Chapter 13 - Review Questions

a $30,000 mortgage loan was originated at an interest rate of 5% with a term of 5 years. The monthly payment is $566.14. What is the principal balance of the loan after the second month payment?

$29,115.88

A mortgage of $10,000 for 10 years at 5% has a monthly payment of $121.22. what is the balance of the loan after the first monthly payment?

$9,920.34

Which clause in a blanket mortgage allows for the release of a single parcel upon payment of a specified sum? (a) Defeasance (b) Acceleration (c) Satisfaction (d) Release

(d) Release

What will be the effect if the Federal Reserve Board decides to purchase governmental securities in the open market?

the money supply will increase and interest rates will decrease.

What is the effect of increased intermediation?

the mortgage money supply is increased, and the interest rates are deduce.

What is the effect of increased Disintermediation?

the mortgage money supply is reduced, and interest rates are increased.

A buyer purchases a property with a $645,000 Mortgage. the interest rate is 5%, and the monthly payment is $3,462.50. what portion of the second month's payment will be interest.

$2,684.27

How much interest is due on a loan of $8,000 at a rate of 9% for 3 months?

$180

If interest for 6 months at a rate of 8% equals $200, what is the principal amount of the loan? (a) $417 (b) $1,200 (c) $2,500 (d) $5,000

(d) $5,000

All of the following statements about the FHA are accurate, EXCEPT: a. FHA is part of the department of housing and urban development (HUD) b. FHA protects borrowers by insuring residential mortgage loans. c. FHA helps low and moderate income borrowers to become eligible for FHA insured mortgage loans d. FHA insures loans that are made by mortgage companies, banks, and savings and loan associations.

b. FHA protects borrowers by insuring residential mortgage loans.

All of the following are sources of Primary Mortgage Market Funding, EXCEPT: a. commercial bank b. Federal home loan mortgage corporation c. Mortgage loan originators d. Life Insurance companies.

b. Federal home loan mortgage corporation

Which of the following statements best describes the secondary mortgage market: a. it is the market where second mortgages are sold b. it is where loans originated in the primary market are sold. c,. it is where loans made only by private parties are sold d. it is the market where second mortgages are originated.

b. it is where loans originated in the primary market are sold.

All of the following would be considered a "triggering terms, EXCEPT: a. Interest rates as low as 3.99% b. mortgage is assumable c. only $3,500 down to own this lakefront home d. Mortgage payments as low as $349 per month

b. mortgage is assumable

Which of the following statements accurately describes an FHA 203(b) loan? a. the interest rate is established by the federal government b. the loan cannot contain a penalty clause for pre-payment c. the seller must pay any discount points charged by the lender d. FHA loan terms cannot exceed 15 years

b. the loan cannot contain a penalty clause for pre-payment

All of the following are required by the Real Estate Settlement Procedures Act (RESPA), EXCEPT: a. Disclosure of a loan estimate of closing costs b.use of the closing disclosure form at closing c. receipt by a borrower of a booklet entitled "you home loan toolkit" c. Disclosure of the annual percentage rate (APR)

c. Disclosure of the annual percentage rate (APR)

all of the following are considered primary mortgage market activities, EXCEPT. a. a bank approves a home loan for a homeowner b. a bank lends money to start construction of a new home c. FannieMae purchases mortgage loans made by local banks d. A mortgage loan originator helps arrange a loan for a homeowner.

c. FannieMae purchases mortgage loans made by local banks

all of the following statements about a section 203 (b) FHA insured mortgage loan are accurate, EXCEPT: a. the loan may be assumed by the borrower who is qualified by the lender b. the borrower must be allowed to prepay the loan without paying a penalty c. HUD/FHA sets the interest rate of the loan d. the loan must be fixed rate and have a term of 30 years or less.

c. HUD/FHA sets the interest rate of the loan

All of the following statements about the FHA up-front mortgage insurance Premium are accurate, EXCEPT: a. the UFMIP can be paid by the borrower, the seller or a third party b. the UFPIM is paid at the time of closing although a portion of the premium may be financed c. The UFMIP is paid annually for the life of the loan d. in most cases, the UFPIM is 1.75% of the loan amount

c. The UFMIP is paid annually for the life of the loan

All of the following are part of the purpose of the Federal Reserve System, EXCEPT: a. supervising the banking industry b. providing elastic currency c. setting interest rate d. providing a system for discounting commercial paper

c. setting interest rate

Which of the following statements regarding types of mortgage loans is correct? a. both the FHA and the VA make loans b. FHA loans are guaranteed c. the FHA insures loans. VA loans are guaranteed d. conventional loans are insured by the government.

