Finance (14 questions)

Backyard Bank charges a 2% loan origination fee. Mavis is buying a home for $500,000 and financing $400,000 of it. How much will Mavis pay as a loan origination fee? $1,000 $2,000 $5,000 $8,000

$8,000 $400,000 × 2% (or $400,000 × .02) = $8,000

A buyer obtained a 30-year, $205,000 loan with a 5.0% interest rate. How much of the monthly payment is interest?

$854.17 $205,000 × 0.05 = $10,250 ÷ 12 = $854.17.

debt ratio

(aka debt-to-income ratio or the back-end ratio) is the total of all the buyer's debt obligations divided by income. The required ratio will vary, depending on loan type and lender. Conventional loan: Typically 33% - 36% FHA loan: Typically 43% - 50% VA loan: Typically can't exceed 41%

Margo is purchasing a home for $520,000. The property appraised at $550,000 and Margo is financing $416,000. What's the loan-to-value ratio? 0.65 0.72 0.75 0.8

0.8

With a VA loan, the borrower must receive a certificate of eligibility. What must the property receive?

A certificate of reasonable value

Which of the following describes amortized debt?

Debt that's paid off by making periodic payments These periodic payments consist of both principal and interest.

primary mortgage market vs secondary mortgage market

Primary mortgage- where loans are created. The primary mortgage market is where loans are made to consumers before they're bundled and sold on the secondary market. Secondary mortgage- where those securities are traded by investors. Institutions that purchase loans that have already been originated and that continue to service the loan operate in the secondary mortgage market.

Loan to Value Ratio

The LTV is the ratio of the loan amount to the property value (sales price or appraised value, whichever is lower) e.g., a $160,000 loan on a $200,000 home has an LTV of 80% ($160,000 ÷ $200,000 = .8, or 80%). Lenders use LTV to determine required down payment amounts when initially writing mortgage loans or when homeowners apply for a home equity loan or a home equity line of credit.

Fixed-rate mortgage

The principal and interest rate remain the same for the life of the loan.

When does the need for mortgage insurance end for a borrower who has a VA loan? It ends after three years of steady payments. It ends once 20% of the loan has been repaid. It remains for the life of the loan term. There is no mortgage insurance requirement for a VA loan.

There is no mortgage insurance requirement for a VA loan. One big benefit of a VA loan is that it doesn't require mortgage insurance even though the borrower is placing less than 20% down (in most cases borrowers make no down payment).

Home Equity Line of Credit (HELOC)

Used as an open-end account similar to the revolving credit of a credit card from which borrowers can take advances, repay money, and even borrow money again A HELOC is similar to a home equity loan because the borrower uses the home's equity to secure a credit line. A HELOC isn't a lump-sum loan; it's a line of credit that continues as the borrower makes regular payments.

index rate

a benchmark that a given lender selects as the basis for the adjustable rate.

land contract (contract for deed)

a buyer finances a property by making installment payments to the seller. The buyer gains access to the home, but the seller maintains the legal title until the buyer pays off the loan.

Real Estate Settlement Procedures Act (RESPA) of 1974

a consumer protection statute designed to protect homebuyers from unscrupulous lending and settlement practices.

Farm Credit System (FCS)

a cooperative of individuals and business owners that provides funding within its group. The Federal Farm Credit Banks Funding Corporation raises money for FCS loans through the sale of securities in U.S. and international markets.

land contact

agreement under which buyer pays in installments and waits for deed With a land contract, who retains the title to the property? seller. The seller retains the title in a land contract. With a purchase money mortgage, the buyer retains the title.

Farmer Mac

buys agricultural loans from rural lenders and issues MBSs for sale on the secondary market.

Financing instruments

include security instruments, such as mortgages, deeds of trust, and promissory notes.

Usury

is lending money at an excessive (illegal) rate. Usury laws are designed to protect consumers from exorbitant fees and interest rates by limiting what lenders charge to reasonable amounts. In California, a loan secured by real estate and arranged by a real estate broker is exempt from usury laws, which would otherwise limit the interest rate to 10% or less.

Farmer Mac

makes agricultural loans possible by creating a secondary market for these loans.

Credit unions

member-based cooperatives that provide credit for auto and home loans.

PITI

principal, interest, taxes, and insurance. The most common mortgage loan payment includes a portion of the principal balance, current accrued interest, and a 1/12th portion of the expected annual property tax and homeowners insurance balances due. This may also be referred to as a "budget mortgage," because it's easy to budget around the known monthly payment.

