at, or before the closing.
12
Q
What’s the best way for the FED (Federal Reserve Board) to create a tight money market?
Sell government bonds and raise the discount rate Buy government bonds Sell government bonds Buy government bonds and sell government bonds
A
Sell government bonds and raise the discount rate
To tighten the money market, the FED would raise the discount rate and sell government bonds. These two actions would draw money out of the market place, which will make it harder to get loans.
13
Q
What would provide an investor the best protection against inflation?
Savings account Real property secured by a note Mutual funds Ownership of real property
A
Ownership of real property
Real property increases in value during a period of inflation.
14
Q
What does a GPAM mortgage provide?
The ability to take out more money without re applying for a loan The deferment of payments of principal in the beginning period of the loan The ability to make multiple payments each month The ability to repay the loan at any time
A
The deferment of payments of principal in the beginning period of the loan
GPAM stands for Graduated Payment Adjustable Mortgage. It begins with low payments and then increases over time as the loan matures.
15
Q
Regulation Z gives the borrower of a loan a 3 day right of rescission when the loan is:
a government backed loan such as a VA or FHA loan a conventional loan secured by the purchase of real property the money borrowed is secured by a deed of a 4 or more-unit apartment building a loan that is secured by a second deed of trust of an owner occupied single family residence when money is borrowed for use of that purchase
A
a loan that is secured by a second deed of trust of an owner occupied single family residence when money is borrowed for use of that purchase
A first trust deed loan that is used to purchase an owner occupied single family residence usually does not allow for a 3 day right of recession.
16
Q
An investor who wants to hedge against the erosion of capital caused by inflation would invest money into:
government bonds bond market mutual funds equity interest
A
equity interest
One who wants protection from the loss of value of the dollar due to inflation would place funds into equity interests.
17
Q
Regulation Z (Federal Truth in Lending Act) says that the cost of credit on certain loans are expressed as
a bi-monthly percentage rate a monthly percentage rate a daily percentage rate an annual percentage rate
A
an annual percentage rate
Reg. Z requires lenders to state interest rates as an annual percentage (APR). This is to allow borrowers to shop for the very best rate.
18
Q
Of the following, all may be in the lender’s monthly impound requirements for a borrower, except:
property insurance prorations mortgage interest prorations property tax proration prorated annual payments for a street improvement act bond
A
mortgage interest prorations
The interest on a loan is not part of a borrower’s impound account
19
Q
A trustee has begun the legal process of selling property that is secured by a trust deed once the notice of default is recorded. The trustee must wait 3 months before they can:
convey title to the beneficiary put a lock on the door publish a notice of sale finalize the foreclosure
A
publish a notice of sale
Once the waiting period has elapsed (3 months after recording the NOD, notice of default) the trustee can publish the notice of sale.
20
Q
There are services that can be charged to a borrower, according to RESPA (Real Estate Settlement Procedures Act). The buyer or the seller can pay for the following, except:
the loan documents the uniform disclosure or the settlement statements a credit report the appraisals and notary fee
A
the uniform disclosure or the settlement statements
A lender cannot charge for the preparation of disclosures.
21
Q
An advertisement on a house that is for sale mentions the annual percentage rate for a home loan to purchase the property. What other information must be included?
The down payment amount Additional disclosures are not required The total amount that will be financed The term of the loan
A
Additional disclosures are not required
The Truth-in-Lending law states that if only the APR (annual percentage rate) is disclosed in the advertising additional disclosures are not required.
22
Q
Which of the following statements about the Federal Truth-in-Lending Act is correct?
It limits what lenders can charge It limits how much can be borrowed It provides clarity on how much you can borrow, what the lender will make, and your creditworthiness It provides consumers with information about their loan and the true cost of credit
A
It provides consumers with information about their loan and the true cost of credit
The purpose of the Federal Truth-in-Lending Act is to show consumers what the true cost of the credit is and give all the information up front, therefore the consumer can make the very best decision based on that information.
23
Q
What is the lender’s goal when determining whether or not to provide a real estate loan?
The loan to debt ratio Analyzing the chances of a substandard loan becoming a part of their loan portfolio To make the most money possible from each person The ability to pay back
A
Analyzing the chances of a substandard loan becoming a part of their loan portfolio
A loan that is substandard is more likely to default and a lender wants to avoid taking such a risk.
24
Q
One of the primary purposes of RESPA is:
sets limits to the price of the settlement costs on 1-4-unit residential property provides the prospective buyer the ability to shop for the very best price standardize closing settlement is easy to read sets limits on costs in the real estate transaction
A
provides the prospective buyer the ability to shop for the very best price
RESPA requires certain information to be given to the buyer so that they can shop for the very best price for settlement services.
25
How would a balloon loan be described?
A loan that is fully amortized
A loan due on sale
A loan that is partially amortized
A loan that is due upon sale
A loan that is partially amortized
A balloon loan is a partially amortized loan that is due in full at the end of the term.
26
With regards to portfolio risk management, lenders would be most concerned about:
liquidity of money
any of these
diversification of assets
reserves on hand
any of these
To minimize risk of a portfolio, lenders will have diverse loans, make them as liquid as possible, and keep a certain amount of reserves on hand.
27
What does it mean when a lender “calls” a loan?
Gives a phone number so that people can call in to get tips about their loan
Accelerates the amount due on the loan
Takes all the people who are behind in their mortgage payments to court
Calls people who are delinquent to pay up
Accelerates the amount due on the loan
Calling a loan means accelerating the outstanding balance and making the principal and interest due immediately.
28
A trust deed can have a clause that allows for future loans on the property to have priority. What is this called?
A release clause
A assignment clause
A subordination clause
A balloon payment
A subordination clause
A subordination clause allows for other trust deeds or liens to take priority over the trust deed that has the subordination clause.
29
Who has the authority to sell real property in a default situation?
trustor to trustee
seller to the buyer
beneficiary to trustor
trustee to trustor
trustor to trustee
In a deed of trust, the trustor (borrower) agrees to and gives the trustee (third party) the power to sell the property given as security for the note, in the event the borrower/trustor has financial troubles and defaults on his payments to the lender.
30
In comparison to an installment note, an straight note will:
have its total effective interest rate higher than if it was a normal installment loan.
have equal principal and interest payments due.
have no principal payments due during the term of the loan. It will have interest only installments and then the last payment will be the entire principal payment.
all of the above
have no principal payments due during the term of the loan. It will have interest only installments and then the last payment will be the entire principal payment.
A straight note is a note that has no payments due until the end of the loan. Payments of interest may be due during the term of the loan or in some cases the principal and all the interest is due at the same time at the end of the loan. The rate that is charged for interest doesn’t have to be higher.
31
The Stars entered into a purchase agreement to buy the Smiths’ property. The Stars agreed to take title “subject to” an existing VA loan that the Smiths had when they bought the home. If the sale goes through and the Smiths sell to the Stars, of the following which is true concerning liability for losses that the government can recover in a foreclosure situation?
The Stars would be liable
The Star’s would not be liable and the Smiths would not be liable either
The Smiths would be liable
No one is at fault since title was taken as “subject to” the existing loan
The Smiths would be liable
When a property is sold “subject to” an existing loan, the seller remains primarily liable for the note since they were the one who originally signed for the note.
