Financing Flashcards
1
Q
A release clause associated with a blanket mortgage is a provision which:
A) - causes the first loan to become subordinate to junior loans.
B) - bridges the interim financing.
C) - releases a portion of property covered by the blanket encumbrance when certain conditions are met.
D) - All of the above
A
C) - releases a portion of property covered by the blanket encumbrance when certain conditions are met.
Answer: C—This is referring to a partial release clause which enables the mortgagor to obtain partial releases of specific parcels from the mortgage upon a payment larger than the pro rata portion of the loan.
2
Q
Which of the following would most likely charge the highest interest rate?
A) - commercial banks
B) - savings and loan associations
C) - insurance companies
D) - individual lenders for cash
A
D) - individual lenders for cash
Answer: D—This type of loan is referred to as a “hard money loan.” It is a mortgage loan given to a borrower in exchange for cash, as opposed to a mortgage given to finance a specific real estate purchase. Hard money loans often involve more risk for the lender and thus carry a higher interest rate.
3
Q
When comparing mortgage bankers and mortgage brokers, which of the following is true?
A) - Both deal exclusively in the primary mortgage market
B) - Mortgage bankers usually lend their own funds while mortgage brokers arrange loans
C) - Both are corporations
D) - All of the above
A
B) - Mortgage bankers usually lend their own funds while mortgage brokers arrange loans
Answer: B—A mortgage banker is a person, corporation or firm that normally provides its own funds for mortgage financing. A mortgage broker is a person or firm that acts as an intermediary between borrower and lender who negotiates, sells or arranges loans and sometimes continues to service the loans (also called a loan broker).
4
Q
Which of the following requires a CRV?
A) - VA
B) - FHA
C) - Cal-Vet
D) - All of the above
A
A) - VA
Answer: A—A Certificate of Reasonable Value (CRV) is issued by the Department of Veterans Affairs setting forth a property’s current market value estimate, based on a VA appraisal. The CRV places a ceiling on the amount of a VA guaranteed loan allowed for a particular property.
5
Q
When lenders use the term “mortgage yield,” they are describing:
A) - an increase in the value of a property which has a mortgage.
B) - the effective interest return obtained from a first trust deed by an investor.
C) - all of the money received by a lender after deducting closing costs and loan fees.
D) - what the lender receives when a mortgage is paid off.
A
B) - the effective interest return obtained from a first trust deed by an investor.
Answer: B—The mortgage yield is the return on an investment or the amount of profit stated as a percentage of the amount invested-the rate of return. In real estate, yield refers to the effective annual amount of income that is being accrued on an investment. The yield or profit to a lender is the spread of differential between the cost of acquiring the funds lent and the interest rate charged.
6
Q
All of the following are characteristics of FHA loans EXCEPT:
A) - for housing only
B) - guarantees loans
C) - insures loans
D) - high loan-to-value ratio
A
B) - guarantees loans
Answer: B—The FHA does not guarantee loans, rather it insures loans on real property.
7
Q
The ratio of a loan’s principal to the property’s appraised value is called the:
A) - income-to-value ratio.
B) - loan-to-value ratio.
C) - loan-to-appraisal ratio.
D) - payment-to-loan ratio.
A
B) - loan-to-value ratio.
Answer: B—The loan-to-value ratio is the percentage of a property’s value that a lender can or may loan to a borrower. For example if the ratio is 80%, this means that a lender may loan 80% of the property’s appraised value to the borrower.
8
Q
The government actually lends the money for a(n):
A) - FHA loan.
B) - Cal-Vet loan.
C) - VA loan.
D) - All of the above
A
B) - Cal-Vet loan.
Answer: B—The Department of Veteran’s Affairs buys the property and then sells it to the veteran on a Land Contract of Sale.
9
Q
Why would a lender be interested in making a government-insured or government-guaranteed loan over a traditional conventional loan?
A) - faster repayment
B) - lower risk
C) - easier qualification
D) - faster foreclosure
A
B) - lower risk
Answer: B—A government guarantee or government insurance lowers the risk for the lender.
10
Q
The Federal National Mortgage Association (FNMA) was primarily created to:
A) - increase the availability of secondary financing.
B) - standardize construction guidelines.
C) - serve as a secondary mortgage market.
D) - subsidize low income housing.
A
C) - serve as a secondary mortgage market.
Answer: C—The Federal National Mortgage Association (Fannie Mae) was originally organized to create a secondary market in mortgage loans.
11
Q
A disadvantage for the buyer under a Land Contract is:
A) - If the seller dies during the contract term, litigation may be necessary to obtain clear title.
B) - Financial institutions consider land contracts unsatisfactory collateral.
C) - Transfer of vendee’s interest may be restricted by covenants.
D) - All of the above
A
D) - All of the above
Answer: D—The disadvantages of a Land Contract to the buyer are several, chiefly:
Covenants or restrictions of assignment or transfer of the land contract may hamper or prevent the transfer of buyer’s interest therein. The buyer may not be aware of these problems until the time to transfer title.
A prevailing opinion among financial institutions that a Land Contract is poor collateral because it is subject to a more rapid termination in the event of default.
After full performance, the buyer may receive defective title or no title at all, although normally the contract will require delivery of a policy of title insurance. The buyer may have to pay the premium for this.
Lack of assurance that the seller has good title at the time the contract is made, coupled with the fact that prior to full performance by the buyer, the buyer may not rescind the contract on these grounds.
If during the contract term the seller should go bankrupt or die and title passes to heirs or be declared incompetent or have a conservator appointed, the buyer can at the very least anticipate time consuming, frustrating, and expensive litigation before obtaining a deed and policy of title insurance.
12
Q
From which of the following could you most likely secure the greatest amount of money for the longest period of time?
A) - private lender
B) - insurance company
C) - savings and loan
D) - commercial bank
A
B) - insurance company
Answer: B—Insurance companies lend the largest amounts for the longest time.
13
Q
Which of the following is TRUE with regard to a “beneficiary statement?”
A) - The lender may charge up to $60 for preparing the statement.
B) - Upon the request of the borrower, the beneficiary must furnish the statement within 21 days.
C) - Failure to provide the statement in time can result in $300 damages.
D) - All of the above
A
D) - All of the above
Answer: D—Upon the written request of an authorized person, the beneficiary must furnish a beneficiary statement within 21 days. There may be a $300 penalty for failing to comply. Although the beneficiary must provide an annual statement at no charge, additional statements may carry a maximum $60 charge.
14
Q
Which of the following would NOT be illustrative of an institutional lender?
A) - insurance company
B) - savings and loan
C) - commercial bank
D) - mortgage company
A
D) - mortgage company
Answer: D—Institutional lenders are those lenders who lend their own money. A mortgage company usually does not lend its own money, but rather acts in most cases as the representative of an institutional lender. They are sometimes referred to as “loan correspondents” or “loan brokerage firms.”
15
Q
All of the following are considered advantages of FHA financing EXCEPT:
A) - low down payment.
B) - long-term loans with lower payments.
C) - easy to qualify for.
D) - buyer is protected with FHA insurance.
A
D) - buyer is protected with FHA insurance.
Answer: D—The FHA neither builds homes nor lends money directly, rather it insures loans on real property. Should the homeowner default on the mortgage, the lender is protected, not the buyer.
16
Q
Title I FHA loans are for:
A) - purchases of homes only.
B) - property improvement loans.
C) - purchases of multiple units.
D) - None of the above
A
B) - property improvement loans.
