Principle II Chapter 3 Flashcards
Which one of these statements about promissory notes is NOT true?
A. A promissory note is a document signed by a buyer who gets a mortgage loan from a mortgage lender.
B. It provides that the loan taken by the borrower must be paid back.
C. In a case where the borrower defaults, the lender will not be completely exempted and will have to pay the loan.
D. Usury laws do not apply to promissory notes.
D. Usury laws do not apply to promissory notes.
Usury laws do not apply to promissory notes. In fact, usury laws (the maximum rate that may be charged to a borrower) could affect a promissory note.
Which statement is NOT true of the uniform residential loan application form?
A. A loan originator uses a FNMA 1003 loan application form to record significant financial information about a mortgage application applicant.
B. A uniform residential loan application form, also known as a 1003 form or a Fannie Mae form 1003, is a standardized mortgage loan application form that provides information about a borrower to a lender.
C. Fannie Mae 1003 loan applications are required for unconventional single-family home mortgages.
D. A 1003 application form is required to decide about the qualification of borrowers when they apply for a loan or a mortgage.
C. Fannie Mae 1003 loan applications are required for unconventional single-family home mortgages.
Fannie Mae 1003 loan applications are required for unconventional single-family home mortgages. In fact, Fannie Mae 1003 loan applications are required for conventional single-family home mortgages.
Which statement is NOT true about interest?
A. Interest is defined as the cost of borrowing money as in the case of interest charged on a loan balance.
B. interest can also be the rate paid for money on deposit as in the case of a certificate of deposit.
C. Simple interest is calculated on the principal, or original, amount of a loan.
D. The formula for calculating simple interest is Principal times annual interest rate times amount of the loan.
D. The formula for calculating simple interest is Principal times annual interest rate times amount of the loan.
The actual formula for calculating simple interest is Principle times interest rate times the term of the loan (in years).
Which statement about fixed-rate mortgages is NOT true?
A. Fixed-rate mortgages are generally offered as amortized loans with installment payments
B. A lender creates a payment schedule with varying payments over the entire life of the loan.
C. Fixed-rate monthly installment loans are one of the most popular mortgage product offerings.
D. In a time of rising rates, a fixed-rate mortgage will have a lower risk for a borrower and higher risk for a lender.
B. A lender creates a payment schedule with varying payments over the entire life of the loan.
Which statement about the Truth in Lending Act is NOT true?
A. The Truth in Lending Act (TILA) gives borrowers the right to back out of certain kinds of loans within a five-day window.
B. The Truth in Lending Act (TILA) protects consumers in their dealings with lenders and creditors.
C. The TILA applies to most kinds of consumer credit, including both closed-end credit and open-end credit.
D. The TILA regulates what information lenders must make known to consumers about their products and services.
A. The Truth in Lending Act (TILA) gives borrowers the right to back out of certain kinds of loans within a five-day window.
The borrower is given a three-day window to back out of certain kinds of loans.
Which one of the following is NOT a player in the primary market?
A. Mortgage brokers and bankers
B. Credit Unions
C. Fannie Mae
D. Individuals
C. Fannie Mae.
Fannie Mae (along with Freddie Mac) is a government-sponsored enterprise (GSE) that provides a secondary market in home mortgages, purchasing mortgages from the lenders who originate them.
Which statement is NOT true of the Federal Reserve?
A. The Federal Reserve (The Fed) is the central bank of the United States.
B. Congress created the Fed in 1913 to help promote a safe and sound financial system for the nation.
C. The Board of Governors of the Fed contains 7 members appointed by the U.S. President and confirmed by the U.S. Senate.
D. The Federal Reserve is dependent on Presidential approval of its monetary policy decisions.
D. The Federal Reserve is dependent on Presidential approval of its monetary policy decisions.
Which statement about hypothecation is NOT true?
A. As long as a rental property remains as collateral, the bank has a claim on the rental income from the property.
B. Hypothecation occurs when an asset is pledged as collateral to secure a loan, without giving up title, possession or ownership rights, such as income generated by the asset.