32
The supply of real estate loans tends to increase by all of the following, except:
increased desire to provide for retirement
deposits into saving accounts go up
increased demand for liquid assets
national income increases
increased demand for liquid assets
Real estate loans are not as liquid as other assets or investments. Loan funds are increased by the other three examples, not by an increased demand for more liquid assets or investments.
33
In order to record a contract for real property, it must:
be signed by the seller and acknowledged
be signed by the buyer and acknowledged
be signed by both the buyer and the seller and must have acknowledgement
be notarized only
be signed by both the buyer and the seller and must have acknowledgement
Real property to be recorded at the clerk’s office must be signed by both parties and acknowledged by both of them.
34
A buyer takes title to a property with the verbiage “subject to” the existing loan and does not receive the lender’s consent. Which of the following are potential outcomes?
The buyer could lose the property in foreclosure if they cannot get new financing
The lender can accelerate the loan
The seller can be personally responsible
All are possible
All are possible
All of these things can happen when the lender finds out that the title of real property is about to transfer.
35
Real property requires more time to market, requires more care, and comes in larger amounts than securities in the stock market. Therefore, returns on real property should be:
higher than that of bonds or first mortgages
about the same as bonds
lower than that of bonds or first mortgages
equal to the return from a first mortgage
higher than that of bonds or first mortgages
Returns from real property should be higher than the returns you would receive from bonds or first trust deeds.
36
Concerning a promissory note, which is true?
It is used when real property is sold
It is evidence of a debt
It is acknowledged when it is recorded
It is used to secure a trust deed
It is evidence of a debt
A promissory note is evidence that money is owed from one person to another.
37
RESPA (Real Estate Settlement Procedures Act) only applies to certain types of property. Which of the following must comply with RESPA?
condominiums and other common interest properties
1-4 family residential dwellings
single family homes, owner occupied
commercial properties
1-4 family residential dwellings
RESPA rules and regulations apply to loans for 1-4 family residential dwellings.
38
If a buyer wishes to take title of a residential property “subject to” the existing loan and the lender does not allow the loan to go forward, what are the potential penalties?
The buyer can lose the property if they cannot get other financing, up until the foreclosure of the property
all of these
The seller may be responsible personally for the amount of the loan and any costs accrued with it
The lender can accelerate the loan and payment is due immediately
all of these
All of the above can happen once the lender becomes aware of the transfer of title
39
“Security interest” means:
packaged mortgages sold in the secondary mortgage market
a creditor’s interest in the borrower’s property
something of value that is used to buy real property
collateral for real property
a creditor’s interest in the borrower’s property
“Security interest” is the creditor’s (lender) right to foreclose on the borrower’s property if the loan is not satisfied or repaid.
40
Of all the cost associated with purchasing a property under the Federal Truth-in-Lending Act, which is considered a finance charge and must be included in the disclosure statement?
Title insurance fee
Escrow fee
Assumption fee
Document preparation fee
Assumption fee
Assumption fees are considered a finance charge.
41
Sarah bought 20 acres of land for $40,000 an acre. Sarah placed a down payment of $40,000 for a straight note blanket deed of trust for the remaining balance. The lender agreed, as part of the terms and conditions of the note, that if Sarah makes additional payments of $40,000 towards the principal, the bank would do a partial reconveyance of one acre for each payment. Sarah has made a total of $80,000 in payments and now owns 2 acres free and clear. How has the equity position changed for the encumbered property?
increased
decreased
Sarah has no equity
remains the same (she still owes money to the bank)
increased
Sarah’s equity was $40,000 on a price of $800,000 (20%). As Sarah made additional payments, her equity increased.
42
Of the following, which would not directly effect change for mortgage interest rates?
National unemployment rate
Easy supply of money
Supply and demand of money
National inflation
National unemployment rate
The unemployment rate may (over a long time) influence the mortgage interest rate, but it would be an indirect effect.
43
A buyer wishing to get a FHA loan must do all of the following, except:
find the FHA office and apply for an appraisal for the home you want to buy
buy a property that meets the requirements for a FHA loan
find a lender who will grant the buyer or borrower the FHA loan
have a way to pay for the loan, as well as insurance for the property
find the FHA office and apply for an appraisal for the home you want to buy
A buyer who wishes to use a FHA loan for the purchase of a property must find a lender who loans FHA approved loans, find a property that meets the FHA requirements, be able to pay for the mortgage, and maintain insurance for the property.
44
A tight money policy implemented by the FED (Federal Reserve System) would have the net effect of increasing the:
first trust deed for financing real estate transactions
use of secondary trust deed financing for real estate purchases
amount of single family homes available
supply of money available for new construction and development
use of secondary trust deed financing for real estate purchases
A tight money policy would tighten up the amount of money available to lend and more individuals would use secondary trust deeds in order to fund their real estate transactions.
45
Capital turnover in real estate investments is:
average with the stock market
slower than the average commodity
average with commodities
faster than the average commodity
slower than the average commodity
Real estate investments are held for a longer time than other type of investments.
46
In real estate finance, the term “beneficiary statement”:
is made by the title company and refers to the value of the title policy.
refers to the current balance due to the lender and the pay off amount.
refers to the property owner stating the benefits of owning the property
defines who will get the property in the event that the owner dies
refers to the current balance due to the lender and the pay off amount.
A beneficiary statement is used by the lender to show the payoff amount of a loan.
47
What is one of the unique features of a VA loan?
never more than 6% of the CRV
low down payment
no down payment
high down payment
no down payment
VA loans have no down payment
48
Which of the following would pay a premium for mutual mortgage insurance?
homeowner who assumed a FHA loan
homeowner who has conventional loan from a life insurance company
Cal-Vet loan
a homeowner who insures their personal property with insurance
homeowner who assumed a FHA loan
A buyer who uses a FHA loan will pay .5% per year based on the amount of the loan for an insurance premium.
49
How is the Federal Housing Administration different from other lending institutions?
FHA insures loans, it doesn’t make loans
FHA has longer terms for the length of the loan
FHA loans to elite members of society only
FHA offers better rates
FHA insures loans, it doesn’t make loans
The FHA insures the loans that lenders make. The FHA does not make loans.
50
A single family home is being sold and the new buyer will be assuming the existing loan. In order for the new buyer to assume the loan without any penalties, what should the real estate agent check to make certain that this is not included with the loan?
A condition precedent
A blanket mortgage
A subrogation clause
An acceleration clause
An acceleration clause
A loan that has an acceleration clause would make the loan due in full upon alienation of the title and this would not allow the loan to be assumed by someone else.
51
Of the following which is the truer statement about the activities of a mortgage company?
They never service the loans they fund
They keep and service the loans they fund
They never fund a government backed loan
They prefer to fund loans that can be sold in the secondary market
They prefer to fund loans that can be sold in the secondary market
Mortgage companies will often fund a loan that can be sold into the secondary market.
52
Truth-in-Lending says consumers must be informed of credit terms by:
the real estate agent
the broker
the escrow company
the lender
the lender
The lender must inform the buyer of the credit terms.
