Unit 13 Exam

Question 1

Match the following with its definition: Primary Mortgage Market, Federal Reserve System, Secondary Mortgage Market

A)
Helps lenders raise capital to continue making mortgage loans

B)
Regulates interest rates

C)
Maintains sound credit conditions

D)
Loans are originated

E)
Mortgage loans are purchased and assembled into packages

F)
Derives income from servicing loans

Answer 1

Primary Mortgage Market = D, F

Federal Reserve System = B, C

Secondary Mortgage Market = A, E

Question 2

The Federal Reserve System regulates the flow of money and interest rates in the marketplace through its member banks by controlling their reserve requirements and discount rates.

Answer 2

True

Question 3

The primary mortgage market helps lenders raise capital to continue making mortgage loans.

Answer 3

False

Question 4

Match the Following with either VA, FSA, FHA, Farm Credit

A)
Operating under HUD, it protects lenders from loss from borrower’s default

B)
Offers loans with LTV up to 96.5%No down payment required with no maximum loan amount restriction

C)
Provides loans to farmers and ranchers

D)
Helps borrowers purchase homes in rural areas

Answer 4

VA = C

Farm Service Agency = E

Federal Housing Administration = A, B

Farm Credit = D

Question 5

The lender of an FHA-insured loan may not charge discount points in addition to a loan origination fee.

Answer 5

False

Question 6

Federal law requires that private mortgage insurance (PMI) must automatically terminate if a borrower has accumulated at least 20% equity in the home and is current on mortgage payments.

Answer 6

False

26% equity

Question 7

Match the following with the correct definition. Sale-and-leaseback, Buyback, Package Loan, Home Equity Loan:

A)
A business owner sells real estate to an investor but remains on the property as a tenant.

B)
The original mortgage loan remains in place while a second (junior) loan is obtained.

C)
A lump sum is paid in cash to the lender to reduce the borrower’s interest rate and monthly payments during the first few years of the loan.

D)
Real and personal property are financed together.

Answer 7

Sale-and-leaseback = A

Buydown = C

Package loan = D

Home equity loan = B

Question 8

A loan created when the seller agrees to finance all or part of the purchase price and receives a first or junior lien, depending on whether prior mortgage liens exist, is called a package loan.

Answer 8

False

Question 9

When a loan application is rejected, the applicant must be provided with the reasons for the rejection within 10 business days.

Answer 9

False

Question 10

Match the following with the correct definition: FCRA, TILA, CRA, ECOA

A)
Prohibits discrimination in the lending process

B)
Credit applications can be considered only on income, net worth, and credit rating

C)
Requires that consumers be notified of the sale of transfer of their mortgage loans

D)
Helps banks meet communities’ needs for low- and moderate-income housing

E)
Requires notification within 30 days if a loan application is rejected

F)
Requires the deposit and credit needs of local residents to be met

G)
Gives the loan applicant the right to a copy of the credit report

H)
Requires that credit institutions inform borrowers of the true cost of obtaining credit

Answer 10

FCRA = E, G
TILA = C, H
CRA = D, F
ECOA = A, B

Question 11

For purposes of Regulation Z, a creditor is any person who extends consumer credit more than 25 times each year or more than 5 times each year if the transactions involve dwellings as security.

Answer 11

True

Question 12

Regulation Z was enacted pursuant to the Truth in Lending Act by the Federal Reserve Board.

Answer 12

True

Question 13

What does RESPA stand for?

A)
Real Estate Settlement Procedures Act

B)
Real Estate Settlement Prosecutory Act

C)
Residential Estate Specialist Practices Act

D)
Real Estate Systems Procedures Act

Answer 13

Explanation
The answer is Real Estate Settlement Procedures Act. RESPA is designed to ensure that the buyer and seller are both fully informed of all settlement costs.

Question 14

Fannie Mae was placed under the conservatorship of the federal government in

A)
October 1968.
B)
September 1938.
C)
September 2008.
D)
December 1970.

