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Suppose you have just purchased your first home for $300,000. At the time of purchase you could only afford to commit to a down-payment of $15,000. In order to make the loan, the lender requires you to obtain private mortgage insurance (PMI) on their behalf. Suppose over time you paid down the principal of the loan to $280,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $228,000, what would the lender's loss of principal be taking into consideration the protection of mortgage insurance? (Let's assume that the PMI in this case covers the top 30% of the loan) A. $0 B. $52,000 C. $57,000 D. $72,000
$0
If the interest rate is 6 percent on a home mortgage loan and the beginning of month balance is $200,000, then the interest payable at the beginning of the next month would be ____.
$1,000
Suppose you have taken out a $400,000 fully amortizing fixed-rate mortgage loan that has a term of 15 years and an interest rate of 3.75%. In month 1 of the mortgage, how much of the monthly mortgage payment does the interest portion consist of?
$1,250.00
You have taken out a $225,000, 3/1 ARM. The initial rate of 5.8% (annual) is locked in for three years and is expected to increase to 6.5% at the end of the lock period. Calculate the initial payment on the loan. (Note: the term on this 3/1 ARM is 30 years.)
$1,320.19
Suppose you are interested in obtaining a mortgage loan for $250,000 in order to purchase your principal residence. Your lender has suggested that you might be interested in taking an FHA loan. In order to do so, you must pay an additional up-front mortgage insurance premium (UFMIP) of 1.0% of the mortgage balance. If the interest rate on the fully amortizing mortgage loan is 5% and the term is 30 years, what is your monthly mortgage payment assuming the UFMIP is financed? $1,342.05 $1,355.47 $1,498.88 $2,500
$1,355.47
Suppose you are interested in taking a mortgage loan for $250,000 in order to purchase your principal residence. Your lender has suggested that you might be interested in taking an FHA loan. In order to do so, you must pay an additional up-front mortgage insurance premium (UFMIP) of 1.0% of the mortgage balance. If the interest rate on the fully-amortizing mortgage loan is 5% and the term is 30 years, what is your monthly mortgage payment assuming the UFMIP is financed? A. $1,342.05 B. $1,355.47 C. $1,498.88 D. $2,500
$1,355.47
You have taken out a $300,000, one-year ARM. The teaser rate in the first year is 5.5% (annual). The index interest rate after the first year is 4.00% and the margin is 2.25%. (Note: The term on this ARM is 30 years.) There is also a periodic (annual) rate cap of 1.00%. Given this information, determine the monthly mortgage payment you would be scheduled to make in month 13 of the mortgage loan's term.
$1,843.88
suppose you have computed the benefit of refinancing using the ling-archer net benefit approach, and have found a gross benefit (before costs) of $15,000. further, assume that you can deduct for income taxes all the mortgage interest you pay, and that your tax rate on additional income (marginal tax rate) is 25 percent. what is your gross benefit of refinancing after taxes? _____ if the cost of refinancing is $10,000, what is your after tax net benefit? _____
$11,250; $1,250
Suppose you have taken out a $125,000 fully amortizing fixed rate mortgage loan that has a term of 15 years and an interest rate of 6%. After your first mortgage payment, how much of the original loan balance is remaining?
$124,570.18
Given the following information on a fixed-rate fully amortizing loan, determine the maximum amount that the lender will be willing to provide to the borrower: loan term: 30 years; monthly payment: $800; interest rate: 6%.
$133,433
Suppose you have obtained a 6%, 30 year fully-amortizing FHA mortgage loan of $152,625 to finance the purchase of your primary residence. In so doing, you must pay an additional mortgage insurance premium (MIP) of 1.10%. If the first-year average loan balance is $151,775.25, determine the first-year monthly insurance premium payment. A. $139.13 B. $1,025.69 C. $1,669.53 D. $1,678.88
$139.13
Suppose you have obtained a 6%, 30-year fully amortizing FHA mortgage loan of $152,625 to finance the purchase of your primary residence. In so doing, you must pay an additional mortgage insurance premium (MIP) of 1.10%. If the first-year average loan balance is $151,775.25, determine the first-year monthly insurance premium payment.
$139.13
Suppose a potential home buyer is interested in taking a $500,000 mortgage loan that has a term of 30 years and a fixed mortgage rate of 5.25%. What is the monthly mortgage payment that the homeowner would need to make if this loan is fully amortizing?
$2,761.02
Suppose you are interested in taking an FHA mortgage loan for $350,000 in order to purchase your principal residence. In order to do so, you must pay an additional up-front mortgage insurance premium (UFMIP) of 1.0% of the mortgage balance. If the interest rate on the fully amortizing mortgage loan is 6% and the term is 30 years and the UFMIP is financed (i.e., it is included in the loan amount), what is the dollar portion of your monthly mortgage payment that is designated to cover the UFMIP?
$20.98
Suppose you are interested in taking an FHA mortgage loan for $350,000 in order to purchase your principal residence. In order to do so, you must pay an additional up-front mortgage insurance premium (UFMIP) of 1.0% of the mortgage balance. If the interest rate on the fully-amortizing mortgage loan is 6% and the term is 30 years and the UFMIP is financed (i.e., it is included in the loan amount), what is the dollar portion of your monthly mortgage payment that is designated to cover the UFMIP? A. $20.98 B. $291.67 C. $2,119.41 D. $3,500.00
$20.98
Suppose you are interested in taking an FHA mortgage loan for $350,000 in order to purchase your principal residence. In order to do so, you must pay an additional up-front mortgage insurance premium (UFMIP) of 1.0% of the mortgage balance. If the interest rate on the fully amortizing mortgage loan is 6% and the term is 30 years and the UFMIP is financed (i.e., it is included in the loan amount), what is the dollar portion of your monthly mortgage payment that is designated to cover the UFMIP?
$20.98 Loan Amount - 350,000 UFMIP (1%) - 3500 Total Loan Amount - 353,500 I/y = 6%/12 = .5 N = 30*12 = 360 PV= -353500 CPT PMT = $2,119.41 Suppose Loan = 100 UFMIP = 1 Loan Amount = 101 Proportionate UFMIP = 2119.41 * (1/101) = 20.98
Assume that a veteran decides to purchase a house for $150,000 using a VA loan that amounts to $44,000. If the buyer were to default on the loan, what is the maximum amount that the VA guarantees the lender?
$22,000
Assume that a veteran decides to purchase a house for $150,000 using a VA loan that amounts to $44,000. If the buyer were to default on the loan, what is the maximum amount that the VA guarantees the lender? $11,000 $22,000 $33,000 $44,000
$22,000
Assume that a veteran decides to purchase a house for $150,000 using a VA loan that amounts to $44,000. If the buyer were to defaults on the loan, what is the maximum amount that the VA guarantees the lender? A. $11,000 B. $22,000 C. $33,000 D. $44,000
$22,000
Assume you have taken out a partially amortizing loan for $325,000 that has a term of 7 years but amortizes over 30 years. Calculate the balloon payment at maturity (year 7) if the interest rate on this loan is 4.5%.
$282,835.42
If a property transaction is scheduled to close on May 14, calculate the individual tax responsibility for the buyer if the total tax owed at the end of the year is $5,000. For this problem, assume that we are dealing with a 365-day calendar year.
$3,178.08
Suppose you have just purchased your first home for $300,000. At the time of purchase you could afford to commit 20% of the purchase price to a down-payment. Suppose over time you paid down the principal of the loan to $220,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $190,000, determine the amount of the loan's principal that the lender was unable to recover due to the default. A. $30,000 B. $50,000 C. $240,000 D. $300,000
$30,000
If the interest charge for the current month for a standard home loan is $1,000.00, and the stated interest rate is 4.0 percent per year, what is the current balance on the loan?
$300,000
You have taken out a $350,000, 3/1 ARM. The initial rate of 6.0% (annual) is locked in for three years. Calculate the outstanding balance on the loan after three years. The interest rate after the initial lock period is 6.5%. (Note: the term on this 3/1 ARM is 30 years.)
$336,294.25
Suppose you are thinking about purchasing a small office building for $1,500,000. The 30-year fixed-rate mortgage that you have arranged covers 80% of the purchase price and has an interest rate of 8%. Assume you were to default and go into foreclosure in year 10 of this loan. If the lender was able to sell this property for $700,000, how much does the lender stand to lose in the absence of PMI?
$352,696
Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 15 years, Current loan balance: $100,000; Current loan interest: 7%; Current loan mortgage payment: $898.33; Remaining term on current mortgage: 15 years; New loan interest: 5.5%; New loan mortgage payment: $817.08; New loan term: 15 years; Cost of refinancing: $$5000. Assume that the opportunity cost is the interest rate on the new loan (5.5%). A. -$5,000.00 B. -$56.52 C. $4,943.48 D. $9,943.48
$4,943.48
Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 15 years; current loan balance: $100,000; current loan interest: 7%; current loan mortgage payment: $898.33; remaining term on current mortgage: 15 years; new loan interest: 5.5%; new loan mortgage payment: $817.08; new loan term: 15 years; cost of refinancing: $5,000. Assume that the opportunity cost is the interest rate on the new loan (5.5%).
$4,943.48
Let's assume that you have just taken out a mortgage loan for $200,000 with an origination fee of 2 points due up-front. The mortgage term is 30 years and the mortgage rate is fixed at 4%. What is the cost of the origination fee in dollar terms?
$4000.00
Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 15 years, Current loan balance: $100,000, Current loan interest: 9 %, New loan interest: 7.5 %, Cost of refinancing: $4,250
$5,163
You have taken out a $100,000, one-year ARM. The teaser rate in the first year is 4.5% (annual). The index interest rate after the first year is 3.25% and the margin is 2.75%. (Note: The term on this ARM is 30 years.) There is also a periodic (annual) rate cap of 1.00%. Given this information, determine the monthly mortgage payment you would be scheduled to make in month 1 of the mortgage loan's term.
$506.69
Assume that a veteran decides to purchase a house for $150,000 using a VA loan. If the buyer defaults on the loan, what is the maximum amount that the VA guarantees the lender?
$60,000
if a borrower's house is worth $200,000, the borrower has a first mortgage balance of $100,000, and a HELOC lender will give a home equity line of credit loan such that the total mortgage balance is 80 percent, then the maximum line of credit will be ____.
$60,000
You have taken out a $350,000, 3/1 ARM. The initial rate of 6.0% (annual) is locked in for three years. Determine the owner's equity in the property after three years if the market value of the property at the end of year 3 is $400,000. The interest rate after the initial lock period is 6.5%. (Note: The term on this 3/1 ARM is 30 years.)
$63,705.75
In a fixed-term, level-payment reverse mortgage, sometimes called a reverse annuity mortgage, or RAM, a lender agrees to pay the homeowner a monthly payment, or annuity, and expects to be repaid from the homeowner's equity when he or she sells the home or obtains other financing to pay off the RAM. Consider a household that owns a $150,000 home free and clear of mortgage debt. The RAM lender agrees to a $100,000 RAM for 10 years at 6 percent. Assume payments are made annually, at the beginning of each year to the homeowner. Calculate the annual payment on the RAM. A. $7,157.35 B. $7,586.80 C. $12,817.73 D. $13,586.80
$7,157.35
In a fixed-term, level-payment reverse mortgage, sometimes called a reverse annuity mortgage, or RAM, a lender agrees to pay the homeowner a monthly payment, or annuity, and expects to be repaid from the homeowner's equity when he or she sells the home or obtains other financing to pay off the RAM. Consider a household that owns a $150,000 home free and clear of mortgage debt. The RAM lender agrees to a $100,000 RAM for 10 years at 6 percent. Assume payments are made annually, at the beginning of each year to the homeowner. Calculate the annual payment on the RAM.
$7,157.35
Suppose you have taken out a $200,000 fully amortizing fixed-rate mortgage loan that has a term of 15 years and an interest rate of 4.25%. In month 2 of the mortgage, how much of the monthly mortgage payment does the principal repayment portion consist of?
$705.51
Given the following information on a 30-year fixed-payment fully amortizing loan, determine the owner's equity in the property after seven years if the market value of the property is $240,000 at the end of year 7: rate: 7%; monthly payment: $1,200.
$75,598.25
Assume you have taken out a partially amortizing loan for $1,000,000 that has a term of seven years but amortizes over 20 years. Calculate the balloon payment if the interest rate on this loan is 9%.
$825,679
Suppose you have a $200,000 home mortgage with a monthly payment of $1,150 and you also have credit card debt of $20,000 with a monthly payment of $300 per month. Interest rates have declined so that your mortgage loan would have a payment of $1,000 if the only change in it were to adopt the market interest rate. Moreover, you can increase your debt to $220,000 and pay off the credit card debt. Your current combined monthly payment is $1,450. To examine the net benefit of refinancing both loans with the $220,000 mortgage, what would be your new payment for the purpose of computing net benefit?
(220,000/200,000) x $1,000
Mortgage originators often offer many types and forms of available residential loans as part of their mortgage menu. However, the predominant form of prime conventional mortgage remains the:
(fixed-rate) level payment mortgage (LPM)
Mortgage originators often offer many types and forms of available residential loans as part of their mortgage menu. However, the predominant form of prime conventional mortgage remains the: A. (fixed-rate) level payment mortgage (LPM) B. adjustable rate mortgage (ARM) C. subprime mortgage D. alt-A mortgage
(fixed-rate) level payment mortgage (LPM)
Mortgage originators often offer many types and forms of available residential loans as part of their mortgage menu. However, the predominant form of prime conventional mortgage remains the
(fixed-rate) level-payment mortgage (LPM).
Mortgage originators often offer many types and forms of available residential loans as part of their mortgage menu. However, the predominant form of prime conventional mortgage remains the (fixed-rate) level-payment mortgage (LPM). adjustable rate mortgage (ARM). subprime mortgage. alt-A mortgage.
(fixed-rate) level-payment mortgage (LPM).
Mortgage originators often offer many types and forms of available residential loans as part of their mortgage menu. However, the predominant form of prime conventional mortgage remains the (fixed-rate) level-payment mortgage (LPM). adjustable rate mortgage (ARM). subprime mortgage. alt-A mortgage.
(fixed-rate) level-payment mortgage (LPM).
characteristics of qualified mortgages include:
- ARM loans must be underwritten to highest rate in first five years - term no longer than 30 years - fully amortizing, with level payments - fees no greater than 3 percent
Why Do We Have To Estimate Market Value? real estate Markets:
- Every property is unique -These HETEROGENEOUS trade in illiquid, highly segmented & informationally ineffecient local markets -Search costs associated with matching buyers and sellers are significant
important programs and contributions of FHA include:
- FHA insurance made possible the first long-term level-payment home loan - an important emerging program of FHA is the home equity conversion mortgage (HECM) program for elder homeowners - the main FHA insurance program for home loans is the section 203 program
2 approaches to Income Evaluation- Discount All Future Cash Flows
- Project net cash flows for a standard holding period (say 10 years) - Discount all future CFs at required yield(discount rate)
variations of the I-O mortgage include:
- a standard I-O but with lender's promise to fund pay off in 5-7 years with a fully amortizing loan - a loan that is I-O for 15 years and then converts to fully amortizing level payment for the remaining term
home buyers usually chose to finance their home with substantial mortgage debt. reasons for this include:
- better diversification of assets - lack of sufficient equity funds - opportunity for beneficial financial leverage
if a refinance decision involves replacing multiple loans with an increased first mortgage loan the solution involves:
- compute the difference between all old payments and all revised payments and proceed as with a single loan replacement - for each old loan, compute the reduction in payment with the new interest rate, keeping all other terms as they were - compute the "old" payment as the sum of all the payments to be replaced
reasons why both net benefit and net present value analysis of refinancing tend to overstate actual benefits include:
- cost of personal time and hassle - income tax effect - risk that rates could decline further
most subprime loans were:
- interest only - 2-28 hybrid - option ARM
the option ARM typically allowed the borrower to select among several choices of payments, including:
- interest only payment - fully amortizing payment - minimum payment resulting is significant negative amortization
some factors that affect the premium charged for PMI include:
- loan-to-value ratio - length of loan term - use of property (owner occupied, rental, second home) - borrower's credit record
home equity credit lines can offer homeowners several advantages over other consumer loans, including:
- longer term - lower interest rate - tax deductible interest
originators of mortgage loans include:
- mortgage brokers - savings and loan associations and credit unions - mortgage banking companies - commercial banks
as the loan-to-value (LTV) of a loan is higher the effective interest cost increases. this can result from multiple factors, including:
- required mortgage insurance above 80 percent LTV - higher cost of a "piggyback" second mortgage - higher interest rate on the first mortgage due to higher risk classification
valid aspects of housing assistance programs include:
- state and local housing agencies make low interest loans to qualified households - the federal housing administration insures home loans for qualified borrowers - the USDA rural housing services makes direct home loans to qualified rural households - the veterans administration guarantees home loans for qualified veterans
characteristics of an interest-only mortgage include:
- the full balance must be paid off at maturity - the regular payment is significantly lower than with the level payment mortgage - payments are strictly interest - the interest rate can be fixed or adjustable
attractions of the hybrid mortgage include:
- the lender faces much lower interest rate risk than with a fixed rate loan - the borrower can expect a rate lower than a standard fixed rate since the fixed term is shorter - the borrower has fixed payments during the early, most budget-sensitive years
factors in the population that compel interest in reverse mortgages include:
- the population of elderly homeowners is growing - a large percentage of elderly homeowners own a house outright, but have low income - most elderly homeowners want to stay in their home as long as possible
initially, qualified mortgages include mainly:
- those meeting the requirement specified in the dodd-frank act - all FHA and VA loans - all conforming conventional loans
two conditions that generally appear to be required before a "trigger event" causes home mortgage defaults are:
- value of housing services falling below the monthly cost - negative equity
whether you should conduct refinancing analysis on a before tax basis or after tax basis depends on two considerations in US income tax law. you should use before tax analysis if:
- you use a standard deduction rather than itemizing deductions - you itemize deductions, but your total deductions, including interest, are little more than the standard deduction
Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 3 years, Current loan balance: $100,000; Current loan interest: 7%; Current loan mortgage payment: $898.33; Remaining term on current mortgage: 15 years; New loan interest: 5.5%; New loan mortgage payment: $817.08; New loan term: 15 years; Cost of refinancing: $5,000. Assume that the opportunity cost is the interest rate on the new loan (5.5%). A. -$5,000.00 B. -$1,155.27 C. $3,844.73 D. $8,844.73
-$1,155.27
Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 3 years; current loan balance: $100,000; current loan interest: 7%; current loan mortgage payment: $898.33; remaining term on current mortgage: 15 years; new loan interest: 5.5%; new loan mortgage payment: $817.08; new loan term: 15 years; cost of refinancing: $5,000. Assume that the opportunity cost is the interest rate on the new loan (5.5%).
-$1,155.27
Who uses Market Value estimates?
-Buyers -Sellers -Corporate acquisitions, mergers or dissolutions -Courts(divorces, eminent domain cases, settlement of estates, bankruptcy) -Mortgage Lenders
How do you determine payback period?
-Find out how much is saved each month by refinancing. -Then divide the cost of refinancing by the amount saved each month.
Which tools do we use with Time Value of Money?
-Future Value(FV) -Present Value(PV) -Net Present value(NPV) -Internal Rate of Return(IRR)
Miscellaneous Income:
-Garage rentals & Parking fees -Laundry and Vending machines -Clubhouse rentals
Vacancy and Collection Loss(VC) is based on:
-Historical experience of subject property -Comparing with competing properties in the market
Why do people prefer present cash flow to future cash flow?
-Investment opportunity -Inflation -Uncertainty
Ways that a lender may respond to a defaulted loan without resorting to foreclosure include all of the following
-Offer credit counseling -Allow short sale to a third party -Defer or forgive some of the past-due payments -Accept a deed in lieu of foreclosure
With Time Value of Money, we want to compare:
-Present cash flows and future cash flows -Our investment options
Valuation calculations are required when a:
-Property acquisition is considered -Structure is: modernized, renovated abandoned, demolished -Site is developed -Property is used as collateral for a loan
The Real Estate Settlement Procedures Act does:
-Requires the use of a standard settlement statement for a mortgage loan closing -Prohibits kickbacks between vendors of closing-related services and lenders -Requires that a borrower receive a good-faith estimate of closing costs shortly after a loan application -Requires that the borrower be able to inspect the closing statement a day before the actual closing
*We will focus on step 6* The 3 approaches to valuation are:
-Sales Comparison Approach -Coast Approach -Income Approach
What is true about mortgage loans for income producing real estate?
-They usually are partially amortizing loans -They often have a prepayment penalty -They often are nonrecourse loans -They can be interest only loans
Assumability
...
Uniform Standards of Appraisal Steps (8):
1. Identify the Appraisal Problem 2.Determine the required scope of work 3.Collect data and describe the property 4.Perform data analysis 5. Determine value of land 6.Apply 3 approaches to valuation 7.Reconcile indicated values from 3 approaches 8.Report Final value estimate
Steps in Sales Comparison Approach: What housing attributes seem to matter most?
1. Lot size 2. House size 3. Age 4. Location
B. secondary mortgage market
1. Mortgage originators can either hold loans in their portfolios or sell them to investors. When a mortgage originator decides to sell mortgages to another institution, this transaction occurs in what is commonly referred to as the: A. primary mortgage market B. secondary mortgage market C. over-the-counter market D. loan origination market
Where Cost Approach is heavily weighted?
1. New buildings 2. Insurance appraisals 3.Specialty buildings
Cost Approach-Types of depreciation:
1. Physical deterioration 2. Functional obsolescence 3. External obsolescence
In selecting from alternative responses to default that are short of foreclosure, the probable order of choices in terms of severity, from mildest to most severe would be:
1. counseling and financial reorganization 2. reduction or postponement of mortgage payments 3. short sale 5. deed in lieu of foreclosure
Ling and Archer offer Net Benefit Analysis, a "short cut" approach to refinance analysis. If the result is positive, refinancing may be beneficial. If it is negative, refinancing is not beneficial. What is the order of the steps involved?
1. determine your current loan payment and how many more months you expect to make the payment 2. recompute your loan payment as if it were at the current market interest rate available to you (change only the interest rate on your loan) 3. find the resulting reduction in your payment and multiply the difference by the number of months you expect to retain the loan 4. compute the costs of refinancing 5. find the difference between the sum of payment reductions and the cost of refinancing
ling and archer offer net benefit analysis, a "short cut" approach to refinance analysis. if the result is positive, refinancing may be beneficial. if it is negative, refinancing is not beneficial. what is the order of the steps involved?
1. determine your current loan payment and how many more months you expect to make the payment 2. recompute your loan payment as if it were at the current market interest rate available to you (change only the interest rate on your loan) 3. find the resulting reduction in your payment and multiply the difference by the number of months you expect to retain the loan 4. compute the costs of refinancing 5. find the difference between the sum of payment reductions and the cost of refinancing
Two Approaches to Income Evaluation:
1.) Direct capitalization (with an "over-all" rate) 2.) Discount all future cash flows(DCF) at required yield(discount rate)
FHA mortgage insurance covers any lender loss after conveyance of title of the property to the U.S. Department of Housing and Urban Development (HUD). FHA mortgage insurance requires two premiums to be paid: the UFMIP (up-mortgage insurance premium) and the MIP (monthly insurance premium). Currently, the UFMIP is what percentage of the loan for normal loans used to purchase a personal residence? A. 1.0% B. 1.5% C. 2.0% D. 4.0%
1.0%
In addition to the UFMIP (up-front mortgage insurance premium), the owner-occupant borrower who decides to use an FHA mortgage loan will normally pay an additional annual mortgage insurance premium (MIP) that depends on the loan-to-value ratio and the term of the loan. For loans with maturity longer than 15 years and a loan to value ratio that is greater than 95 percent, the MIP will be what percentage of the average annual loan balance? A. 0.25% B. 0.50% C. 1.10% D. 1.15%
1.15%
In addition to the UFMIP (up-front mortgage insurance premium), the owner-occupant borrower who decides to use an FHA mortgage loan will normally pay an additional annual mortgage insurance premium (MIP) that depends on the loan-to-value ratio and the term of the loan. For loans with maturity longer than fifteen years and a loan to value ratio that is greater than 95%, the MIP will be what percentage of the average annual loan balance?
1.15%
If property owners fail to pay their taxes in a timely fashion, this can create a first lien on the mortgaged property. In order to protect against this, lenders often require that borrowers add what fraction of their estimated tax bill to their required monthly mortgage payments?
