Lesson 10: Principals of Real Estate Financing: Pop Quiz
Which of the following entities would participate in the primary market for mortgage lending? A.Commercial bank B.Federal Home Loan Mortgage Corporation C.Federal Housing Administration D.Federal National Mortgage Association
A.Commercial bank Commercial banks, savings and loans, mortgage companies, and other entities that make loans to consumers are all part of the primary mortgage market. The Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae) are part of the secondary market instead.
Ernest purchased a home using a term mortgage. Which of the following is true? A.Ernest must pay the entire loan principal at the end of the term B.Ernest must pay all of the loan's interest at the end of the term C.Ernest's loan will be fully amortized over the loan's term D.State laws limit the term of Ernest's loan
A.Ernest must pay the entire loan principal at the end of the term In a term mortgage (also called a term loan), the borrower makes monthly interest payments, and must pay the entire principal balance at the end of the loan's term.
The Westerfields financed their home through ABC Mortgage Company, which plans to sell the loan to a secondary market entity. Of the following, which is likely to end up purchasing the Westerfields' mortgage from ABC Mortgage Company? A.Fannie Mae, Ginnie Mae, or Freddie Mac B.The Federal Housing Administration C.A savings and loan, commercial bank, or mutual savings bank D.The Federal Reserve Board
A.Fannie Mae, Ginnie Mae, or Freddie Mac Fannie Mae, Ginnie Mae, and Freddie Mac are all secondary market entities.
After you pay a mortgage loan off, what is the most important thing you should do? A.Record the satisfaction of mortgage (or deed of reconveyance) B.Set up escrow to pay future property taxes C.Be sure to sign the satisfaction of mortgage D.Keep the note and other canceled papers in a safe place
A.Record the satisfaction of mortgage (or deed of reconveyance) When you receive a satisfaction of mortgage or deed of reconveyance after paying off your loan, you should record the document so the paid-off loan no longer appears as a lien against your property.
Sheila lives in a state where she can pay the debt after a foreclosure sale and regain the property. What is her right called? A.Statutory right of redemption B.Title redemption C.Debt redemption D.Equitable right of redemption
A.Statutory right of redemption The right to redeem the property within a certain time period following the sale is the statutory right of redemption. The right to redeem the property prior to the foreclosure (sheriff's sale) is the equitable right of redemption.
A loan's interest is best defined as: A.a charge paid by a borrower in exchange for use of the lender's money B.a penalty assessed against a borrower's debt C.a surcharge that increases a lender's yield D.compensation for the lender's potential loss
A.a charge paid by a borrower in exchange for use of the lender's money Interest is charged to a borrower as compensation for the lender, in exchange for the lender allowing the borrower to borrow money.
A mortgage must include a power of sale clause in order to be foreclosed by: A.advertisement (nonjudicial foreclosure) B.judicial foreclosure C.a writ of satisfaction D.lis pendens
A.advertisement (nonjudicial foreclosure) A mortgage or deed of trust that contains a power of sale clause can be foreclosed nonjudicially (referred to in some states as foreclosure by advertisement).
The mortgagee assigns its interest and the assignee records the assignment. The mortgagor now needs to make payments to the: A.assignee B.assignor C.beneficiary D.mortgagee
A.assignee A mortgagee (lender) can assign the mortgage debt to a third party, who is then referred to as the assignee. After the assignment the mortgagor (the borrower) is required to make the payments to the assignee.
A mortgage that would be used to purchase more than one parcel of land is a: A.blanket mortgage B.budget mortgage C.closed mortgage D.package mortgage
A.blanket mortgage A blanket mortgage is often used by subdividers. It is secured by a number of parcels, with each parcel released from the blanket lien as it is sold.
Many home purchase loans require the borrower to set up an escrow account for taxes and insurance. These are: A.budget mortgages B.blanket mortgages C.participation mortgages D.third mortgages
A.budget mortgages Many ordinary home purchase loans are budget mortgages. The lender requires the buyer/borrower to pay a share of the property taxes and hazard insurance each month, along with the principal and interest payment on the loan.
