Fin 351 (Chapter 8-13)
Federal and state laws prohibit discrimination in housing. However, exemptions do exist depending on the particular type of property that is being considered. All of the following activities could be considered exempt in specific scenarios except refusing to sell or rent A) to a person because of race. B) based on familial status (i.e., having children). C) to persons based on age. D) a single-family home based on religion provided the owners do not employ the services of a broker or agent.
A
Given the following information, calculate the overall capitalization rate: sale price: $950,000; potential gross income: $250,000; vacancy and collection losses: $50,000; and operating expenses: $50,000. A) 15.8% B) 21.1% C) 26.3% D) 36.8%
A
Gross income multiplier analysis assumes that the subject and comparable properties are collecting market rents. Therefore, it is frequently argued that an income multiplier approach to valuation is most appropriate for properties with short-term leases. For which of the following property types, therefore, would we find it most appealing to use a gross-income multiplier in our analysis? A) apartments B) office C) industrial D)retail
A
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? A) 1/12 B) 1/6 C) 1/4 D) 1/2
A
In accordance with RESPA, whenever a buyer obtains a new first mortgage loan from a chartered or insured lender, when the loan is insured by the FHA or guaranteed by the VA, or when the loan will be sold to one of the federally related secondary mortgage market agencies, an estimate of loan costs must be provided by the lender within A) 3 business days. B) 5 business days. C) 30 calendar days. D) 90 calendar days.
A
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? A) One of the parties is under duress. B) One of the parties is under undue influence. C) One of the parties is under menace. D) One of the parties is committing fraud.
A
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
In the process of deciding whether to extend a mortgage loan to a prospective borrower, lenders typically examine three elements, more commonly referred to as the "three C's." Which of the following metrics does a bank use to evaluate the collateral piece of the loan agreement? A) loan-to-value ratio B) payment-to-income ratio C) credit score D) housing expense ratio
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
Jonathan recently sold his home and was able to take home $423,000 after paying the real estate broker's commission of 6%. If the buyer was ultimately found through a buyer broker, the dollar commission will need to be split between the listing broker and buyer broker. If the buyer broker is entitled to 40% of the commission, what is her share of the commission rounded to the nearest dollar? A) $10,800 B) $13,500 C) $16,200 D) $27,000
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
Let's suppose that a lender has established a 90% loan-to-value ratio cutoff as one of its primary underwriting criteria. If a borrower is willing to make a down payment of $125,000 on a home recently appraised at $550,000, which of the following best describes the lender's decision on whether or not to approve the loan along this dimension? A) The lender approves the loan because the LTV ratio is less than 90%. B) The lender denies the loan because the LTV ratio is less than 90%. C) The lender approves the loan because the LTV ratio is greater than 90%. D) The lender denies the loan because the LTV ratio is greater than 90%.
A
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) $72.92 B) $729.17 C) $875.00 D) $8,750.00
A
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 A) mortgage pipeline. B) mortgage note. C) mortgage fallout. D) mortgage term.
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
Most appraisers adhere to an "above-line" treatment of capital expenditures. This implies which of the following? A) Capital expenditures are subtracted in the calculation of net operating income. B) Capital expenditures are subtracted from net operating income to obtain a net cash flow measure. C) Capital expenditures are added to net operating income. D) Capital expenditures are excluded from all calculations because they are difficult to estimate.
A
Placed under the umbrella of the Consumer Financial Protection Bureau as part of the Dodd-Frank Act of 2010, the Real Estate Settlement Procedures Act (RESPA) requires loan settlement information to be prepared on a special form known as the A) closing disclosure. B) servicing agreement. C) Your Home Loan Toolkit booklet. D) certificate of occupancy.
A
Real estate brokers serve as intermediaries by bringing buyers and sellers together in the real estate market. For this service, brokers are paid what is commonly referred to as a A) commission. B) licensing fee. C) recovery fee. D) listing fee.