53
A loan that is secured by real property of 1-4 units must comply with RESPA rules and regulations if made by:
lenders whose deposits are insured by a government entity
the seller of the property who carries back the note for the buyer and is secured with a first deed of trust
a private money lender
none of these
lenders whose deposits are insured by a government entity
This law only applies to federally regulated institutions.
54
Concerning the relationship between an effective and nominal interest rate, which of the following is correct?
The effective interest rate is paid by the borrower for the use of the money and the nominal rate is a rate specified within the note
none of these
The effective interest rate is typically lower and the nominal rate includes closing costs
The effective rate will be charged to a buyer and the nominal rate is the rate that is referred to in the loan documents
The effective interest rate is paid by the borrower for the use of the money and the nominal rate is a rate specified within the note
The nominal rate is the rate stated on the note, and the effective rate is the rate that is actually paid and is typically higher because it contains the points (fees).
55
On August 1, 2011, William agreed to purchase Harry’s home. Both parties agreed that possession would be transferred on September 30, 2011, and that the property taxes on the property would be prorated as of the date of possession. On November 1, 2011, William paid the property taxes for the tax year 2011-2012. According to the closing escrow statement, which of the following would be true:
William paid Harry for 3 months of taxes
Harry paid William for 9 months of taxes
Harry paid William for 3 months of taxes
William paid Harry for 9 months of taxes
Harry paid William for 3 months of taxes
The property tax year runs from July 1 to June 30 and since Harry had use of the property between July and September 2011, he would owe William for 3 months of taxes.
56
Who pays the points on a CAL VET loan?
buyer
seller
lender
no one
no one
There are no points for a CAL VET loan. The Department of Veterans Affairs purchases the property then resells it to the qualifying veteran with a land contract.
57
A straight note with the same term and interest rate would
have less interest than an installment note including interest
have more interest than an installment note
have the same amount of interest as an installment note plus interest
none of these
have more interest than an installment note
A straight note has more interest than installment notes.
58
A partial release clause is used in conjunction with:
a construction loan
a single family home with a first and second trust deed
a blanket mortgage
an installment contract
a blanket mortgage
A blanket mortgage is a loan secured by more than one piece of land. When part of the loan is paid off, parts of the property can be reconveyed or released.
59
Lots of things can be prorated in real estate during the escrow process. Which of the following would be something buyers and sellers would agree to prorate during the sale process using escrow?
fees for title and escrow
rent
the cost to prepare the country transfer tax
termite and dry rot work that needs to be completed
rent
The seller would be entitled to any rent from the property up to the close of escrow; the buyer would be entitled to the rent thereafter.
60
When using a purchase money trust deed, the trustor:
receives a note for the amount borrowed
signs the trust deed as security for the loan
lends money for the purchase of real property
gives the money and no payment is needed
signs the trust deed as security for the loan
The trustor signs the trust deed, and will typically also sign the promissory note.
61
Which of the following best describes equity?
all of these
A down payment on a property.
The periodic repayments of the amount owed on a loan, minus the total loan amount.
The value a property owner has in the property, minus any liens against it.
all of these
Equity can be described by any of the ways above.
62
What is the best way to describe the function of a mortgage company?
short term credit and limiting the loans they carry in their portfolio to equal the amount of deposits they have on hand
purchase loans in the secondary market with the idea of holding the loans until maturity
pay higher amounts for savings and deposits to drive and promote savings. Their goal is to acquire vast amounts of real estate mortgages
part of the money market acting as a conduit for other lenders, they originate and service loans, however do not hold the loans themselves in their own portfolio
part of the money market acting as a conduit for other lenders, they originate and service loans, however do not hold the loans themselves in their own portfolio
Mortgage companies originate loans then sell them off to other lenders, but retain the servicing of the loan.
63
The measure of goods and services produced by the nation in one calendar year is known as:
gross national index
inflation
gross national product
economic conditions
gross national product
Definition of gross national product
64
When real property is sold, escrow will be used in order to:
make sure laws are followed
make sure all of the conditions and terms are met before the transaction closes
be a 3rd party witness for the transaction
make sure the real estate agent gets paid
make sure all of the conditions and terms are met before the transaction closes
Escrow makes certain that all of the details of the transaction are complete before the deal closes.
65
How can the Federal Reserve Board increase the supply of money and credit in the economy?
Any of these
Lower the cash reserves required for banks that are part of the Federal Reserve Bank System
Raise the discount rate charged to banks what are part of the Federal Reserve Bank System
Increase the reserve requirements for banks that are part of the Federal Reserve Bank System
Lower the cash reserves required for banks that are part of the Federal Reserve Bank System
When the Federal Reserve Board lowers the reserve requirements for banks, it allows for more money to flow into the economy.
66
How would an existing seller’s mortgage that is assumed by a buyer appear on the closing statement?
a credit to the seller
a credit to the buyer
a debit to the seller
a debit to the buyer
a debit to the seller
A seller’s mortgage that assumed by a buyer shows up against the seller’s proceeds and does not relieve the original mortgagor (original borrower) from their financial liability.
67
Of the following which would show up on the seller’s closing statement as a credit?
commission to the agents
proration of prepaid taxes
proration of prepaid rent
payoff of an existing loan
proration of prepaid taxes
When the seller paid taxes that go beyond the close of escrow, the difference would show up as a credit in their closing statement.
68
Of the following, which is a cost of home ownership?
Loss of interest of the owners’ equity
Approbation of improvements made to the real property
Appreciation of the land
Appreciation of rental costs
Loss of interest of the owners’ equity
If the owner loses the interest that they earned from the equity of the property, this would be a cost of ownership.
69
According to the Real Estate Settlement Procedures Act, when a lender makes a loan they must first provide:
a good faith estimate
the closing costs only
a mortgage fee only
a credit score
a good faith estimate
RESPA requires the lender (within 3 days) to deliver to the loan applicant a good faith estimate which shows the estimated closings costs associated with the loan.
70
When a borrower is interested in applying for a FHA loan, which of the following would be able to assist them?
the mortgagee
the real estate agent
the broker
the FHA directly
the mortgagee
A person who wants to use a FHA loan to finance the purchase of real property would apply to a lender (bank, savings and loan). They would be the mortgagee or beneficiary.
71
Who can execute escrow instructions?
sellers
3rd parties
buyers
all of these
all of these
All three can execute escrow instructions.
72
During the loan application process a lender would gather information about the borrower, the loan, and the property to make a:
true cost of credit
appraisal
loan commitment
credit score
loan commitment
The loan commitment includes all the information about the borrower, the loan, and the property.
73
What is the vacancy rate (under normal conditions) a result of?
supply and demand of the housing market
employment numbers
rental costs in the immediate area
cost of money in the free market
supply and demand of the housing market
Housing supply fluctuations will have a direct effect on vacancy rates.
74
What would best describe a mortgage in which the terms secure the initial amount of the loan plus any additional amounts loaned at a later date?
A closed end mortgage
None of these
A blanket mortgage
An open ended mortgage
An open ended mortgage
An open ended mortgage allows for additional credit to be extended to the borrower without having to reapply for a loan.
