Chapter 13

What happens in a intermediation market?

flow of deposits to lending institutions, creating mortgage money supply

20. How much interest is due on a loan of $8,000 at a rate of 9% for 3 months? (a) $180 (b) $240 (c) $720 (d) $2,000

i=Pxrxt I=8000x.09x3/12(.25) I= $180

What do FHA programs help?

low to moderate income families become homeowners by lowering some of the costs of their mortgage loans.

what are rules on FHA loans for prepayment?

must provided the borrower with the right of repayment without penalty

4. Which group of financial institutions traditionally preferred to make short-term loans for construction? (a) Mutual savings banks (b) Savings associations (c) Life insurance companies using a mortgage broker (d) Commercial banks

(d) Commercial banks

19. Which of the following is required by the Real Estate Settlement Procedures Act (RESPA)? (a) The disclosure of any credit bureau that was used to obtain credit reports which were used as the basis for loan approval or denial. (b) That real estate brokers do not discriminate in the sale or rental of real estate. (c) That developers who are offering lots for sale across state lines be properly registered and make appropriate disclosures. (d) That borrowers be informed of all settlement costs involved in the purchase of a home when funds are obtained from a federally regulated lender.

(a) The disclosure of any credit bureau that was used to obtain credit reports which were used as the basis for loan approval or denial.

11. Interest rates for Federal Housing Administration mortgages are determined by which of the following? (a) The market (b) FHA (c) The government (d) The Congress

(a) The market

23. A buyer purchased a home and arranged financing at an interest rate of 4.5%. At closing the buyer realized that the true interest rate was actually 5.99%. This would be a violation of which of the following legislation? (a) Truth-In-Lending Act (b) Fair Housing Act (c) RESPA (d) Equal Credit Opportunity Act

(a) Truth-In-Lending Act

14. If a mortgage loan payment consists of interest only, what term refers to the final payment which includes the full amount borrowed? (a) Monthly payment (b) Balloon payment (c) Amortized payment (d) Term payment

(b) Balloon payment

12. The Federal National Mortgage Association was originally formed to purchase what type of loans? (a) Conventional (b) FHA (c) VA (d) Deeds of trust

(b) FHA

5. Which of the following statements best describes the secondary mortgage market? (a) It is the market where second mortgages are sold. (b) It is where loans originated in the primary market are sold. (c) It is where loans made only by private parties are sold. (d) It is the market where second mortgages are originated.

(b) It is where loans originated in the primary market are sold.

30. Which of the following entities prefers to lend money for large, long-term, stable property types such as office buildings and shopping centers? (a) Veteran's Administration (b) Life Insurance Company (c) Federal Housing Authority (d) Government National Mortgage Company

(b) Life Insurance Company

16. What is the role of the Federal Housing Administration FHA? (a) Loan origination (b) Loan insurance (c) Loan guarantee (d) Loan certification

(b) Loan insurance they do not make loans they insure

24. All of the following would be considered a "triggering terms," EXCEPT: (a) Interest rates as low as 3.99%! (b) Mortgage is assumable! (c) Only $3,500 down to own this lakefront home! (d) Mortgage payments as low as $349.00 per month!

(b) Mortgage is assumable!

1. Prior to deregulation of the banking industry in the 1980s, which institutions were dominant in providing funds for the purchase of single-family residences? (a) Commercial banks (b) Saving associations (c) The FHA (d) Mortgage loan originators

(b) Saving associations

26. The Federal Reserve has several methods for controlling the money supply. Which of those methods is generally considered to be least effective method? (a) Changing the reserve requirements of member banks (b) Selling government securities and bonds (c) Buying mortgages in the secondary market (d) Adjusting the discount rate

(b) Selling government securities and bonds

27. Which of the following statements accurately describes an FHA 203(b) loan? (a) The interest rate is established by the federal government. (b) The loan cannot contain a penalty clause for pre payment. (c) The seller must pay any discount points charged by the lender. (d) FHA loan terms cannot exceed 15 years.