1/12
C. FHA loans require higher credit scores than are needed for prime conventional loans.
10. Federal Housing Administration (FHA) loans differ from conventional loans in a number of ways. All of the following statements regarding FHA loans are true EXCEPT: A. FHA loans are targeted toward first-time homebuyers who are in slightly weaker financial circumstances than the typical prime conventional borrower. B. FHA loans are more tolerant in terms of qualifying debt-to-income ratios C. FHA loans require higher credit scores than are needed for prime conventional loans. D. FHA loans contain lower limits on their maximum size than are available through conforming conventional loans.
If a default goes into a residential borrower's recored it is likely to lower their credit score by at least ____ points.
100
Department of Veterans Affairs (VA) loans can be up to ____ percent of value for qualified veterans.
100 (or 100%)
The maximum loan-to-value ratio on a VA guaranteed loan is
100 percent
The maximum loan-to-value ratio on a VA guaranteed loan is:
100 percent.
The maximum loan-to-value ratio on a VA guaranteed loan is:
100%
A. Level-payment, fully amortizing loan
11. It would be hard to overstate the importance of the Federal Housing Administration (FHA) in the history of housing finance. Which of the following instruments created by the FHA is considered the single most important financial instrument in modern housing finance? A. Level-payment, fully amortizing loan B. Adjustable rate mortgage C. Partially-amortizing balloon loan D. Subprime mortgage loan
D. Reverse mortgage
12. Many older, retired households are considered "house poor." Which of the following forms of loans has been designed to help mitigate this problem by offering additional monthly income to these homeowners in exchange for a portion of their housing equity? A. Purchase-money mortgage (PMM) B. Piggyback Mortgage C. Home equity loan D. Reverse mortgage
B. Shorter terms than other consumer debt
13. In recent years, home equity loans have become a popular form of second mortgage. Their popularity has been a result of all of the following EXCEPT: A. Lower interest rates than other consumer debt B. Shorter terms than other consumer debt C. Tax-favored status D. Aggressive marketing by lenders
B. 5-7 years
14. In contrast to conventional home loans, the interest-only balloon loan requires the borrower to pay off the loan with a "balloon" payment equal to the original balance after: A. 1-5 years B. 5-7 years C. 7-15 years D. 15-30 years
A late fee commonly is charged on a home mortgage loan at a rate of 4 to 5 percent of the overdue payment if the payment is delayed more than ____ days after it is due.
15
Under 2017 U.S. income tax law, it has been estimated that ________ percent of all homeowner households will receive income tax deductions for the home mortgage interest that they pay.
15
A late fee commonly is charged on a home mortgage loan at a rate of 4 to 5 percent of the overdue payment if the payment is delayed more than ____ 15 days
15 days
B. 2 years
15. The hybrid ARM attempts to balance the fixed payment desire of a borrower with the lender's desire to increase interest rates if market rates rise in the future. In its most common form, known as a 2-28, the hybrid ARM will have a fixed-interest rate for: A. 1 year B. 2 years C. 26 years D. 28 years
D. alt-A loans
16. Mortgage loans made to borrowers with normal credit quality, but who lack the necessary documentation of their financial circumstances typically needed to meet conforming mortgage standards would most likely be considered: A. subprime loans B. option ARM loans C. hybrid ARM loans D. alt-A loans
C. Annual percentage rate
17. Since mortgages typically have multiple costs associated with them, a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages. Which of the following measures is a popular tool for comparing the cost of several mortgages? A. Upfront fees B. Contracted interest rate C. Annual percentage rate D. Teaser rate
B. the loan always goes to maturity
18. A common criticism of the annual percentage rate (APR) is that it usually understates the true cost of borrowing. The APR may understate the cost of borrowing because it assumes: A. interest rates will always rise B. the loan always goes to maturity C. the actual life of the loan is shorter than maturity D. upfront fees should be ignored
C. Interest rate spread
19. The refinancing decision is sometimes oversimplified into a few "rules of thumb" that a borrower uses in order to gauge its potential benefits. Which of the following methodologies is criticized for its inability to account for a variation in refinancing benefits due to cost or holding period differences? A. Payback period approach B. Net benefit approach C. Interest rate spread D. Net present value approach
Community Reinvestment Act (CRA)
1977: A congressional act that encourages mortgage originators to actively lend in their communities and that requires financial institutions to evaluate the "fairness" of their lending practices
The hybrid ARM attempts to balance the fixed payment desire of a borrower with the lender's desire to increase interest rates if market rates rise in the future. In a 2-28, the hybrid ARM will have a fixed-interest rate for a) 1 year b) 2 years c) 26 years d) 28 years
2 years
The hybrid ARM attempts to balance the fixed payment desire of a borrower with the lender's desire to increase interest rates if market rates rise in the future. In its most common form, known as a 2-28, the hybrid ARM will have a fixed-interest rate for: A. 1 year B. 2 years C. 26 years D. 28 years
2 years
The hybrid ARM attempts to balance the fixed payment desire of a borrower with the lender's desire to increase interest rates if market rates rise in the future. In its most common form, known as a 2-28, the hybrid ARM will have a fixed-interest rate for:
2 years
C. Government sponsored enterprises
2. Which of the following types of institutions has historically been the largest purchaser of residential mortgages? A. Commercial banks B. Savings and Loans C. Government sponsored enterprises D. Mortgage banking companies
D. Mortgage payment spikes
20. With the arrival of subprime mortgages in recent years, a new kind of "trigger" event became apparent in leading households to default. Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis? A. Death in the family B. Divorce C. Unemployment D. Mortgage payment spikes
C. purchase money mortgage
21. Suppose a buyer agrees to purchase a tract of land for $40,000. The buyer is only able to obtain a mortgage for $32,000. Rather than let the deal fall through, the seller agrees to accept $4,000 in cash and a note from the buyer for the remaining $4,000. This type of transaction is commonly referred to as a: A. conventional loan B. home equity mortgage C. purchase money mortgage D. reverse mortgage
Assume that a veteran decides to purchase a house for $150,000 using a VA loan that amounts to $44,000. If the buyer were to default on the loan, what is the maximum amount that the VA guarantees the lender? $11,000 $22,000 $33,000 $44,000
22,000 50%- 45000 25%-144,000
A. Opportunity cost
22. Suppose a homeowner is reluctant to refinance until he is reasonably sure that interest rates are not going to fall appreciably from where they currently are. In this case, the homeowner appears to be concerned about which of the following costs associated with refinancing? A. Opportunity cost B. Tax consequences C. Default risk D. Upfront fees
C. Piggyback mortgage loans
23. In recent years, mortgage lenders responded to the demand from home buyers who were unable to put 20 percent down on their purchase and were looking to avoid the private mortgage insurance (PMI) requirement that would typically accompany such a loan by developing a second mortgage that is created simultaneously with the first mortgage in an amount of ten percent of the value of the home. This enabled the borrower to obtain 90 percent financing while avoiding the additional cost of PMI. These loans are more commonly referred to as: A. Reverse mortgages B. Home equity loans C. Piggyback mortgage loans D. Subprime mortgage loans
C. Strategic default
24. When a borrower decides to stop making payments on an existing mortgage loan despite having the ability to make payments (typically when the home has lost value), this is more commonly referred to as a(n): A. Equity redemption B. Statutory redemption C. Strategic default D. Reverse mortgage
Private mortgage insurance commonly protects the lender against the first ____ to ____ percent of losses on a mortgage loan due to default.
25 (or twenty-five). 35 (or thirty-five).
D. 80%
25. A conventional mortgage loan is one that is not insured or guaranteed by an agency of the U.S. government. The lender, however, can still pursue a private mortgage insurance (PMI) policy to provide a guarantee for the fulfillment of the borrower's obligations. Typically PMI is required for all loans that have a loan to value (LTV) ratio greater than: A. 20% B. 40% C. 60% D. 80%
private mortgage insurance commonly protects the lender against the first _____ to _____ percent of losses on a mortgage loan due to default.
25; 35
A. 1.0%
26. FHA mortgage insurance covers any lender loss after conveyance of title of the property to the U.S. Department of Housing and Urban Development (HUD). FHA mortgage insurance requires two premiums to be paid: the UFMIP (up-mortgage insurance premium) and the MIP (monthly insurance premium). Currently, the UFMIP is what percentage of the loan for normal loans used to purchase a personal residence? A. 1.0% B. 1.5% C. 2.0% D. 4.0%
D. 1.15%
27. In addition to the UFMIP (up-front mortgage insurance premium), the owner-occupant borrower who decides to use an FHA mortgage loan will normally pay an additional annual mortgage insurance premium (MIP) that depends on the loan-to-value ratio and the term of the loan. For loans with maturity longer than 15 years and a loan to value ratio that is greater than 95 percent, the MIP will be what percentage of the average annual loan balance? A. 0.25% B. 0.50% C. 1.10% D. 1.15%
B. $22,000
28. Assume that a veteran decides to purchase a house for $150,000 using a VA loan that amounts to $44,000. If the buyer were to defaults on the loan, what is the maximum amount that the VA guarantees the lender? A. $11,000 B. $22,000 C. $33,000 D. $44,000
C. $4,943.48
29. Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 15 years, Current loan balance: $100,000; Current loan interest: 7%; Current loan mortgage payment: $898.33; Remaining term on current mortgage: 15 years; New loan interest: 5.5%; New loan mortgage payment: $817.08; New loan term: 15 years; Cost of refinancing: $$5000. Assume that the opportunity cost is the interest rate on the new loan (5.5%). A. -$5,000.00 B. -$56.52 C. $4,943.48 D. $9,943.48
Under RESPA as modified in 2013, the completed Closing Disclosure form must be available for inspection to a mortgage loan applicant ____ business days before the closing date.
3 (or three)
A defaulted borrower who is seeking to obtain a new home mortgage may have to wait as long as:
3 years for an FHA loan. 7 years for a loan going to Fannie Mae or Freddie Mac. 2 years for a VA loan.
A. Conventional home loan
3. Considered the most common type of home loan, which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S. government? A. Conventional home loan B. Federal Housing Administration loan C. Veterans Affairs loan D. Section 203 loan
While a variety of loan terms are available in a lender's mortgage menu, the most common loan term on a level-payment mortgage is
30 years
B. -$1,155.27
30. Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 3 years, Current loan balance: $100,000; Current loan interest: 7%; Current loan mortgage payment: $898.33; Remaining term on current mortgage: 15 years; New loan interest: 5.5%; New loan mortgage payment: $817.08; New loan term: 15 years; Cost of refinancing: $5,000. Assume that the opportunity cost is the interest rate on the new loan (5.5%). A. -$5,000.00 B. -$1,155.27 C. $3,844.73 D. $8,844.73
C. 43 months
31. Suppose that you are in the process of deciding whether or not to refinance your fixed rate mortgage at a lower rate and you are interested in using the payback period rule of thumb to help you in your decision. Your lender has informed you that the cost of refinancing would be $4,300. If your original monthly mortgage payment was $1,250 and your new monthly mortgage payment would be $1,150 after refinancing, determine the payback period. A. 3 months B. 4 months C. 43 months D. 158 months
A. $30,000
32. Suppose you have just purchased your first home for $300,000. At the time of purchase you could afford to commit 20% of the purchase price to a down-payment. Suppose over time you paid down the principal of the loan to $220,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $190,000, determine the amount of the loan's principal that the lender was unable to recover due to the default. A. $30,000 B. $50,000 C. $240,000 D. $300,000
A. $0
33. Suppose you have just purchased your first home for $300,000. At the time of purchase you could only afford to commit to a down-payment of $15,000. In order to make the loan, the lender requires you to obtain private mortgage insurance (PMI) on their behalf. Suppose over time you paid down the principal of the loan to $280,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $228,000, what would the lender's loss of principal be taking into consideration the protection of mortgage insurance? (Let's assume that the PMI in this case covers the top 30% of the loan) A. $0 B. $52,000 C. $57,000 D. $72,000
B. $1,355.47
34. Suppose you are interested in taking a mortgage loan for $250,000 in order to purchase your principal residence. Your lender has suggested that you might be interested in taking an FHA loan. In order to do so, you must pay an additional up-front mortgage insurance premium (UFMIP) of 1.0% of the mortgage balance. If the interest rate on the fully-amortizing mortgage loan is 5% and the term is 30 years, what is your monthly mortgage payment assuming the UFMIP is financed? A. $1,342.05 B. $1,355.47 C. $1,498.88 D. $2,500
A. $20.98
35. Suppose you are interested in taking an FHA mortgage loan for $350,000 in order to purchase your principal residence. In order to do so, you must pay an additional up-front mortgage insurance premium (UFMIP) of 1.0% of the mortgage balance. If the interest rate on the fully-amortizing mortgage loan is 6% and the term is 30 years and the UFMIP is financed (i.e., it is included in the loan amount), what is the dollar portion of your monthly mortgage payment that is designated to cover the UFMIP? A. $20.98 B. $291.67 C. $2,119.41 D. $3,500.00
A. $139.13
36. Suppose you have obtained a 6%, 30 year fully-amortizing FHA mortgage loan of $152,625 to finance the purchase of your primary residence. In so doing, you must pay an additional mortgage insurance premium (MIP) of 1.10%. If the first-year average loan balance is $151,775.25, determine the first-year monthly insurance premium payment. A. $139.13 B. $1,025.69 C. $1,669.53 D. $1,678.88
A. $7,157.35
37. In a fixed-term, level-payment reverse mortgage, sometimes called a reverse annuity mortgage, or RAM, a lender agrees to pay the homeowner a monthly payment, or annuity, and expects to be repaid from the homeowner's equity when he or she sells the home or obtains other financing to pay off the RAM. Consider a household that owns a $150,000 home free and clear of mortgage debt. The RAM lender agrees to a $100,000 RAM for 10 years at 6 percent. Assume payments are made annually, at the beginning of each year to the homeowner. Calculate the annual payment on the RAM. A. $7,157.35 B. $7,586.80 C. $12,817.73 D. $13,586.80
B. conforming conventional loans
4. Created by Congress to promote an active secondary market for home mortgages, Fannie Mae and Freddie Mac purchase loans that meet specific underwriting standards such as loan size, documentation, and payment to income ratio. The loans that Fannie Mae and Freddie Mac are eligible to purchase are commonly referred to as: A. government sponsored loans B. conforming conventional loans C. nonconforming conventional loans D. FHA loans
The right of a lender to pursue a deficiency judgment when a home mortgage loan is sold at foreclosure auction for less than the mortgage balance exists in some _________ states.
40
Suppose that you are in the process of deciding whether or not to refinance your fixed rate mortgage at a lower rate and you are interested in using the payback period rule of thumb to help you in your decision. Your lender has informed you that the cost of refinancing would be $4,300. If your original monthly mortgage payment was $1,250 and your new monthly mortgage payment would be $1,150 after refinancing, determine the payback period. 3 months 4 months 43 months 158 months
43 1250-1150=100 4300/100=43
Suppose that you are in the process of deciding whether or not to refinance your fixed rate mortgage at a lower rate and you are interested in using the payback period rule of thumb to help you in your decision. Your lender has informed you that the cost of refinancing would be $4,300. If your original monthly mortgage payment was $1,250 and your new monthly mortgage payment would be $1,150 after refinancing, determine the payback period.
43 months
Suppose that you are in the process of deciding whether or not to refinance your fixed rate mortgage at a lower rate and you are interested in using the payback period rule of thumb to help you in your decision. Your lender has informed you that the cost of refinancing would be $4,300. If your original monthly mortgage payment was $1,250 and your new monthly mortgage payment would be $1,150 after refinancing, determine the payback period. 3 months 4 months 43 months 158 months
43 months
Suppose that you are in the process of deciding whether or not to refinance your fixed rate mortgage at a lower rate and you are interested in using the payback period rule of thumb to help you in your decision. Your lender has informed you that the cost of refinancing would be $4,300. If your original monthly mortgage payment was $1,250 and your new monthly mortgage payment would be $1,150 after refinancing, determine the payback period. A. 3 months B. 4 months C. 43 months D. 158 months
43 months
The development of Fannie Mae and Freddie Mac established the framework for a liquid secondary market for residential mortgages. In 2018, the share of all residential mortgage loans owned or securitized by Fannie Mae and Freddie Mac approached approximately:
44%
In contrast to conventional home loans, the interest-only balloon loan requires the borrower to pay off the loan with a "balloon" payment equal to the original balance after:
5 to 7 years
The recent emergence of discount brokerage services has had a modest effect on the price of brokerage services. The average commission that a broker could expect to receive today would most likely range between:
5-6%
In contrast to conventional home loans, the interest-only balloon loan requires the borrower to pay off the loan with a "balloon" payment equal to the original balance after: A. 1-5 years B. 5-7 years C. 7-15 years D. 15-30 years
5-7 years
C. lower
5. Since conforming loans can be much more readily bought and sold in the secondary mortgage market, they carry a(n) _______ interest rate than comparable nonconforming loans. A. higher B. equal C. lower D. more volatile
A. (fixed-rate) level payment mortgage (LPM)
6. Mortgage originators often offer many types and forms of available residential loans as part of their mortgage menu. However, the predominant form of prime conventional mortgage remains the: A. (fixed-rate) level payment mortgage (LPM) B. adjustable rate mortgage (ARM) C. subprime mortgage D. alt-A mortgage
Because it is the quickest form of bankruptcy proceeding, and still preserves the mortgage lien of the lender, lenders prefer, if bankruptcy is to happen, that it be a Chapter ____ proceeding.
7 (or seven)
If a default goes into a residential borrower's record, it remains for ____ years.
7 (or seven)
A. Losses due to default on the loan
7. Lenders generally require private mortgage insurance (PMI) for conventional loans over 80 percent of the value of the security property. PMI protects a lender against which of the following? A. Losses due to default on the loan B. Legal threat to the lender's mortgage claim C. Stoppage of mortgage payment after the death of the insured borrower D. Changes in the index rate associated with an adjustable rate mortgage
Given the following information, calculate the effective borrowing cost (EBC): loan amount: $175,000; term: 30 years; interest rate: 7%; payment: $1,164.28; discount points: 1 point; origination fee: $3,250. Assume the loan is held until the end of year 10.
7.4%
D. A "cash-out" refinancing loan
8. Mortgage insurance rates vary with the perceived riskiness of the loan. Which of the following scenarios would result in a higher mortgage insurance premium? A. Lower loan-to-value ratio B. Shorter loan term C. Stronger credit record of the borrower D. A "cash-out" refinancing loan
Given the following information about a fully amortizing loan, calculate the lender's yield (rounded to the nearest tenth of a percent): loan amount: $166,950; term: 30 years; interest rate: 8%; monthly payment: $1,225.00; discount points:
8.2 %
Cancellation of PMI may be allowed after the loan balance is below ____ percent of current market value, and, by law, must be terminated when the loan balance is below ____ of original value.
80 (or eighty). 78 (or seventy-eight).
A conventional mortgage loan is one that is not insured or guaranteed by an agency of the U.S. government. The lender, however, can still pursue a private mortgage insurance (PMI) policy to provide a guarantee for the fulfillment of the borrower's obligations. Typically PMI is required for all loans that have a loan to value (LTV) ratio greater than
80%
A conventional mortgage loan is one that is not insured or guaranteed by an agency of the U.S. government. The lender, however, can still pursue a private mortgage insurance (PMI) policy to provide a guarantee for the fulfillment of the borrower's obligations. Typically PMI is required for all loans that have a loan to value (LTV) ratio greater than 20%. 40%. 60%. 80%.
80%
A conventional mortgage loan is one that is not insured or guaranteed by an agency of the U.S. government. The lender, however, can still pursue a private mortgage insurance (PMI) policy to provide a guarantee for the fulfillment of the borrower's obligations. Typically PMI is required for all loans that have a loan to value (LTV) ratio greater than: A. 20% B. 40% C. 60% D. 80%
80%
A conventional mortgage loan is one that is not insured or guaranteed by an agency of the U.S. government. The lender, however, can still pursue a private mortgage insurance (PMI) policy to provide a guarantee for the fulfillment of the borrower's obligations. Typically PMI is required for all loans that have a loan to value (LTV) ratio greater than
80%.
A conventional mortgage loan is one that is not insured or guaranteed by an agency of the U.S. government. The lender, however, can still pursue a private mortgage insurance (PMI) policy to provide a guarantee for the fulfillment of the borrower's obligations. Typically PMI is required for all loans that have a loan to value (LTV) ratio greater than 20%. 40%. 60%. 80%.
80%.
B. The insurance is paid by the borrower and protects the lender against loss due to borrower default.
9. The Federal Housing Administration (FHA) insures loans made by private lenders that meet FHA's property and credit-risk standards. Which of the following statements concerning FHA insurance is true? A. The insurance is paid by the lender and protects the lender against loss due to borrower default. B. The insurance is paid by the borrower and protects the lender against loss due to borrower default. C. The insurance is paid by the lender and protects the borrower against loss due to lender default. D. The insurance is paid by the borrower and protects the borrower against loss due to lender default.
Default generally becomes considered substantiative when payments have been missed for ____ days. Then the ultimate response of the lender is likely to be ____.
90 (or ninety). foreclosure.
When a mortgage is used as collateral for the issuance of a mortgage-backed security (MBS), the underlying mortgage is said to be "securitized." Approximately what percentage of conventional conforming and FHA or VA loans in the U.S. are being sold into the secondary market and being used as collateral for the issuance of MBS?
90%
The maximum loan-to-value ratio for an FHA loan over $50,000 is approximately
97 percent
The maximum loan-to-value ratio for an FHA loan over $50,000 is approximately:
97 percent.
Considered the most common type of home loan, which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S. government? A) conventional home loan B) Federal Housing Administration loan C) Veterans Affairs loan D) Section 203 loan
A
FHA mortgage insurance covers any lender loss after conveyance of title of the property to the U.S. Department of Housing and Urban Development (HUD). FHA mortgage insurance requires two premiums to be paid: the UFMIP (up-mortgage insurance premium) and the MIP (monthly insurance premium). Currently, the UFMIP is what percentage of the loan for normal loans used to purchase a personal residence? A) 1.0% B) 1.5% C) 2.0% D) 4.0%
A
It would be hard to overstate the importance of the Federal Housing Administration (FHA) in the history of housing finance. Which of the following instruments created by the FHA is considered the single most important financial instrument in modern housing finance? A) level-payment, fully amortizing loan B) adjustable rate mortgage C) partially amortizing balloon loan D) subprime mortgage loan
A
Lenders generally require private mortgage insurance (PMI) for conventional loans over 80% of the value of the security property. PMI protects a lender against which of the following? A) losses due to default on the loan B) legal threat to the lender's mortgage claim C) stoppage of mortgage payment after the death of the insured borrower D) changes in the index rate associated with an adjustable rate mortgage
A
Mortgage originators often offer many types and forms of available residential loans as part of their mortgage menu. However, the predominant form of prime conventional mortgage remains the A) (fixed-rate) level-payment mortgage (LPM). B) adjustable rate mortgage (ARM). C) subprime mortgage. D) alt-A mortgage.
A
Suppose a homeowner is reluctant to refinance until he is reasonably sure that interest rates are not going to fall appreciably from where they currently are. In this case, the homeowner appears to be concerned about which of the following costs associated with refinancing? A) opportunity cost B) tax consequences C) default risk D) upfront fees
A
Suppose you have just purchased your first home for $300,000. At the time of purchase you could afford to commit 20% of the purchase price to a down payment. Suppose over time you paid down the principal of the loan to $220,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $190,000, determine the amount of the loan's principal that the lender was unable to recover due to the default. A) $30,000 B) $50,000 C) $240,000 D) $300,000
A
Suppose you have just purchased your first home for $300,000. At the time of purchase you could only afford to commit to a down payment of $15,000. In order to make the loan, the lender requires you to obtain private mortgage insurance (PMI) on their behalf. Suppose over time you paid down the principal of the loan to $280,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $228,000, what would the lender's loss of principal be taking into consideration the protection of mortgage insurance? (Let's assume that the PMI in this case covers the top 30% of the loan.) A) $0 B) $52,000 C) $57,000 D) $72,000
A
The loan origination market, in which borrowers and lenders come together to provide adequate financing for the purchase of a property, is more commonly referred to as the A) primary mortgage market. B) secondary mortgage market. C) over-the-counter market. D) government-sponsored market.
A
Mortgage insurance rates vary with the perceived riskiness of the loan. Which of the following scenarios would result in a higher mortgage insurance premium?
