Financing
46. On a $50,000 loan the borrower is required to pay two points. How much does the borrower have to pay the lender?
A. $51,000.00 One point equals one percent; thus two points are two percent of $50,000, or $1,000, which becomes part of the buyer's total obligation to the lender.
42. When purchasing with FHA financing, a new buyer would normally do each of the following, except:
A. Apply to a local FHA office for the FHA appraisal Federal Housing Administration (FHA) insures Lenders against loss in the event of a default. FHA loan might approve a loan to buy 1-4 units of residential property to be used for rental purposes. To get an FHA loan you go to institutions that are authorized to deal with the FHA, there is no FHA office. NOTE - This question asks "would normally do each of the following, EXCEPT" which means it's looking for a false answer, and it's false that a buyer can apply to a local FHA office.
64. The one who loans the money on a parcel of real property and secures that loan by means of a trust deed is known as the:
A. Beneficiary The Beneficiary loans the money and secures the loan via the Trust Deed. The consent of the Beneficiary should be acquired for Boundary Changes, Consolidation Agreements, and/or any New Restrictions pertaining to the property. If the loan is paid in full the Beneficiary will issue a "Request of Reconveyance" and the trustee will issue a Reconveyance deed. Beneficiary Statement is a document in which the Lender provides the present balance of a loan.
55. A veteran purchases a home under the Cal-Vet program. In such transactions, who holds title?
A. California VA. Under the Cal-Vet program, funded through bond sales, the department of Veteran's Affairs pays cash to the seller and receives title in return. The department then sells the property to the approved veteran using a land sales contract.
22. A "GPAM" mortgage loan provides for:
A. Deferment of certain payments on the principal during the early period of the loan Graduated Payment Adjustable Mortgage (GPAM) Allows for the deferment of certain principal payments.
80. Insurance for a mortgage loan may be provided by:
A. FHA or private mortgage insurer Federal Housing Administration (FHA) insures Lenders against loss in the event of a default. FHA loan might approve a loan to buy 1-4 units of residential property to be used for rental purposes. To get an FHA loan you go to institutions that are authorized to deal with the FHA, there is no FHA office. Private insurers can insure loans when the borrower does not qualify for the FHA loan.
26. Carol made an offer to purchase Greg's property. As part of the offer, Carol agreed to take title "subject to" an existing VA loan which Greg obtained when he purchased the property for about $390,000. If Greg sells to Carol under these conditions, who is responsible if the property enters foreclosure proceedings?
A. Greg is primarily liable If a property is sold "subject to" an existing loan, the seller is still primarily liable for the loan.
5. The monthly payment on a mortgage loan is, by statute, considered late when received by the lender:
A. More than 10 days after the due date Payment is considered late if the Lender receives it more than ten (10) days after the due date.
68. A trustee legally began the process to sell property secured by a trust deed. After the notice of default is recorded, the trustee must wait at least three months before:
A. Publishing the notice of sale In a Foreclosure by Trustee Sale the trustee must wait 3 months before publishing (puts up for sale)
57. On home loans, the interest which is paid for the use of money borrowed is almost always:
A. Simple interest Simple Interest is the interest that is paid on the vast majority of Home Loans
95. The Bauers take out a mortgage with an acceleration clause. What does this mean?
A. Their entire mortgage could become due if they fail to make payments. "Acceleration clauses" are stipulations that if certain events occur, such as not making payments, the entire amount of the mortgage can become due. Most typically, this is seen in "due on sale" clauses that require the mortgage balance be paid in full at the time the house is sold.
33. Which of the following statements is most accurate concerning mortgage bankers:
A. They negotiate loans which are readily saleable in the secondary mortgage market. Mortgage Companies deal with loans that are readily sold in the secondary mortgage market; Secondary Mortgage Market refers to the "Resale Marketplace" for existing loans. It is a market of packaged home loans that are resold as securities to investors. Major players are Fannie Mae and Freddie Mac.
