REE3043 Exam 3

If a real estate closing occurs on August 1 of a 365-day year,how will the year's property tax of $2,000 be prorated?

$1,161.64 to the buyer

An elderly couple owns a $500,000 home that is free and clear of mortgage debt. A reverse annuity mortgage (RAM) lender has agreed to a $300,000 RAM. The loan term is 12 years, the contract is 8.0% interest, and payments will be made at the end of each month. This will result in the lender paying the couple:

$1,247.36 per month

What amount invested at the end of each year at 10 percent annually will grow to $10,000 at the end of five years? $1,489.07 $1,637.97 $1,723.57 $1,809.75 $2,000.00

$1,637.97

What is the present value of $500 received at the end of each of the next three years and $1,000 received at the end of the fourth year, assuming a required rate of return of 15 percent? $900.51 $1,035.59 $1,713.37 $1,784.36 $2,049.06

$1,713.37

What is the present value of the following series of cash flows discounted at 12 percent: $40,000 now, $50,000 at the end of the first year; $0 at the end of the second year; $60,000 at the end of the third year; and $70,000 at the end of the fourth year?' $165,857 $167,534 $168,555 $171,836

$171,836

How much would you pay today for the right to receive $80 at the end of 10 years if you can earn 15 percent interest on alternative investments of similar risk? $19.15 $19.77 $38.48 $38.82 $70.65

$19.77

Given the following information, how much private mortgage insurance (PMI) is required? PMI is to cover the top 25% of the loan Purchase price: $140,000 Loan amount: $126,000 Down payment: 10%

$31,500

How much will a $50 deposit made today be worth in 20 years if interest is compounded annually at a rate of 10 percent? $150.00 $286.37 $309.59 $336.37 $2,863.75

$336.37

How much would you pay today for the right to receive nothing for the next 10 years and $300 a year for the following 10 years if you can earn 15 percent interest on alternative investments of similar risk? $372.17 $427.99 $546.25 $600.88 $1,505.63

$372.17

Five years ago, Jasmine purchased a home with a 9% mortgage rate. Her monthly payment is $965.55. She still owes $100,000 on the home but has found another lender who will refinance the home at a 5.5% mortgage rate for 30 years. Refinancing costs would be $4,000 plus 2% of the $100,000 mortgage loan. Approximately, how much would Jasmine save monthly by refinancing at 5.5%, and how long would it take her, at this rate of savings, to recover the refinancing costs? $428.73/month; 1.17 years $397.76/month; 1.26 years $95.35/month; 5.24 years $366.00/month; 1.37 years $300.25/month; 1.67 years

$397.76/month; 1.26 years

If a landowner purchased a vacant lot six years ago for $25,000, assuming no income or holding costs during the interim period, what price would the landowner need to receive today to yield a 10 percent annual return on the land investment? $40,262.75 $41,132.72 $44,289.03 $64,843.56

$44,289.03

Gross price = (Target net price)/(1 - commission rate) Housing expense = (PITI/GMI) Total debt = (PITI + LTO)/GMI As a Realtor, you have to assist sellers in deciding the asking price which will give the seller their target net price after paying the broker's commission. If a seller wished to net $500,000 after paying the broker's commission of 6%, what should be the gross listing price ofthe property?

$531,915

On a level-payment loan with 12 years (144 payments) remaining, at an interest rate of 9 percent, and with a payment of $1,000, the current balance is: $144,000 $100,000 $87,871 $76,137

$87,871

How much would you pay today to receive $50 in one year and $60 in the second year if you can earn 15 percent interest on alternative investments of similar risk? $88.85 $89.41 $98.43 $107.91 $110.00

$88.85

What is the up-front premium charged on FHA loans? 2.0% 0.5% 1.0% 2.5% 1.75%

1.75%

The maximum loan-to-value ratio on a VA-guaranteed loan is: 90% 98% 99% 100%

100%

For conforming conventional home loans, the standard payment ratios for underwriting are: 28% and 36% 25% and 33% 29% and 41% 33% and 56%

28% and 36%

Gross price = (Target net price)/(1 - commission rate) Housing expense = (PITI/GMI) Total debt = (PITI + LTO)/GMI A recent UCF graduate landed a great job as a commercial mortgage broker earning $4,500 per month. She wants to purchase a home for $200,000. The monthly payment (principal and interest) is $950. Property taxes and hazard insurance expenses total $350/month. Her car payment is $400/month. Her housing expense (front-end) ratio and total obligations (back-end) ratio are, respectively:

28.89%; 37.78%

Gross price = (Target net price)/(1 - commission rate) Housing expense = (PITI/GMI) Total debt = (PITI+ LTO)/GMI Given the following monthly information, calculate the total debt ("back end") ratio: Principal & interest: $635 Taxes & insurance: $125 Car lease: $550 Groceries: $220 Gross income: $2,500

52.4%

On the following loan, what is the best estimate of the effective borrowing cost if the loan is prepaid six years after origination? Loan amount: $100,000 Interest rate: 7 percent Term: 180 months Up-front costs: 7 percent of the loan amount 8.2% 8.4% 8.5% 8.7% 9.0%

8.7%

The maximum loan-to-value ratio for an FHA loan is approximately: 90% 97% 99% 100%

97%

A characteristic of a partially amortized loan is: No loan balance exists at the end of the loan term A balloon payment is required at the end of the loan term All have adjustable interest rates All have a loan term of 15 years None of the above

A balloon payment is required at the end of the loan term

A jumbo loan is: A conventional loan that is large enough to be purchased by Fannie Mae or Freddie Mac A conventional loan that is too large to be purchased by Fannie Mae or Freddie Mac A multiproperty loan A VA loan that exceeds the normal limits

A conventional loan that is too large to be purchased by Fannie Mae or Freddie Mac

In most straightforward transactions involving houses or other relatively small properties, the initial offer contract is: Prepared by the seller's attorney Prepared by the buyer's attorney Prepared by the broker A form with blanks filled in by the broker A form with blanks filled in by buyer and seller

A form with blanks filled in by the broker

A mortgage loan which incurs "negative amortization" is characterized by: A level loan balance A gradually declining loan balance A growing loan balance Full amortization

A growing loan balance

An earnest money deposit is: A preliminary contract A provision in a contract for sale A payment of money by a buyer to evidence good faith An escrow provision A conveyance

A payment of money by a buyer to evidence good faith

The type of mortgage loan that best fits the asset-liability mix of most depository institutions is a(an): Fixed-payment, fully amortized mortgage Adjustable rate mortgage Purchase-money mortgage Interest-only, fixed-rate mortgage

Adjustable rate mortgage

Explain how affordable housing loans differ from standard home loans.

Affordable housing loans have a low down payment and flexibility in the loan-to-value ratio, credit qualifications, or payment capacity

Real estate transactions do not close at the same time the contract for sale is signed by both parties because: An inspection must be made Financing must be arranged Title must be checked Documents must be prepared All of the above

All of the above

Potential justifiable subprime borrowers include persons who: Are creditworthy, but want a 100 percent or higher LTV loan Are credit-impaired Persons with no documentation of their income All of these

All of these

The purpose of a closing statement is to: Determine who pays the brokerage commission. Allocate expenses and receipts of buyer and seller. Prorate expenses between buyer and seller. Account for moneys in a transaction. Allocate expenses and receipts of buyer and seller, prorate expenses between buyer and seller, and account for moneys in a transaction

Allocate expenses and receipts of buyer and seller, prorate expenses between buyer and seller, and account for moneys in a transaction

Roger listed his property with one broker. He sold the property himself one month later to a personal friend. Roger will not have to pay the broker a commission, since he found the buyer himself. In this case, the seller and broker have entered into: A selfie agreement An exclusive right of sale listing An exclusive agency listing A multiple listing An estoppel listing

An exclusive agency listing

Adjustable rate mortgages commonly have all the following except: A teaser rate A margin An index A periodic interest rate cap An inflation index

An inflation index

If a mortgage is to mature (i.e., become due) at a certain future time without any reduction in the original principal balance, this is called: A second mortgage An amortized mortgage A limited reduction mortgage An interest-only mortgage An open-end mortgage

An interest-only mortgage

Jan is shopping for a home loan in order to purchase her retirement home. She has several loan options available. All things being equal and assuming she will pay the loan to maturity, she should select the loans with the lowest: Title search expenses Up-front fees Annual percentage rate (APR) Stated mortgage interest rate

Annual percentage rate (APR)

Conforming conventional loans are loans that: Are eligible for FHA insurance Are eligible for VA guarantee Are eligible for purchase by Fannie Mae and Freddie Mac Meet federal Truth-in-Lending standards