Answer: B—Title I FHA guidelines authorize insurance of repair and improvement loans.
17
Q
Which of the following is a general difference between individual and institutional lenders?
A) - Individual lenders make larger loans than institutional lenders.
B) - Individudal lenders charge lower interest rates.
C) - Individual lenders give loans for shorter terms.
D) - Individual lenders do not undertake foreclosure proceedings.
A
C) - Individual lenders give loans for shorter terms.
Answer: C—Loans made by individual lenders are usually for a shorter loan term. Private individuals are the primary source of secondary financing.
18
Q
From the lender’s perspective, a large down payment:
A) - reduces the possibility of default.
B) - makes it more likely that the property will be properly maintained.
C) - streamlines the loan qualification process.
D) - All of the above
A
D) - All of the above
Answer: D—Most lenders realize that the greater the equity a borrower has in a property, the less inclined he/she will be to default and lose the property through foreclosure. This should also encourage the borrower to keep the property in good shape. A large down payment usually streamlines the loan qualification process.
19
Q
A request for notice of default would be of most help to the:
A) - beneficiary of a second trust deed.
B) - trustor.
C) - beneficiary of a first trust deed.
D) - trustee.
A
A) - beneficiary of a second trust deed.
Answer: A—Since foreclosure wipes out all junior liens, the holder of a junior lien should request the recording of a request for notice of default announcing that a default has occurred.
20
Q
In an adjustable-rate loan, the amount added to the index rate that represents the lender’s cost of doing business is called the:
A) - marginal rate.
B) - margin.
C) - discount.
D) - overage.
A
B) - margin.
Answer: B—The margin is the amount added to the interest rate of an adjustable-rate loan that represents the lender’s cost of doing business (includes costs, profits and risk of loss of the loan). Generally, the margin stays constant during the life of the loan.
21
Q
The seller (vendor) under a real property sales contract CANNOT:
A) - sell his or her interest.
B) - encumber the property.
C) - use something other than a legal description.
D) - All of the above
A
C) - use something other than a legal description.
Answer: C—A land contract must contain the names of the buyer and seller, the sales price, the terms of payment, a full legal description and a lengthy statement of the rights and obligations of the parties.
22
Q
The nominal rate of interest is the:
A) - legal rate.
B) - rate set forth in the note.
C) - maximum rate allowed by law.
D) - discount rate.
A
B) - rate set forth in the note.
Answer: B—The nominal rate of interest is the rate set forth in the promissory note.
23
Q
Which of the following would be security for a note and deed of trust?
A) - credit of borrower
B) - value of property
C) - stability of the money market
D) - All of the above
A
B) - value of property
Answer: B—The value of the property serves as security for a note and deed of trust.
24
Q
Most real estate loans charge the following kind of interest rate:
A) - simple.
B) - compound.
C) - usurious.
D) - Any of the above.
A
A) - simple.
Answer: A—Interest is termed “simple” or “compound”. Simple interest is interest paid only on the principal owed. Compound interest is interest paid on accrued interest as well as on the principal owed. Most real estate loans charge simple interest rates.
25
Funds for Cal-Vet loans come from:
A) - state bonds.
B) - property taxes.
C) - surplus funds.
D) - federal grants.
A) - state bonds.
Answer: A—Funds for Cal-Vet loans come from voter-approved State General Obligation Bonds and Revenue Bonds issued by the legislature.
26
During periods of tight money:
A) - interest rates go down.
B) - interest rates stay the same.
C) - interest rates go up.
D) - None of the above
C) - interest rates go up.
Answer: C—A tight money market is an economic situation in which the supply of money is limited and the demand for money is high. Due to the economic forces of supply and demand, interest rates typically go up during a period of tight money.
27
The beneficiary of a trust deed is usually a:
A) - Realtor.
B) - borrower.
C) - bank.
D) - trustee.
C) - bank.
Answer: C—In a trust deed, the beneficiary is the lender (usually a bank).
28
With a mortgage, who signs the note?
A) - trustee
B) - beneficiary
C) - mortgagor
D) - mortgagee
C) - mortgagor
Answer: C—The mortgagor (borrower) signs the note.
29
The trustor under a trust deed is the party who:
A) - signs the note as maker.
B) - holds the title to the property in trust.
C) - acknowledges the note for recording.
D) - lends the money.
A) - signs the note as maker.
Answer: A—The trustor is the borrower under a deed of trust and is the one who signs the note and deed of trust.
30
What distinguishes VA loans from FHA and other loans?
A) - no points
B) - maximum loan of $100,000
C) - down payment determined by CRV
D) - no down payment
D) - no down payment
Answer: D—VA loans can be made with no down payment.
31
Upon receiving notification of default on the first trust deed, the holder of a second trust deed would most likely:
A) - wait until the sale to buy the property at a bargain price.
B) - redeem the first mortgage and foreclose under the second.
C) - foreclose on the first to eliminate the second.
D) - None of the above
B) - redeem the first mortgage and foreclose under the second.
Answer: B—In the event of default under the first trust deed, the holder of a second trust deed can elect to make the trustor's payments and thereby stop foreclosure. The junior liens holder may then foreclose on his or her own lien and take title subject to prior liens. If the junior lienholder does nothing, he/she will have to bid cash for the purchase price at the foreclosure sale or risk losing out completely, since foreclosure wipes out all junior lien. This is an inherent risk associated with junior loans.
32
They asked about FICO credit scores. We don't have this exact question yet. See answer.
A) -
B) -
C) -
D) -
C) -
Answer: C—A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of determining the likelihood that credit users will pay their bills. Fair, Isaac began its pioneering work with credit scoring in the late 1950s and, since then, scoring has become widely accepted by lenders as a reliable means of credit evaluation. A credit score attempts to condense a borrowers credit history into a single number. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable.
33
Default in a mortgage may be caused by:
A) - failure to pay taxes.
B) - failure to maintain insurance.
C) - failure to make payments.
D) - All of the above
D) - All of the above
Answer: D—A default is generally defined as nonperformance of a duty or obligation that is part of a contract.
34
Which of the following lenders invest more heavily in single-family home loans?
A) - savings and loan associations
B) - commercial banks
C) - insurance companies
D) - individuals
A) - savings and loan associations
Answer: A—Savings and loan associations, also known as "thrifts," fomerly accounted for more home loans than any other source. The distinction between banks and S&L's has almost disappeared since deregulation, and a great many S&L's have become banks.
35
A home sold for $210,000 but appraised for only $203,000. The lender is willing to finance up to 80%. How much will the buyer need to pay as a down payment?
A) - ($210,000 - $203,000) + ($210,000 x 20%)
B) - ($210,000 - $203,000) + ($203,000 x 20%)
C) - ($203,000) + ($210,000 x 80%)
D) - ($210,000) + (210,000 x 20%)
B) - ($210,000 - $203,000) + ($203,000 x 20%)
Answer: B—The lender always uses the appraised value, not purchase price. Since the lender is willing to finance 80% of the appraised value, the down payment calculation is ($210,000 - $203,000) + ($203,000 x 20%) or $47,600 down payment. This question appears in many different forms so know the calculation.
36
Upon full repayment of a Cal-Vet loan, the borrower receives a:
A) - new loan commitment.
B) - reconveyance deed.
C) - grant deed.
D) - quitclaim deed.
C) - grant deed.
Answer: C—The CDVA holds title until the veteran has repaid the amount owed. Upon repayment, title is conveyed to the veteran in the form of a grant deed.