74. The clause in a trust deed or mortgage that permits the mortgagee to declare the entire unpaid sum due if a mortgagor defaults on their loan payments is called a (an):
A. acceleration clause. An acceleration clause in a trust deed or mortgage authorizes the lender to demand payment in full if a certain event happens, such as failure to pay an installment by a certain date, a change of ownership without the lender's consent, destruction of the property, or some other event which endangers the security of the loan.
38. When a lender loans a borrower 100% of the purchase price of a house, and the loan is not government-related, the lender would be best protected by:
A. appreciation. A lender is best protected by the appreciation of the property with loans made for 100% of the purchase price of the property. Ideally the value of the home is always greater than the debt to the lender, so if the borrower defaults, the lender can sell the property and get their money back.
19. More than one loan can be obtained by a borrower. If a "request for Notice of Default" was filed, it would be to protect the:
A. beneficiary of the second loan. If a borrower misses enough payments on the first loan, the lender will file a "Notice of Default" which is often the first step towards foreclosure. Filing a "Request for Notice of Default" alerts the second lender if a "Notice of Default" is filed so they can try to recoup their funds.
88. The finance fee charged by the lender to make the loan is a(n):
A. loan origination fee. Even though typically financed, LOFs represent immediate revenue lenders receive to help offset the comparatively low-interest, long-term loan terms most mortgages represent.
53. The amount of a loan expressed as a percentage of the value of the real estate offered as collateral is the:
A. loan to value ratio. Loan-to-value, or LTV, is the first and usually most important lending consideration. Other problems, such as a borrower's poor credit, can often be overcome, but without an acceptable LTV, most deals won't go through.
69. Joe failed to make payments on his trust deed loan for two successive months and a notice of default has been recorded. He has:
A. the Right of Reinstatement. The trustor has the right of reinstatement until 5 days before the foreclosure sale goes through. The right of reinstatement is the right to pay off the delinquent balance of a loan to bring it current, after which the trustor will have to continue making regularly scheduled payments to avoid foreclosure. The right of redemption is also related to foreclosures but requires paying off the entire balance of the loan (plus costs) rather than just bringing the loan current. There is no "right of reconveyance" in regards to loan defaults.
35. Most lenders, when they are deciding whether or not to make a proposed real estate loan, try to minimize:
A. the chance of a substandard loan becoming a part of their portfolio. Substandard Loans refer to borrowers with a bad credit history, so they are a high risk. Lenders try to minimize the number of these in their lending portfolios.
45. The seller under a land contract is called:
A. the vendor. Land contracts are also known as installment contracts. In this type of arrangement, the buyer occupies the property, but the title is held in the name of the seller until some future point in time--often when the last payment is made.
51. Why would a beneficiary have an appraisal on the property?
A. to assure the property value is sufficient to cover the loan Appraisals are third-party valuations of a property based on a wide range of variables. The beneficiary (the lenders) generally insist on this independent assessment to make sure the value of the property is at least sufficient to pay off the loan amount in case of default.
20. When a notice of default has been recorded on a trust deed, the borrower is given a period of time to reinstate the loan. During this time, the right of possession belongs to the:
A. trustor. The trustor (borrower) gives the trustee (holder of the 'naked title') the power to sell that title if the trustor defaults in his payments to the beneficiary (lender). In a trust deed transaction, the trustee receives the "bare legal title" but no possessory interest. He merely holds the title in trust.
6. Which of the following defines a mortgage loan:
B. A loan collateralized with real estate. A mortgage is a loan in which property or real estate is used as collateral. The borrower enters into an agreement with the lender (usually a bank) wherein the borrower receives cash upfront then makes payments over a set time span until he pays back the lender in full.
2. Which of the following loans would be most likely to qualify for FHA insurance?
B. A loan to purchase 1-4 units of residential rental property Federal Housing Administration (FHA) insures Lenders against loss in the event of a default. FHA loan might approve a loan to buy 1-4 units of residential property to be used for rental purposes. To get an FHA loan you go to institutions that are authorized to deal with the FHA, there is no FHA office. Private insurers can insure loans when the borrower does not qualify for the FHA loan.
