CA Real Estate Finance Practice Exam

A buyer with a $750,000 loan has a monthly principal and interest payment of $4,376.80. If $3,593.75 is interest, what is the new principal balance after the first payment is applied?

$749,216.95 If $3,593.75 of the total payment is interest, that leaves $783.05 to be applied to principal. Subtract this amount from the original loan value, and we have a new principal loan balance of $749,216.95.

Millie and Jerry are purchasing a home using their VA loan benefit. The sale price on the home they buy is $320,000, with 100% financing. Assuming that Jerry has a typical level of entitlement, how much of their loan does the VA guarantee?

$80,000 The VA guarantees up to a quarter of the total loan amount, up to $104,250, so Millie and Jerry's loan is guaranteed for one-fourth of $320,000, which is $80,000.

Margo is purchasing a home for $520,000. The property appraised at $550,000 and Margo is financing $416,000. What's the loan-to-value ratio?

0.8 Lenders use the lesser of the sales price or appraised value. This results in an LTVR of 80% ($416,000 ÷ $520,000).

It's possible for the adjustment period on an adjustable rate mortgage (ARM) to have ranges, such as three or ____ years apart.

10 Adjustment periods may vary between three and 10 years apart.

John wants to do a 1031 tax exchange. He just sold his property. How many days does he have to close on a new property?

180 Investors who want to use the 1031 tax-deferred exchange must identify the property within 45 days and must close within 180 days.

What is a loan origination fee?

A fee a lender charges for processing a loan A loan origination fee is a fee a lender charges for processing, or initiating, a loan.

What is a seller carry back?

A type of financing A seller carryback is a type of seller financing in which the seller acts as the banker for the buyer.

Qualified mortgage requirements are set by the ______.

Consumer Financial Protection Bureau The Consumer Financial Protection Bureau sets qualified mortgage requirements.

Another term for a valuation is ______.

Formal appraisal Another term for a valuation is a formal appraisal. This is a professional appraiser's unbiased opinion of value.

Which of these agencies is a government-sponsored enterprise?

Freddie Mac Fannie Mae, Freddie Mac, and the Federal Home Loan Bank are examples of GSEs.

Which of the following entities buys loans primarily through thrifts?

Freddie Mac Freddie Mac buys conventional loans, mainly from small banks or thrifts.

______ is regulated by the Federal Housing Finance Agency.

Freddie Mac Freddie Mac is regulated by the Federal Housing Finance Agency.

The Federal Housing Administration's loan program ______.

Insures lenders against loss from borrower default The FHA mortgage insurance program insures lenders against loss from borrower default.

Veterans using the ______ program aren't required to submit a COE, get a new appraisal, or verify income.

Interest Rate Reduction Refinance The VA's Interest Rate Reduction Refinance is similar to the FHA streamline refinance program.

Which of the following is a true statement about deducting interest on mortgages taken out in tax years 2018 to 2025?

Interest on the first $750,000 of mortgage debt is deductible for married couples filing jointly or $375,000 for married couples filing separately. For tax years 2018 to 2025, interest on the first $750,000 of mortgage debt is deductible for married couples filing jointly.

Which of the following could be different from the amount on Loan Estimate that was initially received and can impact the monthly payment?

Interest rate The interest rate can be different than the one shown on the Loan Estimate.

Which of the following may cause the Loan Estimate to be revised?

Interest rate change, switch to fixed-rate loan, down payment amount change, and property appraisal reveals increase in value There are several reasons a Loan Estimate may need to be revised including interest rate change, switch to fixed-rate loan, down payment amount change, and a property appraisal reveals increase in value.

What did the National Association of REALTORS® say about foreign investment in U.S. real estate?

It was on the rise. The NAR stated in a 2015 report that foreign investment in real estate was on the rise.

You don't qualify for financing, but are able to invest in real estate because your role as a licensee is helpful in this type of investment strategy.

Joint venture With a joint venture, one investor can put up the capital and the other can contribute sweat equity or other contributions, such as commission received for the sale, which can be used to rehabilitate the property.

How much should you keep in your tax savings account in order to be prepared to pay your quarterly estimated tax?

Just over what you expect to owe Your tax savings account should hold just a little more than you expect to pay on a quarterly basis. Too much of a cushion means you've got dollars that are not working as hard as they could be for you.

What type of provision is standard with either the mortgage or the deed of trust, but is included in the promissory note rather than the security instrument?

Late charge Late charges that will apply if the borrower doesn't pay on time are a standard part of the promissory note.

Which of the following clauses is included in Fannie Mae's multi-state note?

Late charge The note contains a description of when a late charge is payable.

In a deed of trust, who is the beneficiary?

Lender The beneficiary is the lender; the trust is held by a neutral third party on behalf of both the borrower and the beneficiary.

Business expenses, personal expenses, and financial goals can all be tracked easily when you ______.

Manage cash flow through appropriate accounts Using appropriate accounts and managing cash flow through them allows all of your financial goals and expenses to be more transparent.

Which of the following is an example of an involuntary, specific, statutory lien?

Materialman's lien Both materialman's and mechanic's liens are involuntary, specific statutory liens. A specific lien is a lien against a single property. An involuntary lien occurs when a creditor places a claim without the owner's consent.

Jackie is 10 days late on her loan payment. Will her lender place her loan in default?

No, she needs to be 30 days late to be in default. Lenders usually charge a late fee if payment isn't received within 15 days of its due date; after 30 days, the loan may go into default.

Maria is a borrower reviewing her Closing Disclosure. She notices a section under "Other Costs" with a number of fees that were not shown on her Loan Estimate, such as the commissions to the real estate brokers and the home inspection fee. Should Maria contact her lender about this issue?

No, these are costs that are part of the total cost to close but aren't part of obtaining the loan, so they weren't required to be on the Loan Estimate. Maria can always contact her lender for an explanation, but the fees listed in this section are not shown on the Loan Estimate because they aren't part of obtaining the loan, and aren't required on that form.

What percentage of closing costs can be included in a VA loan?

None Closing costs may not be included in the loan, but the borrower may negotiate with the seller to pay these.

What type of partnership is a cooperative?

Partnership between mortgagors A cooperative is a partnership between mortgagors, and operates as a corporation. Cooperatives usually purchase multi-unit buildings, such as apartments.

When using a financial system, what activities should you complete on a weekly basis?

Record purchases and file receipts An hour a week spent on updating your financial records by recording purchases, paying bills, and balancing accounts as needed is time well spent.

In which phase of the real estate market cycle would you expect to see property under valued and a large supply of homes on the market?

Recovery During the recovery phase there's a large number of homes available for sale even though prices are lower than they should be.

Where can a party reviewing a title commitment find requirements that must be met before a title insurance policy will be issued?

Schedule B-1 Schedule B-1 lists items the title insurance company requires to be addressed before it will issue the title insurance policy. This may include resolving liens or paying taxes that are due, among other items.

Which act exempted homeowners from paying taxes on capital gains up to a specified value?

Taxpayer Relief Act of 1997 The Taxpayer Relief Act of 1997 exempted homeowners from paying taxes on capital gains up to a specified value.

Which agency sets the guidelines for qualified mortgages?

The Consumer Financial Protection Bureau The Consumer Financial Protection Bureau sets qualified mortgage requirements.

How does a 3-2-1 buydown work?

The interest rate starts low but increases by 1% each year for three years until it reaches the rate stated in the note. The 3-2-1 graduated plan increases the borrower's rate by 1% each year until it reaches the rate stated in the note.

The FHA has helped to significantly improve the mortgage market through ______.

The introduction of the long-term amortized loan The FHA introduced the long-term amortized loan, which significantly improved the ability of prospective homeowners to purchase a home.

Which of the following is true regarding value?

The principle of substitution means that people won't pay more for a property than they have to The principle of substitution says that buyers won't pay more for a property than it's worth, and if there's a similar property nearby that they can substitute for it that is priced less, it will bring down the value of the original property in the buyer's eyes.

What is the benefit Ginny Mae investors have over other MBSs?

They're able to collect timely principal and interest payments. Ginny Mae MBSs provide timely principal and interest payments.

In a judicial foreclosure, if the sheriff's sale was enough to pay off the borrower's debt plus foreclosure costs, how long does the borrower's redemption period last?

Three months The redemption period lasts three months following the sheriff's sale if the sale paid off the entire debt (and foreclosure costs).

Adam is a real estate licensee. He gets a call from Brad, who tells him that he's getting married soon, and that he and his partner, Zeke, will need to buy a home that is between their places of work. The area where Adam has active listings is right where Brad and Zeke need to be. Adam doesn't agree that gay marriage should be legal, so he tells Brad that he doesn't have time to help but that he can refer Brad and Zeke to another agent. What California legislation makes Adam's action illegal?

Unruh Civil Rights Act The Unruh Civil Rights Act requires all businesses to provide full and equal service to customers and clients. Adam can't legally refuse to serve Brad and Zeke simply based on his disagreement with their decision to marry.

When HUD pursues actions that are designed to end homelessness and promote the health and housing stability of vulnerable populations, which of its goals is it supporting?

Use housing as a platform for improving quality of life. These are actions designed to support HUD's goal to use housing as a platform for improving quality of life.

Is a homeowner with an FHA loan allowed to obtain a second mortgage?

Yes, if the total of the first and second mortgages is within the maximum loan to value ratio Second mortgages are allowed under certain conditions, one of which is that the total of the first and second mortgages is within the maximum LTV.