c. the FHA insures loans. VA loans are guaranteed

All of the following statements about a fixed rate or level payment mortgage loan are accurate, EXCEPT: a. the original amount of the loan is fully repaid at the end of the life of the loan. b. the amount of each payment that is applied to repaying the principal increases over the life of the loan. c. the amount of each payment that is applied to paying interest increases over the life of the loan. d. The monthly payment is fixed over the life of the loan.

c. the amount of each payment that is applied to paying interest increases over the life of the loan.

A mortgage loan in the amount of $50,000 at a rate of 12% has been granted for a period of 30 years, with monthly payments due of $514.31. Based on this info, which of the following statements is NOT correct? a. the principal amount paid in the 1st monthly payment is $14.31 b. the principal balance of the mortgage after the 1st monthly payment is $49,985.69 c. the interest amount paid in the 2nd monthly payment is $14.45 d. the principal balance of the mortgage after the 2nd monthly payment is $49,971.24

c. the interest amount paid in the 2nd monthly payment is $14.45

All of the following are disclosures that the True-in-Lending Act may require in an advertisement, EXCEPT: a. The terms of repayment b. the amount or percentage of the down payment c. the mortgage servicing disclosure d. the annual percentage rate.

c. the mortgage servicing disclosure

All of the following are secondary mortgage market lenders, EXCEPT: a. Federal Home Loan Mortgage Corporation b. Government National Mortgage Association c. Federal National Mortgage association d. Real Estate Investment Trusts

d. Real Estate Investment Trusts

All of the following activities are considered "red flags" as possible signs of mortgage fraud, EXCEPT: a. requesting a quitclaim deed to transfer the interest in the property b. inflating contract prices or appraisal. c. requesting signatures on incomplete loan documents d. Requiring private mortgage insurance

d. Requiring private mortgage insurance

All of the following statements about a reverse mortgage are accurate, EXCEPT: a. a home equity conversion mortgage is an FHA approved reverse mortgage b. a reverse mortgage allows a homeowner to receive a lump sum or monthly advance on a line of credit based on the equity in their home. c. a homeowner must be age 62 or older to be eligible for a reverse mortgage d. if the loan balance exceed the proceeds from the sale of the property, the owner or the owner's heirs must pay the difference to the lender.

d. if the loan balance exceed the proceeds from the sale of the property, the owner or the owner's heirs must pay the difference to the lender.

All of the following are typical mortgage fraud schemes, EXCEPT: a. straw borrowers b. no document loans c. foreclosure rescue schemes d. nonconforming loans

d. nonconforming loans

All of the following are requirements that the Real Estate Settlement Procedures Act (RESPA) imposes, EXCEPT a. a borrower must be provided a completed closing disclosure at least 3 days prior to closing. b. The lender must provide a loan estimate of settlement costs no later than 3 days after the borrower applies for a mortgage loan c. A loan applicant must be provided with an information booklet which explains the various closing charges d. prohibits all kickbacks and rebates on any transaction

d. prohibits all kickbacks and rebates on any transaction

Which of the following is required by the Real Estate Settlement Procedure Act (RESPA)? a. The disclosure of any credit bareau that was used to obtain credit reports which were used as the basis for a loan approval or denial b. that real estate brokers do not discriminate in the sale or rental of real estate c. that developers who are offering lots for sale across state lines be properly registered and make appropriate disclosure d. that borrowers be informed of all settlement costs involved in the purchase of a home when funds are obtained from a federally regulated lender.

d. that borrowers be informed of all settlement costs involved in the purchase of a home when funds are obtained from a federally regulated lender.

What determines the interest rate that a borrower must pay on an adjustable rate mortgage?

the margin added to the index determine the note rate that is the rate the borrower will pay on the loan. 2 index rates often used bny lenders are the weekly average yield on US treasury securities called the one-year t-bill rate and the eleventh district cost of funds. the lender does not control the fluctuation of interest rate charge in an ARM.

What is the discount rate?

the rate of interest that a member bank pays to borrow money from a Federal Reserve Bank

What is the purpose of the secondary mortgage market?

to provide a constant source of funds for real estate loans

What is blanket mortgage?

a mortgage that pledges multiple properties as security for a loan.