37. A take-out loan in real estate financing is:
B. A long term loan to replace a construction loan Take-Out Loan is a long-term loan. It is a permanent mortgage loan which a lender agrees to make to a borrower upon completion of improvements on the borrower's land. The proceeds of the loan are used principally to pay off the construction loan.
72. A trust deed can have a provision that allows future loans on the property to have priority. This would be called:
B. A subordination clause. A subordination clause permits a mortgage placed at a later date to take priority over an existing mortgage.
94. Sarah applied for a mortgage, but was denied because of information on her credit report. She asked the credit reporting agency for access to her report, but was denied. What are Sarah's rights under California law?
B. All of the other options are correct Good credit is one of a person's most valuable financial assets... and the accurate maintenance and reporting of that information is a key responsibility of credit bureaus. If credit is listed as a factor in denying a loan, charge card or other credit instrument, the agencies are obligated to provide a detailed copy of a person's report upon request. To help ensure compliance and good faith efforts, the penalties for failing to do so can be significant.
76. Which of the following loans would be exempt from compliance with the Federal Truth-In-Lending Act based on the type of loan itself?
B. An agricultural loan by a bank The Federal Truth-In-Lending Act was designed to protect the borrower by requiring the lender to make a meaningful disclosure of credit terms to the borrower. The Truth-in-Lending Act does not cover agricultural loans.
71. If a seller wanted to relieve himself of the primary liability for payment of a trust deed and note, he must find a buyer who is willing to:
B. Assume the trust deed and note liability When a buyer assumes a mortgage from the seller they are relieving them of any future obligations.
29. When the term "beneficiary statement" is used by those in real estate finance, it identifies a statement made:
B. By the lender, as to the current balance due to pay off a real estate loan; Beneficiary Statement: Document in which the Lender provides the present balance of a loan.
47. An increase in the availability of money would lead to which effect?
B. Interest rates would go down. Just like most things in a free market economy, mortgage loans are subject to the laws of supply and demand. Thus, when there is more mortgage money in the market place "looking for a home," borrowers have more choices, which leads to increased competition among lenders, which leads to lower interest rates.
48. Which of the following is true of a second mortgage?
B. It is usually issued at a higher rate of interest. Second mortgages carry higher risk for lenders because they're "second" in line after the first mortgage holder. In case of foreclosure, that means the first mortgage holder is paid in full before any remaining monies are distributed. This added risk typically results in higher interest rates for second mortgages.
44. The annual percentage rate (APR) is defined by the Federal Truth-in-Lending Law as:
B. Relative cost of credit expressed in percentage terms. When the APR is used in Advertising by a Lender it reveals the particularities of costs in credit in percentage terms. [If the ad only states the APR, then other disclosures are not necessary.]
15. In the field of real estate, a "prepayment penalty" is sometimes:
B. Required from a trustor who makes advance payments on his home loan Pre-Payment Penalty Clause proscribes the assessment of a Pre-Payment Penalty if advance payments are made on a loan.
85. The buying and selling of existing mortgages occurs in the:
B. Secondary mortgage market. The marketplace in which existing securities (trust deeds, mortgages, land contracts) are sold is designated the "secondary mortgage market."
23. Which of the following does not directly affect the level and movement of mortgage interest rates?
B. The rate of unemployment Unemployment rates do not directly effect the level and movement of interest rates, but can impact rates indirectly depending on how the unemployment rate is affecting the market.
61. Of the following, which is the best definition of a balloon payment?
B. The required payment of the entire balance due A Balloon Loan is a partially amortized loan. It has a fixed rate of interest over a period of time. At the end of the balloon period, the borrower must refinance or pay off the remaining balance. In other words, the entire balance will be due.