Who is the mortgagee and mortgagor

the lender (mortgagee) and the borrower (mortgagor).

A borrower has a 30-year, $500,000 loan with an interest rate of 6.25%. His monthly principal and interest payment is $3,078.59. What's the total amount he'll pay back over the life of the loan? $1,108,292.40 $500,000 $608,292.40 $750,000

$1,108,292.40 To find the total amount paid back, multiply the monthly payment by the total number of payments: $3,078.59 x 360 = $1,108,292.40.

A buyer with a 20-year, $419,000 loan at a 4.25% interest rate has a monthly principal and interest payment totaling $2,594.59. If $1,483.95 is interest, how much is applied toward principal each month? $1,110.64 $1,246.10 $1,578.57 $1,780.75

$1,110.64 If $1,483.95 of the total payment is interest, that leaves $1,110.64 to be applied toward principal.

A buyer with a 15-year, $250,000 loan at a 5.5% interest rate has a monthly principal and interest payment totaling $2,042.71. What is the total amount of interest the borrower will pay over the course of the loan? $117,687.80 $250,000.00 $367,687.80 $735,375.60

$117,687.80 First, multiply the monthly payment ($2,042.71) by the total number of payments (180 = 12 payments/year for 15 years). The total paid back is $367,687.80. Then subtract the original loan value: $367,687.80 ‒ $250,000 = $117,687.80.

A buyer has a 30-year, $400,000 loan with a 7% interest rate. How much of the first month's mortgage payment is interest? $2,333.33 $28,000 $3,100 $933.33

$2,333.33 $400,000 × 0.07 = $28,000; then $28,000 ÷ 12 = $2,333.33

A buyer is purchasing a property for $400,000. His loan-to-value ratio is 80%. The lender also charges a one-point loan origination fee. How much is the loan origination fee? $3,200 $3,600 $4,000 $800

$3,200 An 80% LTVR means the buyer is financing 80% of the purchase price. Eighty percent of the purchase price is $320,000, and one point, or 1%, of this amount is $3,200.

David is buying a home for $400,000 and financing 90% of it. If his lender charges a 1% loan origination fee, how much will the lender charge to originate the loan?

$3,600 $400,000 x .90 x .01 = $3,600

Your client, Judy, with a credit score of 620, has been approved for an FHA loan for a home with a sales price of $200,000. What is the minimum down payment that will apply? $100 $1,000 $2,500 $7,000

$7,000 The minimum down payment on an FHA loan is 3.5%. Additional closing costs apply.

A buyer with a $750,000 loan has a monthly principal and interest payment of $4,376.80. If $3,593.75 is interest, what is the new principal balance after the first payment is applied? $745,623.20 $746,406.25 $749,216.95 $750,000.30

$749,216.95 If $3,593.75 of the total payment is interest, that leaves $783.05 to be applied to principal. Subtract this amount from the original loan value, and we have a new principal loan balance of $749,216.95.

A buyer with a 30-year, $750,000 loan at a 5.75% interest rate has a monthly principal and interest payment totaling $4,376.80. If $3,593.75 is interest, how much is applied to principal? $251.66 $3,593.75 $4,376.80 $783.05

$783.05

housing ratio

(aka the front-end ratio) is the borrower's projected monthly housing expense (principal, interest, taxes, insurance, second liens, and association fees) divided by income. The required ratio will vary, depending on loan type and lender. Conventional loan: Typically 25% - 28% FHA loan: Typically 31% - 40% VA loan: Lenders ignore the front-end ratio ex. The housing ratio is the borrower's monthly housing obligation as a percentage of ______ income. Monthly gross The housing ratio identifies the borrower's monthly housing costs as a percentage of pre-tax monthly income.

A buyer with a 15-year, $250,000 loan at a 5.5% interest rate has a monthly principal and interest payment totaling $2,042.71. How many payments will the borrower make over the course of the loan? 15 180 240 360

180 The borrower will have 180 payments (assuming the loan isn't paid off early). This is 12 monthly payments per year for 15 years: 12 x 15 = 180.

What is the best-case scenario with a debt-to-income ratio? 100% debt-to-income 20% debt-to-income 60% debt-to-income 80% debt-to-income

20% debt-to-income Lower debt when compared to income is best.