A "cash-out" refinancing loan
Mortgage insurance rates vary with the perceived riskiness of the loan. Which of the following scenarios would result in a higher mortgage insurance premium? A. Lower loan-to-value ratio B. Shorter loan term C. Stronger credit record of the borrower D. A "cash-out" refinancing loan
A "cash-out" refinancing loan
A partially amortizing loan always will have:
A Balloon Payment
The most internationally oriented index rate for adjustable rate mortgage is:
A LIBOR rate
The most internationally oriented index rate for adjustable rate mortgages is a. Federal home loan bank cost-of-funds index b. Treasury constant maturity rate c. A LIBOR rate d. A home mortgage loan interest rate index e. The wall street journal prime rate
A LIBOR rate
A partially amortizing loan always will have: a. Caps b. Only one states term c. A balloon payment d. A prepayment penalty e. Recourse
A balloon payment
Defeasance clause
A clause that may be contained in commercial mortgages to protect lenders from prepayments in a declining interest rate environment. With defeasance, a borrower who prepays must purchase for the lender a set of U.S. Treasury securities whose coupon payments exactly replicate the cash flows the lender will lose as a result of the prepayment of the mortgage
Constant maturity rates
A common index for ARM home loans. The one-year constant maturity rate, for example, is the average of the market yield, found by survey, on any outstanding U.S. Treasury debt having exactly one year remaining to final repayment, regardless of original maturity
LIBOR
A common index of interest rates for income producing property, the London Interbank Offering Rate is a short-term interest rate for loans among foreign banks based in London
A jumbo loan is
A conventional loan that is too large to be purchased by Fannie Mae or Freddie Mac.
A jumbo loan is:
A conventional loan that is too large to be purchased by Fannie Mae or Freddie Mac.
Chapter 11 bankruptcy
A court supervised "work-out" for a troubled business
Release of liability
A document by which a lender releases a borrower from personal liability on a note
Real Estate Settlement Procedures Act (RESPA)
A federal law requiring lenders to provide information on all costs associated with closing a residential loan within three business days of the loan application, to use the HUD-1 closing statement, to limit required escrow deposits, and to avoid kickbacks on loan-related services
Truth-in-Lending Act (TILA)
A federal law requiring lenders to provide residential loan applicants with estimates of the total finance charges and the annual percentage rate (APR)
Factors in the population that compel interest in reverse mortgages include:
A large percentage of elderly homeowners own a house outright, but have low income. The population of elderly homeowners is growing. Most elderly homeowners want to stay in their home as long as possible.
Deed in lieu of forclosure
A legal instrument issued by defaulting borrowers that transfers all rights they have in a property to the lender. Does not necessarily convey a clean title, just whatever interest the defaulting borrower has at the time of conveyance
Mortgage
A lien on real property as security for a debt. A special contract by which the borrower conveys to the lender a security interest in the mortgaged property
Partially amortizing
A loan alternative in which the outstanding principal is partially repaid over the life of the loan, then fully retired with a larger lump sum "balloon" payment at maturity
Index rate
A market-determined interest rate that is the "moving part" in an adjustable interest rate
Yield maintenance prepayment penalty
A mortgage loan prepayment penalty computed as the present value of interest income to be lost by the lender due to the early prepayment. The idea is to "make whole" the lender. Yield maintenance penalties are found strictly in loans on income-producing properties
Equity of redemption
A period of time allowed by courts in every state that grants delinquent mortgage borrowers the opportunity to make overdue payments and come current on the mortgage before foreclosure is complete
Nonjudicial foreclosure
A process of bringing the property of defaulting borrowers to public sale by the lender or a trustee, outside of the court system. It must follow statutory guidelines, particularly concerning public notices of the sale
Foreclosure
A process to force the public sale of property to satisfy the financial obligations of a delinquent borrower to a lender. The legal purpose is to terminate ownership claims, and any subordinate liens, so that title can go to a buyer
How long is a property exposed to the market?
A reasonable period
Demand clause
A right that permits the lender to demand prepayment of the loan
Short sale
A sale of real property for an amount that is less than the balance owed on the mortgage loan, usually due to financial hardship. Both the lender and the borrower must consent to a short sale. Following a short sale, the borrower still owes the balance of the mortgage debt (after the sale proceeds are applied) to the lender unless the lender agrees to forgive the remaining debt.
Contract for deed
A sales arrangement in which the actual delivery of the deed conveying ownership will not occur until well after the buyer takes possession of the property. This allows the seller to finance the sale through installment payments and to have recourse to the property in case of default by the buyer/borrower
Escrow account
A segregated account held by brokers for the deposit of earnest money (deposit) funds. Also, a trust account of a lender used to pay for property taxes, hazard insurance, or other items on behalf of a borrower
The Real Estate Settlement Procedures Act, requires for virtually every standard home loan
A standard format closing statement for most home mortgage loan closings (the Closing Disclosure form demonstrated in Chapter 13). Presentation of a document explaining closing fees and the Closing Disclosure form. A good-faith estimate of closing costs, specifically, the Loan Estimate form, to be provided within three business days of the loan application. The opportunity to examine the Closing Disclosure at least three days in advance of the loan closing. Prohibition of "kickbacks" and referral fees between the lender and providers of services in connection with the loan closing.
Which of the following acts prohibits discrimination in lending practices on the basis of race, color, religion, national origin, sex, marital status, age, or because all or part of an applicant's income derives from a public assistance program? A) Equal Credit Opportunity Act (ECOA) B) Truth-in-Lending Act (TILA) C) Real Estate Settlement Procedures Act (RESPA) D) Home Ownership and Equity Protection Act (HOEPA)
A) Equal Credit Opportunity Act (ECOA)
When lenders charge discount points (prepaid interest) on a loan, what impact does this have on the loan's yield? A) The yield on the loan will increase. B) The yield on the loan will decrease. C) The yield on the loan will be unaffected. D) The yield on the loan automatically becomes zero.
A) The yield on the loan will increase.
Assume that an individual has just lost his job and has been consistently late paying his bills. The bank recognizes deterioration in the individual's credit score and has notified him that he must pay his home equity line of credit in full. The mortgage clause that makes this possible is known as the A) demand clause. B) insurance clause. C) escrow clause. D) exculpatory clause.
A) demand clause.
Even after a property goes into foreclosure, it is still possible for the borrower to reclaim the property as long as he or she produces the outstanding mortgage balance and all foreclosure costs incurred to that point. In a state such as Georgia, this right only extends to the date of the foreclosure sale. When this occurs, this right is more commonly referred to as A) equity of redemption. B) statutory redemption. C) strategic default. D) substantive default.
A) equity of redemption.
A special contract in which the borrower pledges the mortgaged property as security to the lender is commonly referred to as the A) mortgage (deed of trust). B) listing contract. C) note. D) assignment of mortgage.
A) mortgage (deed of trust).
With most standard home loans, the lender can hold the borrower personally liable in the event of a default. Such loans are commonly referred to as A) recourse loans. B) nonrecourse loans. C) conforming loans. D) nonconforming loans.
A) recourse loans.
In certain states, such as the state of Georgia, there is a temporary transfer of title to the lender at the time the mortgage loan is made. The borrower then would obtain the rights to the title once the loan has been repaid. These states are referred to as A) title theory states. B) lien theory states. C) conforming states. D) nonconforming states.
A) title theory states.
You have taken out a $225,000, 3/1 ARM. The initial rate of 5.8% (annual) is locked in for 3 years and is expected to increase to 6.5% at the end of the lock period. Calculate the initial payment on the loan. (Note: the term on this 3/1 ARM is 30 years) A. $1,320.19 B. $1,422.15 C. $1,874.45 D. $1959.99
A. $1,320.19
Suppose you have taken out a $200,000 fully-amortizing fixed rate mortgage loan that has a term of 15 years and an interest rate of 4.25%. In month 2 of the mortgage, how much of the monthly mortgage payment does the principal repayment portion consist of? A. $705.51 B. $708.33 C. $796.22 D. $799.04
A. $705.51
When lenders charge discount points (prepaid interest) on a loan, what impact does this have on the loan's yield? A. The yield on the loan will increase. B. The yield on the loan will decrease. C. The yield on the loan will be unaffected. D. The yield on the loan automatically becomes zero.
A. The yield on the loan will increase.
10. Partially amortizing mortgage loans require periodic payments of principal, but are not paid off completely over the loan's term to maturity. Instead, the balance of the principal amount is paid at maturity in what is commonly referred to as a: A. balloon payment B. early payment C. up-front payment D. payment cap
A. balloon payment
6. When fully amortizing loans call for equal periodic payments over the life of the loan they are known as: A. level-payment mortgages B. adjustable-rate mortgages C. interest-only mortgages D. early-payment mortgages
A. level-payment mortgages
Probably the best known provision of the Truth-in-Lending Act of 1968 is the required computation of ____ (enter the acronym).
APR
Probably the best known provision of the truth in lending act of 1968 is the required computation of
APR
Under the Equal Credit Opportunity Act (ECOA) which of these practices probably would be prohibited? Asking a woman applicant:
About child bearing plans
If the lender in a standard first mortgage wishes to foreclosure cost effectively, it is crucial to have which clause in the mortgage?
Acceleration Clause
1. The dominant loan type originated and kept by most depository institutions is the
Adjustable rate mortgage
The dominant loan type originated and kept by most depository institutions is the:
Adjustable rate mortgage.
The type of mortgage loan that best fits the asset-liability mix of most depository institutions is a(n):
Adjustable rate mortgage.
Adjustable rate mortgage (ARM)
Alternative mortgage form where the interest rate is tied to an indexed rate over the life of the loan, allowing interest rate risk to be shared by borrowers and lenders
Home Ownership and Equity Protection Act (HOEPA)
An act of Congress that addresses abusive, predatory practices in subprime lending and sets a trigger annual percentage rate (APR) and fee levels at which loans become subject to the law's restrictions
Home Mortgage Disclosure Act (HMDA)
An act of Congress that discourages lenders from avoiding, or redlining, certain neighborhoods in a manner related to minority composition
Assumable loan
An existing loan that can be preserved by a buyer instead of being repaid by the seller when title to the mortgaged property changes hands
Important programs and contributions of FHA include:
An important emerging program of FHA is the home equity conversion mortgage (HECM) program for elder homeowners. The FHA influence was so great in the middle of the 20th century that it influenced housing and subdivision standards across the U.S.. FHA insurance made possible the first long-term level-payment home loan.
Cost-of-funds index
An index for adjustable rate mortgages based on the weighted average of interest rates paid for deposits by thrift institutions (savings and loan associations and savings banks)
Deed of trust
An instrument used instead of a mortgage in some states. The borrower conveys a deed of trust to a trustee, who holds the deed on behalf of both borrower and lender. If the loan obligation is paid off in accordance with the note, the trustee returns the deed to the borrower. But if the borrower (trustor) defaults, the trustee exercises his power of sale to dispose of the property on behalf of the lender
Since mortgages typically have multiple costs associated with them, a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages. Which of the following measures is a popular tool for comparing the cost of several mortgages?
Annual percentage rate
Since mortgages typically have multiple costs associated with them, a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages. Which of the following measures is a popular tool for comparing the cost of several mortgages? A. Upfront fees B. Contracted interest rate C. Annual percentage rate D. Teaser rate
Annual percentage rate
Since mortgages typically have multiple costs associated with them, a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages. Which of the following measures is a popular tool for comparing the cost of several mortgages?:
Annual percentage rate
Required by the Truth-in-Lending Act, the annual percentage rate (APR) is reported by the lender to the borrower on virtually all U.S. home mortgage loans. The APR accounts for all of the following except
Any prepayment of principal to be made on the loan.
Appraisals
Appraisals are performed as part of a federally related transaction and must comply to state standards and be performed by state licensed or certified appraisers
Conforming conventional loans are loans that
Are eligible for purchase by Fannie Mae and Freddie Mac
Conforming conventional loans are loans that:
Are eligible for purchase by Fannie Mae and Freddie Mac.
an existing loan that can be preserved by a buyer instead of being repaid by the seller when title to the mortgaged property changes hands.
Assumable loan
to become legally responsible for an obligation. This occurs by signing a contract, such as a financial note.
Assume liability
A common criticism of the annual percentage rate (APR) is that it usually understates the true cost of borrowing. The APR may understate the cost of borrowing because it assumes A) interest rates will always rise. B) the loan always goes to maturity. C) the actual life of the loan is shorter than maturity. D) upfront fees should be ignored.
B
Assume that a veteran decides to purchase a house for $150,000 using a VA loan that amounts to $44,000. If the buyer were to default on the loan, what is the maximum amount that the VA guarantees the lender? A) $11,000 B) $22,000 C) $33,000 D) $44,000
B
Based on your understanding of the risks associated with different mortgage loan types, which of the following mortgage loans would be considered the safest with respect to default risk? A) subprime mortgage loans B) qualified mortgage loans C) option ARM loans D) alt-A mortgage loans
B
Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 3 years; current loan balance: $100,000; current loan interest: 7%; current loan mortgage payment: $898.33; remaining term on current mortgage: 15 years; new loan interest: 5.5%; new loan mortgage payment: $817.08; new loan term: 15 years; cost of refinancing: $5,000. Assume that the opportunity cost is the interest rate on the new loan (5.5%). A) -$5,000.00 B) -$1,155.27 C) $3,844.73 D) $8,844.73
B
Created by Congress to promote an active secondary market for home mortgages, Fannie Mae and Freddie Mac purchase loans that meet specific underwriting standards such as loan size, documentation, and payment-to-income ratio. The loans that Fannie Mae and Freddie Mac are eligible to purchase are commonly referred to as A) government-sponsored loans. B) conforming conventional loans. C) nonconforming conventional loans. D) FHA loans.
B
In contrast to conventional home loans, the interest-only balloon loan requires the borrower to pay off the loan with a balloon payment equal to the original balance after A) one to five years. B) five to seven years. C) seven to fifteen years. D) fifteen to thirty years.
B
In recent years, home equity loans have become a popular form of second mortgage. Their popularity has been a result of all of the following except A) lower interest rates than other consumer debt. B) shorter terms than other consumer debt. C) tax-favored status. D) aggressive marketing by lenders.
B
Mortgage loans that allow the borrower to switch among a variety of payment arrangements throughout the life of the loan are more commonly referred to as A) subprime loans. B) option ARM loans. C) hybrid ARM loans. D) alt-A loans.
B
Mortgage originators can either hold loans in their portfolios or sell them to investors. When a mortgage originator decides to sell mortgages to another institution, this transaction occurs in what is commonly referred to as the A) primary mortgage market. B) secondary mortgage market. C) over-the-counter market. D) loan origination market.
B
The Dodd-Frank Wall Street Reform and Consumer Protection Act created an important new class of home mortgages that is aimed at helping mortgage lenders implement an "ability to repay" standard imposed by the law. These mortgages are more commonly referred to as A) subprime mortgage loans. B) qualified mortgage loans. C) hybrid mortgage loans. D) alt-A mortgage loans.
B
The Federal Housing Administration (FHA) insures loans made by private lenders that meet FHA's property and credit-risk standards. Which of the following statements concerning FHA insurance is true? A) The insurance is paid by the lender and protects the lender against loss due to borrower default. B) The insurance is paid by the borrower and protects the lender against loss due to borrower default. C) The insurance is paid by the lender and protects the borrower against loss due to lender default. D) The insurance is paid by the borrower and protects the borrower against loss due to lender default.
B
The hybrid ARM attempts to balance the fixed payment desire of a borrower with the lender's desire to increase interest rates if market rates rise in the future. In its most common form, known as a 2-28, the hybrid ARM will have a fixed-interest rate for A) one year. B) two years. C) twenty-six years. D) twenty-eight years.
B
Suppose a potential home buyer is interested in taking a $500,000 mortgage loan that has a term of 30 years and a fixed mortgage rate of 5.25%. What is the monthly mortgage payment that the homeowner would need to make if this loan is fully amortizing? A) $552.50 B) $2,761.02 C) $17,820.72 D) $33,458.47
B) $2,761.02
You have taken out a $100,000, one-year ARM. The teaser rate in the first year is 4.5% (annual). The index interest rate after the first year is 3.25% and the margin is 2.75%. (Note: The term on this ARM is 30 years.) There is also a periodic (annual) rate cap of 1.00%. Given this information, determine the monthly mortgage payment you would be scheduled to make in month 1 of the mortgage loan's term. A) $321.64 B) $506.69 C) $567.79 D) $599.55
B) $506.69
Based on your understanding of the relation between the various types of bankruptcy and the foreclosure process, which of the following types of bankruptcy would you expect to be least harmful to a lender's mortgage interest? A) Chapter 1 bankruptcy B) Chapter 7 bankruptcy C) Chapter 11 bankruptcy D) Chapter 13 bankruptcy
B) Chapter 7 bankruptcy
Known popularly by its section in the Federal Bankruptcy Code, which of the following types of bankruptcy is the traditional form of bankruptcy wherein the court simply liquidates the assets of the debtor and distributes the proceeds to creditors in proportion to their share of total claims? A) Chapter 1 bankruptcy B) Chapter 7 bankruptcy C) Chapter 11 bankruptcy D) Chapter 13 bankruptcy
B) Chapter 7 bankruptcy
Congress has enacted a number of regulations that have established criteria for evaluating home loan applicants and mandating disclosures in the origination of home loans. Which of the following congressional acts requires important disclosures concerning the cost of consumer credit, including the computation of the annual percentage rate (APR)? A) Equal Credit Opportunity Act (ECOA) B) Truth-in-Lending Act (TILA) C) Real Estate Settlement Procedures Act (RESPA) D) Home Ownership and Equity Protection Act (HOEPA)
B) Truth-in-Lending Act (TILA)
In certain states, such as the state of Florida, the transfer of title to the lender does not occur until the borrower defaults. These states are referred to as A) title theory states. B) lien theory states. C) conforming states. D) nonconforming states.
B) lien theory states.
When a buyer acquires a property having an existing mortgage loan, a decision must be made as to whether or not the subsequent owner of the property can preserve the loan. If the buyer does not add his or her signature to the note, the buyer does not take on any personal liability. In this case, the buyer is said to A) assume the old loan. B) purchase the property subject to the existing loan. C) obtain the property through the use of a contract for deed. D) foreclose on the property.
B) purchase the property subject to the existing loan.
In addition to numerous congressional acts that focus more on national regulation, laws have been created that affect the practice of home mortgage lending at a community or neighborhood level. For example, laws have been enacted to prevent lenders from avoiding certain neighborhoods without regard to the merits of the individual loan applications, a practice more commonly referred to as A) rescinding. B) redlining. C) assuming. D) holdout.
B) redlining.
Even after a property goes into foreclosure, it is still possible for the borrower to reclaim the property as long as he or she produces the outstanding mortgage balance and all foreclosure costs incurred to that point. In a state such as Florida, this right may even extend beyond the date of the foreclosure sale. When this occurs, this right is more commonly referred to as A) equity of redemption. B) statutory redemption. C) strategic default. D) substantive default.
B) statutory redemption.
Most adjustable rate mortgage (ARM) loans have been marketed with a temporarily reduced interest rate commonly referred to as a A) rate cap. B) teaser rate. C) payment cap. D) prepayment rate.
B) teaser rate.
The difference between judicial foreclosure and power of sale in the treatment of defaulted mortgages can be significant. All of the following statements regarding power of sale are true except A) the power of sale treatment is faster than judicial foreclosure. B) the foreclosed property is typically sold through a public auction administered by the court. C) it is less costly for power of sale to be employed than judicial foreclosure. D) typically, lenders must give proper legal notice to the borrower, advertise the sale property, and allow a required passage of time before the sale.
B) the foreclosed property is typically sold through a public auction administered by the court.
Suppose a potential home buyer is interested in taking a $500,000 mortgage loan that has a term of 30 years and a fixed mortgage rate of 5.25%. What is the monthly mortgage payment that the homeowner would need to make if this loan is fully amortizing? A. $552.50 B. $2,761.02 C. $17,820.72 D. $33,458.47
B. $2,761.02
Given the following information on an interest-only mortgage, calculate the monthly mortgage payment. Loan amount: $56,000, Term: 15 years, Interest Rate: 7.5%. A. $169.13 B. $350 C. $519.13 D. $4,200
B. $350
8. Recently, 15-year mortgages have increased in popularity amongst both borrowers and lenders. Which of the following groups of borrowers would typically be the least interested in a 15-year mortgage? A. Mature households with minimal financial constraints B. First-time homebuyers C. Homeowners who are refinancing to obtain a lower rate than is available on a comparable 30-year mortgage D. Homeowners who are interested in selling their property within five years
B. First-time homebuyers
14. To encourage borrowers to accept adjustable rate mortgages (ARMs) rather than level-payment mortgages, mortgage originators generally offer an initial short-term introductory rate that is less than the prevailing market mortgage rate. This rate is referred to as a(n): A. margin rate B. teaser rate C. index rate D. discount rate
B. teaser rate
One reason why adjustable-rate mortgages (ARMs) have become popular has to do with the impact that they have on the interest rate risk that is borne by the parties involved. If interest rates were to rise on a level-payment mortgage (LPM) the interest rate risk of the loan would typically be borne by: A. the borrower only B. the lender only C. both the borrower and lender D. neither the borrower nor the lender
B. the lender only
15. The APR can be a controversial measure of borrowing cost because it tends to: A. overstate the true borrowing cost by assuming we hold mortgage until maturity B. understate the true borrowing cost by assuming we hold mortgage until maturity C. overstate the true borrowing cost by assuming we do not hold mortgage until maturity D. understate the true borrowing cost by assuming we do not hold mortgage until maturity
B. understate the true borrowing cost by assuming we hold mortgage until maturity
loan characterized by an amortization term that is longer than the loan term. Because the loan balance will not be zero at the end of the loan term, a balloon payment is necessary to pay off the remaining loan balance in full.
Balloon loan
A common risk that frequently interferes with a lender's efforts to work out a defaulted loan through either nonforeclosure means or foreclosure is:
Bankruptcy
On an adjustable rate mortgage, do borrowers always prefer smaller (i.e. tighter) rate caps that limit the amount the contract interest rate can increase in any given year or over the life if the loan? Explain why or why not.
Borrowers preferences are influenced by their expectations of future interest rates. For example, borrowers may prefer wider caps if they believe interest rates will not increase substantially. In this scenario, the loan interest rate will be lower because the borrower, not the lender, bears the risk of interest rates increasing.
As an agent for the buyer or seller, a broker has 6 basic fiduciary responsibilities. Which of the following definitions best describes the responsibility of "Obedience"?
Broker must follow the instructions of the principal to the limits of what is legal and ethical.
Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 15 years; current loan balance: $100,000; current loan interest: 7%; current loan mortgage payment: $898.33; remaining term on current mortgage: 15 years; new loan interest: 5.5%; new loan mortgage payment: $817.08; new loan term: 15 years; cost of refinancing: $5,000. Assume that the opportunity cost is the interest rate on the new loan (5.5%). A) -$5,000.00 B) -$56.52 C) $4,943.48 D) $9,943.48
C
Federal Housing Administration (FHA) loans differ from conventional loans in a number of ways. All of the following statements regarding FHA loans are true except A) FHA loans are targeted toward first-time homebuyers who are in slightly weaker financial circumstances than the typical prime conventional borrower. B) FHA loans are more tolerant in terms of qualifying debt-to-income ratios. C) FHA loans require higher credit scores than are needed for prime conventional loans. D) FHA loans contain lower limits on their maximum size than are available through conforming conventional loans.
C
In recent years, mortgage lenders responded to the demand from home buyers who were unable to put 20% down on their purchase and were looking to avoid the private mortgage insurance (PMI) requirement that would typically accompany such a loan by developing a second mortgage that is created simultaneously with the first mortgage in an amount of 10% of the value of the home. This enabled the borrower to obtain 90% financing while avoiding the additional cost of PMI. These loans are more commonly referred to as A) reverse mortgages. B) home equity loans. C) piggyback mortgage loans. D) subprime mortgage loans.
C
Since conforming loans can be much more readily bought and sold in the secondary mortgage market, they carry a(n) ________ interest rate than comparable nonconforming loans. A) higher B) equal C) lower D) more volatile
C
Since mortgages typically have multiple costs associated with them, a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages. Which of the following measures is a popular tool for comparing the cost of several mortgages? A) upfront fees B) contracted interest rate C) annual percentage rate D) teaser rate
C
Suppose a buyer agrees to purchase a tract of land for $40,000. The buyer is only able to obtain a mortgage for $32,000. Rather than let the deal fall through, the seller agrees to accept $4,000 in cash and a note from the buyer for the remaining $4,000. This type of transaction is commonly referred to as a A) conventional loan. B) home equity mortgage. C) purchase money mortgage. D) reverse mortgage.