A
Since property taxes are paid in arrears, the buyer will be responsible for paying them after closing. Suppose that the closing date on the home for sale is February 28 of a leap year (2012, 2016, etc.). How many calendar days would the seller be responsible for when calculating his/her share of the property tax owed for the year in which the home was sold? A) 58 days B) 59 days C) 307 days D) 308 days
A
Since the seller often has utilized the property for a portion of the year in which the transaction is being made, certain costs associated with the property will be prorated at the closing. All of the following items are subject to proration except A) broker commission. B) prepaid rent. C) property tax. D) mortgage interest.
A
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 A) handling money in trust for clients. B) taking kickbacks without the employer's knowledge. C) offering the property at terms other than those specified by clients. D) failing to submit all offers to the client.
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 that you just sold a property that has annual property taxes of $2,427.22. If the closing occurred on March 13, calculate your share (seller's share) of the total property taxes. For this problem, assume that we are dealing with a 365-day calendar year. A) $482.26 B) $1990.17 C) $1,996.96 D) $2,479.22
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
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? A) a meeting of the minds with the buyer B) the option to present a counteroffer C) the property to be given up D) the money or goods that constitute the purchase price
C
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
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
Contracts for sale may contain sections that cause implementation of the contract to depend on the successful completion of some prior action such as the buyer's ability to obtain financing on specified terms. This type of contract is commonly referred to as a(n) A) contract assignment. B) equitable title. C) contract with contingencies. D) uniform settlement statement.
C
Despite many innovations in the lending process that made mortgage 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 their income? A) conventional prime home loan B) affordable housing loan C) subprime mortgage loan D) bridge loan
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
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
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
Given the following information, calculate the appropriate going-in cap rate using mortgage-equity rate analysis; mortgage financing, 75%; typical debt financing cap rate: 10%; sale price: $1,950,000; before tax cash flow (BTCF): $390,000. A) 9.6% B) 10% C) 12.5% D) 13.6%
C
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. A) $0.00 B) $1,821.92 C) $3,178.08 D) $5,000.00
C
In acting as an agent for another person, the broker carries several special responsibilities, which by law must be adhered here to throughout the transaction process. These responsibilities constitute what is commonly referred to as a A) subagency relationship. B) dual agency relationship. C) fiduciary relationship. D) open listing relationship.
C
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 A) mortgage pipeline. B) loan servicing. C) warehousing. D) loan underwriting.
C
In an open-listing contract, an individual broker is entitled to a commission if A) anyone, including the seller, sells the property. B) anyone, excluding the seller, sells the property. C) she procures the buyer of the property. D) she markets the property, but it does not sell.
C
In analyzing a borrower's credit worthiness, the lender will typically examine the borrower's FICO score (a product developed by the Fair Isaac Corporation). High-quality (prime) borrowers are those with a credit score above A) 350. B) 620. C) 660. D) 850.
C
In ascertaining whether a borrower has the ability to pay off his loan over time, a mortgage bank may rely on calculating a total debt ratio as part of its underwriting process. Using the following information, calculate the total debt ratio: monthly principal and interest on mortgage loan: $635; monthly tax and insurance payments into escrow: $125; monthly car lease payment (lease term is 3 years): $350; gross monthly income: $2,500. A) 25.4% B) 30.4% C) 44.4% D) 53.2%
C
In calculating net operating income, vacancy losses must be subtracted from the gross income collected. The normal range for vacancy and collection losses for apartment, office, and retail properties is A) between 0% and 1%. B) between 1% and 5%. C) between 5% and 15%. D) between 15% and 20%.
C
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 A) unintended dual agency. B) universal agency. C) transaction brokerage. D) multiple listing.
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
In the securitization process, mortgages are pooled together and cash flows are packaged into securities to be sold in the secondary market. Agencies and private companies that pool mortgages and sell mortgage-backed securities (MBS) are often referred to as A) thrifts. B) credit unions. C) conduits. D) automated underwriters.