Ben is purchasing a home and reviewing a loan amortization chart. If the home price is $330,000 and he's financing $300,000, once he finds the factor (number that intersects his interest rate and term on the amortization chart), what number does he multiply by that factor?

300 divide the amount he's financing by 1,000 = 300,000 divided by 1,000 = 300

What is a loan origination fee? A fee a lender charges for processing a loan A fee a lender charges for servicing a loan A fee a lender charges for the use of its money A fee a lender charges when a borrower pays off a loan

A fee a lender charges for PROCESSING a loan. NOT servicing the loan.

reverse annuity mortgage (RAM)

A loan that's offered based on a homeowner's equity in which funds are drawn over time and the bank gains corresponding property ownership is called a Reverse annuity mortgage(RAM) a loan in which property owners receive payments from the bank based on the equity in their home. Over time, the bank gains ownership of the property. This is a reverse annuity mortgage, where the lender makes payments to the homeowner for a specified period of time and gains collateral ownership. The home is used as collateral and the borrower receives the loan funds.

Blanket Mortgage

A mortgage which covers multiple pieces of real estate. Often used by a developer in the financing of undeveloped lots. Contains a partial release clause.

residential mortgage loan types

According to rules regulating mortgage loan originators, loans to purchase a residential property, refinance an existing residential real property loan, or a home equity line of credit are considered residential mortgage loans.

Down Payment/Amount to Be Financed

Amount of down payment + earnest money deposit + loan amount being assumed or obtained = sale price The down payment is calculated as a percentage of the sales price based on the lender-required loan-to-value ratio (LTV). Sales price - down payment - earnest money deposit = amount to be financed

Term or straight-term

Borrowers only pay interest for a set term and then pay off the loan in a lump sum or through another loan.

Assumption

Buyer does not originate a new loan but takes over payments and assumes personal liability on an existing loan. Lenders must permit assumption. It is documented when the buyer and seller both sign an assumption agreement. ex. When a buyer takes over the seller's original loan with the lender's permission, this is called ______. An assumption

The ______ tells the lender how much entitlement the veteran has available under the VA loan program. Certificate of eligibility Certificate of entitlement Funding entitlement certificate Loan guarantee eligibility calculation

Certificate of eligibility The COE is the final word on how much entitlement the veteran has available.

Fatima is using a VA loan to purchase a home from Sue. Sue agrees to pay Fatima's closing costs. Which of the following statements is true? Closing costs aren't considered a seller concession. Sue can increase the sale price of the property by the same amount she is paying for Fatima in closing costs. Sue is allowed to pay no more than 50% of Fatima's closing costs. This would be a seller concession, and would be included within a 4% limit on seller concessions.

Closing costs aren't considered a seller concession(something that you agree to give someone or allow them to do, especially in order to end an argument or disagreement) If the seller pays the buyer's closing costs, other than prepaid items or the funding fee, it isn't counted as seller concessions.

Package mortgage

Commonly used in commercial real estate where business assets are included as collateral, this mortgage includes personal property with the real property in the sale. ex. 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. Package mortgage A package mortgage is a mortgage in which personal property or business assets are included with the real property in the sale.

credit scores that each type of loans require

Conventional loans typically require credit scores of 620 and above. FHA borrowers must have a minimum credit score of 580 to qualify for a 3.5% down payment; borrowers with credit scores between 500 and 579 may have to put down as much as 10%. Borrowers with higher credit scores and other compensating factors, such as cash reserves or additional income sources, may qualify for higher front-end and back-end loan ratios.

Farmer Mac is an entity that ______ for agricultural property loans, rural utility loans, and certain loans guaranteed by the U. S. Department of Agriculture. Creates a secondary market Provides grants to lending institutions Provides insurance Reduces taxes

Creates a secondary market

With a VA loan, the certificate of reasonable value is used to ______. Determine the amount of entitlement the veteran borrower has available Determine the value of the loan that the VA will guarantee Negotiate with sellers when the buyer wants a lower sale price Restore entitlement for a veteran who has used the VA loan before

Determine the value of the loan that the VA will guarantee The CRV is used to determine a property's value, which dictates the value of the loan that the VA will guarantee.

Which of the following entities generally acts in the secondary market? Credit unions Fannie Mae Insurance companies Local banks

Fannie Mae Traditional secondary market players are national institutions, such as Fannie Mae, Freddie Mac, Ginnie Mae, and the Federal Home Loan Bank.