C
Suppose that you are in the process of deciding whether or not to refinance your fixed rate mortgage at a lower rate and you are interested in using the payback period rule of thumb to help you in your decision. Your lender has informed you that the cost of refinancing would be $4,300. If your original monthly mortgage payment was $1,250 and your new monthly mortgage payment would be $1,150 after refinancing, determine the payback period. A) 3 months B) 4 months C) 43 months D) 158 months
C
The refinancing decision is sometimes oversimplified into a few rules of thumb that a borrower uses in order to gauge its potential benefits. Which of the following methodologies is criticized for its inability to account for a variation in refinancing benefits due to cost or holding period differences? A) payback period approach B) net benefit approach C) interest rate spread D) net present value approach
C
When a borrower decides to stop making payments on an existing mortgage loan despite having the ability to make payments (typically when the home has lost value), this is more commonly referred to as a(n) A) equity redemption. B) statutory redemption. C) strategic default. D) reverse mortgage.
C
Which of the following types of institutions has historically been the largest purchaser of residential mortgages? A) commercial banks B) savings and loans C) government-sponsored enterprises D) mortgage banking companies
C
Suppose you have taken out a $125,000 fully amortizing fixed rate mortgage loan that has a term of 15 years and an interest rate of 6%. After your first mortgage payment, how much of the original loan balance is remaining? A) $1,054.82 B) $120,603.78 C) $124,570.18 D) $124,875.56
C) $124,570.18
Assume you have taken out a partially amortizing loan for $325,000 that has a term of 7 years but amortizes over 30 years. Calculate the balloon payment at maturity (year 7) if the interest rate on this loan is 4.5%. A) $1,646.73 B) $118,468.21 C) $282,835.42 D) $324,572.02
C) $282,835.42
Added to the index of the adjustable rate is a margin, which is the lender's markup. For standard adjustable rate mortgage (ARM) loans, the average industry margin has been stable at approximately A) 75 basis points. B) 175 basis points. C) 275 basis points. D) 375 basis points.
C) 275 basis points.
While a variety of loan terms are available in a lender's mortgage menu, the most common loan term on a level-payment mortgage is A) 7 years. B) 15 years. C) 30 years. D) 40 years.
C) 30 years.
Given the following information, calculate the effective borrowing cost (rounded to the nearest tenth of a percent): loan amount: $166,950; term: 30 years, interest rate: 8%; monthly payment: $1,225.00; discount points: 2; other closing expenses: $3,611. A) 7.7% B) 8.2% C) 8.5% D) 9.1%
C) 8.5%
The risk of bankruptcy tends to travel with the risk of foreclosure since both can result from financial distress. Known popularly by its section in the Federal Bankruptcy Code, which of the following types of bankruptcy is a court-supervised workout for a troubled business? A) Chapter 1 bankruptcy B) Chapter 7 bankruptcy C) Chapter 11 bankruptcy D) Chapter 13 bankruptcy
C) Chapter 11 bankruptcy
A significant number of mortgage loans use adjustable interest rates, in which the interest rate of the loan is tied to an index rate that fluctuates over time. For income-producing property, the most common index rate is the A) one-year U.S. Treasury constant maturity rate. B) prime rate. C) London Interbank Offered Rate (LIBOR). D) cost-of-funds index.
C) London Interbank Offered Rate (LIBOR).
Certain mortgage loans contain a due-on-sale clause, which gives the lender the right to terminate the loan at sale of the property. Which of the following types of loans is the most likely to contain a due-on-sale clause? A) Federal Housing Administration (FHA) loan B) Veterans Affairs (VA) loan C) conventional home loan D) an assumable home loan
C) conventional home loan
When a borrower defaults on the payment requirements of a loan, there are several options that the lender has at its disposal. When the lender allows the borrower simply to convey the property to the lender rather than pursue a court-supervised process of terminating all of the borrower's claims of ownership of the property, this is commonly referred to as A) bankruptcy. B) foreclosure. C) deed in lieu of foreclosure. D) equity right of redemption.
C) deed in lieu of foreclosure.
For most mortgage loans on commercial real estate, the right of prepayment is constrained through a prepayment penalty. Which of the following types of prepayment penalties requires a borrower to provide the lender with some combination of U.S. Treasury securities that will serve to replace the cash flows of the loan being paid off? A) yield-maintenance prepayment penalties B) prepayment lockout C) defeasance prepayment penalty D) curtailment penalty
C) defeasance prepayment penalty
Because the mortgage conveys a complex claim for a long period of time, clauses are included in anticipation of possible future complications. Which of the following clauses requires a borrower to make monthly deposits into an account in order to pay obligations such as property taxes, community association fees, or causality insurance premiums? A) demand clause B) insurance clause C) escrow clause D) exculpatory clause
C) escrow clause
Foreclosure is considered the ultimate recourse of the lender because it allows the lender to bring about sale of the property to recover the outstanding indebtedness. All of the following statements regarding foreclosure are true except A) foreclosure is a costly process for all parties involved. B) only those claimants who are properly notified and engaged in the foreclosure suit can lose their claims to the property. C) when a lender forecloses on a property, it extinguishes all superior liens, bringing about a free and clear sale of the property. D) the net recovery by a lender from a foreclosed loan seldom exceeds 80% of the outstanding loan balance and commonly is much less than this amount.
C) when a lender forecloses on a property, it extinguishes all superior liens, bringing about a free and clear sale of the property.
Suppose you have taken out a $125,000 fully-amortizing fixed rate mortgage loan that has a term of 15 years and an interest rate of 6%. After your first mortgage payment, how much of the original loan balance is remaining? A. $1,054.82 B. $120,603.78 C. $124,570.18 D. $124,875.56
C. $124,570.18
Given the following information on a 30-year fixed-payment fully-amortizing loan, determine the remaining balance that the borrower has at the end of seven years. Interest Rate: 7%, Monthly Payment: $1,200. A. $17,143 B. $79,509 C. $164,402 D. $180,369
C. $164,402
29. Assume you have taken out a partially amortizing loan for $325,000 that has a term of 7 years, but amortizes over 30 years. Calculate the balloon payment at maturity (Year 7) if the interest rate on this loan is 4.5%. A. $1,646.73 B. $118,468.21 C. $282,835.42 D. $324,572.02
C. $282,835.42
23. You have taken out a $350,000, 3/1 ARM. The initial rate of 6.0% (annual) is locked in for 3 years. Calculate the outstanding balance on the loan after 3 years. The interest rate after the initial lock period is 6.5%. (Note: the term on this 3/1 ARM is 30 years) A. $2,098.43 B. $2,183.95 C. $336,294.25 D. $347,901.57
C. $336,294.25
Let's assume that you have just taken out a mortgage loan for $200,000 with an origination fee of 2 points due upfront. The mortgage term is 30 years and the mortgage rate is fixed at 4%. What is the cost of the origination fee in dollar terms? A. $400.00 B. $954.83 C. $4000.00 D. $4954.83
C. $4000.00
Given the following information, calculate the balloon payment for a partially amortized mortgage. Loan amount: $84,000, Term to maturity: 7 years, Amortization Term: 30 years, Interest rate: 4.5%, Monthly Payment: $425.62. A. $9,458 B. $30,620 C. $73,102 D. $84,000
C. $73,102
7.While a variety of loan terms are available in a lender's mortgage menu, the most common loan term on a level-payment mortgage is: A. 7 years B. 15 years C. 30 years D. 40 years
C. 30 years
Given the following information about a fully amortizing loan, calculate the lender's yield (rounded to the nearest tenth of a percent). Loan amount: $166,950, Term: 30 years, Interest rate: 8 %, Monthly Payment: $1,225.00, Discount points: 2. A. 7.7% B. 8.0% C. 8.2 % D. D.10.0 %
C. 8.2 %
21. Given the following information, calculate the effective borrowing cost (rounded to the nearest tenth of a percent). Loan amount: $166,950, Term: 30 years, Interest rate: 8 %, Monthly Payment: $1,225.00, Discount points: 2, Other Closing Expenses: $3,611. A. 7.7% B. 8.2% C. 8.5% D. 9.1%
C. 8.5%
Required by the Truth-in-Lending Act, the annual percentage rate (APR) is reported by the lender to the borrower on virtually all U.S. home mortgage loans. The APR accounts for all of the following EXCEPT: A. All finance charges in connection with the loan, such as discount points, origination fees, and underwriting fees. B. All compensation to the originating brokers if one was used by the borrower. C. Any prepayment of principal to be made on the loan. D. Premiums for required forms of insurance.
C. Any prepayment of principal to be made on the loan.
Assume that a borrower has a choice between two comparable fixed-rate mortgage loans with the same interest rate, but different mortgage terms, one being a 30-year mortgage and the other a 15- year mortgage. Under financially unconstrained circumstances, which of the following statements best describes the borrower's preference? A. The borrower would prefer the 30-year mortgage. B. The borrower would prefer the 15-year mortgage. C. The borrower would be indifferent between the two mortgages. D. The borrower is unable to compare mortgage loans of two different maturities.
C. The borrower would be indifferent between the two mortgages.
12. In considering a 3/1 adjustable-rate mortgage (ARM), the interest rate will be fixed for how many years? A. One year B. Two years C. Three years D. Four years
C. Three years
Overall caps
Caps on adjustable rate mortgages that limit interest rate changes over the life of the loan
Market Value is paid in:
Cash or its equivalent
a court supervised "work-out" for a troubled business.
Chapter 11 bankruptcy
similar to chapter 11, but applies to a household, that allows the petitioner to propose a repayment plan to the court.
Chapter 13 bankruptcy
Match the bankruptcy title to the description.
Chapter 7 - traditional bankruptcy where the debtor's unincumbered assets are divided among unsecured creditors in proportion to each creditor's claim. Chapter 11 - Court supervised workout of a troubled business. Creditors must accept a workout plan from the debtor and court. Chapter 13 - Court supervised workout of a troubled household. Creditors must accept a workout plan from the debtor and court.
the traditional form of bankruptcy wherein the court simply liquidates the assets of the debtor and distributes the proceeds to creditors in proportion to their share of the total claims.
Chapter 7 bankruptcy
From a home mortgage lender's perspective, which statement is true about the effect of bankruptcy upon foreclosure?
Chapter 7 bankruptcy is the most "lender friendly" form
From a home mortgage lender's perspective, which statement is true about the effect of bankruptcy upon foreclosure? a. Chapter 7 bankruptcy is the most "lender friendly" form b. Chapter 11 bankruptcy is the most "lender friendly" form c. Chapter 13 bankruptcy is the most "lender friendly" form d. All forms of bankruptcy are equally devastating to a lender's efforts to foreclose e. No form of bankruptcy causes serious problems for a lender seeking to foreclose a mortgage
Chapter 7 bankruptcy is the most "lender friendly" form
Lenders prefer Chapter 7 bankruptcy over both Chapter 11 and Chapter 13. A major reason is:
Chapter 7 is much faster, avoiding delays in recovery of funds and neglect of the property
Prepayment penalty
Charges, designed to discourage prepayment, incurred when a mortgage is repaid before maturity
Acceleration clause
Clause that makes all future payments due upon a single default of a loan. Prevents lender from having to sue for each payment once a single payment is late
Mortgage banking companies:
Collect monthly payments and forward them to the mortgage investor.
Which residential mortgage lender tends to require a demand clause in certain common types of home mortgage loans?
Commercial bank
a congressional act that encourages mortgage originators to actively lend in their communities and that requires financial institutions to evaluate the "fairness" of their lending practices.
Community Reinvestment Act (CRA)
Created by Congress to promote an active secondary market for home mortgages, Fannie Mae and Freddie Mac purchase loans that meet specific underwriting standards such as loan size, documentation, and payment-to-income ratio. The loans that Fannie Mae snd Freddie Mac are eligible to purchase are commonly referred to as:
Conforming Conventional loans
Distinguish between conforming and nonconforming residential mortgage loans and explain the importance of the difference.
Conforming residential loans meet the standards required for purchase in the secondary market by Fannie Mae or Freddie Mac. Conforming loans have significantly greater liquidity in the secondary market, and consequently require a lower interest rate.
the second action of "Dodd-Frank" was to drastically alter regulation of home mortgage lending by creating this.
Consumer Financial Protection Bureau (CFPB)
a sales arrangement in which the actual delivery of the deed conveying ownership will not occur until well after the buyer takes possession of the property. This allows the seller to finance the sale through installment payments and to have recourse to the property in case of default by the buyer/borrower.
Contract for deed
Considered the most common type of loan, which of the following refers to any standard home loan that is not insured or guaranteed by agency of the US government?
Conventional Home loan
Replacement cost is often used for:
Cost Approach
an index of adjustable rate mortgages based on the weighted average of interest rates paid for deposits by thrift institutions (savings and loan associations and savings banks).
Cost-of-funds index
For home mortgage lending, important results of the dodd frank of 2010 include
Creating the CFPG, Creating the standard of qualified mortgages, integrating all consumer proection regulation concerning home mortgages under a single agency.
For home mortgage lending, important results of the Dodd-Frank of 2010 include
Creating the standard of "Qualified Mortgages". Integrating all consumer protection regulation concerning home mortgages under a single agency. Creating the CFPB (Consumer Financial Protection Bureau).
A conventional mortgage loan is one that is not insured or guaranteed by an agency of the U.S. government. The lender, however, can still pursue a private mortgage insurance (PMI) policy to provide a guarantee for the fulfillment of the borrower's obligations. Typically PMI is required for all loans that have a loan to value (LTV) ratio greater than A) 20%. B) 40%. C) 60%. D) 80%.
D
In addition to the UFMIP (up-front mortgage insurance premium), the owner-occupant borrower who decides to use an FHA mortgage loan will normally pay an additional annual mortgage insurance premium (MIP) that depends on the loan-to-value ratio and the term of the loan. For loans with maturity longer than fifteen years and a loan to value ratio that is greater than 95%, the MIP will be what percentage of the average annual loan balance? A) 0.25% B) 0.50% C) 1.10% D) 1.15%
D
Many older, retired households are considered "house poor." Which of the following forms of loans has been designed to help mitigate this problem by offering additional monthly income to these homeowners in exchange for a portion of their housing equity? A) purchase-money mortgage (PMM) B) piggyback mortgage C) home equity loan D) reverse mortgage
D
Mortgage insurance rates vary with the perceived riskiness of the loan. Which of the following scenarios would result in a higher mortgage insurance premium? A) lower loan-to-value ratio B) shorter loan term C) stronger credit record of the borrower D) a "cash-out" refinancing loan
D
Mortgage loans made to borrowers with normal credit quality but lacking the necessary documentation of their financial circumstances typically needed to meet conforming mortgage standards would most likely be considered A) subprime loans. B) option ARM loans. C) hybrid ARM loans. D) alt-A loans.
D
To be considered a qualified mortgage, the loan must have specific features and meet designated underwriting requirements. Based on your understanding of what constitutes a qualified mortgage, all of the following features describe a qualified mortgage except A) the loan cannot exceed thirty years in maturity. B) the loan cannot have fees in excess of 3% (if the loan is greater than $100,000). C) the loan cannot have a debt-to-income ratio greater than 43%. D) the loan does not require verification of underwriting information from third-party records.
D
With the arrival of subprime mortgages in recent years, a new kind of trigger event became apparent in leading households to default. Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis? A) death in the family B) divorce C) unemployment D) mortgage payment spikes
D
You have taken out a $300,000, 5/1 ARM. The initial rate of 5.4% (annual) is locked in for five years. Calculate the payment after recasting the loan (i.e., after the reset) assuming the interest rate after the initial lock period is 8.0%. (Note: the term on this 5/1 ARM is 30 years.) A) $1,684.59 B) $1,784.79 C) $1,887.75 D) $2,138.02
D) $2,138.02
Violations of the requirements of a note that do not disrupt the payments on the loan tend to be viewed as technical defaults. In practice, how many days must a payment be overdue in order for lenders to treat a default as serious (i.e., a substantive default)? A) 1 day B) 30 days C) 60 days D) 90 days
D) 90 days
Known popularly by its section in the Federal Bankruptcy Code, which of the following types of bankruptcy is a court-supervised workout for a troubled household? A) Chapter 1 bankruptcy B) Chapter 7 bankruptcy C) Chapter 11 bankruptcy D) Chapter 13 bankruptcy
D) Chapter 13 bankruptcy
In an attempt to regulate home mortgage lending after the mortgage crisis of 2007, which of the following acts created an independent oversight agency tasked with the responsibility of overseeing and enforcing federal consumer financial protection laws; enforcing antidiscrimination laws in consumer finance; restricting unfair, deceptive, or abusive acts or practices; receiving consumer complaints; promoting financial education; and watching for emerging financial risks for consumers? A) Equal Credit Opportunity Act (ECOA) B) Truth-in-Lending Act (TILA) C) Real Estate Settlement Procedures Act (RESPA) D) Dodd-Frank Wall Street Reform and Consumer Protection Act
D) Dodd-Frank Wall Street Reform and Consumer Protection Act
Which of the following acts was passed out of concern for abusive predatory practices in subprime lending? A) Equal Credit Opportunity Act (ECOA) B) Truth-in-Lending Act (TILA) C) Real Estate Settlement Procedures Act (RESPA) D) Home Ownership and Equity Protection Act (HOEPA)
D) Home Ownership and Equity Protection Act (HOEPA)
If a homeowner in mortgage distress owes more than the value of the home and is unable to make the loan manageable by refinancing or modifying the mortgage, the next recourse often is a short sale of the property. All of the following statements are true regarding a short sale except A) legal costs should be lower with a short sale than with foreclosure. B) a short sale usually enables a better sale price and a faster sale than foreclosure. C) a short sale is less damaging to the borrower's credit than a foreclosure, thereby enabling the borrower to be eligible for another mortgage loan sooner. D) a short sale relieves the seller of any other outstanding obligations on the home, such as owner association fees or a second mortgage.
D) a short sale relieves the seller of any other outstanding obligations on the home, such as owner association fees or a second mortgage.
In a mortgage loan, the borrower always creates two documents: a note and a mortgage. Which of the following pieces of information is provided in the mortgage? A) how the interest rate is to be computed B) whether the borrower has the right to prepay the principal during the term of the loan, and any prepayment penalties that would be incurred as a result C) whether the borrower is released from liability for fulfillment of the contract D) an unambiguous description of the property that is being pledged as collateral for the loan
D) an unambiguous description of the property that is being pledged as collateral for the loan
Most real estate loans have a definite term to maturity, stated in years. The majority of home loans will typically have a term to maturity between A) one and five years. B) five and seven years. C) seven and fifteen years. D) fifteen and thirty years.
D) fifteen and thirty years.
The ability of homeowners to prepay the principal on their outstanding mortgage balance creates cash flow uncertainty for the lender. As a result, the lender may wish to prohibit prepayment on a mortgage loan for a specified period of time after its origination. This is accomplished through which of the following? A) defeasance B) yield maintenance provision C) demand clause D) lockout provision
D) lockout provision
In a mortgage agreement, the borrower conveys to the lender a security interest in the mortgage property. The lender, i.e., the individual who receives the mortgage claim, is known as the A) broker. B) mortgagor. C) agent. D) mortgagee.
D) mortgagee.
Standard mortgage loans require monthly payments typically composed of two components: interest and principal repayments. When scheduled mortgage payments are insufficient to pay all of the accumulating interest, causing some interest to be added to the outstanding balance after each payment shortfall, the loan is said to be A) fully amortizing. B) partially amortizing. C) nonamortizing. D) negatively amortizing.
D) negatively amortizing.
When a borrower defaults on a mortgage loan, his or her credit record will be adversely affected. While borrowers can recover from this reduction in their credit score, if a default goes into the borrower's records it will remain for A) six months. B) one year. C) five years. D) seven years.
D) seven years.
It is possible to have a secured real estate loan without a mortgage through the use of a contract for deed. In contrast to the standard real estate sale, which of the following events occurs after the closing when dealing with a contract for deed? A) offer B) acceptance C) possession of the property passes to the buyer D) title to the property passes to the buyer
D) title to the property passes to the buyer
16. Given the following information on a fixed-rate fully amortizing loan, determine the maximum amount that the lender will be willing to provide to the borrower. Loan Term: 30 years, Monthly Payment: $800, Interest Rate: 6%. A. $6,707 B. $9,295.15 C. $13,333 D. $133,433
D. $133,433
Ling - Chapter 15 #23 24. You have taken out a $300,000, 5/1 ARM. The initial rate of 5.4% (annual) is locked in for 5 years. Calculate the payment after recasting the loan (i.e., after the reset) assuming the interest rate after the initial lock period is 8.0%. (Note: the term on this 5/1 ARM is 30 years) A. $1,684.59 B. $1,784.79 C. $1,887.75 D. $2,138.02
D. $2,138.02
Given the following information, calculate the Effective Borrowing Cost (EBC). Loan amount: $175,000, Term: 30 years, Interest rate: 7 %, Payment: $1,164.28, Discount points: 1, Origination fee: $3,250. Assume the loan is held until the end of year 10. A. 0.6% B. 3.8% C. 7.0% D. 7.4%
D. 7.4%
For the purposes of estimating the effective borrowing cost (EBC), only those up-front expenses associated with obtaining the mortgage should be included, not the settlement costs associated with obtaining ownership of the property. With this in mind, which of the following costs should not be included in one's calculation of EBC? A. Discount points B. Loan origination fees C. Appraisal fee D. Buyer's title insurance
D. Buyer's title insurance
From the borrower's perspective, the effective borrowing cost is often viewed as the implied internal rate of return (IRR), since it takes into consideration costs that the borrower faces, but which are not passed on as income to the lender. Included in this calculation are certain closing costs, which may consist of all of the following EXCEPT A. Title insurance B. Mortgage insurance C. Recording fees D. Earnest money
D. Earnest money
11. With the recent popularity of adjustable-rate mortgages (ARM), lenders have begun to offer ARMs with different adjustment periods. Which of the following ARM choices will most likely have the highest initial rate? A. Three-year-one-year ARM B. Five-year-one-year ARM C. Seven-year-one-year ARM D. Ten-year-one-year ARM
D. Ten-year-one-year ARM
1. The monthly mortgage payment divided by the loan amount is commonly referred to as the: A. loan balance B. effective borrowing cost C. lender's yield D. monthly loan constant
D. monthly loan constant
Discount All Future Cash flows vs. Direct Capitalization
DCF approach requires- Estimate of the expected holding period of typical buyer, Estimates of net cash flows over the entire expected holding period, including the net income from sale, the appraiser selects the appropriate yeild at which to discount all future cash flows
a legal instrument issued by defaulting borrowers that transfers all rights they have in a property to the lender. Does not necessarily convey a clean title, just whatever interest the defaulting borrower has at the time of conveyance.
Deed in lieu of foreclosure
With what type of loan security arrangement is the deed held by a neutral third party and returned upon payment of the mortgage is full?
Deed of Trust
an instrument used instead of mortgage in some states. The borrower conveys a deed of trust to a trustee, who holds the deed on behalf of both borrower and lender. If the loan obligation is paid off in accordance with the note, the trustee returns the deed to the borrower. But if the borrower (trustor) defaults, the trustee exercises his power of sale to dispose of the property on behalf of the lender.
Deed of trust
the legal right of the lenders to file suit against borrowers when the proceeds from a foreclosure sale do not fully pay off an outstanding loan, as well as any late fees and charges.
Deficiency judgement
A lender may reserve the right to require prepayment of a loan at any time they see fit through a(n):
Demand Clause
One solution for addressing conflicts of interest that arise from dual agency scenarios is for a broker to appoint a separate salesperson to represent each client. The appointed agent is considered a:
Designated Agent
is impacting home mortgage lending on at least two fronts. First, it is altering the character of home loans by imposing a standard of "ability to repay" and by rewarding an even stronger standard called Qualified Mortgages.
Dodd-Frank Wall Street Reform and Consumer Protection Act
the clause in a mortgage document that requires the borrower to pay off the loan in full if the property serving as security for the loan is sold.
Due-on-sale clause
The characteristics of a borrower that can be considered by a lender in a mortgage loan application are limited by the:
Equal Credit Opportunity Act
this act prohibits discrimination in lending practices on the basis of race, color, religion, national origin, sex, marital status, age, or because all or part of an applicant's income derives from a public assistance program.