21. Which of the following is true concerning promissory notes?
B. They are the evidence of the debt. Promissory Notes are negotiable instruments that serve as evidence of debt.
25. When a lender takes a deed in lieu of foreclosure from the borrower, the lender:
B. Will assume any junior liens; A Lender assumes any junior liens present on the property if he has accepted a deed in lieu of foreclosure. A deed in lieu of foreclosure is a document that transfers the title of a property from the property owner to their lender in exchange for being relieved of the mortgage debt.
59. When comparing a straight note with an installment note, the straight note:
B. Will have no principal payments during the term of the loan except on the last payment In a Straight Note there are no principal payments made. The entire principal amount of the loan is paid off at maturity or the end. [The interest is paid off either at the end or during note's term.]
89. The clause in a trust deed or mortgage that permits the lender to declare the entire unpaid balance immediately due and payable upon default is the:
B. acceleration clause. This clause protects the lender's interest and is usually a preliminary step in the foreclosure process. Borrowers still have opportunities to re-establish monthly payments, however, and should understand their options.
50. The clause in a trust deed or mortgage which permits the mortgagee to declare the entire unpaid sum due upon a default by a mortgagor is called:
B. an acceleration clause. "Acceleration clauses" are stipulations that if certain events occur, such as not making payments, the entire amount of the mortgage can become due. Most typically, this is seen in "due on sale" clauses that require the mortgage balance be paid in full at the time the house is sold.
52. A promissory note:
B. is the primary evidence of a debt. When a borrower signs a promissory note, he or she acknowledges the debt and all its terms and conditions. It is the primary instrument in virtually every type of loan.
100. A balloon payment is usually associated with a
B. large payment during the term or at the end of the payment schedule. A balloon payment is a large payment due at the end of a balloon loan, such as a mortgage, commercial loan or other amortized loan. A balloon loan typically features a relatively short term, and only a portion of the loan's principal balance is amortized over the term.
86. A mortgage clause which states that, should the borrower sell the property, the entire balance of her mortgage would be due immediately, is known as:
B. the due-on-sale clause. The due-on-sale clause is also known as an alienation clause or resale clause, and says that the balance must be paid in full if the property is sold. Don't confuse this term with an acceleration clause, which makes the whole debt due if the borrower defaults; a satisfaction, in which the debt is paid in full on a mortgage; or an estoppel certificate, which is not a clause at all but a document in a mortgage.
43. When considering VA loans, the unique feature about down payments which are required is:
B. there may be no down payment. With a VA Loan, often no down payment is required because the loan is guaranteed by the US Department of Veterans Affairs (VA). VA loans are made to honorably discharged veterans or their un-remarried widows or widowers. Such loans require a minimal or no down payment and offer lower interest rates. A Certificate of Reasonable Value (CRV) is a document issued by the Veterans Administration, based on an approved appraisal.
81. When Jones purchased Brown's property on an installment sale, he assumed an existing loan, which exceeded Brown's basis in the property. The amount of the assumed loan over Brown's basis will be:
B. treated as part of the down payment whether cash was received or not. In an installment sale, the amount of an assumed loan which exceeds the seller's cost basis is treated as part of the down payment and is taxable in the year of the sale.
32. The net effect of a "tight monetary policy" implemented by the Federal Reserve Board would be an increase in the:
B. use of junior loans in real estate financing. In a "tight money market", money is tight- therefore you will see more second trust deeds (junior loans) and sellers will have to carry back a second more often. Because money is "tight", banks do not have the ability to lend the full loan amount in one loan.
34. When processing a real estate loan application, a lender would correlate the characteristics of a borrower, loan and property to make:
C. A loan commitment In determining whether or not to make a loan commitment, a Lender will examine the borrowers income, their character and the property.
91. Golden State is a life insurance company that also makes real estate loans. If a buyer was interested in obtaining a Golden State mortgage, who would that person generally contact?
