Unit Quiz Questions from Real Estate Finance

What is a moratorium (or forbearance)?

A lender temporarily suspends a borrower's payments.

Which of the following best describes a recourse mortgage?

Allows the lender to sue the borrower for damages if foreclosure occurs

Which of the following situations would make a borrower ineligible for a loan modification?

Borrower has filed for bankruptcy

How does Farmer Mac support agricultural producers?

By creating a secondary market for agricultural loans, making it possible for agricultural lenders to fund more loans

Because of the Mortgage Disclosure Improvement Act, the only advance fee that a creditor can charge to a consumer before providing required loan disclosures is a(n) ______ fee.

Credit report

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

Mortgage-backed securities

What information is included on the Loan Estimate form so that the consumer can confirm the reputation of lending institution and individual?

Nationwide Mortgage Licensing System IDs

How can liens, such as those created by non-payment of federal income tax, result in mortgage default?

New liens can threaten the lender's position as primary lienholder. Default can occur for this reason.

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

Which HUD program is responsible for protecting individuals against discrimination in housing based membership in a protected class?

Office of Fair Housing and Equal Opportunity

The intent of the Consumer Credit Protection Act, which includes the Truth in Lending Act, is to safeguard the consumer by ______.

Requiring full disclosure of the terms and conditions in any offers of credit

______ is the term that the VA uses to describe the amount of net income remaining after deduction of debts, obligations, such as utility and phone bills, and monthly shelter expenses.

Residual income

Which of the following is a requirement to qualify for a VA loan?

Sufficient income

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

Supply is greater than demand

How is a loan assumption documented?

The buyer and seller both sign an assumption agreement.

Which of the following is a potential concern of a buyer who's entering into a contract for deed with a seller?

The buyer could lose the property after missing only one mortgage payment.

Real estate professionals handle many documents related to real estate transactions. Which one of the items listed below is one of the most important in detecting mortgage fraud?

The original sales agreement and any addenda

Maria is trying to obtain a construction loan. What additional information does she need to provide?

The present value of the lot

How are creditors or lienholders paid during a foreclosure process?

The property is sold at auction by a court-appointed representative and all lienholders are paid from the proceeds of the sale.

Benny is self-employed. He's experienced a bit of success over the last few years and is now ready to purchase a home. He's meeting with a lender later today. What can Benny expect?

To be asked for additional documentation to verify his income.

Why does the federal government have agricultural lending programs?

To ensure that credit is available to agricultural producers, who often can't meet conventional underwriting standards due to the nature of their work

In the residential mortgage market, charging borrowers more than ______ over market rate for interest is considered a predatory lending practice.

5%

What is a collateralized mortgage obligation?

A debt security holder

Which of the following results from the Treasury selling securities?

A decrease in money in the economy

What is an encumbrance?

A defect on a title that can be monetary or physical

A homeowner has been paying her mortgage for several years and has built up equity. She decides to take out a home equity line of credit because she needs some cash. This credit will create ______.

A junior lien on the property

Regional State Bank is a member bank of the Federal Home Loan Bank. In exchange for mortgage collateral, Regional State Bank received a loan from the FHLB so it can make additional loans to consumers. What is the loan called that Regional State Bank received?

An advance

Who's the mortgagor in a mortgage?

Borrower

Private loan companies may charge higher interest, larger fees, and could require ______ to secure a loan.

Collateral

Who originates their own loans?

Mortgage bankers

What's the most common way that a seller can help a buyer come up with the funds to complete a real estate transaction?

With a contract for deed

Which range of credit scores do most consumers fall into?

670 to 739

Private mortgage insurance may be required on conventional loans where the loan-to-value ratio is in excess of ______%.

80 Piggyback (or split) financing is a legal way for borrowers to avoid having to purchase private mortgage insurance (PMI) when they put less than 20% down. Conventional loans require PMI on loans where the amount exceeds 80% of the purchase price.

Cathy is hoping to purchase a home using a VA loan. A VA-assigned real estate appraiser is required to provide ______ for the property.

A certificate of reasonable value

What is a government-sponsored enterprise?