What is the difference between a package mortgage and a chattel mortgage?

a package mortgage uses both real and personal property as security for a loan; a chattel mortgage uses only personal property as security for the loan.

What is the rate adjustment period on a two-year ARM?

24 month

According to Regulation Z, how long does a borrower have to rescind a refinance of a principal residence?

3 business days

At a rate of 12%, a loan of $20,000 interest only, level payment, term loan has interest due in the amount of $600. How long has the loan been outstanding?

3 months

A $24,000 interest only, level payment, term loan has interest of $200 after 2 months. what is the rate of interest on the loan?

5%

A $24,000 interest only, level payment, term loan has a rate of 5% and interest due in the amount of $600. How long has the loan been outstanding?

6 months

A $12,000 Interest only, level payment, term loan has interest due of $810 after 9 months. What is the interest rate?

9%

What is conforming loan?

A loan that is underwritten in accordance with the standards established by Fannie Mae and Freddie Mac

Which type of loan has payments that are sufficient to repay the loan amount and the interest owed over the life of the loan?

Fully Amortizing Loans

What is the largest source of funds for financing of apartment projects and commercial property?

Life Insurance Companies

What is the major source of funds for large commercial real estate developments?

Life Insurance Companies

which of the following entities prefers to lend money for large, long-term, stable property types such as office buildings and shopping centers?

Life Insurance Company

What is the role of the Federal Housing Administration?

Loan Insurance

with an adjustable rate mortgage, if a payment is not sufficient to cover the interest amount due, the unpaid interest amount may be added to the loan balance. What is the term used to describe this situation?

Negative Amortization

All of the following terms are defined by the truth-in-lending act as triggering terms, EXCEPT: a. The amount of the down payment b. the amount of the loan c. the amount of any payment d. the number of payments

b. the amount of the loan

Which Federal Reserve action is considered to be the most effective tool for controlling the money supply?

Open Market Operations: buying or selling government securities on the open market.

The interest for 3 months is $300 on an interest only, level payment, term loan with an interest rate of 5%. What is the principal balance?

P = $24,000

Lenders who make conventional loans where the buyer provides less than a 20% down payment will normally require that the borrower pay which of the following? a. up-front mortgage insurance premium (UFMIP) payments b. Uninsured primary mortgage insurance (UPMI) c. Mortgage insurance premium (MIP) Payments d. Private mortgage insurance (PMI)

PMI- Private Mortgage Insurance d. Private mortgage insurance (PMI)

Payments on a fixed rate amortized loan consist of what two components?

Principal and Interest

What are FHA mortgage insurance premiums?

Required for all FHA insured mortgage loans, Regardless of the downpayment. Not the same as PMI charged for conventional loans. the annual mortgage insurance premium cannot be cancelled; it must be paid for the life of the loan.

Prior to deregulation of the banking industry in the 1980s, which institutions were dominant in providing funds for the purchase of single-family residences?

Saving Associations

What does FHA section 203(b) mortgage insurance cover?

The purchase or refinance of an owner-occupied one- to four-family property.

Under what circumstances is a kickback or rebate allowed?

The recipient has provided a service for which he or she is licensed, and all parties to the transaction are advised of the payment.

What is an annual mortgage insurance premium (AMIP)?

The standard AMIP is .85% of the annual outstanding loan balance divided into 12 monthly payments.

What is the purpose of the Truth-in-Lending Act?

To ensure that consumers receive meaningful information about the true cost of credit.

What is the purpose of the VA mortgage loan program?

To guaranteed mortgage loans for veterans

When does disintermediation occur?

When depositors withdraw their savings from depository institutions to invest in higher yield alternative investments.

What is the most likely effect of an increase in the discount rate?

a member bank's cost of doing business is increased, and it must charge higher interest rates to borrowers.

What is Private Mortgage Insurance (PMI)

insurance that a borrower pays for to protect the lender from the risks associated with possible default by the borrower.

Gerri has a 15-year loan with monthly payments that remain the same amount for the entire loan period, which type of mortgage repayment plan does gerry have?

level payment

All of the following are required to obtain a VA loan, EXCEPT: a. A service related disability b. an honorable discharge from a brand of the armed forces c. a certificate of eligibility from the VA d. The purchase of an owner-occupied residence

a. A service related disability

All of the following are common mortgage fraud schemes, EXCEPT: a. a homeowner who is in default voluntarily deeds the home to a lien holder in lieu of payment of the debt. b. a homeowner who is in default is approached by an individual who offers to help refinance the loan using documents that transfer ownership of the home. c. an elderly homeowner is provided with complex reverse mortgage documents that charge extra feed. d. an individual contacts a homeowner in the beginning stages of a foreclosure and offers to eliminate the debt and save the house for a fee.

a. a homeowner who is in default voluntarily deeds the home to a lien holder in lieu of payment of the debt.

