FINN 4433 Exam 1

5.41% (500/$9,250)

A $10,000 bond offers an interest rate of 5%, paying $500 each year . Assume that the bond is sold at a discount for $9,250. What is the yield?

Credit union

A ___________________ is a nonprofit, cooperative financial institution owned and run by its members.

Discount points

A charge that is itemized separately loan fees as a primary purpose to raise the yield?

London Interbank Offered Rate (LIBOR)

A daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London wholesale money market (or interbank lending market).

Deficiency judgement

A judgment made by a court against a debtor indicating that the sale on a foreclosed piece of property did not cover the outstanding mortgage in full

Portfolio

A lender that is making mortgage loans for its own investment is often referred to as __________________ a lender.

Loan to value ratio

A lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage. Ratio = Mortgage amount / Appraised value of property

Home equity line of credit (HELOC) (Home equity loan)

A loan in which the lender agrees to lend a maximum amount within an agreed period (called a term), where the collateral is the borrower's equity in his/her house (akin to a second mortgage). Because a home often is a consumer's most valuable asset, many homeowners use these loans only for major items, such as education, home improvements, or medical bills, and choose not to use them for day-to-day expenses.

Loan originator

A person seeking mortgage loan customers is called?

Mortgage Broker

A person who brings together the user of capital (borrower) and the supplier of capital (lender). For this service, a finder's fee is usually paid by the borrower.

Feudal System

A political and social system based on the granting of land in exchange for loyalty, military assistance, and other services

Discount

A portion of the loan amount taken by a lender as a cost for borrowed money.

collateral

A security pledged for the repayment of a loan.

Construction Loan

A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Allodial System

A system of land ownership in which land is held free and clear of any rent or service due to the government; commonly contrasted to the feudal system. Land is held under the allodial system in the United States.

Promissory note

An unconditional written promise of a person (or persons) to pay certain sum to another party.

Debenture Bond

An unsecured promise to repay.

C

Bonds are sold in the financial market by corporations for the purpose of: A. raising equity cash B. borrowing money C. providing additional brokerage fees D. generating greater income

Municipal Bond

Can be state or municipal and often tax free.

D

Categories of demand for money are all of the following except: A. government requirements B. consumer loans C. mortgage loans D. deposits in saving associations

Interest

Compensation for borrowed money is called?

D

Conforming security agreements such as a deed of trust or mortgage include a due-on-sale clause, and should a borrower sell the property subject to that security agreement the lender may take which of the following actions? A. Renegotiate the interest rate on the promissory note B. Accelerate the promissory note and require immediate repayment C. Agree and grant the assumption of the promissory note by the buyer D. All of the above

M1

Currency in circulation, nonbank travelers' checks, demand deposits in commercial banks, other checkable deposits at commercial banks and thrift institutions including credit union share drafts accounts.

A

Deposit-taking banks are required to hold a certain percentage of their deposit assets in a reserve account at the Federal Reserve Bank because____________ (choose the best option below). A. it makes those funds unavailable for lending purposes B. it ensures that banks have sufficient liquidity to meet a run on the bank C. it is a FDIC requirement D. it was called for in the Depository Institutions Regulatory Reform Act of 1980

Federal Housing Administration (FHA)

During the Great Depression the federal government took steps to encourage lenders to make mortgage loans. It accomplished this aim by creating what government agency to insure loans against default?

Federal Housing Finance Agency (FHFA)

Fannie Mae and Freddie Mac fall under the oversight of?

FDIC

Federal Deposit Insurance Corporation

mortgage points

Fees (one point equals 1 percent of the amount borrowed) charged by lenders at the time they grant a mortgage loan; they are related to the lender's supply of loanable funds and the demand for mortgages.

primary lender

Financial institution that makes mortgage loans directly to borrowers (e.g., savings association, bank).

Federal National Mortgage Association (Fannie Mae)

Founded in 1938, this corporation's purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities, allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on locally based savings and loan associations.

