Ch3 Questions (aceable test 2)

The FDIC insures deposits up to: $50,000 $250,000 $200,000 $150,000

$250,000

How many member banks are in the Federal Home Loan Bank System? 13 11 10 12

11

Who would be eligible for an FHA loan? A prospective borrower with a FICO score of: 350 550 499 210

550

When the interest rate can change over the life of a loan; adjustable-rate mortgages are known as "ARMs"

Adjustable-Rate:

Refers to the process of allocating the cost of an asset or the repayment of loan principal over time

Amortization:

Employs periodic payments that will not fully amortize the the loan, thereby requiring a final payment that is larger than previous payments

Balloon Payment Loan:

A payment made at the mortgage term's end that is comparatively much larger than the payments that preceded it

Balloon Payment:

A loan that is not underwritten by any agency of the federal government

Conventional Loan:

are loans that are not underwritten by any agency of the federal government. They can be conforming or non-conforming

Conventional loans

What is the main difference between Fannie Mae and Freddie Mac? Freddie Mac deals with larger commercial banks. Freddie Mac does not engage in conventional conforming mortgage loans. Fannie Mae does not engage with government-supported loans. Fannie Mae deals with larger commercial banks.

Fannie Mae deals with larger commercial banks.

Which of the following are Government-Sponsored Enterprises (GSEs)? Fannie Mae, Ginnie Mae, and Freddie Mac Freddie Mac, Fannie Mae, Ginnie Mae, and the FHLBank System Fannie Mae, Freddie Mac, and the FHLBank System the FHLBank System, Ginnie Mae, and Freddie Mac

Fannie Mae, Freddie Mac, and the FHLBank System

A government-sponsored enterprise created to act as a secondary mortgage market facility that could purchase, hold, and sell FHA-insured loans

Fannie Mae:

When the interest rate does NOT change over the life of a loan

Fixed-Rate:

A specific type of adjustable-rate mortgage that starts with a lower payments for the first several years then shifts to larger payments for the remainder of the term

Flexible-Payment Loan:

Who issued the first conventional loan MBS (mortgage-backed security)? Freddie Mac Ginnie Mae FHA FHLBanks

Freddie Mac

A government-sponsored enterprise created in 1970 to further support the secondary mortgage market, and specifically, to support smaller thrift banks

Freddie Mac:

The Government National Mortgage Association (Ginnie Mae) is a government-owned entity that supports the secondary mortgage market by guaranteeing timely payment of principal and interest on privately issued mortgage-backed securities (MBS) collateralized by FHA, VA, or other government-insured or guaranteed mortgages

Ginnie Mae:

A loan that is insured, guaranteed, or provided by any government agency.

Government-backed Loan:

are those insured by the Federal Housing Administration (FHA), guaranteed by the Veterans Administration (VA), provided by the U.S. Department of Agriculture (USDA), or provided by special programs created by individual states or local jurisdictions.

Government-backed loans

A type of balloon payment loan that calls for periodic payments of interest with the principal is to be paid in full at the end of the term as a balloon payment

Interest-Only Loan:

The final step in the loan application process, here lenders review the borrower's creditworthiness and the value of the property.

Loan Approval:

a ratio of debt to value of the property.

Loan-to-value Ratio:

A conventional loan is: underwritten by three federal government agencies underwritten by the Veterans Administration underwritten by the FHA NOT underwritten by any agency of the federal government

NOT underwritten by any agency of the federal government

Loans that do not meet Fannie Mae/Freddie Mac guidelines

Nonconforming Loan:

The second step in the loan application process where lenders thoroughly review the borrower's qualifications and, if approved, offer a pre-approval letter indicating the borrower's ability to obtain financing.

Pre-approval:

The first step in the loan application process where lenders take prospective borrowers at their word and give borrowers a general estimate of the amount for which they will be approved

Pre-qualification:

PITI stands for: Payments, Interest, Taxes, and Insurance Principal, Interest, Time, and Insurance Principal, Interest, Taxes, and Insurance Payments, Interest, Time, and Insurance

Principal, Interest, Taxes, and Insurance

What is A CLO? an electronic network for handling loan applications a provision in the mortgage contract that triggers the payment of the loan in full a letter of notice giving the borrower 30 days to bring their mortgage loan current a standardized document jointly owned and maintained by Fannie Mae and Freddie Mac

an electronic network for handling loan applications

A fixed-rate amortized loan payment plan features payments of principal and interest that: are constant throughout the life of the loan gradually increase throughout the life of the loan vary throughout the life of the loan decrease throughout the life of the loan

are constant throughout the life of the loan

With an adjustable rate mortgage, the interest rate: stays the same changes periodically increases annually decreases biannually

changes periodically

Conventional loans can be: conforming only conforming or non-conforming non-conforming only neither conforming nor non-conforming

conforming or non-conforming

The fully indexed rate is: equal to the margin plus the index less than the margin plus the index more than the margin minus the index equal to the margin minus the index

equal to the margin plus the index

To compare mortgage banks to commercial banks, mortgage banks are regulated: equal to commercial banks less than commercial banks more than commercial banks in direct correlation to commercial banks

less than commercial banks

Fannie Mae and Freddie Mac attracted controversy in the 2000s. They pursued aggressive strategies to purchase: commercially financed banking institutions mortgages and mortgage assets under questionable standards privately financed banking institutions short sale homes under questionable standards

mortgages and mortgage assets under questionable standards

Michael is talking to lenders about applying for a loan. Michael is participating in the: secondary mortgage market third mortgage market fourth mortgage market primary mortgage market

primary mortgage market

The primary difference between pre-approval and final approval is that during pre-approval: creditworthiness of the borrower is not considered borrowers do not have to be of legal age to qualify property information is not considered borrower application information is not considered

property information is not considered

Which party is responsible for paying the origination fee? the mortgage broker the borrower the lender the seller

the borrower

Negative amortization is the addition of: principal interest and bank-issued interest principal interest and state-issued interest unpaid interest and the loan balance paid interest and the loan balance

unpaid interest and the loan balance