In addition to itemizing all borrower-paid and seller-paid closing costs, page two of the Closing Disclosure also tells the borrower when each amount is paid by listing it under ______.

"At closing" or "before closing" Page two of the Closing Disclosure lists borrower-paid and seller-paid items according to when they're paid: "at closing" or "before closing."

Your seller wants to net $100,000 after the 5% commission is paid. Assuming no closing costs, at what price does the home need to sell for the seller to net this amount?

$105,263.16 The seller's percentage of a sale is 100% -5% commission = 95% (or .95). Take the amount they want to net and divide it by that amount ($100,000 / .95 = $105,263.16. Conversely, if they sell for $105,263.16 x .95 = $100,000.

Under current tax law, what's the maximum tax-free gift an individual can give to another individual annually?

$15,000 Under current tax law, individuals may gift up to $15,000 tax-free to any individual annually.

The Ropers are purchasing a home using VA financing. The sales price of the home is $210,000. The CRV comes in at $215,000. On what number will the VA's loan guarantee be based?

$210,000, the sales price The VA will guarantee a loan amount up to the lesser of the CRV or the sales price. In this case, the sales price is less, so the loan guarantee will be based on that.

Qualified mortgages require debt-to-income ratios of no more than ______.

43% Although it seems generous, the 43% debt-to-income ratio is a firm limit.

Most adjustable rate mortgages have a feature that allows borrowers to _________ to a fixed-rate during a specific period of the mortgage.

Convert This is known as a convertible feature.

When a promissory note is sold, how is ownership transferred?

Endorsement of the note The note is negotiable and is transferred by a seller's signature endorsing the note.

Which best describes a purchase money mortgage?

It may be a first mortgage, a junior mortgage, or a junior wrap-around mortgage. With a purchase money mortgage, the seller is the mortgagee and the buyer is the mortgagor. This mortgage may be a first mortgage, a junior mortgage, or a junior wrap-around mortgage.

In which situation will sellers apply a portion of the rent toward the purchase price to entice the buyers to close more quickly?

Lease with option to buy With a lease with option to buy, the prospective buyers want to buy the property they are renting.

Lewis is reviewing his Loan Estimate and notices under "Other Costs" that there are items listed that don't include an amount. What does this mean?

Lewis should ask his lender about it. Lewis should ask his lender about any items that aren't clear to him, such as line items without an associated amount.

Federal Housing Finance Agency established percentage targets and ___________ for loans made to low- to moderate-income borrowers.

Limits for conforming loans The Federal Housing Finance Agency sets limits for conforming loans.

Freddie Mac's mission is to provide ______, stability, and affordability in the U.S. housing market.

Liquidity Liquidity is one of the desired outcomes of Freddie Mac's activities.

What information is listed on the promissory note?

Loan amount and schedule of repayment The note must include the terms of repayment, including the amount and schedule.

Which of the following items directly influences real estate demand?

Loan availability Demand is directly influenced by factors such as employment levels and wages, interest rates, population changes, confidence in the market, and availability of loans.

Which of the following statements is true about usury laws in California?

Loans secured by real property and arranged for by a real estate broker are exempt from state usury laws. Most residential real estate transactions will not be subject to usury laws because of the exemption for loans secured by real property and arranged by a real estate broker.

What are securities?

Long- and short-term debt instruments Securities are long- and short-term debt instruments. Those issued by the Treasury are called Treasury bonds, T-bills, or notes, depending on how long it takes them to mature.

Which of the following is an example of leveraging in a real estate transaction?

Making a down payment The typically small amount of the down payment is used to leverage the entire amount of the purchase, giving the investor/buyer control over the entire investment.

What does it mean if the Fed decreases reserve requirements?

Member banks can keep fewer assets on deposit at the reserve bank. If reserve requirements are decreased, member banks don't need to keep as much money on deposit at the reserve bank. This means they have more assets to lend to the public.

The housing ratio is the borrower's monthly housing obligation as a percentage of ______ income.

Monthly gross The housing ratio identifies the borrower's monthly housing costs as a percentage of pre-tax monthly income.

How much of a mutual savings bank's assets come from savings accounts?

More than 70% More than 70% of the assets of a mutual savings bank come from savings accounts.

The ______ defines individuals who perform certain foreclosure-related activities for compensation for borrowers.

Mortgage Foreclosure Consultant Law The Mortgage Foreclosure Consultant Law defines a mortgage consultant and places certain requirements on these individuals.

Which of these names is also known as the California Real Property Loan Law?

Mortgage Loan Broker Law The California Real Property Loan Law is also known as the Mortgage Loan Broker Law, the Necessitous Borrower Act, and Article VII of the Real Estate Law

Which person or entity works with many different lenders to find the best loan for the customer?

Mortgage broker Mortgage brokers work with many different lenders to find the best loan. They don't originate their own loans.

A refinance is a ______.

New loan Refinancing pays off the prior loan with a new loan.

Lisa, a seller, is providing Darwin, a buyer, with a seller second on the purchase of her property. Darwin's conventional lender uses a note with deed of trust to secure the first loan. What instrument is Lisa most likely to use for her second loan with Darwin?

Note with deed of trust Lisa won't be able to use a contract for deed, and although the mortgage (with note) is an option, if Darwin's lender uses a deed of trust that means it is typical for the state, and would be Lisa's most likely choice.

Conforming loan limits vary based on location and ______.

Number of units being purchased with the property Conforming loan limits vary depending on location and the number of units purchased with the property.

HUD's ______ has a goal of increasing the availability of safe and affordable housing to Native American families.

Office of Native American Programs The Office of Native American Programs administers housing and community development programs that benefit American Indian and Alaska Native tribal governments, tribal members, the Department of Hawaiian Home Lands, Native Hawaiians, and other Native American organizations.

Connie and John Fink, a married couple ages 69 and 72 respectively, want to stay in their home. The type of mortgage they're considering will allow the lender to make payments to the Finks for a certain period of time, while the lender gains corresponding ownership. Which type of mortgage are they considering?

RAM A reverse mortgage is used most commonly by elderly people who want to tap into their home equity but also stay in their home.

Which of the following made mortgages attractive investments?

Rising home prices Rising home prices made mortgages attractive investments prior to the 2007 financial collapse.

Which of the following would the FDIC most likely not insure?

Stock certificates

What is one of the ways the U.S. Treasury promotes economic growth and stability?

Supervises national banks and financial institutions. The U.S. Treasury supervision of banks and financial institutions allows them to take action when there is a deficit or surplus.

The Mortgage Disclosure Improvement Act amends ______ in terms of the timing of lender disclosures.

TILA The Mortgage Disclosure Improvement Act amends Truth In Lending Act timing requirements.

What's TRID?

TILA-RESPA Integrated Disclosures TILA and RESPA initially required similar but separate disclosures to the consumer. These have been combined and simplified, and are referred to as TRID.

Which of the following was created as a result of the Housing and Economic Recovery Act?

The Federal Housing Finance Agency The Federal Housing Finance Agency monitors and manages the finances of Fannie Mae and Freddie Mac to ensure offerings are in compliance.

Kendra is purchasing a home and is ready to find a lender who will give her terms that she can afford. She has done her homework and knows that she can use ______ to compare loans and find the one that will best meet her needs.

The Loan Estimate The Loan Estimate form is designed to help consumers compare loan terms in order to find a loan that best meets their needs.

What's another name for the Homeowners Protection Act?

The PMI Act of 1998 The PMI Act of 1998 is also called the Homeowners Protection Act.

Which of the following is a reason a seller might consider selling his property through an installment contract rather than a traditional sale?

The seller may pay less in capital gains taxes if he receives the proceeds from the sale over time rather than in a lump sum. One reason a seller might choose to sell his property through an installment contract is to minimize capital gains tax liability.

What is the 95% rule as it relates to tax-deferred exchanges?

The total value of the property (or properties) being exchanged is at least 95% of the value of the property being sold. The 95% rule says that your client can identify a whole bunch of properties with no regard to their value if the exchange they're moving into has a total value of at least 95% of the value of the property they're selling.

Page four of the Closing Disclosure includes consumer education about ______.

The use of an escrow account Page four of the Closing Disclosure includes consumer education about the use of an escrow account.

In a judicial foreclosure, how long does the borrower's redemption period last if a deficiency judgment isn't being sought?

There is no redemption period There is no redemption period if the lender is not pursuing a deficiency judgment.

One difference between a judicial foreclosure and a non-judicial foreclosure is that with a non-judicial foreclosure, ______.

There is no statutory right of redemption A statutory right of redemption is one that occurs after the sale. This occurs only in judicial foreclosures, and isn't allowed in every state.

Which of the following statements is true about government loans?

They're insured or guaranteed by a government agency. Government loans are insured by the FHA, guaranteed by the VA, or provided by the USDA, all of which are government agencies.

Which definition best describes a package mortgage?

This might be used in the case of a furnished condominium. A package mortgage might be used in the case of a furnished condominium, but it's more commonly used in commercial real estate where business assets are combined with real property and included as collateral.

How soon after the Notice of Default is filed can a trustee's sale occur?

Three months and 20 days The sale may take place three months and 20 days following the recording of the Notice of Default.

What's the purpose of the Fixed/Adjustable Rate Note?

