Module 4 quiz and self
The requirement that lenders disclose the annual percentage rate of interest is mandated by the Group of answer choices Real Estate Settlement and Procedures Act (RESPA). Consumer Credit Protection Act (Regulation Z). Equal Credit Opportunity Act. Flood Disaster Protection Act.
Consumer Credit Protection Act (Regulation Z).
Both, "option ARMs" and "no income verification loans", are considered very safe loans and are therefore very popular loan types, even after the new mortgage regulation had been put into place due to the Dodd-Frank Act. Group of answer choices True False
False
Even if a property is located in a flood zone, borrowers may elect not to purchase flood insurance if their lender agrees with their decision. Group of answer choices True False
False
FHA insurance protects borrowers from the risk of loss in the event of default on an FHA-insured loan. Group of answer choices True False
False
Given the statistical evidence that younger older people are more likely to default on a mortgage than older people, lenders may use an applicant's age when deciding whether or not to extend mortgage credit. Group of answer choices True False
False
In 2005, before the subprime mortgage crisis started, all states had at least some national mortgage brokerage licensing system. Group of answer choices True False
False
In most cases, real estate is financed by means of an unsecured loan. Group of answer choices True False
False
Loan origination occurs in the secondary mortgage market within the U.S. housing finance system. Group of answer choices True False
False
The source of all down payment money must be shown to be the borrower's personal savings. Group of answer choices True False
False
The total debt ratio is equal to the sum of all housing expenses. Group of answer choices True False
False
Under lien theory, title remains with the lender until the loan is completely repaid. Group of answer choices True False
False
While credit scores are an important indicator for the credit worthiness of an individual, a person's payment history is not a factor that determines a credit score. Group of answer choices True False
False
Which of the following organizations was created specifically to improve the housing finance system following the Great Depression of the 1930s? Group of answer choices Government National Mortgage Association Federal Home Loan Mortgage Corporation Federal National Mortgage Association Federal Housing Administration
Federal Housing Administration
Originally, which of the following was created by Congress to operate a secondary mortgage market for conventional loans? Group of answer choices FHA VA Fannie Mae Freddie Mac
Freddie Mac
Which of the following factors make mortgages necessary for most home buyers? Group of answer choices Large transaction amounts High level of risk compared to commercial properties Federal regulation Lack of available credit
Large transaction amounts
What is the basic distinction between mortgage bankers and mortgage brokers? Group of answer choices Mortgage brokers typically do not service the loans they originate. Mortgage bankers typically do not service the loans they originate. Mortgage brokers do not originate new loans, but only service existing loans. Mortgage bankers do not originate new loans, but only service existing loans.
Mortgage bankers do not originate new loans, but only service existing loans.
Which of the following is a distinguishing feature of a mortgage broker? Group of answer choices Mortgage brokers accept deposits from savers and then lend that money to borrowers. Mortgage brokers borrow money from commercial banks and lend it to borrowers. Mortgage brokers act as facilitators to arrange loans between borrowers and lenders. Mortgage brokers issue mortgage-backed securities to replenish their supply of funds.
Mortgage brokers act as facilitators to arrange loans between borrowers and lenders.
Assume that an office building has gross annual income of $480,000 and its operating expenses are $22,000 per month. If the mortgage payment is $16,000 per month, what is the debt coverage ratio (DCR)? Would the property qualify for a mortgage if the bank requires a debt coverage ratio or 1.2? Group of answer choices The DCR is 1.375, and yes, the property would qualify The DCR is 1.125, and yes, the property would qualify. The DCR is 1.125, and no, the property would not qualify The DCR is 1.375 and no, the property would not qualify
The DCR is 1.125, and no, the property would not qualify
A borrower has gross annual income of $48,000 and is applying for a mortgage that requires monthly payments of $1,040. Taxes and insurance premium are $1,200 per year. The car loan has 24 monthly payments left of $260 each. Assume that the maximum allowed mortgage debt ratio (MDR) for a conventional loan is 28% and 29% for an FHA loan and that the maximum allowed total debt ratio (TDR) for a conventional loan is 36% and 50% for an FHA loan. Would the applicant qualify for the loan? Group of answer choices The applicant would qualify for a conventional and FHA loan. The applicant would qualify for an FHA loan only. The applicant would qualify for a conventional loan under the guidelines of the MDR ratio only. The applicant would not qualify for neither loans.