75
Donald sold his home for $32,400 and took back a $25,000 note with interest at 9% per year. The property has a fair market value of $30,000 and later Donald decided to sell the mortgage note and discount the note for $19,000. Donald sold them to Laura Smith and on the back of the note Donald wrote “I assign this note to Laura Smith without any recourse”. If the maker of the note defaults before any principal payments are made, Laura’s best legal recourse is to:
foreclose to enforce payment of the $25,000
recover the $19,000 from Donald
foreclose to recover the $19,000
do nothing
foreclose to enforce payment of the $25,000
The only recourse Laura has is to foreclose for the full face amount of $25,000.
76
What does “debt to income ratio” mean?
a governmental requirement
closing costs
formula used for figuring out lot size
a qualifying tool for a loan
a qualifying tool for a loan
The lender typically uses the “debt to income ratio” of a borrower, which is the amount of debt vs. the borrower’s income, when a borrower is applying for a home loan.
77
When a lender is loaning money to two or more co-borrowers, in order to protect the lender and add security to the note, the lender will add the following language after the names of each of the borrowers?
personally responsible
together as individuals
joint and severally
as individual
joint and severally
The terms “joint and severally” refers to the co- borrowers and means that they are both obligated together and individually for the satisfaction of the loan.
78
Of the following types of loan, which would qualify for FHA insurance but not a VA loan guarantee?
A loan to buy an avocado farm
A small business loan
A loan to buy a 1-4-unit residential income property
A loan to buy an 8 unit investment complex
A loan to buy a 1-4-unit residential income property
FHA loans allow for the purchase of 1-4 unit income property while a VA loan guarantee does not.
79
Taxes on a home that will be selling May 1 is $ 1,500. If the full amount of taxes has been prepaid for the year, how much would the seller get back in a proration scenario?
$125
$1500
$250
$150
$250
The tax year runs July 1 through June 30. The buyer would be obligated to reimburse the seller for the amount of taxes that were prepaid for the months of May and June. 1500 /12 = 125; 125 x 2 = 250
80
Of the following, which would be a recurring cost?
mailing of documents
escrow fees
title insurance premiums
impound account items
impound account items
Impound account items, such as property taxes and homeowners insurance, are normally paid monthly with the payment of principal and interest through the life of the loan.
81
How would ”insurance” be described?
Transfer of risk from one person to another (insured to insurance company)
Substitution of certainty for uncertainty
According to the policy terms and amount it protects the insured from a loss
all of these
all of these
Insurance does all of these things listed above
82
Who holds the title of a CAL VET Farm and Home Purchase Plan?
the borrower
Department of Veterans Affairs
Veterans Administration
the local bank
Department of Veterans Affairs
The Department of Veterans Affairs retains the title of the property using an installment/conditional sales contract and sells the property to the veteran.
83
The trustor in a trust deed:
cannot sell their interest
holds the deed of trust and the note, even if an outstanding amount is due.
signs a note for the amount borrowed
is not responsible for payments
signs a note for the amount borrowed
The borrower is the trustor and they sign the promissory note for the borrowed amount.
84
Copies of a certified structural pest control report, which is filed by a pest control company with the Structural Pest Control Board within the last two years, can be obtained upon request (and payment received) by :
a seller involved in the transaction
a buyer involved in the transaction
anyone
the buyer, seller and the real estate agents involved in the transaction
anyone
The structural pest control board keeps records of the last two years for properties that have been inspected. The files can be accessed by anyone once they request and pay a fee for the report.
85
When a lender accepts a deed in lieu rather than foreclose on a property, the lender will
own the property free and clear of any encumbrances
assume any junior liens
go to court to get a judgment
add adverse risk to their portfolio
assume any junior liens
When a lender accepts a deed in lieu instead of foreclosure, any liens on the property stay with the property and the lender assumes them. If the property is sold at a trustee’s sale, then the junior loans will go away.
86
Betty purchased her home using a Cal Vet loan. Two years later she made her last payment and satisfied the terms of the loan. Which of the following documents is least likely used in such a transaction?
title insurance policy
grant deed
fire insurance policy
trust deed
trust deed
A trust deed is not used in a Cal Vet loan. The property is sold using a land contract. The title insurance policy and the fire insurance policy are required when the property is sold to a veteran and, also, when the veteran receives his deed. The veteran would receive the grant deed when the loan was paid off.
87
Life insurance companies who do not want to work directly with the consumer (mortgagors/trustors) will pay a loan servicing fee and preparation fee and make real estate mortgage loans that can be purchased indirectly through:
the VA loan office
the FHA loan store
all of these
a mortgage company
a mortgage company
Life insurance companies will work through a mortgage company to make, process, and service loans. They pay a fee to the mortgage company for their efforts.
88
Miranda took a home improvement loan out for her property that was fully amortized. The loan provides for equal monthly payments. What will happen to the amount credited to principal?
Nothing will happen. It’s equal.
The contribution towards the principal will increase at a constant amount and interest payment will increase
The contribution towards the principal will decrease at a constant amount and interest payment will increase
The contribution towards the principal will increase and interest payment will decrease
The contribution towards the principal will increase and interest payment will decrease
In a fully amortized loan (with equal monthly payments) the amount credited to the principal will increase while the amount credited to interest will decrease.
89
When the Federal Reserve Board increases the reserve requirements, the following will happen:
inflation goes down
more loan activity
inflation goes up
less loan activity
less loan activity
When the Federal Reserve Board increases reserve requirements , banks have to hold onto more cash which makes it less available for loans.
90
Of the following, which is true when talking about a hard money second deed of trust?
always carried by a commercial bank
always repayable within 5 years
always has a rate that is lower than what normal rates go for
always secured by real estate and given to a 3rd party to obtain a cash loan
always secured by real estate and given to a 3rd party to obtain a cash loan
This is a hard money loan that provides cash to the borrower to make the real estate purchase. It would not be carried back by the seller since it is a trust deed which is secured by the real estate.
91
If a seller wants to remove himself from the responsibility of a trust deed, he must find a buyer who is willing to:
take title subject to the trust deed and note
sign a full release
assume the trust deed and not liability
execute a loan contingency
assume the trust deed and not liability
There is a major difference between assuming a loan and taking title subject to the loan. Make certain to know the difference.
92
Which of the following would be the correct term used when a private lender charges more than the maximum interest allowed by law?
aversion
penalty
illegal
usury
usury
Usury is when a lender consciously charges more than the maximum amount of interest allowed by law.
93
When does the time for repayment start for a construction loan?
when escrow closes
when money is wired to escrow
from the date of the note
when the purchase contract was signed
from the date of the note
The date of the note determines the maturity date of the construction loan.
94
A mortgage was written two years ago with a prepayment penalty. Which of the scenarios would allow the lender to waive the prepayment penalty?
When a period of deflation is present
Building costs are increasing quickly
Demand outpaces the supply
When a new loan can be made at a higher rate
When a new loan can be made at a higher rate
The reason for a prepayment penalty is to cover the loss of interest based on the early payment of the loan. A new loan at a higher rate for the same property could make up for the loss from the unpaid interest.
95
A straight note:
may have the principal balance due in a lump sum
all of the above
can be secured with a mortgage
have payments of interest due at specific periods
all of the above
When secured with a mortgage, a straight note can be used in a real estate transaction. The interest is paid over a specific period and the principal balance is due in one lump sum.