Regulation Z

Implements the Truth in Lending Act requiring credit institutions to inform borrowers of the true cost of obtaining credit. requires mortgage lenders to follow TILA disclosure requirements for real estate advertisements that include credit terms.

Brittany is a real estate licensee with a mortgage loan originator endorsement. When she acts as an MLO, the California Real Property Loan Law requires her to give her clients a disclosure that ______. Informs the prospective borrower about the terms of the loan being offered Makes the loan effective, without their signature She is acting as both a real estate licensee and an MLO The consumer has a right to approach a lender directly, without the aid of an MLO

Informs the prospective borrower about the terms of the loan being offered The Mortgage Loan Disclosure Statement informs the borrower about the terms of the loan being offered. The licensee must deliver this disclosure to the prospective borrower within three business days of receiving a loan application.

Adjustable-rate mortgages (ARMs)

Initially, most ARMs will offer a lower interest rate than a fixed-rate mortgage. This rate applies to the introductory period, before the first adjustment kicks in. The interest rate fluctuates based on the economic index. ARMs typically have a lower interest rate for an initial period of one to several years. ARM rates adjust based on an economic index rate the lender selects, such as London Interbank Offered Rate (LIBOR) or the treasury bills index.

To find a factor on an amortization chart, you need to know the length of the loan and the ______.

Interest rate

In California, how has state law modified the way the deed of trust works? If the lender forecloses, the buyer is given a statutory right of redemption, regardless of the foreclosure process chosen. It creates a lien on the property, and the borrower, not the trustee, holds legal title. Legal title to the property stays with the seller until the borrower has 50% equity in the property. The deed of trust may not include a power of sale clause.

It creates a lien on the property, and the borrower, not the trustee, holds legal title. California is a lien theory state, and state law has made the mortgage and the deed of trust functional equivalents.

loan points

Lenders charge loan points (aka loan origination fees) as compensation for processing a new mortgage loan. Origination fees are typically between 1% and 3% and typically can't be more than 3% of the loan value. These fees may be negotiable between the lender and borrower.

Closing Disclosure (CD)

Lenders must provide the Closing Disclosure (CD) at least three business days before closing. It provides final loan details, including the loan terms, projected monthly payments, fees, and other closing costs.

Loan Estimate (LE)

Lenders must provide the Loan Estimate (LE) to applicants within three business days of loan application. The Loan Estimate provides buyers with the costs they are likely to pay at settlement and discloses the mortgage loan specifics, such as its key features, costs, and risks.

lien theory states vs title theory states

Lien theory states- The borrower holds legal title to the property even during the term of the loan. This typically requires that the lender use a judicial foreclosure process if buyers fail to pay the mortgage loan. Title theory states- The trustee holds the legal title until the loan is repaid. The borrower has equitable title, which means having the right to obtain full title when the mortgage loan is paid in full. It also gives the borrower the right to possess (live on) the property. This typically means that the lender may use a non-judicial foreclosure process. A standard clause in the deed of trust is the power of sale, which gives the trustee the right to sell the property in case of default.

Which of these names is also known as the California Real Property Loan Law? California Finance Lenders Law California Residential Mortgage Loan Act Mortgage Loan Broker Law Mortgage Loan Origination Law

Mortgage Loan Broker Law The California Real Property Loan Law is also known as the Mortgage Loan Broker Law, the Necessitous Borrower Act, and Article VII of the Real Estate Law

Mortgage brokers vs Mortgage bankers

Mortgage brokers don't actually lend money; instead, they work with multiple lenders to search for and negotiate the best deal for a specific borrower's circumstances. Real estate licensees with an MLO endorsement are working as mortgage brokers. Mortgage bankers actually do the lending. Because they often have in-house loan processors and underwriters, they can close on mortgage loans fairly quickly, but their lending options are usually limited to their own suite of products.