The applicant would qualify for an FHA loan only.
A commercial mortgage lender that requires a minimum debt coverage ratio (DCR) of 1.4 would not approve a mortgage application for a property where the net operating income (NOI) exceeds the debt service payment by 36%. Group of answer choices True False
True
A land contract is used more often to finance vacant lots than improved property. Group of answer choices True False
True
A mortgage loan in which the borrower makes a down payment of 5 percent of the purchase price using money loaned to him by a family member is riskier than a loan in which the borrower accumulates the down payment through regular savings. Group of answer choices True False
True
A mortgage loan with an LTV of 80 percent is riskier than one with an LTV of 50 percent. Group of answer choices True False
True
A non-conventional loan is one insured by a federal agency such as the FHA or the VA. Group of answer choices True False
True
A secured loan should have a lower interest rate than an unsecured loan, other characteristics of the loan held constant. Group of answer choices True False
True
Due to the Dodd-Frank Act, prepayment penalties are not allowed anymore for residential mortgages. Group of answer choices True False
True
One of the benefits arising from secondary mortgage markets is that they increase liquidity and lower the interest rate charged to borrowers. Group of answer choices True False
True
The changes to RESPA due to new mortgage regulations after the mortgage crisis include the following: The lender has to provide to the borrower with the "Loan Estimate" (which has replaced the "Good Faith Estimate") and the "Closing Disclosure" (which has replaced the "HUD-1 Uniform Settlement Statement") for any real estate transactions that involve a residential mortgage. Group of answer choices True False
True
The lender evaluates an applicant's creditworthiness and lending risk by examining sources of income, loan to value ratio, credit score, and debt ratios. Group of answer choices True False
True
The mortgagor is the borrower. Group of answer choices True False
True
The process of assessing risk of the buyer and property is called underwriting. Group of answer choices True False
True
Under FHA guidelines, a loan application must meet both the total debt ratio and mortgage debt ratio simultaneously to be qualified for a FHA-insured loan. Group of answer choices True False
True
Up until 2007, both Fannie Mae and Freddie Mac were considered very safe investments by large institutional investors. Group of answer choices True False
True
Usually a loan-to-value ratio of 80 percent or greater requires some type of insurance or guarantee to be traded in the secondary mortgage market Group of answer choices True False
True
While the amount individual owes is an important part of his/her credit score, the percentage of total credit that an individual has as an outstanding balance can also impact his/her credit score. Group of answer choices True False
True
Unlike FHA loans, VA loans are backed by Group of answer choices title insurance. mortgage insurance purchased by the borrower. mortgage insurance paid for by the federal government. a guarantee program backed by the federal government.
a guarantee program backed by the federal government.
In most cases, real estate is purchased by means of Group of answer choices a secured loan. cash. an unsecured loan. none of the above
a secured loan.
In a promissory note, which clause calls for all payments being due immediately in the case of default? Group of answer choices defeasance acceleration due on sale prepayment
acceleration
Although most promissory notes require a series of future periodic payments to service the debt, most notes contain a provision that makes the full amount (plus interest owed to date) immediately due and payable should a borrower default on the note. This provision is known as a(n) Group of answer choices deficiency judgment. hypothecation. prepayment clause. acceleration clause.
acceleration clause.
Which type of organization always sells its loans to investors after originating them? Group of answer choices all mortgage originators corresponding lenders commercial banks savings and loans institutions (S&Ls)
corresponding lenders
In periods of rising interest rates, the borrower may be able to sell his property for a higher price if the new owner can assume the existing loan. Because this is not advantageous to the lender, what type of clause may be included in the promissory note to preclude assumption? Group of answer choices due-on-sale clause defeasance clause prepayment clause adaptation clause
due-on-sale clause
If the mortgagor fails to make payments or defaults on other terms of the mortgage agreement, the mortgagee can begin Group of answer choices equity of redemption proceedings. due-on-sale proceedings. foreclosure proceedings. hypothecation proceedings.
foreclosure proceedings.