To convert the interest rate from fixed to adjustable The note converts the interest rate in an ARM from fixed to adjustable. It's part of the mortgage package.

The purpose of a living expenses savings account is ______.

To hold extra living expenses when income is high, so that the money is "out of sight." Because a licensee's income is variable, it's a good idea to move excess funds from your personal checking account to a savings account dedicated for this use.

What is the trustee's role when a deed of trust is used to secure property for a loan?

To hold legal title to the property on behalf of the beneficiary until the loan is repaid When a deed of trust is used in a title theory state, the trustee holds legal title to the property on behalf of the beneficiary.

A quitclaim deed does which of these?

Transfers without warranty any interest or title the grantor has when conveying it A quitclaim deed provides no warranties or covenants; it only guarantees that the grantor is transferring any interest or title he or she may have in the property.

Page four of the Closing Disclosure lists specific disclosures about the loan, such as the penalty for late payments, whether a demand feature applies, whether the loan can be assumed, and ______.

Whether partial payments are accepted Loan disclosures on page four of the Closing Disclosure include information about partial payment allowances.

The American Recovery and Reinvestment Act provided mortgage assistance to ___________.

Wounded servicemen and servicewomen Mortgage assistance for wounded servicemen and servicewomen was part of the ARRA.

How do you determine debt coverage ratio?

You divide net income by debt service. You divide net income by debt service to get the debt coverage ratio.

In which of the following situations is a catastrophic health insurance plan the most reasonable choice?

You have excellent health and get regular check-ups A catastrophic plan is best suited for someone in excellent health who can't afford an expensive plan.

Ken and Sue are purchasing a home but are short on the down payment required by their lender. Sue's mother offered to give them cash to help with the down payment. How much can Sue's mother give under current tax laws?

$30,000 Sue's mother can give $15,000 to Ken and another $15,000 to Sue. This is a tax-free gift from Sue's mother. Sue's mother and father could each gift $15,000 to both Ken and Sue, for a total of $60,000.

Jeffrey has accepted an offer of $310,000 for his house. The buyer is making a $50,000 down payment, and the buyer's appraisal came in at $300,000. On what number will the buyer's lender base the loan-to-value ratio?

$300,000 Lenders use the lesser of the sales price or appraised value.

A buyer with a $350,000 loan has a monthly principal and interest payment of $2,102.36. If $1,801.23 is interest, what's the new principal balance after the first payment is applied?

$349,698.87 If $1,801.23 of the $2,102.36 is interest, that leaves $301.13 for principal. Subtract $301.13 from $350,000 for a new principal balance of $349,698.87.

A borrower has a 30-year, $500,000 loan with an interest rate of 6.25%. His monthly principal and interest payment is $3,078.59. What's the total amount of interest he'll pay over the course of the loan?

$608,292.40 First, multiply the monthly payment by the total number of payments. Then subtract the original loan value: $3,078.59 x 360 = $1,108,292.40 ‒ $500,000 = $608,292.40.

Which of the following percentages is an allowable loan origination fee?

2% Commonly, lenders charge between 1 and 3% for origination fees. Qualified mortgages don't allow the lender to charge fees more than 3% of the loan amount.

In a judicial foreclosure, if a deficiency judgment will be sought, how soon after the Notice of Levy is recorded can the Notice of Sale be issued?

20 days If a deficiency judgment will be sought, the Notice of Sale may be served no earlier than 20 days from when the Notice of Levy was served.

Over how many years is a commercial property depreciated?

39 years A commercial property depreciates over 39 years. Residential, income-producing properties are depreciated over 27.5 years.

Interest rates that are more than _____ over the current market rate are considered predatory lending.

5%

Cathy is hoping to purchase a home using a VA loan. A VA-assigned real estate appraiser is required to provide ______ for the property.

A certificate of reasonable value The certificate of reasonable value must be provided by a VA-assigned real estate appraiser.

The Farm Credit System is ______.

A government-sponsored enterprise The Farm Credit System is a government-sponsored enterprise.

Fannie Mae's multi-state note includes a due-on-sale clause, also known as a(n) ______ clause.

Alienation A due-on-sale clause, also known as an alienation clause. Paragraph 10 of the note describes the right of the lender to accelerate the loan if the borrower transfers ownership of the property.

The ______ tells the lender how much entitlement the veteran has available under the VA loan program.

Certificate of eligibility The COE is the final word on how much entitlement the veteran has available.

Memoryjet, Inc has developed a new technology for high-volume jump drives. In order to manufacture their new devices they will need to gear up a new production line, which will cost about $85 million. What kind of bond instrument could they use to help secure the funds they need for their new line?

Corporate bond Corporate bonds are used to raise capital, and would be the best choice for Memoryjet, Inc.

Which appraisal approach is likely the best choice for appraising a movie theater?

Cost The cost approach is most often used for unique properties, such as a warehouse or theater.

In 2001, California legislators enacted the ______ to combat predatory lending practices.

Covered Loan Law The Covered Loan Law was enacted in 2001 in an effort to curb predatory lending practices in California.

The ______ restricts refinancing when the new loan has no identifiable benefit to the borrower.

Covered Loan Law This prevents unnecessary refinancing that raises costs and may result in the borrower being unable to pay the mortgage.

Craig's loan is secured by a mortgage. Who holds legal title when this security instrument is used?

Craig The borrower holds legal title to the property that secures the loan when a mortgage instrument is used.

Which of the following actions did the Federal Reserve take in response to the 2007 financial crisis?

Decreased rates The Fed decreased the federal funds rate and purchased securities on the open market. These activities made borrowing and lending more affordable and made more money available for lending and purchasing.

Which of the following is a form of commercial bank revenue related to mortgage financing?

Demand deposits Commercial banks derive most of their funds for mortgage lending from demand deposits.

A second mortgage on property secured by a VA loan is acceptable under certain conditions, one of which is that the first and second mortgage liens ______.

Don't exceed the CRV The first and second mortgage liens can't exceed the CRV on the property.

In which phase of the real estate market would you expect to see an increase in hiring and employment, increased public confidence, and an increase in buyers in the market?

Expansion Expansion is where activity starts to really pick up. Companies are hiring, so unemployment decreases. Higher employment means more buyers in the market and more overall public confidence.

Veterans who use the VA's Specially Adapted Housing grant must ______.

Have permanent and total service-connected disability The VA's specially adapted housing grants are given to veterans with permanent and total service-connected disability.

A seller buydown can ______.

Help a borrower meet lender qualification standards A seller buydown can be used to help a buyer qualify for a loan by making the loan payments more affordable.

Stacy is preparing to sell her home, but learns she can't transfer the property until she removes an encumbrance. Which of these is encumbering her property?

Her existing mortgage The mortgage is a financial encumbrance that must be removed before the title to the property can be transferred.

Wendy is buying a house from Tom. Tom helps Wendy out by paying for a 2-1 buydown. The lender has given Wendy an interest rate of 5%. Which of the following describes what the buydown will do to Wendy's interest rate?

Her rate will be 3% for the first year, 4% the second year, and 5% after that. The 2-1 buydown reduces the interest rate by 2% the first year, 1% the second year, and then reaches the rate stated on the borrower's note.

Identifying the purpose of the appraisal leads the appraiser to do what next?

Identify data needed The first step is to state the problem so the appraiser can then identify what data is needed.

In California, how has state law modified the way the deed of trust works?

It creates a lien on the property, and the borrower, not the trustee, holds legal title. California is a lien theory state, and state law has made the mortgage and the deed of trust functional equivalents.

Which of the following is a true statement about the "hardest hit fund"?

It's available in the states with the most underwater homeowners. The hardest hit fund benefits states that were deemed to have suffered the most from the 2007 financial crisis. It provides funding to help homeowners stave off foreclosure.

Jamal is active military. His cousin, Piper, is in the National Guard. If they both qualify for a VA loan ______.

Jamal will pay less than Piper for his funding fee. Active military members with the same loan amount as a reservist or National Guard serve member will pay a slightly lower funding fee.

An ARM usually offers an initial interest rate that's ______ a fixed rate mortgage for a period of time.

Lower than Initially, most ARMs will offer a lower interest rate than a fixed-rate mortgage. This rate applies to the introductory period, before the first adjustment kicks in.

Licensing by the California Residential Mortgage Lending Act allows a mortgage banker to ______.

Make and service any federally related mortgage loan Licensing by the California Residential Mortgage Lending Act allows a mortgage banker to make and service any federally related mortgage loan.

Which of the following is a true statement about FHLBanks?

Member banks can borrow for up to one year without collateral. FHLBanks offer short-term loans without collateral to member banks with FHLBanks stock.

When using an amortization chart, you use the interest rate and the loan term to arrive at a number, such as 5.17808. Now what do you do?

Multiply the number of thousands in the loan by the number. The number where the term and interest rate intersect is multiplied by the number of thousands in the loan.

An industrial development bond is a variety of _____ bond.

Municipal An industrial development bond is a variety of municipal bond. They give private investors an opportunity to take advantage of tax-exempt funds in exchange for helping to fund municipal projects, such as apartment buildings.

Which of the following is a true statement about retirement accounts?

Only self-employed individuals can use SEP IRAs SEP IRAs are designed for self-employed individuals and do have a high contribution limit, but there is a limit.

A loan with borrow options that can be long term with periodic adjustments or short term with more frequent adjustments to the rate is a(n) ______ mortgage.