A private company the U.S. Congress created to make certain borrowing easier and cheaper

What is a carryback loan?

A second loan financed by the seller

In which of the following situations is a lender prohibited from enforcing an alienation clause?

A transfer between parent and child

Which of the following provides a summary of the title history?

Abstract of title

In which of the following sections of a credit report might a lender expect to find a loan that has been paid off on time?

Accounts in good standing

Paulina is buying her first house. Which of these costs will she NOT be expected to pay?

Agent's commission

What is the three-property rule as it relates to tax-deferred exchanges?

An investor can identify up to three replacement properties and not encounter a restriction regarding fair market value as long as debt load requirement is met.

What is a reverse exchange?

An investor finds and closes on an investment property and then decides to immediately sell another investment property.

Andrea's lender has notified her of its intent to foreclose. Her loan is secured with a deed of trust. What rights does she have to redeem her property?

Andrea can cure the default and reinstate the loan.

Who is responsible for paying the loan origination fee in a financed real estate transaction?

Buyer

Who is responsible for paying the loan-related closing costs in a financed real estate transaction?

Buyer

The Federal Housing Administration funds its mortgage insurance program ______.

By charging borrowers a mortgage insurance premium

Jonathon is selling his home to Chris and Samantha. He's at closing, and the underwriting fee must be paid. Who pays for that?

Chris and Samantha

Which of these is a function of the U.S. Treasury?

Collect funds from income tax and Social Security payments

In a loan to purchase which of the following property types is NOT eligible for purchase by Fannie Mae?

Commercial space

Victor is a buyer reviewing the Closing Disclosure he received from his lender. On the last page of the form, he sees a signature line. By signing the form, Victor has ______.

Confirmed receipt of the Closing Disclosure

A local company wants to build a new office building. What type of loan will it most likely be seeking from its commercial bank?

Construction loan

Which real estate finance instrument includes the promise to repay and the security instrument within the same document?

Contract for deed

Which of the following describes amortized debt?

Debt that's paid off by making periodic payments

Private mortgage insurance protects the lender in case the borrower ______.

Defaults on the loan

A lender was not able to recover all of the losses incurred during the foreclosure process. What could the lender pursue to recoup these losses?

Deficiency judgment

What's the primary source of funds for commercial banks?

Demand deposits

Which of the following best describes a marketable title?

Ensures the title to property is free and clear of liens and only subject to loan payoff and any taxes owed.

What's the most common indicator of illegal property flipping?

Falsely inflated appraisal

Conventional loans from large commercial banks are the primary target for which secondary market player?

Fannie Mae

Which of the following is an example of a government-sponsored enterprise (GSE)?

Fannie Mae

Jean is a high school English teacher. With the Good Neighbor Next Door program, she's able to buy a foreclosed FHA-insured property ______, though she does have to agree to live on the property for three years.

For a 50% discount off list price and a down payment of only $100

Which of the following entities buys loans primarily through thrifts?

Freddie Mac

Which of the following generally acts in the secondary market?

Freddie Mac

Randall needs some new equipment for his ranching operation, and he needs a loan to purchase the equipment. When he approaches his local bank and applies for a Farm Credit System loan, how is the loan funded?

From the sale of Farm Credit System debt securities

Which of these HUD programs allows mortgage lenders to obtain a better price for their mortgage loans in the secondary mortgage market?

Ginnie Mae

Glen is assisting a buyer who makes an offer on a condo in a high-end area of town. The seller refuses the offer, and Glen's client believes this is discriminatory behavior. How should Glen advise his client in this situation?

Glen can recommend filing a complaint with HUD about the alleged discrimination.

The Federal Housing Administration's loan program is designed for borrowers who ______.

Have a minimal down payment and less than stellar credit

When a real estate transaction is financed using a contract for deed, what advice should real estate agents give to their clients?

Have an attorney review the contract.

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

Inadequate resources to support the population

Which of the following approaches to value uses a capitalization rate?

Income approach

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

Though not a loan, buyers may be able to enlist the help of ______, who can give them a tax-free gift to help them with their purchase.

Individuals, such as family members

What's the purpose of a typical subordination agreement?

It allows a junior mortgage to move into first lien position.