37
A buyer has monthly gross income of $5,000; total mortgage payments of $1,171; and total long-term debts of $325 per month. The back-end ratio is:
A) - 23%
B) - 28%
C) - 30%
D) - 36%
C) - 30%
Answer: C—Lenders also take into account the borrower's long-term debt for loan qualification purposes. This is the relationship between the borrower's long-term debt payments and the monthly income called the "back-end" ratio. The formula is: total monthly expense / gross income = back-end ratio. In this question, long-term debts total $325 per month which added to the mortgage payment of $1,171, gives us the total monthly expense of $1,496. $1,496 / 5,000 = 30%.
38
A first trust deed can be distinguished from a second trust deed by:
A) - the way the documents look.
B) - the specifics of the note.
C) - the time and date of recording.
D) - None of the above
C) - the time and date of recording.
Answer: C—The time and date of recording establishes the priority of the lien. The first trust deed would have an earlier time and date of recording.
39
Which of the following would have the least impact on evaluating a man's income for a loan?
A) - his spouse's income
B) - stock investments
C) - overtime earnings
D) - salary from second job
C) - overtime earnings
Answer: C—Since overtime is typically sporadic, it is of least concern to the lender.
40
Which of the following acts by the trustor requires the beneficiary's consent?
A) - establishing land use restrictions
B) - creating an easement on the property
C) - settle a property line dispute
D) - All of the above
D) - All of the above
Answer: D—The trustor cannot perform acts pertaining to the securing property without the consent of the beneficiary.
41
A low loan-to-value ratio indicates:
A) - use of government financing.
B) - a low down payment.
C) - a large down payment.
D) - the presence of government insurance.
C) - a large down payment.
Answer: C—A large down payment by the borrower would lower the loan-to-value ratio.
42
The Real Estate Settlement Procedures Act provides for violation penalties of:
A) - a fine of up to $10,000.
B) - up to one year in jail.
C) - loss of real estate license.
D) - both (a) and (b).
D) - both (a) and (b).
Answer: D—Violation of RESPA may result in a monetary fine and/or jail time.
43
Mutual Mortgage Insurance is paid for by:
A) - the buyer under an FHA loan.
B) - the buyer under a VA loan.
C) - the buyer under a Cal-Vet loan.
D) - All of the above
A) - the buyer under an FHA loan.
Answer: A—MMI is paid for by the purchaser (buyer) under an FHA loan.
44
After a trustee's sale, there is money left over after paying the beneficiary of the first trust deed. This money would go first to the:
A) - trustor.
B) - beneficiary of the second.
C) - state.
D) - beneficiary of the first.
B) - beneficiary of the second.
Answer: B—A deficiency occurs when the foreclosure sale of a property produces less than the amount needed to pay the costs and expenses of the action and to pay off the balance of the loan. The parties to the transaction are paid in order of their priority.
45
Regarding a promissory note:
A) - a promissory note secures the deed of trust.
B) - the deed of trust secures the promissory note.
C) - the promissory note is not part of the deed of trust.
D) - the grant deed secures the promissory note.
B) - the deed of trust secures the promissory note.
Answer: B—The deed of trust secures the promissory note and the property. If payment is not made according to the terms of the note and deed of trust, the beneficiary may instruct the trustee to foreclose as set forth in the deed of trust.
46
Under the Truth-in-Lending Act (Regulation Z), which of the following need NOT be included in the total "finance charge" required as part of the disclosure statement?
A) - commissions or finder's fees to lenders
B) - cost of a credit report and appraisal fee
C) - premium for FHA life insurance
D) - loan origination fee
B) - cost of a credit report and appraisal fee
Answer: B—Fees for a credit report or appraisal are excluded from the costs which must be included in the finance charge.
47
Deregulation of financial institutions most nearly means:
A) - government controls no longer apply to financial institutions.
B) - the amount of interest paid on savings accounts is no longer regulated.
C) - financial institutions can no longer respond to market conditions.
D) - examining the enforcement responsibilities of regulators have been relaxed.
B) - the amount of interest paid on savings accounts is no longer regulated.
Answer: B—Under deregulation, financial institutions may now pay any amount of interest on deposits.
48
When a loan is fully amortized by equal monthly payments of principal and interest, the amount applied to principal:
A) - and interest remain constant.
B) - decreases while the interest payment increases.
C) - increases while the interest payment decreases.
D) - increases by a constant amount.
C) - increases while the interest payment decreases.
Answer: C—With an amortized loan, the amount allocated to interest decreases while that applied to reduction of principal increases.
49
A loan to be completely repaid, principal and interest, by a series of regular equal installments is a:
A) - straight note.
B) - balloon payment loan.
C) - fully amortized note.
D) - variable rate mortgage loan.
C) - fully amortized note.
Answer: C—Amortization is the gradual repayment or retiring of a debt by means of systematic payments of principal and/or interest over a set period so that at the end there is a zero balance. The principal is thus directly reduced or amortized over the life of the loan.
50
A promissory note that provides for payment of interest only during the term of the note is a(n):
A) - straight note.
B) - installment note.
C) - amortized note.
D) - non-negotiable note.
A) - straight note.
Answer: A—A straight note is defined as one in which payments of interest only are made periodically during the term of the note with the principal payment due in one lump sum upon maturity.
51
A loan that requires a balloon payment at its maturity is called a(n):
A) - partially amortized loan.
B) - fully amortized loan.
C) - amortized loan.
D) - hard money loan.
A) - partially amortized loan.
Answer: A—Under a partially amortized loan, the balance at maturity has only been partially reduced. The remaining balance due at maturity is referred to as a balloon payment .
52
A mortgage is a:
A) - loan secured by collateral of real property.
B) - loan secured by the credit rating of the borrower only.
C) - loan without collateral to secure the loan.
D) - three party instrument with power of sale.
A) - loan secured by collateral of real property.
Answer: A—A mortgage is an instrument recognized by law by which property is pledged as security for the loan without the necessity of giving up possession of it.
53
The term mortgage warehousing refers to:
A) - long-term loans.
B) - selling loans.
C) - low interest rate loans.
D) - unsecured loans.
B) - selling loans.
Answer: B—Mortgage warehousing is the process by which a mortgage banker or mortgage broker assembles mortgages that he/she has made and prepares the mortgages to be sold in the secondary market.
54
Mortgages and deeds of trust differ in every respect EXCEPT:
A) - security.
B) - parties.
C) - statute of limitations.
D) - title.
A) - security.
Answer: A—The property is security for a loan under both a mortgage and deed of trust. A mortgage has two parties while a trust deed has three. A mortgage promises the title - a trust deed conveys legal title from the trustor to trustee.
55
A homeowner would be least likely to obtain a $50,000 home improvement loan from a(n):
A) - savings and loan association.
B) - credit union.
C) - commercial bank.
D) - insurance company.
D) - insurance company.
Answer: D—In general, life insurance companies make conventional loans on most types of properties, but usually not on single-family homes.
56
Which of the following describes the term "beneficiary statement?"
A) - A statement of the unpaid balance of a loan.
B) - A statement designating the one who will receive the property if the borrower dies.
C) - An itemization of the amount paid to the policy holder for insurance purposes.
D) - A description of the beneficial features of an assumable loan.
A) - A statement of the unpaid balance of a loan.
Answer: A—A beneficiary statement is a statement of the unpaid balance of a loan and the condition of the indebtedness, as it relates to a deed of trust transaction.
57
A broker negotiated a loan for a buyer. He will need to prepare a:
A) - Mortgage Loan Disclosure Statement.
