Real Estate Finance Exam

A seller wants to net $10,000 after the broker's commission of 6% and a loan balance of $250,000 are paid. For how much does the property need to sell?

$276,595 To calculate this, start with 100% minus a 6% commission, which is 94% or .94. Take $250,000 plus $10,000 and divide this amount by .94.

Pattie is the widow of Oscar, a member of the Army who was killed in action. When she uses the VA loan to buy her first home, what percentage of her loan amount will be charged as a funding fee?

0%

A three-unit income-producing property has a sale price of $600,000. Monthly gross rent is estimated at $6,000. What's the gross rent multiplier?

100x Gross rent multiplier is sales price divided by monthly gross rent ($600,000 / $6,000 = 100). Improperly calculating GRM could lead an investor to purchase a property that turns out to be a poor investment.

Which of the following is a true statement about the "hardest hit fund"?

18 states

Cathy is hoping to purchase a home using a VA loan. A VA-assigned real estate appraiser is required to provide ___________ for the property.

A certificate of reasonable value The certificate of reasonable value must be provided by a VA-assigned real estate appraiser.

What type of clause is this? "If any monthly installment under this Note is not paid when due and remains unpaid after a date specified by a notice to Mortgagor, the entire principal amount outstanding and accrued interest thereon shall at once become due and payable at the option of the Note holder."

Acceleration clause This is an acceleration clause, which states that the lender can call the loan immediately due and payable if the borrower defaults on the loan.

What does ARM stand for?

Adjustable Rate Mortgage

Regional State Bank has made a lot of loans to consumers in the community and is running low on funds. It seeks a loan from the Federal Home Loan Bank. This loan is called a/an _______.

Advance FHLB lends money, called advances, to member banks in exchange for collateral.

What is a reverse exchange?

An investor finds and closes on an investment property and then decides to immediately sell another investment property. An investor can do a tax deferral "backward." This is called a reverse exchange. They're still strapped to the 45- and 180-day deadlines.

For which of these properties would gross income multiplier be calculated?

Apartment building with 50 units

What information does Schedule A of a title commitment provide?

Basic facts related to the transaction and property, including a legal description

What's the acronym for the legislation that requires financial institutions to invest in the communities they serve?

CRA CRA stands for the Community Reinvestment Act.

Which of the following VA programs requires a credit check, new appraisal, and income verification?

Cash Out Refinance Only the IRRC and Cash Out Refinance are actual VA loan programs; the Cash Out Refinance program requires a credit check, new appraisal and income verification.

In 2001, California legislators enacted the ______________ to combat predatory lending practices.

Covered loan law The Covered Loan Law was enacted in 2001 in an effort to curb predatory lending practices in California.

How many hours of continuing education must real estate licensees complete each year to renew their MLO endorsement?

Eight hours

What information does Schedule B-2 of a title commitment provide?

Exceptions that the title policy will not cover

What other banking-related entity shares similarities with the purpose and function of the NCUA?

FDIC

Which of the following generally acts in the secondary market?

Fannie Mae

Which of these transactions must comply with Appraiser Independence Requirements?

Four-unit residence being purchased with a conventional loan AIR apply to conventional loans used to purchase a single-family dwelling of one to four units. Federally insured or guaranteed loans (such as FHA or VA or commercial loans) are exempt.

How is gross rent multiplier calculated?

Gross rent multiplier is sales price divided by monthly gross rent GRM = sales price / monthly gross rent

Which of the following specifies a requirement of pre-loan counseling for consumers?

Homeowner and Equity Protection Act (HOEPA) HOEPA is an amendment to TILA and requires pre-loan counseling for consumers.

The _______ account is an essential part of a financial plan for independent contractors, who should expect to disburse from this account on a quarterly basis.

Income tax Independent contractors are required to make estimated tax payments on a quarterly basis, and should use the income tax account to save the amount required.

What makes the promissory note's date important?

It determines lien priority. The date listed on the promissory note establishes the priority of the lien in relation to other liens on the property.

Which of the following clauses is included in Fannie Mae's multi-state note?

Late charge The note contains a description of when a late charge is payable.

Store of value, unit of account, and what other factor define money?

Medium of exchange Money can be defined as a store of value, unit of account, and medium of exchange.

HUD's second goal in support of its mission is to ____________.

Meet the need for quality affordable rental homes

How much of a mutual savings bank's assets come from savings accounts?

More than 70% More than 70% of the assets of a mutual savings bank come from savings accounts.

A beneficiary, trustor, and trustee are the parties involved when the finance instrument is a ______________.

Note with deed of trust The beneficiary is the lender, the trustor is the borrower, and the trustee is the third party who reconveys title when the loan is paid off.

What is a wrap-around mortgage?

One that may involve seller financing A wrap-around mortgage is one where the buyer's new loan wraps around the seller's existing financing. The seller uses a portion of the buyer's payments to the seller to pay on the original loan.

In a judicial foreclosure, if the sheriff's sale wasn't enough to pay off the borrower's debt plus foreclosure costs, how long does the borrower's redemption period last?

One year. The redemption period lasts one year following the sheriff's sale if the sale didn't pay off the entire debt (and foreclosure costs).

Sophie only has 15% to put down on her new home. What will the lender require for Sophie to obtain conventional financing?

PMI

Several actions take place on the secondary mortgage market. Which of these is a common activity?

Packaging loans into mortgage backed securities (MBSs)

There is more than one mortgagor as owner in this type of partnership.

Partnership among mortgagors

____________ is when the outstanding loan balance is reconfigured. It is a form of loan modification.

Recasting

What's the term for a loan modification in which the outstanding loan balance is reconfigured?