What advantage does the 1031 tax-deferred exchange offer?

It allows investors to defer capital gains taxes when selling a property, provided they buy another property.

Which type of support does the USDA Rural Development Program offer to its target audience of rural residents?

It offers direct loans, grants, and loan guarantees for housing and other rural needs, as well as advisor services to agricultural producers.

What's the purpose of the Equal Credit Opportunity Act?

It requires lenders to make credit equally available to all creditworthy applicants, regardless of the applicant's protected class status.

In a deed of trust, who is the beneficiary?

Lender

Lewis is reviewing his Loan Estimate and notices under "Other Costs" that there are items listed that don't include an amount. What does this mean?

Lewis should ask his lender about it.

Private loan companies may place a ______ on the property for which the loan is being taken.

Lien

What does the concept "first in time" refer to when discussing lien priority?

Liens are paid based on date of filing.

Kendra is purchasing a home and is ready to find a lender who will give her terms that she can afford. She has done her homework and knows that she can use the ______ to compare loans and find the one that will best meet her needs.

Loan Estimate

What information is listed on the promissory note?

Loan amount and schedule of repayment

Which of the following, once completed, initiates the loan process?

Loan application

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

Financing for a real estate transaction can use a note with a ______ or a note with a deed of trust.

Mortgage

Which person or entity works with many different lenders to find the best loan for the customer?

Mortgage broker

Babs is buying Kirk's property. Babs needs help with the down payment, and Kirk offers to supplement Babs' bank loan with a second loan, allowing her to meet her lender's down payment requirements. Which finance instrument(s) may be used for the agreement between Babs and Kirk?

Mortgage or deed of trust

Maria is a borrower reviewing her Closing Disclosure. She notices a section under "Other Costs" with a number of fees that were not shown on her Loan Estimate, such as the commissions to the real estate brokers and the home inspection fee. Should Maria contact her lender about this issue?

No, these are costs that are part of the total cost to close but aren't part of obtaining the loan, so they weren't required to be on the Loan Estimate.

The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB) in part to regulate ______, which were among the largest originators of subprime mortgages prior to the financial crisis of 2007‒2008.

Non-bank lenders

A qualified mortgage is ______.

One that meets stringent CFPB guidelines

Several actions take place on the secondary mortgage market. Which of these is a common activity?

Packaging loans into mortgage-backed securities

What's the name of the clause included in a finance instrument that requires the lender to release a portion of the property from the lien when a part of the debt has been paid?

Partial release

Which of the following may a lender request to verify an applicant's work history and earning information?

Pay stub

Which of the following factors carries the heaviest weight when calculating a credit score?

Payment history

Which of the following best describes foreclosure by entry and possession?

Petition to enter, repossession, notice of eviction

Which clause is standard in a deed of trust and affects the foreclosure process that can be used if the borrower defaults?

Power of sale

What are the types of institutions that issue loans directly to consumers commonly called?

Primary market players

Your client, Skip, is an investor who's just opened a thriving new sporting goods store in a location outside the city. What principle of value indicates that his thriving business will attract others to engage in similar activity in the same area, driving down his profits?

Principle of competition

Two areas of vulnerability for the lender occur when homeowners insurance is allowed to lapse. What are they?

Property damage and judgment liens

Although the Closing Disclosure lists all amounts as accurately as possible, some costs must be estimated. Why?

Property taxes and insurance may change over the life of the loan, resulting in changes to the required escrow amounts.

The Consumer Financial Protection Bureau promotes consumer protection in the credit market through a number of strategies, including ______.

Responding to and investigating consumer complaints regarding financial services

When interest rates increase, what is the impact on mortgage-backed security investors?

Returns on investments increase.

What type of investment strategy is most similar to a 1031 tax-deferred exchange?

Rolling over funds from one IRA into another

Hugh works as a loan officer at a bank. Because of the ______, he must be registered with the Nationwide Mortgage Licensing System.

SAFE Act

When completing a loan application, the applicant must list their assets. Which of these is considered an asset?

Savings account deposits

Which of the following would the FDIC most likely insure?