Answer 14

Explanation
The answer is September 2008. Fannie Mae was placed under the conservatorship of the Federal Housing Finance Agency (FHFA) in September 2008, in response to the housing market collapse.

Question 15

A developer who wishes to finance a subdivision and provide for a release from the lien of individual lots or parcels as they are sold will obtain

A)
an FHA loan.
B)
a package loan.
C)
a blanket loan.
D)
an open-end loan.

Answer 15

Explanation
The answer is a blanket loan. A blanket loan usually includes a provision known as a partial release clause, which permits the developer/borrower to obtain the release of any one lot or parcel from the blanket lien by repaying a certain amount of the loan.

Question 16

What type of loan arrangement provides for the release of the mortgage lien on each parcel of a large group of properties when certain payments are made on the loan?

A)
FHA loan
B)
Blanket loan
C)
Package loan
D)
Purchase money loan

Answer 16

Explanation
The answer is blanket loan. A blanket loan provides for partial release of the mortgage lien as properties are sold. In a blanket loan, a borrower puts up several parcels of real estate to be used as security for the debt.

Question 17

The document that sets forth the maximum loan guarantee to which a veteran is entitled is

A)
the certificate of eligibility.
B)
the certificate of discharge.
C)
the certificate of reasonable value.
D)
the funding statement.

Answer 17

Explanation
The answer is the certificate of eligibility. The veteran must apply for a certificate of eligibility. This certificate sets forth the maximum guarantee to which the veteran is entitled, but the veteran must still qualify for the loan with the lender.

Question 18

The three-business-day right of rescission that is provided by Regulation Z of the Truth in Lending Act does not apply to

A)
an owner-occupied residential first mortgage loan.

B)
a home equity loan.

C)
consumer credit transactions.

D)
refinancing a home mortgage.

Answer 18

Explanation
The answer is an owner-occupied residential first mortgage loan. The right of rescission does not apply to owner-occupied purchase-money or first mortgage or deed of trust loans.

Question 19

The Federal Deposit Insurance Corporation (FDIC) does which of these?

A)
Insures deposits in insured institutions up to $250,000 per depositor, per account

B)
Services loans

C)
Administers Freddie Mac and Ginnie Mae

D)
Administers Freddie Mac only

Answer 19

Explanation
The answer is insures deposits in insured institutions up to $250,000 per depositor, per account. Deposits in insured institutions are covered up to the specified limit, which is currently $250,000 per depositor, per account. The FDIC does not service loans and does not administer Freddie Mac or Ginnie Mae.

Question 20

The Equal Credit Opportunity Act prohibits discrimination in the lending process based on

A)
race.
B)
all of these.
C)
marital status.
D)
religion.

Answer 20

Explanation
The answer is all of these. The ECOA prohibits discrimination in granting credit based on race, color, religion, national origin, sex, marital status, age, and receipt of public assistance.

Question 21

What helps lenders reduce the risk on a conventional mortgage loan with a high LTV?

A)
Private mortgage insurance
B)
Sale-and-leaseback arrangement
C)
Flood insurance
D)
Home equity

Answer 21

Explanation
The answer is private mortgage insurance. Private mortgage insurance provides lenders with funds in case of borrower default and encourages lenders to make higher LTV loans.

Question 22

The type of real estate loan that allows the lender to increase the outstanding balance of a loan up to the original sum in the note while advancing additional funds is

A)
the growing-equity mortgage.
B)
the graduated-payment mortgage.
C)
the open-end mortgage.
D)
the FHA mortgage.

Answer 22

Explanation
The answer is the open-end mortgage. The open-end mortgage allows the borrower to “open” the mortgage to increase the debt to its original amount after the debt has been reduced by payments over a period of time.

Question 23

If a lender agrees to make a loan based on an 80% LTV, what is the amount of the loan if the property appraises for $314,500 and the sales price is $316,900?