Renegotiable rate At specified periods, borrowers have the option to renew their loan or immediately pay the remaining loan balance and interest due.

Randolph is a real estate licensee whose fluctuating income wouldn't qualify him for conventional financing. However, he's able to get financing on a 10-plex. How is this possible?

Rent covers the mortgage. For investors who are willing to manage a property and tenants, buildings whose rental income covers the mortgage make the investor's income less important for qualifying purposes.

Which of the following taxes apply while an investor holds an investment property?

Rental income Rental income is taxable when holding an investment property. The other three taxes take effect when an investment property is sold.

The ______ sets requirements for mortgage loan originators.

Secure and Fair Enforcement for Mortgage Licensing Act The federal Secure and Fair Enforcement for Mortgage Licensing Act sets requirements for MLOs.

The mortgage and the deed of trust are ______ that pledge property as collateral for a loan.

Security instruments The security instrument pledges the property as collateral for the loan, which is described in the promissory note.

What is the most common structure for a CMO?

Sequential pay Sequential pay, also called strict pay, is the most common form of a CMO.

Which of the following is a potential concern of a buyer who's entering into a contract for deed with a seller?

The buyer could lose the property after missing only one mortgage payment. Because the seller holds legal title, the seller can repossess the property when the buyer goes into default. Some states now have laws to protect buyers from this situation.

Who must provide the buyer and seller with a copy of the closing disclosure?

The buyer's lender The lender must provide the closing disclosure to the borrower at least three days prior to closing. The settlement agent will provide a closing statement to both buyer and seller.

What is the 200% rule as it relates to tax-deferred exchanges?

The combined fair market value of the property (or properties) being exchanged into cannot be more than 200% of the relinquished property. The combined fair market value of the property (or properties) being exchanged into cannot be more than 200% of the relinquished property.

Which statement correctly describes a contract for deed?

The contract for deed is usually used in a seller-financed transaction. The contract for deed includes the promise to pay and the security instrument in a single document and is usually used in a seller-financed transaction.

What is the most likely effect when the Fed buys securities on the open market?

The economy may grow due to an increased money supply. When the Fed buys securities, it's putting money into the market, which increases the supply of money in the market and potentially causes the economy to grow.

The annual MIP is recalculated each year using ______.

The end-of-year loan balance, plus the balance after the next 11 payments The annual MIP is recalculated each year using the end-of-year loan balance, plus the balance after the next 11 payments.

Page one of the Loan Estimate includes a section called "Costs at Closing." The amount shown as estimated cash to close is ______.

The estimated amount the client will pay by cashier's check or wire transfer at closing The estimated cash to close amount is what the borrower should expect to bring to closing in the form of a wire transfer or cashier's check.

What does it mean when a life insurance company uses participation financing?

The life insurance company participates by taking partial ownership of the project in exchange for funding the loan. Often, a life insurance company will take partial ownership of a project in exchange for providing the financing.

The average commission you earn from each transaction is $6,000, and 20% of your leads turn into clients. Using the funnel, what else do you need to know to calculate how many leads you will need if you want to earn $50,000 in a year?

The percentage of clients who turn into closed transactions The funnel uses a few different percentages to help you estimate the activity you need to create a certain income, and one of those is the percentage of clients who turn into closed transactions.

Which of these is a true statement about when a promissory note is sold?

The promissory note is endorsed to the new owner of the loan. When a note is sold, the promissory note is endorsed to the new owner of the loan.

In a 1031 exchange, there are rules governed by Section 1031 of the Internal Revenue Code. The rules include _______________.

The property in an exchange must be like-kind Like-kind is a requirement. The replacement property has to come with the same or greater debt load for the investor, and the basis of the original property carries over to the new property. It must also be a non-owner-occupied (investment) property.

Which of the following describes the federal funds rate?

The rate at which a bank can obtain a loan from another bank When a member bank seeks a short-term loan from another bank, the federal funds rate applies. This is for short-term (overnight) loans without collateral.

When a lender has a lien on a property, what rights does the lender hold?

The right to foreclose The lender has an interest in the property and may foreclose in the event of borrower default, but the lender does not carry rights of possession or control.

Which of the following real estate transactions is subject to recaptured depreciation?

The sale of an investment property Three taxes take effect when an investment property is sold. The transfer tax is assessed at the time of the sale. Capital gains tax and recaptured depreciation will apply on the investor's income tax return.

The Farm Credit System funds are acquired from __________.

The sale of debt securities and international money markets The Farm Credit System money comes not from deposits, but from the sale of debt securities in the U.S. and in international money markets.

Historically, what do property values tend to do over long periods of time?

They increase only. Over a long period of time, the value is likely to increase.

Mutual savings banks prefer to keep their lending activities in their immediate geographic area. Why?

They prefer to personally monitor the loans they issue. Mutual savings banks prefer to keep their mortgage lending in the immediate geographic area (think East Coast) so they can closely monitor the loans.

Which of the following statements is true about national lending intuitions?

They sell packaged loans to investors. National lending institutions package loans and sell them to investors. This creates additional funds to purchase more loans from the primary market.

Sophia and Antonio are expecting twins. They want to sell their old house and buy a larger home using a conventional loan. In order to be sure they'll get the PMI waived, what will they need to have?

They should have a loan-to-value ratio of 80% or less. Primary mortgage insurance may kick in when the loan-to-value ratio exceeds 80%; that is, the borrower is borrowing more than 80% of the property's value. To be sure they can avoid paying PMI, Sophia and Antonio need to put at least 20% down.

Which of the following statements is true about buydowns with a VA loan?

They're allowed only on fixed rate loans. A borrower may buy down the interest rate on a fixed rate VA loan, but buydowns are not allowed on ARMs.

The FHA offers a program for loan insurance on adjustable rate mortgages under ______ of the National Housing Act.

Title II Title I, Section 251 is a program for loan insurance on adjustable rate mortgages.

Dana and Phil have evaluated their situation, and have decided to purchase a unit in a cooperative housing project. Which FHA loan program might work for them?

Title II, Section 203(n) The FHA has a program specifically for the purchase of a unit in a cooperative housing project: Title II Section 203(n).

Which of the following will be issued only if title is acceptable and an attorney provides a certificate of title opinion?

Title insurance policy The title commitment comes before closing; the title insurance policy is issued after closing. The commitment says that a title company is willing to issue title insurance under certain conditions. The policy provides coverage for the property.

What's one reason a borrower would choose a split-or piggyback-loan option?

To avoid going over the conforming loan limit One reason a borrower would choose the piggyback loan option is to avoid going over the conforming loan limit for any one loan. Another reason would be to avoid having to pay private mortgage insurance.

What's one reason a borrower may choose a piggyback (or split) loan?

To avoid paying private mortgage insurance If borrowers don't have 20% for a down payment, they have an option to take a piggyback (or split) loan to cover the difference and avoid paying PMI. This option can also be used to avoid going over the conforming loan limit.

A trustee's sale has just occurred. What does the highest bidder receive?

Trustee's deed The highest bidder receives a trustee's deed following the sale of the property, concluding the non-judicial foreclosure process.

Regulation Z codifies the rules of the ______.

Truth in Lending Act Regulation Z stipulates the rules for implementing the Truth in Lending Act.

Which government program assists rural Americans by offering loans, grants, and loan guarantees for housing?

USDA Rural Development The USDA Rural Development program assists rural Americans by offering loans, grants, and loan guarantees for housing (as well as economic development, health care, first responder services and equipment, and water, electric, and communications infrastructure).

Sylvia is a single mother living in a small town surrounded by ranch and farm land. She would like to buy a house there, but her income as a hair stylist makes it hard for her to qualify for a conventional loan. What government program might provide her with a direct loan to purchase a home?

USDA Rural Development Single Family Housing Program USDA's Single Family Housing Programs will make direct loans (as well as loan guarantees) to help low- and moderate-income rural Americans buy safe, affordable housing in rural areas.

Which of the following best describes a home equity line of credit?

Used as an open-end account similar to the revolving credit of a credit card from which borrowers can take advances, repay money, and even borrow money again A HELOC is similar to a home equity loan because the borrower uses the home's equity to secure a credit line. A HELOC isn't a lump-sum loan; it's a line of credit that continues as the borrower makes regular payments.

Which of the following is considered an ineligible property type for which a loan to purchase or refinance wouldn't be purchased by Fannie Mae?

Vacant lot Vacant land is an ineligible property type.

What type of interest rate might a HELOC have?

Variable or fixed One significant difference between an equity loan and a HELOC is the interest rate. While the rates on an equity loan are usually fixed, HELOC rates are often variable but can be fixed.

The FHA Section 203(h) program assists ______ with an insured mortgage.

Victims of a presidentially declared disaster The 203(h) program assists homeowners who must repair or replace a home damaged in a major disaster.

Rich wants to add a room to his house, so he takes out a home equity loan. This creates a/an __________ lien.

Voluntary and specific A home equity loan creates a voluntary lien because the homeowner consents to the lien. It is specific because it is attached to only one property.

The Mortgage Disclosure Improvement Act gives applicants a _________ to review and approve the Loan Estimate and Closing Disclosure form.

Waiting period MDIA allows borrowers the time to approve the terms provided by the lender. The loan can't be closed or signed off before the waiting period is complete.

Your client, Judy, with a credit score of 620, has been approved for an FHA loan for a home with a sales price of $200,000. What is the minimum down payment that will apply?

