Section 11 Unit 3

An adjustable rate mortgage has an interest rate of 5% and a lifetime cap of 6%. What's the maximum rate that may be charged at any point during the life of the loan? a. 11% b. 30% c. 5% d. 6%

a. 11%

Nina and Rob prepaid some of their interest to their lender when financing their new home. What's this called? a. A buydown b. A down payment c. An adjustable rate mortgage d. An interest-free loan

a. A buydown

Which of the following is a true statement about loan types? a. A graduated payment is one where loan payments ratchet up at predetermined intervals. b. An adjustable rate mortgage is similar to a straight mortgage in that only interest is paid on it until the end of the loan term. c. A pledged account is a fixed-rate mortgage. d. Growing equity means a fixed payment over time.

a. A graduated payment is one where loan payments ratchet up at predetermined intervals.

Charles is selling his property to Seth. Charles is financing part of the transaction for Seth, who will make payments to Charles while Charles retains the property title. What is this an example of? a. A land contract b. An assumable mortgage c. A straight-term loan d. A wraparound mortgage

a. A land contract

With which type of mortgage does the interest rate vary according to a specified index? a. Adjustable rate b. Balloon rate c. Fixed rate d. Straight term

a. Adjustable rate

Which type of loan has a lump sum payment due at the end of the loan because the installment payments aren't sufficient for paying off the principal and interest? a. Balloon mortgage b. Growing equity mortgage c. Pledged account loan d. Swing loan

a. Balloon mortgage

A ______ is often used in commercial applications when two or more properties are pledged as security for repayment of the loan. a. Blanket mortgage b. Bridge loan c. Swing loan d. Wrap-around mortgage

a. Blanket mortgage

Which loans involve increased risk for the lender and therefore usually come with a higher rate? a. Construction b. Land contract c. Reverse d. Shared equity

a. Construction

What institution was established in 1938 to purchase FHA-insured loans from individual lenders, group the loans together, and sell them as mortgage-backed securities to investors? a. Fannie Mae (FNMA) b. Farmer Mac c. Freddie Mac (FHLMC) d. Ginnie Mae (GNMA)

a. Fannie Mae (FNMA)

You're a farmer. Which loan program might be tailor-made for you? a. Farmer Mac b. FHA c. Freddie Mac d. Ginnie Mae

a. Farmer Mac

Which entity's purpose is to keep U.S. finances in check by maintaining balanced and favorable economic conditions? a. Federal Reserve System b. Primary mortgage market c. Secondary mortgage market d. Stock market

a. Federal Reserve System

Theo is a buyer who's contemplating a land contract. Why might he choose this route over traditional financing? a. He doesn't qualify for traditional financing. b. He gets financial protection if he can't make the payments. c. He intends to flip the property and resell it. d. Land sales contracts offer lower insurance rates.

a. He doesn't qualify for traditional financing.

An adjustable rate mortgage has an initial interest rate of 5%. When the first interest rate adjustment date arrives, the rate can be adjusted a maximum of 1%. At all subsequent adjustment dates, the interest rate can be adjusted a maximum of 2%. The highest rate of interest that may be charged at any given time is 9%. What does the 1% rate represent? a. Initial cap b. Lifetime cap c. Periodic cap d. Usury

a. Initial cap

How do the primary and secondary mortgage markets work together? a. The primary market packages loans to sell to the secondary market. b. The primary market regulates the secondary market. c. The secondary market packages loans to sell to the primary market. d. The secondary market regulates the primary market.

a. The primary market packages loans to sell to the secondary market.

Your buyer clients have plenty for a down payment and closing costs, and they'd like a lower interest rate than the going rate. How can they use some of their saved funds to get a better interest rate? a. They can buy down the interest rate. b. They can eliminate the interest rate. c. They can postpone paying interest for a certain amount of time. d. They can't use funds to get a better interest rate.

a. They can buy down the interest rate.

Your buyer client Jorge is looking at mortgage loans for a condo he wants to buy. He says, "I tell you, I think the interest rate is going to go down and stay down for a while. I want mortgage payments that drop if the interest rates drop. Oh, and if I'm wrong, I don't mind paying a higher interest rate either—as long as it doesn't go TOO high." Which of these is his best bet? a. A bridge loan b. An adjustable rate loan c. A reverse mortgage d. A wrap-around mortgage

b. An adjustable rate loan

What kind of mortgage involves two or more properties pledged as security for repayment of a loan? a. Adjustable b. Blanket c. Growing equity d. Wrap-around

b. Blanket

The secondary mortgage market buys loans from the primary market. How does this aid the lending market? a. Avoid foreclosure of borrower properties b. Ensure funds are available to borrowers c. Prevent bank runs by consumers d. Streamline lenders' bankruptcy processes

b. Ensure funds are available to borrowers

Which type of mortgage has an interest rate that remains constant over the life of the loan? a. Adjustable-rate b. Fixed-rate d. Growing equity d. Pledged account

b. Fixed-rate

Joann purchased her house with a mortgage loan from her friendly neighborhood bank. Which of these most likely happened to Joann's loan soon after she received it from her bank? a. Her bank foreclosed on the loan. b. Her bank sold it on the secondary market as an investment product. c. She received another loan on the secondary market when her bank demanded full payment. d. She sold the loan on the primary market for a lower interest rate.

b. Her bank sold it on the secondary market as an investment product.

