TX REAL ESTATE FINANCE COURSE Section 2 & 3

You live and work in the north central U.S. Which of the following factors has a direct impact on property at the local level?

A change in zoing ordinances

Which of the following sources can provide real estate professionals with important market data?

Banking, bond, and investment analysts

Althea is starting her own candle business. Her plan is to rent a space to sell her products for several years, with the hope of expanding. In this scenario, which facet represents supply

Commercial space for lease

Which of the following items increases the supply of real estate properties on the market?

Conversion of properties

As interest rates rise, the number of buyers in the market is likely to ______.

Decrease

As foreclosures increased in 2007, what was the response from lenders?

Decrease lending activity

Which of the following items directly influences real estate supply?

Construction

Which of the following was created as part of the Homeowner Affordability and Stability Plan?

Home Affordable Modification Program (HAMP)

During which phase of the real estate cycle do residents consume local amenities and services?

Living

Which act temporarily removed the requirement that taxpayers whose homes were sold as a result of a foreclosure had to include the loan write-off amount as taxable income?

Mortgage Forgiveness Debt Relief Act of 2007

Which of the following is an event that has a direct impact on property?

Builders required by the state to recycle aluminum during demolition

Which agency is responsible for the production of paper currency?

Bureau of Engraving and Printing

Which of the following resources are extremely helpful when working with investors?

REIT Analysts and Bonding Rating Agencies

In which phase of the real estate market cycle would you expect to see property under valued and a large supply of homes on the market?

Recovery

Which act was also known as "the stimulus package" and sought to create new jobs and save existing ones, spur economic activity and invest in long-term growth, and foster new accountability and transparency in government spending.

American Recovery and Reinvestment Act of 2009 (ARRA)

The supply of properties available in the market is greater than the number of buyers. What type of market does this describe?

Buyer's market

During which phase of the real estate cycle does a real estate professional have the most impact?

Buying/selling

When obtaining a mortgage to purchase a home, the borrower uses the property as ______.

Collateral

Edward is an economic analyst. In his work, he keeps a particularly close eye on this industry, because action or inaction here is a leading indicator of the country's overall economy. Which industry is this?

Construction

Which of the following is designed to make consumer financial products and services fair and transparent?

Consumer Financial Protection Bureau

Which of the following statements best describes disintermediation?

Consumers are withdrawing more money from banks than they are depositing.

Which of the following best describes a seller's market?

Demand is greater than supply

The rate at which a bank can obtain a loan from its Federal Reserve bank when using commercial paper as collateral is called ______.

Discount rate

An extended period of time during which banks experience more withdrawals than deposits is called ______.

Disintermediation

River City Bank needs to cut back on lending. For several months, the bank has seen more withdrawals from customers than deposits. This has led to a decrease in deposits typically used for lending. What term can be used to describe what the bank has experienced?

Disintermediation

In which phase of the real estate market would you expect to see an increase in hiring and employment, increased public confidence, and an increase in buyers in the market?

Expansion

Which of the following entities generally acts in the secondary market?

Fannie Mae

Which of the following entities commonly acts in the secondary market?

Freddie Mac

Loans create ________ for banks and other financiers.

Future cash income

Real estate professionals keep a multitude of other professionals busy during the buying and selling process. Which of these professionals or entities are most active outside of the buying and selling process?

General Contractors

Celia was obtaining a conventional loan, and she put $50,000 down as a down payment. Why might her lender also require her to obtain private mortgage insurance?

Her down payment of $50,000 isn't at least 20% of the purchase price

In a mortgage, the property is used as collateral for the loan. This is referred to as ______.

Hypothecation

Which of the following best describes the state of the market during the expansion phase of the real estate cycle?

Increases in hiring, employment, and public confidence, and lots of buyers in the market

Which of the following is classified as the least liquid on the scale?

Institutional money market funds

What is the impact to lenders when mortgage packages are sold?

It provides additional cash flow for new loans.

Tonia is buying a new home. She has a down payment of $30,000 and will obtain a $250,000 mortgage from a local bank to make up the remainder of the purchase price. What is this an example of?

Leveraging

When consumers make a small down payment and borrow the remaining amount of the purchase price from a lender, they are demonstrating what concept?

Leveraging

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

Liquidity

Which of the following items directly influences real estate demand?

Loan availability

How do mortgage lenders acquire income?

Loan interest and mortgage packages sold on the secondary market

In the early 2000s, before the 2007 financial crisis, how would you characterize the real estate market?

Low interest rates and high property values

Which of the following is an example of leveraging in a real estate transaction?

Making a down payment

What does it mean if the Fed increases reserve requirements?

Member banks must keep more assets on deposit at the reserve bank.

Robert and Jill purchased a single-family home in the suburbs for $50,000 nearly 40 years ago. Considering historical property value fluctuations, what is the likely value of the property today?