D

Freddie Mac and Fannie Mae are regulated by: A. OFHEO B. HUD C. FHLB D. FHFA

C

In the language of mortgage lending, the term POINTS or POINTS can best be described as which of the following? A. A credit scoring system used to determine loan risk B. A reference system used in Collateralized Debt Obligations C. The tax-deductible financing costs of a residential mortgage loan D. A loan fee that is illegal under the Truth-in-Lending Act

B

In title theory states a foreclosure that does not have to be approved by court action is referred to by which of the following terms? A. Judicial B. Nonjudicial C. Voluntary conveyance procedure D. Strict foreclose

Usury

Interest paid or received that exceeds state laws

Prime rate

Interest rate charged by a commercial bank to its most creditworthy customers.

Federal discount rate

Interest rate set by the Federal Reserve on loans offered to eligible commercial banks or other depository institutions as a measure to reduce liquidity problems and the pressures of reserve requirements.

B

Long before coin or currency came into use, _______________________________ (finish with best phrase below). A. humans began to use base metal pieces as coins B. bartering was the only method of exchange C. trade didn't exist D. none of the above

Permanent Loan

Long-term loan that finances the acquisition of real property or refinances a construction loan on improvements

M2

M1 + savings and small-denomination time deposits at all commercial banks and thrift institutions, retail money funds, and institutional money funds.

M3

M2 + large-denomination time deposits at all depository institutions, term Eurodollars, term repurchase agreements at commercial banks and savings associations, and balances of institutional money market mutual funds.

MZM

M3 + other liquid assets such as all other money market funds that can be redeemable at par on demand.

C

Mortgage banking includes all of the following except: A. the origination of loans secured by residential real estate B. the sale of mortgage loans C. the title insurance on mortgages D. the servicing of mortgage loans

C

Of the following, the more precise description of a share of stock is: A. an indication of an obligation B. a form of unsecured debt C. an evidence of ownership D. a kind of security

C

Of the following, which can be the best indicator of mortgage interest rates? A. The discount rate of interest B. Fannie Mae/Freddie Mac-administered yield requirements C. The results of weekly Treasury bill offerings D. Reports made by the Farm Credit System

Mortgage broker

Person specializing in serving as an intermediary between the customer/ borrower and the client/lender. They are capable of handling all arrangements for the processing of the loan but normally do no funding and do not service the loan. They earn a portion of the normal origination fee plus an application fee.

C

Real Estate Investment Trusts have all the following characteristics except: A. they pass through income to their owners without it being taxed B. they are corporations C. they are partnerships D. they must be owned by 100 or more investors

C

Real Estate Mortgage Investment Conduits have a unique structure that allows them to pass on untaxed income to investors, and typically use which of the following securitization types? A. Participation Certificates B. Fannie Mae bonds C. Collateralized Mortgage Obligations D. Ginnie Mae II MBS

Mortgage-Backed Bond

Secured by a large pool of mortgage loans.

Utility Bond

Secured by a pledge of assets of a state-regulated utility.

Mortgage Bond

Secured by a pledge of real estate.

Equipment Bond

Secured by assets like railroad cars or airplanes.

Mortgage

Security interest gives the _________________ the right to bring about a sale of a loan if there is default.

U.S. Treasury Security Rates

Shorter-term (one- to five-year) rates that have become more important as an indicator of mortgage rates. Not only do they accurately reflect the shorter-term money market rates that affect mortgage money, but they are also being used as a major index for setting ARM loan interest rates.

Usury laws

State laws limiting the amount of interest that may be charged on different kinds of loans and to various categories of borrowers.

Points

Term for one percent (1%) of the loan amount

Mortgage-lenders, bankers

The "primary market" is made up of these two groups, which generally conduct mortgage-lending transactions?

