Chapter 15
A loan that is fully amortized will:
be paid off in full with the last scheduled monthly payment
Conforming loans can:
be sold on the secondary market
Bridge loans are typically used:
before the borrower obtains more long-term financing
FHA interest rates are set and negotiated by the lender and the:
borrower
What is mortgage insurance premium?
borrower-paid insurance required for FHA loans, in order to insure the lender in case of borrower default/foreclosure
Which of the following are NOT a part of a market analysis?
construction costs
What is a FICO score?
credit score
A promissory note is evidence of:
debt
When qualifying, the FHA will look at a borrower's:
debt to income ratio
In a title theory state, a defeasance clause provides the borrower with the ability to:
defeat or cancel the mortgage by paying off the loan
How is the net operating income determined?
effective gross income - operating expenses
Which nonjudicial form of foreclosure depends on the borrower's willingness to grant the lender access and occupancy of the property subject to foreclosure?
entry and possession
A major purpose for recording a mortgage is to:
establish a priority of interests
What is arrears?
fancy word for overdue
For a loan to fall under RESPA, it has to be what is a called a
federally related mortgage loan
What is a package mortgage?
includes both real and personal property
What are the two primary categories of foreclosure?
judicial and nonjudicial
What is proprietary lease?
long-term and exclusive lease given to resident and stock owner of a cooperative
What is the federal deposit insurance corporation?
looks out for the consumer's interests in loan origination through the implementation of Title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The plan a property manager creates for managing the property, including an analysis of the market and the financial standing and operating budget of the property, is known as a(n):
management proposal
What is routine maintenance?
monitoring, assessing, and attending to the needs of a facility's most necessary features.
What are balloon payment mortgages
not fully more to rise this type of loan is not fully killed off just by making monthly payments it requires a balloon payment at the end in order to pay it off
Which of these is a budget created by using anticipated revenues and expenses for a property over a period of one year?
operating budget
A prepayment clause allows the borrower to:
pay off the loan in full or in part prior to the due date without any penalty
Jim is buying a home, but Bank of Aceable didn't qualify him for the full home price. He takes out a purchase-money mortgage to supplement the rest of the sales price. Where will Jim's payments go for the purchase-money mortgage?
seller
What is an overlay?
something that is self-imposed by the mortgage company or investors to have stricter lending requirements, which means a less risky loan.
Build outs is another name for:
tenant improvent
Which of these programs gives direct loans or loan guarantees to help low- and moderate-income Americans buy safe and affordable housing in rural areas?
the USDA Single Family Housing Program
Loan to value ratio
the amount of money being loaned compared to the value of the property.
In a lien theory state where mortgages are used as security instruments, what are the borrower and lender called?
the borrower is the mortgagor and lender is the mortgagee
ARMs can be disadvantageous to a borrower because:
the borrower might have trouble making payments if their rate increases
What is the prime rate?
the interest rate banks charge on loans to their best customers
Jeremy took out a 5/1 ARM. What does the "5" mean?
the interest rate is fixed for 5 years
What most people think of as a mortgage loan is made up of two documents: a promissory note and a security instrument. Which of the following is not addressed by either of those documents?
the personal liability limits to be carried on the homeowner's insurance policy
Which of the following is NOT a concern of a lease-option agreement?
the tenant/buyer may be required to purchase when they don't want to
FHA is the largest insurer of mortgages in the world. How is this program funded?
through a borrower paid MIP
What does the Community Reinvestment Act require of banking institutions?
to meet the credit needs of the communities they operate in
What is capital improvement?
upgrades to a property that fall outside the scope of normal repair or maintenance, usually with the intention of increasing value.
What are Youth Loans?
used by young people participating in clubs like 4-H clubs or FFA to finance educational, income-producing, agriculture-related projects. (Oh, to be young and in loans!)
What is debt service coverage ratio?
used to evaluate income-producing properties; is calculated by dividing the net operating income (cash flow after all expenses and debts are paid) by total debt service (current debt obligations)
What is one of the larger factors for lenders in determining the risk of a loan request?
whether or not the loan will be secured by collateral
According to Regulation Z, which of the following advertising promotions would trigger the need for disclosure of additional information?
"Down payments as low as $10,000!"
How much is a veterans basic entitlement?
$36,000
If you spent $1,200 in signage that brought in 30 prospective tenants, what is the cost per prospect?
$40 per prospect
How do you calculate LTV
(Amount financed / property value) x 100
What is a lifetime cap?
-limits the total amount the interest may increase over life of loan
In most cases, how much time must pass after default before a loan servicer can initiate foreclosure?