96
A proper fire insurance policy provides a home owner of real property with protection in the case of a loss. What should the insured expect when utilizing the insurance policy?
to take on a loss and won’t gain
make a gain and not suffer any loss of money
neither gain nor lose (make whole again)
make money on the loss enough to upgrade their home
neither gain nor lose (make whole again)
Proper insurance coverage will allow the insured to be reimbursed for their loss.
97
When a buyer is financing a loan for new construction, when will the lender release the final payment to the builder?
When the lien period has expired
When the work has been completed
When the completion of work has been recorded
When the work has started
When the lien period has expired
Final payment is usually held back until the lien period has expired. This is done to make certain that there will not be any mechanics liens filed against the property.
98
What does an “open end” provision allow the borrower to do?
Pay the loan faster
Allows the loan to be assumable
Pay the loan off whenever the borrower chooses to
Borrow more money
Borrow more money
“Open end” means the borrower can borrow additional money in the future without needing to repeat the loan process.
99
If a seller wants to sell their real property and carry the loan, or credit themselves and keep legal title to the property which kind of financial tool would be used?
money market
first trust deed
mortgage
real property installment or conditional sale contract
real property installment or conditional sale contract
The seller retains legal title under this type of contact until the loan amount is satisfied in full.
100
What does an “or more” clause mean in an installment note?
more can be paid without receiving a penalty
money can be borrowed if needed
can take longer to send in payment
can pay off the loan with a penalty
more can be paid without receiving a penalty
With an “or more” clause, the amount due can be paid or additional payments can be made without any charged penalties.
101
What is the name of an arrangement where one party agrees to pay the other party for incurred damages for clearly defined risks, in exchange for a payment of money?
a agreement to manage property
a mortgage
an insurance policy
a car note
an insurance policy
This is an insurance policy.
102
When the real estate market changes from a buyer’s market to a seller’s market, what could be expected in the real estate industry?
Home prices will increase due to the lack of inventory
Home prices increase due to a surplus of inventory
Home construction would decrease
Home prices will decrease due to high demand of property
Home prices will increase due to the lack of inventory
In a sellers’ market, property demand is higher than the supply of inventory that is available. Therefore home prices will increase.
103
You go to list a property for sale and you find out that the seller has a conditional/installment contract of sale. While you read the agreement you notice there is no acceleration clause and there is no language that disallows the resale or assignment of the contract. What can your client do?
Get a personal loan to cover the outstanding amount due on the conditional/installment contract and sell the property to the new buyer without pre approval
Sell or assign the rights to the new buyer and retain the original duties unless the contract seller agrees
Pay off the current agreement, then sell the property to a buyer
none of the above
Sell or assign the rights to the new buyer and retain the original duties unless the contract seller agrees
The contract can be assigned unless there is language that does not allow it. The obligation to perform cannot be reassigned.
104
What is the best description of a balloon payment?
the entire balance is due
partial payment is due
50% of payment is due
20% of the payment is due
the entire balance is due
A “balloon payment” means the entire loan balance is due.
105
What is a “FICO” score typically used for?
None of these
Helps to decide which government program someone can qualify for
Supplies the credit history of the prospective buyer
Determines if private mortgage insurance will be needed
Supplies the credit history of the prospective buyer
A FICO score measures the creditworthiness of a borrower (how they are at paying back their debts).
106
If Ethan bought a home with a minimal down payment and a long repayment term, what would the result be?
Decrease financing costs the longer the loan
Increase financing cost
Acceleration clause would kick in
No effect on financing cost everything would stay the same
Increase financing cost
As a buyer, the longer the term of the loan and the lower the down payment, the more expensive the financing costs will be.
107
Which of the following would produce changes and impact the real estate market?
consumer sentiment changes
all of these
land use controls
sudden shifts in the real estate industry
all of these
Any changes in the above would produce extensive changes to the real estate industry for the foreseeable future.
108
John borrowed money from a company bank and gave the lender a trust deed for 9 separate pieces of property that John owns free and clear without any encumbrances. What kind of trust deed would this be?
a blanket deed of trust
none of these
all-inclusive deed of trust
purchase money deed of trust
a blanket deed of trust
The trust deed is a blanket over one or more pieces of land used for the security of a loan .
109
What is the name of a real estate financing tool that transfers title to real property, but the seller keeps legal title?
deed of trust
security instrument
real property conditional installment sale contract
mortgage
real property conditional installment sale contract
The bank holds title and equity is transferred to the borrower (or buyer) over time as the buyer or borrower makes payments on the loan.
110
How would a lower mortgage interest rate affect the real estate market?
business would shrink
higher inflation
more money available for mortgages
lower inflation
more money available for mortgages
Money is a commodity and scarcity would make the cost of money increase. Abundance will make money less expensive and is often called interest.
111
When real property is in escrow which of the following may the escrow holder have to do?
Cancel escrow if the buyer doesn’t perform
Accept written instructions from the seller and buyer to change pricing or terms without agent approval
Settle a disagreement between the buyer and seller
Cancel escrow if the seller doesn’t perform
Accept written instructions from the seller and buyer to change pricing or terms without agent approval
Buyer and seller may change the escrow instructions without needing the approval of anyone else as long as both principals mutually agree to do so. This is typically done in writing.
112
What is the lender referring to when discussing “discounting”?
The process of arriving at the loan yield
The proceeds disbursed by the lender are greater than the face value of the note
The loan proceeds disbursed by the lender are less than the face value of the note
The process of arriving at the effective interest rate
The loan proceeds disbursed by the lender are less than the face value of the note
A lender will charge discount points when making a loan which will deduct from the face value of the amount of the note. The remaining amount goes to escrow and funds the loan.
113
What is the primary purpose of FNMA (Federal National Mortgage Association)?
Get money into the hands of large scale builders to build more home tracts
Supervise public lending for real property
Lending money to consumers
Increase the amount of money available for credit financing of housing
Increase the amount of money available for credit financing of housing
The Federal Mortgage Association ensures a secondary market for FHA insured mortgages.
114
What is the purpose of the Truth in Lending Act?
Disclosure of credit terms
Make credit available to everyone
Limit the cost of credit to consumers
Establish credit rules for consumers
Disclosure of credit terms
The Truth in lending act or Regulation Z requires lenders to disclose the annual percentage rate (APR) of interest and all direct and indirect costs associated with the cost of the loan so that consumers can shop for the very best rates.
115
A trust deed, under California law:
transfers interest in property
encumbers the real property that is designated in the deed of trust
designates owners and sellers in the deal
transfers ownership
encumbers the real property that is designated in the deed of trust
A trust deed is an encumbrance and it conveys title to a trustee.
116
A trust deed note on a single family owner occupied residence, which has a loan from a state savings and loan association, can be repaid without penalty after:
never, it cannot be prepaid without incurring a penalty
the loan matures for 2 years
the loan matures to 7 years
the first payment is taken
the loan matures to 7 years
Civil code states that a single family residence that is owner occupied and has a state savings and loan association note can be repaid without penalty after 5 years, in some cases after 7 years.