A mortgage, and the associated mortgage note, are both examples of: A.contracts B.deeds C.non-negotiable instruments D.option agreements
A.contracts A security instrument (such as a mortgage) and a promissory note are both contracts between borrower and lender. The promissory note is a promise to repay money, and the mortgage pledges the subject property as security for the loan.
Brenda must choose between a mortgage or deed of trust to finance the purchase of her house. A mortgage and deed of trust are both: A.security instruments B.debt-transfer documents C.required by the mortgagor to secure its interest D.nonnegotiable
A.security instruments A mortgage and deed of trust are security documents used by the lender (or mortgagee, in the case of a mortgage) to secure its interest in the borrower's property.
Vacant Land Financing Co. has first lien position on the property, but it agrees to move into a second lien position in exchange for a fee. This is: A.subordination B.subrogation C.subprime lending D.fraud
A.subordination Subordination is the process of giving up higher lien status and accepting a lower lien status.
Which of the following clauses relates to a mortgage loan default and requires immediate payment of the debt? A.Subordination clause B.Acceleration clause C.Writ clause D.Safety clause
B.Acceleration clause An acceleration clause allows the lender to accelerate the loan (demanding immediate payment of the entire amount owed) if the borrower fails to pay as agreed or defaults on any other aspect of the loan agreement.
Upon full payment by the mortgagor, the mortgagee must execute a satisfaction of mortgage, as required by which mortgage clause? A.Alienation B.Defeasance C.Acceleration D.Power of sale
B.Defeasance The defeasance clause states that the borrower will regain title and the security instrument will be canceled when the debt has been paid.
A borrower defaults on a mortgage. What does the acceleration clause in the mortgage allow the lender to do? A.Compel the borrower to sell the property and repay the debt B.Demand immediate payment of the entire loan balance C.Prevent the borrower from selling the property D.Report the borrower to a collection agency
B.Demand immediate payment of the entire loan balance An acceleration clause allows a lender to "call" a loan, or demand the repayment of the entire loan balance, in the event of a borrower's default.
Morgan is buying a new home, and she needs to obtain a mortgage loan. She could apply to all of the following except: A.a mortgage broker B.Ginnie Mae C.a savings and loan association D.a commercial bank
B.Ginnie Mae Ginnie Mae, Fannie Mae, and Freddie Mac are part of the secondary market for mortgage loans; they do not make loans directly to home buyers.
Which of the following would not create a cloud on the title? A.Lis pendens B.Mortgage release C.Undisclosed lien D.Forged document
B.Mortgage release A mortgage release (satisfaction of mortgage) is a document given by the lender to the borrower after the final loan payment has been made. The mortgage will remain a cloud on the borrower's title until the release has been recorded.
A mortgagee forecloses on a property, and the proceeds from the foreclosure sale do not cover the costs of foreclosure. What can the mortgagee do? A.File for equity of redemption B.Obtain a deficiency judgment C.Petition the trustee for relief D.File a subordination agreement
B.Obtain a deficiency judgment If the proceeds of a mortgage foreclosure sale are not sufficient to pay off the mortgagee's (lender's) lien, the mortgagee may be permitted to sue the foreclosed owner (the mortgagor) for the deficiency.
A contract for deed wouldn't be a good idea if the seller's mortgage has a/an: A.acceleration clause B.alienation clause C.defeasance clause D.subordination clause
B.alienation clause An alienation clause gives the lender the right to accelerate the loan whenever the borrower sells the property or otherwise alienates an interest in it. A contract for deed (or land contract) transfers equitable title to the buyer, so execution of the contract would allow the lender to accelerate the seller's mortgage, demanding immediate payment in full. Thus, a contract for deed would be ill-advised unless the seller has enough money to pay off the mortgage at closing.
Mortgage interest rates are primarily influenced by the: A.assessed value of the property B.condition of the money market C.credit history of the borrower D.value of similar mortgaged properties in the area
B.condition of the money market Mortgage interest rates are primarily influenced by the supply of and demand for funds in the money market. This is determined by many factors, including actions taken by the Federal Reserve.