Recasting In recasting, the lender reconfigures the loan, including the term, to reduce the borrower's monthly payment. This is essentially a new loan, so the loan's amortization will be extended.

When is gross rent multipler calculated?

Remember, rent has four letters. Gross rent multiplier is used for income-producing properties with four or fewer units.

What's the purpose of the Home Mortgage Disclosure Act?

Requires financial institutions to maintain, report, and publicly disclose information about their mortgages

Which of the following made mortgages attractive investments?

Rising home prices Rising home prices made mortgages attractive investments prior to the 2007 financial collapse.

Contributions for this type of IRA aren't tax-deferred.

Roth

If the Treasury encounters a deficit, what actions might it take?

Sell securities The Treasury may sell securities in the form of treasury bonds, bills, or notes as a way to raise additional funds to pay bills. The Treasury does not control interest rates.

What do mortgage bankers prefer to do with loans after they've been made.

Stick with them for the life of the loan.

Which agency regulates FHLBanks?

The Federal Housing Finance Authority FHLBanks are regulated by the Federal Housing Finance Authority, which is considered a government-sponsored enterprise.

How is gross income multiplier calculated?

The gross income multiplier can be used to roughly determine whether the asking price of a property is a good deal. Multiplying the GIM by the property's gross annual income yields the property's value, or what it should be selling for. GIM = sale price / gross annual rental income

Which of the following is TRUE regarding value?

The principle of substitution means that people won't pay more for a property than they have to The principle of substitution says that buyers won't pay more for a property than it's worth, and if there's a similar property nearby that they can substitute for it that is priced less, it will bring down the value of the original property in the buyer's eyes.

How are creditors or lien holders paid during a foreclosure process?

The property is sold at auction and lien holders are paid from the proceeds of the sale. The lien holders are paid from the proceeds of the foreclosure sale. If the sale doesn't net enough to repay all lien holders, they're repaid in order of priority. Some junior lien holders may not get anything.

Page four of the Closing Disclosure includes consumer education about ________.

The use of an escrow account

The funding fee on a VA loan is waived when ____________.

The veteran has a 10% or higher VA disability.

Mutual savings banks prefer to keep their lending activities in their immediate geographic area. Why?

They prefer to personally monitor the loans they issue Mutual savings banks prefer to keep their mortgage lending in the immediate geographic area (think East Coast) so they can closely monitor the loans.

Which of the following statements is true about buydowns with a VA loan?

They're allowed only on fixed rate loans. A borrower may buy down the interest rate on a fixed rate VA loan, but buydowns are not allowed on ARMs.

The FHA offers a program for loan insurance on adjustable rate mortgages under _______ of the National Housing Act.

Title II

Store of value, medium of exchange, and what other factor define money?

Unit of value Money can be defined as a store of value, unit of account, and medium of exchange.

Adam is a real estate licensee. He gets a call from Brad, who tells him that he's getting married soon, and that he and his partner, Zeke, will need to buy a home that is between their places of work. The area where Adam has active listings is right where Brad and Zeke need to be. Adam doesn't agree that gay marriage should be legal, so he tells Brad that he doesn't have time to help but that he can refer Brad and Zeke to another agent. What California legislation makes Adam's action illegal?

Unruh Civil Rights Act The Unruh Civil Rights Act requires all businesses to provide full and equal service to customers and clients. Adam can't legally refuse to serve Brad and Zeke simply based on his disagreement with their decision to marry.

How you determine debt coverage ratio?

You divide net income by debt service.

The ease with which an asset is converted to cash is called _______.

liquidity

What law sets California requirements for mortgage loan originators?

Senate Bill 36 Senate Bill 36 sets requirements for those who do business as an MLO.

What did the Troubled Asset Relief Program allow the U.S. Treasury to do in response to the 2007 financial crisis?

Spend billions In an effort to stabilize our financial system, boost credit markets, help families avoid foreclosure, and promote economic growth, TARP gave the Treasury permission to spend as much as $700 billion (later reduced to $475 billion).

There are three countries that have banks that issue loans for U.S. real estate purchases. What are those countries?

Taiwan, the U.K., and Canada According to the NAR, those countries are Taiwan, the U.K., and Canada.

What does the Unruh Civil Rights Act require of real estate licensees?

That they treat all customers and clients fairly and equally, without discrimination

Why might a homebuyer use a 203(k) loan instead of the standard 203(b) loan?

To roll the cost of rehabilitating the purchased home into the mortgage

Which of the following has a direct responsibility to pay the nation's bills?

U.S. Treasury One of the U.S. Treasury's responsibilities is to pay the nation's bills. It obtains funds to do this through taxes and Social Security payments.

In which type of participation agreement would a financier lower the interest on the mortgage in exchange for partial ownership of the project?

Partnership between mortgagees and mortgagors In a partnership between mortgagees and mortgagors, a lender may be willing to accept a higher LTV ratio or make other adjustments, such as a lower interest rate, in exchange for partial ownership of the project.

Which of the following can a lender do if a borrower fails to keep homeowners insurance on the collateral property?

Place lender-acquired insurance on the property and bill the borrower Lenders may place lender-acquired insurance on the property and invoice the borrower. If not resolved, foreclosure activities may be initiated.

When is gross income multiplier calculated?

Properties with five or more units use gross income multiplier.

Dana and Phil have evaluated their situation, and have decided to purchase a unit in a cooperative housing project. Which FHA loan program might work for them?

Title II, Section 203(n) The FHA has a program specifically for the purchase of a unit in a cooperative housing project: Title II Section 203(n).

Back-end ratio is another term for _________.

Total debt ratio