Equal Credit Opportunity Act (ECOA)
When the term for maturity is less than the term for amortization then the final payment is:
Equal to the regular payment plus an unpaid balance
a period of time allowed by courts in every state that grants delinquent mortgage borrowers the opportunity to make overdue payments and come current on the mortgage before foreclosure is complete.
Equity of redemption
a segregated account held by brokers for the deposit of earnest money (deposit) funds. Also, a trust account of a lender used to pay for property taxes, hazard insurance, or other items on behalf of a borrower.
Escrow account
requires a mortgage borrower to make monthly deposits into an escrow account.
Escrow clause
Which of these points in a mortgage loan would be addressed in the mortgage (possibly in the note as well)?
Escrows
Probably the greatest contribution of FHA to home mortgage lending was to
Establish the use of the level-payment home mortgage
Probably the greatest contribution of FHA to home mortgage lending was to:
Establish the use of the level-payment home mortgage.
Cost Approach Procedure:
Estimated reproduction costs of improvements - Estimated accrued depreciation = Depreciated cost of building improvements = estimated value of sight = Estimated value
loan provision that releases the borrower from liability for fulfillment of the contract.
Exculpatory clause
Capital Expenditures:
Expenditures that materially increase value of structure or prolong its life -roof replacement -additions -HVAC replacement -Resurfacing of parking areas -Tenant Improvements
By far, the most important home equity conversion or reverse mortgage program is that of ____.
FHA
by far, the most important home equity conversion or reverse mortgage program is that of _____.
FHA
Valid statements about FHA insurance include:
FHA accepts more tolerant qualifying ratios and credit score than for conventional mortgages. FHA insures loans up to 96.5 percent of value. FHA targets first-time home buyers and other moderate income households.
Federal Housing Administration (FHA) loans differ from conventional loans in a number of ways. All of the following statements regarding FHA loans are true EXCEPT: A. FHA loans are targeted toward first-time homebuyers who are in slightly weaker financial circumstances than the typical prime conventional borrower. B. FHA loans are more tolerant in terms of qualifying debt-to-income ratios C. FHA loans require higher credit scores than are needed for prime conventional loans. D. FHA loans contain lower limits on their maximum size than are available through conforming conventional loans.
FHA loans require higher credit scores than are needed for prime conventional loans
Federal Housing Administration (FHA) loans differ from conventional loans in a number of ways. All of the following statements regarding FHA loans are true except
FHA loans require higher credit scores than are needed for prime conventional loans
Federal Housing Administration (FHA) loans differ from conventional loans in a number of ways. All of the following statements regarding FHA loans are true EXCEPT:
FHA loans require higher credit scores than are needed for prime conventional loans.
Federal Housing Administration (FHA) loans differ from conventional loans in a number of ways. All of the following statements regarding FHA loans are true except
FHA loans require higher credit scores than are needed for prime conventional loans.
Suppose that a mortgage bank "locked in" an interest rate for a prospective borrower at 8.5%. However, prior to the loan closing, the market mortgage rate falls to 7.5 %. In this scenario, the mortgage banker would be most concerned with which of the following risks?
Fallout Risk
T/F: A promissory note functions as collateral for a mortgage
False
T/F: Fannie Mae insures institutional investors against default risk on commercial mortgages
False
T/F: The WACC should be used when discounting the after tax cash flows
False
Which of the following government agencies insures mortgage loans made by private lenders that are designated primarily for low-income housing, nursing homes, cooperative apartments, and condominiums?
Fannie Mae
The Federal National Mortgage Association (Fannie Mae) was originally established to provide a secondary market for FHA-insured and VA-guaranteed loans. All of the following statements regarding Fannie Mae are true EXCEPT:
Fannie Mae lends money directly to homebuyers.
The largest participants in the secondary mortgage market are ____ ____ and ____ ____.
Fannie. Mae. Freddie. Mac.
Late fees
Fees assessed for standard home loans when payments are received after the 15th of the month the payment is due. Also found in commercial mortgages
Mortgage originators often offer many types of forms of available residential loans as part of their mortgage menu. However, the predominant form of prime conventional mortgage remains the:
Fixed-rate-level-payment mortgage (LPM)
What is the maximum amount that the VA guarantees to a lender?
For loans up to $45,000 they will get 50%. For loans in excess of $144,000 they will get 25%.
a process to force the public sale of property to satisfy the financial obligations of a delinquent borrower to a lender. The legal purpose is to terminate ownership claims, and any subordinate liens, so that title can go to a buyer.
Foreclosure
Consumer Financial Protection Bureau
Government agency within the Federal Reserve that oversees financial products and services
Which of the following types of institutions has historically been the largest purchaser of residential mortgages?
Government sponsored enterprise
Which of the following types of institutions has historically been the largest purchaser of residential mortgages? A. Commercial banks B. Savings and Loans C. Government sponsored enterprises D. Mortgage banking companies
Government sponsored enterprises
The predominant approaches to housing assistance by the U.S. government have been through:
Guarantees against mortgage default. Insurance against mortgage default. Allowing state and local governments to issue tax-free housing finance bonds.
Foreclosures tends to be quickest in states that:
Have power of sale
Home equity loans typically
Have tax-deductible interest charges
Home equity loans typically:
Have tax-deductible interest charges.
At the closing, the buyer will be credited for a number of costs that have been paid up-front (or will be paid after closing) as well as a number of prorated expenses that account for the period of time during which the seller occupied the house. All of the following items detailed in the closing costs involve credits that are commonly passed on to the buyer EXCEPT:
Hazard Insurance premiums
an act of congress that discourages lenders from avoiding, or redlining, certain neighborhoods in a manner related to minority composition.
Home Mortgage Disclosure Act (HMDA)
an act of congress that addresses abusive, predatory practices in subprime lending and sets a trigger annual percentage rate (APR) and fee levels at which loans become subject to the law's restrictions.
Home Ownership and Equity Protection Act (HOEPA)
Improving the housing finance system has these positive effects on society:
Home owners can sell their home more easily. Home owners can gain greater financial liquidity and diversification. Households can become home owners sooner in life.
1. Private mortgage insurance (PMI) is usually required on _____ loans with loan-to-value ratios greater than _____ percent.
Home, 80 percent.
Private mortgage insurance (PMI) is usually required on _____ loans with loan-to-value ratios greater than _____ percent.
Home, 80 percent.
Private mortgage insurance (PMI) is usually required on _____ loans with loan-to-value ratios greater than _____ percent.
Home; 80
A guide rule for determining whether refinancing a home loan is beneficial should account for which of the following "dimensions"?
How long you will keep the loan. Amount of interest rate "spread". Cost of refinancing.
A buyer acquires a property with existing mortgage debt either "subject to" the debt or by assuming the debt. In which case can default result in foreclosure?
In both cases
Statutory right of redemption
In foreclosure, this is the right afforded the defaulting mortgagor to recover the foreclosed property for a period of time after foreclosure sale by paying the full amount of the defaulted loan plus legal costs f the foreclosure. This right is not available in all states. In states where it exists, it ranges for a few days to several years
Trustee
In mortgage lending, person who holds the deed on behalf of both the borrower and lender in a deed of trust
3 approaches for estimating value
Income approach, cost approach, market approach
The element of an adjustable interest rate that is the "moving part" is the:
Index
One of the most popular amortizing mortgages today is the fixed rate mortgage. Which of the following characterizes the components of the fixed rate mortgage payment schedule over the life of the loan?
Interest Principle Payment Decreasing Increasing Constant
2. Which of the following mortgage types has the most default risk, assuming the initial loan-to-value ratio, contract interest rate, and all other loan terms are identical?
Interest only loans
Which of the following mortgage types has the most default risk, assuming the initial loan-to-value ratio, contract interest rate, and all other loan terms are identical?
Interest only loans.
The refinancing decision is sometimes oversimplified into a few "rules of thumb" that a borrower uses in order to gauge its potential benefits. Which of the following methodologies is criticized for its inability to account for a variation in refinancing benefits due to cost or holding period differences?
Interest rate spread
The refinancing decision is sometimes oversimplified into a few "rules of thumb" that a borrower uses in order to gauge its potential benefits. Which of the following methodologies is criticized for its inability to account for a variation in refinancing benefits due to cost or holding period differences? A. Payback period approach B. Net benefit approach C. Interest rate spread D. Net present value approach
Interest rate spread
Which of these statements is (are) correct about conventional mortgage loans?
Is the oldest form of home mortgage loan. Is the most common type of home mortgage loan. In recent years has been created in three different qualities.
a common index of interest rates for income producing property, the London Interbank Offering Rate is a short-term interest rate for loans among foreign banks based in London.
LIBOR
Cost Approach
Land + replacement cost - depreciation (physical, functional, economic. Doesn't work as well for residential buildings because it's hard to calculate on old buildings
Ownership of a freehold estate is referred to as:
Legal Title
Lien theory
Legal theory that interprets a mortgage as a lien rather then a temporary conveyance of title
Dodd-Frank Wall Street Reform and Consumer Protection Act
Legislation that was promoted as the "fix" for the extreme mismanagement of risk in the financial sector that lead to a global financial crisis in 2008-2010., Fed's emergency lending program becomes subject to audit. Class A directors no longer vote on District Bank Presidents. New Consumer Financial Protection Bureau is established from Fed's budget, though Fed is not in control.
Title theory
Lender receives title to the mortgaged property that ripens upon default
Advantages from a lender's perspective with power of sale rather than judicial foreclosure include:
Less costly, faster
Form appraisal estimate is...
Less descriptive, used for residential properties
It would be hard to overstate the importance of the Federal Housing Administration (FHA) in the history of housing finance. Which of the following instruments created by the FHA is considered the single most important financial instrument in modern housing finance?
Level-payment, fully amortizing loan
It would be hard to overstate the importance of the Federal Housing Administration (FHA) in the history of housing finance. Which of the following instruments created by the FHA is considered the single most important financial instrument in modern housing finance? A. Level-payment, fully amortizing loan B. Adjustable rate mortgage C. Partially-amortizing balloon loan D. Subprime mortgage loan
Level-payment, fully amortizing loan
Personal liability
Liability assumed by borrowers that allows lenders to sue them personally for fulfillment of the contract
Recently, mortgage banking has become the natural method for doing mortgage lending. Within the mortgage lending process, which of the following roles serves as the primary revenue source for mortgage banks?
Loan Servicing
Balloon loan
Loan characterized by an amortization term that is longer than the loan term. Because the loan balance will not be zero at the end of the loan term, a balloon payment is necessary to pay off the remaining loan balance in full
Exculpatory clause
Loan provision that releases the borrower form liability for fulfillment of the contract
Recourse loans
Loans in which the borrower has personal liability and the lender has legal recourse against the borrower in case of default
Subprime loans
Loans made to homeowners who do not qualify for standard (prime) home loans. Subprime loans can have high fees, and costly prepayment penalties that "lock in" the borrower to a high interest rate
Nonrecourse loans
Loans that relieve the borrower of personal liability but do not release the property as a collateral for the loan
Nonamortizing
Loans that require interest payments but no regularly scheduled principal payments
Lenders generally require private mortgage insurance (PMI) for conventional loans over 80 percent of the value of the security property. PMI protects a lender against which of the following?
Losses due to default on the loan
Lenders generally require private mortgage insurance (PMI) for conventional loans over 80 percent of the value of the security property. PMI protects a lender against which of the following? A. Losses due to default on the loan B. Legal threat to the lender's mortgage claim C. Stoppage of mortgage payment after the death of the insured borrower D. Changes in the index rate associated with an adjustable rate mortgage
Losses due to default on the loan
Lenders generally require private mortgage insurance (PMI) for conventional loans over 80% of the value of security property. PMI protects the lender from what?:
Losses due to default on the loan
PMI protects a lender against which of the following?
Losses due to default on the loan
Which of these statements is (are) correct about the amortization of a standard, level payment home mortgage loan?
More than half the monthly payment is interest for about half the loan term. The principal reduction increases each month.
With the arrival of subprime mortgages in recent years, a new kind of "trigger" event became apparent in leading households to default. Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis?
Mortgage payment spikes
With the arrival of subprime mortgages in recent years, a new kind of "trigger" event became apparent in leading households to default. Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis? A. Death in the family B. Divorce C. Unemployment D. Mortgage payment spikes
Mortgage payment spikes
Power of sale
Mortgage provision that grants the authority to conduct foreclosure to either the lender or a trustee. Enables nonjudicial foreclosure
In the United States today, the general pattern for right of prepayment for home mortgage loans is as follows:
Most first mortgage home loans allow prepayment without penalty
Which statement is correct about the right of prepayment of a home mortgage loan?
Most home mortgage loans have the right of prepayment without charge, but not all, and the borrower should check the loan carefully
Which statement is correct about the right of prepayment of a home mortgage loan? a. All home mortgages loans have the right of prepayment without charge b. Most home mortgage loans have the right of prepayments without charge, but not all, and the borrower should check the loan carefully c. Home mortgage loans give the right of prepayment without charge only in some states d. Home mortgage loans never have the right of prepayment without charge unless it is explicitly stated e. Home mortgage loans never have the right of prepayment without charge
Most home mortgage loans have the right of prepayments without charge, but not all, and the borrower should check the loan carefully
Market Value:
Most probable selling price assuming "normal" sale conditions -Value for the "typical" market participant
How do you find the NPV if the borrower refinances his loan?
NPV = [Savings x PVAF at New Interest Rate for New Loan Term years] - Cost of refinancing
2 ways to report final value estimate on an appraisal
Narrative, Form
If an adjustable rate mortgage has a payment cap but no interest cap, it is possible forinterest rate increases to result in interest charges exceeding the payment allowed. This results in unpaid interest being added to the loan balance, an effect known as
Negative amortization
occurs when the loan payment is not sufficient to cover the interest cost and results in the unpaid interest being added to the original balance, causing the loan amount to increase.
Negative amortization
A simple but durable method of determining whether to refinance is to use:
Net Benefit Analysis
The best method of determining whether to refinance is to use
Net benefit analysis
A simple but durable method of determining whether to refinance is to use:
Net benefit analysis.
Negative amortization
Occurs when the loan payment is not sufficient to cover the interest cost and results in the unpaid interest being added to the original balance, causing the loan amount to increase
Th attraction of the interest-only mortgage that brought it back into home finance in the pre-Great Recession years was that it:
Offered a relatively low payment
In certain circumstances, mutual assent between the contracting parties may be broken, thus invalidating the contract. Which of the following defects to mutual assent involves compelling a person to act by the use of force?
One of the parties is under duress.
One discount point on a loan represents:
One percent of the original loan balance
Suppose a homeowner is reluctant to refinance until he is reasonably sure that interest rates are not going to fall appreciably from where they currently are. In this case, the homeowner appears to be concerned about which of the following costs associated with refinancing? A. Opportunity cost B. Tax consequences C. Default risk D. Upfront fees
Opportunity cost
Mortgage loans that allow the borrower to switch among a variety of payment arrangements throughout the life of the loan are more commonly referred to as:
Option Arm Loans
Operating Expenses:
Ordinary and regular expenses that keep a property functioning competitively Fixed(expenses that do not vary): Insurance, Property taxes Variable(Expenses that vary with occupancy): Utilities, maintenance & supplies, property management DONT INCLUDE- Mortgage payments, tax depreciation, capital expenditures
When personal property items such as a range, refrigerator, and household furnishings may be included in the home loan, which usually carries a longer term and lower interest rate than if the borrower had financed these items with a separate consumer loan, this is referred to as a:
Package mortgage
Different methods of amortization of a mortgage loan include
Partially, fully, non-amortizing
In recent years, mortgage lenders responded to the demand from home buyers who were unable to put 20 percent down on their purchase and were looking to avoid the private mortgage insurance (PMI) requirement that would typically accompany such a loan by developing a second mortgage that is created simultaneously with the first mortgage in an amount of ten percent of the value of the home. This enabled the borrower to obtain 90 percent financing while avoiding the additional cost of PMI. These loans are more commonly referred to as:
Piggyback Mortgage Loans
In recent years, mortgage lenders responded to the demand from home buyers who were unable to put 20 percent down on their purchase and were looking to avoid the private mortgage insurance (PMI) requirement that would typically accompany such a loan by developing a second mortgage that is created simultaneously with the first mortgage in an amount of ten percent of the value of the home. This enabled the borrower to obtain 90 percent financing while avoiding the additional cost of PMI. These loans are more commonly referred to as: A. Reverse mortgages B. Home equity loans C. Piggyback mortgage loans D. Subprime mortgage loans
Piggyback mortgage loans
Which of these aspects of a mortgage loan will be addressed in the note rather than in the mortgage?
Prepayment Penalty
Transaction Price:
Price actually paid for a specific property
The loan origination market, in which borrowers and lenders come together to provide adequate financing for the purchase of a property, is more commonly referred to as the:
Primary mortgage market
Discuss the role and importance of private mortgage insurance in the residential mortgage market.
Private mortgage insurance protects a lender against losses due to default. Private mortgage insurance companies provide such insurance, which usually covers the top 20 to 30 percent of loans. In other words, if a borrower defaults and the property is foreclosed and sold for less than the amount of the loan, the PMI will reimburse the lender for a loss up to 20 or 30 percent of the loan amount. The net effect of the private mortgage insurance is to reduce default risk for lenders, which allows lenders to make loans to a larger pool of borrowers who are unable to place a 20% downpayment towards the purchase of a home.
Payment caps
Protects the borrower against the shock of large payment changes; it is possible for the interest rate to increase enough that the resulting payment increase will not cover the additional interest cost
NOI must be sufficient to service the mortgage debt AND:
Provide an investor with an acceptable return on equity
Periodic caps
Provisions in adjustable rate mortgages that limit change in the contract interest rate from one change date to the next
a federal law requiring lenders to provide information on all costs associated with closing a residential loan within three business days of the loan application, to use the HUD-1 closing statement, to limit required escrow deposits, and to avoid kickbacks on loan-related services.
Real Estate Settlement Procedures Act (RESPA)
Real Estate vs. Stocks (chart from slides)
Real estate: Stocks: -heterogeneous -homogeneous -local markets -national/international markets -private transactions -public transactions uninformed participants -highly informed traders -limited supply -unlimited supply
a document by which a lender releases a borrower from personal liability on a note.
Release of liability
Potential Gross Income:
Rental Income assuming 100% occupancy
Two concepts of cost(&define):
Replacement cost- cost to create something of equal utility Reproduction cost- cost of an exact physical replica -Complication in application
The index rate in an adjustable mortgage interest rate is
Required to be regularly reported, the moving part of the rate, beyond the control of either borrower
Escrow clause
Requires a mortgage borrower to make monthly deposits into an escrow account
Insurance clause
Requires the borrower/mortgagor to maintain property casualty insurance acceptable to the lender, giving the lender joint control in the use of the proceeds in case of major damage o the property
3. A mortgage that is intended to enable older households to "liquify" the equity in their home is the
Reverse annuity mortgage
A mortgage that is intended to enable older households to "liquify" the equity in their home is the:
Reverse annuity mortgage.
Many older, retired households are considered "house poor." Which of the following forms of loans has been designed to help mitigate this problem by offering additional monthly income to these homeowners in exchange for a portion of their housing equity?
Reverse mortgage
Many older, retired households are considered "house poor." Which of the following forms of loans has been designed to help mitigate this problem by offering additional monthly income to these homeowners in exchange for a portion of their housing equity? A. Purchase-money mortgage (PMM) B. Piggyback Mortgage C. Home equity loan D. Reverse mortgage
Reverse mortgage
the right to retire a mortgage before maturity. The right of prepayment will depend on the law of the state where the property is located and on the particular mortgage contract.
Right of prepayment
Explain the maturity imbalance problem faced by savings and loan associations that hold fixed-payment mortgages as assets.
Savings and loan associations historically have used short-term savings deposits to fund long-term, fixed rate home loans. This mismatch in the maturity of assets and liabilities exposes them to severe interest rate risk. Consequently, the cost of funds from interest paid on short-term savings deposits may rise faster than the yield on their investments, or issued loans. A benefit of adjustable rate mortgages is that they more closely track an institution's cost of funds.
Mortgage originators can either hold loans in their portfolios or sell them to investors. When a mortgage originator decides to sell mortgages to another institution, the transaction occurs in what is commonly referred to as the:
Secondary mortgage market
Considered the most common type of home loan, which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S. government? A. Conventional home loan B. Federal Housing Administration loan C. Veterans Affairs loan D. Section 203 loan
Section 203 loan
The laws of some states require that real estate brokers provide buyers and sellers with a list of estimated closing costs before signing a contract for sale. At the closing, it is typically which of the following party's responsibilities to pay the full premium for an owner's title insurance policy?
Seller
In recent years, home equity loans have become a popular form of second mortgage. Their popularity has been a result of all of the following EXCEPT:
Shorter terms than other consumed debt
In recent years, home equity loans have become a popular form of second mortgage. Their popularity has been a result of all of the following EXCEPT:
Shorter terms than other consumer debt
In recent years, home equity loans have become a popular form of second mortgage. Their popularity has been a result of all of the following EXCEPT: A. Lower interest rates than other consumer debt B. Shorter terms than other consumer debt C. Tax-favored status D. Aggressive marketing by lenders
Shorter terms than other consumer debt
Chapter 13 bankruptcy
Similar to Chapter 11, but applies to a household, that allows the petitioner to propose a repayment plan to the court
Suppose a homeowner has an existing mortgage loan with these terms: Remaining balance of $150,000, interest rate of 8%, and remaining term of 10 years (monthly payments). This loan can be replaced by a loan at an interest rate of 6 percent, at a cost of 8% of the outstanding loan amount. Should the homeowner refinance? What difference would it make if the homeowner expects to be in the home for only five more years?
Solution a, using net benefit analysis: The payment on the existing loan is $1,819.91 while the payment on a new loan for the remaining term of ten years would be $1,665.31. Thus, the new loan results in a monthly savings of $154.61. Over the ten years to maturity the monthly savings sum to $18,553.20 (120 x $154.61). The cost of refinancing is 8 percent of the amount refinanced, or $12,000 (.08 x 150,000). Thus, to maturity, the estimated net benefit for refinancing would be $6,553.20 ($18,553.20 - $12,000). Over the expected holding period of five years the monthly savings sum to $9,276.60 (60 x $154.61). Thus the net benefit of refinancing would be negative $2,723.40 (9,276.60 - 12,000). Solution b, using net present value (see online chapter appendix): The present value of the existing loan, with monthly payments of $1,819.91 discounted at 6%, is $163,925.93. The present value of the new loan is its face value, $150,000. So the NPV is PV of the old loan less PV of the new loan less cost of refinancing, or $163,925.93 - $150,000 - $12,000 = $1,925.93. This assumes the loan is held to maturity. If the loan is to be paid off anyway in five years, the computation of NPV is similar, except that the present value of the existing loan is computed with five years of payments and the balance paid at the end of the fifth year: (n=60, I=.50, Pmt = 1,818.91, FV=89,755.30). Thus, NPV is negative ($160,678.15 - 150,000 - $12,000 = -1,321.85) if the homeowner expects to be in the home for only five more years.
Real estate brokers operate under the law of agency, which gives a broker the right to act for a principal in trying to buy or sell a property. In the basic principal-agent relationship of real estate brokerage, real estate brokers act in the capacity of a:
Special Agent
in foreclosure, this is the right afforded the defaulting mortgagor to recover the foreclosed property for a period of the time after foreclosure sale by paying the full amount of the defaulted loan plus legal costs of the foreclosure. This right is not available in all states. In states where it exists, it ranges for a few days to several years.
Statutory right of redemption
When a borrower decides to stop making payments on an existing mortgage loan despite having the ability to make payments (typically when the home has lost value), this is more commonly referred to as a(n):
Strategic default
When a borrower decides to stop making payments on an existing mortgage loan despite having the ability to make payments (typically when the home has lost value), this is more commonly referred to as a(n): A. Equity redemption B. Statutory redemption C. Strategic default D. Reverse mortgage
Strategic default
When a buyer of a property with an existing mortgage loan acquires the property without signing the note for the existing loan, the buyer is acquiring the property:
Subject to the Mortgage
A type of loan that occurred in recent years, which raised concerns about predatory lending practices, was the:
Subprime Mortgage
Despite many innovations in the lending process that made mortgages loans more accessible and affordable to the general public, many potential borrowers, faced considerable barriers in qualifying for a loan and making a down payment. Which of the following types of loans was designed for a borrower with weak credit, those who seek 100% financing, or who cannot document income?