Legal title may be conveyed by all of the following, except: A.a deed of trust B.equitable title C.a warranty deed D.a bargain and sale deed
B.equitable title Equitable title offers some rights to the holder, but does not convey legal title to a property.
Ginnie Mae (Government National Mortgage Association) and Fannie Mae (Federal National Mortgage Association): A.are primary lenders B.help make up the secondary market for mortgage loans C.are both owned solely by the government D.are private agencies
B.help make up the secondary market for mortgage loans Ginnie Mae and Fannie Mae are major players in the secondary market; Fannie Mae is privately held, although heavily supervised by the government.
Sally lives in a title theory state. This means that the: A.mortgagor has a lien against her property B.mortgagee takes title to the mortgaged property C.mortgagor takes title to the property D.mortgagor cannot foreclose on the property
B.mortgagee takes title to the mortgaged property In a title theory state, the mortgagee (the lender) technically takes title to the security property.
When a mortgagor regains property after foreclosure by paying whatever the foreclosure sale purchaser paid for the property, plus interest and expenses, it is called: A.recapture B.redemption C.reversion D.replevin
B.redemption The equitable right of redemption is the right of a mortgagor to redeem property prior to the foreclosure sale. The statutory right of redemption is the right of a mortgagor to get his property back after a foreclosure sale.
Mike's loan requires payment of only interest during the loan term, followed by a payment of all the principal at the end of the loan. Mike probably has a/an: A.installment loan B.term loan C.amortized loan D.flexible interest loan
B.term loan A term loan is an interest-only loan. At the conclusion of the loan term, a balloon payment in the amount of the unpaid principal is required.
ABC Lending Company holds title to Peter's mortgaged land. Peter lives in a: A.lien-theory state B.title-theory state C.dower state D.debt modification state
B.title-theory state In some states, known as title-theory states, the execution of a mortgage or deed of trust is still regarded as a transfer of legal title to the lender or trustee.
What is a final mortgage payment that is larger than all of the other payments called? A.Advanced B.Amortized C.Balloon D.Expanded
C.Balloon A balloon payment is required if, at the end of a loan term, the borrower has not paid off the loan balance. Usually the payment will be much larger than any of the mortgage's regular payments.
A real estate mortgage loan's repayment plan is based on a 30-year amortization schedule, but it calls for full payment by the loan's tenth anniversary. What kind of loan is it? A.Term mortgage B.Graduated payment mortgage C.Balloon payment mortgage D.Fully amortized mortgage
C.Balloon payment mortgage The payments are structured for full payment over 30 years to keep the monthly payments down. The ten-year due date requires a balloon payment.
A federal agency is charged with the tasks of regulating reserve requirements and setting the discount rate of interest. This is the: A.Federal Housing Administration B.Federal Trade Association C.Federal Reserve D.Federal Deposit and Insurance Corporation
C.Federal Reserve The Federal Reserve is responsible for all of these tasks.
Joan is assuming Eric's mortgage. Which statement is true? A.Eric will still be primarily liable if Joan defaults on the assumed mortgage B.Joan can only assume the mortgage if it contains an alienation clause C.Joan will be primarily liable for the debt, while Eric becomes secondarily liable D.Eric will not be responsible if Joan defaults
C.Joan will be primarily liable for the debt, while Eric becomes secondarily liable In an assumption, the buyer takes on primary responsibility for the debt, and the original borrower retains secondary responsibility in case the buyer defaults.