C. A mortgage broker or banker. Mortgage loans are available from three primary sources: 1) government agencies, such as the VA and FHA... 2) banks, S&Ls and other direct lenders who sell only their own products... 3) everyone else. "Everyone else" includes private investors and institutions such as insurance companies and pension funds. The best source for these loans are mortgage brokers and bankers since they handle a variety of products from many different lenders.
39. The term "warehousing" as used in real estate financing, means:
C. A mortgage company collecting loans prior to resale Warehousing is when a Lender collects loans and puts them out as a package for sale. It is the process by which a mortgage banker or mortgage broker assembles mortgages that he or she has made and prepares the mortgages to be sold in the secondary mortgage market. By selling these mortgages the originator now has additional capital that can be used to make more mortgages which in turn may be sold in the secondary mortgage market.
83. Which of the following statements about real estate financing is incorrect :
C. A promissory note is security for a mortgage. The mortgage is security for the promissory note; but the reverse is not true. Each of the other statements is correct. Essentially, a mortgage promissory note is an agreement that promises that the money borrowed from a lender will be paid back by the borrower. The mortgage note also explains how the loan is to be repaid, including details about the monthly payment amount and length of time for repayment.
75. Generally, as the employment rate and the GNP both rise:
C. All of the other options are correct The Gross National Product (GNP) is an accounting of the number of goods and services produced by the country in any given calendar year. When the GNP and the rate of Employment rise, personal income also increases and home sales begin to rise.
70. A release clause in a mortgage:
C. Allows portions of the property, given as security, to be released from the mortgage lien upon performance of a specified act. A clause in a blanket mortgage which gives the property owner the right to pay off a portion of the indebtedness, thereby freeing a portion of his property from the mortgage.
62. The beneficiary of a second trust deed sold his interest in the property for less than the unpaid balance of the note. This action is most commonly described as:
C. Discounting Discounting is selling a note for an amount that is less than what is owed.
9. Lenders know that the lower the loan-to-value ratio, the higher the:
C. Equity Loan-to-Value Ratio is a ratio of the percentage of the appraised value of a property that a lender will loan. The lower the Ratio, the Higher the Equity.
36. A credit score scale used by many mortgage lenders that use a risk-based system to determine the possibility that the borrower may default on financial obligations to the mortgage lender is known as a:
C. FICO score FICO Score Reflects a buyer's credit history. FICO is a credit score scale used by many mortgage lenders that use a risk-based system to determine the possibility that the borrower may default on financial obligations to the mortgage lender.
98. There are three phases of steps involved in the construction of a single family residence. These three steps are:
C. Land acquisition, map and plan approval and construction
7. Lenders use a "debt-income ratio" as a:
C. Loan qualifying tool Debt-to-Income Ratio is used by lenders as a loan-qualifying tool. It is a method of calculating how much debt is owed in relation to how much income is coming in.
93. Which of these changes would be LEAST LIKELY to affect interest rates?
C. New government loan programs aimed at low income housing in urban areas. The three main drivers of changing interest rates are loan demand by consumers, business and government... uncertainty... and what percent of the population is impacted by the changes. Targeted loan programs are least likely to affect overall interest rates because they're focused at a relatively narrow segment of the economy.
10. Which lender is the major source for junior loans negotiated today:
C. Private lenders A private money lender is a non-institutional (non-bank) individual or company that loans money, generally secured by a note and deed of trust, for the purpose of funding a real estate transaction. Private money lenders are generally considered more relationship-based than hard money lenders
11. What institution is the primary source of home loans?
C. Saving and Loan Associations Savings & Loan Associates is the biggest source for home loans and/or residential financing. They have the most funds invested in real estate.
58. Which of the following statements is correct concerning the relationship between an effective interest rate and a nominal interest rate?
C. The effective interest rate is the rate actually paid by the borrower for the use of the money; the nominal interest rate is the rate specified in the note Effective interest rate is the interest rate that the borrower actually pays on his loan, while the nominal interest rate is the interest rate specified in the note. NOTE - This is different than the answer which mentions the rate a buyer WILL pay as noted in the loan application because that will happen in the future, while these terms refer to something that has already happened.