All of the following statements about entitlement for VA guaranteed mortgage loan are accurate, EXCEPT. a. all honorably discharged veterans are eligible, regardless of the amount of time served b. a certificate of eligibility from the VA indicates the amount of guarantee for which a veteran is eligible c. a veteran can use his or her entitlement repeatedly if the prior VA loan is repaid d. There is a maximum entitlement amount for which and eligible veteran is entitled.

a. all honorably discharged veterans are eligible, regardless of the amount of time served

All of the following statements about conventional mortgage loans are accurate, EXCEPT a. conventional loans are generally less risky to lenders than FHA or VA loans b. Conventional loans usually require higher down payments than do FHA or VA loans c. Conventional loans traditionally carry higher interest rates than do FHA or VA loans d. Conventional loans are loans that are not insured or guaranteed by an agency of the government

a. conventional loans are generally less risky to lenders than FHA or VA loans

When compared to conforming loans, non conforming loans have all of the following characteristics, EXCEPT: a. lower risk to the lender b. more flexibility in loan products and loan programs c. higher interest rates d. Added upfront fees.

a. lower risk to the lender

Interest rates for federal housing administration mortgages are determined by which of the following? a. the market b. FHA c. government d. congress

a. the market

All of the following statements correctly describe mortgage fraud, EXCEPT: a. mortgage fraud can occur without the knowledge or active participation of the borrower. b. the intentional omission of relevant information can be considered an act of mortgage fraud. c. Only lenders can be investigated or found guilty of mortgage fraud. d. Mortgage fraud occurs when incorrect information is intentionally provided to a lender to cause them to take action regarding a loan that would not otherwise have been approved.

c. Only lenders can be investigated or found guilty of mortgage fraud.

When the federal reserve increases the reserve requirements of member banks, what is the impact on the economy?

the amount of money available for lending is decreased, which may cause interest rates to increased.

What are the advantages of a shorter-term mortgage loan over a 30-year loan?

the borrower pays less interest over the life of the loan and the interest rate is likely to be lower.

What is Intermediation?

the flow of deposits into lending institutions, thereby, creating a mortgage money supply.

What is Disintermediation?

the flow of money into investments other than lending institutions

What was the original purpose of the federal national mortgage association (FNMA)?

to purchase FHA loans and provide liquidity for lenders of FHA loans.

What type of loan has payment adjustments at set intervals and an interest rate that can fluctuate over the term of the loan?

Adjustable rate mortgage

if a mortgage loan payment consist of interest only, what term refers to the final payment which includes the full amount borrowed?

Balloon Payment But the mortgage is Term Mortgage

Which group of financial institutions traditionally preferred to make Short-term loans for construction?

Commercial banks

The Federal Reserve has several methods for controlling the money supply. which of those methods is generally considered to be least effective method?

Discount Rate

The Federal National mortgage association was originally formed to purchase what type of loans?

FHA

how are mortgage loan originators usually compensated for their services?

Finder's fee or commission

What is Usury?

charging an interest rate in excess of those established by statute.

All of the following statements about open market operations are accurate, EXCEPT: a. the FOMC raises interest rates by purchasing government securities b. higher interest rates cause the economy to slow down c. in a tight money market, less money is available for loans d. the FOMC stimulates the economy by purchasing government securities.

a. the FOMC raises interest rates by purchasing government securities

All of the following statements about VA guaranteed mortgages loans are accurate, EXCEPT a. the VA has a set max loan amount b. a funding fee on a VA guaranteed mortgage loan is similar to a loan origination fee on a conventional mortgage loan c. a VA guaranteed mortgage loan guarantees that all eligible veterans can obtain a loan up to the entitlement max amount d. The amount of the loan may not exceed the lesser of the sales price or the appraised value of the property.

a. the VA has a set max loan amount

A buyer purchased a home and arranged financing at an interest rate of 4.5%. at closing the buyer realized that the true interest rate was actually 5.99%. This would be a violation of which of the following legislation? a. truth-in-lending Act b. Fair Housing Act c. RESPA d. Equal Credit Opportunity Act

a. truth-in-lending Act