C
Operating expenses can be divided into two categories: variable and fixed expenses. Which of the following best exemplifies a fixed expense? A) utilities B) property management C) local property taxes D) trash removal
C
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 A) universal agent. B) general agent. C) special agent. D) undercover agent.
C
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? A) loan commitment B) loan funding C) loan servicing D) loan sales
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 hazard insurance premiums are paid up-front, the buyer will have to reimburse (credit) the seller a portion of the premium at the closing. Suppose that the insurance policy's coverage began on December 15 of the prior year and the property transaction is set to close on March 16 of a 365-day year. The premium paid originally by the seller was $250. If the coverage will expire as of the end of day December 14 in the current year, what is the dollar amount that the buyer must credit the seller? A) $0.00 B) $62.33 C) $187.67 D) $250.00
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
Since the issues in many transactions are similar, brokers often use standard preprinted contract forms. Generally, the best standard form contracts are those prepared and approved by which of the following parties? A) office supply firm B) seller C) local board of realtors D) web source of generic legal forms
C
State licensing laws generally prescribe two levels of real estate brokerage licensing: the broker license and the salesperson license. Which of the following responsibilities is an individual with a salesperson license permitted to do? A) own and operate a real estate brokerage business B) handle money in trust for clients C) negotiate listing contracts or contracts for sale D) complete legal documents used in sales and leases in their own name
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 a recent purchase of a residential home has been facilitated equally by a listing agent and a buyer broker. Based on your understanding of how commissions are determined, which of the following scenarios best describes who would be entitled a commission upon sale of the property? (Note: For simplicity, you can assume the seller did not procure the buyer on his or her own.) A) only the listing broker B) only the buyer broker C) both the listing broker and the buyer broker D) neither the listing broker nor the buyer broker
C
Suppose that you are attempting to value an income-producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 11.44%. If the projected first-year net operating income (NOI) for the subject property is $44,500, what is the indicated value of the subject using direct capitalization? A) $49,590.80 B) $50,225.73 C) $388,986.00 D) $509,080.00
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
Suppose that you decide to purchase a property that has annual property taxes of $2,427.22. If the closing occurred on March 13, calculate your share (buyer's share) of the total property taxes. For this problem, assume that we are dealing with a 365-day calendar year. A) $482.26 B) $1990.17 C) $1,996.96 D) $2,479.22
C
The development of Fannie Mae and Freddie Mac established the framework for a liquid secondary market for residential mortgages. In 2015, the share of all residential mortgage loans owned or securitized by Fannie Mae and Freddie Mac approached approximately A) 5%. B) 16%. C) 46%. D) 76%.
C
The distinction between market rent and contract rent is important due to differences in lease terms. Office, retail, and industrial tenants most commonly occupy their space under leases that run A) one year or less. B) one to three years. C) three to five years. D) ten years or more.
C
The going-in cap rate, or overall capitalization rate, is a measure of the relationship between a property's current income stream and its price or value. Which of the following statements regarding cap rates is true? A) It is a measure of total return since it accounts for future cash flows from operations and expected appreciation (depreciation) in the market value of the property. B) It is a discount rate that can be applied to future cash flows. C) It is analogous to the dividend yield on a common stock. D) It is the projected rate at which prices will appreciate in the future.
C
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 A) 1% and 2%. B) 3% and 4%. C) 5% and 6%. D) 7% and 10%.
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
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
There are a number of different types of listing contracts that can be used when marketing a property. Which of the following types of listings requires the broker to be paid a commission if anyone, other than the owner, sells the property during the contract period? A) open listing B) FSBO listing C) exclusive agency listing D) exclusive right of sale listing
C
Traditional home mortgage underwriting is said to rest on three elements, the "three C's." The housing expense ratio is one tool that lenders will use to address concerns associated with which of the "three C's"? A) collateral B) creditworthiness C) capacity D) capability
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
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
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 United States are being sold into the secondary market and being used as collateral for the issuance of MBS? A) 25% B) 50% C) 90% D) 100%
C
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 A) property insurance premiums. B) mortgage payments. C) utility expenses. D) property taxes.
