Real Estate Finance
Which of the following is the official name of the Consumer Financial Protection Bureau's booklet made to promote disclosures in mortgage?
"Know Before You Owe"
If a property owner has a $30,000 homestead exemption, a $20,000 disability exemption, and the county tax assessor's office appraises the property at $100,000, at which value will their taxes be assessed?
$50,000
What is the minimum down payment that allows a borrower to avoid buying mortgage insurance premium (MIP)?
20%
Carl and Dave are first-time homebuyers. They have okay credit, but don't have a ton of cash for a down payment. Neither have served in the armed services. What kind of loan would they be most likely to utilize?
203(b) FHA loan
hat is the difference between an 203(b) FHA loan and a 203(k) FHA loan?
203(b) loans are for buying a home, 203(k) loans are for renovations
Suppose a borrower has a monthly PITI payment of $650 and other long-term liabilities totaling $250 per month. If she makes $3,300 a month, what is her total debt service ratio?
27%
Suppose that a borrower has a gross monthly income of $3,000 and wants to qualify for a conforming loan (total debt service ratio of 36%) with a monthly PITI payment of $800. What is the maximum amount of additional long-term obligations this borrower may have after PITI?
280 (3,000 x 0.36 = 1080 total allowable debt; 1080 - 800 = 280 leftover after PITI)
Which of these borrowers is the best candidate for a reverse mortgage?
70-year-old Karen doesn't want a mortgage payment
Ramsey is considering an ARM with an initial rate of 5.13%. The margin is 2%, and the initial index rate is 3.13% The initial rate will adjust every four years. The lifetime cap is 3%. What is the highest rate Ramsey could pay?
8.13% - 5.13% plus the lifetime cap of 3% is 8.13%.
Which of the following would increase the amount the buyer pays at closing?
A debit to the buyer
Mortgage bankers
A group provides mortgage financing by using their own funds
Which of the following is TRUE about lien theory states?
A mortgage, rather than a deed trust, is the security instrument that is typically used.
Recession
A period of significantly reduced economic activity that lasts for longer than six months
In seller financing, what does the borrower/buyer sign to commit themselves to repaying the loan to the seller/lender?
A promissory note
a booklet entitled "Settlement Costs and You" that concerns settlement costs, a truth-in-lending statement that indicates total credit costs and the annual percentage rate (APR) of the loan, and a good-faith estimate of settlement costs
According to RESPA, which of the following must lenders provide borrowers within the first three days?
inflationary pressures
According to the Phillips curve, with what does low unemployment correlate?
$6,125 - Borrowers can get FHA loans with 3.5% down. 175,000 x 0.035 = 6,125
Alberto wants to buy a home whose purchase price is $175,000. What is the least amount he could put down, if he is taking out an FHA loan?
Due to a recent policy change, seniors may get help qualifying for a loan by getting credit for income from which type of account?
All of the above (401K, IRA, Retirement)
What is an abstract of title?
An abstract of title is an abbreviated history of a property, outlining transfers, grants, wills, conveyances, liens, and encumbrances.
Which of these is an example of constructive notice?
Beth's deed transfer being recorded in the public record
How are temporary buydowns typically paid for?
By depositing cash into a buydown fund established at closing.
What are two interchangeable names for officially-issued legal tender generally consisting of currency and coin?
Cash and Money
Which of these actions would constitute actual notice?
Christine looks up the deed for a property she's interested in buying.
Fannie Mae's Desktop Underwriter is also known by which one of the following terms?
Computerized loan origination
Which of these types of loans can always be sold on the secondary mortgage market?
Conforming loans
Which of these statements about construction mortgages is TRUE?
Construction mortgages are a type of open-ended loan.
Some FHA lenders have the authority to approve FHA loans in house. This is called:
Direct endorsement
The rate at which the Feds loan money to their member banks is called the
Discount Rate
The Consumer Financial Protection Bureau was created as a result of which act?
Dodd-Frank Act
What law deals with sales of real property by non-U.S. citizens?
FIRPTA
Which of the following is a difference between Fannie Mae and Freddie Mac?
Fannie Mae deals with larger commercial banks
Which government agency has the following three tools for influencing monetary policy: setting the discount rate, setting reserve requirements, and open-market operations?
