Unit 13

Question 1

Which of the following clauses would NOT appear in a mortgage?

a) A subrogation clause.
b) A due on sale clause.
c) An alienation clause.
d) A defeasance clause.

Answer 1

a) A subrogation clause.

Answers B&C - same thing - A due-on-sale clause is a provision in a mortgage contract that allows the lender to demand full payment of the loan balance if the property securing the loan is sold or transferred without the lender’s prior consent

A defeasance clause in a mortgage is a provision that allows a borrower to pay off a loan without penalty or additional fees, essentially releasing the lender’s lien on the property.

A subrogation clause is a contractual provision that allows one party, typically an insurer, to step into the shoes of another party, the insured, to pursue legal action against a third party who caused a loss for which insurance benefits were paid. Essentially, the insurer can recover the amount of the claim it paid from the at-fault party - nothing to do with a mortgage.

Question 2

“Subject to mortgage” is:

a) a college course on mortgage finance.
b) a mortgage bought by FNMA and sold to GNMA>
c) the taking of title to property wherein the grantee is not responsible to the holder of the promissory note for the payment of nay portion of the amount due.
d) the right to foreclose without going to court.

Answer 2

c) the taking of title to property wherein the grantee is not responsible to the holder of the promissory note for the payment of nay portion of the amount due.

“Subject to” in real estate refers to a transaction where a buyer purchases a property while the existing mortgage remains in the seller’s name.

Question 3

A conventional mortgage is:

a) guaranteed by FHA.
b) a commercial loan.
c) approved by the VA.
d) a two party transaction.

Answer 3

d) a two party transaction.

Question 4

The discount charged by a lender and paid by the seller on a federal VA loan is a percent of:

a) sales price.
b) loan amount.
c) appraised value.
d) assessed value.

Answer 4

b) loan amount.

Question 5

The penalty for complete prepayment of an FHA-insured loan during the first ten years is:

a) 2% of the face value of the note at time of payment.
b) 90 days interest on the remaining balance.
c) 1% of the original amount of the loan.
d) Nothing.

Answer 5

d) Nothing.

Question 6

A promissory note:

a) may not be executed in connection with a loan on real property.
b) is an agreement to do or not to do a certain thing.
c) is the primary evidence of a loan.
d) is one which is guaranteed or insured by a governmental agency.

Answer 6

c) is the primary evidence of a loan.

Question 7

A mortgage is released by:

a) reversion.
b) reconveyance.
c) discounting the loan.
d) satisfaction.

Answer 7

d) satisfaction.

Question 8

A clause in a mortgage or lease, stating that rights of the holders shall be secondary to a
subsequent encumbrance is:

a) a subordination clause.
b) a habendum clause.
c) a subrogation clause.
d) an inferiority clause.

Answer 8

a) a subordination clause.

Question 9

When the amortized payment of a mortgage remains constant over the period of the loan but leaves an outstanding balance to be paid at the end, this payment of the balance is called:

a) a balloon payment.
b) an acceleration payment.
c) a straight payment.
d) kiting.

Answer 9

a) a balloon payment.

Question 10

When you use real property as security for a loan you:

a) demise it.
b) hypothecate it.
c) assign it.
d) devise it.

Answer 10

b) hypothecate it.

Question 11

All but one of the following is a purpose of FHA:

a) Insure titles.
b) Stabilize the mortgage market.
c) Encourage improvement in housing standards.
d) Encourage home financing.

Answer 11

a) Insure titles.

The FHA, or Federal Housing Administration, is a U.S. government agency that insures mortgages, helping to make homeownership more affordable and accessible.

Question 12

Upon the completion of a sale of mortgaged property, the seller must:

a) pay off the mortgage.
b) deliver the deed to the grantee.
c) record the satisfaction of the mortgage.
d) inform the Department of Banking.

Answer 12

b) deliver the deed to the grantee.

Question 13

Conventional loans are:

a) guaranteed by the federal government
b) insured by the federal government.
c) not originated as often as FHA and VA loans.
d) loans that are not guaranteed or insured by any agency of the federal government.

Answer 13

d) loans that are not guaranteed or insured by any agency of the federal government.

Question 14

The Veterans Administration is authorized to make direct loans where:

a) the veteran agrees not to occupy the property.
b) a disabled veteran gets a supplemental grant to get a specially adapted home.
c) the veteran has trouble qualifying for the loan.
d) the FHA refuses to insure the loan.

Answer 14

b) a disabled veteran gets a supplemental grant to get a specially adapted home.

Question 15

When a loan is approved by FHA:

a) the appraised value may be less than the sale price.
b) the government guarantees the value of the property.
c) The FHA lends the money.
d) The Director of HUD sets the maximum interest rate.

Answer 15

a) the appraised value may be less than the sale price.