Taylor Bank and Trust is a Federal Reserve Member bank. It has several employees who act as mortgage loan originators. With which entity do these employees need to register? Nationwide Mortgage Licensing System and Registry Office of the Inspector General State real estate commission or bureau U.S. Treasury

Nationwide Mortgage Licensing System and Registry Any person who acts as an MLO must obtain the endorsement and register with the Nationwide Mortgage Licensing System and Registry.

wrap-around mortgage

One that may involve seller financing A wrap-around mortgage is one where the buyer's new loan wraps around the seller's existing financing. The seller uses a portion of the buyer's payments to the seller to pay on the original loan. involves the seller's existing mortgage and a buyer's new mortgage. The new mortgage wraps around the existing mortgage, and the seller continues to make payments on the existing mortgage. The buyer makes payments to the seller that cover payments for both the existing and new mortgage loans. ex. Seller Jerome found financing that would include his current mortgage inside the buyer's mortgage. What type of mortgage is this? A wrap-around mortgage

TILA/RESPA Integrated (TRID) disclosures

RESPA requires that lenders provide written disclosures to help to make estimated and final settlement costs clear and fair to consumers.

Seth is purchasing a vacant piece of land, on which he'll build a new single-family home for his growing family. His real estate agent, Dani, is authorized to assist him with the loan he uses to buy the property because Dani has her MLO endorsement and this is a ______ loan. Conforming Construction Nonconforming Residential mortgage

Residential mortgage California law regulating the MLO endorsement for real estate licensees defines a residential mortgage loan to include loans used to purchase residential real estate upon which a dwelling will be built, or is intended to be built.

TRID

TRID disclosures apply to financed home purchases, most loan assumptions, refinances, home improvement loans, and HELOCs on one- to four-unit residential properties. Commercial and business loans are exempt from RESPA.

SAFE Act of 2008 & Nationwide Mortgage Licensing System and Registry (NMLS)

The SAFE Act of 2008 specifies requirements for residential mortgage loan originators (MLOs), requires states to set their own MLO requirements, and requires MLOs to register with the Nationwide Mortgage Licensing System and Registry (NMLS).

Conventional loans

The borrower usually pays at least 20% of the purchase price as a down payment, so the lender doesn't rely on a government entity (such as FHA or VA) to reduce the risk of loss. Many are conforming loans, meaning they meet the requirements of Fannie Mae or Freddie Mac and can be sold to one of these entities. A conventional mortgage that exceeds the dollar limit Fannie Mae and Freddie Mac set is called a non-conforming loan or a jumbo mortgage. This type of mortgage can be sold on the secondary market but isn't purchased by Fannie Mae or Freddie Mac.

purchase money mortgage

The buyer retains title to the property, but the seller takes a security interest for some or all of the purchase price. The buyer makes payments to the seller. Buyers may be able to combine a purchase money mortgage with a bank mortgage and the down payment.

Who is the trustee, trustor, and beneficiary

The deed of trust involves three parties: the borrower (trustor), the lender (beneficiary), and a neutral third party (trustee). The trustee holds title in the borrower's name until the loan is paid in full. When a deed of trust is used as a security instrument, The trustee holds the deed, and the lender holds the note.

Who holds the promissory note while it's being repaid? trustee or payee?

The payee The lender is the payee who holds the note while it's being repaid. If the note is transferred, the new owner becomes the payee and note holder.

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

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

collateral & hypothecation

The property is pledged as collateral. This type of pledge is called hypothecation.

The Farm Credit System funds are acquired from __________. Local lenders Mortgage-backed securities Private investors The sale of debt securities and international money markets

The sale of debt securities and international money markets

Which of the following statements is true about national lending intuitions? Mortgage-backed securities are offered by credit unions. They control the flow of the local money supply. They fund loans to borrowers. They sell packaged loans to investors.

They sell packaged loans to investors. National lending institutions package loans and sell them to investors. This creates additional funds to purchase more loans from the primary market.

Construction loan

This is used as temporary financing for construction. The loan is based on lender review of plans for improvement and an appraisal.

What's the purpose of a Loan Estimate document?

To detail the estimated closing costs for Lawrence's loan The Loan Estimate, which the lender must provide within three days of loan application, provides an estimate of mortgage loan costs.

Interest

a fee paid back to a lender for the use of its money. The amount of interest paid with each mortgage payment typically decreases over the life of the mortgage. Interest rates are stated as an annual percentage. Lenders lock in interest rates for a period of no more than 90 days. If the closing process takes more than 90 days, borrowers may face an interest rate change.

Balloon Payment

a final loan payment that is much larger than the regular monthly payments

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act)

a law enacted in the aftermath of the financial crisis of 2008-2009 that strengthened government oversight of financial markets and placed limitations on risky financial strategies such as heavy reliance on leverage

Annual percentage rate (APR)

a measure of both the interest rate and other fees associated with a mortgage loan.