A)
$291,300

B)
$183,200

C)
$292,900

D)
$251,600

Answer 23

Explanation
The answer is $251,600. The loan-to-value ratio will be based on the relationship of the loan to either the appraisal or the purchase price, whichever is less. In this case, the appraisal is less. Therefore, the loan will be 80% of $314,500, which equals $251,600.

314,500 x 80% = 251,600

Question 24

In the case of most consumer credit transactions covered by Regulation Z, except for owner-occupied purchase-money or first deed of trust or mortgage loans, the borrower may rescind (cancel) the transaction by notifying the lender within

A)
3 business days.
B)
10 calendar days.
C)
21 calendar days.
D)
5 business days.

Answer 24

Explanation
The answer is 3 business days. In the case of most consumer credit transactions covered by Regulation Z, except for owner-occupied purchase money or first deed of trust or mortgage loans, the borrower may rescind (cancel) the transaction by notifying the lender within three business days.

Question 25

One of the federal laws requiring disclosure to a loan applicant who is rejected for a loan on the basis of a credit report is A) the Truth in Lending Act. B) the Fair Credit Reporting Act. C) the Community Reinvestment Act. D) the Real Estate Settlement Procedures Act.

Answer 25

Explanation The answer is the Fair Credit Reporting Act. If a loan application is rejected after consideration of a credit report, the federal Fair Credit Reporting Act (FCRA) specifies the information that the lender must provide to the loan applicant. The loan applicant has the right to a free copy of any credit report that was considered in the loan application process. Additional state protections may also apply.

Question 26

The maximum loan limits for loans sold to Fannie Mae and Freddie Mac are established by A) the Fed. B) the Federal Housing Finance Agency. C) the Department of Veterans Affairs. D) the Department of Housing and Urban Development.

Answer 26

Explanation The answer is the Federal Housing Finance Agency. FHFA publishes the maximum loan limits for loans sold to Fannie Mae and Freddie Mac. The limits are subject to annual adjustment and can vary from region to region.

Question 27

A buyer purchased a home. The asking price for the home was $585,000; the buyer offered $565,000 and the seller accepted. The appraised value of the home is $560,000. The buyer plans to pay $94,600 in cash and take out a mortgage for the remainder. What is the LTV for this property? ``` A) 85% B) 84% C) 83% D) 82% ```

Answer 27

Explanation The answer is 84%. The LTV on the loan amount is 84%. LTV = loan amount ÷ appraised value or sale price (whichever is lower), thus: $565,000 – $94,600 =$470,400 $470,400 ÷ $560,000 = 84%.

Question 28

The provisions of the Truth in Lending Act (Regulation Z) require all of the following to be disclosed to a residential buyer EXCEPT ``` A) discount points. B) a loan origination fee. C) the real estate brokerage commission. D) the loan interest rate. ```

Answer 28

Explanation The answer is the real estate brokerage commission. Regulation Z has to do with disclosing details of the proposed loan. It does not deal with brokerage commissions.

Question 29

Lenders that originate mortgage loans ``` A) make up the secondary mortgage market. B) must be federal insured depositories. C) make up the primary mortgage market. D) must be publicly traded corporations. ```

Answer 29

Explanation The answer is make up the primary mortgage market. Not all lenders in the primary mortgage market are federally insured depositories. Insurance companies, pension funds, mortgage banking companies, and others also are part of the primary mortgage market.

Question 30

Funds for FHA-insured loans are usually provided by ``` A) the FHA. B) the seller. C) the Federal Reserve. D) approved lenders. ```

Answer 30

Explanation The answer is approved lenders. An FHA-insured loan is insured by the agency, and funds must be made available by FHA-approved lenders.

Question 31

One way a borrower can obtain a conventional mortgage loan with a lower down payment than 20% of the purchase price is by A) obtaining a package loan. B) obtaining a blanket loan. C) obtaining permission from the FDIC. D) obtaining private mortgage insurance.