Federal Reserve
Which of the following is an example of the secondary mortgage market?
First Credit Union packing Jenna's loan with other loans into mortgage-backed securities to sell to investors.
Which is NOT considered a GSE?
Ginnie Mae
What does the Department of Housing and Urban Development (HUD) oversee?
Ginnie Mae, Farmer Mac, and the Federal Housing Administration
It insured deposits, so people knew their money was safe.
How did the FDIC work to increase confidence in banks?
borrowers pay MIP
How does the FHA pay for their loan guarantee program?
three
How many parties are involved in a deed of trust?
Under what conditions could a lender seek a deficiency judgement?
If a borrower defaults, and the sale of the foreclosed home doesn't cover the loan and expenses of foreclosure
$50,000 - Property exemptions are deducted from the property appraisal to determine at which value the taxes will be assessed.
If a property owner has a $30,000 homestead exemption, a $20,000 disability exemption, and the county tax assessor's office appraises the property at $100,000, at which value will their taxes be assessed?
the borrower is the mortgagor and lender is the mortgagee
In a lien theory state where mortgages are used as security instruments, how are the borrower and lender known?
index rate
In an ARM, to calculate the new rate at an adjustment period, what is added to the margin?
rise
In general, when interest rates fall, property values:
the present value of a property is affected by the anticipated income or utility that property will give its property owner
In the sales comparison approach to property valuation, what does the principle of anticipation state?
Which of the following is NOT a benefit of a deed in lieu of foreclosure?
It avoids the need to pay off junior creditors.
Which of these statements is TRUE about Fannie Mae's desktop underwriter?
It doesn't consider FICO scores.
Ricky's home loan came with two important documents. One was a promissory note that served as evidence of the debt and documented the terms of the debt repayment. The other document was a security instrument. What connection does the security instrument have in relation to the promissory note?
It identifies the property collateralizing (securing) the note.
How did the FDIC work to increase confidence in banks?
It insured deposits, so people knew their money was safe.
Which of these statements most accurately describes the 203(b) FHA loan?
It is the most popular kind of FHA loan.
What is meant when a promissory note is described as a negotiable instrument?
It means that it can be transferred.
Which of the following is an example of a homestead?
Jane's two-story home that is the primary residence for her and her family.
Federal Deposit Insurance Corporation
Jaselle's $4,000 in her savings account is federally insured. Which agency is responsible for insuring her savings?
U.S. Mint
Katie's bank recently received a shipment of recently-created quarters from the U.S. government. Which government agency is responsible for the manufacturing of the currency?
What is the difference between MIP and PMI?
MIP applies to FHA loans, PMI applies to conventional loans.
Martin is buying his first home and has obtained a Mortgage Credit Certificate. What does this certificate mean for Martin when filing his taxes?
Martin may be eligible for a reduction against his federal tax liability.
Which of these scenarios best describes a contract for deed?
Maura will get the title to her home once she has finished making the payments to the seller. The seller keeps paying their loan payments to the bank.
Which of the following loan scenarios is not regulated by the CFPB?
Michael looking to get a loan to purchase a mobile home.
amortized
Molly and Jeff are currently in the process of paying off a loan. Each month they pay the same amount, which contributes to both the principal and interest. Which type of loan is this an example of?
lenders and borrowers
Mortgage brokers are intermediaries between:
What is another name for process of compound interest causing a loan debt to increase, despite a borrower making payments?
Negative amortization
Which of these actions could cause a loan to default?
Not paying taxes
One discount point is defined as:
One discount point is 1% of the loan amount.
8.13% - 5.13% plus the lifetime cap of 3% is 8.13%.
Ramsey is considering an ARM with an initial rate of 5.13%. The margin is 2%, and the initial index rate is 3.13% The initial rate will adjust every four years. The lifetime cap is 3%. What is the highest rate Ramsey could pay?
Which of these best describes a balloon mortgage?
Raul's loan has fixed payments for seven years, then the entire remaining balance of his loan will come due.
Which of the following are signs of the expansion phase?
Rent and home prices rising, building construction increasing, and vacancy rates decreasing
What loans are exempted from CFPB requirements?
Reverse mortgages, home equity lines of credit, and mobile home loans
Which loans are not regulated by CFPB?