(b) The loan cannot contain a penalty clause for pre payment.

3. What will be the effect if the Federal Reserve Board decides to purchase government securities in the open market? (a) The money supply will decrease and interest rates will increase. (b) The money supply will increase and interest rates will decrease. (c) The amount of money that member banks may use for loan purposes will be limited, thereby causing interest rates to increase. (d) A tight money market will be created.

(b) The money supply will increase and interest rates will decrease.

7. With an adjustable rate mortgage, if a payment is not sufficient to cover the interest amount due, the unpaid interest amount may be added to the loan balance. What is the term used to describe this situation? (a) Negative amortization (b) Warehousing (c) Indexing (d) Predatory lending

(b) Warehousing

31. All of the following are considered primary mortgage market activities, EXCEPT? (a) A bank approves a home loan for a homeowner. (b) A bank lends money to start construction of a new home. (c) FannieMae (FNMA) purchases mortgage loans made by local banks. (d) A mortgage loan originator (MLO) helps to arrange a loan for a homeowner.

(c) FannieMae (FNMA) purchases mortgage loans made by local banks.

6. How are mortgage loan originators usually compensated for their services? (a) Monthly loan service fee (b) Salary (c) Finder's fee or commission (d) Share of the borrower's assets

(c) Finder's fee or commission

2. What is the major source of funds for large commercial real estate developments? (a) Savings associations (b) Commercial banks (c) Life insurance companies (d) Mutual savings banks

(c) Life insurance companies

10. Which of the following statements regarding types of mortgage loans is correct? (a) Both the FHA and the VA make loans. (b) FHA loans are guaranteed. (c) The FHA insures loans. VA loans are guaranteed. (d) Conventional loans are insured by the government.

(c) The FHA insures loans. VA loans are guaranteed.

25. A mortgage loan in the amount of $50,000 at a rate of 12% has been granted for a period of 30 years, with monthly payments due of $514.31. Based on this information, which of the following statements is NOT correct? (a) The principal amount paid in the 1st monthly payment is $14.31 (b) The principal balance of the mortgage after the 1st monthly payment is $49.985.69 (c) The interest amount paid in the 2nd monthly payment is $14.45 (d) The principal balance of the mortgage after the 2nd monthly payment is $49,971.24

(c) The interest amount paid in the 2nd monthly payment is $14.45

17. All of the following are required by the Real Estate Settlement Procedures Act (RESPA), EXCEPT: (a) Disclosure of a loan estimate of closing costs (b) Use of the Closing Disclosure form at closing (c) Receipt by a borrower of a booklet entitled "Your Home Loan Toolkit" (d) Disclosure of the annual percentage rate (APR)

(d) Disclosure of the annual percentage rate (APR)

13. Gerri has a 15-year loan with monthly payments that remain the same amount for the entire loan period. Which type of mortgage repayment plan does Gerri have? (a) Adjustable rate (b) Indexed (c) Partially amortized (d) Level payment

(d) Level payment

15. Lenders who make conventional loans where the buyer puts down less than a 20% down payment will normally require that the borrower pay which of the following? (a) Up-Front Mortgage Insurance Premium (UFMIP) payments (b) Uninsured Primary Mortgagor Insurance (UPMI) (c) Mortgage Insurance Premium (MIP) payments (d) Private Mortgage Insurance (PMI)

(d) Private Mortgage Insurance (PMI)

9. A blanket mortgage that allows for the release of a single parcel upon payment of a specified sum contains which clause? (a) Defeasance (b) Acceleration (c) Satisfaction (d) Release

(d) Release

28. All of the following are required to obtain a VA loan, EXCEPT: (a) A service related disability. (b) An honorable discharge from a branch of the armed forces. (c) A certificate of eligibility from the VA. (d) The purchase of an owner-occupied residence.

(d) The purchase of an owner-occupied residence.

FHA 203(b)

1-4 units

what is the max. term for FHA loan and is it a fixed rate?