$7,000 The minimum down payment on an FHA loan is 3.5%. Additional closing costs apply.

You do a listing presentation to a potential client over lunch at a nice restaurant. How much of your meal cost is considered tax deductible?

50% Half of the cost of meals is considered deductible when you discuss business.

What percentage of homes in the U.S. are owner-occupied?

57% Owner-occupied properties make up the largest percentage of residential occupancy types, according to the American Housing Survey.

What is an encumbrance?

A defect on a title that can be monetary or physical An encumbrance is a defect on a property's title that can be monetary, such as a lien, or physical, such as an easement that limits the owner's use of the property.

What is the HECM program?

A form of reverse mortgage insured by the FHA The FHA's HECM program is a reverse mortgage that allows the homeowner to remain in the home by borrowing against the equity of their home.

What is another name for an installment sale contract?

A land contract Land contracts are a form of installment sale.

Vantagestar Ltd. would like to construct a high-end condominium complex. Where will they likely go for financing this project?

A life insurance company This is a project for a life insurance company because they prefer to be involved with large commercial projects.

What's a participation certificate?

A mortgage-backed security issued by Freddie Mac Participation certificates are what Freddie Mac calls their mortgage-backed securities.

Captain Kirk is a veteran who sells his home to Leonard. Leonard is also a veteran, and they agree to let Leonard assume Captain Kirk's VA loan for the property. They agree to a novation, which is ______.

A new contract with the lender using a substitution of entitlement A novation creates a new contract with the lender and the new borrower, which happens when the buyer assumes the VA loan with a substitution of entitlement.

What type of professional must an investor use to conduct a tax-deferred exchange?

A qualified intermediary The investor must use a qualified intermediary to conduct the exchange.

What is a statutory right of redemption?

A statutory right of redemption is one that occurs after the sale. This occurs only in judicial foreclosures, and isn't allowed in every state.

In which of the following situations is a lender prohibited from enforcing an alienation clause?

A transfer between parent and child The federal Garn-St. Germain Depository Institutions Act of 1982 prohibits the enforcement of the alienation clause when a property is transferred between parent and child.

What's the acronym for the legislation that established processes and procedures for how federal agencies propose and enforce regulations?

APA APA stands for the Administrative Procedure Act.

Albert wants to sell his house to his cousin, who's willing to assume his FHA loan. What clause in Albert's mortgage requires him to obtain the lender's permission to do this?

Alienation clause The alienation clause requires the property owner to obtain lender permission for a buyer to assume the loan, or risk having the loan accelerated.

What is the three-property rule as it relates to tax-deferred exchanges?

An investor can identify up to three replacement properties and not encounter a restriction regarding fair market value as long as debt load requirement is met. The three-property rule says that your investor can identify up to three replacement properties and, in this situation, fair market value doesn't matter, provided they meet the debt load requirement.

For borrowers who already have an FHA loan, the Streamline Refinance program offers the benefit of ______.

An unlimited loan-to-value ratio The FHA Streamline Refinance program allows an unlimited loan-to-value ratio, which benefits homeowners who may be underwater in their homes.

In addition to itemizing what are the borrower-paid closing costs, the prepaids section includes the __________ for each item.

Applicable time period The prepaids cover what is paid at closing and what time period is included. This gives the borrower a glimpse into what will need to be paid in the near future.

California's Seller Financing Disclosure Law requires the arranger of credit to provide both the buyer and seller with disclosures. What's the timing requirement for this disclosure?

As soon as possible before the execution of any note or security document The Seller Financing Disclosure Law requires that disclosures be delivered to the buyer and seller as soon as possible before the execution of any note or security document.

Ava is borrowing money to buy some commercial property for her business. The loan agreement she signs includes a lock-in clause. What does that mean?

Ava will not be allowed to prepay the loan prior to the date specific in the loan agreement. The lock-in clause is a form of prepayment penalty typically used only for high-yield loans.

Which of these is a reason that the deed of trust is the standard security instrument used in California real estate transactions?

Because California foreclosure laws allow a statutory right of redemption of up to one year with a judicial foreclosure. California's foreclosure laws make the deed of trust the preferred instrument, even though it's a lien theory state.

Which of the following statements about liens is true?

Both mechanic's and materialman's liens are junior liens. Junior liens, such as mechanic's and materialman's liens, are liens that are subordinate (aka "junior") either in right or priority to another lien on a property.

Which agency is responsible for the production of paper currency?

Bureau of Engraving and Printing The Bureau of Engraving and Printing produces paper currency. It's also involved in the production of security materials and documents.

What is one way that the FHA has helped to stabilize and improve the mortgage market?

By requiring appraisers to be state licensed or certified to evaluate property for FHA-insured loans

Under which section will you find any credits provided by the seller?

Calculated cash to close Calculated cash to close indicates any credits, including seller and lender credits.

Jan is a real estate licensee with a mortgage loan originator (MLO) endorsement. When she acts as an MLO, what law limits the amount of commission and fees she can earn for negotiating a loan on behalf of her client?

California Real Property Loan Law The California Real Property Loan Law regulates the commission and fees that an MLO may charge for services. This law is also known as the Mortgage Loan Broker Law, the Necessitous Borrower Act, and Article VII of the Real Estate Law.

Lucy is a mortgage banker. Her business is regulated by ______.

California Residential Mortgage Lending Act Mortgage bankers are regulated by the California Residential Mortgage Lending Act.

According to the National Association of REALTORS®, the majority of foreign investors in U.S. real estate are ______.

Chinese The majority of foreign investors in United States real estate is Chinese investors.

Fatima is using a VA loan to purchase a home from Sue. Sue agrees to pay Fatima's closing costs. Which of the following statements is true?

Closing costs aren't considered a seller concession. If the seller pays the buyer's closing costs, other than prepaid items or the funding fee, it isn't counted as seller concessions.

Dorinda is an investor. She recently purchased shares in a tranche that holds mortgages and mortgage-backed securities. In what did she invest?

Collateralized mortgage obligation A CMO holds mortgages and mortgage-backed securities. These are organized into tranches from which investors can purchase shares.

When Fannie Mae purchases a loan, they pay the loan originator a(n) ______ fee.

Collection Fannie Mae pays a collection fee, which can be a significant source of income for loan originators.

Which of these individuals may benefit from USDA Rural Development program offerings?

Community-managed lenders The USDA Rural Development program supports loans to community-managed lenders.

Edward is an economic analyst. In his work, he keeps a particularly close eye on this industry, because action or inaction here is a leading indicator of the country's overall economy. Which industry is this?

Construction Construction of new homes has a tremendous effect on the economy. A slowdown here is a leading indicator that a slowdown in the overall economy may be on the horizon.

You may see a ________ named as a land contract, real estate contract, contract for sale, agreement for deed, or as articles of agreement.

Contract for deed A contract for deed is a common form of seller financing involving the buyer/borrower and the seller/lender.

Which real estate finance instrument includes the promise to repay and the security instrument within the same document?

Contract for deed The contract for deed is both the pledge of collateral and the promise to repay. It can also include the purchase agreement.

The three types of finance instruments that can be used when financing a real estate purchase are the note with mortgage, note with deed of trust, and ________.

Contract for deed The contract for deed is used by a seller who extends credit to a buyer.

Which of the following loans may require compliance with Appraiser Independence Requirements?

Conventional AIR apply to conventional loans used to purchase a single-family dwelling of one to four units. Federally insured or guaranteed loans (such as FHA or VA or commercial loans) are exempt.

Secured corporate bonds use ________ as collateral.

Corporate assets Corporate assets are used as collateral so that bond purchasers can repossess the asset in the event of default.

Mario lives in a state that requires an abstract of title for property conveyance. The chain of title is broken approximately 50 years prior to the current date. Which of these properly identifies the status of Mario's title?

Depending on his state's laws, Mario may have marketable title. If a link in the chain of title is broken, the attorney performing the search will branch out from public records to try to mend the link. State laws dictate how far back the chain must be unbroken for a title to be marketable.

Andy is selling his home to Erika and Doug, who are using an FHA loan for the purchase. To facilitate the purchase, Andy can agree to pay ______.

Discount points to buy down Erika and Doug's interest rate When buyers use an FHA loan, the seller is allowed to pay for a buydown to lower the buyer's mortgage interest rate.

The rate at which a bank can obtain a loan from its Federal Reserve bank when using commercial paper as collateral is called ______.

Discount rate When banks obtain a loan from their district reserve bank, they can do so at the discount rate if they use commercial paper as collateral for the loan.

The ______ was enacted in 2010 to create stricter regulation of the financial services industry.

Dodd-Frank Wall Street Reform and Consumer Protection Act The aim of the Dodd-Frank Wall Street Reform and Consumer Protection Act was to regulate the financial services industry more effectively.

For which of these properties would gross rent multiplier be calculated?

Duplex used as a rental property Remember, rent has four letters. Gross rent multiplier is used for income-producing properties with four or fewer units. Properties with five or more units use gross income multiplier.

Which of the following is a true statement about tranches?

Each tranche has specific rules for distributing income received from the collateral, and has differing balances, maturities, and risks. Tranches have specific rules for distributing income received from the underlying collateral in the investment. Tranches also may vary in terms of balances, maturities, and risks.

Percy is buying a home with an FHA loan. He uses the ______ to borrow enough money to cover the cost of replacing most of the windows in the home, which will improve its energy usage by 15%.