B) - Real Estate Transfer Disclosure Statement.
C) - Good Faith Estimate.
D) - Natural Hazard Disclosure Statement.
A) - Mortgage Loan Disclosure Statement.
Answer: A—A person who acts as a Mortgage Loan Broker and negotiates a loan for which a license is required and for compensation which is secured directly or collaterally by a lien on real property regardless of the size of the loan, must deliver a written disclosure statement to the borrower. The statement must be delivered within three business days of receipt of the borrower's written loan application or before the borrower becomes obligated to the loan, whichever is earlier. This is true whether the loan is being processed manually or electronically.
58
If a real estate licensee sells a real property sales contract for a seller (vendor), the licensee is responsible for making sure the contract is recorded:
A) - immediately.
B) - as soon as practical.
C) - within 10 working days.
D) - within one year.
C) - within 10 working days.
Answer: C—If a real estate broker negotiates the sale of a land contract, he/she is responsible for making sure it gets recorded within 10 working days.
59
Mortgages and trust deeds are both considered:
A) - three-party documents.
B) - real property.
C) - personal property.
D) - All of the above
C) - personal property.
Answer: C—Both a mortgage and trust deed are considered personal property.
60
A subordination clause would be found in a:
A) - grant deed.
B) - quitclaim deed.
C) - trust deed.
D) - None of the above.
C) - trust deed.
Answer: C—A subordination clause is a clause most likely found in a trust deed. A subordination clause is usually standard in a junior trust deed because the junior trust deed gets a higher interest rate and is often not concerned about the inferior lien position.
61
The buyer under the terms of a land contract is referred to as:
A) - vendee.
B) - purchaser.
C) - equitable owner.
D) - All of the above.
D) - All of the above.
Answer: D—Under the terms of a Land Contract, the seller (vendor) passes possession and equitable title of the property to the buyer (vendee) but retains title until the total or a substantial portion of the purchase price is paid.
62
During the one-year redemption period of a mortgagor in default:
A) - the mortgagee can sue for rent.
B) - the mortgagee is not entitled to possession.
C) - both (a) and (b)
D) - neither (a) nor (b)
C) - both (a) and (b)
Answer: C—The redemption period is a period of time established by state law during which a property owner has a right to redeem real estate after a judicial foreclosure by paying the sales price, interest and costs.
63
Prepayments is permissible on a Land Contract, however, the seller may prohibit prepayment for up to:
A) - 12 months following the sale.
B) - 24 months following the sale.
C) - 36 months following the sale.
D) - five years following the sale.
A) - 12 months following the sale.
Answer: A—Prepayment by the buyer on a land contract is allowed, but the seller may prohibit prepayment for up to 12 months following the sale. This means that the seller does not have to give title for one year. The buyer cannot waive his/her right to prepay.
64
Which of the following hold title under a Cal-Vet loan?
A) - trustor
B) - buyer
C) - Veterans Administration
D) - State of California
D) - State of California
Answer: D—Cal-Vet loans are administered by the California Department of Veterans Affairs (CDVA). CDVA buys the selected property from the seller and resells the property to the veteran on a land contract.
65
An adjustable-rate mortgage loan is tied to an interest rate called the:
A) - margin.
B) - index rate.
C) - cap rate.
D) - max rate.
B) - index rate.
Answer: B—The index rate is the rate to which the interest rate on an adjustable-rate mortgage is tied. At set adjustment periods, the borrower's interest rate will move up or down as the index rate changes.
66
A veteran is eligible to use either the VA program or the DVA program in purchasing his owner occupied house. In which of these programs would the governmental body retain legal title to the house?
A) - VA
B) - DVA
C) - The buyer would have title regardless of which program he used.
D) - The VA and DVA both retain legal title.
B) - DVA
Answer: B—This is a Cal-Vet loan. Buyer is buying the property by using a land contract. DVA retains title until the veteran pays off the loan.
67
Which of the following gives the most protection to a property owner in default?
A) - mortgage
B) - trust deed
C) - second trust deed
D) - land contract
A) - mortgage
Answer: A—The one-year redemption period under a mortgage gives the greatest protection to the owner.
68
Proceeds from a trustee's sale go to the:
A) - costs of sale first, then first lien holder, then junior lien holders with the balance to the trustor.
B) - first lien holder with the balance to junior lien holders.
C) - costs of sale first with the balance to the beneficiary.
D) - None of the above
A) - costs of sale first, then first lien holder, then junior lien holders with the balance to the trustor.
Answer: A—Costs and expenses of the action are paid first, then the parties to the transaction are paid in order of their priority.
69
Why was HUD, Section 8, created?
A) - For minorities to obtain housing.
B) - For Federal employees to obtain housing.
C) - To create government jobs.
D) - To provide affordable housing for all United States citizens.
D) - To provide affordable housing for all United States citizens.
Answer: D—The Section 8 Program was authorized by Congress in 1974 and developed by HUD to provide rental subsidies for eligible (low income) tenant families (including single persons) residing in newly constructed, rehabilitated and existing rental and cooperative apartment projects. Excellent online resource here: http://www.hud.gov/offices/hsg/mfh/rfp/s8bkinfo.cfm
70
A document used to transfer legal title from the trustee back to the borrower (trustor) after the debt has been repaid is called a:
A) - quitclaim deed.
B) - deed of reconveyance.
C) - payoff deed.
D) - deed of confirmation.
B) - deed of reconveyance.
Answer: B—A deed of reconveyance is used to transfer legal title from the trustee back to the borrower (trustor) after a debt secured by a deed of trust has been paid to the lender (beneficiary).
71
Commercial banks are interested in liquidity and marketability of their loans. Which of the following loans would they prefer?
A) - secondary money market
B) - short-term
C) - long-term
D) - home improvement
B) - short-term
Answer: B—Liquidity means assets that can be turned into cash quickly. Since short-term loans pay off quickly, the lender has access to a ready cash reserve.
72
Total foreclosure time under a trust deed most nearly approaches:
A) - one year.
B) - 18 months.
C) - three months.
D) - four months.
D) - four months.
Answer: D—A three month reinstatement period plus 20 days advertising of the sale by publishing the Notice of Sale.
73
A trust deed foreclosed as a mortgage would be foreclosed by:
A) - municipal court.
B) - superior court.
C) - court of appeals.
D) - None of the above.
B) - superior court.
Answer: B—A deed of trust may be foreclosed by judicial proceedings in superior court.
74
All of the following are characteristics of VA loans EXCEPT:
A) - used for housing or farm property
B) - lower interest rates than conventional loans
C) - okay to use for the purchase of rental units
D) - guaranteed by the VA
C) - okay to use for the purchase of rental units
Answer: C—VA loans can be made for a home, farm, or business. If the loan is for a home it must be for personal use, not rental purposes.
75
Why would the payor consider a straight note over an amortized note?
A) - To collect maximum interest
B) - To make minimum monthly payments
C) - To put working capital back into his/her business
D) - None of the above
B) - To make minimum monthly payments
Answer: B—Since a straight note is an interest only note, the monthly payments would be smaller because there is no payment of principal. The drawback is a potential balloon payment at maturity.
76
Which of the following statements is TRUE?
A) - Fannie Mae provides a secondary mortgage market for FHA and VA loans.
B) - Fannie Mae is a private corporation.
C) - Ginnie Mae funds federally assisted housing projects and guarantees FNMA securities.
D) - All of the above
D) - All of the above
Answer: D—Choices a, b and c are all true statements.