Savings account deposits

Which of these items did the Federal Housing Administration (FHA) implement to stabilize and improve the mortgage market?

Set construction standards for homes purchased with FHA loans

Regina has defaulted on the terms of her mortgage, and now her lender has foreclosed. The property was sold at a sheriff's sale three months ago. Regina suddenly learns that she has inherited a great deal of money. She wants her property back. Under a judicial foreclosure, what right might allow her to buy her property from the winner of the foreclosure auction?

Statutory right of redemption

When a buyer takes over payments on a loan without telling the lender, this is called a purchase ______.

Subject to existing financing

Borrowers who fall into the ______ category may be faced with paying interest 1% to 5% over the current market rate.

Subprime

A "homes for sale" magazine contains the following ad: "One-bedroom condo. Corner unit with beautiful ocean views. Financing available, 5.25% APR." Which of these statements is true?

The ad is in compliance with TILA because providing the APR doesn't trigger the required disclosure of all credit terms.

What's true about the draw period on a home equity line of credit (HELOC)?

The draw period varies. A home equity line of credit (HELOC) uses the equity homeowners have in their property. However, because of how it's set up (as a line of credit), homeowners use this as an open-end account. In this way, a HELOC is similar to the revolving credit of a credit card from which the homeowner can take advances, repay money, and even borrow money again.

Which of the following is true regarding an appraiser's three approaches to value?

The income approach is most applicable to rental properties.

How does a 3-2-1 buydown work?

The interest rate starts low but increases by 1% each year for three years until it reaches the rate stated in the note.

When a borrower has paid off the loan, how is the release handled if the security instrument is a mortgage?

The lender executes and records a satisfaction of mortgage and returns the note to the borrower.

The loan amount plus the down payment should equal ______.

The sales price of the home

Which of the following is a reason a seller might consider selling his property through an installment contract rather than a traditional sale?

The seller may pay less in capital gains taxes if he receives the proceeds from the sale over time rather than in a lump sum.

Which of the following statements about the VA guaranteed home loan program is true?

The service member's length of service, duty status, and character of service determine eligibility.

What may happen to a transaction if a cloud on the title is discovered?

The transaction comes to a standstill until the cloud is cleared.

One difference between a judicial foreclosure and a non-judicial foreclosure is that with a non-judicial foreclosure, ______.

There is no statutory right of redemption

Which of the following is a likely result if Federal Home Loan Banks did not exist?

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

When Stacy's clients ask her if she can recommend a mortgage broker, she promptly gives them the name of the best mortgage broker she knows, Gary Jones. Later, she always receives a check from Gary as payment for the referral. Is this legal or illegal under the Real Estate Settlement Procedures Act?

This is illegal under RESPA because it's considered a kickback between settlement service providers.

What's one reason a borrower would choose a split—or piggyback—loan option?

To avoid going over the conforming loan limit

What's one reason a homeowner would want to refinance their mortgage?

To get a lower interest rate

Government-Sponsored Enterprises (GSEs) were created by the U.S. Congress for what purpose?

To make a percentage of loans available to low and moderate income borrowers

Jacob has received a call from his lender that there is a problem with the title on his property. Why would he want to file suit to quiet title?

To remove the clouds on the title

Which of the following provides the lender with an accurate opinion of a property's market value?

Uniform Residential Appraisal Report

How long does the borrower have to pay private mortgage insurance?

Until the borrower reaches a 22% equity position

Which of the following best describes collateral?

Using a house as security on a mortgage

With this alternative to foreclosure, a borrower hands over the property to the lender rather than face foreclosure proceedings.

Voluntary conveyance of deed

Cassie is helping her buyer client, Gus. As they discuss preparations for closing, she cautions Gus, "Make sure you review the Closing Disclosure as soon as you receive it and ______."

Contact your lender immediately if you find errors or have any questions

Lee manages a rental property for her client and is accepting applications for tenants. Applicants Damian and Maria are young, newly married, and have a baby on the way. They can't afford a typical rent on a clean, well-maintained two-bedroom home such as the one that Lee has available; but they are recipients of the ______, which Lee knows the property would also qualify for. Lee is glad to accept them as tenants.

Housing Choice Voucher program