C
When using discounted cash flow analysis for valuation, the appraiser must estimate the sale price at the end of the expected holding period. This price (assuming selling expenses have yet to be accounted for) is referred to as the property's A) net sale proceeds. B) selling expenses. C) terminal value. D) current market value.
C
Which of the following duties refers to a broker's obligation to never subordinate the best interest of their principal to the interests of others? A) disclosure B) confidentiality C) loyalty D) obedience
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
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
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
Given the following information, calculate the appropriate going-in cap rate using general constant-growth formula: overall market discount rate, 12%; constant growth rate projection: 3% per year; sale price: $1,950,000; net operating income: $390,000; potential gross income: $520,000. A) 8% B) 9% C) 10% D) 11.5%
B
Given the following information, calculate the effective gross income multiplier: sale price: $2,500,000; effective gross income: $340,000; operating expenses: $100,000; capital expenditures: $36,000. A) 0.136 B) 7.35 C) 10.42 D) 12.25
B
Given the following information, calculate the effective gross income: property: 4 office units, contract rents per unit: $2,500 per month; vacancy and collection losses: 15%; operating expenses: $42,000; capital expenditures: 10%. A) $100,000 B) $102,000 C) $120,000 D) $135,000
B
Given the following information, calculate the net operating income assuming below-line treatment of capital expenditures: property: 4 office units, contract rents per unit: $2,500 per month; vacancy and collection losses: 15%; operating expenses: $42,000; capital expenditures: 10%. A) $48,000 B) $60,000 C) $95,000 D) $102,000
B
In 1989, Congress took major steps to establish depository institution accountability by requiring these institutions to hold more capital as they take on riskier assets. Which of the following congressional acts imposed these capital standards on depository institutions? A) Depository Institutions Deregulation and Monetary Control Act B) Financial Institutions Reform, Recovery, and Enforcement Act C) Secure and Fair Enforcement for Mortgage Licensing Act D) Riegle Community Development and Regulatory Improvement Act
B
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
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
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
In the early 1970s, home mortgage lenders were predominantly depository institutions. By the end of the decade, the growth of deposits at these institutions became negative due to the emergence of more attractive investment opportunities such as money market funds. This change in the distribution chain of funds is more commonly referred to as A) deregulation. B) disintermediation. C) warehousing. D) underwriting.
B
In the late 1960s, Congress created a number of agencies designed to address a struggling secondary market for residential mortgages. Which of the following organizations was developed primarily to guarantee mortgage-backed securities based on pools of FHA, VA, and Rural Housing Service loans, rather than issue, buy, or sell mortgages? A) Federal National Mortgage Association (Fannie Mae) B) Government National Mortgage Association (Ginnie Mae) C) Federal Home Loan Mortgage Corporation (Freddie Mac) D) Federal Agricultural Mortgage Corporation (Farmer Mac)
B
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
Modern real estate brokerage normally relies on a multiple listing service (MLS) through which brokers have access to each other's listings. Which of the following types of agency agreements is established with the use of a MLS? A) single agency agreement B) subagency agreement C) dual agency agreement D) designated agent agreement
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
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
Net operating income is similar to which of the following measures of cash flow in corporate finance? A) dividend yield B) earnings before deductions for interest, depreciation, income taxes, and amortization (EBIDTA) C) price-earnings ratio D) discount rate
B
One complication that appraisers may face is the variety of lease types that may be available for a particular property type. Which of the following statements best describes a graduated or step-up lease? A) The monthly rent remains fixed over the entire lease term. B) The lease establishes a schedule of rental rate increases over the term of the lease. C) Rental rate increases are indexed to the general rate of inflation. D) Rental rates are a function of the sales of the tenant's business.