Reverse mortgages, home equity lines of credit, and mobile home loans are exempted from CFPB requirements
Sandra's sale closed on September 20.
Seller Sandra is responsible for 20 days of prorated items in her closing month of September. What can we infer from this information?
Which of the following is not available on mortgage foreclosures in Texas?
Statutory redemption period
The Federal Reserve
The Department of Housing and Urban Development (HUD) oversees all the following except:
Ginnie Mae, Farmer Mac, and the Federal Housing Administration
The Department of Housing and Urban Development (HUD) oversees:
Which of the following is NOT true about FDIC?
The FDIC only insures small, local depository institutions.
What federal agency is credited with creating the fully-amortized 20, 25, and 30-year mortgages?
The FHA
Which of the following institutions has eleven districts and the purpose to support residential mortgage lending and related community investment?
The Federal Home Loan Bank System
Which of the following is one of the federal government's monetary powers?
The Federal Reserve lowering the interest rate for member banks by a half percentage point
an increase in the price of housing loans
The Federal Reserve recently raised the discount rate. What is a possible result from this decision?
Farmer Mac
The GSE that assures that well priced agricultural loans are available by purchasing the loans on the secondary market is:
What agency is responsible for borrowing money needed to run the Federal Government?
The Treasury Department
agency responsible for borrowing money needed to run the Federal Government
The Treasury Department
the average rate for similar loans in the area
The Truth in Lending Act requires all of the following EXCEPT:
The Real Estate Settlement Procedures Act
The act that prohibits the practice of kickbacks
the Real Estate Settlement Procedures Act
The act that prohibits the practice of kickbacks is:
What is a back-end ratio?
The back-end ratio is the proportion of an applicant's income to their housing expense plus other long term expenses.
Who owns the property when the borrower has a reverse mortgage on the property?
The borrower (mortgagor)
a commercial property in downtown Houston
The income approach would be MOST appropriate for assessing the value of a:
Which of these is NOT a requirement for seller financing?
The loan must not be serviced by a processing company.
statutory redemption period
The period of time after the sale of a foreclosed property during which the foreclosed party may still recover the property. These do not exist in Texas.
Discount Rate
The rate at which the Feds loan money to their member banks
Which most accurately describes why a lender will require a tax escrow?
To protect the lender's investment
Katie's bank recently received a shipment of recently-created quarters from the U.S. government. Which government agency is responsible for the manufacturing of the currency?
U.S. Mint
judicial and nonjudicial
What are the two primary categories of foreclosure?
A secured note is backed by a borrower's assets, an unsecured note is not.
What differentiates a secured note from an unsecured one?
they work to increase mortgage availability
What do Fannie Mae, Freddie Mac, and Ginnie Mae all having in common?
explains that title will transfer to the owner after the mortgage is paid off
What does a defeasance clause in a deed of trust do?
outlines the final distribution of funds in a transaction
What does the Closing Disclosure form do?
It would decrease the amount due from the buyer.
What effect would a credit to the buyer on the closing disclosure have on the cash needed to close?
an individual who brings together borrowers and lenders to create mortgages
What is a mortgage broker?
a piggyback loan
What is another term for an 80-10-10 loan?
203(b) loans are for buying a home, 203(k) loans are for renovations.
What is the difference between an 203(b) FHA loan and a 203(k) FHA loan?
the margin
What is the difference between the interest rate of an ARM loan and the index value called?
20%
What is the minimum down payment that allows a borrower to avoid buying mortgage insurance premium (MIP)?
asset manager
What is the name of a professional who oversees the performance of and financial reporting on an investment property?
to assist low-income families or other underserved populations who may not be able to secure conventional financing
What is the purpose of the Texas State Affordable Housing Corporation
equitable rights
What kind of interest does a trustor (borrower) have in a property they've taken a loan to purchase in a title theory state?
statutory lien
What kind of lien best describes a tax lien?
the details of the servicing of the loan
What must a loan originator provide to a potential borrower within three days of a loan application being submitted to them?
when a foreclosure sale does not cover the outstanding borrower debt
When does a deficiency judgment come into play in a foreclosure?
pre-qualification
Which describes the process of getting a general estimate of the buyer's purchasing ability?