Subprime mortgage loan
When a party in a contract fails to perform (e.g. breach of contract, nonperformance, or default) the other party has a variety of remedies. All of the following are remedies that an aggrieved seller may pursue EXCEPT:
Sue for specific performance.
time period that determines the payment, and the schedule of interest and principal payments on a mortgage.
Term for amortization
Term to maturity
Term found in a balloon loan that determines when the entire remaining balance on the loan must be paid in full
Before innovations (brought by FHA), the typical home loan had which of these features:
Term of just a few years. 50-60 percent loan-to-value. Large "balloon" payment at maturity.
term found in a balloon loan that determines when the entire remaining balance on the loan must be paid in full.
Term to maturity
Redlining
Term used to describe when mortgage lenders avoid certain neighborhoods without regard to the merits of the individual loan applications
Teaser rate
Th initial interest rate on an adjustable rate mortgage if it is less than the index rate plus the margin at the time of origination
The amortization schedule of a mortgage shows:
That the interest portion of the payment declines with each payment
Margin
The "markup," typically two to three percentage points, over and above the index rate, which is charged on adjustable rate mortgages
Valid aspects of housing assistance programs include:
The Veterans Administration guarantees home loans for qualified veterans. The Federal Housing Administration insures home loans for qualified borrowers. The USDA Rural Housing Services makes direct home loans to qualified rural households. state and local housing agencies make low interest loans to qualified households.
The importance of brokers in the real estate market is often overlooked. In the absence of a real estate broker, one would expect all of the following to be true EXCEPT:
The asking price would most likely be higher, on average, than in the case where a broker was involved because the seller is in total control of the sale.
Mortgagor
The borrower or grantor of the mortgage claim
Due-on-sale clause
The clause in a mortgage document that requires the borrower to pay off the loan in full if the property serving as security for the loan is sold
Default
The consequence of prolonged delinquency; the failure of a borrower to meet the terms and conditions of a note
Change date
The date the interest rate on an ARM is recomputed
Note
The document (contract) defining the exact terms of a debt obligation and the liability of the borrower for the obligation
The annual percentage rate (APR) on a mortgage is:
The effective yield taking into account discount points and other fees
Housing assistance programs in the United States since World War II have been predominantly through:
The home mortgage lending system
The Federal Housing Administration (FHA) insures loans made by private lenders that meet FHA's property and credit-risk standards. Which of the following statements concerning FHA insurance is true?
The insurance is paid by the borrower and protects the lender against loss due to borrower default.
The Federal Housing Administration (FHA) insures loans made by private lenders that meet FHA's property and credit-risk standards. Which of the following statements concerning FHA insurance is true? -The insurance is paid by the lender and protects the lender against loss due to borrower default. -The insurance is paid by the borrower and protects the lender against loss due to borrower default. -The insurance is paid by the lender and protects the borrower against loss due to lender default. - The insurance is paid by the borrower and protects the borrower against loss due to lender default.
The insurance is paid by the borrower and protects the lender against loss due to borrower default.
The Federal Housing Administration (FHA) insures loans made by private lenders that meet FHA's property and credit-risk standards. Which of the following statements concerning FHA insurance is true? The insurance is paid by the lender and protects the lender against loss due to borrower default. The insurance is paid by the borrower and protects the lender against loss due to borrower default. The insurance is paid by the lender and protects the borrower against loss due to lender default. The insurance is paid by the borrower and protects the borrower against loss due to lender default.
The insurance is paid by the borrower and protects the lender against loss due to borrower default.
The Federal Housing Administration (FHA) insures loans made by private lenders that meet FHA's property and credit-risk standards. Which of the following statements concerning FHA insurance is true? A. The insurance is paid by the lender and protects the lender against loss due to borrower default. B. The insurance is paid by the borrower and protects the lender against loss due to borrower default. C. The insurance is paid by the lender and protects the borrower against loss due to lender default. D. The insurance is paid by the borrower and protects the borrower against loss due to lender default.
The insurance is paid by the borrower and protects the lender against loss due to borrower default.
Caps for an adjustable rate loan can limit the change in
The interest rate over the lifetime of the loan, the payment from one period to the next, the interest rate from one period to the next.
Deficiency judgment
The legal right of lenders to file suit against borrowers when the proceeds from a foreclosure sale do not fully pay off an outstanding loan, as well as any late fees and charges
Mortgagee
The lender, who receives the mortgage claim
The traditional approach to loan underwriting has virtually been replaced by an automated underwriting process that involves a statistically derived equation to determine the level of default risk associated with a loan application. All of the following statements regarding the automated underwriting process are true EXCEPT:
The marginal cost per loan underwritten using the automated process is greater than the case of traditional underwriting.
Judicial foreclosure
The process of bringing the property of delinquent borrowers o public sale that involves court action. Proceeds from the foreclosure sale are used to pay off, to the extent possible, the borrower's creditors
Both parties to a valid and enforceable contract must provide consideration. In a contract for the sale and purchase of real estate, which of the following depicts the seller's consideration?
The property to be given up
Right of prepayment
The right to retire a mortgage before maturity. The right of prepayment will depend on the law of the state where the property is located and on the particular mortgage contract
Rescind (rescission)
The termination of a contract by cancellation. Under the Truth-in-Lending Act, a borrower's right to cancel a non-purchase loan contract within three days that is secured by his or her principal residence
Chapter 7 bankruptcy
The traditional form of bankruptcy wherein the court simply liquidates the assets of the debtor and distributes the proceeds to creditors in proportion to their share of the total claims
When lenders charge discount points (prepaid interest) on a loan, what impact does this have on the loan's yield?
The yield on the loan will increase.
Bankruptcy
There are three types of bankruptcy distinguished by their section in Federal Statutes: Chapter 7, liquidation; Chapter 11, court supervised "work-out"; Chapter 13, "wage-earner's proceedings."
Equal Credit Opportunity Act (ECOA)
This act prohibits discrimination in lending practices on the basis of race, color, religion, national origin, sex, marital status, age, or because all or part of an applicant's income derives from a public assistance program
The Truth-in-Lending Act gives some mortgage borrowers how long to rescind a mortgage loan?
Three Days
In the early 1970's, home mortgage lenders were predominantly depository institutions focused on collecting local savings deposits and using these funds to make local mortgage loans. The savings institutions of this era of mortgage financing are more commonly referred to as:
Thrifts
Term for amortization
Time period that determines the payment, and the schedule of interest and principal payments on a mortgage
Assume liability
To become legally responsible for an obligation. This occurs by signing a contract, such as a financial note
Capitalize:
To convert future income into a present value
A mortgage loan where the borrower is not personally liable is called a nonrecourse loan
True
T/F: Banks are unable to sell a "scratch and dent" mortgage on the secondary mortgage market
True
T/F: The Secondary Mortgage Market led to an increase in capital available for investment in residential mortgages
True
T/F: There are two ways to remove the requirement to pay PMI. Making enough principal payments to reduce the OMB is one of them
True
T/F: Whether making extra payments on a mortgage is beneficial for the borrower is determined by the rate of return on alternative investments with similar risk compared to the interest rate on the mortgage
True
A mortgage loan where the borrower is not personally liable is called a nonrecourse loan.
True Reason: A mortgage loan where the borrower is not personally liable is called a nonrecourse loan.
Why Do We Have To Estimate Market Value? In an efficient market: In markets with perfect competition, all transactions take place at _______ Market Value.
True Market Value -In such markets, no need for buyers and sellers to search for "true" market value of an asset; it is continuously revealed by transaction prices of perfect substitutes(Stocks, bonds, options..)
a federal law requiring lenders to provide residential loan applicants with estimates of the total finance charges and the annual percentage rate (APR).
Truth-in-Lending Act (TILA)
When the principal in an agency relationship delegates the power to act on all materials that can be delegated in place of the principal, the agent is more commonly referred to as a:
Universal Agent
Explain why a home equity mortgage loan can be a better source of funds for household needs than other types of consumer debt.
Unlike interest on consumer debt, interest paid on the first $100,000 of a home equity loan is fully deductible for federal and, in some cases, state income tax purposes. By including the interest paid on a home equity loan as an itemized deduction, taxpayers can effectively reduce the cost of this loan on an after-tax basis. In addition, the strength of one's home as collateral permits lenders to offer longer term and lower interest rate than on less secure consumer debt.
2 approaches to Income Evaluation- Direct Capitalization:
V= NOI/R
"Natural Vacancy rate":
Vacancy rate that is expected in a stable or equilibrium market
Income Approach
Value = N.O.I./Capitalization Rate - usually for income producing properties
No observable value requires:
Value Estimation
Sales Comparison Approach: Potential issue?
Value of RE can be determined by analyzing the sales prices of similar properties... why? - Because in a competitive market, close substitutes should sell for similar prices Issue: How many truly close substitutes exist & how many of these have sold recently?
Appraisal Income Approach- Rationale:
Value of the property is the present value of its anticipated income
Investment Value:
Value to a particular individual(investor)
Subject to
When a buyer acquires a property having an existing mortgage loan and begins making the required payments without assuming personal responsibility for the note
ECOA< the equal credit opportunity act of 1974 prohibits consideration in home mortgage lending of:
Whether income is from public assistance, information about a spouse who is not part of the loan application, whether income si from part time or full time work, child bearing plans of a woman applicant
A mortgage prepayment penalty calculated to equal the amount of interest income the lender loses due to prepayment is frequently used in commercial property mortgages, and is called a:
Yield maintenance penalty
A clause in a commercial mortgage loan that requires the borrower to pay the lender a prepayment penalty if the borrower prepays the loan prior to maturity and current market interest rates are lower than the contract rate on the existing mortgage. The prepayment penalty is computed as the present value of interest income to be lost by the lender due to the early prepayment. The idea is to "make whole" the lender. Yield maintenance penalties are found strictly in loans on income-producing properties.
Yield maintenance prepayment penalty
Mortgage insurance rates vary with the perceived riskiness of the loan. Which of the following scenarios would result in a higher mortgage insurance premium? lower loan-to-value ratio shorter loan term stronger credit record of the borrower a "cash-out" refinancing loan
a "cash-out" refinancing loan
Common interest rates used as the index rate in an adjustable mortgage rate include:
a commercial bank prime rate, a LIBOR interest rate, a cost of funds rate for depository lenders, one year constant maturity Treasury rate.
Common interest rates that have been used as the index rate in an adjustable mortgage rate include:
a cost-of-funds rate for depository lenders. a LIBOR interest rate. a commercial bank prime rate. one-year constant maturity Treasury rate.
The Real Estate Settlement Procedures Act (as modified by the Dodd-Frank Act of 2013) requires for virtually every standard home loan:
a document explaining the Closing Disclosure and fees. a standard closing statement: Closing Disclosure. a good-faith estimate of closing costs: Loan Estimate. Prohibition of "kickbacks".
Variations of the I-O mortgage include:
a standard I-O but with lender's promise to fund pay off in 5-7 years with a fully amortizing loan. a loan that is I-O for 15 years and then converts to fully amortizing level payment for the remaining term.
Partially amortizing mortgage loans require periodic payments of principal, but are not paid off completely over the loan's term to maturity. Instead, the balance of the principal amount is paid at maturity in what is commonly referred to as a a) balloon payment b) early payment c) back-up payment d) payment cap
a) balloon payment
In a deed of trust a) a bank has to inform the trustee of default by the borrower in order to foreclose on the mortgage b) underwriting standards are lower because the bank trusts the borrower more c) PMI is not required d) the trustee services the loan
a) the bank has to inform the trustee of default by the borrower in order to foreclose on the mortgage
When the lenders charge discount points (prepaid interest) on a loan, what impact does this have on the loan's yield? a) the yield on the loan will increase b) the yield on the loan will decrease c) the yield on the loan will be unaffected d) the yield on the loan automatically becomes zero
a) the yield on the loan will increase
Five years ago you borrowed $200,000 to finance the purchase of a $240,000 house. The interest rate on the old mortgage is 6%. Payment terms are being made monthly to amortize the loan over 30 years. You have found another lender who will refinance the current outstanding loan balance at 4% with monthly payments for 30 years. The new lender will charge two discount points on the loan. Other refinancing costs will equal $6,000. There are no prepayment penalties associated with either loan. You feel the appropriate opportunity cost to apply to this refinancing decision is 4%. a.What is the payment on the old loan? b.What is the current loan balance on the old loan (five years after origination)? c. What should be the monthly payment on the new loan? d. Should you refinance today if the new loan is expected to be outstanding for five years?
a. The payment on the old loan is $1,199.10. b.The current balance is $186,108.71. (after 5 years) c. The payment on the new loan is $982.35. d. If the new loan is to be paid off in five more years, the balance of the original loan after year ten is $167,371.45, calculated with the following inputs: (N = 240, I = 0.50, PMT = 1,199.10, and FV = 0. Answer based on net benefit analysis: A new loan at 4 percent with the same term as remains on the original loan (25 years) would have a payment of $1,000.92. The savings in monthly payment by going to the new loan is $216.75 (1,199.10 - 982.35). This results in an accumulated savings of $13,004.98 (60 x 216.75) over the assumed holding period of five years. The cost of refinancing is $6,000 plus two percent of the balance, or $3,722.17 (.02 x 186,108.71), for a sum of $9,722.17. Thus, the net benefit is $3,282.81 (13,004.98 - 9,722.17), and refinancing is financially beneficial. Answer based on net present value: The present value of the old loan, paid off 5 years from today is 190,517.62 (N = 60, I=0.333, PMT=$1,199.10, FV= 153,122.19). The PV of payment reductions is $16,079.10 (202,187.81 - 186,108.71). The cost of refinancing is $6,000 plus 3,510.89 (0.02 x 186,108.71), or $9,722.17. The NPV of refinancing the loan is $6,356.93 (16,079.10 - 9,722.17). Therefore, you should refinance today if the new loan is expected to be outstanding for five years.
When the contract rate at closing is less than the current market rate (i.e., interest rates have increased since the time of the loan commitment), the mortgage banker will have to sell the newly originated loan at a discount. This scenario best depicts the mortgage banker's exposure to which of the following risks? a.) Interest rate risks b.) Fallout risk c.) Default risk d.) Liquidity risk
a.) Interest rate risks
The Dodd frank act, in creating new standards for home mortgages adopted as a central standard ____ to ____
ability to repay
The Dodd-Frank Act, in creating new standards for home mortgages adopted as a central standard ____ to ____.
ability. repay.
Ways that a lender may respond to a defaulted loan without resorting to foreclosure include all of the following except: a. Offer credit counseling b. Allow short sale to a third party c. Defer or forgive some of the past-due payments d. Accelerate the debt e. Accept a deed in lieu of foreclosure
accelerate the debt
If the lender in a standard first mortgage wishes to foreclose cost effectively, it is crucial to have which clause in the mortgage? a. Acceleration clause b. Exculpatory clause c. Demand clause d. Defeasance clause e. Taking clause
acceleration clause
clause that makes all future payments due upon a single default of a loan. Prevents lender from having to sue for each payment once a single payment is late.
acceleration clause
Clauses of a mortgage that commonly are also restated in the note include:
acceleration clause. due-on-sale clause.
The interest rate on a home equity line of credit normally is ____, based on the prime rate as published in the Wall Street Journal.
adjustable
the interest rate on a home equity line of credit normally is _____, based on the prime rate as published in the wall street journal.
adjustable
alternative mortgage from where the interest rate is tied to an indexed rate over the life of the loan, allowing interest rate risk to be shared by borrowers and lenders.
adjustable rate mortgage (ARM)
Elements unique to an adjustable mortgage interest rate, rather than a fixed rate, can include
adjustment period. change date. caps. index rate. margin.
Initially, Qualified Mortgages include mainly::
all conforming conventional loans. those meeting the requirement specified in the Dodd-Frank Act. all FHA and VA loans.
The real estate settlement procedures act does which of these: a. Requires the use of standard settlement statement for a mortgage loan closing b. Prohibits kickbacks between vendors of closing-related services and lenders c. Requires that a borrower receive a good-faith estimate of closing costs shortly after a loan application d. Requires that the borrower be able to inspect the closing statement a day before the actual closing e. All of the above
all of the above
Which of these statements is true about mortgage loans for income-producing real estate? a. They usually are partially amortizing loans b. They often have a prepayment penalty c. They often are nonrecourse loans d. They can be interest-only loans e. All of the above
all of the above
Mortgage loans made to borrowers with normal credit quality, but who lack the necessary documentation needed to meet conforming mortgage standards would most likely be considered:
alt-A loans
Mortgage loans made to borrowers with normal credit quality, but who lack the necessary documentation of their financial circumstances typically needed to meet conforming mortgage standards would most likely be considered: A. subprime loans B. option ARM loans C. hybrid ARM loans D. alt-A loans
alt-A loans
Mortgage loans made to borrowers with normal credit quality but lacking the necessary documentation of their financial circumstances typically needed to meet conforming mortgage standards would most likely be considered
alt-A loans.
For a mortgage loan the number of months over which a level payment will fully pay off the loan is called the term for ____.
amortization
The repayment of a loan through a series of scheduled balance reductions is called
amortization
The repayment of a loan through a series of scheduled balance reductions is called ____.
amortization
Since mortgages typically have multiple costs associated with them, a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages. Which of the following measures is a popular tool for comparing the cost of several mortgages?
annual percentage rate
Since mortgages typically have multiple costs associated with them, a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages. Which of the following measures is a popular tool for comparing the cost of several mortgages? upfront fees contracted interest rate annual percentage rate teaser rate
annual percentage rate
Since mortgages typically have multiple costs associated with them, a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages. Which of the following measures is a popular tool for comparing the cost of several mortgages? upfront fees contracted interest rate annual percentage rate teaser rate
annual percentage rate
Late fees on standard residential first mortgage loans range ____________ of the late amount.
around 4 to 5 percent
an important characteristic of a loan is whether or not a subsequent owner of the property can preserve it.
assumability
A mortgage loan without a due-on-sale clause is called a(n) ____ loan.
assumable
Given the following information on an interest-only mortgage, calculate the monthly mortgage payment. Loan amount: $56,000; term: 15 years; interest rate: 7.5% a) $169.13 b) $350 c) $519.13 d) $4,200
b) $350 $56,000*0.75 = $4,200 $4,200/12 = $350
Loan servicing includes a number of responsibilities such as collecting monthly mortgage payments from the borrower, remitting principal and interest payments to investors, ensuring sufficient escrow payments are being made by the borrower, and managing default if it should arise. In exchange for these services, mortgage bankers receive a fee. If the outstanding loan balance is $250,000 and the annual servicing fee is 0.35%, what is the monthly fee for servicing the loan? a) $7.29 b) $72.92 c) $729.16 d) $875
b) $72.92 ($250,000 * 0.0035)/12 = $72.92
Which of the following is NOT a feature to manage interest rate movement on an Adjustable Rate Mortgage? a) cap b) roof c) ceiling d) floor
b) roof
A common criticism of the annual percentage rate (APR) is that it usually understates the true cost of borrowing. The APR may understate the cost of borrowing because it assumes that a) interest rates will always rise b) the loan always goes to maturity c) the actual life of the loan is shorter than maturity d) upfront fees should be ignored
b) the loan always goes to maturity
A common risk that frequently interferes with a lender's efforts to work out a defaulted loan through either nonforeclosure means or foreclosure is: a. Equity of redemption b. Statutory right of redemption c. Exculpatory clauses d. Bankruptcy e. Deficiency judgement
bankruptcy
there are three types of bankruptcy distinguished by their section in federal statutes: liquidation, court supervised "workout", "wage-earner's proceedings"
bankruptcy
Some factors that affect the premium charged for PMI include:
borrower's credit record. length of loan term. loan-to-value ratio. use of property (owner occupied, rental, second home).
NOI is a _______________ to make money. It is the properties expected _______________. projected stream of NOI is the ________________ determinant of value.
buildings ability ; dividend ; fundamental
For the purposes of estimating the effective borrowing cost (EBC), only those up-front expenses associated with obtaining the mortgage should be included, not the settlement costs associated with obtaining ownership of the property. With this in mind, which of the following costs should not be included in one's calculation of EBC?
buyer's title insurance
Which is NOT an interest rate component of an adjustable rate mortgage? a. margin b.index c.chapter d. caps
c
Given the following information on a 30-year fixed-payment loan, determine the remaining balance that the borrower has at the end of seven years. Interest rate: 7%; monthly payment: $1,200 a) $17,143 b) $79,509 c) $164,402 d) $180,369
c) $164,402 N = 30*12 i/y = 7/12 PMT = $1,200 FV = 0 CPT PV = -$180,369.08 PV = -$180,369.08 N = 7*12 i/y = 7/12 PMT = $1,200 CPT FV
If the original mortgage amount was $325,000 with a debt service of $1,323 per month and the borrower sells his property after 16 years when the outstanding mortgage amount is $263,000, how much interest did she pay during those 16 years? a) $188,816 b) $254,016 c) $192,016 d) $62,000
c) $192,016 $1,323 x 12 x 16 = $254,016 $325,000 - $263,000 = $62,000 $254,016 - $62,000 = $192,016
Given the following information, calculate the balloon payment for a partially amortized mortgage. Loan amount $84,000; term to maturity: 7 years; amortization term: 30 years; interest rate: 4.5%; monthly payment: $425.62 a) $8,458 b) $30,620 c) $73,102 d) $84,000
c) $73,102 PV = -$84,000 N = 7*12 i/y= 4.5/12 PMT = $425.62 CPT FV
Given the following information, calculate the lender's yield. Loan amount: $166,950; term: 30 years; interest rate: 8%; payment: $1,225: discount points: 2, not financed a) 0.68% b) 8.0% c) 8.2% d) 10.0%
c) 8.2% $166,950*0.02 = $3,339 $166,950 - $3,339 = $163,611 PV = -$163,611 FV = 0 N = 30 * 12 PMT = $1,225 CPT i/y
Since mortgages typically have multiple costs associated with them, a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages. Which of the following measures is a popular tool for comparing the cost of several mortgages? a) underwriting standards b) contracted interest rate c) annual percentage rate d) teaser rate
c) annual percentage rate
Which of the following statements about the Secondary Mortgage Market is NOT correct? a) it created an incentive for banks to promote the issuance of new mortgages and refinancing existing mortgages b) banks benefitted because it increased their fee income, both for origination as well as servicing c) institutional investors benefitted because they were able to obtain a completely risk-free investment thanks to FNMA guarantees d) ultimately FNMA underestimated the risk involved with guaranteeing mortgages and they had to be bailed out by the government
c) institutional investors benefitted because they were able to obtain a completely risk-free investment thanks to FNMA guarantees
Within the mortgage lending process, which of the following roles nowadays serves as the primary revenue source for mortgage banks? a) loan commitment b) loan funding c) loan servicing d) loan sales
c) loan servicing
the date the interest rate on an ARM is recomputed.
change date
the date when an adjustable interest rate is recomputed is called the
change date
A VA loan can reduce the cash obligation of the borrower to:
closing costs only
If a refinance decision involves replacing multiple loans with an increased first mortgage loan the solution involves:
compute the "old" payment as the sum of all the payments to be replaced. for each old loan, compute the reduction in payment with the new interest rate, keeping all other terms as they were. compute the difference between all old payments and all revised payments and proceed as with a single loan replacement.
A conventional home mortgage that meets all of the requirements to be purchased by Fannie Mae or Freddie Mac is called a ____ conventional mortgage.
conforming
The maximum guarantee on a VA loan is one fourth of the loan limit for ____ conventional loans, those acceptable for purchase by Fannie Mae or Freddie Mac. In effect, this sets the maximum VA loan amount equal to the conforming conventional maximum.
conforming
a conventional home mortgage that meets all of the requirements to be purchased by fannie mae or freddie mac is called a _____ conventional mortgage.
conforming
Created by Congress to promote an active secondary market for home mortgages, Fannie Mae and Freddie Mac purchase loans that meet specific underwriting standards such as loan size, documentation, and payment to income ratio. The loans that Fannie Mae and Freddie Mac are eligible to purchase are commonly referred to as: A. government sponsored loans B. conforming conventional loans C. nonconforming conventional loans D. FHA loans
conforming conventional loans
Created by Congress to promote an active secondary market for home mortgages, Fannie Mae and Freddie Mac purchase loans that meet specific underwriting standards such as loan size, documentation, and payment to income ratio. The loans that Fannie Mae and Freddie Mac are eligible to purchase are referred to as
conforming conventional loans
Created by Congress to promote an active secondary market for home mortgages, Fannie Mae and Freddie Mac purchase loans that meet specific underwriting standards such as loan size, documentation, and payment-to-income ratio. The loans that Fannie Mae and Freddie Mac are eligible to purchase are commonly referred to as
conforming conventional loans
Created by Congress to promote an active secondary market for home mortgages, Fannie Mae and Freddie Mac purchase loans that meet specific underwriting standards such as loan size, documentation, and payment-to-income ratio. The loans that Fannie Mae and Freddie Mac are eligible to purchase are commonly referred to as
conforming conventional loans.
