Flashcards in Real Estate Course Chapter 13 Deck (56)
Federally chartered SAs are required to be members of their district Federal Home Loan Bank
Each discount point paid to the lender will increase the lender's yield (return) by approximately 1/8 of 1 percent.
State-chartered commercial banks must display the word “National” somewhere in their name.
The amount that Federal Reserve member banks are required to keep on deposit is called the reserve requirement
Mortgage loan originators create loans with either their own funds or money borrowed from financial institutions
The cost of 5 discount points to the buyer on a $100,000 loan is $5,000.
The statement is TRUE. Each discount point is equal to 1 percent of the loan amount.
Fannie Mae does NOT make loans directly to consumers; rather, Fannie Mae purchases loans for its own portfolio
When the Fed decides to sell securities through open-market bulk trading, the supply of money in circulation increases.
The statement is FALSE. When the Fed decides to sell securities through openmarket bulk trading, all funds received are held by the FRS. This reduces the supply of money in circulation, which in turn causes a drop in loanable funds and causes interest rates to rise
The discount rate is another term for mortgage points.
The statement is FALSE. The discount rate is the interest rate charged member banks for borrowing from the Federal Reserve Bank.
Deposit accounts are insured to $100,000 per depositor in each bank or thrift the FDIC insures.
The statement is FALSE. Deposit accounts are insured to $250,000 per depositor in each bank or thrift the FDIC insures. The coverage limit will return to $100,000 (except for IRAs), effective January 1, 2014.
Which group insures federally chartered savings associations?
DEPOSIT INSURANCE FUND
The Federal Reserve increases the reserve requirement for member banks. Which statement BEST describes the result of this action?
A)The money supply is increased.
B)The market is more liquid.
C)The supply of loan funds is increased.
D)Pressure is on interest rates to rise
The answer is PRESSURE IS ON INTEREST RATES TO RISE. Increasing the reserve requirement takes money out of circulation, making the market less liquid and causing interest rates to rise
Which entity charters and regulates federal savings associations?
OFFICE OF THRIFT SUPERVISION
What is the result of increasing the discount rate?
A)The money supply decreases.
B)The local banker is not affected by increasing the discount rate.
C)The borrower pays higher out-ofpocket expenses at closing.
D)The money supply increases.
THE MONEY SUPPLY DECREASES. If the discount rate is increased, member banks have to pay a higher interest rate for money borrowed from their district bank. The higher interest rate is passed on in the form of higher interest to consumers. This reduces the number of loans made and less money circulates in the marketplace.
Which entity is NOT part of the primary mortgage market?
A)Rural housing service
B)Mortgage broker company
C)Federal National Mortgage Association
D)Life insurance company
FEDERAL NATIONAL MORTGAGE ASSOCIATION. The Federal National Mortgage Association (Fannie Mae) is a secondary mortgage market participant.
Which interest rate is charged member banks for borrowing money from the Federal Reserve?
The answer is DISCOUNT. The discount rate is the interest rate charged member banks for borrowing from the Fed.
Which activity is performed by a secondary mortgage market participant?
A)Regulate mortgage interest rates
B)Lend money directly to consumers
C)Initiate new second mortgages and consumer loans
D)Buy existing mortgages
BUY EXISTING MORTGAGES. The secondary mortgage market is an investor market that buys and sells existing mortgages.
Lenders sometimes handle the loan payment collection and record keeping associated with mortgage loans known as
SERVICING THE MORTGAGE
The Fed periodically buys and sells an inventory of securities to increase or decrease the amount of money in circulation known as
D)the reserve requirement.
The answer is OPEN-MARKET OPERATIONS. Open-market operations involve the purchase and sale of U.S. Treasury and federal agency securities.
The process of consolidating many small savings accounts belonging to individual depositors and investing the funds into larger, diversified projects is known as
A) INTERMEDIATION. Intermediation is a process practiced by financial institutions that serve as intermediaries between depositors and borrowers.
A local lender charged 7 percent interest plus 4 points on a conventional mortgage loan. What was the approximate yield on the loan?
A)7 1/2 percent
B)7 3/4 percent
C)7 3/8 percent
D)7 1/4 percent
The answer is 7 1/2 PERCENT. The solution is: 4 points × 1/8 percent = 1/2 percent; 7 + 1/2 = 7 1/2 percent yield
With respect to the Safe Act are State-licensed mortgage loan originators required to complete prelicense education and pass a written qualifications exam?
