Level 4 Financing

Question 1

a clause in a security instrument which makes the entire loan amount due immediately upon default

Answer 1

acceleration clause

Question 2

a mortgage with an interest rate that can be adjusted based on fluctuations in the cost of money

Answer 2

adjustable-rate mortgage

ARM

Question 3

a provision in the mortgage contract that triggers the payment in full of the loan upon the sale or conveyance of the property; also known as the due-on-sale clause

Answer 3

alienation clause

Question 4

the process of paying off a debt/mortgage in regular

installments based on a fixed payment schedule

Answer 4

amortization

Question 5

the annual rate charged in interest for borrowing

Answer 5

annual percentage rate

Question 6

a payment that occurs at the end of a period to compensate for charges accrued during that time

Answer 6

arrears

Question 7

the process of transferring the obligation of the mortgagor to
another party who takes over the responsibility to pay the note

Answer 7

assumption

Question 8

a payment at the end of a loan period which includes the total outstanding balance of the loan

Answer 8

balloon payment

Question 9

any loan that is neither insured by a government agency nor guaranteed by a government agency

Answer 9

conventional loan

Question 10

a ratio of debt to income used in commercial properties

Answer 10

debt service coverage

ratio

Question 11

the ratio of debt to the value of the property

Answer 11

debt-to-income ratio

Question 12

a right to real property being held by one party for the benefit of another

Answer 12

deed of trust

Question 13

court order that requires the defaulted borrower to pay any remaining balance owed to the lender, generally after the sale of a foreclosed property

Answer 13

deficiency judgment

Question 14

the right of a borrower in default to reclaim their property before foreclosure by paying all past due mortgage payments

Answer 14

equitable redemption

Question 15

government agency that provides mortgage insurance on loans made by FHA-approved lenders

Answer 15

Federal Housing

Administration (FHA)

Question 16

the legal process whereby a lender takes control of a property held by a borrower in default and sells it to recover the lender’s losses

Answer 16

foreclosure

Question 17

government-owned entity that supports the secondary

mortgage market by guaranteeing mortgage-backed securities (MBS) insured by the U.S. government

Answer 17

Ginnie Mae

Question 18

corporations created to enhance the flow of credit in the economy; most notably Fannie Mae and Freddie Mac

Answer 18

government-sponsored

enterprises (GSEs)

Question 19

a loan in which funds are borrowed using the homeowner’s equity for collateral

Answer 19

home equity loan

Question 20

granting real property as collateral for a mortgage loan

Answer 20

hypothecation

Question 21

the facilitation by a third party of a financial transaction

between two parties

Answer 21

intermediation

Question 22

additional money paid to a lender for the use of their money

Answer 22

interest rate

Question 23

a foreclosure that is processed through the court

Answer 23

judicial foreclosure

Question 24

a lender’s approval of a specific loan for a specific property

Answer 24

loan commitment

Question 25

a predatory lending technique that involves coaxing lendees to repeatedly refinance their loans, adding fees and prepayment penalties each time

Answer 25

loan flipping

Question 26

the amount of money being loaned compared to the value of | the property

Answer 26

loan-to-value ratio

Question 27

the adding of interest payments to the principal balance; occurs when a borrower’s payment is not large enough to cover the interest due

Answer 27

negative amortization

Question 28

a document that promises payment to party, but can be sold, traded, or assigned to a another party

Answer 28

negotiable instrument

Question 29

a foreclosure that does not involve a suit or ruling of the court — the two types are power-of-sale foreclosures and strict foreclosures

Answer 29

non-judicial foreclosure

Question 30

fees pay for the cost of issuing the loan

Answer 30

origination fee

Question 31

a loan fee that is one percent of the loan

Answer 31

point

Question 32

the first step in the loan application process in which lenders give prospective borrowers a general estimate of the loan amount for which they may be approved

Answer 32

pre-qualification

Question 33

the market in which loans are originated/created/funded by the lender

Answer 33

primary mortgage market

Question 34

insurance that protects the lender if a borrower defaults on a conventional loan; usually required when the borrower has less than 20% equity

Answer 34

private mortgage insurance

Question 35

document where the borrower acknowledges their debt to the lender and promises to repay the holder of the note

Answer 35

promissory note

Question 36

a loan in which the buyer borrows from the seller in addition to the lender

Answer 36

purchase-money mortgage

Question 37

a length of time after foreclosure that the defaulting borrower has to reclaim the property

Answer 37

redemption period

Question 38

the act of replacing an old loan with a new loan

Answer 38

refinancing

Question 39

the part of the Truth in Lending Act (TILA) that seeks to protect consumers by requiring proper disclosures and fair lending practices

Answer 39

Resignation Z

Question 40

the right of a borrower to reclaim property that has been foreclosed upon

Answer 40

right of redemption

Question 41

a mortgage on a property that already has a mortgage

Answer 41

second mortgage

Question 42

the market in which already-existing mortgages are sold and re-sold to investors

Answer 42

secondary mortgage market

Question 43

the collateral for a loan

Answer 43

security

Question 44

when the seller of a property acts as the lender; the buyer makes mortgage payments directly to the seller

Answer 44

seller financing

Question 45

a mortgage with an interest rate higher than prime mortgages due to the higher risk associated with a less qualified borrower

Answer 45

subprime loan

Question 46

the process of deciding the level of risk a lender would take on by offering a loan to a certain borrower for a specific property

Answer 46

underwriting

Question 47

laws that limit interest rates

Answer 47

usury