Answer 31

Explanation The answer is obtaining private mortgage insurance. Private mortgage insurance provides the lender with funds in the event that the borrower defaults on the loan and the value of the equity fails to cover the outstanding loan balance. This allows the lender to assume more risk so that the LTV can be higher than for other conventional loans.

Question 32

Which type of loan typically has he lowest loan-to-value ratio? A) VA B) Agricultural C) FHA D) Conventional

Answer 32

Explanation The answer is conventional. Conventional loans are viewed as the most secure loans because their loan-to-value ratios are often lowest.

Question 33

The amount of a loan expressed as a percentage of the value of the real estate offered as collateral is ``` A) the debt-to-equity ratio. B) the loan-to-value ratio. C) the capital-use ratio. D) the amortization ratio. ```

Answer 33

Explanation The answer is the loan-to-value ratio. The loan-to-value ratio (LTV) is the ratio of debt to the value of the property, value being the sales price or appraisal value, whichever is less.

Question 34

What is the position of home equity line of credit (HELOC) in relation to the original lien? ``` A) Junior B) Equal C) No relationship D) First in priority ```

Answer 34

Explanation | The answer is junior. A HELOC is junior to the original lien. The original lien takes priority over the HELOC.

Question 35

A 16-year-old applied for a conventional loan in order to purchase a condominium. The lender denied the application, citing the applicant's age as the reason for the denial. Which of these is TRUE? A) None of these are true. B) The lender violated the ECOA because the applicant is too young to be expected to have an employment history. C) The lender violated the ECOA because lending decisions cannot be based on age. D) The lender lawfully denied the application because the applicant was under 18 and therefore was too young to legally sign a contract.

Answer 35

Explanation The answer is the lender lawfully denied the application because the applicant was under 18 and therefore was too young to legally sign a contract. A lender may not consider age unless the applicant is too young to legally sign a contract.

Question 36

A borrower obtains a $100,000 home equity loan for 30 years at 6% interest. If the monthly payments of $599.55 are credited first to interest and then to principal, what will be the balance of the principal after the borrower makes the first payment? ``` A) $100,000.00 B) $99,500.25 C) $99,425.00 D) $99,900.45 ```

Answer 36

Explanation The answer is $99,900.45 Chapter 12 100,000 principal x 6% annual Interest / 12months = 500 (months Interest) 599.55 Monthly payment - 500 month's interest = 99.55 Amount paid towards Principal 100,000 Principal - 99.55 amount paid towards principal = 99,900.45 New Principal

Question 37

The federal Equal Credit Opportunity Act allows lenders to discriminate against potential borrowers on the basis of ``` A) marital status. B) amount of income. C) preferred neighborhood. D) country of national origin. ```

Answer 37

Explanation The answer is amount of income. Lenders may reject applicants who have insufficient income for the loans they are requesting, but lenders may not discriminate based on any of the other criteria listed.

Question 38

Some lenders derive added income from ``` A) foreclosing on loans. B) related loans. C) assuming loans. D) servicing loans. ```

Answer 38

Explanation The answer is servicing loans. In addition to the income directly received from originating loans, some lenders derive income from servicing loans for other mortgage lenders or investors who have purchased the loans.

Question 39

The maximum loan limits for loans sold to Fannie Mae are published by A) the Federal Reserve Board (FRB). B) the Federal Housing Finance Agency (FHFA). C) the Federal Housing Administration (FHA). D) the Federal Deposit Insurance Corporation (FDIC).

Answer 39

Explanation The answer is the Federal Housing Finance Agency (FHFA). The maximum loan limits for loans sold to Fannie Mae are published by the Federal Housing Finance Agency (FHFA).