C. Hypothecation occurs most commonly in mortgage lending, where the home serves as collateral but the bank does not have any claim on cash flows or income generated from it unless the borrower defaults.
D. Margin lending in brokerage accounts is another common form of hypothecation found in securities trading and investing.
A. As long as a rental property remains as collateral, the bank has a claim on the rental income from the property.
In the United States, the federal government is responsible for setting usury laws.
A. True
B. False
B. False. In the United States, individual states are responsible for setting their own usury laws.
With an amortized loan, as the interest portion of the payments for an amortization loan decreases, the principal portion increases.
A. True
B. False
A. True. Since an amortized loan payment first pays off the interest expense for the period while the remaining amount reduces the principal, the interest portion will decrease (less of a loan to pay off) and the principal portion increases with each new payment.
With an amortized loan, as the interest portion of the payments for an amortization loan decreases, the principal portion increases.
A. True
B. False
A. True. Since an amortized loan payment first pays off the interest expense for the period while the remaining amount reduces the principal, the interest portion will decrease (less of a loan to pay off) and the principal portion increases with each new payment.
Which statement regarding the deed of trust is NOT true?
A. With a deed of trust, the equitable title—the right to obtain full ownership—remains with the borrower, as does full use of and responsibility for the property.
B. The deed of trust is a document that comes into play when one party has taken out a loan from another party to purchase a property.
C. Mortgages and trust deeds have the same foreclosure processes.
D. In financed real estate transactions, trust deeds transfer the legal title of a property to a third party, such as a bank, escrow, or title company, to hold until the borrower repays his debt to the lender.
C. Mortgages and trust deeds have the same foreclosure processes.
Mortgages and trust deeds have different foreclosure processes. A trust deed lets the lender begin a faster and less-expensive non-judicial foreclosure, bypassing the court system, and adhering to the procedures outlined in the trust deed and state law.
Which statement is NOT true regarding rescission?
A. Rescission is the voiding of a contract that is not recognized as legally binding.
B. The courts can free non-liable parties from their agreed obligations and, when possible, effectively restore them to the position they were in before the contract was signed.
C. Rescission may be an option if there is proof that there was a material error in the contract, or evidence of fraud, mutual errors, lack of legal or mental capacity, duress and undue influence, or one party not fulfilling its obligation.
D. With rescission, those buying a new home with a mortgage have the right to cancel the loan within three days after all the relevant documents are signed.
Rationale:
D. With rescission, those buying a new home with a mortgage have the right to cancel the loan within three days after all the relevant documents are signed.
This is not true. When you buy a new home with a mortgage the buyer has no right to cancel the loan once all the relevant documents are signed.
Which statement is NOT true regarding rescission?
A. Rescission is the voiding of a contract that is not recognized as legally binding.
B. The courts can free non-liable parties from their agreed obligations and, when possible, effectively restore them to the position they were in before the contract was signed.
C. Rescission may be an option if there is proof that there was a material error in the contract, or evidence of fraud, mutual errors, lack of legal or mental capacity, duress and undue influence, or one party not fulfilling its obligation.
D. With rescission, those buying a new home with a mortgage have the right to cancel the loan within three days after all the relevant documents are signed.
Rationale:
D. With rescission, those buying a new home with a mortgage have the right to cancel the loan within three days after all the relevant documents are signed.
This is not true. When you buy a new home with a mortgage the buyer has no right to cancel the loan once all the relevant documents are signed.
Which statement is NOT true about redlining?
A. The policy of redlining is felt the most by residents of lower-income neighborhoods.
B. Redlining is a practice that denies services to whole neighborhoods on the basis of race or ethnicity.
C. The Community Reinvestment Act of 1977 made all redlining practices illegal.
D. Reverse redlining targets neighborhoods by selling products and services at higher prices than they are sold for in areas with greater competition.
A. The policy of redlining is felt the most by residents of lower-income neighborhoods. In fact, black inner-city neighborhoods were most likely to be redlined. Investigations found that lenders would make loans to lower-income whites but not to middle- or upper-income African Americans.