The Federal Reserve
Which government agency has the following three tools for influencing monetary policy: setting the discount rate, setting reserve requirements, and open-market operations?
Ginnie Mae
Which is NOT considered a GSE?
acceleration clause
Which loan clause states that whenever there is a breach of contract on the part of the borrower, the lender may make the entire amount of the loan due immediately?
Federal Home Loan Bank System
Which of the following institutions has eleven districts and the purpose to support residential mortgage lending and related community investment?
no credit score requirements
Which of the following is NOT a benefit of the FHA program?
Deed of Trust Title Insurance
Which of the following is NOT one of the three most common types of title insurance?
PMI is usually required when you have a conventional loan and has less than 20% equity.
Which of the following is TRUE of private mortgage insurance (PMI)?
Statutory redemption period
Which of the following is not available on mortgage foreclosures in Texas?
The Federal Reserve lowering the interest rate for member banks by a half percentage point.
Which of the following is one of the federal government's monetary powers?
The buyer makes a 50% down payment.
Which of the following would NOT be considered a "red flag" for illegal activity?
Not paying taxes
Which of these actions could cause a loan to default?
70-year-old Karen doesn't want a mortgage payment
Which of these borrowers is the best candidate for a reverse mortgage?
a contemporary art museum in Dallas
Which of these buildings would be MOST likely to be appraised using the cost approach?
taking possession
Which of these gives the highest priority in the order of rights (in other words, which of these actions would result in owning a property, if all were taken by different people on the same property)?
the payments every month are for the same amount
Which of these is a characteristic of an amortized loan?
rehabilitation loan
Which of these loan types is eligible to be insured by the FHA?
Dana wants to build an addition to her thriving hardware store.
Which of these loans is MOST representative of the kinds of loans commercial banks make?
unpaid ad valorem taxes
Which of these reasons for foreclosure would allow a former homeowner to access a two-year right of redemption period?
If the home was a primary residence, the former homeowner is eligible for the capital gains exclusion.
Which of these statements is TRUE about the profit from a foreclosure sale?
failing to maintain proper insurance
Which of these would be most likely to cause a borrower's mortgage to default?
the borrower (mortgagor)
Who owns the property when the borrower has a reverse mortgage on the property?
Texas doesn't have a promulgated contract for deed for this purpose
Why should parties use a lawyer to create a contract for deed?
Because if they don't, their mortgage loans are illiquid, and their funds will be tied up in a long-term asset.
Why would a lender want to sell their loans on the secondary mortgage market?
Which of these loans would NOT be covered by RESPA?
a 50 acre home in the country side
According to RESPA, which of the following must lenders provide borrowers within the first three days?
a booklet entitled "Settlement Costs and You," published by HUD, concerning settlement services
What is on a Loan Estimate form?
a borrower will learn about the details of the loan, including if their loan has a balloon payment feature, if their mortgage interest rate might change, and if they'll owe a PMI penalty
The income approach would be MOST appropriate for assessing the value of a:
a commercial property in downtown Houston
tax credit
a dollar-by-dollar reduction in the appraisal value of a property
Loans guaranteed by the Department of Veterans Affairs (VA) usually require:
a funding fee
What is a conforming loan?
a loan that follows the Fannie/Freddie guidelines, and can be resold on the secondary market
What is it called when a lender allows a borrower in financial difficulty to not make principal and/or interest payments for a period of time?
a moratorium
adjustable-rate mortgage (ARM)
a mortgage with an interest rate that can be adjusted based on fluctuations in the cost of money
A lender makes a $100 million loan on a commercial property. Another investor purchases $20 million of the loan. What is this an example of?
a participation agreement
Termite infestations, mold problems, a falling-in roof, lead-based paint, asbestos, and flood damage are all attributes of what kind of property, according to lender classifications?
a physically distressed property
What kind of lien is a mortgage?
a voluntary lien
Rudy is selling his home. He reaches an agreement with his buyer, Joey, that Rudy will transfer the deed to Joey and Joey will repay him with interest for the sale price of the home. Meanwhile, Rudy's original loan will remain in place. What situation is this describing?