Question 40

If a mortgage lender discriminates against a loan applicant on the basis of marital status, what law is violated? ``` A) Fair Housing Act B) Civil Rights Act of 1866 C) Equal Credit Opportunity Act (ECOA) D) Americans with Disabilities Act (ADA) ```

Answer 40

Explanation The answer is Equal Credit Opportunity Act (ECOA). Marital status is a protected category only under the Equal Credit Opportunity Act.

Question 41

Mortgage banking companies originate ``` A) titles. B) sales contracts. C) paper. D) loans. ```

Answer 41

Explanation The answer is loans. Mortgage banking companies originate mortgage loans with money belonging to insurance companies, pension funds, and individuals, as well as funds of their own.

Question 42

The conservatorship of Fannie Mae and Freddie Mac is the responsibility of ``` A) the Federal Housing Authority. B) the Office of the Comptroller of the Currency. C) the Federal Housing Finance Agency. D) the Federal Reserve System. ```

Answer 42

Explanation The answer is the Federal Housing Finance Agency. Fannie Mae 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 43

If buyers seek a mortgage on a single-family house, they would be LEAST likely to obtain the mortgage from ``` A) a mutual savings bank. B) a life insurance company. C) a commercial bank. D) a credit union. ```

Answer 43

Explanation The answer is a life insurance company. Life insurance companies make mortgage loans on large projects but rarely, if ever, on individual home purchases.

Question 44

Conventional loans are viewed as the most secure loans because their loan-to-value ratios are often lowest. Traditionally, the ratio is ``` A) 50% of the value of the property. B) 70% of the value of the property. C) 80% of the value of the property. D) 60% of the value of the property. ```

Answer 44

Explanation The answer is 80% of the value of the property. Conventional loans are viewed as the most secure loans because their loan-to-value ratios are often lowest. Traditionally, the ratio is 80% of the value of the property.

Question 45

When the Fed increases the reserve requirements of member banks ``` A) banks have more money to lend. B) funding is easier to obtain. C) there is no effect on the ability of borrowers to obtain a loan. D) funding is more difficult to obtain. ```

Answer 45

Explanation The answer is funding is more difficult to obtain. The Fed's reserve requirements (the amount member banks must retain) place funds out of circulation. When reserve requirements are increased, lender solvency is improved because the banks have more funds on hand but prospective borrowers find that funding is more difficult to obtain because funds cannot be loaned out.

Question 46

A loan that includes both real and personal property is ``` A) a FHA loan. B) a package loan. C) an open-end loan. D) a blanket loan. ```

Answer 46

Explanation The answer is a package loan. A package loan usually includes furniture, window coverings, kitchen appliances, and washer/dryer as part of the sales price of the home.

Question 47

Which terms are synonymous? ``` A) Construction loan and pass-through loan B) Interim financing and construction loan C) Takeout loan and construction loan D) Pass-through loan and takeout loan ```

Answer 47

Explanation The answer is interim financing and construction loan. Construction loans are generally short-term or interim financing. The takeout loan is permanent financing to repay the construction financing lender.

Question 48

The primary activity of Freddie Mac is to A) act in tandem with Ginnie Mae to provide special assistance in times of tight money. B) guarantee mortgages with the full faith and credit of the federal government. C) buy and sell VA and FHA mortgages. D) buy and pool blocks of conventional mortgages.

Answer 48

Explanation The answer is buy and pool blocks of conventional mortgages. Freddie Mac—the Federal Home Loan Mortgage Corporation (FHLMC)—buys and gathers into bundles (pools) existing conventional mortgages. Freddie Mac raises money to do this by selling bonds backed by these pools of mortgages.

Question 49

On which type of loan can the borrower prepay without penalty? ``` A) All of these B) VA loans C) FHA loans D) Loans sold to Fannie Mae and Freddie Mac ```

Answer 49

Explanation | The answer is all of these. Prepayment penalties are fairly unusual in today's market.