77
A deficiency judgment is possible:
A) - where foreclosure is by sale.
B) - where foreclosure is by court action.
C) - on a purchase-money mortgage.
D) - All of the above.
B) - where foreclosure is by court action.
Answer: B—A deficiency judgment is a judgment against a borrower for the balance of a debt owed when the security for a loan is insufficient to satisfy the debt. A deficiency occurs when the foreclosure sale of a property produces less than the amount due on the loan. In California, a mortgagee cannot recover a deficiency judgment on a purchase-money loan. In those states where mortgages generally carry a "power of sale," creditors must bring a separate action to obtain a deficiency judgment.
78
The functions of Ginnie Mae include all of the following EXCEPT:
A) - guarantee for mortgage-backed securities.
B) - special programs for low-interest home loans.
C) - liquidation of government owned mortgages.
D) - insuring home loans.
D) - insuring home loans.
Answer: D—The Government National Mortgage Association (Ginnie Mae) is an agency under HUD that guarantees securities sold and issued by Fannie Mae. Ginnie Mae does not insure loans.
79
As part of listing a mobile home, the broker's advertisement says "no money down with first and second seller financing available to qualifed buyers." Which of the following is correct under Truth-in-Lending (Regulation Z)?
A) - Since the advertisement mentions a down payment, the ad must also contain all additional financing terms.
B) - The phrase "no money down" is too general to trigger additional financing disclosures.
C) - Since the advertisement mentions possible seller financing, the ad must also contain other additional financing terms.
D) - None of the above
B) - The phrase "no money down" is too general to trigger additional financing disclosures.
Answer: B—Some statements about credit terms are too general to trigger additional disclosures. Examples of terms that do not trigger the required disclosures are:
```
"No money down"
"100% financing"
"Easy monthly payments"
"Loans available at 5% below our standard APR"
"Low down payment accepted"
"Pay weekly"
"Terms to fit your budget"
"Financing available"
```
General statements such as, "take years to pay" or "no closing costs," do not trigger further disclosures because they do not state or suggest the period of repayment or down payment cost. Similarly, an ad that states "no money down" requires no further disclosure because no down payment is required. However, certain triggering provisions apply even if one of the so-called "triggering terms" is not stated explicitly but may be readily determined from the advertisement. For example, the statement "move in for $5,000," which implies that the required cash down payment is no more than $5,000 does trigger full disclosure. Or an ad that states "80% financing" implies that a 20% down payment is required so full disclosure is also required. Similarly, a statement such as "up to 48 months to pay" lists the period of repayment and triggers disclosure. In general, the more specific the statement, the more likely it is to trigger additional disclosures.
If any triggering term is used in a closed-end credit advertisement, then the following three disclosures must also be included in the advertisement:
(1) The amount or percentage of the down payment,
(2) The terms of repayment, and
(3) The "annual percentage rate," using that term or the abbreviation "APR". If the annual percentage rate may be increased after consummation of the credit transaction, that fact must be disclosed.
80
The primary activities of FNMA in the secondary market involves:
A) - FHA loans only.
B) - all types of real estate loans.
C) - government insured and guaranteed loans.
D) - second mortgages and trust deeds up to $20,000.
C) - government insured and guaranteed loans.
Answer: C—The Federal National Mortgage Association (Fannie Mae) was originally organized to create a secondary market in mortgage loans. The primary activities of the agency involve FHA Title II loans (insured) and VA loans (guaranteed).
81
Mr. Johnson agrees to assume a trust deed from Mr. Jones. Which of the following is correct?
A) - Mr. Johnson is solely liable.
B) - Mr. Johnson is primarily liable and Mr. Jones would remain secondary liable.
C) - Mr. Jones would remain primarily liable.
D) - Mr. Johnson and Mr. Jones would agree to liability.
B) - Mr. Johnson is primarily liable and Mr. Jones would remain secondary liable.
Answer: B—When the buyer agrees to assume the seller's liability on a trust deed, the seller (Mr. Jones) would remain secondary liable on the loan unless there is a substitution of liability which would relieve the seller of all liability.
82
An assignment of a rent's clause in a trust deed benefits the:
A) - trustor.
B) - trustee.
C) - beneficiary.
D) - buyer.
C) - beneficiary.
Answer: C—An assigment of rents clause in a trust deed is an agreement between the trustor (property owner) and the beneficiary by which the beneficiary receives as security the right to collect rents from the trustor's tenants.
83
The relationship of the trustor to the beneficiary in a deed of trust is comparable to:
A) - grantor to grantee
B) - lessor to lessee
C) - optionor to optionee
D) - borrower to lender
D) - borrower to lender
Answer: D—The relationship of the trustor to the beneficiary is similar to the borrower/lender relationship in that the mortgagee (lender) extends credit to the mortgagor (borrower). Memory AID: The "OR" gives something of value to the "EE" in exchange for money.
84
A package mortgage is a loan in which:
A) - more than one parcel of land in a subdivision is covered.
B) - the first and second trust deeds are included in one instrument.
C) - personal property is included in the real estate loan.
D) - additional financing is secured from a lender at a later date.
C) - personal property is included in the real estate loan.
Answer: C—A package mortgage is a method of financing in which the loan that finances the purchase of a home also finances the purchases of items of personal property.
85
Which of the following is TRUE concerning promissory notes?
A) - They are used as security for trust deeds.
B) - They are recorded at the county recorder's office.
C) - They are always used when real estate is sold.
D) - They are the evidence of the debt.
D) - They are the evidence of the debt.
Answer: D—The promissory note is the evidence of the debt. The trust deed is the security (or mere incidence) of the debt.
86
RESPA would apply to:
A) - first mortgages.
B) - second mortgages.
C) - commercial loans.
D) - loans of a five-unit apartment complex.
A) - first mortgages.
Answer: A—RESPA applies to federally related first mortgages for the purchase of one-to-four residential units.
87
Which of the following laws applies to federally related transactions?
A) - RESPA
B) - Holden Act
C) - ECOA
D) - Truth-in-Lending Act
A) - RESPA
Answer: A—RESPA applies when the purchase of a one-to-four family residential dwelling is financed by a federally related mortgage loan.
88
A broker mentioned the APR in one of his ads but did not include any other financing terms. This ad was:
A) - okay under RESPA.
B) - a RESPA violation.
C) - a violation of Regulation Z.
D) - a violation of the Truth-in-Lending Act.
A) - okay under RESPA.
Answer: A—If the advertisement contains certain "triggering terms," then the ad must also contain other credit terms. If only the Annual Percentage Rate (APR) is disclosed in an ad, additional disclosures are NOT required.
89
An insurance company is least likely to make a loan on a(n):
A) - shopping center.
B) - apartment complex.
C) - factory building.
D) - older home.
D) - older home.
Answer: D—Insurance companies typically deal with commercial properties and multi-family buildings.
90
An agent places an ad in the newspaper saying that he will give $50 to anyone who sells or buys a property through him. Which of the following is TRUE?
A) - The broker cannot give $50 to the buyer or seller.
B) - The broker cannot give $50 to the buyer only.
C) - This would violate the real estate law concerning compensation of unlicensed persons performing real estate acts.
D) - The agent can give $50 to the buyer or seller.
D) - The agent can give $50 to the buyer or seller.
Answer: D—The agent can give a monetary incentive to prospective clients as long as a full disclosure is made to all parties to the transaction.
91
Which of the following is the purpose of the Federal Truth-In-Lending Act?