More than $50,000

In the secondary market, mortgages are grouped together and sold as ______.

Mortgage-backed securities

What would likely happen to the real estate market if there were no lenders?

New construction and home purchases would greatly decrease

The construction of which item has the largest influence on the country's economy?

New homes

Iris is planning to purchase her first home. Based on what you know about the nature of real estate finance in our country, which approach is she most likely to use?

Obtaining a loan to purchase the home

In which phase of the real estate market would you expect to see properties selling for more than they're worth, many buyers in the market, and lots of new construction?

Over supply

During which phase of the real estate cycle is local government involved?

Planning

Which of the following best describes the state of the market during the over-supply phase of the real estate cycle?

Properties selling for more than their appraised value, many buyers in the market, and lots of new construction

In what phase of the real estate cycle do foreclosures rise and home prices fall?

Recession

In which phase of the real estate market would you expect to see unemployment and foreclosures remain high but begin to stabilize?

Recovery

What step of the real estate cycle generally follows recession?

Recovery

There are fewer properties available in the market than there are interested buyers. What type of market does this describe?

Seller's Market

What term is used to describe the housing inventory in default or foreclosure?

Shadow inventory

John is looking for a home to purchase. If he represents demand, which of the following represents supply?

Single-family house for sale

Unit of account, medium of exchange, and what other factor define money?

Store of value

What term is used to describe loans that were approved for borrowers with lower incomes and poor credit histories?

Subprime

Which of the following best describes a buyer's market?

Supply is greater than demand

In response to the increase in foreclosures and losses on their balance sheets, not to mention a reduced market for subprime loans, many lenders slowed their lending activities. What was the impact of this on the overall economy?

The economy headed into a recession.

What is the most likely effect when the Fed sells securities on the open market?

The economy may slow down due to a decreased money supply.

Which of the following statements is true about the Federal Reserve?

Twelve district banks comprise the Fed

Which agency is responsible for the production of coins?

U.S. Mint

Which of the following best describes the state of the market during the recession phase of the real estate cycle?

Unemployment increasing, prices falling, and foreclosures on the rise

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

Unit of value

Which of the following best describes collateral?

Using a house as security on a mortgage

A standardized measure for interest rates and other costs of the loan is called _______.

Annual percentage rate

How does the consumer provide economic support to a community in the living phase of the real estate cycle?

By purchasing and consuming local goods and services

A multibillion dollar online retail distributor has decided to set up operations in Ashland. The population of Ashland is 22,000. What is the potential impact to the area?

Community is potentially put at risk

Which generation financed their homes due to also having other debt obligations?

Echo boomers

Which act exempted homeowners from paying taxes on capital gains up to a specified value?

Taxpayer Relief Act of 1997

What agency receives paper currency prior to its distribution but after it's printed?

The Federal Reserve

Which of the following entities support lenders in having adequate cash flow available?

The Federal Reserve and secondary mortgage markets

Which was not part of the Fed's program quotative easing?

The funds available to consumers froze.

Which of the following describes the prime rate?

The rate at which a bank or lender may loan money to its most creditworthy borrowers

What is a potential cause for a decrease in local economy driven by the Fed?

The reserve percentage is increased by the Fed.

When a lender has a lien on a property, what rights does the lender hold?

The right to foreclose

Larry obtained a mortgage from State Bank. Larry owns the property, controls it, and has all the rights that come along with real property ownership. State Bank has an interest in the property and ______.

The right to foreclose if the borrower defaults

Historically, what do property values tend to do over long periods of time?

They increase only

Which of the following is a description of leveraging?

Using a small amount of cash to obtain a loan of a larger amount

Which governmental legislation established the Consumer Financial Protection Bureau?

Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)

Which of the following is a possible result of a community growing too fast?

Inadequate resources to support the population

As interest rates fall, the number of buyers in the market is likely to ______.

Increase

What is the economic impact of mortgage loan payments?

Increase in economic growth

Which of the following statements is true about national lending intuitions?

They sell packaged loans to investors.

Up to what amount will the FDIC insure?

$250,000

Which of the following describes a Treasury note?

A Treasury security with a maturity term between two and 10 years

Which of the following describes a Treasury bond?

A Treasury security with a maturity term of 30 years

Which of the following describes a Treasury bill?

A Treasury security with a maturity term of one year or less

Which of the following results from the Treasury selling securities?

A decrease in money in the economy

Which of the following best describes annual percentage rate (APR)?

A standardized measure for interest rates and other loan costs

Which event led to the establishment of the FDIC?

Bank failures during the Great Depression

Which of the following would the FDIC most likely insure?

Certificates of deposit

Which of the following actions did the Federal Reserve take in response to the 2007 financial crisis?