B
One of the traditional requirements for individuals who wish to obtain a brokerage license has been to demonstrate financial capacity to cover damage judgments brought against them by clients. In order to address this concern, some states have required licensees to first obtain A) private mortgage insurance (PMI). B) errors and omission insurance. C) deposit insurance. D) hazard insurance.
B
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. A) mutual assent B) constructive notice C) consideration D) simultaneous issue
B
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? A) prepayment risk B) fallout risk C) default risk D) liquidity risk
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 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 distinction between legal title and equitable title is an important concept in the contract for sale of real estate. When the buyer obtains equitable title, the seller can no longer sell the property to someone else, even though the legal title has not officially passed on. In the contract for sale process, the creation of equitable title occurs when A) the contract for sale is written. B) the contract for sale is signed. C) the contract terms are orally agreed upon. D) each party is deemed legally competent.
B
The expected costs to make replacements, alterations, or improvements to a building that materially prolong its life and increase its value is referred to as A) operating expenses. B) capital expenditures. C) vacancy losses. D) collection losses.
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
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? A) buyer B) seller C) lender D) broker
B
The starting point in calculating net operating income is the total annual income the property would produce assuming 100% occupancy and no collection losses. This is commonly referred to as A) effective gross income. B) potential gross income. C) operating expenses. D) capital expenditures.
B
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 among the major sources of outstanding debt in the United States as of the end of 2015? A) residential mortgage debt, marketable U.S. government bonds, corporate bonds, consumer credit B) marketable U.S. government bonds, residential mortgage debt, corporate bonds, consumer credit C) corporate bonds, marketable U.S. government bonds, residential mortgage debt, consumer credit D) consumer credit, residential mortgage debt, marketable U.S. government bonds, corporate bonds
B
Using the following information, calculate the housing expense ratio: monthly principal and interest on mortgage loan: $635; monthly tax and insurance payments into escrow: $125; gross monthly income: $2,500. A) 25.4% B) 30.4% C) 44.4% D) 53.2%
B
When a borrower (the buyer) applies for a loan, the lender will provide him/her with which of the following forms that includes details pertaining to specific loan information and an estimate of expenses that the borrower is likely to incur at the closing? A) kickback agreement B) loan estimate C) Your Home Loan Toolkit booklet D) certificate of occupancy
B
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
When a buyer signs an offer to purchase a property, the broker receives a monetary amount from the purchaser of 5% or 10% of the purchase price. This deposit is commonly referred to as the A) commission. B) earnest money. C) closing cost. D) title insurance premium.
B
When the mortgage banker originates a home loan, she actually creates two assets: the loan and the servicing rights. When the mortgage bank sells the servicing right to the loan, it historically has had a value of A) 0.25-0.50% of the loan. B) 0.75-1.25% of the loan. C) 1.50-2.25% of the loan. D) 2.75-3.25% of the loan.
B
Which of the following duties refers to a broker's obligation to keep the principal informed about financial aspects of their assignment? A) disclosure B) accounting C) loyalty D) skill and care
B
While fee splitting between cooperating real estate brokers is permitted, RESPA explicitly prohibits such actions as rebating part of the title insurance premium to the lender who recommended or required the title insurance. These unearned fees are commonly referred to as A) commissions. B) kickbacks. C) damages. D) specific performance dues.
B
While the principal parties to a transaction must be legally competent for a contract to be valid, it is possible for a party acting on behalf of a principal to obtain this legal right. In order for personal representatives and trustees to be authorized to act on behalf of a principal, a legal instrument commonly referred to as ________ must be in place. A) assignment B) power of attorney C) mutual assent D) consideration
B
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
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
In determining the appropriate listing contract to be used, it is important to know whether a multiple listing service (MLS) will be employed. The MLS only accepts which of the following types of listing contracts? A) open listing B) FSBO listing C) exclusive agency listing D) exclusive right of sale listing
D
In general, most contracts—including a real estate contract—can be assigned. All of the following statements regarding assignment are true except A) any type of personal performance contracted by one party cannot be assigned without that party's permission. B) land contracts are not assignable without the owner's permission C) if buyers of real estate assign the contract, the new buyers may pay the agreed upon price and obtain title to the property. D) when buyers assign their rights to someone else, they escape liability under the original contract.