Question 16

Which of the following federal agencies does NOT participate in the secondary mortgage
market?

a) FHA
b) FNMA
c) GNMA
d) FHLMC

Answer 16

a) FHA

Question 17

The agency of the Department of HUD that buys and sells low income mortgages is:

a) Federal Deposit insurance Corp.
b) Ginnie Mae.
c) Federal Home Savings and Loan.
d) Mutual MOrtgage Insurance Corp.

Answer 17

b) Ginnie Mae.

Question 18

Which of the following conveys legal title and possession?

a) deed
b) mortgage
c) purchase and sale agreement
d) option

Answer 18

a) deed

Question 19

A financing arrangement by which the buyer does not become the owner of record would be a:

a) trust deed.
b) land contract.
c) purchase money mortgage.
d) quitclaim deed.

Answer 19

b) land contract.

A land contract, also known as a contract for deed, is a legal agreement where a buyer purchases property by making installment payments to the seller over time, without transferring ownership until the final payment is made. It’s essentially a form of seller financing.

Question 20

The seller under a land contract is called the:

a) grantor.
b) grantee.
c) vendor.
d) vendee.

Answer 20

c) vendor.

Question 21

The Federal National Mortgage Association (Fannie Mae):

a) insures FHA loans.
b) guarantees VA loans.
c) buys and sells mortgages.
d) originates loans to home buyers.

Answer 21

c) buys and sells mortgages.

Question 22

Under a sale-leaseback, the occupant of the property would be which of the following?

a) buyer
b) seller
c) grantee
d) mortgagee

Answer 22

b) seller

Question 23

A private corporation which purchases mortgages in the secondary mortgage market is called:

a) Government National Mortgage Association.
b) Federal Home Loan Corporation.
c) Federal National Mortgage Association.
d) Federal Home Loan Mortgage Association.

Answer 23

c) Federal National Mortgage Association.

Question 24

A land contract does not give the buyer:

a) the right to live on the property.
b) the right to lease the property.
c) the right of possession.
d) legal right to the property.

Answer 24

d) legal right to the property.

Question 25

"Redlining" is: a) refusal by a lender to make loans in minority populated areas and is lega. b) refusal by a lender to make loans to unqualified buyers. c) refusal by a lender to make loans in minority populated areas and is unlawful. d) lending more than the market value of the property.

Answer 25

c) refusal by a lender to make loans in minority populated areas and is unlawful.

Question 26

Which of the following would constitute mortgage fraud? a) Applying for a residential loan for an investment property. o) An appraiser acts in collusion with a borrower and provides misleading appraisals to the lender. c) The buyer of a property borrows the down payment from the seller through the issuance of d) All o f the above.

Answer 26

d) All o f the above.

Question 27

When a buyer "assumes and agrees to pay" an existing loan on the property: a) the seller is relieved from liability. b) the buyer, together with the seller, is liable on the loan. c) only the seller is liable. d) only the buyer is liable.

Answer 27

b) the buyer, together with the seller, is liable on the loan.

Question 28

In a purchase money mortgage: a) the seller takes back a mortgage as part of the purchase price. b) the seller is disposing of a mortgage loan. c) the buyer is denied the prepayment privilege. d) The seller is denied the prepayment privilege.

Answer 28

a) the seller takes back a mortgage as part of the purchase price.

Question 29

The loan-value ration relates the loan to: a) sales price. b) appraised value. c) A or B, whichever is higher. d) A or B, whichever is lower.

Answer 29

d) A or B, whichever is lower.

Question 30

The dollar value of a discount point is: a) 1% of the appraised value. b) 1% of the loan amount. c) 1% of the down payment. d) 1% of the selling price.

Answer 30

b) 1% of the loan amount.

Question 31

A mortgage is discharged by all of the following EXCEPT: a) satisfaction. b) execution of a quitclaim deed by the mortgagee. c) death. d) release.

Answer 31

c) death.

Question 32

A clause in a mortgage which permits the lender to call the entire balance due if the property is sold or otherwise conveyed by the mortgagor is called: a) defeasance clause. b) alienation clause. c) habendum clause. d) subrogation clause.

Answer 32

b) alienation clause.

Question 33

A buyer who is willing to pay more than the FHA loan amount can do which of the following? a) increase the points paid. b) increase the mortgage insurance premium. c) increase the down payment. d) increase the interest rate.

Answer 33

c) increase the down payment.

Question 34

A prospective home purchaser: a) cannot pay more than the CRV for a home. b) can pay more than the CRV or the FHA appraisal. c) can pay more than the CRV but not more than the FHA appraisal. d) cannot pay more than the CRV but can pay more than the FHA appraisal.

Answer 34

b) can pay more than the CRV or the FHA appraisal.

Question 35

Where a seller is relived of all obligations under a mortgage which the buyer is assuming, this would be best described as which of the following? a) Subordination. b) Novation. c) Acceleration. d) Subrogation.