Created by Congress to promote an active secondary market for home mortgages, Fannie Mae and Freddie Mac purchase loans that meet specific underwriting standards such as loan size, documentation, and payment-to-income ratio. The loans that Fannie Mae and Freddie Mac are eligible to purchase are commonly referred to as government-sponsored loans. conforming conventional loans. nonconforming conventional loans. FHA loans.
conforming conventional loans.
Recording documents in the public records informs anyone who may have a potential interest in a property of both the owner and lender. In so doing, it provides what is commonly referred to as ________ of an interest in real property.
constructive notice
To finance property where either the borrower, the property, or both fail to qualify for standard mortgage financing, a common nonmortgage solution is through the:
contract deed
To finance purchase of a property where the borrower, the property, or both fail to qualify for standard mortgage financing, a traditional nonmortgage solution is through the: a. Subprime loan b. Deed of trust c. Unsecured loan d. Contract for deed e. Balloon loan
contract for deed
Any standard home loan that is not insured or guaranteed by an agency of the US government is a ____ mortgage loan.
conventional
any standard home loan that is not insured or guaranteed by an agency of the US government is a _____ mortgage loan.
conventional
Considered the most common type of home loan, which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S. government?
conventional home loan
Considered the most common type of home loan, which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S. government? conventional home loan Federal Housing Administration loan Veterans Affairs loan Section 203 loan
conventional home loan
Considered the most common type of home loan, which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S. government? conventional home loan Federal Housing Administration loan Veterans Affairs loan Section 203 loan
conventional home loan
Private mortgage insurance applies to ____ mortgage loans, and generally is required on mortgages with a loan-to-value ratio exceeding ____ percent of value.
conventional. 80 (or eighty).
Reasons why both Net Benefit and Net Present Value analysis of refinancing tend to overstate actual benefits include:
cost of personal time and hassle. risk that rates could decline further. income tax effects.
in selecting from alternative responses to default that are short of foreclosure, the probable order of choices in term of severity, from mildest to most severe would be:
counseling and financial reorginization, reduction or postponenment of mortgage payments, short sale, deed in lieu of foreclosure.
An important difference between states requiring judicial foreclosure and states allowing power of sale is that the latter do not require a ____ - administered public auction.
court
An important difference between states requiring judicial foreclosure and states allowing power of sale is that the latter do not require a ____ administered public auction
court
A mortgage note usually adds to its clauses all the ____ of the mortgage.
covenants
A mortgage note usually incorporates all of the _________ of the mortgage.
covenants
A mortgage note adds to its clauses all the
covenants of the mortgage
The amortization schedule of mortgage shows: a. Principle balance declines with each equation b. That the interest portion of payment declines with each payment c. That the portion of the payment representing payment of principle increases with each payment d. all the above
d
Which of the following is a major type of mortgage-related securities? a. Mortgage-backed bonds b. Mortgage pass-through securities c. Collateralized mortgage obligations d. all of the above
d
Given the following information on a fixed-rate loan, determine the maximum amount that the lender will be willing to provide to the borrower. Loan team: 30 years; monthly payment: $800; interest rate: 6% a) $6,707 b) $9,295.15 c) $13,333 d) $133,433
d) $133,433 FV = 0 PMT = 800 N = 30*12 i = 6/12 CPT PV
Throughout the process of originating and selling mortgages, mortgage companies face a number of risks. Therefore, it is important for a lending institution to evaluate the risks of mortgage loan default through a process commonly referred to as a) mortgage fallout b) loan servicing c) negative amortization management d) loan underwriting
d) loan underwriting
Many older, retired households are considered "house rich, income poor." Which of the following forms of loans has been designed to help mitigate this problem by offering additional monthly income to these homeowners in exchange for a portion of their housing equity? a) private mortgage insurance (PMI) b) adjustable rate mortgage c) home equity loan d) reverse annuity mortgage
d) reverse annuity mortgage
Which of the following is NOT a major type of mortgage-related securities? a.) Mortgage backed bonds(MBBs) b.)Mortgage pass-through securities(MPTs) c.)Collateralized mortgage obligations(CMOs) d.)Federal Housing loan obligations(FHLOs)
d. Federal Housing loan obligations
With what type of loan security arrangement is the deed held by a neutral third party and returned upon payment of the mortgage in full? a. Contract for deed b. Mortgage c. Deed of trust d. Nonrecourse loan e. Recourse loan
deed of trust
In some states, including California, a ____ of ____ is used instead of a mortgage.
deed. trust.
In some states, including California, a of ____ is ____ used instead of a mortgage.
deed. trust.
the consequence of prolonged delinquency; the failure of a borrower to meet the terms and conditions of a note.
default
common types of prepayment penalties for mortgage loans include
defeasance requirement, yield maintenance penalty, fee equal to a percentage of the remaining balance.
In case of default, funds not recovered by a lender through foreclosure can be pursued through a ____ judgment.
deficiency
in case of default, funds not recovered by a lender through foreclosure can be pursued through a
deficiency
A lender may reserve the right to require prepayment of a loan at any time they see fit through a(n): a. Taking clause b. Acceleration clause c. Demand clause d. Due-on-sale clause e. Escrow clause
demand clause
a right that permits the lender to demand prepayment of the loan.
demand clause
"Trigger" events that may precipitate home mortgage default under the right conditions can include:
divorce. abrupt payment increase. unemployment. death in the household. health failure.
Alt-A loans were characterized mainly by high loan-to-value ratio, high interest rate and no ____ of borrower financial circumstances.
documentation
alt-a loans were characterized mainly by high loan-to-value ratio, high interest rate and no _____ of borrower financial circumstances.
documentation
The primary reason lenders require escrow payments is because:
each required payment reduces the lander's risk of loss
the existence of a well functioning secondary mortgage market makes the primary mortgage market more _____.
efficient
reasons for using debt financing in real estate include to:
enable greater diversification by purchase of more assets, preserve cash for use in one's primary business, enable the purchase of a home, lever the purchase of investment property for higher returns.
The characteristics of a borrower that can be considered by a lender in a mortgage loan application are limited by the: a. Truth-in-lending act b. Real estate settlement procedures act c. Equal credit opportunity act d. Home ownership and equity protection act e. Community reinvestment act
equal credit opportunity act
In foreclosure the defaulted borrower has the right to redeem the property up to the time of sale at public auction by paying off the defaulted loan and paying foreclosure expenses of the lender. This is the right called ____ ____ ____.
equity of redemption
In foreclosure the defaulted borrower has the right to redeem the property up to the time of sale at public auction by paying off the deaulted laon and paying foreclosure expeneses of te lender thi is the right called
equity of redemption
In addition to requirements concerning use of the Loan Estimate and the Closing Disclosure, RESPA sets limits on required ____ deposits.
escrow
Which of these points in a mortgage loan would be addressed in the mortgage (possibly in the note as well)? a. Loan amount b. Interest rate c. Late fees d. Escrows e. Loan term
escrows
Market Comparison Approach
estimate of value is obtained by comparing subject property with recently sold comparable properties, works best for residential properties
The main risk of a reverse mortgage, called mortality risk, is that the accumulating balance on the loan will ____ the value of the ____.
exceed, outweigh, or surpass. house, property, or home.
the main risk of a reverse mortgage, called mortality risk, is that the accumulating balance on the loan will _____ the value of the _____.
exceed; property
Common types of prepayment penalties for mortgage loans include:
fee equal to a percentage of the remaining balance. yield maintenance penalty. defeasance requirement.
Characteristics of Qualified Mortgages include:
fees no greater than 3 percent. term no longer than 30 years, ARM loans must be underwritten to highest rate in first five years. fully amortizing, with level payments.
In contrast to conventional home loans, the interest-only balloon loan requires the borrower to pay off the loan with a balloon payment equal to the original balance after
five to seven years.
Features of the hybrid mortgage loan include a(n) ____ rate for the first few years, followed by a(n) ____ rate for the remainder of the loan term. At all times the regular payment is sufficient to fully ____ the loan by the end of the term.
fixed. adjustable. amortize, payoff, or repay.
The option ARM typically allowed the borrower to select among several choices of payments, including;
fully amortizing payment. minimum payment resulting is significant negative amortization. interest only payment.
Which of the following types of institutions has historically been the largest purchaser of residential mortgages?
government-sponsored enterprises
Which of the following types of institutions has historically been the largest purchaser of residential mortgages? commercial banks savings and loans government-sponsored enterprises mortgage banking companies
government-sponsored enterprises
Which of the following types of institutions has historically been the largest purchaser of residential mortgages? commercial banks savings and loans government-sponsored enterprises mortgage banking companies
government-sponsored enterprises
A general guide to the amount of debt financing on a home is that you should use debt financing up to the point where the interest cost of more debt financing is ____ than the return the additional equity funds released can earn in other uses.
greater, higher, more, or larger
The central question in the refinancing decision is whether the value of future reductions in loan payments is ____ than the cost of refinancing.
greater, more, larger, or higher
State licensing laws prescribe behavioral requirements with which licensees must comply to keep their licenses. Licensing laws generally seek to prevent brokers from partaking in all of the following activities EXCEPT:
handling money in trust for clients.
Foreclosure tends to be quickest in states that: a. Are title theory states b. Are lien theory states c. Have judicial foreclosure d. Have power of sale e. Have statutory redemption
have power of sale
At the closing, the buyer will be credited for a number of costs that have been paid up-front (or will be paid after closing) as well as a number of prorated expenses that account for the period of time during which the seller occupied the house. All of the following items detailed in the closing costs involve credits that are commonly passed on to the buyer except
hazard insurance premium
When a loan is paid off early it can change the effective interest cost of the loan because any upfront expenses are effectively spread over a shorter time span, causing them to equate to a ____ interest charge increment. So the earlier the prepayment, the ____ the resulting effective interest cost.
higher, larger, or greater. higher, larger, or greater.
when a loan is paid off early it can change the effective interest cost of the loan because any upfront expenses are effectively spread over a shorter time span, causing them to equate to a _____ interest charge increment. so earlier the prepayment, the _____ the resulting effective interest cost.
higher; higher
While a demand clause is rare in fixed-term standard ____ mortgage loans it is common in "home equity" credit line loans from a ____ bank.
home (or residential). commercial.
While a demand clause is rare in fixed-term standard ____ mortgage loans it is common in "home equity" credit line loans from a ____ bank
home, commercial
A buyer acquires a property with existing mortgage debt either "subject to" the debt or by assuming the debt. In which case can default result in foreclosure?
in both cases
Of the several reasons why net benefit analysis and net present value analysis can overstate the value of refinancing, one that applies only to a minority of U.S. households today is:
income tax effects
The element of an adjustable rate that is the "moving part" is the: a. teaser rate b. index c. margin d. adjustment period e. none of these
index
a market-determined interest rate that is the "moving part" in an adjustable interest rate.
index rate
Elements of an adjustable mortgage interest rate can include:
index rate, margin, adjustment period, caps, change rate
requires the borrower/mortgagor to maintain property casualty insurance acceptable to the lender, giving the lender joint control in the use of the proceeds in case of major damage to the property.
insurance clause
The refinancing decision is sometimes oversimplified into a few rules of thumb that a borrower uses in order to gauge its potential benefits. Which of the following methodologies is criticized for its inability to account for a variation in refinancing benefits due to cost or holding period differences?
interest rate spread
In case of default, accepting a deed in lieu of foreclosure can be preferable to foreclosure for the lender because:
it can be less disruptive to a business property. it creates less public attention. it is quicker.
the process of bringing the property of delinquent borrowers to public sale that involves court action. Proceeds from the foreclosure sale are used to pay off, to the extent possible, the borrower's creditors.
judicial foreclosure
A conventional mortgage loan that meets all the requirements of Fannie Mae and Freddie Mac except that it is too large is called a ____ conventional mortgage.
jumbo
a conventional mortgage loan that meets all the requirements of fannie mae and freddie mac except that it is too large is called a _____ conventional mortgage.
jumbo
Which of these aspects of a mortgage loan will be addressed in the note rather than in the mortgage? a. Late fee b. Escrow requirement c. Takings d. Acceleration e. Maintenance of property
late fee
fees assessed for standard home loans when payments are received after the 15th of the month the payment is due. Also found in commercial mortgages.
late fees
In the FHA Home Equity Conversion Mortgage (HECM) program FHA commits to the lender that if the balance at sale exceeds the value of the house, FHA will pay the difference to the ____.
lender
in the FHA home equity conversion mortgage (HECM) program FHA commits to the lender that if the balance at sale exceeds the value of the house, FHA will pay the difference to the _____.
lender
In the simplest form of a reverse mortgage the ____ makes regular or occasional payments to the ____ and the loan is not paid off until sale of the property.
lender. borrower (or homeowner).
The hybrid mortgage is interesting as a solution to a long-standing conflict between home mortgage borrowers and depository lenders. The ____ wants interest rates and payments to adjust as frequently as possible while the ____ wants as much payment predictability as possible.
lender. borrower.
Private mortgage insurance protects only a ____ and only against losses due to ____.
lender. default.
the hybrid mortgage is interesting as a solution to a long-standing conflict between home mortgage borrowers and depository lenders. the _____ wants interest rates and payments to adjust as frequently as possible while the _____ wants as much payment predictability as possible.
lender; borrower
The most important effect on housing when interest rates rise is to make housing:
less affordable
Advantages from a lender's perspective with power of sale rather than judicial foreclosure include:
less costly. faster.
It would be hard to overstate the importance of the Federal Housing Administration (FHA) in the history of housing finance. Which of the following instruments created by the FHA is considered the single most important financial instrument in modern housing finance?
level-payment, fully amortizing loan
It would be hard to overstate the importance of the Federal Housing Administration (FHA) in the history of housing finance. Which of the following instruments created by the FHA is considered the single most important financial instrument in modern housing finance? level-payment, fully amortizing loan adjustable rate mortgage partially amortizing balloon loan subprime mortgage loan
level-payment, fully amortizing loan
It would be hard to overstate the importance of the Federal Housing Administration (FHA) in the history of housing finance. Which of the following instruments created by the FHA is considered the single most important financial instrument in modern housing finance? level-payment, fully amortizing loan adjustable rate mortgage partially amortizing balloon loan subprime mortgage loan
level-payment, fully amortizing loan
A major risk to the lender in foreclosure is that the process will overlook or fail to properly treat someone with a ____ on the property.
lien (or claim)
legal theory that interprets a mortgage as a lien rather than a temporary conveyance of title.
lien theory
In certain states, such as the state of Florida, the transfer of title to the lender does not occur until the borrower defaults. These states are referred to as
lien theory states
Loans eligible for purchase by Fannie Mae and Freddie Mac are much more ____, resulting in a lower contract ____, and more ____ terms ____ across lenders and regions.
liquid. interest. rate. uniform (or equal).
loans eligible for purchase by fannie mae and freddie mac are much more _____, resulting in a lower contract _____ _____, and more _____ terms across lenders and regions.
liquid; interest rate; uniform
The fundamental problem with the option ARM loan, as most commonly used, was that it created a rapid increase in the:
loan balance
The ability of homeowners to prepay the principal on their outstanding mortgage balance creates cash flow uncertainty for the lender. As a result, the lender may wish to prohibit prepayment on a mortgage loan for a specified period of time after its origination. This is accomplished through which of the following?
lockout provision
Home equity credit lines can offer homeowners several advantages over other consumer loans, including:
longer term. lower interest rate. tax deductible interest.
Lenders generally require private mortgage insurance (PMI) for conventional loans over 80% of the value of the security property. PMI protects a lender against which of the following?
losses due to default on the loan
Lenders generally require private mortgage insurance (PMI) for conventional loans over 80% of the value of the security property. PMI protects a lender against which of the following? -losses due to default on the loan -legal threat to the lender's mortgage claim -stoppage of mortgage payment after the death of the insured borrower - changes in the index rate associated with an adjustable rate mortgage
losses due to default on the loan
Lenders generally require private mortgage insurance (PMI) for conventional loans over 80% of the value of the security property. PMI protects a lender against which of the following? losses due to default on the loan legal threat to the lender's mortgage claim stoppage of mortgage payment after the death of the insured borrower changes in the index rate associated with an adjustable rate mortgage
losses due to default on the loan
Since conforming loans can be much more readily bought and sold in the secondary mortgage market, they carry a _______ interest rate than comparable nonconforming loans.
lower
Since conforming loans can be much more readily bought and sold in the secondary mortgage market, they carry a(n) _______ interest rate than comparable nonconforming loans.
lower
Since conforming loans can be much more readily bought and sold in the secondary mortgage market, they carry a(n) _______ interest rate than comparable nonconforming loans. higher equal lower more volatile
lower
Since conforming loans can be much more readily bought and sold in the secondary mortgage market, they carry a(n) _______ interest rate than comparable nonconforming loans. A. higher B. equal C. lower D. more volatile
lower
The "spread" or "markup" that a lender adds to the index rate in an adjustable mortgage rate is called the
margin
the "markup", typically two or three percentage points, over and above the index rate, which is charged on adjustable rate mortgages.
margin
ECOA, the Equal Credit Opportunity Act of 1974, prohibits discrimination in home mortgage lending on the basis of numerous criteria, including:
marital status and familial status. disability. national origin. age. sex. race. religion.
To put into perspective the amount of residential mortgage debt outstanding, it is useful to compare this market to other prominent sources of available debt. Listing the issuer with the largest amount of debt outstanding first, which of the following choices best depicts the relative rank ordering amongst the major sources of outstanding debt in the U.S. as of the end of 2018?
marketable U.S. government bonds, residential mortgage debt, corporate bonds, consumer credit
For a mortgage loan the number of months until the final payment is the term to ____.
maturity
for a mortgage loan the number of months until the final payment is called the term to
maturity
In the first half of the 20th century the need for efficient systems for home financing grew strongly, compelled by the growing need in urban society for household:
mobility
The monthly mortgage payment divided by the loan amount is commonly referred to as the
monthly loan constant.
Narrative appraisal estimate is..
more descriptive, costs 5-7 grand
a lien on real property as security
mortgage
The emergence of mortgage securities propelled the development of mortgage companies, an entity significantly different from the thrifts and banks that previously dominated the mortgage landscape. Which of the following parties is responsible for providing mortgage origination services and initial funding within this new framework?
mortgage banker
Originators of mortgage loans include:
mortgage brokers. savings and loan associations and credit unions. mortgage banking companies. commercial banks.
With the arrival of subprime mortgages in recent years, a new kind of trigger event became apparent in leading households to default. Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis?
mortgage payment spikes
With the arrival of subprime mortgages in recent years, a new kind of trigger event became apparent in leading households to default. Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis? death in the family divorce unemployment mortgage payment spikes
mortgage payment spikes
With the arrival of subprime mortgages in recent years, a new kind of trigger event became apparent in leading households to default. Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis? death in the family divorce unemployment mortgage payment spikes
mortgage payment spikes
Mortgage banks typically will attempt to sell loans as quickly as possible after they are originated by either issuing mortgage securities or selling the loan to an intermediary that will subsequently sell the loan in the secondary market. The period between loan commitment and loan sale is referred to as the
mortgage pipeline
the lender, who receives the mortgage claim.
mortgagee
the borrower or grantor of the mortgage claim.
mortgagor
The borrower in a mortgage loan, because they convey the mortgage lien to the lender is called the ____, while the lender who receives the lien is the ____.
mortgagor. mortgagee.
Two conditions that generally appear to be required before a "trigger event" causes home mortgage default are;
negative equity. value of housing services falling below the monthly cost.
The most complete approach to the refinancing question is to view it as a question of ____ ____ ____.
net present value
Under traditional common law, a mortgage borrower had ____ right of prepayment unless it was explicitly stated in the note.
no
Different methods of amortization of a mortgage loan include:
non-amortizing, in which the regular payments are interest only and the full balance is paid off in the last payment. fully amortizing, in which the loan exactly pays off with the last regular payment. partially amortizing, in which a final, larger balance payoff is required in the last payment.
loans that require interest payments but no regularly scheduled principal payments.
nonamortizing
loans that relieve the borrower of personal liability but do not release the property as collateral for the loan.
nonrecourse loans
Reasons a deficiency judgment seldom is pursued include:
nonresidential loans usually are nonrecourse loans. some states do not always permit deficiency judgments. a defaulting borrower usually has few, if any, financial resources.
Reasons a deficiency judgement seldom is pursued include:
nonresidential loans usually are nonrecouse loans, a defaulting borrower usually has few, if any, financial recsources, some states do not always permit deficiency judgements.
the document (contract) defining the exact terms of a debt obligation and the liability of the borrower for the obligation.
note
Default is failure to meet the requirements of the ____ and, by reference, the ____.
note. mortgage.
The two documents of a mortgage loan are the ____ and the ____.
note. mortgage.
the maximum guarantee on a VA loan is specified as _____ of the maximum allowable loan purchased by fannie mae or freddie mac.
one fourth
Suppose a homeowner is reluctant to refinance until he is reasonably sure that interest rates are not going to fall appreciably from where they currently are. In this case, the homeowner appears to be concerned about which of the following costs associated with refinancing?
opportunity cost
Mortgage loans that allow the borrower to switch among a variety of payment arrangements throughout the life of the loan are more commonly referred to as
option ARM loans
Mortgage loans that allow the borrower to switch among a variety of payment arrangements throughout the life of the loan are more commonly referred to as subprime loans. option ARM loans. hybrid ARM loans. alt-A loans.
option ARM loans
Mortgage loans that allow the borrower to switch among a variety of payment arrangements throughout the life of the loan are more commonly referred to as
option ARM loans.
Most subprime loans were:
option ARM. 2-28 hybrid. interest only.
The premium on PMI is some combination of a lump sum payment at loan ____ or ____ installments.
origination. monthly.
the premium on PMI is some combination of a lump sum payment at loan _____ or _____ installments.
origination; monthly
caps on adjustable rate mortgages that limit interest rate changes over the life of the loan.
overall caps
In case of default on a mortgage payment, if the lender could not declare the entire loan due and payable, the lender could foreclose only on the amount ____, which would never be worth the cost of foreclosure.
overdue (or defaulted)
foreclosure is a legal process of terminating the ____ of the borrower and all ____ inferior to the mortgage
ownership, liens
Foreclosure is a legal process of terminating the ____ of the borrower and all ____ inferior to the mortgage.
ownership. liens.
a loan alternative in which the outstanding principal is partially repaid over the life of the loan, then fully retired with a larger lump sum "balloon" payment at maturity.
partially amortizing
A due-on-sale clause in a mortgage gives the lender the right to require that the borrower ____ ____ the loan if they sell, or in substance, sell the property.
pay off (or back)
protects the borrower against the shock of large payment charges; it is possible for the interest rate to increase enough that the resulting payment increase will not cover the additional interest cost.
payment caps
provisions in adjustable rate mortgages that limit change in the contract interest rate from one change date to the next.
periodic caps
liability assumed by borrowers that allows lenders to sue them personally for fulfillment of the contract.
personal liability
A second mortgage loan created at purchase along with a first mortgage of no more than 80 percent of value, can provide an alternative to mortgage insurance as a way to increase total financing above 80 percent of value. This kind of mortgage is called a ____ mortgage.
piggyback
a second mortgage loan created at purchase along with a first mortgage of no more than 80 percent of value, can provide an alternative to mortgage insurance as a way to increase total financing above 80 percent of value. this kind of mortgage is called a _____ mortgage.
piggyback
In recent years, mortgage lenders responded to the demand from home buyers who were unable to put 20% down on their purchase and were looking to avoid the private mortgage insurance (PMI) requirement that would typically accompany such a loan by developing a second mortgage that is created simultaneously with the first mortgage in an amount of 10% of the value of the home. This enabled the borrower to obtain 90% financing while avoiding the additional cost of PMI. These loans are more commonly referred to as
piggyback mortgage loans.
In recent years, mortgage lenders responded to the demand from home buyers who were unable to put 20% down on their purchase and were looking to avoid the private mortgage insurance (PMI) requirement that would typically accompany such a loan by developing a second mortgage that is created simultaneously with the first mortgage in an amount of 10% of the value of the home. This enabled the borrower to obtain 90% financing while avoiding the additional cost of PMI. These loans are more commonly referred to as reverse mortgages. home equity loans. piggyback mortgage loans. subprime mortgage loans.
piggyback mortgage loans.