Seller concessions

are closing costs the seller agrees to pay. They can make a home more affordable for the buyer, and they can help the seller close the deal.

Ginnie Mae

guarantees MBSs that contain only government-insured or -guaranteed loans (FHA and VA). Because these are considered riskier loans, investors are encouraged to purchase them from the secondary market because they're backed by Ginnie Mae's guarantee.

A buyer has a 30-year, $750,000 loan with a 5.75% interest rate. How much of the first monthly payment is interest?

read carefully. 'how much of the first monthly payment is interest?' multiply 750,000 to the interest 0.05675 = 43,125, then divide that by 12 = 3,593.75

Truth in Lending Act (TILA) of 1968

requires lenders to disclose credit terms and conditions when advertising triggers loan terms, so as not to mislead consumers. Trigger terms in ads that would require the full disclosure of all terms include down payment, payment amount, number of payments, and interest rate (other than APR).

Which of the following percentages is an allowable loan origination fee? 2% 4% 6% 8%

2%

subject to loan

A method of taking title to a property with a mortgage on it without becoming liable for the note payments. When property is sold subject to the existing loan, the agreement is between the seller and the buyer; the original borrower remains responsible for the debt, and the buyer makes payments to the seller

Bridge or swing loan

This temporary (usually 90-day) loan provides funds until permanent financing can be obtained.

Commercial banks

large national and smaller state and local banks that make consumer and business loans.

Savings and loan associations (aka thrifts)

specialize in using savings deposits as the source of loans.

Amortized loan

the process of paying an amount in installments over time. With an amortized loan, the monthly payment amount is the same each month. Each monthly payment is credited first toward monthly interest on the loan, with the remainder used to pay off a portion of the principal. Over time, the principal portion of the payment increases each month, while the portion going toward interest decreases. ex. To find a factor on an amortization chart, you need to know the interest rate and the ____________. Length of the loan The length (or term) of the loan and interest rate are needed to find the factor on an amortization chart.

VA-Guaranteed Loans

100% financing (meaning no down payment required), competitive rates, no pre-payment penalties, no mortgage insurance premiums (though there is a funding fee), and assistance for borrowers who have difficulty making their mortgage payments. owner occupancy. Certificate of eligibility (COE) determines eligibility and the amount of the entitlement. Applicants for a VA loan must use an approved lender. A VA-assigned appraiser provide a certificate of reasonable value (CRV) that qualifies the property and determines the amount of loan the VA will guarantee. guarantees up to a quarter of the loan limit amount should the buyer default; this minimizes risk for lenders to make up for the no-down-payment VA loan structure. Because the VA guarantees one-quarter of the loan amount, basic entitlement means that veterans throughout most of the country can borrow up to $417,000 without putting money down. Seller concessions on a VA loan may not exceed 4% of the sales price.

Buydown

Interest pre-payment at closing to temporarily reduce the interest rate, usually for a period of one to three years. With a buydown, the borrower pays a lump sum to the lender to buy down the interest rate, lowering their monthly payment. Borrowers may choose to pay discount points at closing to permanently reduce a loan's interest rate. A 3-2-1 buydown: A 3% interest rate reduction in year one, 2% in year two, and 1% in year three; the interest rate returns in full year four.

Underwriters also look at credit history, including several factors:

Length of time borrowers have maintained credit Length of time borrowers have maintained good credit Late payment history Available credit used Types of credit extended (banks, credit card companies, and mortgage loans).

In the secondary market, mortgages are grouped together and sold as ______. Collateral Equitable titles Leverage Mortgage-backed securities

Mortgage-backed securities Mortgages that are packaged together and sold on the secondary market, often to investors, are called mortgage-backed securities.

When using an amortization chart, you use the interest rate and the loan term to arrive at a number, such as 5.17808. Now what do you do? Divide the loan amount by the number. Divide the sales price by the number. Multiply the number of thousands in the loan by the number. Multiply the number of thousands in the sales price.

Multiply the number of thousands in the loan by the number.

Home equity loan

This loan is based on the equity in a home. It can be a first mortgage (if the home is fully owned) or a second mortgage. ex. With this common loan type, the home is used as collateral and the loan creates a second mortgage if the first mortgage hasn't been paid off. Home equity If the property is owned free and clear, the home equity loan is a first mortgage. Otherwise, it becomes a second, or junior, mortgage.