a wraparound mortgage
The Treasury Department
agency is responsible for borrowing money needed to run the Federal Government
Federal Housing Administration
agency responsible for insuring mortgage loans
the Consumer Financial Protection Bureau (CFPB)
agency that is is tasked with creating easier-to-use mortgage disclosure forms, aiding in comparison shopping for borrowers, preventing surprises at the closing table, and increasing consumer understand of how mortgages work
HUD has encouraged the use of CLOs because:
all choices are correct (they use three-bureau, merged-file credit reports)
What does the power of sale clause do?
allows a lender take possession of a property without court approval if a buyer defaults on their loan
What is an an affirmative easement?
an easement that gives someone the right to use another's real property for a specific purpose
affirmative easement
an easement that gives someone the right to use another's real property for a specific purpose
mortgage banker
an entity or person who originates and services mortgage loans; usually provide financing on behalf of large investors.
mortgage broker
an individual who brings together borrowers and lenders to create mortgages
What does a REMIC do?
assemble mortgages into pools, and issues pass-through certificates, multi-class bonds, or other securities to investors in the secondary mortgage market
What is the name of a professional who oversees the performance of and financial reporting on an investment property?
asset manager
Why are real estate bonds considered a safe investment?
bonds are tied to property that can be sold to compensate for a default
How does the VA pay for its loan guarantee program?
by charging a funding fee
Which of these forms is a title company representative or real estate attorney required to prepare?
closing disclosure
Mortgages that meet Fannie Mae's standard are known as:
conforming loans
Which of these loan types is paid in installments called "draws"?
construction mortgage
Eloise's loan is neither insured by the government nor guaranteed by the government. Which of these BEST describes the kind of loan she has?
conventional
What are Experian, Equifax, and TransUnion?
credit reporting agencies
#1 factor in determining their interest rate
credit score
The Federal Reserve recently raised the discount rate. What is a possible result from this decision?
decrease in the supply of loans, which leads to an increase in the price of housing loans, which leads to a decrease in housing demand
Which of the following is a legal instrument that transfers a property's title (temporarily in case of default) to a third party as security for a loan?
deed of trust
Which of the following is a security instrument that places the deed to the property in a trust held by a third party?
deed of trust
What does the Community Reinvestment act aim to address?
discrimination in loans made to individuals and businesses from low and moderate-income neighborhoods
back-end ratio
e proportion of an applicant's income to their housing expense plus other long term expenses
What kind of interest does a trustor (borrower) have in a property they've taken a loan to purchase in a title theory state?
equitable rights
What does a promissory note do?
establishes a loan's terms
balloon mortgage
has payments like an amortized loan for a fixed period of time, then entire loan comes due. The homeowner can either sell, pay, or refinance at that time.
Which of the following is an example of a prepaid item?
hazard insurance paid by the seller two months before closing
Under which of these circumstances would a borrower be required to take out PMI?
if their down payment was less than 20%
A borrower will learn all of the following information on their Loan Estimate form EXCEPT:
if they'll have to pay for a property inspection
Without a secondary mortgage market, mortgages would be considered:
illiquid
Melissa, a sales agent, has noticed an increase in buyer phone calls and an increase in house prices. She also read in the paper that new construction was up 10%. What can this increase in housing be attributed to?
increased demand
Sue sells lemonade for 25 cents per cup to save up for a new bike. Sue visits a bike shop, only to find the price of the bike she wants has gone up. The shop owner tells Sue his rent went up, so he has to charge more for bikes. Now Sue charges 75 cents per cup. This situation exemplifies:
inflation
Which of the following are NOT eligible to be sold on the secondary mortgage market?
jumbo loans
Mortgage brokers are intermediaries between:
lenders and borrowers
According to RESPA, what must lenders provide borrowers within the first three days?
lenders must provide a booklet entitled "Settlement Costs and You" that concerns settlement costs, a truth-in-lending statement that indicates total credit costs and the annual percentage rate (APR) of the loan, and a good-faith estimate of settlement costs
What is the name of the payment a lender allows a borrower to make to temporarily freeze a rate at the time of a loan's approval?
lock-in fee
sales comparison approach
market demand is the most relevant factor to a property's valuation
Which mortgage group provides mortgage financing by using their own funds?
mortgage bankers
Which of the following individuals works with a borrower and multiple lenders to find competitive loan terms?