117
What does a “seasoned” loan mean?
A loan that has been approved and ready to fund
A loan that has been issued for over a year and the borrower has a good payment history
The quality of the loan
The maturity date of a loan is nearing
A loan that has been issued for over a year and the borrower has a good payment history
A “seasoned” loan refers to loan payments that have been paid as scheduled and over a certain time period, typically more than one year.
118
What does the term “warehousing” mean when we use it in relation to real estate?
Federal Truth-in-Lending Act
a large building where mobile homes are placed for storage
a loan for an industrial property
a mortgage bank that is gathering loans and preparing them for sale
a mortgage bank that is gathering loans and preparing them for sale
Warehousing occurs when loans are gathered together and bundled for sale to a large institutional investor.
119
When escrow closes on a home purchase, the closing statement typically shows that the seller has paid certain items in arrears or in advance related to the ownership of that home. These items are usually prorated or adjusted. All of the following would be included in these prorated items except:
fire insurance premiums
property taxes
interest and impound accounts
delinquent interest and principal payments for a home improvement loan
delinquent interest and principal payments for a home improvement loan
Any loan that is unsecured (signature loans are unsecured) does not apply to the property itself and would not show on the closing statement.
120
Of the following, which is true about the escrow process?
When a broker has no interest in a transaction, a broker can hold an escrow for compensation for other parties
The escrow office is a mediator for settling arguments
When all requirements are met, the escrow changes from dual agency to separate agency
A binding contract with buyer and seller is a “complete escrow”
When all requirements are met, the escrow changes from dual agency to separate agency
The escrow company is an agent for both parties throughout the escrow process. Once the escrow is completed and closed, the initial dual agency changes to separate agency.
121
Who can insure a mortgage?
FHA or private mortgage insurer
FNMA
the buyer
Freddie Mac
FHA or private mortgage insurer
FHA loans are insured against default by the Federal Housing Administration. There are also private mortgage insurers who insure conventional loans.
122
Greg received a loan application from his lender that asked him to specify his marital status and ethnic background? Legally, what can he do?
Better fill in the information otherwise he may be denied the loan
Be denied the loan if he does not fill in that info
Answer the question because it’s on the form
Refuse to fill in that information on the loan application
Refuse to fill in that information on the loan application
A borrower can choose whether or not to provide that information. A borrower cannot be penalized either way. The lenders report the information to regulators to make sure they are not discriminating.
123
What does it mean when the buyer takes property “subject to” the existing loan?
Only the seller is responsible for the loan
The buyer will not be personally responsible for the loan
Both buyer and seller are responsible for the loan
Only the buyer is responsible for the loan
The buyer will not be personally responsible for the loan
If a buyer takes property “subject to” an existing loan, the buyer is not personally responsible for the payment of that loan.
124
Which of the following are synonymous?
construction loan / interim loan
take out loan / installment loan
construction loan / take out loan
take out loan / short term loan
construction loan / interim loan
Interim loan is another name for a construction loan.
125
What disclosures are needed for a graduated payment mortgage under the Truth-in-Lending law?
property description
different monthly payments
real estate agents name
lender’s information
different monthly payments
When advertising for such a loan, the monthly payment must be disclosed according to the Truth-in-Lending Law.
126
What best describes the increase in value due to an increase in population?
Any of these
An economic boom
An unearned increment
An economic downturn
An unearned increment
An unearned increment of value results from an increase in the value of land or property without labor or expenditure on the part of the owner. An increase in population in an area that drives the value of real property to increase would be an example of an unearned increment.
127
Who does a subordination clause benefit the most?
trustor
any of these
trustee
beneficiary
trustor
The trustor is permitted to obtain a future trust deed (loan) which will move into first (priority) position, ahead of the initial lender who has secured a loan by a mortgage or deed of trust in regards to payment, in the case of default. The initial lender agrees to subordinate the first loan to the new loan. It is to the trustor’s advantage, not to the beneficiary’s.
128
Which of the following is not considered a demand source for mortgage money?
construction and development
Federal National Mortgage Association
sales financing
refinancing
Federal National Mortgage Association
The Federal National Mortgage Association provides money for real estate purchases. It doesn’t create demand for it.
129
Escrow prepares a closing statement which has columns with credits and debits. The sellers and buyers columns:
can be the same
must be the same
can be different
must be different
can be different
The buyer and sellers could have the same balances in the debits and credits columns, but they are usually different. Each party pays for some costs, some costs are paid by the buyer, some by the seller, and some by both.
130
Robert bought a home from Lizzy. Robert agreed to assume the conventional loan. The lender agreed to the assumption by Robert and issued a substitution of liability. What would typically be the next step?
Lizzy is personally responsible even though the bank approved
Robert and Lizzy are both responsible for the life of the loan
No one is responsible; the bank retains all the risk
Lizzy is released of liability and all duties and obligations
Lizzy is released of liability and all duties and obligations
Substitution of liability says that the liability is transferred to the assumer of the loan.
131
When a blanket mortgage is placed on property and the release schedule is showing the amount that must be paid off for each lot, those amounts are normally higher for the first few lots sold. The reason is:
to compensate for the loss of security for the best lots being sold first
to compensate for the loss of security as the lots under the blanket encumbrance are sold
to increase the value of the remaining lots
all of these
all of these
These are fantastic reasons as to why the first few lots sold would require larger repayment under a blanket mortgage.
132
A FHA loan is different from a conventional loan in all the following ways, except:
Conventional loans have lower loan to value ratio (LTV)
FHA loans typically has a longer term for repayment
Conventional loans always permit a deficiency judgment, FHA loans do not.
FHA loans usually have lower interest rates compared to conventional loans
Conventional loans always permit a deficiency judgment, FHA loans do not.
Deficiency judgments are not allowed for purchase money encumbrances regardless if they are for conventional or FHA loans
133
Of the following statements, which is false about real estate financing?
a promissory note is security for a mortgage
the owner of a property who signs for a mortgage to borrow money is known as a mortgagor
discounting a note means selling it for less than face value
a mortgage is considered a lien
a promissory note is security for a mortgage
A mortgage is security for a promissory note.
134
The Mark’s property was bought by the Millhouses. As part of the deal, the Marks were to have a structural pest control completed. The Marks called ABC pest control company to do the inspection, report, and complete all of the corrective actions which the Mark’s paid for. Which of the following is correct about this scenario?
The seller does not have to provide the buyer with a copy of the pest report since the seller paid for it
The seller only has to tell the buyer of the company that will be doing the pest report and repairs
The seller or the seller’s agent must deliver a copy of the pest report to the buyer as soon as possible
The buyer has to deliver the pest report to the seller
The seller or the seller’s agent must deliver a copy of the pest report to the buyer as soon as possible
The purchase agreement will say when the pest control report must be completed by. If that information is not stated, it should be delivered in a reasonable amount of time.
135
Of the following, which does not buy loans in the secondary mortgage market?
Government National Mortgage Association
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Federal Housing Administration
Federal Housing Administration
The Federal Housing Administration (FHA) is an insurer of loans. They do not buy or sell them.