120 days
Conventional loans typically require how much in a down payment?
20%
The VA guarantees the first:
25% of the loan
What is a lease?
A contract in which one party conveys property to another for a specific predetermined period of time, generally in return for periodic payment.
What is a graduated payment mortgage?
A family of loans characterized by low initial payments that increase at set intervals and by set amounts during the term of the loan.
What is a wraparound mortgage?
A form of secondary financing that enables a borrower to obtain additional financing from a second lender without paying off the first loan.
What is estate for years?
A lease with a specific starting and ending date
What is periodic estate?
A leasehold estate which automatically renews until canceled by either party
What is a periodic rate cap
A limit on the amount that the interest rate can change during any adjustment periods
What is a payment cap
A limit on the amount the payment can change during one adjustment period on an ARM
What is an FHA loan?
A loan backed by the Federal Housing Administration with easier qualifications.
What is a VA loan?
A loan guaranteed by the Veterans Administration for military veterans and their families
What is a USDA loan?
A loan that helps to make purchasing a home more affordable for low-income individuals living in designated rural areas.
What is a blanket mortgage?
A mortgage that covers more than one parcel of land
What is a promissory note?
A negotiable finance instrument used in a typical mortgage agreements. It is evidence of a debt and a promise to pay that debt.
What is Rural Development Guaranteed Housing Loan Program?
A program that assists approved lenders with providing low and moderate income households with the oppertunity to own safe and sanitary housing as their primary residence in eligible rural areas.
Who should prepare a lease-option agreement document?
A real estate attorney
What is special forbearance?
A temporary suspension of scheduled payments.
Estate at sufferance:
A tenants occupancy of a property beyond their lease's terms and without the landlords consent.
What is estate at will?
A tenants occupancy of a property with the landlords consent but without a lease.
What happens with a deed of trust when the borrower pays the note in full?
A trustee executes a deed of reconveyance or deed of release, which is recorded.
What is debt service?
Amount of money spent on an investment property's loans; includes both the portion spent on the principal and the interest of a loan
An appraisal is:
An appraisers opinion of a property's market value as of a specified date
What is capital expenditure?
An expense paid in order to improve a property
What is leasehold interest?
An interest in the occupation of a property established through a lease.
What is a conventional loan?
Any loan that is neither insured by the government nor guaranteed by the government. With these loans they will typically ask for a 20% down payment.
What are mortgage bankers?
Are companies, individuals, or financial institutions that create mortgages.
What is Real estate settlement procedures act?
As a response to abuses in the real estate settlement process, including the practice of kickbacks, refer all fees, or fee splitting, which had the effect of needlessly increasing the cost of settlement services.
Which borrower might find an open-end mortgage useful?
Beck who is 62 and wants to tap into her homes equity without paying monthly payments.
Which of the following terms describes a mortgage that has more than one property for collateral?
Blanket mortgage
The three parties involved in a trust deed include:
Borrower, lender and trustee
The collection of common clauses in a mortgage agreement having to do with the responsibility of a mortgagor to protect the interests of the lender are collectively referred to as:
Borrowers
Cammy takes out a fully amortized, fixed-rate loan for her new vacation home on Lake Placid. When Cammy's mother asks her to fly to Singapore for their family vacation, Cammy tells her mother she doesn't know if she can afford it, as her loan payments could fluctuate. Analyze if Cammy is correct.
Cammy is NOT correct; she has a fully-amortized, fixed-rate loan, so she knows exactly how much her monthly payments will be.
What are upgrades or improvements to a property that fall outside the scope of normal repair and maintenance, usually with the intention of increasing value?
Capital improvements
What is the official name of the RESPA/TILA form that serves as the closing statement?
Closing Disclosure
What is preventative maintenance?
Conducting periodic inspection to catch minor issues before they become major failures
Which of these loans is typically seen as a higher risk for lenders?
Conventional loans
A property manager is called by a resident complaining their AC unit has stopped working. What type of property maintenance is this an example of?
Corrective maintenances
The guidelines that determine if a conventional loan is conforming or non-conforming are set by:
Fannie Mae and Freddie Mac
Which of the following is TRUE regarding freehold estates and leasehold estates?
Freehold estates are of indefinite duration and leasehold estates are of a definite duration.
What is the Single Family Housing Programs?
Give direct loans or loan guarantees to help low and moderate income rural American buy safe and affordable housing in rural areas.
What is an alienation clause?
Gives the lender the right to accelerate the loan, which means the lender can demand immediate payment of the whole loans balance if the borrower sells the property.
What is private mortgage insurance?
Hank buys a home for $350,000. He took out a $280,000 mortgage to pay for the home. What is his LTV ratio?
