Exam 6 termology

How does the Treasury operate?

1. Collects money through income tax payments, social security payments, and other means. 2. Deposits the collected funds with the Federal Reserve, as well as domestic and foreign banks 3. Funds government spending and pays bills

How many banks comprise of the fed?

12 regional banks and multiple member banks

Which of the following is a likely effect when the discount window is closed?

Banks don't have access to additional funds

Which of the following is an event that has a direct impact on property?

Builders required by the state to recycle aluminum during demolition

As foreclosures increased in 2007, what was the response from lenders?

Decrease lending activity

What is the purpose of the Federal Reserve System?

The Fed regulates the US. depository institutions.

What factors increase supply?

- Availability of properties (inventory) - Construction of new properties - Renovations or conversions of properties (turning a warehouse into residential units)

Expanision

- Companies are hiring, lowering unemployment - More buyers, heavy housing demands - Decreasing supply - Public confidence increases - Home prices rise

What factors may increase demand?

- High employment/low unemployment - stable or increasing wages - Consumer confidence - Availability of loans or credit - Low or falling interest rates - Growing population

Recession

- Unemployment Increases - Foreclosures Increase - Supply exceeds demand, more properties sit vacant - Public confidence falls - Home prices fall

Recovery

- Unemployment stabilizes, but remains high - Foreclosures remain high - High supply of homes on the market, but few buyers - General public unease - Home prices are undervalued

What are the three factors that define money?

- store of value - unit of account - medium of exchange

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

A standardized measure for interest rates and other loan costs

The supply of properties available in the market is greater than the number of buyers. What type of market does this describe?

Buyer's market

During which phase of the real estate cycle does a real estate professional have the most direct impact?

Buying/Selling

Which of the following is designed to make consumer financial products and services fair and transparent?

Consumer Financial Protection Bureau

Federal Reserve Banks

Each of the 12 Federal Reserve Banks has a nine member board of directors

Supply & Demand

Economic variables that are inversely proportionate to price

What do loans create for banks and other financiers?

Future cash income

Which of the following was created as part of the Homeowner Affordability and Stability plan?

Home Affordable Modification Program (HAMP)

Which of the following programs broke the normal 80/20 ratio rule usually required as a loan-to-value and offered favorable interest rates?

Home Affordable Refinance Program (HARP)

What is the general economic impact of mortgage loan payments?

Increase in economic growth

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

Increasing in hiring, employment and public confidence and lots of buyers in the market

which professionals are most utilized by the buyer prior to closing?

Lenders, title companies, appraisers and home inspectors

Which act temporarily removed the requirement that taxpayers whose homes were sold as a result of a foreclosure had to include the loan write-off amount as taxable income?

Mortgage Forgiveness Debt Relief Act of 2007

Mortgage Backed Securities (MBS)

Mortgages that are pooled together and sold to investors on the secondary mortgage market. Ex. MBSs are considered more appealing on the secondary market if they conform to Fannie Mae/Freddie Mac guidelines.

Which interest rate do banks use to offer consumer loans?

Prime Rate

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

The Federal Reserve

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

The economy may grow due to an increased money supply

The secondary market may act as balancing mechanism by making money available in hot local markets and providing a safe avenue for cold local markets to unload excess funds

True

Which of the following best describes collateral?

Using a house as security on a mortgage

Which of the following is a description of leveraging?

Using a small amount of cash to obtain a loan of a larger amount

Open Market Operations

When government securities are bought and sold in the open market in order to increase or decrease the amount of money in the banking system

subprime loans

a loan offered at a rate above prime to individuals who don't qualify for prime rate loans.

Annual Percentage Rate (APR)

a rate derived according to a government formula; intended to reflect the true cost of financing, and includes financing fees, so it will always be higher than the actual interest rate on a loan

Mortgage Forgiveness Debt Relief Act of 2007

also sought to alleviate the tax burden on homeowners

Supply greater than demand

buyers market

which of the following items directly increases the supply of real estate properties on the market?

conversion of properties

Taxpayer Relief Act of 1997

exempted homeowners from paying taxes on capital gains on as much as $500,000 in gains for married couples filing their income taxes jointly, provided the property was their primary residence and they lived their for two out of the previous 5 years.

American Taxpayer Relief Act of 2012

extended this exemption, as well as mortgage insurance premium deductions that were available to certain taxpayers.

Prime Rate

is the rate given to consumers that's based off of the discount or federal funds rate plus a percentage

To leverage

is to put up a small amount of money to obtain a loan of a larger amount

Regulation Z

legislation from the truth in lending act that requires disclosure of terms by lenders

Commercial Paper

loans made by banks to consumers who need funds to purchase personal property or to meet short term needs

Truth in Lending Act (TILA)

requires disclosure of all financing terms when specific trigger terms are used in advertising

Supply less than demand

seller's market

Triggering Term

term that, when used in advertising, requires disclosure of other terms so as not to mislead consumers

Federal Funds Rate

the interest rate for loans made by member banks to other member banks that want to borrow money without collateral for a short period (usually overnight).