D
In the modern framework of home mortgage lending, there are four channels by which first mortgage home loans are created. Within which of the following channels would you typically find a Wall Street investment bank obtaining loans, pooling loans, and creating a senior-subordinate security structure? A) traditional direct (portfolio) lending B) FHA/VA loan securitization C) conforming conventional loan securitization D) nonconforming conventional loan securitization
D
It is common for real estate firms to identify submarkets, such as property types or particular sections of a city, in which they can specialize and concentrate their transaction activity. This practice is referred to as A) internet marketing. B) open listing. C) discount brokerage. D) market segmentation.
D
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
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
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
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) fifteenand thirty years.
D
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
Suppose an institution has purchased a $250,000 mortgage loan from the loan originator and wishes to create a mortgage pass-through security. In doing so, this institution will generate revenue by charging a servicing fee of 35 basis points. If the monthly mortgage payment on the loan is $1,250, how much income is passed through to the investor in the mortgage pass through each month (rounded to the nearest dollar)? A) $73 B) $375 C) $875 D) $1,177
D
Suppose that an income-producing property is expected to yield cash flows for the owner of $10,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 12% annually and the property can be sold for $100,000 at the end of the fifth year, determine the value of the property today. A) $36, 047.76 B) $56,742.69 C) $83,333.33 D) $92,790.45
D
Suppose you are interested in selling your home and would like to clear a net value of $300,000. If you have agreed to pay your broker a commission of 5.5% (no matter who ultimately is responsible for finding the buyer), what price must you sell the home for in order to meet your net profit (rounded to the nearest dollar)? A) $282,540 B) $300,000 C) $316,500 D) $317,460
D
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
The cap rate is an important metric that investors use to analyze the state of commercial real estate markets. When interpreting cap rate movements, an increase in cap rates over time would indicate that A) the discount rate used in TVM (time value of money) calculations has increased. B) the discount rate used in TVM (time value of money) calculations has decreased. C) property values have increased. D) property values have decreased.
D
The final step in a real estate transaction is the closing. In most closings, which party is responsible for seeing that the closing is completed successfully? A) escrow agent B) lender C) selling broker D)listing broker
D
There are a number of different types of listing contracts that can be used when marketing a property. Which of the following types of listings requires the broker to be paid a commission if any other broker, or even the owner, sells the property during the contract period? A) open listing B) single listing C) exclusive agency listing D) exclusive right of sale listing
D
There are three basic types of listing contracts. These include all of the following except A) open-listing. B) exclusive agency listing. C) exclusive right of sale listing. D) multiple listing.
D
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) warehousing. D) loan underwriting.
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
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
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
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 A) sue for damages. B) retain the earnest money deposit as liquidated damages. C) agree to rescission of the contract. D) sue for specific performance.
D
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 A) damages. B) earnest. C) recission. D) specific performance.
D
When using discounted cash flow analysis for valuation, an appraiser will prepare a cash flow forecast, often referred to as a A) restricted appraisal report. B) net operating income statement. C) direct market extraction. D) pro forma.