41. When obtaining a mortgage loan, the buyer often has to pay discount points. Those points are a percentage of:
C. The loan amount; If a Lender demand prepaid interest when the loan is negotiated, this interest is specified by "Discount Points", with the cost of each Discount Point equaling one percent of the face amount of the loan. In the mortgage industry, this term is usually used in only in reference to government loans, meaning FHA and VA loans. Discount points refer to any "points" paid in addition to the one percent loan origination fee. A "point" is one percent of the loan amount.
84. The right or power to sell a property in the event of a default under the terms of the trust deed is given by:
C. Trustor to the trustee. In the trust deed, the trustor (borrower) gives the trustee (holder of the title) the title to the property, with the right to sell the property in the event of a default.
1. Under a land contract (Conditional installment sales contract) for the sale of real property, legal title is held by the:
C. Vendor. Conditional installment sales contract (Land Contracts) the Vendor (Seller) becomes a Lender to the Vendee (Buyer). The Vendee gets to use the property (equitable title) as the seller retains legal title of land as a security device (the right to sell)
49. Usury MOST nearly means:
C. illegal rates of interest. Each state sets its own ceiling for the maximum interest rate lenders may charge. Rates above that ceiling are considered usurious and illegal. No reputable lender exceeds those rates and those that make a practice of it are commonly known as loan sharks.
4. The term "security interest" is best defined as:
C. the creditor's interest in the debtor's property. A creditor maintains a security Interest in the property of a debtor.
30. The measure of goods and services produced by the nation during any one calendar year is called:
C. the gross national product (or gross domestic product). The Gross National Product (GNP) is an accounting of the number of goods and services produced by the country in any given calendar year. When the GNP and the rate of Employment rise, personal income also increases and home sales begin to rise.
65. The document which is used to convey the title to real property from the trustee to the trustor when the trust deed is terminated:
D. A reconveyance deed If the loan is paid in full the Beneficiary will request a "Request of Reconveyance" and the trustee will issue a Reconveyance deed.
79. Many people have described a land contract sale as a method of financing which is used in place of a deed and a deed of trust. Therefore, a land contract sale is said to be:
D. A security device In a Conditional installment sales contract (Land Contracts) the Vendor (Seller) becomes a Lender to the Vendee (Buyer). The Vendee gets to use the property (equitable title) as the seller retains legal title of land as a security device (the right to sell). In the event of a default by the Vendee (Buyer) in a Conditional installment sales contract, the resulting Cloud on Title could be cleared if the Vendee (Buyer) has signed a Quitclaim Deed.
60. A note on which only the interest is paid during its term is called:
D. A straight note In a Straight Note there are no principal payments made. The entire principal amount of the loan is paid off at maturity or the end. [The interest is paid off either at the end or during note's term.]
73. A clause in a trust deed, which states that the lender's right shall be secondary to a subsequent trust deed is called:
D. A subordination clause A clause which permits the placing of a mortgage at a later date which takes priority over an existing mortgage.
17. The purpose of a "release clause" in a mortgage is to:
D. Allow the release of some properties upon partial payment, when more than one property is used as security for the debt A Release Clause is often found in a Blanket Mortgage which allows portions of property to be released from a lien as payments are made.
77. Under Federal Truth-in-Lending Law, the cost of credit on certain loans is expressed as:
D. An annual percentage rate The APR is the cost of credit that consumers pay, expressed as a simple annual percentage. If the ad only states the APR, then other disclosures are not necessary.
87. Cameron Diego has a $160,000 mortgage balance on his Spanish Colonial home in Hawthorne. He has paid $34,900 towards the principal in the past ten years and now wants to borrow that $34,900 once again, this time to remodel the kitchen. The lender agrees, returning the loan balance to $194,900 at the same interest rate as before and for the same time period as the original loan. This sounds most like which of the following?