D

The FHA is regulated by which of the following? A. Federal Housing Finance Agency B. First Housing Administration C. Farmers Home Administration D. Department of Housing and Urban Development

A

The Farm Credit System consists primarily of: A. a cooperative network of farm lending banks B. the Rural Development Service of the Department of Agriculture and related agencies C. only the federal land bank association D. the government agency that underwrites all qualifying farm loans

Money supply

The Federal Reserve System measures monetary aggregates each week to keep track of the growth or decline in the ___________?

B

The Originate-to-Distribute model of residential mortgage loan production has allowed originators to make loans without much consideration of risk of loss, creating a moral hazard revealed in the recent mortgage crisis. It was primarily driven by the development of which of the following secondary market tools? A. Ginnie Mae MBS B. Private Mortgage Conduits C. Freddie Mac Participation Certificates D. Real Estate Investment Trust Bonds

B

The Rural Housing Development Service offers all of the following mortgage loan products except: A. direct loans that cam be made up to 100% of the appraised value of a house for a maximum term of 33 years B. loans to migrant workers to purchase mobile homes that can be permanently attached to a property C. guaranteed loan programs, in which applicants may have income of up to 15% of the median income for the area D. loans for the development and construction of waste disposal plants

C

The allodial system of land ownership that forms the basis of ownership in the U.S. is best described as the: A. right to occupy and use land owned by a superior B. right of a democratic government to control how land is used C. ownership of land is free and absolute subject only to governmental and voluntary restrictions D. origin and development of community property laws

Home equity line of credit (HELOC) (Home equity loan)

The following are benefits of what type of loan? - beneficial to real estate investors - enable quick access to cash - tax deductible

full-service facility

The following make up what primary mortgage banker distinction? (1) originating the mortgage loan (2) funding the loan at closing (3) servicing the loan as it is paid off

B

The following three GSEs facilitate the workings of the secondary mortgage market by providing a network for the purchase, sale, and guarantee of existing mortgages and mortgage pools. A. GNMA, FmHA, and FHLMC B. FNMA, GNMA, and FHLMC C. FHLMC, FNMA, and VA D. FHA, FNMA, and GNMA

Federal funds rate

The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight. Bank-to-bank loans

B

The method that the FDIC uses to pay off insured depositors when dealing with the insolvency of a bank is to: A. pay the owners of the bank for the losses they would otherwise face B. pay off the depositors up to the current $250,000 limit, so it is possible that some depositors will suffer losses C. pay off all depositors for the balances in their accounts, so no depositors suffers a loss, though the owners of the bank may suffer losses D. take all of the assets of the bank, sell them and pay off the liabilities of the bank in full, and then replenish the fund with any remaining balance.

D.

The mortgage crisis that started in late 2007 has caused a shift in the emphasis in the primary loan origination from subprime to which of the following loan types? A. Veterans Administration Mortgage Loans B. Conventional Conforming Mortgage Loans C. Alternate - A Mortgage Loan D. Federal Housing Administration Mortgage Loans

default

The nonperformance of a duty, whether arising under a contract or otherwise; failure to meet an obligation when due.

Hypothecation

The pledge as protection for a lender is called?

Statutory redemption

The right of a mortgagor to redeem his or her property from default

B

The role of mortgage brokers is diminishing, and yet there is a distinction between mortgage bankers and brokers; a full service mortgage banker is capable of all of the following except: A. originating or negotiating a loan B. holding a whole loan in portfolio C. servicing a loan until payoff D. funding a loan closing

B

There are many reasons banks are regulated. The Federal Reserve Bank's main reason for regulating banks is best summarized by which of the following? A. To protect the safety of the public's savings B. To control the supply of money and credit C. To ensure equal opportunity and fairness in the public's access to credit D. To avoid concentration of power in the hands of a few individuals and institutions E. To provide the government with credit, tax revenues, and other services

Promissory note

This is normally executed contemporaneously with a mortgage and creates the obligation of repayment.

Government Bond

Unsecured loan to the federal government.

Savings Institutions, Commercial Banks, Credit Unions, Life Insurance Companies

What are the four regulated primary market lenders?

