Govt. Financing

Question 1

Federal Reserve System (FED)

Answer 1

consists of 12 federal reserve district banks. The Fed
regulates the flow of money and interest rates

Question 2

Primary Mortgage Market

Answer 2

consists of lenders that originate mortgage loans.

Question 3

Secondary Mortgage Market

Answer 3

loans are bought and sold after being funded.

Question 4

Fannie Mae

Answer 4

has shareholders but is under the conservatorship of the Federal Housing Finance
Agency (FHFA).

It creates mortgage-backed securities using pool of mortgages as collateral;
and deals in conventional, FHA, and VA loans

Question 5

Freddie Mac

Answer 5

also has shareholders and is under the conservatorship of FHFA. It has authority
to purchase mortgages, pool them, and use them as security for bonds sold on the open
market.

Question 6

Ginnie Mae (Govt National Mortgage Assoc.)

Answer 6

is entirely a government agency,
a division of the Department of Housing and Urban Development (HUD), organized as a
corporation but without corporate stock, that administers special-assistance programs, and
guarantees mortgage-backed securities using FHA and VA loans as collateral.

Question 7

Conventional Loans

Answer 7

are the most secure loans

The loan-to-value ratio (LTV) is often lowest for these loans—traditionally 80%—but the LTV may be as high as 100%.

Conventional loans are not government-insured or guaranteed.

meet all the requirements of the secondary market, set by Fannie Mae and Freddie Mac, for conforming loans.

Question 8

Loan to Value Ratio

Answer 8

LTV = loan amount ÷ property value

Lower LTV = higher down payment = less risk

Question 9

Nonconforming Loans

Answer 9

(jumbo loans)

must be retained in the lender’s investment portfolio.

Exceed Fannie/Freddie Limits

Question 10

Private Mortgage Insurance

Answer 10

may be required for LTVs higher than 80%,that is, down payments of less than 20%.

Federal law requires PMI to automatically terminate if
the borrower has accumulated 22% equity in the home (based on purchase price or original
appraised value, whichever is less) and is current on mortgage payments.

Fannie Mae and Freddie Mac have extended the automatic termination option to all loans that are in good standing and have had no additional financing added to the original loan.

Question 11

FHA Insured Loans

Answer 11

backed by the Federal Housing Administration (FHA), which is
part of HUD. FHA does not make loans but insures loans made by an FHA-approved lending institution.

Question 12

FHA Mortgage Insurance Premium

Answer 12

has an up-front fee along with
monthly installments.

Question 13

VA Garaunteed Loans

Answer 13

backed by the U.S. Department of Veterans Affairs and are available to eligible veterans and spouses.

Question 14

Farm Service Agency

Answer 14

part of the Department of Agriculture and has programs to help families purchase or operate
family farms, including the Rural Housing and Community Development Service (RHCDS)
and the Farm Credit System (Farm Credit).

Question 15

Package Loan

Answer 15

includes all personal property and appliances as well as real estate.

Question 16

Blanket Loan

Answer 16

covers more than one parcel or lot

Question 17

Partial Release Clause

Answer 17

allows borrower to pay off part of a loan to remove the liens from one parcel or lot at a time.

Question 18

Open End Loan

Answer 18

secures the current loan to the borrower and future advances made by the lender to the borrower.

Question 19

Construction Loan

Answer 19

used to finance construction of property improvements.

Question 20

Sale and Lease-Back Arrangement

Answer 20

can be used to finance large commercial or industrial
properties.

A buydown is a payment made at closing to reduce the interest rate on the loan.

Question 21

home equity loan (home equity line of credit or HELOC)

Answer 21

Junior to the original lean

Question 22

Truth in Lending Act (TILA)

Answer 22

implemented by Regulation Z, now enforced by the Consumer Financial Protection Bureau, and requires when a loan is secured by a residence, the lender must inform the borrower of the true cost of obtaining credit.

The borrower has a three-business-day right of rescission.

Advertising is strictly regulated,
using triggering terms to mandate what must be disclosed, and there are civil and criminal penalties for violations.

Question 23

Equal Credit Opportunity Act

Answer 23

prohibits discrimination in granting or arranging credit on the basis of race, color, religion, national origin, sex, marital status, age (as long as the applicant is not a minor), or receipt of public assistance.

Question 24

Fair Credit Reporting Act

Answer 24

requires that reasons for a loan application rejection
be provided to the applicant within 30 days and that the applicant be given the right to a free
copy of any credit report that was considered in the loan application process.

Question 25

Community Reinvestment Act (CRA)

Answer 25

requires financial institutions to help meet the need for affordable housing in their communities.

Question 26

Real Estate Settlement Procedures Act (RESPA)

Answer 26

covers costs related to the closing of a residential transaction.

Question 27

Automated underwriting (loan processing) programs

Answer 27

provide loan approvals quickly and include Fannie Mae’s Desktop Underwriter and Freddie Mac’s Loan Prospector. A credit score may be used as part of a loan application evaluation process.