Answer 35

b) Novation.

Question 36

The acceleration clause in a promissory note provides: a) payments must be made more frequently at a future specified date. b) payments may not be made more frequently than specified. c) upon the happening of a certain event the entire amount of the unpaid balance becomes due. d) None of the above.

Answer 36

c) upon the happening of a certain event the entire amount of the unpaid balance

Question 37

Of the following whose interest is benefited by an acceleration clause in a mortgage note? a) The borrower. b) The lender. c) A future purchaser upon resale of property. d) The trustee.

Answer 37

b) The lender.

Question 38

Which of the following mortgage plans would provide the purchaser with the lowest down payment? a) Veterans Administration (VA). b) Conventional. c) Federal Housing Administration (FHA). d) Conventional with PMI.

Answer 38

a) Veterans Administration (VA).

Question 39

Discount points paid in connection with conventional loans are paid to the: a) borrower. b) lender. c) real estate broker. d) seller.

Answer 39

b) lender.

Question 40

Which of the following mortgage plans would provide the homeowner with monthly payments from the mortgagee? a) Veterans Administration (VA). b) Reverse annuity mortgage. c) Federal Housing Administration (FHA) 203B. d) Conventional with private mortgage insurance (PMI).

Answer 40

b) Reverse annuity mortgage.

Question 41

When a mortgage is taken over by assumption: a) the seller is relieved of responsibility under the mortgage and note. b) the buyer becomes personally liable for payment of the debt. c) the buyer becomes secondarily liable for the debt. d) it is referred to as a "novation."

Answer 41

b) the buyer becomes personally liable for payment of the debt.

Question 42

The note, as distinguished from the mortgage, creates: a) an obligation to rent. b) a personal obligation. c) a double obligation. d) a lien.

Answer 42

b) a personal obligation.

Question 43

The money for making Federal Fair Housing Administration (FHA) loans is supplied by: a) qualified lending institutions. b) the Federal Fair Housing Administration. c) a government agency. d) the Federal Home Loan Bank.

Answer 43

a) qualified lending institutions.

Question 44

The interest an owner of property has over and above the mortgage indebtedness is called: a) redemption. b) equity. c) proportionate. d) current value.

Answer 44

b) equity.

Question 45

Under a Veterans Administration loan: a) the veteran can transfer the VA loan to another home. b) the veteran can sell the home and allow a nonveteran buyer to assume the loan. c) the mortgage may contain a "due on sale" clause. d) women are not eligible.

Answer 45

b) the veteran can sell the home and allow a nonveteran buyer to assume the loan.

Question 46

A function of the FHA is to: a) build housing. b) lend money. c) guarantee loans. d) insure loans.

Answer 46

d) insure loans

Question 47

A mortgage that covers several parcels of land that could contain a provision for sale of an individual property, call a release clause, is: a) a direct reduction mortgage. b) a blanket mortgage. c) an amortized mortgage. d) a declining balance mortgage.

Answer 47

b) a blanket mortgage.

Question 48

Sally Prebble borrowed $50,000. Over the term of the loan she paid $15,000 in interest and the made a final payment of $50,000. Sally's mortgage can best be described as a: a) straight mortgage. b) blanket mortgage. c) open end mortgage. d) package mortgage.

Answer 48

a) straight mortgage ## Footnote A "straight mortgage", also known as a straight-term mortgage or interest-only mortgage, is a type of loan where the borrower only makes interest payments for a specific period, and the principal amount is repaid either in a lump sum at the end of the term or through subsequent payments.

Question 49

A junior mortgage is: a) always a second mortgage. b) subordinate to mortgages recorded ahead of it. c) a mortgage in which the interest rate is subject to periodic renegotiation during its term. d) a mortgage given to a minor.

Answer 49

b) subordinate to mortgages recorded ahead of it.

Question 50

A second mortgage is: a) equal in standing and value with a first mortgage. b) a junior lien on real estate which has a prior mortgage on it. c) always made by the seller. d) used in practically all real estate purchases.

Answer 50

b) a junior lien on real estate which has a prior mortgage on it.

Question 51

A promissory note that provides for payment of interest only during the term of the note would a) an installment note. b) a straight note. c) an amortized note. d) a non-negotiable note.

Answer 51

b) a straight note.

Question 52

A buyer agrees to buy a home for 200,000 with a $40,000 down payment, the balance to be financed by a conventional loan. If the seller agrees to pay the discount fee of 2%, how much will he have to pay? a) $2,800. b) $3,200. c) $4,000. d) $4,200.

Answer 52

b) $3,200 ## Footnote Calculate the loan amount - Subtract the down payment from the home price: $200,000 - $40,000 = $160,000 Calculate the discount fee - Multiply the loan amount by the discount fee percentage: $160,000 \times 0.02 = $3,200