Are eligible for purchase by Fannie Mae and Freddie Mac

Which of the following statements is true about 15- and 30-year fixed-payment mortgages? Thirty-year mortgages are more popular than 15-year mortgages among homeowners who are refinancing Borrowers pay more total interest over the life of a 15-year mortgage than on a 30-year loan, all else being equal The remaining balance on a 30-year loan declines more quickly than an otherwise equivalent 15-year mortgage Assuming they can afford the payments on both mortgages, borrowers usually should choose a 30-year mortgage over an otherwise identical 15-year loan if their discount rate (opportunity cost) exceeds the mortgage rate

Assuming they can afford the payments on both mortgages, borrowers usually should choose a 30-year mortgage over an otherwise identical 15-year loan if their discount rate (opportunity cost) exceeds the mortgage rate

Explain why a home equity mortgage loan can be a better source of funds forhousehold needs than other types of consumer debt.

Because the interest paid on the first $100,000 of a home equity loan is completely deductible

An effort to induce property owners to sell by starting rumors that minorities are moving into the neighborhood is the illegal practice of: Discrimination Redlining Blockbusting False rumor mongering

Blockbusting

How are commission rates that real estate brokers charge determined? By agreement among local realtors By rule of the local Associations of Realtors By state real estate commissions By agreement between broker and principal By state law

By agreement between broker and principal

Mortgage banking companies: Collect monthly payments and forward them to the mortgage investor Arrange home loan originations, but do not make the actual loans Make home loans and fund them permanently None of the above

Collect monthly payments and forward them to the mortgage investor

Currently, which type of financial institution in the primary mortgage market provides the most funds for the residential (owner-occupied) housing market? Life insurance companies Thrifts Credit unions Commercial banks

Commercial banks

Real estate salespersons can lose their licenses for: Using aggressive sales techniques Not showing buyers all available properties in an area. Commingling escrow (trust) money with personal funds Not using modern sales methods All of the above

Commingling escrow (trust) money with personal funds

Lender's yield differs from effective borrowing cost (EBC) because: Lender's yield is strictly a yield to loan maturity and EBC is not EBC is strictly a yield to maturity and lender's yield is not EBC accounts for additional third-party up-front expenses paid by the borrower that lender's yield does not account for Lender's yield accounts for additional third-party up-front expenses that EBC does not

EBC accounts for additional third-party up-front expenses paid by the borrower that lender's yield does not account for

When contracts for the sale of real property are placed with a disinterested third party for executing and closing, they are said to be placed in: Safekeeping A title company or financial institution Option Escrow Assignment

Escrow

Probably the greatest contribution of FHA to home mortgage lending was to: Establish the use of the level-payment home mortgage Create mortgage insurance for conventional loans Create the adjustable rate mortgage Create the home equity loan

Establish the use of the level-payment home mortgage

The state real estate commission is responsible for: Setting fees for brokerage services Marketing data on real estate transactions Establishing education requirements for licensees Overseeing the activities of mortgage lenders Setting up multiple listing systems

Establishing education requirements for licenses

The dominant loan type originated by most financial institutions is the: Fixed-payment, fully amortized mortgage Adjustable rate mortgage Purchase-money mortgage FHA-insured mortgage

Fixed-payment, fully amortized mortgage

Which of the following statements, regarding the three secondary mortgage entities created by the Federal Government, is least correct? Fannie Mae's original mission was as a secondary market for FHA/VA mortgages Ginnie Mae doesn't buy mortgages Fannie Mae surpasses Freddie Mac in buying conventional loans Freddie Mac deals exclusively in conventional loans Ginnie Mae guarantees timely payment of interest and principal to holders of Fannie Mae securities

Ginnie Mae guarantees timely payment of interest and principal to holders of Fannie Mae securities

Home equity loans typically: Are fixed-rate, fixed-term loans Are first mortgage loans Are originated by mortgage bankers Have tax-deductible interest charges

Have tax-deductible interest charges

Private mortgage insurance (PMI) is usually required on _____ loans with loan-to-value ratios greater than _____ percent. Home, 80 Home, 60 Income property, 75 Income property, 80

Home, 80

Which of the following mortgage types generally will have the most default risk, assuming the initial loan-to-value ratio, contract interest rate, and all other loan terms are identical? Interest-only loans. Fully amortizing loans. Partially amortized loans. There is no difference in the default risk of these loans.