Energy Efficient Mortgage Borrowers using an FHA 203(b) loan can use the Energy Efficient Mortgage option to incorporate the cost of adding energy-efficient features to the home.

Your clients, the Nguyens, have signed a contract for deed to purchase a property. What rights do the Nguyens receive?

Equitable title and possession of the property When a contract for the sale of land is executed, equitable title passes to the buyer. When the conditions on the sale contract have been met, legal title passes to the buyer with the deed.

Ted is in foreclosure but has some equity in his property. An investor suggests that Ted enter into a sales contract with him for a substantially higher price than the investor would actually be paying. The investor pockets the cash and allow the house to be foreclosed on. What sort of scheme is this?

Equity skimming Equity skimming occurs when an investor receives title to a property, usually rents out the home but doesn't make the mortgage payments. When types of equity skimming fraud like this occurs, houses usually end up in foreclosure.

Rick finds that some of his ongoing expenses as a licensee are paid monthly, some quarterly, and some annually. How can he arrive at a standard monthly figure that will help him manage his cash flow?

Estimate total annual expenses and divide by 12 for a monthly amount. Rick can get a monthly estimate by dividing his total annual expenses by 12.

What information does Schedule B-2 of a title commitment provide?

Exceptions that the title policy will not cover Schedule B-2 lists items the title insurance policy will not cover. These exceptions may be anything not shown in public records, such as a lien, or items identified in a survey, such as an encroachment.

Which institution was created as the Federal National Mortgage Association in 1938?

Fannie Mae Fannie Mae was established as the FNMA in 1938.

Which of the following is an example of a government-sponsored enterprise (GSE)?

Fannie Mae Fannie Mae, Freddie Mac, and the Federal Home Loan Bank are examples of GSEs.

Farmer Mac is supervised by which entity?

Farm Credit Services Administration The Farm Credit Services Administration supervises Farmer Mac.

Farm and Country Bank provides credit to the farmers, ranchers, and other rural residents of its community. What government program helps the bank maintain enough capital to fund those loans?

Farmer Mac Farmer Mac makes more capital available to financial institutions that make agricultural loans by creating a secondary market for ag loans.

Brenda's go-to financial expert has no fiduciary responsibility to her. This is because she's working with a(n) ______.

Financial advisor Unlike financial advisors, investment advisors, CPAs, and real estate agents owe fiduciary responsibilities to their clients.

Community Banks is being sued for intentionally violating the Truth In Lending Act. What fines and imprisonment possibilities can the company face?

Fines up to $5,000 and up to a year of imprisonment Lenders can be fined up to $5,000 and/or face imprisonment for a period of up to 12 months.

How many times per year do self-employed individuals file taxes?

Five Self-employed individuals are required to pay estimated income taxes (self-employment, federal, and state) on a quarterly basis because their taxes aren't deducted from a paycheck. They must also file annual taxes.

Robbie's lender notifies him of an impending foreclosure, and is told that his property will be sold at public auction. After the auction occurs, Robbie receives a notice of eviction for which the lender had to petition a court. What does this describe?

Foreclosure by advertisement In foreclosure by advertisement, the borrower is notified of the default and pending public auction of the property. After the auction takes place, the winning bidder has to petition the court for a notice of eviction.

Jerome is developing an ad for three properties he has listed in an upscale community. He wants to keep it short and simple. Which of these would NOT trigger full disclosure under TILA?

Get a low 4.925% APR An ad can show the APR without disclosing all the other credit terms. But if certain other "trigger" terms are included, such as down payment, payment amount, number of payments, or interest rate (other than APR), this would require full disclosure.

How might a borrower avoid paying the mortgage insurance premium required by an FHA loan?

Get conventional financing Borrowers may avoid mortgage insurance payments by financing with a conventional loan.

Which of these HUD programs allows mortgage lenders to obtain a better price for their mortgage loans in the secondary mortgage market?

Ginnie Mae A Ginnie Mae guarantee makes it easier for mortgage lenders to obtain a better price for their mortgage loans in the secondary mortgage market.

The interest rate on an FHA Section 251 adjustable rate mortgage will ______.

Go up or down, but can't change more than a maximum number of points allowed by the FHA over the life of the loan The FHA sets a maximum number of percentage points that the interest rate on a Section 251 ARM may change over the life of the loan.

What's the acronym for the legislation that requires financial institutions to document and publicly disclose lending practices?

HMDA HMDA stands for Home Mortgage Disclosure Act.

About 50% of the borrowers in Neighborhood One are Hispanic, while only 4% in Neighborhood Two are Hispanic. The median home price in both neighborhoods is the same. However, statistics show that there is a significantly greater percentage of minority and low-income borrows who were denied financing for loans on properties in Neighborhood Two and were offered lower rates to live in Neighborhood One. What act is intended to prevent this type of potentially discriminatory lending pattern?

Home Mortgage Disclosure Act The Home Mortgage Disclosure Act requires many financial institutions to publicly disclose information about mortgages, allowing public officials to make informed policy decisions and revealing potentially discriminatory lending patterns.

With this common loan type, the home is used as collateral and the loan creates a second mortgage if the first mortgage hasn't been paid off.

Home equity If the property is owned free and clear, the home equity loan is a first mortgage. Otherwise, it becomes a second, or junior, mortgage.

With this common loan type, the home is used as collateral and the loan creates a second mortgage if the first mortgage hasn't been paid off.

Home equity If the property is owned free and clear, the home equity loan is a first mortgage. Otherwise, it becomes a second, or junior, mortgage. Rates on home equity loans tend to be higher than those of conventional loans, and their term rates are usually shorter.

Which of these is actually an amendment to the Truth in Lending Act (TILA)?

Homeowner and Equity Protection Act (HOEPA) The Homeowner and Equity Protection Act (HOEPA) was updated in early 2014 and is an amendment to TILA.

Lenny the lender is reviewing mortgage applications. Applicant Catherine has a good credit history, but the property she wants to buy is in an area of town where home prices have been headed down, and neighborhoods are starting to look grim. Lenny denies Catherine's loan application. What California legislation makes Lenny's decision illegal?

Housing Financial Discrimination Act (Holden Act) The Holden Act of 1977 prohibits redlining, which makes Lenny's decision to deny credit based on the location of the property illegal.

The final page of the Closing Disclosure provides loan calculations that tell the consumer ______.

How much the loan costs, including total payments, finance charge, and TIP The last page of the Closing Disclosure helps the consumer understand how much the loan costs after all payments are made.

Which type of real estate investment trust derives its income from the rent or sale of property and interest dividends?

Hybrid REIT Hybrid REITs are a combination of mortgage lending and equity investing. They derive their income from the rent or sale of property and interest dividends.

To calculate capitalization rate, you need to know the property's value and ______.

Income Cap rate is computed using the income generated by a property and its value.

How do VA loan programs compute "residual income"?

Income minus shelter expenses and debts Residual income is the amount of money left after housing expenses, debts, obligations, and monthly shelter expenses are met.

Max has a dog that bit his neighbor. The neighbor sued Max, which resulted in a judgment against him. Max refused to pay the neighbor according to the judgment. The neighbor placed a lien against Max. How is this lien classified?

Involuntary, general This is an involuntary general lien, since Max didn't agree to it, and it's attached to all of Max's property.

What is the purpose of a lifting clause?

It allows a borrower to refinance a first mortgage without affecting its lien position even when a junior mortgage is in place. A lifting clause allows senior liens to be refinanced without affecting the senior lien position in relation to the junior loan.

What's the purpose of a typical subordination agreement?

It allows a junior mortgage to move into first lien position. In a typical subordination agreement, the senior lien holder agrees to subordinate or lower its lien position in favor of the junior lien. This agreement must be signed by both lien holders and recorded.

The Bransons have a conventional loan for which they were required to obtain private mortgage insurance. Their local real estate market has been going like gangbusters, and their house is now appraised at twice their loan balance! Will their PMI be cancelled?

Maybe, but they'll have to petition their lender Cancellation of PMI happens once the borrower reaches a 22% equity position. This is determined by loan-to-value ratio at the time of the purchase. Unless loan-to-value ratio is now 78% or lower, the Bransons would have to petition to get PMI cancelled.

Babs is buying Kirk's property. Babs needs help with the down payment, and Kirk offers to supplement Babs' bank loan with a second loan, allowing her to meet her lender's down payment requirements. Which finance instrument(s) may be used for the agreement between Babs and Kirk?

Mortgage or deed of trust A lender would not approve a contract for deed, because the seller holds legal title in a contract for deed, making foreclosure difficult.

Special mortgage loan programs for ______ include the FHA248 and HUD 184 programs.

Native Americans living on tribal land The Section 248 and Section 184 programs both guarantee loans to Native Americans to purchase, build, or rehabilitate homes on federal trust land.

Which is one of the benefits of the USDA loan program?

No down payment is required. The USDA loan program doesn't require a down payment for the loan.

Maxine is purchasing a small craft shop, including the underlying real estate. She applies for a commercial loan from her federally insured bank to complete the purchase. Is Maxine's transaction covered by the Real Estate Settlement Procedures Act?

No, commercial and business loans are exempt from RESPA requirements. Commercial and business loans are exempt from RESPA.

Trixie purchased her one-bedroom beach cottage in 1992 with an FHA loan. Now she's selling it, and the buyer wants to assume her loan. The buyer intends to rent the cottage to vacationers. Will the FHA allow this buyer to assume Trixie's loan?