A) - To limit interest rates
B) - To regulate fees charged by lenders
C) - To assure a meaningful disclosure of credit terms
D) - All of the above
C) - To assure a meaningful disclosure of credit terms
Answer: C—The purpose of the Federal Truth-in-Lending Act is to assure consumers that they are provided information on the costs of credit by disclosing credit terms.
92
The Truth-in-Lending Act is part of the:
A) - Business and Professions Code.
B) - Federal Consumer Protection Act.
C) - Uniform Commercial Code.
D) - None of the above.
B) - Federal Consumer Protection Act.
Answer: B—The Federal Truth-in-Lending Act is part of the Federal Consumer Protection Act.
93
A buyer has a monthly gross income of $5,000; total mortgage payments of $1,171; and total long-term debts of $325 per month. The front-end ratio is:
A) - 23%
B) - 28%
C) - 30%
D) - 36%
A) - 23%
Answer: A—Lenders use the monthly payment on a property in determining a borrower's qualifications. This is the relationship between the total mortgage payment and the monthly gross income called the "front-end" ratio. The payment includes principal and interest, property taxes, and insurance (commonly referred to as PITI). The formula is: mortgage payment / gross income = front-end ratio. $1,171 / $5,000 = 23%.
94
The right of rescission under truth-in-lending would apply to a(n):
A) - home equity loan.
B) - agricultural loan.
C) - purchase-money loan.
D) - None of the above
A) - home equity loan.
Answer: A—The borrower's rescission rights apply to non-business loans only.
95
Who enforces the Truth-in-Lending Act?
A) - local government
B) - state governor
C) - Federal Trade Commission
D) - Fair Housing Administration
C) - Federal Trade Commission
Answer: C—The Federal Trade Commission is in charge of enforcing the Truth-in-Lending Act (Regulation Z).
96
When the Federal Reserve Board wants to tighten the money supply, it would:
A) - raise the amount of reserves required for member banks.
B) - raise the discount rate for member banks.
C) - sell government bonds on the open market.
D) - All of the above
D) - All of the above
Answer: D—The Federal Reserve Board ("Fed") would take all of the above actions to curb inflation.
97
Equity financing refers to:
A) - purchase-money loans.
B) - financing that is fair.
C) - cash purchases.
D) - borrowing on the difference between property value and liens.
D) - borrowing on the difference between property value and liens.
Answer: D—Equity is the difference between the property value and the amount of remaining debt. A property owner's equity will build up gradually through periodic amortized payments. Equity financing refers to borrowing against this value.
98
Which of the following would not require a down payment?
A) - Cal Vet
B) - FHA
C) - VA
D) - Conventional
C) - VA
Answer: C—VA loans can be made with no down payment required. The other financing programs generally require a down payment.
99
All of the following would require a RESPA disclosure statement EXCEPT:
A) - a loan made by a savings & loan.
B) - a loan made by a private individual.
C) - a home loan made by a commercial bank.
D) - a loan capable of being sold to FNMA.
B) - a loan made by a private individual.
Answer: B—A loan made by a private individual is not federally insured and thus would not fall under RESPA.
100
The clause in a mortgage note which permits the lender to declare the unpaid balance due and payable upon default by the borrower is called a(n):
A) - defeasance clause.
B) - acceleration clause.
C) - due on sale clause.
D) - None of the above
B) - acceleration clause.
Answer: B—An acceleration clause is a provision in a mortgage, trust deed, promissory note or land contract that upon the occurrence of a specified event, gives the lender the right to call all sums due and payable in advance of the fixed payment term.
101
To subordinate means to:
A) - subrogate.
B) - sell.
C) - lease.
D) - be secondary.
D) - be secondary.
Answer: D—Subordinate means to occupy a lower position in a regular descending series.
102
Mortgage loan brokers are regulated primarily by:
A) - city laws and regulations.
B) - the Mortgage Loan Brokers Association.
C) - federal regulations.
D) - state laws.
D) - state laws.
Answer: D—Loan brokers are regulated by the California Loan Brokerage Law.
103
To pledge a thing as security for an obligation without surrendering possession of it refers to:
A) - hypothecation
B) - alienation
C) - transformation
D) - substitution
A) - hypothecation
Answer: A—Hypothecate means to pledge specific real or personal property as security for an obligation without surrendering possession of it.
104
The type of mortgage loan which permits borrowing additional funds at a later date is called a(n):
A) - equitable mortgage.
B) - junior mortgage.
C) - open-end mortgage.
D) - extendible mortgage.
C) - open-end mortgage.
Answer: C—An open-end provision in a mortgage allows the borrower to borrow additional amounts in the future without rewriting the loan documents.
105
A contractor obtained a construction loan and the loan funds are to be released in a series of progressive payments. Most lenders disburse the last payment when the:
A) - building is completed.
B) - Notice of Completion is filed.
C) - buyer approves the construction.
D) - period to file a lien has expired.
D) - period to file a lien has expired.
Answer: D—The usual waiting period for the final disbursement is 35 days after the recording of the Notice of Completion. It would be hazardous to advance the final disbursement before that time for fear that there might be subcontractors who have not been paid and will file mechanic's liens. The subcontractors are wiped out 31 days after recording the Notice of Completion.
106
A seasoned loan is a:
A) - loan with a payment record.
B) - long-term loan.
C) - first encumbrance.
D) - None of the above
A) - loan with a payment record.
Answer: A—A seasoned loan is one with a payment history. If a note shows a good payment record by the payor, it is considered more desirable and usually sells for more in the secondary market.
107
Who prepares the "beneficiary statement?"
A) - agent
B) - lender
C) - trustor
D) - trustee
B) - lender
Answer: B—The beneficiary (lender) prepares the beneficiary statement upon written demand by an entitled person or his/her authorized agent. A beneficiary statement is usually requested in connection with the recording of a notice of default under a deed of trust or mortgage.
108
A document used by the mortgagee when a mortgage is paid in full is called a:
A) - deed of reconveyance.
B) - certificate of fulfillment.
C) - satisfaction of mortgage.
D) - mortgage release.
C) - satisfaction of mortgage.
Answer: C—A satisfaction of mortgage is a certificate issued by the mortgagee when a mortgage is paid in full. It describes the mortgage, recites where it is recorded and certifies that it has been paid and that the mortgagee consents that it be discharged of record.
109
Which of the following pairs of words are synonymous (the same)?
A) - take-out loan - interim loan
B) - construction loan - interim loan
C) - construction loan - take-out loan
D) - take-out loan - progressive payment loan
B) - construction loan - interim loan
Answer: B—The construction loan is often a short-term or interim loan. When the construction is completed, the take-out loan is used to pay off the construction loan.
110
Under the "power of sale" clause in a trust deed, the authority to sell is placed with the:
A) - County Sheriff by court order.
B) - clerk of the County Court by court order.
C) - trustee by trustor.
D) - beneficiary by trustee.
C) - trustee by trustor.
Answer: C—A power-of-sale clause is found in a trust deed where the trustor gives the trustee authority to sell the trust property under certain circumstances.
111
The instrument used to secure a loan on personal property is called a:
A) - bill of sale.
B) - trust deed.
C) - security agreement.
D) - bill of transfer.
C) - security agreement.
Answer: C—A security agreement is a document that creates a lien on personal property. To perfect a security interest, a form called a financing statement should be recorded.
112
From a financing standpoint, the relationship of the parties to a Land Contract would be closest to:
A) - landlord/tenant.