D
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
Which of the following contract elements is an additional requirement that must be satisfied in a contract for sale of real estate that isn't necessarily a part of other contracts? A) competent parties B) consideration C) legal objective D) proper description of the property
D
Which of the following duties refers to a broker's obligation to represent the interests of their principals to the best of their ability in the same way they would represent themselves, acquiring and applying the necessary knowledge and information about relevant laws and regulations, the market, and subject property? A) disclosure B) accounting C) loyalty D) skill and care
D
Which of these is most likely to be regarded as a capital expenditure rather than an operating expense? A) property taxes B) trash removal C) insurance payments D) roof replacement
D
While many closings are conducted as a live event in which both buyer and seller parties are present, a number of states have moved towards the practice of escrow closings as the primary mode of real estate transaction. Based on your understanding of an escrow closing, all of the following parties are able to be an escrow agent except A) bank B) attorney C) broker D) grantor / grantee
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
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
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
According to the law of agency, real estate brokers are required to observe several duties as they act as an agent for an individual trying to buy or sell a property. Which of the following duties refers to a broker's obligation to be completely open and honest with the principal? A) disclosure B) confidentiality C) loyalty D) obedience
A
As an agent for the buyer or seller, a broker has six basic fiduciary responsibilities. Which of the following definitions best describes the responsibility of obedience? A) A broker must follow the instructions of the principal to the limits of what is legal and ethical. B) A broker must keep the principal informed of all changes in the financials of the negotiation. C) A broker must not convey information about the principal's financial status or motivations. D) A broker must never subordinate the best interest of the principal to the interests of others, including himself/herself.
A
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
Christopher has hired a real estate broker to help facilitate the sale of his home. Realizing that Christopher is most likely going to realize a loss on his investment due to the recent decline in housing values in his neighborhood, the broker has agreed to charge Christopher a lower commission rate as long as Christopher enters into an exclusive right of sale listing contract. If Christopher ends up selling his house for $364,583 and takes home $350,000 after paying the real estate broker's commission, what was the commission rate that the broker ended up charging? A) 4.0% B) 4.2% C) 8.0% D) 14.6%
A
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
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
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 Dodd-Frank Act ushered in a new standard for home mortgage underwriting. Which of the following standards is now required of any lender when underwriting a home loan? A) ability-to-repay standard B) ability-to-prepay standard C) ability-to-securitize standard D) ability-to-lend standard
A
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 A) Fannie Mae lends money directly to homebuyers. B) Fannie Mae was once a private, self-supporting company with publicly traded stock that has now been placed into conservatorship by the U.S. government following the mortgage crisis of 2007-2008. C) Fannie Mae fully guarantees timely payment of interest and principal to investors. D) Fannie Mae is authorized to buy both conventional home loans and government-sponsored residential mortgages.
A
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? A) mortgage banker B) mortgage broker C) portfolio lender D) security analyst
A
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 A) 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. B) a seller would most likely rely on a "thinner" market (i.e., the seller has access to fewer prospective buyers). C) it would be more difficult for an individual to buy a property. D) buyers would be more inclined to negotiate prices downward by at least the value of a typical commission.
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
The process of converting periodic income into a value estimate is referred to as income capitalization. Income capitalization models can generally be categorized as either direct capitalization models or discounted cash flow models. Which of the following statements best describes the direct capitalization method? A) Value estimates are based on a multiple of expected first-year net operating income. B) Appraisers must make explicit forecasts of the property's net operating income for each year of the expected holding period. C) Appraisers must select the appropriate yield at which to discount future cash flows. D) The forecast must include the net income produced by a sale of the property at the end of the expected holding period.
A
The successful conveyance of real estate depends on a well-formed contract for sale since the contract dictates the rights and type of deed involved, as well as choreographs the entire transaction. Which of the following features of the contract for sale refers to the arrangements agreed to by the parties, such as price and date of closing? A) contract terms B) contract conditions C) equitable title D) contingency clause
A
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 A) the marginal cost per loan underwritten using the automated process is greater than the case of traditional underwriting. B) the time taken to approve a loan using the automated process is considerably shorter than the case of traditional underwriting. C) the success in identifying risky loans is higher using the automated process than is the case with traditional underwriting. D) automated underwriting has made home ownership available to households for whom it previously was inaccessible.