The practice of charging interest to borrowers who pledge their property as collateral but leaving them in possession of the property is called security. acceleration. hypothecation. usury.
hypothecation.
Because many mortgage loans are sold in the secondary market, lenders use which of the following guidelines based on what secondary market participants are willing to buy. Group of answer choices income ratios demographic information ethnic information architectural style
income ratios
During the S&L Crisis in the 80s and 90s, many S&L banks were in trouble because Group of answer choices they made real estate loans with shorter duration. avoided real estate loans as much as possible. They purchase real estate loans from life insurance companies. interest rates were rising thereby creating large cash outflows of interest payment to depositors.
interest rates were rising thereby creating large cash outflows of interest payment to depositors.
Seller financing, where the seller holds the title on the property at least initially, is often called a Group of answer choices purchase money mortgage. deed of trust. land contract. second mortgage.
land contract.
In the event of mortgage default, FHA-insured loans provide protection for the Group of answer choices borrower. seller. lender. FHA.
lender.
The Real Estate Settlement Procedures Act (RESPA) includes all of the following except Group of answer choices the prohibition of kickbacks paid to brokers disclosure of closing costs prior to the closing the mandatory delivery of the HUD settlement cost booklet to borrowers mandatory use of a title insurance company.
mandatory use of a title insurance company.
The percentage of a borrower's gross monthly income required to meet monthly housing expenses (PITI only) is called the Group of answer choices mortgage debt ratio. total debt ratio. loan-to-value ratio. income-to-debt ratio.
mortgage debt ratio.
The __________ pledges a property as collateral for a debt while the __________ makes the borrower personally liable for the debt. Group of answer choices mortgage, promissory note unsecured loan, hypothecation acceleration clause, due on sale clause deficiency judgment, judicial foreclosure
mortgage, promissory note
Given a loan applicant's gross monthly income of $2,600, a monthly mortgage payment of $680, a monthly car payment of $250, a monthly property tax payment of $90, monthly insurance of $30, an allowable total debt ratio of 36%, and an allowable mortgage debt ratio of 28%, the applicant would qualify by Group of answer choices the mortgage debt ratio only. both the mortgage debt and total debt ratios. the total debt ratio only. neither ratio.
neither ratio.
The requirement that the cost of borrowing money (including fees and other charges) be expressed to loan applicants in the form of an annual percentage rate (APR) of interest comes from Group of answer choices the Equal Credit Opportunity Act the Consumer Credit Protectin Act (Regulation Z) the RESPA the Dodd-Frank Act
the Consumer Credit Protection Act (Regulation Z)
The development of a secondary market for mortgage loans is largely attributable to Group of answer choices the actions of individual borrowers. the policies of the Federal Reserve Board. the success of the savings and loan industry. the standardization of mortgage loans due to insurance and guarantee programs.
the standardization of mortgage loans due to insurance and guarantee programs.
Mortgagees are entitled to possession of mortgaged property upon default in states that recognize the concept of Group of answer choices lien theory. title theory. acceleration. hypothecation.
title theory.
The primary difference between a secured and unsecured loan is whether the lender charges interest on the debt. whether the lender has a claim on specific assets of the borrower in the event of default. whether the borrower can simply surrender the pledged asset to the lender instead of repaying the debt. All of the above
whether the lender has a claim on specific assets of the borrower in the event of default.
A key distinction between mortgages and deeds of trust is that Group of answer choices with a mortgage, title to the real estate is held by a third party. with a mortgage, use and possession of the real estate is a right belonging to the lender. with a deed of trust, title to the real estate is held by a third party. with a deed of trust, use and possession of the real estate is a right belonging to the lender.
with a deed of trust, title to the real estate is held by a third party.