Question 50

The Equal Credit Opportunity Act provides that credit applications can be considered on the basis of all of the following EXCEPT ``` A) borrower’s credit rating. B) stability of the source of the borrower’s income. C) age of the borrower, provided the applicant is of legal age. D) borrower’s net worth. ```

Answer 50

Explanation The answer is age of the borrower, provided the applicant is of legal age. ECOA prohibits discrimination in the lending process based on the credit applicant's race, color, religion, national origin, sex, marital status, age (provided the applicant is of legal age), or receipt of public assistance.

Question 51

A construction loan usually is A) issued for the full amount of the expected cost of construction. B) the only loan a homebuyer will need to obtain. C) maintained until the purchase price has been fully paid. D) short-term financing.

Answer 51

Explanation The answer is short-term financing. A construction loan is generally short-term or interim financing. Funds are issued in draws as construction is completed; after that point, a permanent loan is obtained to repay the construction loan.

Question 52

Loan servicing includes ``` A) listing properties. B) cold calls. C) bookkeeping. D) selling properties. ```

Answer 52

Explanation The answer is bookkeeping. Loan servicing involves collecting payments, accounting, bookkeeping, preparing insurance, and maintaining tax records.

Question 53

Fannie Mae ``` A) services FHA-insured loans. B) insures FHA loans. C) buys FHA-insured loans. D) makes FHA-insured loans. ```

Answer 53

Explanation The answer is buys FHA-insured loans. Fannie Mae buys a block or pool of mortgages that includes FHA-insured loans from a lender and that may then be used as collateral for mortgage-backed securities, which are sold on the global market.

Question 54

The lower the ratio of debt to value, A) the greater the chances that mortgage insurance is required. B) the lower the down payment made by the borrower. C) the higher the interest rate charged the borrower. D) the higher the down payment made by the borrower.

Answer 54

Explanation The answer is the higher the down payment made by the borrower. The lower the ratio of debt to value, the higher the down payment made by the borrower.

Question 55

The buyers purchased a model home and all its furnishings and appliances by using ``` A) a package loan. B) a FHA-insured loan. C) a buydown. D) a blanket loan. ```

Answer 55

Explanation The answer is a package loan. A package loan is a real estate loan used to finance the purchase of both real property and personal property, such as in the purchase of a new home that includes window coverings and major appliances.

Question 56

The buyers purchased a residence for $395,000, making a down payment of $79,000 and obtaining a loan for the balance. The loan is ``` A) a nonconforming loan. B) a balloon note. C) a purchase money mortgage. D) a package mortgage. ```

Answer 56

Explanation The answer is a purchase money mortgage. The term purchase money mortgage can mean either owner financing or any mortgage used as acquisition debt in the purchase of a property. Here the owner-seller took back a mortgage for $47,000. An owner takeback is a purchase-money mortgage.

Question 57

A package loan includes ``` A) multiple parcels or lots. B) private mortgage insurance. C) cash for the construction of improvement on real estate. D) real and personal property. ```

Answer 57

Explanation The answer is real and personal property. Package loans usually include items such as drapes, refrigerator, dishwasher, and other appliances as part of the sales price of the home. A blanket loan covers more than one parcel or lot. A construction loan finances the construction of improvements on real estate.

Question 58

An FHA-insured mortgage loan would be obtained from which of the following? ``` A) An FHA-approved lending institution B) The Department of Housing and Urban Development C) An FHA-approved insuring institution D) The Federal Housing Administration (FHA) ```

Answer 58

Explanation The answer is an FHA-approved lending institution. FHA insures loans but does not lend money. Loans must be obtained from FHA-approved lending institutions.

Question 59

Programs to help families purchase or operate family farms are provided by ``` A) the Farm Service Agency. B) Fannie Mae C) the Federal Housing Finance Agency. D) Ginnie Mae ```

Answer 59

Explanation The answer is the Farm Service Agency. The Farm Service Agency (FSA) is a federal agency of the Department of Agriculture. The FSA offers programs to help families purchase or operate family farms and has taken over the functions of the former Farmers Home Administration (FmHA).