The purpose of the Seller Financing Disclosure Law is ______.

To ensure that all parties are educated about loan terms and about who will be compensated for arranging credit

What is the trustee's role when a deed of trust is used to secure property for a loan? To collect payments and service the loan To hold funds in escrow To hold legal title to the property on behalf of the beneficiary until the loan is repaid To hold the note to the property on behalf of the trustor until the loan is repaid

To hold legal title to the property on behalf of the beneficiary until the loan is repaid When a deed of trust is used in a title theory state, the trustee holds legal title to the property on behalf of the beneficiary.

cap rate

a limit on how much the interest rate can increase. The initial cap rate limits the amount that interest can adjust at the first adjustment. The periodic cap limits the amount that interest can adjust at each adjustment period. The lifetime cap limits the total amount of adjustment that can be made over the life of the loan, usually expressed as a percentage increase from the initial interest rate.

qualified mortgage

a loan category that has certain affordability features A qualified mortgage meets certain lending standards, allowing it to be resold on the secondary market. Certain loan attributes are prohibited, including: Interest-only loans or interest-only periods on a loan Negative amortization (periodic principal payments that aren't sufficient to completely amortize the loan by the end of the loan term) Balloon (lump sum) payments that are required at the end of a loan term to pay the loan off Loan terms of more than 30 years

Loan underwriters

analyze the borrower's credit, capacity, and collateral. They review loan documentation to determine the borrower's ability to repay the loan (capacity), ensure that the property value is adequate to support the loan (collateral), and verify the borrower's financial ratios (credit).

Government loans

are those provided by a lender but insured by the FHA or guaranteed by the VA. Some government loans are offered by another government entity, such as the U.S. Department of Agriculture (USDA).

Equal Credit Opportunity Act (ECOA) of 1974

prohibits lenders from making credit unavailable or offering less-favorable terms based on protected class status (race, color, religion, national origin, sex, marital status, or income source) vs. creditworthiness.

Predatory lending

unfair or abusive lending to buyers. Predatory lenders impose deceptive, coercive, and exploitative practices to take advantage of consumers to increase their debt while financing risky loans. A loan is considered predatory when it's more than 5% over the current market rate. An interest rate of up to 5% over the current market could be a legitimate loan for a high-risk situation, such as a subprime loan.

California Residential Mortgage Lending Act

requires licensing of companies that and individuals who make, service, and sell residential loans. It applies to mortgage bankers and brokers.

Because of the funding fee required for a VA loan, a borrower with no down payment funds saved should ______. Borrow the funds to pay the funding fee Roll the funding fee into the loan Take out two loans Wait until sufficient funds have been saved

Roll the funding fee into the loan

The VA appraiser completed the CRV and it is less than the sale price A buyer request to lower the sale price when the property is already under contract likely means that the VA appraiser has valued the home lower than the sale price, which puts the VA loan in jeopardy.

Bart is selling his home and has accepted an offer from a buyer, who's obtaining a VA loan. The sale price is agreed upon and is in the purchase contract. Then Bart receives a call from his agent, explaining that the buyer is hoping that Bart will lower the sale price because ______, and there is a risk the buyer will not be able to get the VA loan as a result. The closing costs are excessive for the VA loan The lender has reviewed the buyer's credit score, which is low The VA appraiser completed the CRV and it is less than the sale price The VA requests that buyers always try to get a sale price that is 5% lower than the asking price

FHA-INSURED Loans

created in 1934 to stabilize the mortgage market by standardizing credit and construction standards. insures lenders against loss in case of borrower default. FHA has been part of HUD since 1965. The FHA helped to stabilize/improve the mortgage market with the established a requirement for appraisers to be state licensed or certified in order to appraise property for an FHA loan, creating a higher standard for appraisals that reduces the risk for borrowers and lenders. The Home Equity Conversion Mortgage (HECM), insured by the FHA, is the most popular form of reverse mortgage available for seniors. Most consumers who use FHA financing will probably use the 203(b) program. Borrower qualification requirements for an FHA-insured loan are a total housing expense at or below 31% of gross monthly income and total debt obligation (including housing expense) of not more than 43%. Borrowers must have a credit score of at least 500 to obtain an FHA-insured loan, but a score of 620 or higher is preferable. FHA borrowers must pay a minimum down payment of 3.5%. A mortgage insurance premium (MIP) applies to all FHA loans for the life of the loan. It's paid as an upfront charge at closing, then as an annual premium until the loan is paid off or refinanced.