Interest-only loans

All of the following are duties that a broker would have to the seller in a single agency listing contract, EXCEPT: Skill and care Obedience Loyalty Knowledge Disclosure

Knowledge

A person who holds a full freehold interest in real property is said to have _______ title Legal Contingent Conditional Equitable

Legal

The most profitable activity of residential mortgage bankers normally is: Loan origination. Loan servicing Loan sales in the secondary market Loan brokerage activities

Loan servicing

The numerator of the standard housing expense (front-end) ratio in home loan underwriting includes: Monthly principal and interest Monthly principal, interest, and property taxes Monthly principal, interest, property taxes, and hazard insurance All of these plus monthly obligations extending 10 months or more

Monthly principal, interest, property taxes, and hazard insurance

A simple but durable method of determining whether to refinance is to use: Net benefit analysis Cost of borrowing An interest rate spread rule APR

Net benefit analysis

Assume an investment is priced at $5,000 and has the following income stream (year 1, $1,000; year 2, -$2,000; year 3, $3,000; and year 4, $3,000). Would aninvestor with a required rate of return of 15 percent be wise to invest at a price of $5,000? No, because the investment has a net present value of −$1,139.15 No, because the investment has a net present value of −$1,954.91 Yes, because the investment has a net present value of $1,069.66 Yes, because the investment has a net present value of $1,954.91

No, because the investment has a net present value of -$1,954.91

One of the most effective ways that salespersons or brokers can distinguish themselves as a preferred agent in a particular specialization of real estate brokerage is to: Obtain a license to practice Take related courses Read related books Engage in personal advertising Obtain a related industry designation

Obtain a related industry designation

Which of the following conditions would be a defect to mutual assent in a contract for the sale of real property? One party attempts to perpetrate fraud on the other The contract is in written form The price is excessive One of the parties is legally incompetent The contract does not specify a time for closing

One party attempts to perpetrate fraud on the other

The most common adjustment interval on an adjustable rate mortgage (ARM) once the interest rate begins to change has been: Six months One year Three years Ten years None of the above

One year

Which of the following is one of the terms of a real estate contract? Mechanical equipment must be in good condition Title must be marketable Price to be paid Property must be free of termites All of the above items are terms

Price to be paid

The normal securitization channel for jumbo conventional loans is: GNMA GSEs Private conduits FDIC

Private conduits

Discuss the role and importance of private mortgage insurance in the residential mortgage market.

Private mortgage insurance protects a lender against losses due to a default

Real estate brokers are paid commissions primarily for: Having an inventory of properties Having many contacts Providing a service Knowing how to close a transaction Having specialized education

Providing a service

In the last 20 years, the mortgage banking industry has experienced: Nearly complete obsolescence Decentralization Limited consolidation Rapid consolidation

Rapid consolidation

A mortgage that is intended to enable older households to "liquify" the equity in their home is the: Graduated payment mortgage (GPM) Adjustable rate mortgage (ARM) Purchase-money mortgage (PMM) Reverse annuity mortgage (RAM)

Reverse annuity mortgage (RAM)

Warehousing in home mortgage lending refers to: Short-term loans made by mortgage bankers to commercial banks Short-term loans made by commercial banks to mortgage bankers Long-term loans made by commercial banks to mortgage bankers Short-term loans to finance the construction of builder warehouses

Short-term loans made by commercial banks to mortgage bankers

Traditionally, a real estate broker is what type of agent for his or her principal? General agent Special agent Limited agent Designated agent All of the above

Special agent

If a buyer defaults on a contract to purchase real property, which of the following is not a remedy the seller can pursue? Rescind the contract Sue for damages Sue for specific performance Sue for assignment

Sue for assignment

The required calculation of annual percentage rate (APR) by the lender is a result of: The Truth-in-Lending Act of 1968 The Real Estate Settlement Procedures Act of 1974/1977 The Equal Credit Opportunity Act of 1974 State real estate licensing laws Rules of the Federal Trade Commission

The Truth-in-Lending Act of 1968

According to most listing contracts, a broker has earned a commission when: A contract for sale is signed by the buyer The transaction closes The broker finds a buyer who is ready, willing, and able to buy on the terms specified in the listing contract The seller signs a listing contract The broker sends a bill for services rendered to the principal (usually the seller)

The broker finds a buyer who is ready, willing, and able to buy on the terms specified in the listing contract

A down payment deposit from a potential buyer must be held in: The seller's bank account The salesperson's own bank account The broker's escrow trust account Long-term government bonds The broker's own bank account