Question 60

The Federal Reserve System divides the country into A) 12 federal reserve districts. B) 11 federal reserve districts. C) 7 federal reserve districts. D) 9 federal reserve districts.

Answer 60

Explanation The answer is 12 federal reserve districts. The Federal Reserve System divides the country into 12 federal reserve districts.

Question 61

Who usually provides funds for FHA-insured loans? ``` A) The FHA B) The Federal Reserve C) The seller D) Approved lenders ```

Answer 61

Explanation The answer is approved lenders. An FHA-insured loan is insured by the agency, and funds are made available by FHA-approved lenders.

Question 62

The Homeowners Protection Act of 1998 (HPA) requires that a lender automatically terminate payment of PMI if the borrower has accrued at least how much equity in the home? ``` A) 27% B) 22% C) 20% D) 25% ```

Answer 62

Explanation The answer is 22%. The Homeowners Protection Act of 1998 (HPA) requires that a lender automatically terminate the payment of private mortgage insurance (PMI) if the borrower has accrued at least 22% equity in the home.

Question 63

The law that requires lenders to find ways to help meet the housing needs of those of low and moderate incomes is A) the Community Reinvestment Act. B) the Equal Credit Opportunity Act. C) the Real Estate Settlement Procedures Act. D) the Dodd-Frank Act.

Answer 63

Explanation The answer is the Community Reinvestment Act. Under the Community Reinvestment Act of 1977 (CRA), financial institutions are expected to meet the deposit and credit needs of their communities, participate and invest in local community development and rehabilitation projects, and participate in loan programs for housing, small businesses, and small farms.

Question 64

A loan that includes both real and personal property is ``` A) an open-end loan. B) a blanket loan. C) a FHA loan. D) a package loan. ```

Answer 64

Explanation The answer is a package loan. A package loan usually includes furniture, window coverings, kitchen appliances, and washer/dryer as part of the sales price of the home.

Question 65

Regulation Z was enacted pursuant to the Truth in Lending Act by the Federal Reserve Board but enforcing the law is now primarily the responsibility of A) the Federal Trade Commission (FTC). B) the Federal Deposit Insurance Corporation (FDIC). C) the Federal Housing Administration (FHA). D) the Consumer Financial Protection Bureau (CFPB).

Answer 65

Explanation The answer is the Consumer Financial Protection Bureau (CFPB). Regulation Z was enacted pursuant to the Truth in Lending Act by the Federal Reserve Board, but most of the Federal Reserve Board's responsibilities have been transferred by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to the Consumer Financial Protection Bureau.

Question 66

A buyer purchased a new residence for $175,000. The buyer made a down payment of $15,000 and obtained a $160,000 mortgage loan. The builder of the house paid the lender 3% of the loan balance for the first year and 2% for the second year. This represented a total savings for the buyer of $8,000. What type of mortgage arrangement is this? ``` A) Package B) Buydown C) Blanket D) FHA ```

Answer 66

Explanation The answer is buydown. The builder brought down the purchaser's interest rate for two years by paying the lender advance interest. This is a buydown arrangement.

Question 67

VA and FHA loans require all of the following EXCEPT ``` A) borrower must occupy. B) no prepayment penalty. C) private mortgage insurance. D) purchase agreement must have escape clause. ```

Answer 67

Explanation The answer is private mortgage insurance. A requirement of both loan programs is that the loan can be repaid without penalty. Owners must occupy the property and the purchase agreement must contain an escape clause. If the property does not appraise for the loan amount, the borrower will have the earnest money refunded. Private mortgage insurance (PMI) is required for conventional loans, not government loans.

Question 68

A buydown loan enables a borrower A) with poor credit to postpone payment of part of the interest charged until later in the loan term. B) to lower the interest rate on a mortgage or deed of trust loan. C) to make interest-only payments for the life of the loan. D) to pay off a mortgage loan earlier.