136
Under the terms of the trust deed, who has the right or power to sell real property in the event of a default:
trustee to the trustor
seller to the buyer
buyer to the seller
trustor to the trustee
trustor to the trustee
The trustor (borrower) gives the trustee (holder of the title) the title of the property, with the right to sell the property to satisfy a debt in the event of defaulting.
137
If a borrower takes out a loan that is 100% of the purchase price of a property and the loan is not government related, how is the lender protected?
Through appreciation of the home value
Low interest rates
Great unemployment numbers
By hope and a prayer
Through appreciation of the home value
If the property is appreciating in value, this would provide some protection to the lender in case of a foreclosure.
138
Of the following, which lender would have the greatest percentage of their funds invested in real estate mortgages?
Commercial banks
Life insurance companies
Savings and loan associations
Mutual savings bank
Savings and loan associations
These institutions put a greater percentage of their funds into real estate, mostly made up of single family homes.
139
When a borrower defaults on a loan and the lender chooses a judicial foreclosure, the borrower is given an amount of time to redeem the property. During the redemption period, who maintains the right of possession of the property?
the lender
the lawyers
the mortgagor
the trustee
the mortgagor
During the redemption period the mortgagor (borrower) can stay in possession of the real property.
140
If there is a dispute between the buyer and seller, under what circumstance can an escrow agent release funds?
Upon receiving an arbitrator award
Upon receiving written instructions signed by the buyer and seller
all of these
Upon receiving a court ruling
all of these
Any of these can trigger an escrow agent to release funds.
141
Recession, prosperity, expansion and depression are all related to which of the following cycles?
money
buyer to seller market
business
real estate
business
These terms are used to describe the business cycle.
142
A buyer and seller negotiate a sale of real property where the buyer will take the title subject to the seller’s existing loan. If the sale is made without the lender having knowledge or consent, the buyer and seller should both be aware that:
the seller may retain personal liability for the loan and any potential deficiency and costs associated with it
the sale might not be completed if the loan is called and the new buyer is unable to qualify for a new loan
all of these
the loan may be accelerated
all of these
All of these may occur if the buyer and seller agree to this type of transaction without the lender’s consent.
143
Institutional lenders often charge fees for the expenses they incur such as document preparation and underwriting. The fees are usually a percentage of the face amount of the loan. What are these fees known as?
loan origination fees
loan percentage fees
cost of doing business
mortgage loan sales person fees
loan origination fees
Costs of the origination are passed along to the borrower by charging origination fees.
144
In general, when prices decrease:
the value of money goes down
the value of rice and corn goes up
the value of money increases
nothing happens
the value of money increases
When prices go down, money becomes more valuable because it can be used to purchase more items.
145
What is the purpose of mortgage insurance on a FHA loan?
Protects the community
Protects the government
Protects the buyer
Protects the lender in the case of default
Protects the lender in the case of default
Mortgage insurance for FHA loans protects the lender in case of default by the borrower. This insurance is paid by the borrower.
146
What is a “release clause” in a mortgage?
Releases the bank of wrongdoing
Releases the borrower from wrongdoing
The portions of the property that were held for security can be released from the mortgage lien upon performance of an act (payment of the loan)
Allows for fish to swim free
The portions of the property that were held for security can be released from the mortgage lien upon performance of an act (payment of the loan)
147
Some real estate loans can have interest rates that can increase or decrease depending on what is happening in the market. What would best describe this type of loan?
A variable interest rate loan
A construction loan
A fixed rate loan
A loan with a term of less than 5 years
A variable interest rate loan
Definition of variable interest rate.
148
All of the following are negotiable instruments, assuming there is no agreement to the contrary, except:
a personal check
a cashier’s check
a mortgage securing a promissory note
an installment note
a mortgage securing a promissory note
A mortgage is not a negotiable instrument. The promissory note that is attached to it is a negotiable instrument, which is considered a promise to pay money.
149
You purchase a negotiable note and you are unaware of any defects with the note. You would be known as the following:
Holder in due course
None of these
The mortgagor
A trustor
Holder in due course
Definition of a holder in due course.
150
Under a land contract for the sale of real property, who holds legal title:
Vendor
beneficiary
vendee
buyer
Vendor
The vendor is the seller of the property and until the loan is paid in full or satisfied the seller retains the legal title of the property.
151
“Mortgage yield” refers to:
the interest earned by the lender after subtracting all their fees
how much value a property will gain when it has a mortgage
the interest return obtained from a trust deed by an investor
how much value a property will lose because it has a mortgage
the interest return obtained from a trust deed by an investor
Mortgage yield is the profit the lender earns from the loan given.
152
When the Gross National Product (GNP) and the employment rate goes up, which of the following also occurs?
Personal income rises
Existing homes sales will increase
All of these
Building and developing of new homes will start
All of these
An increase in the economy would bring the above trends as well.
153
What are “discount points” a percentage of?
The loan amount
The property’s selling price
The closing costs
The down payment
The loan amount
Loan points, also known as discount points, are a percentage of the loan amount.
154
In California, Escrow Law would be found in which of the following documents?
bureau of real estate rules and regulations
civil code
real estate law
financial code of California
financial code of California
Escrow Law is part of the financial code of California.
155
A beneficiary (lender) of a second trust deed sold their interest in the real property for an amount less than the unpaid balance on the note. This is termed:
forgiven deed
undercharging
discounting
deflated note
discounting
This is the definition of discounting a note.
156
Stocks and bonds, when compared to real property, are thought to be:
challenging to evaluate
harder to sell
more liquid in the market
less volatile
more liquid in the market
Stocks and bonds are easier to purchase and sell. For this reason, they are more liquid than real property.
157
A trust deed, under California law:
encumbers the real property that is identified in the deed of trust
transfers interest of the real property to a third party
none of these
designates up to two people in the deal
encumbers the real property that is identified in the deed of trust
A trust deed encumbers the real property and transfers title to the trustee.
158
What does an impound account for a real estate loan refer to?
fixed rate
reserves
short term
reduced term
reserves
Impound accounts are used for the collection of money for taxes and insurance. These funds are collected by lenders.
159
Matt sold his home and escrow will close on March 1. The annual tax amount is $2,100. If the first installment has been made and the second installment will be prorated on the escrow closing date, how much will the buyer be charged for taxes?
$700.00
none of these
$1,400.00
$525.00
$700.00
Monthly taxes are $175.00. The tax year runs July 1st through June 30. The buyer would owe taxes for March, April, May, June (4 months) $2100 yr / 12 months = $175 month x 4months = $700.00
160
What does “default” refer to when used in context of a deed of trust?
the borrower not maintaining the real property
late on making a loan payment
all or any of these
using real property in an illegal fashion
all or any of these
A deed of trust allows the beneficiary (lender) to declare real property in default if any of the above have occurred.
161
A seller wishes to sell a piece of real property using a conditional sales contract and carry back the mortgage as a first trust deed. What is the benefit of conducting the sale in this manner rather than using a grant deed?
If financing for the buyer is challenging, this would be an easier way to sell the property.
The barrier of entry is less (lower down payment)
The seller retains legal ownership up until the buyer makes the final payment to satisfy the loan
None of these
The seller retains legal ownership up until the buyer makes the final payment to satisfy the loan
With a conditional sales contract, the seller keeps the legal title until the loan for the purchase of the real property has been completely satisfied.