YES. Mortgage loan originators (MLOs) who are not employed by agency-regulated institutions are licensed by the state. State-licensed MLOs must complete prelicensure education, pass a written qualification exam, and take continuing education courses.
Charging 2 discount points has the effect of increasing the lender's yield on a mortgage loan by what percent?
A) .25. Each discount point increases the lender's yield by approximately 1/8 of 1 percent or .00125. Therefore, 2 discount points would increase the yield by approximately 2 × .00125 = .0025 or .25 percent
Interest is ...
the rent paid for the use of money
The mortgage market is tied to the...
law of supply and demand
The Federal Reserve (cental bank of the United States) was founded by Congress. It consists of ...
7 member board of Governors and 12 Reserve Banks
What are the Feds duties
1) conducting the nation's monetary policy
2) supervising and regulating banking institutions
3) Protecting the credit rights of consumers
4) maintaining the stability of the financial system
The Fed uses three tools (or methods) or monetary policy. They are:
1) Open-market operations
2) Discount Rate
3) Reserve Requirements
Relating to the Fed, what is Open-market operations?
They involve the purchase and sale of U.S. Treasury and federal agency securities. The purchase or sale results in the increase or decrease of money in circulation. A drop in funds causes interest rates to rise
What is the discount rate?
The discount rate is the interest rate charged members banks for borrowing money from the Fed.
Related to the Fed, what are Reserve Requirements?
They are the amount of funds an institution must hold in reserve against deposit liabilities
Why was the FHLBS (Federal home loan banking system) created?
To provide the same regulation and administrative services for the nation's savings associations that the FRS provides for commerical banks
What is FIRREA?
The Financial Institutions Reform, Recovery, and Enforcement Act.
When was FIRREA created?
Who Created the FIRREA?
The Office of Thrift Supervision (OTS)
Why was FIRREA created?
To charter and regulate member federal savings associations.
What else did the FIRREA create?
The Federal Housing Finance Board (FHFB) to supervise mortgage lending by the 12 regional FHLBs.
Is the FDIC an independent agency?
How is the FDIC funded?
Thru premiums that banks and savings associations pay for the deposit insurance coverage AND from earnings on investments in U.S. Treasury securities
What did the Federal Deposit Insurance Reform Act of 2005 do?
It merged the Savings Association Fund and the Savings Association Insurance Fund into a new DEPOSIT INSURANCE FUND (DIF) that insures BOTH banks and savings associations.
With respect to banking and loans, what is the PRIMARY MARKET?
The market where securities or goods are actually created.
What is the SAFE ACT and why was it created?
The Secure And Enforcement of Mortgage Licensing Act is intended to improve accountability and track Mortgage Loan Originators (MLO's), enhance consumer protection and reduce fraud. Sets a minimum standard for licensing. for MLO's.
Another word for "demand deposits"?
Savings associations (SA's) formerly called Savings and Loan Associations (S&L's) are also called...
Thrifts and Savings Banks
Mutual Savings Banks (MSB's) are
The secondary mortgage market helps make the primary mortgage market....
FANNIE MAE Is short for
Federal National Mortgage Association or FNMA.
When was Fannie Mae established and why?
1938. It was created to stimulate the housing industry following the Great Depression. It was the first secondary market for mortgage loans.
When did Fannie Mae become a government-owned enterprise?
What is Freddie Mac and when was it created?
Created in 1970, the Federal Home Loan Mortgage Corporation. It is not a government-owned enterprise. Most of the loans it handles are conventional loans on a secondary market basis.
What is Ginnie Mae?
The Government National Mortgage Association (GNMA) has always been a government owned and fanned corporation. It is part of HUD. It serves as a guarantor of mortgage-backed securities.
Ginnie Mae mortgage backed securities are often referred to as...
Ginnie Mae pass-through securities .
What are pass-through securities?
The payments of the underlying mortgages (principal and interest) that are passed through to the investor.
Does Ginnie Mae issue, sell or buy mortgage-backed securities or purchase mortgage loans?
NO. Ginnie Mae approved private institutions issue mortgage backed securities. In exchange for a fee, Ginnie Mae guarantees payment of principal and interest to the investor.
Are Ginnie Mae mortgage backed securities the only MBS to carry the full faith and credit guarantee of the U.S. government?