30 years and yes it is a fixed rate.

what is the max.LTV ratio for a FHA loan?

96.5%

what is a credit for eligibility?

A veterans right to VA loan. Veteran must serve for 181 days and during military conflict for 90days as well as a honorably discharge

what amortized loan has interest rates fluctuate over the term of the loan?

Adjustable Rate Mortgage (ARM)

what is the portion that kill the debt?

Amortization

A loan with schedule periodic payments where the loan payments typically include a portion that applies to the interest owned and a portion that goes towards repaying the loan is?

Amortized mortgage

What mortgage is a single mortgage given by a borrower that pledges two or more parcels as security for a loan?

Blanket loan or release clause

What happens in a disintermediation market?

Bypass lending institutions and invest in direct market, thus reducing the mortgage money supply

what is a third party on a closing sheet?

Credit PMM they have to bring the loan on day of closing not the buyer

Payment is sufficient to repay the interest owed and the loan amount in full over the life of the loan is called?

Full loan terms are 15-30 years. Conventional, FHA and VA loans are normally all amortized loans.

what do VA do?

Guarantee loans

Loan payment formula ?

I=PxRxT

29. A $30,000 mortgage loan was originated at an interest rate of 5% with a term of 5 years. The monthly payment is $566.14. What is the principal balance of the loan after the second monthly payment? (a) $28,867.72 (b) $29,115.88 (c) $29,117.72 (d) $29,558.86

I=PxRxT 566.14=Px.05x

22. At a rate of 12%, a loan of $20,000 interest only, level payment, term loan has interest due in the amount of $600. How long has the loan been outstanding? (a) 3 months (b) 6 months (c) 1 year (d) 3 years

I=PxRxT 600=20000x.10xT 600/2000=T .03=T 3 months

21. A $12,000 interest only, level payment, term loan has interest due of $810 after 9 months. What is the rate of interest? (a) 6% (b) 7% (c) 9% (d) 9.25%

I=PxRxT 810=12000xRx9/12(.75) 810=9000xR 810/9000=R .09=R

What do FHA do?

Insure loan and do not have a max. amount they insure the loaner 100%

If they raise reserves requirements?

Less to lend, tight money market

What is a secondary mortgage?

Mortgage bought by another. Fannie Mae or GNMA

is Fannie Mae a primary?

No, secondary. We go to a REIT for primary

What does a package mortgage include?

Real and personal property as a security for the loan

what is FED?

Reserve

What does the reserve ensure?

Safety of the investors money

what are saving accounts (SA)?

Saving associations that are saving accounts (time deposits) and usually loan money primary use to residential loans.

Requirements for FHA loan?

Score of 580, down payment 3.5% of loan 500-579 - 10% of loan under FHA not able to insure loan

what are commercial banks and who do they loan to?

They are the same as stock companies and they make short term loans. they are stockholders and are chartered wither by federal or state gov't

Does VA loan only apply to the vets primary residence?

Yes, and usually does not require a down payment as the gov't is guaranteeing the loan

Does a VA loan have a guarantee & max. amount?

Yes, guarantee amount of 106, 250 and max. amount of 424,100.

8. When does disintermediation occur? (a) When deposits exceed the demand for loans (b) When depositors withdraw their savings from depository institutions (c) When the Internal Revenue Service taxes earnings of investments (d) When the Federal Reserve Board reduces the discount rate

b) When depositors withdraw their savings from depository institutions

what is a demand account?

a checking account

18. If interest for 6 months at a rate of 8% equals $200, what is the principal amount of the loan? (a) $417 (b) $1,200 (c) $2,500 (d) $5,000

amount of loan I=PxRxT 200=Px.08x6/12 200=Px.08x.5 200=Px.04 200/.04=P 5000=P

what happens on closing sheet when the buyer assumes the mortgage?

buyer receives a credit

what is a new money mortgage to a lender?

credit

how would binding deposit show up on the closing sheet?

credit as already paid

when is PMI required?

when loan is greater the 80%