Fannie Mae and Freddie Mac

government-sponsored enterprises (GSEs), and, as corporations, are traded on major stock market exchanges as FNMA and FMCC. Fannie Mae and Freddie Mac purchase loans that conform to their lending standards, then package them as mortgage-backed securities (MBSs) and sell them to investors. Loans to be sold to the secondary mortgage market must conform to Fannie Mae and Freddie Mac standards related to borrower credit scores, down payments, and loan limits.Loans that either FNMA or FMCC will acquire may not exceed the existing conforming loan limit for the geographical area in which the property is located.

Subprime loans

legitimate loans offered to borrowers with credit ratings that don't meet the requirements for a conventional loan. These loans are offered with higher interest rates (up to 5% over the current market rate) to account for the lender's level of higher risk. ex. In the residential mortgage market, charging borrowers more than ______ over market rate for interest is considered a predatory lending practice. 5% Subprime loans can have interest rates 1% to 5% over the current market rate. Anything over 5% is an indication of predatory lending.

California civil code enacted in 1986

made the deed of trust and the mortgage instruments functionally equivalent in terms of creating a lien on the property being held as collateral. That makes it a lien theory state that uses the deed of trust as the typical security instrument. Under this law, the borrower holds both legal and equitable title during the term of the loan. The deed of trust gives lenders the right to use non-judicial foreclosure if the borrower defaults. Although lenders may choose to use a judicial foreclosure, California foreclosure laws allow the borrower a statutory right of redemption of up to one year if this method is used. Because California foreclosure laws allow a statutory right of redemption of up to one year with a judicial foreclosure.

promissory note

negotiable instruments. a written contract with a promise to pay a supplier a specific sum of money at a definite time. ex. 1 Who holds the promissory note while it's being repaid? The lender(payee) holds this note until it's repaid. ex. 2 What information is listed on the promissory note? Loan amount and schedule of repayment

USDA Farm Service Agency

offers direct loans to farmers and ranchers, funded through congressional appropriation. These loans are provided only to fund land purchases and improvements for farms and ranches.USDA Farm Service Agency-guaranteed loans provide agricultural lenders with a guarantee of up to 95% of the loss of principal and interest on a qualified loan.Applicants for USDA Farm Service Agency direct farm ownership loans must have participated in the day-to-day management of a farm or ranch for at least three years.The maximum loan amount for a USDA Farm Service Agency direct farm ownership loan is $300,000. no minimum loan amount and no down payment required.

CalVet

offers easier terms than most loan programs, including VA loans. CalVet funding program is available to most military personnel, including those who've been honorably discharged and are no longer actively serving. The property must be purchased for owner occupation and must be located in California. All CalVet borrowers must purchase homeowners insurance through CalVet itself CalVet borrowers under age 62 are required to buy life insurance. With a CalVet loan, CalVet holds legal title to the purchased property. The veteran holds equitable title to the property until the loan is paid off. CalVet borrowers may not lease or transfer ownership in their property without permission from the California Department of Veterans Affairs.

USDA Rural Development Program

offers loans, grants, and loan guarantees for housing (and other rural needs). ex. Sylvia is a single mother living in a small town surrounded by ranch and farm land. She would like to buy a house there, but her income level and her status as an independent contractor makes it hard for her to qualify for a conventional loan. What government program might provide her with a direct loan to purchase a home? USDA Rural Development Single Family Housing Program USDA's Single Family Housing Programs will make direct loans (as well as loan guarantees) to help low- and moderate-income rural Americans buy safe, affordable housing in rural areas.

private mortgage insurance (PMI)

on conventional loans when the down payment is less than 20% and the loan-to-value ratio is in excess of 80%. Loans with an LTV in excess of 80% don't conform to Fannie Mae/Freddie Mac guidelines, so lenders may require PMI to offset the risk. The automatic cancellation is 22%, but homeowners can petition for removal once their equity position reaches 20%. Lenders must terminate PMI when the principal balance is scheduled to reach 78% of the original property value or when the mortgage loan reaches its originally scheduled amortization midpoint.

California Housing Finance Agency

provides financing assistance for qualified low- and moderate-income homebuyers. The CalHFA lending program is available to owner-occupied purchasers of California properties. Under the CalHFA program, both the borrowers and the properties being purchased must qualify.