What is debt to income ratio?
How much money you owe in total versus how much you make
A construction mortgage is paid out in the form of:
Installments
What is the Truth in Lending Act (TILA)?
Intended to ensure that credit terms are disclosed in a meaningful way so consumers can compare credit terms more readily and knowledgeably.
What is a home equity loan?
Is a loan in which funds are borrowed using the homeowners equity for collateral.
What is residual income?
Is defined as the amount of monthly income remaining after all the debts are deducted: -Income tax -Social Security tax -Maintenance and utilities
A lease-purchase agreement is a lease in which the tenant:
Is required to purchase the property at a certain point.
What is an affiliated business arrangement?
Is when a real estate brokerage offers closing, moving, and other services from companies that operate under the same corporate umbrella as the brokerage.
In what way does hypothecation benefit borrowers in the financing of a home purchase?
It allows lenders to offer lower interest rates since the loan is secured through the use of the property as collateral.
Which of these is an ideal option for a person who cannot buy a property right now, but wants to live in the home and reserve the right to buy it in the future?
Lease-option agreement
Which two disclosure forms would a borrower getting a loan today receive?
Loan Estimate and Closing Disclosure
What is reverse mortgage?
Loans designed for people over the age of 62.
The USDA's Single-Family Housing Programs focus on giving loans to:
Low and moderate income rural Americans
What is an acceleration clause?
Make the entire loan amount due immediately upon default.
What is an interest only loan
Monthly payments go towards paying only the loans interest not the principal Once the loan terms of a Balloon payment of the entire principle will come due
From what source does the FHA reimburse lenders for their foreclosure losses on FHA loans?
Mortgage insurance premiums
The FHA program is funded solely by:
Mortgage insurance premiums
The SAFE Act regulates the licensure of which type of real estate professionals?
Mortgage loan originators
What are subprime mortgages?
Mortgages with higher interest rates
What is the Multi Family housing programs?
Offer loans to provide affordable rental housing for very low, low and moderate income residents, the elderly, and persons with disabilities.
Which of the following statements is TRUE regarding operating budgets and operating statements?
Operating budgets plan for future operating expenses and operating statements report past expenses.
What are micro loans?
Operating loans meant to be put toward the needs of small and beginning farmers, non traditional,The USDA's Single-Family Housing Programs focus on giving loans to:
Which of the following is a mortgage where personal property is financed with real property as a package?
Package mortgage
Which of the following is automatically renewed at the end of each lease period until the landlord or tenant acts to terminate it?
Periodic state
What may be required by the lender to be included in the terms of a commercial loan?
Personal guarantee
What is the equal credit opportunity act?
Prohibits lending discrimination on the basis of race, color, religion, national origin, sex, marital status, age, use of public assistance, or sexual orientation or gender identity. I
What does TILA do?
Protects consumers against inaccurate and unfair credit billing and credit card practices.
What is Rural Development?
Provides both direct and guaranteed loans for the purchase or construction of a single family homes, repair of existing homes, and the development of affordable rental housing.
What is community facilities programs?
Provides loans, grants, and loan guarantees for essential community facilities in rural areas.
What is a deed in lieu of foreclosure?
Requires the agreement and cooperation of both
Ted and Betty are 65 and have a lot of equity in their home. They would like to have extra money each month so they can travel more. Which is the best choice for accomplishing their goal?
Reverse mortgage
An acceleration clause demands payment in full of a loan due to payment default. A less punishing clause only requires that the borrower return the loan to a pre-acceleration environment by getting current on all delinquent payments. What is the name of that clause?
Right to reinstate clause
What are bridge loans
Short term loans typically take it out for a period of two weeks to three years for the borrowers to attain larger or longer-term financing
What is a short sale?
Similar to a deed in lieu of foreclosure in that its a mutually agreed upon alternative to foreclosure.
Julie is seeking a loan to help finance the purchase of a property for her dog-grooming business. What type of loan would she most likely use?
Small business admin loan
The alternative to foreclosure that involves a temporary suspension of scheduled payments with the hopes that the borrower can use the time to make up the delinquency is known as:
Special forbearance
What is one of the biggest differences between judicial foreclosure and strict foreclosure?
Strict foreclosure does NOT involve a sale.
What is the relationship between TILA and Regulation Z?
TILA is a law, Regulation Z are the rules for how the law is carried out.
What is a construction loan?
Temporary financing used for the purpose of construction project.
What does the Community Reinvestment Act require?