B) - grantor/grantee.
C) - beneficiary/trustor.
D) - vendor/vendee.
C) - beneficiary/trustor.
Answer: C—The Real Property Sales Contract also known as the Land Contract, is an agreement between two parties in which the seller (vendor) passes possession and equitable title of the property to the buyer (vendee) but retains title until the total or a substantial portion of the purchase price is paid. This type of contract usually does not require conveyance of title within one year. It is similar to the beneficiary/trustor relationship in that the buyer only has a possessory interest with equitable title and is making monthly installment payments over a period of time.
113
A prepayment penalty clause found in a contract is often:
A) - written into the contract for the trustee's protection.
B) - a charge to the buyer if he/she is late in making a monthly payment.
C) - for the benefit of the trustor.
D) - a penalty the buyer is charged for paying the contract off early.
D) - a penalty the buyer is charged for paying the contract off early.
Answer: D—A prepayment penalty clause is charged against the borrower for early retirement of the loan. The main reason for the charge is that money paid early to the lender often sits dormant and does not earn interest. To avoid this, the lender charges the borrower a penalty.
114
The owner of a property encumbered with a first and second trust deed wants to refinance the first trust deed. What should the second trust deed contain?
A) - a subordination clause
B) - an exculpatory clause
C) - a release clause
D) - an acceleration clause
A) - a subordination clause
Answer: A—A subordination clause is a clause in which the holder of a mortgage or trust deed holder permits a subsequent lien to take priority. Subordination is the act of yielding priority. This clause provides that if a prior mortgage is paid off or renewed, the junior mortgage will continue in its subordinate position and will not automatically become a higher or first mortgage.
115
Who would most likley pay a premium for mutual mortgage insurance?
A) - The homeowner who assures an FHA loan.
B) - A buyer with a Cal-Vet loan.
C) - A home buyer with a conventional loan from a life insurance company.
D) - A home buyer who wants to insure real and personal property.
A) - The homeowner who assures an FHA loan.
Answer: A—Mutual Mortgage Insurance (MMI) is mandatory on all FHA loans.
116
The beneficiary of a second trust deed sold his interest in the property for less than the unpaid balance of the note. This action is most commonly described as:
A) - leveraging.
B) - liquidating.
C) - discounting.
D) - subrogating.
C) - discounting.
Answer: C—To discount means to sell at a reduced value. When an investor sells a note at a discount, he/she is converting investment inflows to a present value. Since money has a time value, every dollar of that note to be received in the future is worth less than one dollar now, thus the discount.
117
The conscious charging by a private lender of more than the maximum amount of interest allowed by law is known as:
A) - penury.
B) - leverage.
C) - usury.
D) - assemblage.
C) - usury.
Answer: C—Usury is defined as a conscious taking by a lender of more than the maximum amount of interest as allowed by law.
118
On a $60,000 loan, the VA will guarantee:
A) - $60,000.
B) - $30,000.
C) - $24,000.
D) - $12,000.
C) - $24,000.
Answer: C—The maximum VA guarantees on loans of $45,000 and under 50% of the loan amount. On loans over $56,250, the VA guarantee covers 40% of the loan amount. The VA pays up to $46,000 on a guaranteed loan claim but no less than $22,500.
119
A subdivider and developer purchased considerable acreage and now plan to construct a tract of 50 homes. In arranging the financing for the new construction, the lender has agreed to advance part of the funds immediately and will release a set of additional money as each home is completed. The funds that will be forthcoming as construction progresses are known as:
A) - obligatory advances.
B) - reconveyance funds.
C) - release monies.
D) - open-end mortgage payments.
A) - obligatory advances.
Answer: A—Obligatory advances represent one form of construction loan distribution, often used in subdivision financing activities.
120
When a lender "calls" a loan, he/she:
A) - accelerates all sums owing.
B) - liquidates the obligation by amortization.
C) - seizes the property securing the loan by court action.
D) - calls upon the maker to pay delinquent installments.
A) - accelerates all sums owing.
Answer: A—The phrase "calling a loan" refers to accelerating the remaining payments of the loan and making them all due and payable at the present time.
121
A construction loan would most likely be made by a(n):
A) - bank.
B) - insurance company.
C) - private individual.
D) - mortgage broker.
A) - bank.
Answer: A—Commercial banks typically prefer short-term, high interest rate construction loans.
122
The term "Secondary Market" as used in financing, refers to:
A) - second loans.
B) - transferring of loans by mortgagors.
C) - transferring of loans by mortgagees.
D) - transferring of loans by sellers.
C) - transferring of loans by mortgagees.
Answer: C—Broadly speaking, mortgage markets are classified as "primary" and "secondary." A secondary market is one in which existing mortgages are bought, sold, or borrowed against. The mortgagee (lender) transfers the loan.
123
The first step a mortgagee would take to foreclose on a mortgage would be to:
A) - initiate court action.
B) - publish a notice of default.
C) - hold a public auction.
D) - pay off the loan.
A) - initiate court action.
Answer: A—In the event of the mortgagor's default before final payment, the mortgagee's remedy is judicial (court-ordered) foreclosure. The mortgagee's first step would be to initiate the court action.
124
At the close of a Land Contract, the vendee is entitled to:
A) - legal title.
B) - equitable title.
C) - naked title.
D) - nothing
A) - legal title.
Answer: A—During the term of a Land Contract, title remains in the name of the seller (vendor) until the provisions of the contract have been met. Upon satisfactory performance, the vendor conveys legal title to the buyer (vendee). During the term of the contract, the vendee holds the equitable title or equitable ownership.
125
Naked legal title is held by the:
A) - trustor.
B) - trustee.
C) - beneficiary.
D) - lender.
B) - trustee.
Answer: B—A trustee in a deed of trust holds naked legal title to a secured property. Naked legal title is only such title as is needed to carry out the terms of the lien document, and is lacking the usual rights and privileges of ownership.
126
If the payments of the buyer under a Land Contract include taxes and insurance, the seller must:
A) - pay the insurance company and the IRS on behalf of the buyer.
B) - hold this money in a trust account for this purpose.
C) - hold this money in his or her personal checking account.
D) - cash the buyer's check within three working days of receipt.
B) - hold this money in a trust account for this purpose.
Answer: B—If the seller receives money from the buyer under a land contract for taxes and insurance, either as part of the payment or separately, he/she must hold this money in trust for this purpose.
127
A veteran may purchase a home under Cal Vet by a:
A) - contract of sale.
B) - trust deed.
C) - mortgage.
D) - Any of the above
A) - contract of sale.
Answer: A—The property the veteran wishes to buy is purchased by the Department of Veteran's Affairs and in turn re-sold to the veteran on a Land Contract of Sale.
128
Who would sign an assignment of a land contract?
A) - vendee
B) - vendor
C) - trustor
D) - beneficiary
B) - vendor
Answer: B—If the seller (vendor) under a land Contract wishes to sell his/her interest to a third party through assignment, he/she must also convey title. The vendor's (seller's) signature would be required. The new contract holder must notify the buyer that title has been conveyed so they don't keep paying the original contract holder.
129
The Irwin's made an offer to purchase the Grey's property. As part of the offer, the Irwin's agreed to take title "subject to" an existing VA loan which the Greys obtained when they purchased the property in the approximate amount of $39,000. If the Greys sell to the Irwins under these conditions, which of the following is true concerning liability for a loss suffered by the government after a foreclosure on the VA loan:
A) - The Irwins will be primarily liable.