Government, Corporations, Home buyers, Consumers

What are the four sources/demands of credit?

Residential, Apartment, Commercial, Farm

What are the four types of mortgage loans?

17%

What is the Arkansas Usury law limit?

Sale of mortgage-backed securities

What is the major source of money funding residential mortgage loans today?

Divorce

What is the number one reason for foreclosure?

full-service facility

What is the primary difference between a mortgage broker and mortgage banker?

B

What is the primary reason for mortgage security agreements to be recorded with the country government where the real estate pledged as security located? A. For disclosure of who holds the ownership interest in the mortgage on a piece of property B. To provide a public record of who holds an interest in a piece of property C. To provide the county tax assessor with key valuation information D. To provide data required by the Home Mortgage Disclosure Act

B

What is the primary reason that mortgage loans are ideal investments for life insurance companies? A. They are a state-regulated rather than federally regulated industry and do not have the same reserve requirements B. Their primary product, life insurance, produces excess cash that must be invested to cover reserves that do not have to be paid for longer periods of time C. They want AAA securities as a primary investment and the majority of mortgage-backed securities are AAA rated D. They can craft their residential mortgage loan terms more in their favor because they do not have to follow the same banking regulations for consumer disclosure

Mortgage securitization

What is the process of creating mortgage-backed securities called?

Allodial

What system of land ownership stated that land ownership was absolute and was used by the Romans and still by the US?

Feudal

What system of land ownership stated that the right to occupy and use any land was limited by the approval of one's social superiors?

escrow account

When a portion of a mortgagor's monthly payment goes towards property taxes and insurance it will be held in a/an ___________________.

maker

When defining the parties to a formal promissory note, the borrower is referred to as the ________________.

B

When the Federal Reserve sells a government bond on the open market: A. reserves in the banking system increase and the economy will speed up B. reserves in the banking system decline and the economy will slow down C. Federal Reserve liabilities remain unchanged D. both A and B occur

federal agencies that underwrite loans

Where does most of the money available for mortgage lending come from?

C

Which of the following are debt instruments that are issued using a pool of mortgages for security? A. Commercial mortgage-backed bonds B. Mortgage Passy-Through-Bonds C. Collateralized Mortgage Obligations D. PO Strip securities

C

Which of the following best describes a conforming mortgage loan? A. A mortgage presented to potential mortgagors who do not meet the underwriting standards of Fannie Mae or Freddie Mac B. A loan in excess of $417,000 on a single-family residence that must be underwritten as a "jumbo mortgage" C. A mortgage that follows the underwriting criteria set by Fannie Mae and Freddie Mac for loans they purchase and place in their standard MBS D. A mortgage that meets the standard loan criteria for Ginnie Mae MBS

C

Which of the following best describes how mortgages and deeds of trust are used? A. Mortgages are used to create a security agreement related to owner-occupied property, and deeds of trust are used in connection with commercial income producing real property B. Each represents an internal unique clause within a security agreement covering real property, and both must be present for the security interest to be valid C. They are two different legal documents that allow a lender to perfect a security interest in the real property of the borrower D. They are two names for the same recordable security agreement, and thus can be used interchangeably.

D

Which of the following is NOT a principal type of real estate trust? A. Hybrid B. Mortgage C. Equity D. Leveraged

B

Which of the following is NOT one of the 4 tools the Fed uses to influence the economy? A. Controlling the amount of money in circulation B. Setting a national interest rate that all banks must use when making loans C. Adjusting the amount of funds available within the commercial banking network through its "open market operations" D. Signaling interest rate movements through changes in its discount rate or in the federal funds rate E. Setting cash reserve requirements for depository institutions

D

Which of the following is a bank regulatory agency? A. Comptroller of the Currency B. Federal Reserve System C. Federal Deposit Insurance Corporation D. All of the above