A
Total mortgage debt outstanding as of the third quarter of 2015 approached $13.7 trillion. Which of the following types of mortgage loans accounts for the greatest percentage of mortgage debt outstanding? A) residential (1-4 family) B) apartment (multifamily) C) commercial D) farm
A
Traditional home mortgage underwriting is said to rest on three elements, the "three C's." Recent research (e.g., Archer and Smith, 2011) has confirmed that the underwriting characteristic most strongly associated with default is A) collateral. B) creditworthiness. C) capacity. D) capability.
A
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 risk B) fallout risk C) default risk D) liquidity risk
A
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
Which of the following measures is considered the fundamental determinant of market value for income-producing properties? A) net operating income B) potential gross income C) operating expenses D) capital expenditures
A
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
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
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
All 50 states have licensing laws that regulate persons and companies that engage in the brokerage business. Interpreting and enforcing state licensing laws falls under the responsibilities of which of the following parties? A) broker B) real estate commission C) National Association of Realtors D) salesperson
B
Although the function of commercial brokerage is the same as that of residential brokerage, the activities of commercial brokers usually differ considerably from those of residential brokers due to fundamental differences in these two markets. All of the following statements regarding commercial brokerage are true except A) relative to residential transactions, commercial transactions tend to be larger. B) the parties in commercial mortgage transactions are typically less knowledgeable than those in residential transactions. C) an important part of the commercial broker's service is to provide the prospective buyer with reports that enable him to complete due diligence for the property. D) commercial brokers are often required to lower their commission in order to negotiate compromises between buyers and sellers when they reach an impasse over price.
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
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 A) earnest money. B) hazard insurance premiums. C) property taxes. D) mortgage interest.
B
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
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
Certain closing costs will be prorated to account for the period of time during which the seller occupied the house. If a transaction is scheduled to close on May 17 (136 days into a 365-day year), calculate the amount that the buyer will be credited if the particular closing cost in question is estimated to be $1,000 for the entire year. A) $182.19 B) $372.60 C) $624.66 D) $1,000.00
B
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
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
Blockbusting, which involves persuading an individual to sell her home by telling her that minority groups are moving into the neighborhood, is one form of discrimination in housing that is prohibited by which of the following acts of Congress? A) Riegle Community Development and Regulatory Improvement Act B) Secure and Fair Enforcement for Mortgage Licensing Act C) Fair Housing Act (Title VIII of the Civil Rights Act) D) Equal Credit Opportunity Act
C
) A lender is considering whether to approve a mortgage loan on a home recently appraised at a value of $500,000. If the borrower is willing to make a down payment of $100,000, determine the loan-to-value ratio associated with this property. A) 20% B) 40% C) 60% D) 80%
D
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
Any contract, whether it is for the sale of real estate or some other entity, must contain five basic elements. However, any contract for the sale of real estate must adhere to two additional requirements. Which of the following contract elements is an additional requirement that must be satisfied in a contract for sale of real estate that isn't necessarily a part of other contracts? A) no defects to mutual assent B) consideration C) offer and acceptance D) written form
D
Critical to any listing contract is the question of when the broker becomes entitled to a commission. Traditionally, the broker is still entitled to a commission in all of the following scenarios except A) if the seller refuses to sell upon being presented with an offer meeting the original terms and conditions. B) if the seller cannot deliver the property for any reason due to his or her fault. C) if both the buyer and seller sign a contract but then agree to cancel it. D) if a contract is contingent upon the buyer obtaining financing and the buyer is unable to do so.
D
For smaller income-producing properties, appraisers may use the ratio of a property's selling price to its effective gross income. This is an example of a A) net operating income. B) going-out cap rate. C) going-in cap rate. D) gross income multiplier.
D
Given the following information, calculate the effective gross income multiplier: sale price: $950,000; potential gross income: $250,000; vacancy and collection losses: 15%; and miscellaneous income: $50,000. A) 0.36 B) 0.30 C) 2.8 D) 3.6
D
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
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
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
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