162
What does the security of a loan made for real property depend on?
The borrower’s creditworthiness
The borrower’s ability to repay
All of these
The value of the property being used for the lien
The value of the property being used for the lien
163
A real estate broker helped their client negotiate a loan. The homeowner gave the lender a promissory note and a second trust deed for $5,600. Which of the following would be used by the broker in this transaction?
real property securities statement
closing statement
broker’s loan statement
real property security permit
broker’s loan statement
A broker’s loan statement, also known as the loan disclosure statement, is given to the borrower by the broker.
164
Vic needed $4,800 to buy a motorcycle. Vic gave the lender his note for $4,800 which was secured by a second deed of trust against his personal home. The note was payable at $154 a month including 10% interest per year over three years. How much is the total principal that Vic must pay back to the lender
$9,600
$4,000
$5,600
$4,800
$4,800
This initial principal amount of the note was $4,800 and this principal must be paid by Vic. He will also have to pay interest in addition to the principal amount.
165
Why are amortization tables used when making a loan?
To determine the interest rate
To determine the monthly payment
To determine the term of the loan
To determine what the annual percentage rate will be
To determine the monthly payment
The amortization table is used to find the right interest rate and then the amount of the loan to determine what the monthly payment will be.
166
What would a lender consider the most important factor when deciding whether to fund a home loan purchase?
Past repayment history
Degree of risk
Credit of the client
Local, state and federal laws
Degree of risk
The lender’s primary concern is the degree of risk with the loan.
167
Which of the following is exempt from the Federal Truth-in-Lending Act?
An agricultural and farming loan from a bank
A VA loan from a savings and loan
A signature loan without any security from the borrower from a financing company
A loan from a credit union for improvements to the home
An agricultural and farming loan from a bank
Farming agricultural loans are exempt from the Federal Truth-in-Lending Act
168
When title is transferred due to the sale of real property that is encumbered by a deed of trust, it’s necessary to:
have title insurance
have the grantor deliver a deed
have acknowledgment
none of these
have the grantor deliver a deed
Whenever real property is bought or sold the grantor must deliver a deed.
169
What does an “acceleration clause” do when added to a note that is otherwise negotiable?
It does not reduce the negotiability of the note
Without it, the note would lose its' negotiability
It is required for negotiability in the secondary market
It makes the note non negotiable
It does not reduce the negotiability of the note
A note with an acceleration clause does not make it non negotiable.
170
A licensee must give a borrower a federal RESPA booklet and disclosures when a federally related loan is in first lien position and the money is used to:
purchase a farmland
purchase a residential one to four-unit building
purchase a 30-unit apartment building
remodel a single family home
purchase a residential one to four-unit building
RESPA applies only to 1-4 residential units.
171
A lender who extends a FHA loan would least be concerned about:
how liquid the investment is
the supply and demand in the market for funds
the risk involved with making the loan
the mortgage insurance rate
the mortgage insurance rate
Mutual mortgage insurance rates for FHA loans are fixed by law and the borrower of the loan pays for the insurance, therefore the lender would not be concerned with this.
172
Jen failed to make payments on her trust deed loan for two straight months and a notice of default has been recorded. She has:
the right to ask for forgiveness
lost her home and needs to move
the right of redemption
the right of reinstatement
the right of reinstatement
The right of reinstatement allows the borrower (trustor) to make up the payments owed to the lender (beneficiary) to halt the default. These rights can be exercised up to 5 days before the sale.
173
The federal right to cancel notice must be given to the borrower by the agent if:
the loan is not secured by real property and more than $30,000 is being borrowed
the money will be used for capital expansion
industrial building is being used as collateral
the borrower’s residency is being used as collateral (security) for the loan
the borrower’s residency is being used as collateral (security) for the loan
The laws do apply if the collateral or security is the borrower’s residency, no matter how much the loan is for.
174
A developer needs a long term loan for $10,000,000 to develop a shopping plaza. Which of the following is the best place to get the funds?
A commercial bank
A local credit union
Stock market funds
A life insurance company
A life insurance company
Life insurance companies prefer making larger loans for real estate. They would rather loan better type properties and large, long term loans.
175
How are interest rates determined for trust deed loans?
supply and demand for money
all of these
money market rates
the value of the dollar vs. other currencies
supply and demand for money
Interest rates fluctuate based upon supply and demand.
176
When both the buyer and seller sign a real property conditional sales agreement, what effectively happens?
legal title goes to the state
the buyer receives the equitable title
the seller retains the equity
legal title passes to the buyer
the buyer receives the equitable title
When a conditional sales contract is signed, the buyer will get the equitable title to the property. The seller retains the title until the loan is satisfied.
177
David sold Joan his home. They used a land contract and signed and recorded it. Joan made a $100 down payment and then made 6 more equal payments over the next few months. One day Joan picked up and left, never to return again. Of the following, which is true?
David gets the property back
There is a cloud on title
David can resell the real property
Nothing needs to be done. David can do whatever he wishes
There is a cloud on title
When land contracts are signed and recorded and the borrower (buyer) defaults, there is a cloud on title and it must be cleaned up before it is resold.
178
A trustor defaults on their loan and does not reinstate the deed of trust. What is the quickest way for the beneficiary to handle this situation?
Trustee sale
Call the sheriff to evict the owner
Judicial foreclosure
Hold a lien sale
Trustee sale
A trustee sale is the best option for the beneficiary when a default on a trust deed has occurred.
179
Of the following, which is the most challenging for the mortgage lender to calculate?
the value of the property and if it’s worth lending on
return on investment
true cost of what the loan will cost
the amount of risk the mortgage company will take on
the amount of risk the mortgage company will take on
It’s all about risk and how much risk the mortgage company is willing to take on. They look at factors such as past credit worthiness and reliability of the borrower to help determine the risk.
180
Most junior loans that are negotiated today are secured from:
hard money loans
commercial banks
institutional lenders
private lenders
private lenders
Private lenders take second trust deeds and they supply most of the junior loans in today’s market.
181
Of the following, which is the least likely to show as a debit on a buyer’s closing statement?
Tax insurance proration of the premiums
Discount points for a loan
Interest on an assumed loan
Tax proration
Interest on an assumed loan
Interest on real estate loans is paid in arrears and the interest due would be the responsibility of the seller on an assumed loan.
182
In a deed of trust, the trustor (borrower) gives the trustee (third party) the ability and power to sell the property that was given as security for the note in the event that the trustor defaults on the payments to the lender. For a mortgage loan, which is true?
An instrument is an exchange for real property
An unsecured financial obligation is used to buy real property
A loan is collateralized with real property
An instrument is used for unsecured real property
A loan is collateralized with real property
A mortgage is a loan used by a borrower to purchase real property and the real property is used as collateral or security for the loan.
183
When the amount paid on a real estate loan is less than the interest due, it is considered:
positive amortization
reduced cost of the loan
reduced term of the loan
negative amortization
negative amortization
By definition, “negative amortization” means the principal amount is increasing. If the payment doesn’t cover the amount of interest due, it gets added to the principal of the loan.