Decreased rates

Which of the following resources will give you reports and statistics including house price index, foreclosures, and refinancing?

Federal Housing Finance Agency

Which government entity oversees open market operations?

Federal Open Market Committee

The rate at which a bank can obtain an overnight loan from another bank without providing collateral is called ______.

Federal funds rate

Community Banks is being sued for intentionally violating the Truth In Lending Act. What fines and imprisonment possibilities can the company face?

Fines up to $5,000 and up to a year of imprisonment

What are securities?

Long and short term debt instruments

Which of the following is a true statement about FHLBanks?

Member banks can borrow for up to one year without collateral

What does it mean if the Fed decreases reserve requirements?

Member banks can keep fewer assets on deposit at the reserve bank.

The buying and selling of government securities as a way to influence the money supply and balance economic growth describes _________.

Open market operations

Wendy has been approved for her first mortgage. The lender advertised a 4.6% interest rate. She's nervous about the terms and fees. What information is the lender required to provide?

Payment schedule, APR, finance charges, pre-payment penalties, late penalties, and total financed amount

The two most common insolvency methods put in place when a bank fails are the purchase and assumption method and the ______ method.

Payout

Roger has a sufficient income, has never missed a loan or credit payment, and has an adequate credit history. His credit score makes him a very creditworthy consumer. When obtaining a loan, which rate will he most likely get?

Prime rate

Which interest rate do banks use to offer consumer loans?

Prime rate

The two most common methods used when a bank fails are the payout method and the ______ method.

Purchase and assumption

The amount of money a member bank must keep on deposit at its reserve district bank describes ______.

Reserve requirement

The three-business-day period following the latter of either the date that the loan application is submitted or the date the disclosure is made, during which a borrower can cancel their loan, is called _________.

Right of rescission

Which of the following would the FDIC most likely insure?

Savings account deposits

Long- and short-term debt instruments are called ______.

Securities

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

Sell securities

When the Treasury collects fewer funds than what is needed to pay the government's bills, what action might it take?

Sell securities

In addition to lending money to member banks, FHLBanks also do which of the following?

Set rules and regulations that member banks must follow

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

Spend billions

Which of the following would the FDIC most likely not insure?

Stock certificates

What is one of the ways the U.S. Treasury promotes economic growth and stability?

Supervises national banks and financial institutions

What is the purpose of the Federal Reserve System?

The Fed regulates the U.S. depository institutions.

Which agency regulates FHLBanks?

The Federal Housing Finance Authority

What is the most likely effect when the Fed buys securities on the open market?

The economy may grow due to an increased money supply.

Which of the following describes the federal funds rate?

The rate at which a bank can obtain a loan from another bank

Which of the following describes the discount rate?

The rate at which a bank can obtain a loan from its Federal Reserve bank when using commercial paper as collateral

Which statement most accurately describes the right of rescission?

The three-business-day period from the date of loan application or disclosure, during which the borrower can cancel the loan

Which of the following is a likely result if FHLBanks did not exist?

There'd be fewer funds available for lending in the community.

A short-term security issued by the Treasury that has a maturity term of one year or less is called a _______.

Treasury bill

A long-term security issued by the Treasury that has a maturity of 30 years is called a ______.

Treasury bond

An intermediate-term security issued by the Treasury that has a maturity term of between two and 10 years is called a _______.

Treasury note

What program allowed the U.S. Treasury to spend hundreds of billions of dollars to stabilize our financial system, boost credit markets, help families avoid foreclosure, and promote economic growth?

Troubled Asset Relief Program

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

U.S. Treasury

In what situation would the U.S. Treasury be most willing to sell securities?

When the government's bills exceed income collected

What percentage of homes in the U.S. are owner-occupied?

57%

Low interest rates makes borrowing ______.

Less expensive

Which act made some mortgage insurance premium deductions available to certain taxpayers?

American Tax Payer Relief Act of 2012

Which of the following is a likely effect when the discount window is closed?

Banks don't have access to additional funds.

In which phase of the real estate market cycle would you expect to see properties sit vacant and prices drop?

Recession

In which phase of the real estate market would you expect to see unemployment increasing, prices falling, and foreclosures on the rise?

Recession

Which of the following best describes the state of the market during the recovery phase of the real estate cycle?

High but stabilized unemployment and high number of foreclosures

Which of the following programs broke the normal 80/20 ratio rule usually required as a loan-to-value and offered favorable interest rates?

Home Affordable Refinance Program (HARP)

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

It's available in the states with the most underwater homeowners.

David purchased a house three years ago for $300,000. Considering historical property value fluctuations, what is the likely value of the property today?

It's impossible to tell. Historically, property values fluctuate up and down in the short term.

Which real estate professionals are tapped by the buyer prior to closing?

Lenders, title companies, appraisers, and home inspectors

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

Medium of exchange