That banks create loans in the communities they operate in
What is the secure and fair enforcement for mortgage licensing act of 2008
The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 ("SAFE Act") was passed as Title V of the Housing and Economic Recovery Act of 2008 which was signed by President Bush on July 30, 2008.
In a purchase-money mortgage, ...
The buyer can borrow from the seller in addition to the lender.
Why might a borrower who is planning on moving soon NOT want to refinance?
The costs associated with refinancing might be higher than the amount saved in monthly payments.
When do tenants have the option of purchasing a property under a lease-purchase agreement?
The date of the sale of the property is agreed upon in the lease contract
Which of these happens when a borrower takes out a reverse mortgage?
The lender has a lien on the property.
Which two forms do TRID rules require lenders to provide to borrowers?
The loan estimate and the closing disclosure
What is loan origination?
The multi-step process through which a borrower obtains a mortgage loan from a lender.
The lessee is the:
The one to whom the property is leased.
What is a lessor?
The party granting the lease; aka landlord
Hypothecation is:
The pledging of an asset as collateral to secure a loan without delivery of title, possession or other ownership rights.
What must a security instrument contain in order to use a nonjudicial foreclosure process?
The power of sale clause
What is underwriting?
The process of deciding the level of risk a lender would take on by offering a loan to a certain borrower for a specific property.
What is underwriting?
The process of determining the level of risk a borrower presents to a lender.
What is assumption?
The process of transferring the obligation of the mortgagor to another party whose takes over the responsibility to pay the note.
What is loan origination
The process through which a buyer obtains a mortgage loan from a lender.
What is corrective maintenance?
The repair of equipment after it has been broken
What is the Uniform Residential loan application?
The standard form most lenders use to collect the information necessary to evaluate the loan risk their applicants represent.
What's a rate cap
The stopping point for the interest on an ARM
What is emergency loans?
These are designed to assist farmers and ranchers in recovering from any production or physical losses suffered from drought, flooding, other natural disasters or quarantine.
What is Native American Tribal loans?
These loans are a resource for Tribes to acquire land interests within tribal reservations or Alaskan communities.
What are direct operating loans?
These loans are used to buy things like livestock and feed, farm equipment, fuel, farm chemicals, and insurance.
What are direct farm ownership loans?
These loans are used to do things like purchase or enlarge a farm or ranch, construct a new or improve existing farm or ranch buildings, and for soil and water conservation and protection purposes.
What is minority and woman farmers and ranchers loans?
These loans encourage full participation from minority and women family farmers by targeting a portion of direct and guaranteed farm ownership and operating loan funds for minority and women farmers to buy and operate a farm or ranch.
What is beginning farmers and ranchers loans?
These loans provide credit opportunities to eligible family farm and ranch operators and owners who've been in business less than 10 years.
How is a short sale similar to a deed in lieu of foreclosure?
They are both mutually agreed-upon alternatives to foreclosure.
Which of these is a reason that GPMs have fallen out of favor with lenders?
They have a higher rate of default.
Why would a borrower want a balloon payment mortgage?
They plan to sell before the end of the term.
What is the rural housing program?
This program seeks to improve and build housing and community facilities in rural areas.
Under what theory does Tennessee operate?
Title theory
Why would a lis pendens be filed?
To make the public aware that legal action is pending.
A promissory note is "a negotiable instrument." This means that promissory notes are:
Transferable and assignable
Which of these loan types has a no-money-down option?
VA loan
Besides a borrower's financial qualifications and creditworthiness, a loan underwriter also must consider the:
Value of the property that will act as security for the loan
Which of these is an inconsistent, irregular expense; dependent on factors such as the size, condition, type, and age of the property?
Variable expense
What is the Home ownership and equity protection act?
Was created in 1994 as an amendment to the truth in lending act. The goals of this act was to end abusive and predatory practices by lenders.
What is negative amortization?
When your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. If the borrower does not increase payments, the home buyer will end up owing more than the original amount of the loan.
According to TRID rules, when must a Loan Estimate be delivered to a person seeking credit?
Within 3 days of applying
What is adjustable rate mortgage?
a loan with an interest rate that can increase and decrease periodically throughout the life of the loan, often based on a market index.
Which of the following would be covered by Regulation Z?
a mortgage secured by a residence
What is cash reserve?
a portion of funds allocated to pay for variable expenses
If a conventional borrower's down payment equals more than 20% of the sales price, they can avoid paying:
a private mortgage insurance premium
The Uniform Residential Landlord and Tenant Act (URLTA) is:
a sample law governing landlord and tenant interactions that has been adopted in full or part by many states
What is a guaranteed loan?
allow lenders to extend credit to family farm operators and owners who don't qualify for standard commercial loans.