What type of loan is given based on the amount of equity a borrower has in the home? a. Bridge loan b. Home equity loan c. Shared equity mortgage d. Swing loan

b. Home equity loan

What could be a consequence if there were no secondary mortgage market? a. Interest rates would fall. b. Lenders might not have funds available to make new loans to the public. c. There wouldn't be any institutions available to service loans. d. Unemployment would rise.

b. Lenders might not have funds available to make new loans to the public.

With this type of loan, personal property is included with the real property in the sale. It's commonly seen in commercial real estate, but you may also see this in the sale of furnished condominiums. a. Blanket mortgage b. Package mortgage c. Shared equity mortgage d. Wrap-around mortgage

b. Package mortgage

Amy purchased a new home and obtained financing through a bank, called Natula Bank. Natula originated the loan, but before Amy's first mortgage payment was due, it sold her loan to CitiMortgage. As a loan originator, what market is Natula Bank operating in? a. Federal Reserve System b. Primary mortgage market c. Secondary mortgage market d. Stock market

b. Primary mortgage market

In which market do lenders that originate real estate loans operate? a. Government market b. Primary mortgage market c. Real estate investment trust market d. Secondary mortgage market

b. Primary mortgage market

Tom, the seller, is helping the buyer with financing. Tom will give this mortgage to the buyer, and the money will go toward the down payment. What kind of mortgage is this? a. Package mortgage b. Purchase money mortgage c. Reverse mortgage d. Wraparound mortgage

b. Purchase money mortgage

Which of these is a type of gap financing that's used temporarily until the consumer can obtain permanent financing? a. Balloon payment b. Blanket mortgage c. Bridge loan d. Wrap-around mortgage

c. Bridge loan

How does the Fed maintain a balanced economy? a. By limiting the number of loans a bank may originate b. By purchasing loans on the secondary market c. By regulating the flow of available funds and interest rates d. By shutting down the stock market

c. By regulating the flow of available funds and interest rates

Any financial institution with deposits that are insured by a federal government agency can sell mortgages to which institution? a. Fannie Mae (FNMA) b. Farmer Mac c. Freddie Mac (FHLMC) d. Ginnie Mae (GNMA)

c. Freddie Mac (FHLMC)

What's it called when a number of percentage points is added to the index to determine the rate for an adjustable rate mortgage? a. Initial cap b. Lifetime cap c. Margin d. Usury

c. Margin

An adjustable rate mortgage has an initial interest rate of 5%. When the first interest rate adjustment date arrives, the rate can be adjusted a maximum of 1%. At all subsequent adjustment dates, the interest rate can be adjusted a maximum of 2%. The highest rate of interest that may be charged at any given time is 9%. What does the 9% rate represent? a. Initial cap b. Lifetime cap c. Maximum rate able to be charged d. Periodic cap

c. Maximum rate able to be charged

An adjustable rate mortgage has an initial interest rate of 5%. When the first interest rate adjustment date arrives, the rate can be adjusted a maximum of 1%. At all subsequent adjustment dates, the interest rate can be adjusted a maximum of 2%. The highest rate of interest that may be charged at any given time is 9%. What does the 2% rate represent? a. Initial cap b. Lifetime cap c. Periodic cap d. Usury

c. Periodic cap

Which of the following loan types involves a type of graduated payment? a. Amortized b. Fixed c. Pledged account d. Straight

c. Pledged account

The Hendersons don't have enough money to make the full 20% down payment their institutional lender requires. To close the sale, the seller is willing to finance a loan for the amount between the home's list price and what the institutional lender is willing to loan. What's this type of financing called? a. Equity mortgage b. Purchase agreement c. Purchase money mortgage d. Seller-insured loan

c. Purchase money mortgage

What type of arrangement allows the buyer to retain title to the property, but places a security interest in the property on behalf of the seller? a. A straight-term loan b. Land contract c. Purchase money mortgage d. Wrap-around mortgage

c. Purchase money mortgage

In which market do lenders purchase packaged loans? a. Housing market b. Primary mortgage market c. Secondary mortgage market d. Stock market

c. Secondary mortgage market

With a land contract, who retains the title to the property? a. Beneficiary b. Buyer c. Seller d. Trustee

c. Seller

Which of the following statements is true of the secondary mortgage market? a. Borrowers have a say in which entity may purchase their mortgages in this market. b. Lenders don't purchase loans from other lenders in this market. c. The borrower's rights are unaffected. d. The loan originator continues to service the loan after it's sold.

c. The borrower's rights are unaffected.

Which of the following describes a buydown? a. ABC Lending charges origination points and offers a 4.5% rate. b. Buyers pay the seller a prepaid lump sum prior to closing to reduce the sales price. c. Your clients opt to pay their lender two discount points in a lump sum so they can lock in a reduced interest rate. d. Your sellers pay some of the buyer's closing costs so the buyer can put more money to their down payment.

c. Your clients opt to pay their lender two discount points in a lump sum so they can lock in a reduced interest rate.

What's the process of paying off a loan by making periodic payments? a. Accession b. Accretion c. Acquisition d. Amortization

d. Amortization

What institution was formed in 1968 and took over the sale of the government loan market? a. Fannie Mae (FNMA) b. Farmer Mac c. Freddie Mac (FHLMC) d. Ginnie Mae (GNMA)

d. Ginnie Mae (GNMA)

Victor bought a property from Yolanda for $200,000. Under the terms of a land contract, Victor agreed to pay Yolanda in monthly installments of $4,000 over the course of 50 months. Until Victor pays Yolanda the $200,000, who retains the title? a. A trustee b. Victor c. Victor's beneficiary d. Yolanda

d. Yolanda