C

Which of the following is not a typical function of a loan servicing department of a mortgage bank? A. Collecting mortgage payments B. Establishing escrow accounts for taxes and insurance payments C. Issuing participation certificates to MBS pools for loans being serviced D. Producing delinquency reports for investors

C

Which of the following is not one of the four procedures that financial institutions covered by the CRA must implement? A. List types of credit offered by the institution B. Issue to the public a report on efforts to meet community needs. C. List loan policies with lower credit criteria to help lower-income areas D. Define the area they serve, which is the neighborhood from which they draw their deposits and into which they make loans

C

Which of the following is not one of the most common options available to mortgage lenders for the placement of mortgage loans they have originated? A. Selling to GSEs like FNMA B. Selling whole loans to pension funds C. Selling parts of loans to consumers in a local area D. Directly issuing mortgage-backed securities

D

Which of the following is not one of the reasons that tax-exempt bond-supported financing of residential mortgages developed? A. The tax-exempt status from Federal Income Taxes allows participating lenders to offer lower interest rates generally than the conventional mortgage market. B. The existence of state and federal support for first-time and moderate-income borrowers. C. It provides a way to make direct loans to lower income families D. Such financing has typically been easier to issue than conventional MBS

A

Which of the following is not true regarding the purpose and operations of Ginnie Mae? A. It will commit to purchasing pools of FHA, VA, RHS, and state-authorized mortgage loans as part of its MBS commitments B. It will implement special assistance for housing as may be required by Congress or the president C. It issues guarantee certificates, which are backed by specific loan pools D. It issues commitments backed by the full faith and credit of the United States

D

Which of the following lenders is not exempt from most mortgage-lending regulation by the Federal Reserve, Comptroller of the Currency, and state banking and savings and loan regulators? A. Home builders B. Pension funds C. Private finance companies D. Insurance companies

B

Which of the following might be deemed a disadvantage for a home buyer who enters into a contract for deed agreements? A. If a buyer defaults or becomes bankrupt there could be a problem of clearing title, which might be costly B. Liens that arise against the seller could cloud the title C. IRS amounts owed by the buyer would allow a lien to be placed in the property purchased under the contract D. A contract for deed is subject to contract law, which offers differing interpretations

D

Which of the following might not be a good local source for alternative funding of a residential mortgage loan? A. A local foundation B. A state down payment assistance program C. A title company D. A hard money lender

C

Which of the following minimum standards does an individual considering becoming a licensed mortgage broker under the SAFE Act not have to meet? A. Pass a criminal background check B. Pass a National Licensing Exam C. Provide evidence of working as a mortgage loan officer for three years D. Provide evidence of satisfactory net worth or a surety bond

B

Which of the following would be a quick resource most lenders would use to locate an appropriate security agreement for use in their state for a loan closing? A. The Secretary of State of the state in which the property is located B. The Fannie Mae business-to-business website C. The local attorney used to do loan closings D. The County Clerk's office

D

Which recent Federal law meant to protect consumer rights on consumer credit failed to address the issue of usury? A. National Bank Act B. Alternative Mortgage Transaction Parity Act C. Truth-in-Lending Act D. Dodd-Frank Wall Street Reform and Consumer Protection Act

Federal Reserve System

Who carries out U.S. monetary policy?

C

Who or what is referred to when a mortgage banker establishes a line of credit with a commercial bank? A. Mortgage broker B. Correspondent C. Warehouse loan D. Investor

competitive market

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

bond

loaning money

secondary loans

loans that include or are subordinate to other loans

average rate on 30 year mortgage

look up

15 year fixed rate mortgage

lower interest rate, but higher monthly payments

30 year fixed rate mortgage

one of the most popular mortgages. fixed interest rate and lower monthly payments. but youll pay more interest over the life of the loan. and youll build equity more slowly.

In-house loan

originator holds onto the loan

stock

owning shares in a corporation

the higher the risk the higher the yield must be,

the longer the term, the higher the yield required.

prime rate

the lowest rate of interest at which money may be borrowed commercially.