No, investors aren't allowed to assume FHA loans; the property must be owner-occupied FHA loans may be assumed, but a creditworthiness review is required if the loan were originated after 1986, and the new borrower must occupy the property.

Your client, Yolanda, is a nurse. Does she qualify for the Good Neighbor Program?

Not unless she is also an EMT The Good Neighbor Next Door program offers specific FHA-foreclosed properties to owner-occupied individuals who are law enforcement officers, K-12 teachers, firefighters, or EMTs.

Jacob is selling his unencumbered property to Shem and is acting as lender in the transaction. Which type(s) of finance instrument can Jacob use for the loan agreement?

Note with mortgage, note with deed of trust, or contract for deed Jacob can use any of the three basic financial instruments used in real estate transactions.

When a buyer uses an FHA loan, the down payment amount is calculated ______.

On the lesser of the sales price or the appraised value of the property The down payment for an FHA loan is calculated on the lesser of the sales price or the appraisal value of the property.

When does PMI end?

Once the loan-to-value ratio reaches 78% of the original value. Under the Homeowners Protection Act of 1998, once the LTVR reaches 78% of the original (not current) value of the property, PMI premium payments must stop automatically.

What is a wrap-around mortgage?

One that may involve seller financing A wrap-around mortgage is one where the buyer's new loan wraps around the seller's existing financing. The seller uses a portion of the buyer's payments to the seller to pay on the original loan.

While Fannie Mae considers total and housing debt-to-income ratios in its underwriting process, Freddie Mac considers ______.

Only total debt-to-income Fannie Mae looks at total debt-to-income as well as the housing debt to-income for a borrower. Freddie Mac focuses on the total debt-to-income ratio.

A mortgage banker gets paid through fees from ______ and servicing loans.

Originating A mortgage banker gets paid through fees from originating and servicing loans.

In which phase of the real estate market would you expect to see properties selling for more than they're worth, many buyers in the market, and lots of new construction?

Over supply Over supply is a phase that sees homes selling for more than their value. There are lots of buyers and lots of construction trying to keep up with the demand. This phase can't be sustained, and eventually the market heads toward a recession.

Betty is purchasing a home and has received Loan Estimates from three lenders. As she compares the terms of the loans being offered, where can she find the section that allows her to make comparisons between loans with different interest rates?

Page three Page three of the Loan Estimate includes a section called "Comparisons" that makes it easy for a consumer to compare the costs of loans with different interest rates.

Joe works for a life insurance company that funds commercial investment projects and often insures these projects by insisting on an equity position. What type of financing does this describe?

Participation Participation financing means the lender becomes a participant in the deal in exchange for some equity. This offers added security for the investment.

Life insurance companies sometimes like to insure their investment in commercial projects by insisting on an equity position. This is known as ______ financing.

Participation Participation financing means the lender becomes a participant in the deal in exchange for some equity. This offers added security for the investment.

Jody is concerned about the ______ that doesn't allow her to start her gardening greenhouse because it sits next to a nature conservancy.

Physical encumbrance A physical encumbrance limits what can be done on the property and can decrease the property value.

Which of the following is an example of an inquiry initiated by a creditor that may appear on a credit report?

Pre-approved credit Pre-approved credit offers involve credit inquiries generated by creditors without the consumer's permission.

A borrower sued a foreclosure consultant for violating the Mortgage Foreclosure Consultant Law. The borrower may receive actual damages, legal fees, and, in severe cases ______.

Punitive damages up to three times the borrower's actual damages Homeowners can sue a consultant who violates this law for damages and legal fees. Punitive damages of up to three times the actual damages incurred may be awarded in severe cases.

What factors affect an adjustable rate mortgage?

Rate, index, and margin Rate adjustments are based on index rates, such as London Interbank Offered Rate (LIBOR), from which lenders determine their margins and the rate that they charge customers at each adjustment.

Which of these acts has special provisions for borrowers who are victims of overcharging?

Real Estate Settlement Procedures Act (RESPA) The Real Estate Settlement Procedures Act (RESPA) has special provisions for borrowers who have fallen victim to predatory lending practices, including those who are victims of over-charging.

When an investment property is sold, three taxes that apply are transfer tax, capital gains and ______.

Recaptured depreciation Three taxes take effect when an investment property is sold. The transfer tax is assessed at the time of the sale. Capital gains tax and recaptured depreciation will apply on the investor's income tax return.

Annual MIP can be removed from an FHA loan by ______.

Refinancing to a conventional loan The annual MIP is paid for the life of the FHA loan and may only be removed by paying off the loan, by selling the home, or by refinancing to a conventional loan.

Violet purchased a house from Nick, and assumed the existing loan. Nick wants to make sure he isn't liable if Violet ever defaults. What can he do to remove his name from the loan agreement?

Request a novation The novation is a process that substitutes one person for another on a contract.

A lender qualifies a borrower for a VA loan based on ______.

Residual income and debt-to-income The VA uses residual income and debt-to-income when qualifying borrowers.

What are the effects on a property if it includes an encumbrance?

Restricts the owner's use or decreases the value. An encumbrance restricts use and the value may decrease.

How do falling interest rates impact investors in mortgage-backed securities?

Returns on investments decrease. Investors may be negatively impacted by falling interest rates. Lower rates mean smaller interest payments that eventually pass through to investors.

When interest rates increase, what is the impact on mortgage-backed security investors?

Returns on investments increase. Investors may benefit from increasing interest rates. Higher rates mean larger interest payments that eventually pass through to investors.

Because of the funding fee required for a VA loan, a borrower with no down payment funds saved should ______.

Roll the funding fee into the loan The funding fee is often rolled into the loan.

Contributions for this type of IRA aren't tax-deferred.

Roth Contributions for this type of plan are not tax-deferred, but they will not be taxed upon withdrawal after retirement age.

Zack and April are purchasing a home. They apply to three different lenders and review the loan estimates they receive. Each form includes a field identifying the National Mortgage Licensing System ID number for the lender. What is the act that requires this licensing identification to be available to consumers?

SAFE Act The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) requires that mortgage loan originators obtain a license that consumers can identify and research.

Where can a party reviewing a title commitment find basic details about the transaction?

Schedule A Schedule A contains basic transaction and property information, such as legal description and the parties to be insured by the title insurance policy.

Where can a party that's reviewing a title commitment find exceptions that aren't covered by the title insurance policy?

Schedule B-2 Schedule B-2 lists items the title insurance policy will not cover. These exceptions may be anything not shown in public records, such as a lien, or items identified in a survey, such as an encroachment.

Which of the following types of loans issued in California may be protected from a deficiency judgment?

Second mortgage issued in August 2013 to purchase a single family home Purchase money loans issued on or after January 1, 2013 offer protection from deficiency judgments. A refinance of a refinance is not a purchase money loan.

What is the name of the federal act that sets requirements for mortgage loan originators (MLOs)?

Secure and Fair Enforcement for Mortgage Licensing Act The federal Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) sets requirements for MLOs.

Disclosures under the ______ are required when the seller is extending credit to the buyer or anyone other than the buyer or seller is paid in any way to arrange financing.

Seller Financing Disclosure Law The Seller Financing Disclosure Law goes into effect when a seller extends credit to a buyer and an arranger of credit is paid to negotiate or assist with arranging the loan.

The ______ table discloses the amounts associated with the transaction that the seller will pay and receive, usually resulting in a total cash to seller.

Seller's Transaction The Seller's Transaction table lists what the seller will pay and receive as a result of the transaction.

The section on the Loan Estimate called "Services You Cannot Shop For" includes fees for ______.

Services performed by a third party that the lender selects The items shown under "Services You Cannot Shop For" are performed by a third party that the lender selects.

Which of these items did the FHA implement to stabilize and improve the mortgage market?

Set construction standards for homes purchased with FHA loans The FHA requires specific construction standards for buildings purchased with an FHA loan, which reduces lender and insurer risk.

Marissa is obtaining a VA loan, and she's decided to place 20% down. What's her responsibility for paying the VA loan funding fee?

She won't be required to pay it since she made a large down payment. The funding fee isn't required if the borrower provides sufficient down payment funds.

Which of the following types of residential dwellings do life insurance companies purchase from the secondary mortgage market?

Single-family on one lot Life insurance companies purchase single-family homes from the secondary market.

What's the first step an appraiser will perform when conducting an appraisal?

State the problem. The first step is to state the problem so the appraiser can identify what data is needed. After that, the appraiser will identify the data needed, gather it, and analyze it.

What agency receives paper currency prior to its distribution but after it's printed?

The Federal Reserve Once the Bureau of Engraving and Printing prints the Federal Reserve Notes, they are shipped to the Federal Reserve.

A "Homes for Sale" magazine contains the following ad: "One-bedroom condo. Corner unit with beautiful ocean views. Financing available, 5.25% APR." Which of these statements is true?

The ad is in compliance with TILA because providing the APR doesn't trigger the required disclosure of all credit terms. The APR can be included in an ad without requiring disclosure of all credit terms. APR figures allow consumers to make an informed comparison between loans, which is TILA's goal.

The percentage recommended for a licensee to allocate when building an emergency fund is ______.

The largest percentage possible after paying all essential expenses The emergency fund is important to have and to get fully funded as quickly as possible.

When a borrower has paid off the loan, how is the release handled if the security instrument is a mortgage?