In recent years, mortgage lenders responded to the demand from home buyers who were unable to put 20% down on their purchase and were looking to avoid the private mortgage insurance (PMI) requirement that would typically accompany such a loan by developing a second mortgage that is created simultaneously with the first mortgage in an amount of 10% of the value of the home. This enabled the borrower to obtain 90% financing while avoiding the additional cost of PMI. These loans are more commonly referred to as reverse mortgages. home equity loans. piggyback mortgage loans. subprime mortgage loans.
piggyback mortgage loans.
mortgage provision that grants the authority to conduct
power of sale
Subprime and Alt-A loans were mostly distinguished not so much by their loan design but by lending ____ and borrower ____.
practices. circumstances.
subprime and alt-a loans were mostly distinguished not so much by their loan design but by lending _____ and borrower _____.
practices; circumstances
APR, while valuable in comparing the costs of mortgage loans has one main limitation: APR assumes the loan is never ____, while this actually happens to almost every home loan during the early part of its term.
prepaid
A demand clause in a mortgage loan gives the lender the right, at any time they deem necessary, to demand ____ of the loan.
prepayment (or payoff)
charges, designed to discourage prepayment, incurred when a mortgage is repaid before maturity
prepayment penalties
Reasons for using debt financing in real estate include to:
preserve cash for use in one's primary business. enable the purchase of a home. enable greater diversification by purchase of more assets. lever the purchase of investment property for higher returns.
The loan origination market - where loans are created - is called the ____ mortgage market.
primary
The loan origination market, in which borrowers and lenders come together to provide adequate financing for the purchase of a property, is more commonly referred to as the
primary mortgage market
Two polar classes of conventional mortgage loans are ____ and ____.
prime. subprime.
an event that enabled the long maturity and high loan-to-value ratio of modern prime conventional mortgages was the creation after world war II of _____ _____ _____.
private mortgage insurance
The FHA provides insurance against losses due to default on mortgages made by ____ lenders, with the insurance premium paid by the ____.
private. borrower.
An event that enabled the long maturity and high loan-to-value ratio of modern prime conventional mortgages was the creation after World War II of ____ ____ ____.
private. mortgage. insurance.
The central guide on how much debt a homeowner should place on their house is whether the borrowing cost of additional debt exceeds the:
productivity or usefulness of the funds obtained
the variety of home mortgage loans offered by lenders tends to be those types of loans for which there is a _____ _____.
profitable market
Power of sale foreclosure has statutory protections for the borrower, including requirements for:
proper sale procedure. required minimum time before the sale. proper legal notice to the borrower.
Suppose a buyer agrees to purchase a tract of land for $40,000. The buyer is only able to obtain a mortgage for $32,000. Rather than let the deal fall through, the seller agrees to accept $4,000 in cash and a note from the buyer for the remaining $4,000. This type of transaction is commonly referred to as
purchase money mortgage
Suppose a buyer agrees to purchase a tract of land for $40,000. The buyer is only able to obtain a mortgage for $32,000. Rather than let the deal fall through, the seller agrees to accept $4,000 in cash and a note from the buyer for the remaining $4,000. This type of transaction is commonly referred to as a
purchase money mortgage
Suppose a buyer agrees to purchase a tract of land for $40,000. The buyer is only able to obtain a mortgage for $32,000. Rather than let the deal fall through, the seller agrees to accept $4,000 in cash and a note from the buyer for the remaining $4,000. This type of transaction is commonly referred to as a:
purchase money mortgage
Suppose a buyer agrees to purchase a tract of land for $40,000. The buyer is only able to obtain a mortgage for $32,000. Rather than let the deal fall through, the seller agrees to accept $4,000 in cash and a note from the buyer for the remaining $4,000. This type of transaction is commonly referred to as a: A. conventional loan B. home equity mortgage C. purchase money mortgage D. reverse mortgage
purchase money mortgage
Suppose a buyer agrees to purchase a tract of land for $40,000. The buyer is only able to obtain a mortgage for $32,000. Rather than let the deal fall through, the seller agrees to accept $4,000 in cash and a note from the buyer for the remaining $4,000. This type of transaction is commonly referred to as a
purchase money mortgage.
Suppose a buyer agrees to purchase a tract of land for $40,000. The buyer is only able to obtain a mortgage for $32,000. Rather than let the deal fall through, the seller agrees to accept $4,000 in cash and a note from the buyer for the remaining $4,000. This type of transaction is commonly referred to as a conventional loan. home equity mortgage. purchase money mortgage. reverse mortgage.
purchase money mortgage.
Suppose a buyer agrees to purchase a tract of land for $40,000. The buyer is only able to obtain a mortgage for $32,000. Rather than let the deal fall through, the seller agrees to accept $4,000 in cash and a note from the buyer for the remaining $4,000. This type of transaction is commonly referred to as a conventional loan. home equity mortgage. purchase money mortgage. reverse mortgage.
purchase money mortgage.
While government agencies generally classify any mortgage that finances a home ____ as a purchase money mortgage, real estate brokers limit the term to any mortgage lien given from a ____ to the ____.
purchase. buyer. seller.
while government agencies generally classify any mortgage that finances a home _____ as a purchase money mortgage, real estate brokers limit the term to any mortgage lien given from a _____ to the _____.
purchase; buyer; seller
Based on your understanding of the risks associated with different mortgage loan types, which of the following mortgage loans would be considered the safest with respect to default risk?
qualified mortgage loans
The Dodd-Frank Wall Street Reform and Consumer Protection Act created an important new class of home mortgages that is aimed at helping mortgage lenders implement an "ability to repay" standard imposed by the law. These mortgages are more commonly referred to as
qualified mortgage loans.
The Dodd-Frank Wall Street Reform and Consumer Protection Act created an important new class of home mortgages that is aimed at helping mortgage lenders implement an "ability to repay" standard imposed by the law. These mortgages are more commonly referred to as subprime mortgage loans. qualified mortgage loans. hybrid mortgage loans. alt-A mortgage loans.
qualified mortgage loans.
The Dodd-Frank Wall Street Reform and Consumer Protection Act created an important new class of home mortgages that is aimed at helping mortgage lenders implement an "ability to repay" standard imposed by the law. These mortgages are more commonly referred to as subprime mortgage loans. qualified mortgage loans. hybrid mortgage loans. alt-A mortgage loans.
qualified mortgage loans.
Equal credit opportunity act:
race, color, religion, national origin, sex, marital status, age, familial status, disability, or because all or part of an applicant's income derives from a public assistance program.
Fill in the blanks to complete the sentence. A risk that a lender faces in agreeing to change the schedule of payments for a defaulting borrower is that courts may view the change as a new, replacement mortgage, with priority below any other existing lien. This risk is known as ____ of the mortgage.
recasting
loans in which the borrower has personal liability and the lender has legal recourse against the borrower in case of default.
recourse loans
A major focus of the HOME mortgage disclosure act and the community reinvestment act was to identify and suppress discrimination against neighborhoods on the basis of demographics, a practice called
redlining
A major focus of the Home Mortgage Disclosure Act (HMDA) was to prohibit home mortgage lenders from the practice called:
redlining
term used to describe when mortgage lenders avoid certain neighborhoods without regard to the merits of the individual loan applications.
redlining
A central characteristic of most subprime and Alt-A loans was that at some point the borrower would be forced by the threat of a large payment increase to ____ in order to postpone the increase.
refinance
With the option ARM, the minimum payment eventually reset to a fully amortizing level to pay off the now enlarged loan. The threat of the payment increase often forced the borrower to count on appreciation of the house and seek ____ to start the cycle over.
refinancing
with the option ARM, the minimum payment eventually reset to a fully amortizing level to pay off the now enlarged loan. the threat of the payment increase often forced the borrower to count on appreciation of the house and seek _____ to start the cycle over.
refinancing
Creation of the CFPB (Consumer Financial Protection Bureau) was a significant departure in national consumer protection in that CFPB was empowered to oversee and enforce:
regulation of unfair or deceptive practices. national consumer protection laws. national anti-discrimination laws in consumer finance.
The Qualified Mortgage created in the Dodd-Frank Act of 2010 sets an ability-to-____ standard for most home mortgages. Loans meeting the standard receive "safe harbor" protection against legal defenses of the ____ in case of default.
repay. borrower.
the qualified mortgage created in the dodd-frank act of 2010 sets an ability-to-_____ standard for most home mortgages. loans meeting the standard receive "safe harbor" protection against legal defenses of the _____ in case of default.
repay; borrower
As the loan-to-value (LTV) of a loan is higher the effective interest cost increases. This can result from multiple factors, including:
required mortgage insurance above 80 percent LTV. Higher interest rate on the first mortgage due to higher risk classification. Higher cost of a "piggyback" second mortgage.
(recession) the termination of a contract by cancellation. Under the truth-in-lending act, a borrower's right to cancel a nonpurchase loan contract within three days that is secured by his or her principal residence.
rescind
Under the Truth-in-Lending Act, a home mortgage borrower has the right to cancel a mortgage loan within three business days after consummation of the loan, so long as it is not for purchase or construction of a principal residence. This is known as the right to:
rescind
In modern times most state laws provide for some right of prepayment at least for
residential
In modern times most state laws provide for some right of prepayment at least for ____ first mortgage loans.
residential (or home)
Prepayment penalties are limited to a small percentage of ____ mortgage loans, while they exist for most mortgage loans on ____ real estate.
residential (or home). commercial.
While the borrower is personally liable in almost all ____ mortgage loans, most borrowers are not personally liable for ____ property mortgage loans.
residential (or home). commercial.
Prepayment penalties are limited to a small percentage of ____ mortgage loans, while they exist for most mortgage loans on _____ real estate
residential, commercial
Many older, retired households are considered "house poor." Which of the following forms of loans has been designed to help mitigate this problem by offering additional monthly income to these homeowners in exchange for a portion of their housing equity?
reverse mortgage
Common sources of a home equity loan can include:
savings institutions. credit unions. commercial banks.
Mortgage originators can either hold loans in their portfolios or sell them to investors. When a mortgage originator decides to sell mortgages to an institution, for example, this transaction occurs in what is commonly referred to as the:
secondary mortgage market
Mortgage originators can either hold loans in their portfolios or sell them to investors. When a mortgage originator decides to sell mortgages to another institution, this transaction occurs in what is commonly referred to as the: A. primary mortgage market B. secondary mortgage market C. over-the-counter market D. loan origination market
secondary mortgage market
ortgage originators can either hold loans in their portfolios or sell them to investors. When a mortgage originator decides to sell mortgages to another institution, this transaction occurs in what is commonly referred to as the
secondary mortgage market
Mortgage originators can either hold loans in their portfolios or sell them to investors. When a mortgage originator decides to sell mortgages to another institution, this transaction occurs in what is commonly referred to as the primary mortgage market. secondary mortgage market. over-the-counter market. loan origination market.
secondary mortgage market.
Problems or risks with a contract for deed include:
seller may encumber the property with liens after the sale. no assurance that clear title can be delivered. absence of standards of practice in such transactions.
Om forclosure, the priority of a lien is very important since all liens tend to default at once, and the
senior (government)
In foreclosure, the priority of a lien is very important since all liens tend to default at once, and the ____ lien gets total satisfaction before the next lien gets anything.
senior, first, 1st, or superior
Because it is the quickest form of bankruptcy proceeding, and still preverse the mortgage lien of the lender, lenders prefer, if bankruptcy isto happen, that is be a chapter
seven
if a default goes into residential borrower's record, it remains for
seven
When a defaulting borrower arranges to bring to the lender a buyer of the property who is offering a price below the mortgage balance,and the lender accepts, this is known as a
short sale
if a homeowner in mortgage distress owes more than the value of the home and is unable to make the loan manageable by refinancing or modifying the mortgage, the next recourse often is a short sale.
short sale
When interest rates became very volatile in the 1970s the main home mortgage lenders, S&Ls and banks, faced a devastating maturity mismatch problem due to ____ term liabilities and ____ term home mortgage assets. They could reduce this problem by changing their mortgage loans to ____ ____ mortgages.
short. long. adjustable. rate.
when interest rates became very volatile in the 1970s main home mortgage lenders, S&Ls and banks, faced a devastating maturity mismatch problem due to _____ term liabilities and _____ term home mortgage assets. they could reduce this problem by changing their mortgage loans to _____ _____ morgages.
short; long; prime rate
In recent years, home equity loans have become a popular form of second mortgage. Their popularity has been a result of all of the following except
shorter terms than other consumer debt
In recent years, home equity loans have become a popular form of second mortgage. Their popularity has been a result of all of the following except
shorter terms than other consumer debt.
In recent years, home equity loans have become a popular form of second mortgage. Their popularity has been a result of all of the following except lower interest rates than other consumer debt. shorter terms than other consumer debt. tax-favored status. aggressive marketing by lenders.
shorter terms than other consumer debt.
In recent years, home equity loans have become a popular form of second mortgage. Their popularity has been a result of all of the following except lower interest rates than other consumer debt. shorter terms than other consumer debt. tax-favored status. aggressive marketing by lenders.
shorter terms than other consumer debt.
If a buyer purchases a property "subject to" an existing mortgage this means that the buyer did not ____ the ____, and is not personally liable for the loan.
sign. note.
In general, a mortgage borrower takes on personal liability for a loan upon ____ the note
signing
In general, a mortgage borrower takes on personal liability for a loan upon ____ the note.
signing
When the seller in a contract for sale fails to perform (e.g., breach of contract, nonperformance, or default), the buyer has a variety of remedies. One such remedy is to appeal to the court to force the defaulting seller to carry out the contract. This remedy is most commonly referred to as suing for
specific perfomance
Two refinance "rules of thumb" commonly offered in the media are a spread rule and a payback rule. Between these two rules, the ____ rule is particularly deficient, amounting to an attempt to use a single dimension answer for a multi dimension problem.
spread
two refinance "rules of thumb" commonly offered in the media are a spread rule and a payback rule. between these two rules, the _____ rule is particularly deficient, amounting to an attempt to use a single dimension answer to a multi dimension problem?
spread
The long-term fixed-rate level-payment home mortgage works best in an environment of ____ and ____ interest rates.
stable. low.
the long-term fixed-rate level-payment home mortgage works best in an environment of _____ (stable/unstable) and _____ (high/low) interest rates.
stable; low
When a borrower decides to stop making payments on an existing mortgage loan despite having the ability to make payments (typically when the home has lost value), this is more commonly referred to as a(n)
strategic default
When a borrower decides to stop making payments on an existing mortgage loan despite having the ability to make payments (typically when the home has lost value), this is more commonly referred to as a(n)
strategic default.
When a borrower decides to stop making payments on an existing mortgage loan despite having the ability to make payments (typically when the home has lost value), this is more commonly referred to as a(n) equity redemption. statutory redemption. strategic default. reverse mortgage.
strategic default.
When a borrower decides to stop making payments on an existing mortgage loan despite having the ability to make payments (typically when the home has lost value), this is more commonly referred to as a(n) equity redemption. statutory redemption. strategic default.
strategic default.
when a buyer acquires a property having an existing mortgage loan and begins making the required payments without assuming personal responsibility for the note.
subject to
When a buyer of a property with an existing mortgage loan acquires the property without singing the note for the existing loan, the buyer is acquiring the property: a. By assumption b. By contract for deed c. By deed of trust d. By default e. Subject to the mortgage
subject to the mortgage
The Home Ownership and Equity Protection ACt was enacted out of convern for abusive and predatory practices in ____ mortgage lending
subprime
The Home Ownership and Equity Protection Act (HOEPA) was enacted out of concern for abuse and predatory practices in _________ mortgage lending.
subprime
The Home Ownership and Equity Protection Act (HOEPA) was enacted out of concern for abusive and predatory practices in ____ mortgage lending.
subprime
loans made to homeowners who do not qualify for standard (prime) home loans. Subprime loans can have high fees, and costly prepayment penalties that "lock in" the borrower to a high interest rate.
subprime loans
A type of loan that occurred in recent years, which raised concerns about predatory lending practices, was the: a. Adjustable rate mortgage b. Contract for deed c. Purchase money mortgage d. Subprime mortgage e. Power of sale mortgage
subprime mortgage
An important challenge that a foreclosing lender may face is to negotiate some understanding with anyone holding a claim that is _____ to the lender's claim since the foreclosure cannot terminate that claim
superior
An initial arbitrarily reduced interest rate on an adjustable rate mortgage usually is called a ____ rate.
teaser
the initial interest rate on an adjustable rate mortgage if it is less than the index rate plus the margin at the time of origination.
teaser rate
Failure to meet some condition required by a mortgage while still maintaining timely payments is referred to as
technical
Failure to meet some condition required by a mortgage while still maintaining timely payments is referred to as ____ default.
technical
The note defines the exact ____ and ____ of a loan
terms and conditions
The note defines the exact ____ and ____ of a loan.
terms. conditions.
Of the reasons why net benefit analysis and net present value analysis may overstate the value of refinancing a home mortgage loan, which is likely to be most common among average homeowners?
the "hassle" (time and discomfort) involved
The index rate in an adjustable mortgage interest rate is
the "moving part" of the rate. required to be regularly reported. beyond the control of the borrower.
Late fees are assessed as a percentage of:
the amount of principal and interest over-due
Attractions of the hybrid mortgage include:
the borrower has fixed payments during the early, most budget-sensitive years. the lender faces much lower interest rate risk than with a fixed rate loan. the borrower can expect a rate lower than a standard fixed rate since the fixed term is shorter.
The most complete guides for mortgage refinancing decisions in use today account not only for interest rate spread, cost of financing and time you will keep the new mortgage, but also:
the effect of time value
Characteristics of an interest-only mortgage include:
the full balance must be paid off at maturity. the regular payment is significantly lower than with the level payment mortgage. the interest rate can be fixed or adjustable. payments are strictly interest.
Caps for an adjustable rate loan can limit the change in
the interest rate over the lifetime of the loan. the interest rate from one period to the next. the payment from one period to the next.
A common criticism of the annual percentage rate (APR) is that it usually understates the true cost of borrowing. The APR may understate the cost of borrowing because it assumes:
the loan always goes to maturity
A common criticism of the annual percentage rate (APR) is that it usually understates the true cost of borrowing. The APR may understate the cost of borrowing because it assumes: A. interest rates will always rise B. the loan always goes to maturity C. the actual life of the loan is shorter than maturity D. upfront fees should be ignored
the loan always goes to maturity
A common criticism of the annual percentage rate (APR) is that it usually understates the true cost of borrowing. The APR may understate the cost of borrowing because it assumes
the loan always goes to maturity.
A common criticism of the annual percentage rate (APR) is that it usually understates the true cost of borrowing. The APR may understate the cost of borrowing because it assumes interest rates will always rise. the loan always goes to maturity. - the actual life of the loan is shorter than maturity. upfront fees should be ignored
the loan always goes to maturity.
A common criticism of the annual percentage rate (APR) is that it usually understates the true cost of borrowing. The APR may understate the cost of borrowing because it assumes interest rates will always rise. the loan always goes to maturity. the actual life of the loan is shorter than maturity. upfront fees should be ignored.
the loan always goes to maturity.
To be considered a qualified mortgage, the loan must have specific features and meet designated underwriting requirements. Based on your understanding of what constitutes a qualified mortgage, all of the following features describe a qualified mortgage except
the loan does not require verification of underwriting information from third-party records
To be considered a qualified mortgage, the loan must have specific features and meet designated underwriting requirements. Based on your understanding of what constitutes a qualified mortgage, all of the following features describe a qualified mortgage except
the loan does not require verification of underwriting information from third-party records.
To be considered a qualified mortgage, the loan must have specific features and meet designated underwriting requirements. Based on your understanding of what constitutes a qualified mortgage, all of the following features describe a qualified mortgage except -the loan cannot exceed thirty years in maturity. -the loan cannot have fees in excess of 3% (if the loan is greater than $100,000). -the loan cannot have a debt-to-income ratio greater than 43%. -the loan does not require verification of underwriting information from third-party records.-
the loan does not require verification of underwriting information from third-party records.
To be considered a qualified mortgage, the loan must have specific features and meet designated underwriting requirements. Based on your understanding of what constitutes a qualified mortgage, all of the following features describe a qualified mortgage except -the loan cannot exceed thirty years in maturity. -the loan cannot have fees in excess of 3% (if the loan is greater than $100,000). -the loan cannot have a debt-to-income ratio greater than 43%. -the loan does not require verification of underwriting information from third-party records.
the loan does not require verification of underwriting information from third-party records.
Homeowners generally do not default by choice on a home mortgage loan, even when the value of the house is below the mortgage balance. Reasons for this can include:
the value of living in the house exceeds the monthly cost. relocation costs, both financial and non-financial. resulting household disruption. resulting damage to one's credit.
The truth-in-lending act gives some mortgages borrowers how long to rescind a mortgage loan? a. 24 hours b. Two days c. Three days d. A week e. A month
three days
A purchase money mortgage, in general, is any mortgage loan created simultaneous with exchange of ____.
title
A contract for deed differs from a "normal" sale of property with seller financing in that ______ by the seller until the installment payments are largely completed.
title is retained
A contract for deed differs from a normal sale of property with seller financing in that ____ by the seller until the installment payments are largely completed.
title is retained
lender receives title to the mortgaged property that ripens upon default.
title theory
It is possible to have a secured real estate loan without a mortgage through the use of a contract for deed. In contrast to the standard real estate sale, which of the following events occurs after the closing when dealing with a contract for deed?
title to the property passes to the buyer
Equity of redemption
to stop the foreclosure process by producing the amount due and paying the costs of the foreclosure process.
In dual agency, conflicts of interest may arise since a single broker has both the listing contract with the seller and a buyer agency agreement with the purchaser. One way that states have attempted to deal with this issue is to develop a new type of brokerage relationship in which the broker assists the buyer and seller, but does not represent either party. This type of brokerage relationship is commonly referred to as:
transaction brokerage.
A deed of trust and a mortgage are generally equivalent, except that the deed of trust is held for the lender by a third party, the ____, who acts in case of default, or returns the deed of trust to the borrower when the loan is paid off.
trustee
in mortgage lending, person who holds the deed on behalf of both the borrower and lender in a deed of trust.
trustee
The hybrid ARM attempts to balance the fixed payment desire of a borrower with the lender's desire to increase interest rates if market rates rise in the future. In its most common form, known as a 2-28, the hybrid ARM will have a fixed-interest rate for one year. two years. twenty-six years. twenty-eight years.
two years
The hybrid ARM attempts to balance the fixed payment desire of a borrower with the lender's desire to increase interest rates if market rates rise in the future. In its most common form, known as a 2-28, the hybrid ARM will have a fixed-interest rate for
two years.
The hybrid ARM attempts to balance the fixed payment desire of a borrower with the lender's desire to increase interest rates if market rates rise in the future. In its most common form, known as a 2-28, the hybrid ARM will have a fixed-interest rate for one year. two years. twenty-six years. twenty-eight years.
two years.
A fundamental problem in comparing the cost of mortgage loans is that cost is a combination of upfront expenses and annual interest. To solve this problem, APR converts ____ ____ into ____ ____.
upfront. expenses (or charges). annual. interest.
When calculating the net operating income of a property, it is important to identify any expenses that will be incurred in attempts to maintain the property. All of the following would be considered operating expenses except
utility expenses.
In addition to providing home mortgages, large commercial banks have specialized in providing short-term funds to mortgage banking companies in order to enable them to originate mortgage loans and hold the loans until the mortgage banking company can sell them in the secondary market. This type of financing is commonly referred to as
warehousing
In general, most contracts - including a real estate contract - can be assigned. All of the following statements regarding assignment are true EXCEPT:
when buyers assign their rights to someone else, they escape liability under the original contract.
The contract for deed can be a useful means of financing a property sale
when either the buyer or the property are substandard to a mortgage lender. when the purchase is too "speculative" to qualify for standard mortgage financing.
ECOA, the Equal Credit Opportunity Act of 1974 prohibits consideration in home mortgage lending of:
whether income is from part-time or full-time work. information about a spouse who is not part of the loan application. child bearing plans of a woman applicant. whether income is from public assistance.
Whether you should conduct refinancing analysis on a before tax basis or after tax basis depends on two considerations in US income tax law. You should use before tax analysis if:
you use a standard deduction rather than itemizing deductions you itemize deductions, but your total deductions, including interest, are little more than the standard deduction.