mortgage broker
A house has several different mortgages against it. What is the name of the document that determines the priority of these liens?
mortgage subordination agreement
What does the Real Estate Settlement Procedures Act aim to address?
prevent the practice of kickbacks and empower potential homeowners to become more educated and aware consumers
Which of these is NOT a way that a borrower can be released from PMI requirements?
reaching 18% equity in the home, with proof of 2% of the home's value in liquid assets
Which of these can be said to serve as constructive notice to all parties?
recorded finance and conveyance instruments
Stabilized high unemployment, home foreclosures, and low government interest rates are a sign of which phase of the real estate cycle?
recovery
Which of these loan types is eligible to be insured by the FHA?
rehabilitation loans (doesn't insure wraparound mortgages, jumbo loans, or subprime loans)
Which of these is typically NOT payed in arrears?
rent
In which approach to property valuation is market demand the most relevant factor?
sales comparison approach
In Texas, when a lender wants to foreclose on a property for default due to non-payment, the first step is to:
send the borrower a notice that gives the borrower at least 30 days to cure the default.
Which of these is NOT protected class under the ECOA?
sexual orientation
Which of these factors would NOT impact a person's credit score?
speeding ticket
How do REITs mitigate risk for investors?
spreading the risk across multiple properties
Which of these gives the highest priority in the order of rights (in other words, which of these actions would result in owning a property, if all were taken by different people on the same property)?
taking possession
An underwriter will typically look for all of the following EXCEPT:
tax exemptions
In a lien theory state where mortgages are used as security instruments, how are the borrower and lender known?
the borrower is the mortgagor and lender is the mortgagee
What is one downside of having debt forgiven as part of a foreclosure proceeding?
the forgiven debt will be taxed as income
buyer rebates
the illegal practice of a buyer receiving money at closing without their lender's knowledge
Grandpa Rey had a reverse mortgage. He lived a long and happy life, and by the time he passed, the balance of the loan exceeded the value of the home. Rey's heirs opted not to pay this debt. What happens now?
the lender forecloses on the home and absorbs the loss
What is the difference between the interest rate of an ARM loan and the index value called?
the margin
How was the Consumer Financial Protection Bureau established?
the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act established the CFPB
What is a statutory redemption period?
the period of time after the sale of a foreclosed property during which the foreclosed party may still recover the property. These do not exist in Texas.
Which statement best describes the relationship between the primary and secondary mortgage markets?
the secondary market stabilizes the primary market by replenishing funds
Which of these is NOT a red flag for mortgage fraud?
the seller paying the buyer's mortgage points
In real estate fraud, the mortgage lender is most commonly:
the victim
In addition to a senior citizen tax deduction, what other benefit is given to seniors to offset school taxes?
their school tax rate may be frozen
What is one disadvantage of an FHA loan?
there is a maximum loan amount
What do Fannie Mae, Freddie Mac, and Ginnie Mae all having in common?
they work to increase mortgage availability
According to the FHA, how much time must pass between selling a home and qualifying as a first-time homebuyer?
three years
What is the purpose of the Texas State Affordable Housing Corporation?
to assist low-income families or other underserved populations who may not be able to secure conventional financing
What is the purpose of PMI?
to protect the lender if the borrower defaults
All of these might result in a foreclosure, EXCEPT:
transferring the note to another party
Which of these reasons for foreclosure would allow a former homeowner to access a two-year right of redemption period?
unpaid ad valorem taxes
A property is being foreclosed upon. Which of these liens will be paid first?
unpaid property taxes
blanket mortgage
uses more than one piece of collateral
loan assumption
when a buyer adopts the seller's previously-existing loan (without changing the terms); not allowed in most mortgages, with the exception of VA and FHA loans
When does a deficiency judgment come into play in a foreclosure?
when a foreclosure sale does not cover the outstanding borrower debt
What is actual notice?
when an individual actually knows of a fact
One of the key differences between a lien theory state and a title theory state centers around:
whether the borrower retains title during the life of the loan
Which of these is a concern a borrower should be aware of before taking out an ARM loan?
whether they can afford the payments when the rate changes
Recently, the supply of money to purchase homes decreased for homebuyers. As a consequence, one can assume that the demand for housing:
will decrease