D. An open-end mortgage An open-end mortgage allows the borrower to borrow additional money at a later date without changing the term of the loan, often because the borrower didn't borrow the full amount initially approved or paid the loan down enough to borrow more. In contrast, an open mortgage is one where the borrower is overdue on payments but the lender has not yet foreclosed on the property. A blanket mortgage covers more than one piece of property and is often used by developers waiting for buyers. A wraparound mortgage is when two or more mortgages are combined into a single payment. For example, this can be used to give sellers their cash when buyers take over an assumable loan as well as to allow the buyers to finance the remainder of the purchase price on a second loan with a minimal down payment.
28. The type of mortgage loan which permits borrowing additional funds at a later date is called:
D. An open-end mortgage Open-End Clause is a provision in mortgage contract that declares the mortgaged real estate may be used as security to borrow additional money
90. Which of the following tends to happen to conventional mortgages in tight money markets?
D. Buyers pay more in upfront costs such as origination fees and points as well as higher interest rates. "Tight money" means there is less available to lend, so the costs of borrowing tend to rise and qualifying standards get tougher.
97. A commercial bank agreed to lend Davis $180,000 for one year term. Davis agreed to maintain a savings account with the bank in the amount of $18,000 during the term of the loan. This provision is known as:
D. Compensating balance Compensating balance is a minimum balance that must be maintained in an account. The compensating balance is often used to offset a portion of the cost that a bank faces when extending a loan or credit to an individual or business, and is usually calculated as a percentage of the loan outstanding. The account where the funds are held are typically non-interest bearing, and the bank is free to use the money in other investment opportunities.
18. The basic protection of a lender on a purchase-money second trust deed would be:
D. Equity of the borrower; Lenders basic Protection is the equity of the borrower.
54. What are the rights of a borrower who falls two months behind in making his or her trust deed payments?
D. He or she has the right of reinstatement. Once back payments and fees are paid, reinstatement means that the loan will continue as if the borrower had never been late.
31. The majority of money used for loans of real estate come from:
D. Individual savings Most of the funds used by financial institutions that specialize in residential real estate are derived from the individual savings of depositors.
96. Which would be the least difficult for a buyer to obtain financing?
D. Land Contract A "land contract" (sometimes known as a "contract for deed" or an "installment sale agreement") is a contract between a seller and buyer of real property in which the seller provides financing to buy the property for an agreed-upon purchase price, and the buyer repays the loan in installments. The seller retains the legal title to the property while permitting the buyer to take possession of it for most purposes other than legal ownership. Because there's no "qualification" for the loan (other than the seller agreeing to finance it) a land contract is the least difficult method of obtaining financing- but also not very common because of the risk to the seller.
3. In making new real estate loans, institutional lenders often charge a fee for expenses incurred for such items as document preparation and related work. The fee charged is often a percentage of the face amount of the loan, and is referred to on the borrower's closing statement
D. Loan origination fee; Document Preparation Charges: Usually categorized as part of the loan origination fee.
56. When the required payments on a real estate loan are insufficient to pay the interest due, the result is:
D. Negative amortization Negative Amortization Is when the required loan payments do not cover the principal and/or interest on the loan; this causes the loan balance to increase.
13. When considering portfolio risk management, the lender needs to be concerned with which of the following:
D. Reserves, Diversification and Liquidity All of the options are things that a lender would need to consider when assessing their portfolio risk.
92. Who may make withdrawals from a broker's trust account?
D. The broker or a designated other. As long as the person has the broker's authorization, a licensed salesperson or broker may make withdrawals. Additionally, an unlicensed employee of the firm may also make withdrawals if he or she has a fidelity bond at least equal to the maximum amount to which that person has access.
8. In deciding whether or not to make a specific home loan, a lender would consider which of the following factors most important:
D. The degree of risk Degree of risk is the most important factor for a Lender in determining whether or not to make a loan.