Prime Rate

the interest rates that lenders offer to preferred customers

Micromarket

the one in which you practice you craft as a real estate professional

In which phase of the real estate market would you expect to see unemployment increasing, prices falling, and foreclosures on the rise?

Recession

What is the most likely effect when the FED sells securities on the open market?

The economy may slow down due to a decreased money supply

Discount Rate

The interest rate that Federal Reserve district banks charge when loaning money to member banks, which borrow money and use commercial paper as collateral for the loan.

What is one of the main differences between the U.S. Mint and the Bureau of Engraving and Printing?

The U.S. Mint produces coins, and the Bureau of Engraving and Printing produces paper notes

What does the Treasury do?

- promotes sustainable economic growth and stability - ensures the country's financial security - advises the president on economic and financial issues - improves financial institution governance

Which government entity overseas open-market operations?

Federal Open Market Committee

which of the following describes the discount rate?

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

In the early 2000s before the 2007 financial crisis, how would you characterize the real estate market?

low interest rates and high property values

Disintermediation

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

Federal Reserve System

Aka "the Fed"' a national banking system that helps to control inflation and deflation by regulating interest rates and reserve fund requirements of its member banks.

Board of Govenors

Also known as the Federal Reserve Board, the Board of Governors consists of seven members, all appointed by the President and confirmed by the Senate. These members serve one 14 year term.

Which act made some mortgage insurance premium deductions available to certain taxpayers?

American Taxpayer Relief Act of 2012

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

Expansion

Celia was obtaining a conventional loan, and she put $50,000 down as a down payment. Why might her lender also require her to obtain private mortgage insurance?

Her down payment of $50,000 isn't at least 20% of the purchase price.

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

High but stabilized unemployment and a high number foreclosures

In a mortgage, the property is used as collateral for the loan. What's the term for the process of pledging something as collateral?

Hypothecation

Which of the following is classified as the least liquid on the scale?

Institutional money market funds

Which of the following is a true statement about the Hardest Hit Fund?

It was available in the states with the most underwater homeowners.

What specific concept defines money?

Liquidity

When considering the liquidity of financial assets, which category is the least liquid?

M3

What effect do low interest rates have on borrowing?

Makes borrowing less expensive

Which of the following is the best example of the economic principle of leveraging, as it applies to a real estate transaction?

Making a down payment

What does it mean if the Fed decreases reserve requirements?

Member banks can keep fewer assets on deposit at the reserve bank

The buying and selling of government securities as a way to influence the money supply and balance economic growth describes ________________.

Open market operations

Wendy has been approved for her first mortgage. The lender advertised a 4.6% interest rate. She's nervous about the terms and fees. What information is the lender required to provide?

Payment schedule, APR, finance charges, pre-payment penalties, late penalties and total financed amount

Which of the following resources are extremely helpful when working with investors?

REIT analysts and bond rating agencies

The amount of money a member bank must keep on deposit at its reserve district bank describes __________.

Reserve Requirements

What term is used to describe the housing inventory in default or foreclosure?

Shadow inventory

What term is used to describe loans that were approved for borrowers with lower incomes and poor credit histories?

Subprime

Which was NOT part of the Fed's program quantitative easing?

The funds available to consumers froze.

While the Fed can increase or decrease reserve requirements to influence the money supply and economy, these requirements serve another purpose. What is it?

To ensure that banks will have funds available when they're needed

Local lenders may sell loans they have issued to national institutions as a way to generate more money to make additional loans.

True

Which governmental legislation established the Consumer Financial Protection Bureau?

Wall Street Reform and Consumer Protection Act (Dodd-Frant Act)

Which agency is responsible for the production of paper currency?

Bureau of Engraving and Printing

When obtaining a mortgage to purchase a home, for what does the borrower use the property?

Collateral

Which of the following items directly increases the supply of real estate properties on the market?

Conversion of properties

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

Discount

Secondary mortgage market players purchase securities from investors, then package and resell them to local lenders.

False

Tonia is buying a new home. She has a down payment of $30,000 and will obtain a $250,000 mortgage from a local bank to make up the remainder of the purchase price. What is this an example of?

Leveraging

What does it mean if the Fed increases reserve requirements?

Member banks must keep more assets on deposit at the reserve bank.

When securities are bought:

The FOMC buys securities in exchange for money. This means there is now MORE money available in the economy and more money for lending and purchases. This encourages economic growth.

Federal Open Market Committee

The FOMC consists of 12 members: -7 board of governor members - president of the federal reserve bank of NY - 4 presidents from the other Federal Reserve Banks

When securities are sold:

The FOMC sells these securities in exchange for money. This means that there is now LESS money available in the economy. Less money in the economy means less money available for lending and purchases, which slows the economy down.

robo signing

banks were facing so many defaults that they started cutting corners and pushed many properties through the foreclosure process without closely reviewing the documentation