The broker's escrow trust account

If a real closing occurs on August 1 of a 365-day year, how will the year's property tax of $6,000 be prorated? The buyer shold be credited with $3,484.92, while the seller is charged that amount The buyer should be credited with $2,515.08, while the seller is charged that amount The seller should be credited with $3,484.92, while the buyer is charged that amount

The buyer should be credited with $3,484.92, while the seller is charged that amount

Oral evidence in contract disputes is prohibited by: A parol contract An executory contract An inferred contract An unspecified contract The parol evidence rule

The parol evidence rule

Equitable title to real estate is: Legal ownership of property Legal title obtained in a court of equity Title obtained by adverse possession A legal interest in a property conveyed by a listing contract to a broker The right to obtain legal title conveyed by the contract for sale

The right to obtain legal title conveyed by the contract for sale

If a real estate closing occurs on August 1 of a 365-day year, which of the following obligations pertaining to property taxes is correct? The seller owes 212 days, the buyer owes 153 days of the property taxes, and the seller is to be credited for the proportion of taxes which they are owed by the buyer The seller owes 153 days, the buyer owes 212 days of the property taxes, and the buyer is to be credited for the proportion of taxes which they are owed by the seller The seller owes 153 days, the buyer owes 212 days of the property taxes, and the seller is to be credited for the proportion of taxes which they are owed by the buyer The seller owes 213 days, the buyer owes 152 days of the property taxes, and the buyer is to be credited for the proportion of taxes which they are owed by the seller The seller owes 212 days, the buyer owes 153 days of the property taxes, and the buyer is to be credited for the proportion of taxes which they are owed by the seller

The seller owes 212 days, the buyer owes 153 days of the property taxes, and the buyer is to be credited for the proportion of taxes which they are owed by the seller

Katherine Jones sold her home, which is on the east coast of Florida, to Amanda Ramirez. The contract was signed August 1, 2014 and closing was set for August 25, 2014. Katherine had prepaid her one year (2014) hazard insurance policy in the amount of $2,000 on January 1 of that year and Amanda agreed to assume it at closing. The hazard insurance premium would be prorated as follows: The seller's portion is $701.37, and the buyer's portion is $1,298.63, and the buyer will be credited with $1,298.63 while the seller is charged that amount The seller's portion is $1,298.63, and the buyer's portion is $701.37, and the buyer will be credited with $701.37 while the seller is charged that amount The seller's portion is $1,298.63 and the buyer's portion is $701.37, and the seller will be credited with $1,298.63 while the buyer is charged that amount The seller's portion is $1,304.11 and the buyer's portion is $695.89, and the buyer will be credited with $1,304.11 while the seller is charged that amount The seller's portion is $701.37, and the buyer's portion is $1,298.63, and the seller will be credited with $1,298.63 while the buyer is charged that amount

The seller's portion is $1,298.63 and the buyer's portion is $701.37, and the seller will be credited with $1,298.63 while the buyer is charged that amount

Over the last two decades the reduced importance of certain institutions in the primary mortgage market has been largely offset by an expanded role for others. Which has diminished, and which has expanded? Commercial bankers; thrifts Mortgage banking; commercial banks Commercial banks; mortgage banking Thrifts; mortgage banking and commercial banks

Thrifts; mortgage banking and commercial banks

The subagency relationship that traditionally has characterized multiple listing services has tended to result in the widespread danger of: Monopoly Deliberate dual agency Unintended dual agency Discrimination Price wars

Unintended dual agency

As the level of perceived risk increases, Values and expected returns increase Values and expected returns decrease Values increase and expected returns decrease Values decrease and expected returns increase Values decrease but expected returns are unaffected

Values decrease and expected returns increase

You have just signed a contract to purchase your dream house. The price is $120,000 and you have applied for a $100,000, 30-year, 5.5 percent loan. Annual property taxes are expected to be $2,000. Hazard insurance will cost $400 peryear. Your car payment is $400, with 36 months left. Your monthly gross incomeis $5,000. Calculate: a. The monthly payment of principal and interest (PI) b. One-twelfth of annual property tax payments and hazard insurancepayments c. Monthly PITI (principal, interest, taxes, and insurance) d. The housing expense (front-end) ratio e. The total obligations (back-end) ratio

a. $567.79 b. $200 c. $767.79 d. 15.36% (767.79/5,000) e. 23.36% ((767.79 + 400)/5,000)