67. When there has been a default of a note and trust deed, the trustor is given a period of time to redeem the property. During this time, the right of possession belongs to the:
D. Trustor In a Foreclosure by Trustee Sale the trustee must wait 3 months before publishing (puts up for sale); the trustor has the right of reinstatement until 5 business days before the sale goes through.
66. When a deed of trust is foreclosed by court sale, the action:
D. Would allow the trustor a redemption period In Foreclosure by Court Sale the Trustor has a one-year redemption period during which the trustor can maintain possession of the property,
24. The terms of some real estate loans provide that the interest rate may be increased or decreased depending on money market conditions. We call this type of loan:
D. a variable interest rate loan. A Variable Interest Rate Loan allows for increases or decreases in the interest rate on the loan based on money market conditions.
12. The Federal Reserve Board increases cash reserve requirements in order to:
D. decrease loan activity. The Federal Reserve Board can increase cash reserve requirements to decrease loan activity, which results in an overall reduction to the supply of available money.
16. An acceleration clause is inserted into a note that is otherwise negotiable. Adding this clause:
D. does not limit the negotiability of the note. An acceleration clause in a loan can call the entire unpaid balance to be due immediately upon default of the loan. Adding this clause does not generally limit the negotiability of the note.
63. Tim sold his home for $30,000 and took back a note for $15,000 with interest at 9% per annum. The note was secured by a first mortgage. The home had a fair market value of $29,000. Later he decided to sell the mortgage and note, which he discounted to $13,000. He then sold it to Eric. On the back of the note, he wrote "I hereby assign the within note to Eric without recourse." If the maker of the note defaults before any principal payments are made, Eric's best legal remedy is to:
D. foreclose to enforce payment of $15,000. Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan. If, for example, someone defaulted on a $15,000 note before any payments were made, then the lender would foreclose for $15,000. In this case, the maker of the note still owes $15,000 on the property, even though Tim sold the debt to Eric, so Eric would foreclose for $15,000.
27. A subordination clause in a trust deed:
D. gives priority to a more recent lien recorded against a property. A subordination clause permits a mortgage recorded more recently to take priority over a loan recorded earlier, when both loans place liens on the same property.
14. The owner of an apartment building borrowed $75,000 to install a pool on the property. One year later, the property's value increased by $30,000 due to the improvement. This is an example of:
D. leverage. Leverage is maximizing the use of borrowed money, such as using the proceeds from a loan to increase the value of a property.
40. When referring to mortgages, the term "warehousing" means:
D. selling loans on the secondary market. Warehousing is when a lender collects loans and puts them out as a package for sale. It is the process by which a mortgage banker or mortgage broker assembles mortgages that he or she has made and prepares the mortgages to be sold in the secondary mortgage market. By selling these mortgages the originator now has additional capital that can be used to make more mortgages which in turn may be sold in the secondary mortgage market.
78. The federal Notice of Right to Rescind, if applicable to a loan, must be given to a borrower if:
D. the borrower's residence is the security for the loan. For loans that are not being used to purchase a primary residence but a borrower's primary residence is the security for the loan (refinances, home equity loans), borrowers have a 3-day Right of Rescission. The borrower can exercise this right until midnight of the third day after a transaction has been consummated. Exercising this right voids the agreement and removes any liability from the borrower.
82. A real estate investor who wishes to operate by using the principle of leverage would:
D. use borrowed money to maximize the potential return on an investment. In terms of investing, the principle of leverage is the use of borrowed funds to maximize the potential return on an investment.
99. When the deed in which you take title to a property contains the following clause "subject to the existing loan":
D. you are in danger of losing the property if the seller does not make the payments on the underlying loan. "Buying subject to" means buying a home subject to the existing mortgage. It means the seller is not paying off the existing mortgage and the buyer is taking over the payments. The unpaid balance of the existing mortgage is then calculated as part of the buyer's purchase price, but the seller remains responsible for paying off the existing loan because it's still in their name.