B) - The Greys and Irwins will be equally liable.
C) - The Greys will be primarily liable.
D) - Neither couple is liable because the Irwins took title "subject to" the existing loan.
C) - The Greys will be primarily liable.
Answer: C—The Grey’s will be primarily liable since VA did not approve an “assumption” of the loan. If there is a deficiency in a foreclosure, VA may get a deficiency judgment against the Greys.
130
If there has not been an agreement to the contrary, all of the following would qualify as a negotiable instrument EXCEPT:
A) - installment note
B) - personal check
C) - mortgage or trust deed
D) - bank draft
C) - mortgage or trust deed
Answer: C—Mortgages and trust deeds are NOT negotiable instruments. The promissory note that goes with it is a negotiable instrument.
131
Why was HUD, Section 8, created?
A) - For minorities to obtain housing
B) - For Federal employees to obtain housing
C) - To create government jobs
D) - Allow affordable housing for all United States citizens
D) - Allow affordable housing for all United States citizens
Answer: D—This is the purpose of Section 8.
132
Which of the following best describes "Cash-On-Cash" return?
A) - Annual dollar income
B) - Total amount of investment
C) - Total amount of distributions
D) - Income earned on investment
D) - Income earned on investment
Answer: D—Cash-on-Cash Return is the ratio of income received by the investor based only on the cash invested. It is expressed as a percentage and does not include appreciation. Calculated as Annual Dollar Income ÷ Total Dollar Investment. For example when you purchase a rental property, you might put down only 10% for a cash down payment. Cash-on-cash return would measure the annual return you made on the property in relation to the down payment.
133
An adjustable-rate loan stabilizes at an interest rate above the loan index. This increase above the index rate is known as the:
A) - cap.
B) - overage.
C) - margin.
D) - annual percentage rate.
C) - margin.
Answer: C—Another variation to test your knowledge of the term margin.
134
With an index rate of 5 1/2% and a margin of 2.5%, the loan's interest rate should be:
A) - 6%
B) - 7.25%
C) - 7.50%
D) - 8%
D) - 8%
Answer: D—5.50 + 2.50 = 8%
135
An adjustable-rate loan has an index that has risen from 5% to 10% with a margin of 2%, but the lender is still charging only 11% interest on the loan. This lower interest rate is most likey due to:
A) - negative amortization.
B) - usury.
C) - the cap rate.
D) - Regulation Z
C) - the cap rate.
Answer: C—The cap rate is a ceiling or limit on the adjustments made in the payments, interest rate or balance of an adjustable-rate loan.
136
A man bought a small apartment building. He put a down payment on the property and financed the rest with a loan. One year later the property was appraised. His equity had increased 300%. This is an example of:
A) - leverage.
B) - inflation.
C) - anticipation.
D) - regression.
A) - leverage.
Answer: A—Leverage is broadly defined as the impact of borrowed funds on investment return. It is more specifically the use of borrowed funds to purchase property with the anticipation that the acquired property will also increase so that the investor will realize a profit on his/her investment.
137
The FHA was created primarily to provide:
A) - a primary market for home mortgages.
B) - insurance for home loans from qualified lenders.
C) - insurance for depositors in banks.
D) - a flow of money and credit.
B) - insurance for home loans from qualified lenders.
Answer: B—The Federal Housing Administration (FHA) was established to encourage improvement in housing standards and conditions and to provide an adequate home-financing system through the insurance of housing mortgages and credit. FHA does not make loans, but it insures loans made by lending institutions such as banks, life insurance companies, and mortgage companies.
138
If you plan on conducting activity as a "loan correspondent,"
A) - you are required to have a real estate broker license.
B) - a real esate license is required even if you work for a commercial bank.
C) - a real estate license is not required as long as you stay below "threshold status."
D) - a real estate broker license is not required as long as you do not advertise and use the word "broker."
A) - you are required to have a real estate broker license.
Answer: A—A "loan correspondent" is more commonly referred to as a mortgage broker, also called a loan broker. A mortgage broker is a person or firm that acts as an intermediary between borrower and lender. Usually for compensation or personal gain, mortgage brokers negotiate, sell or arrange loans and sometimes continue to service the loans. California does not issue a "mortgage broker" license. A majority of those engaged in mortgage loan brokering do so with a real estate broker license. To the surprise of some, the license that allows the listing and sale of real property (the traditional activities associated with a real estate broker license) is the same license that allows the solicitation of borrowers or lenders, the negotiation of loans secured by real property and the collection of payments on notes secured by real property. For further details concerning the definition of licensed activity, review Business and Profession Code Sections 10130 and 10131.
139
A GPAM is what kind of loan:
A) - Adjustable rate mortgage
B) - Amortized loan
C) - Straight loan
D) - Partial loan
A) - Adjustable rate mortgage
Answer: A—This is a Graduated Payment Adjustable Mortgage. This plan combines elements of a Graduated Payment Mortgage and an Adjustable Rate Mortgage. It starts like a GPM with lower payments that increase in fixed steps until they level off, after which the interest rate may vary. This loan may produce negative amortization.
140
Foreclosure by sale would NOT involve a:
A) - publication period.
B) - deed of reconveyance.
C) - notice of default.
D) - Any of the above
B) - deed of reconveyance.
Answer: B—When the trustee sells property under the power-of-sale provision in a deed of trust, the recording of the Notice of Default by the trustee commences the three month reinstatement period. When the trustor's right of reinstatement has run out, advertising of the sale begins by publishing the Notice of Sale. A Notice of Default is sent to junior lien holders advising them of a pending foreclosure on the first.
141
The source of money for most home loans by institutional lenders is:
A) - bonds.
B) - business profits.
C) - government funds.
D) - individual and family savings.
D) - individual and family savings.
Answer: D—An institutional lender is a financial institution such as a bank, insurance company, savings and loan association, or any lending institution whose loan is regulated by law. Such institutions invest depositors' and customers' money.
142
A purchaser of a home five years ago is now interested in securing an FHA loan. A salesperson would most likely introduce the homeowner to:
A) - a conventional bank or savings & loan.
B) - an appraiser.
C) - the FHA.
D) - the Federal Home Loan Bank.
A) - a conventional bank or savings & loan.
Answer: A—The FHA insures the loan but does not actually lend the money. This would most likely occur through a conventional lender.
143
Under which of the following types of financing is the borrower required to purchase term life insurance?
A) - conventional
B) - VA
C) - FHA
D) - Cal-Vet
D) - Cal-Vet
Answer: D—A veteran is required to secure life insurance under the Cal-Vet Home Protection Plan.
144
Once the debt secured by a deed of trust has been paid in full to the lender, the trustee must give a deed of reconveyance to the trustor:
A) - within 60 days of the trustor's demand.
B) - within 30 days of the trustor's demand.
C) - within 21 days of the trustor's demand.
D) - immediately.
C) - within 21 days of the trustor's demand.
Answer: C—The trustee must deliver a deed of reconveyance within 21 days of the trustor's demand.
145
Which of the following statements is most nearly true concerning the activities of mortgage companies?
A) - They are organized under federal laws and thus are not subject to state regulations.
B) - They never service the loans they create.
C) - They prefer negotiating loans which are saleable in the secondary market.
D) - They are not active in the field of government insured loans.
C) - They prefer negotiating loans which are saleable in the secondary market.
Answer: C—Mortgage companies (loan brokers) often do service the loans they originate, are active in FHA and VA loans and are usually organized under state laws. They prefer to negotiate loans which are sold on the secondary market.