Answer 68

Explanation The answer is to lower the interest rate on a mortgage or deed of trust loan. By paying part of the interest upfront to offset monthly mortgage payments at the beginning of the loan term, the borrower can qualify for a loan with the expectation that the borrower's income will increase, making future, higher payments possible.

Question 69

The Equal Credit Opportunity Act prohibits discrimination in the lending process based on ``` A) religion. B) all of these. C) race. D) marital status. ```

Answer 69

Explanation The answer is all of these. The ECOA prohibits discrimination in granting credit based on race, color, religion, national origin, sex, marital status, age, and receipt of public assistance.

Question 70

Which of these may lawfully be used as part of a loan application evaluation process? ``` A) The applicant's religious beliefs B) The fact that the borrower is over 40 years old C) A credit score D) None of these ```

Answer 70

Explanation The answer is a credit score. A credit score is one factor that can be lawfully considered in evaluating a loan application. The Equal Credit Opportunity Act prohibits consideration of age or religion.

Question 71

The Federal Reserve System regulates the flow of money and interest rates in the marketplace by A) controlling the reserve requirements of the member banks. B) controlling the reserve requirements of member banks and setting the discount rate. C) setting the value of the member banks stocks. D) controlling the prime rate charged by member banks.

Answer 71

Explanation The answer is controlling the reserve requirements of member banks and setting the discount rate. The Federal Reserve System regulates the flow of money and interest rates in the marketplace by controlling the reserve requirements of the member banks and setting the discount rate it charges for loans it makes to those banks.

Question 72

The government-sponsored enterprise that provides a secondary market for conventional, FHA- insured, and VA-guaranteed loans is ``` A) Ginnie Mae. B) Farmer Mac. C) Freddie Mac. D) Fannie Mae. ```

Answer 72

Explanation The answer is Fannie Mae. Despite currently being subject to the conservatorship of the Federal Housing Finance Agency, Fannie Mae continues to operate and provide a secondary market for mortgage loans, including conventional, FHA-insured, and VA-guaranteed loans.

Question 73

The Truth in Lending Act (TILA) provides penalties for noncompliance. A successful class action alleging that a creditor understated the APR and/or finance charge of the involved loans could make the creditor liable for punitive damages of A) the lesser of $100,000 or $10,000 per violation. B) a maximum of $500,000 plus attorney's fees and court costs of up to $500,000. C) a maximum of $1 million plus attorney's fees and court costs. D) the lesser of $500,000 or 1% of the creditor's net worth, plus attorney's fees and court costs.

Answer 73

``` Explanation The answer is the lesser of $500,000 or 1% of the creditor's net worth, plus attorney's fees and court costs. TILA provides penalties for noncompliance. A successful class action alleging that a creditor understated the APR and/or finance change of the affected loans could make the creditor liable for punitive damages of the lesser of $500,000 or 1% of the creditor's net worth, plus attorney's fees and court costs. In addition, a willful violation is a misdemeanor punishable by a fine of up to $5,000, one year's imprisonment, or both. ```

Question 74

What law requires disclosure of the annual percentage rate (APR) to a borrower? ``` A) Truth in Lending Act B) Equal Credit Opportunity Act C) Real Estate Settlement Procedures Act D) Fair Credit Reporting Act ```

Answer 74

Explanation The answer is Truth in Lending Act. APR is the true cost of borrowing and is required to be disclosed by the federal Truth in Lending Act.

Question 75

HUD foreclosure sales of FHA-insured homes include an early bidding period for buyers who A) intend to be owner-occupants. B) have resided in the community for at least 36 months before the purchase. C) are willing to fix up and resell the property within24 months. D) have not previously been residents of the community.

Answer 75

Explanation The answer is intend to be owner-occupants. HUD allows an early bidding period for those who intend to be owner-occupants and properties that remain unsold are made available to investors only after that period has elapsed.