The lender executes and records a satisfaction of mortgage and returns the note to the borrower. When a borrower has paid the loan in full, it's the lender's responsibility to execute and record a satisfaction of mortgage.

A buyer with a $242,000 loan has a monthly principal and interest payment of $1,317.66. If $1,033.54 is interest, what's the new principal balance after the first payment is applied?

$241,715.88 If $1,033.54 of the $1,317.66 is interest, that leaves $284.12 for principal. Subtract $284.12 from $242,000 for a new principal balance of $241,715.88.

What is the minimum amount of time a Notice of Sale must be posted on a property before the foreclosure sale can take place?

20 days Posting on the property is only one of the notices required. The notice must also appear in public, and be published in a newspaper serving the area where the property is located for at least three weeks.

A buyer anticipates a house payment of $1,000 per month, with monthly homeowner association fees of $150. The buyer also has a car payment of $400 per month. If the buyer earns a monthly gross income of $5,000, what's the housing ratio?

23% The housing ratio is 23%: ($1,000 + $150) / $5,000 = .23 x 100 = 23%.

John wants to do a 1031 tax exchange. He just sold his property. How many days does he have to identify a new property?

45 Investors who want to use the 1031 tax-deferred exchange must identify the property within 45 days and close within 180 days.

The Covered Loan Law limits total fees and points paid by the borrower prior to closing to what amount?

6% Under the Covered Loan Law, the total fees and points that the borrower must pay before closing can't exceed 6% of the total loan amount.

Robin has great credit and was able to secure a loan for her oceanside dream home. Her 30-year, fixed rate loan is for an amount that's above conventional loan limits. What type of loan does Robin have?

A non-conforming loan Loans that are outside of Freddie Mac and Fannie Mae guidelines, such as jumbo loans, are non-conforming loans.

Which of these statements about a buydown is true?

A permanent buydown will cost more than a temporary buydown. A buydown is essentially a prepayment of interest, so a permanent buydown is more costly than a temporary buydown.

Which of the following is a requirement if you set up a corporation in order to perform real estate services?

A separate bank account in the corporation's name Business structures such as limited liability companies and corporations must create separate banking accounts from a licensee's personal accounts.

Which of the following best describes annual percentage rate (APR)?

A standardized measure for interest rates and other loan costs Regulation Z requires lenders to use a standardized measure for interest rates, which is the APR.

Licensee Lynn has several accounts set up as part of her personal financial plan to help her manage cash flow. She's allocated 10% of each commission check to business expenses, 15% to taxes, 8% to her retirement fund, 12% to various savings goals, and the rest goes to her living expenses. When she receives a check, how does she direct the funds?

After depositing it in her business checking account, she puts 90% of it in her personal checking account to be distributed to the other savings accounts as appropriate. Income is deposited into the business checking account, where business funds stay. All other funds are transferred to and distributed from the personal checking account.

Andrea's lender has notified her of its intent to foreclose. Her loan is secured with a deed of trust. What rights does she have to redeem her property?

Andrea can cure the default and reinstate the loan. The deed of trust gives Andrea the right to cure the default and reinstate the loan, but no rights of redemption after the sale.

Page three of the Loan Estimate includes information about a consumer's right to receive a copy of the ______ from the lender.

Appraisal The consumer's right to receive a copy of the lender-ordered appraisal is described on page three of the Loan Estimate.

Britney is selling her bungalow on an installment contract. The buyer made payments dutifully for five years, but has not made any payments for more than a year. Which of the following is true?

Britney can keep all of the proceeds received and repossess the property. Unlike a traditional mortgage, the buyer doesn't have ownership until the property is completely paid off. Britney can keep all of the proceeds and repossess the property.

How does Farmer Mac support agricultural producers?

By creating a secondary market for agricultural loans, making it possible for agricultural lenders to fund more loans Farmer Mac supports agricultural producers by creating a secondary market for agricultural loans.

Conrad has purchased a home in California and, as a veteran, he's been able to take advantage of the CalVet home loan program. How does this loan program work?

CalVet holds the legal title to the property until the loan is paid off. With a CalVet loan, CalVet holds legal title to the purchased property. The veteran holds equitable title to the property until the loan is paid off.

Brandi is determined to pay off her outstanding credit card debt. She has four credit cards with outstanding balances: Card 1 has $1,500 dollars on it and a 12% rate, Card 2 has $2,000 on it and an 8% rate, Card 3 has $800 on it and a 15% rate, and Card 4 has $330 dollars on it and a 22% rate. Which one should she pay off first?

Card 4 Card 4 has the lowest balance and the highest interest rate of all the cards, so by paying this one off first, Brandi will have one fewer card with outstanding debt the soonest and will reduce what she is paying in interest charges.

A multibillion dollar online retail distributor has decided to set up operations in Ashland. The population of Ashland is 22,000. What is the potential impact to the area?

Community is potentially put at risk. When there is one business that drives the economy, if the company operation moves or closes the community can be put at risk.

Which of the following is a true statement about an IRA?

Contributions to a SEP IRA are pre-tax contributions. Contributions to most IRAs are pre-tax; the Roth IRA is the exception. Taxes on a Roth IRA are paid upfront and no taxes are owed at withdrawal.

River City Bank needs to cut back on lending. For several months, the bank has seen more withdrawals from customers than deposits. This has led to a decrease in deposits typically used for lending. What term can be used to describe what the bank has experienced?

Disintermediation Disintermediation occurs when banks or other financial institutions are seeing more withdrawals than deposits over a long period of time.

Which of the following could an investor who sells an apartment house buy using a 1031 exchange?

Duplex, office building, or warehouse Any of these would be allowed with a 1031 exchange.

The ______ clause protects the borrower's assets that aren't part of the voluntary lien from a deficiency judgment in case of foreclosure.

Exculpatory If a lender uses a judicial foreclosure, it may also ask for a deficiency judgment, unless the exculpatory clause is present in the security instrument.

Which government entity oversees open market operations?

Federal Open Market Committee The Federal Open Market Committee is part of the Fed that's dedicated to oversee the open market operations.

Randall needs some new equipment for his ranching operation, and he needs a loan to purchase the equipment. When he approaches his local bank and applies for a Farm Credit System loan, how is the loan funded?

From the sale of Farm Credit System debt securities The Federal Farm Credit Banks Funding Corporation is responsible for raising money through the sale of Farm Credit System debt securities to fund loans.

Loans create ________ for banks and other financiers.

Future cash income When the principal and interest are returned in monthly payments, there is an increase in regular cash flow.

How and when does a contractor performing work associated with a 203(k) loan receive funds from the lender?

Half is received up front and the other half after the work is completed and approved Half of the money loaned for repairs on a home using a 203(k) loan is given to the contractor up front, and the other half is kept in escrow until the work is completed and approved.

Which of the following best describes the state of the market during the expansion phase of the real estate cycle?

Increases in hiring, employment, and public confidence, and lots of buyers in the market Expansion is when activity starts to really pick up. Companies are hiring, so unemployment decreases. Higher employment means more buyers in the market and more overall public confidence.

Brittany is a real estate licensee with a mortgage loan originator endorsement. When she acts as an MLO, the California Real Property Loan Law requires her to give her clients a disclosure that ______.

Informs the prospective borrower about the terms of the loan being offered The Mortgage Loan Disclosure Statement informs the borrower about the terms of the loan being offered. The licensee must deliver this disclosure to the prospective borrower within three business days of receiving a loan application.

Which of the following best describes an equity real estate investment trust?

Invests in equity by owning income-producing property, such as malls, apartments, or office parks Equity REITs invest in equity. These REITS own income-producing property, such as malls, apartments, or office parks.

Bo's real estate ad states: "Custom homes for sale with scenic mountain views. Easy financing and low down payments." What else must be included in the ad in order for it to comply with TILA?

Nothing Under TILA, ads that mention general financing terms, such as "low down payment" or "easy financing," do not require additional disclosure. If Bo had gotten more specific (e.g., "10-year loan with 0% down") he would need to include more information.

The ______ clause allows the borrower to prepay principal on the loan at any time without penalty.

Prepayment Prepayment clauses are standard in government loans.

Which type of mortgage is seller financing in which the buyer gives a mortgage to the seller toward the purchase price, and which buyers use as down payment financing?

Purchase money mortgage A purchase money mortgage is a type of seller financing in which a mortgage is given by the buyer to the seller toward the purchase price.

Since the FHA was established, it has taken strategic action to stabilize the mortgage market. Which of these items is one of the FHA's strategies?

Reduce lender risk by establishing borrower qualification standards The FHA set standards for borrower qualification and required FHA-approved lenders to use them to approve loans, helping to reduce lender risk.

Monty retired 10 years ago and would like to see the world, but his retirement account won't support his desire to travel. Monty heard of a loan that would allow him to take advantage of the equity in his home by getting monthly payments from the bank with his house as collateral. What is this type of loan called?

Reverse annuity mortgage (RAM) This is a reverse annuity mortgage, where the lender makes payments to the homeowner for a specified period of time and gains collateral ownership. The home is used as collateral and the borrower receives the loan funds.

Hugh works as a loan officer at a bank. Because of the ______, he must be registered with the Nationwide Mortgage Licensing System.

SAFE Act The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 sets a minimum standard for licensing and registering mortgage loan originators through the Nationwide Mortgage Licensing System Registry.