Paul would like to make an offer on a house right away, but he doesn't have the cash available for an earnest money deposit yet. He is, however, expecting a large commission check from his sales job within several weeks, so he offers the seller a promissory note for $10,000 as the earnest money deposit. He will also be seeking conventional financing to pay for the rest of the home's price. Will the promissory note be tied to the buyer's mortgage? A.Yes, the institutional lender will require both promissory notes to be collateralized B.Yes, the promissory note is not valid unless it has been collateralized C.No, the promissory note is a promise to pay a debt and is a contract on its own D.Not relevant, because a promissory note may never be used as earnest money
C.No, the promissory note is a promise to pay a debt and is a contract on its own It is acceptable, though not always wise, to use a promissory note in place of earnest money. A promissory note is a complete contract and never needs to be tied to a mortgage or deed of trust, although institutional loans will always be collateralized with a mortgage or deed of trust.
Sarita bought a home. She had poor credit, so the owner agreed to finance the purchase. The parties agreed to a 20-year loan term. Sarita took title to the property, and the seller held a lien against the property. What type of financing instrument was used? A.Option to buy B.Land contract C.Purchase money mortgage D.Open mortgage
C.Purchase money mortgage A purchase money mortgage is one given by the buyer to the seller to secure credit extended by the seller. (Since the question mentions a loan and also that the buyer took title, the parties' arrangement could not be a land contract.)
Where can a lender sell one of its loans? A.Primary market B.Mortgage market C.Secondary market D.The Fed market
C.Secondary market Primary lenders such as banks can sell their loans on the secondary market.
All of the following are true about the Federal Reserve except: A.When the Fed decreases reserve requirements the money supply grows, causing interest rates to fall B.When the Fed increases reserve requirements the money supply shrinks, causing interest rates to rise C.The Fed doesn't set reserve requirements D.Reserve requirements help control the oversupply and undersupply of money in an effort to fight inflation and recession
C.The Fed doesn't set reserve requirements The Federal Reserve sets reserve requirements for banks and other depository institutions in an effort to combat inflation and recession through control of the money supply.
Which of the following would MOST LIKELY happen in a land contract? A.The vendor pays the property taxes, insurance, repairs, and upkeep on the property until the final payment is made B.The vendor finances the property and makes installment payments C.The vendor retains the title to the property until the final payment is made D.The vendee receives possession and the vendor retains equitable title
C.The vendor retains the title to the property until the final payment is made The vendor (seller) retains legal (not equitable) title to the property until the final payment is made. The vendee (buyer) receives possession and equitable title while making installment payments. The vendee is also usually responsible for property taxes, insurance, repairs, and upkeep during the contract term.
As a result of Federal Reserve action, interest rates for residential loans go down. Which of the following is most likely to occur as a result? A.Fewer buyers will qualify for loans B.There will be a decrease in sale prices for homes C.There will be an increase in sale prices for homes D.There will be more homes for sale
C.There will be an increase in sale prices for homes Home sales prices are likely to go up in the event of lower interest rates. Lower interest rates will enable more buyers to get more house for their money, motivating more buyers and increasing demand, which will in turn drive up sales prices.
Traditionally, the main difference between a mortgage and a deed of trust was that: A.a mortgage is a security instrument, a deed of trust is not B.a mortgage can be foreclosed upon, a deed of trust cannot C.a deed of trust transferred title, while a mortgage only created a lien D.None of the above
C.a deed of trust transferred title, while a mortgage only created a lien Traditionally, a deed of trust purported to convey legal title to the trustee. Now in lien theory states like Washington, both deeds of trust and mortgages only create a lien against the property.
A developer wants a construction loan to build 20 homes. The lender requires a take-out commitment. This means the developer needs: A.a clause that allows individual lots to be released from the blanket lien when they are sold to purchasers B.a new mortgage that wraps around an existing first mortgage C.a permanent lender who will provide financing once construction is completed D.an interim contract guaranteeing that the property will be finished by certain date
C.a permanent lender who will provide financing once construction is completed Construction loans are interim loans used to finance construction of improvements. The construction loan is replaced by a permanent loan, sometimes called a take-out loan, when construction is complete.
Interest rates are high and the Martins want to transfer their property to their grandson at the low rate they currently enjoy. Their loan balance is $125,000. The property can be transferred if the loan does NOT contain a/an: A.defeasance clause B.acceleration clause C.alienation clause D.quiet enjoyment clause
C.alienation clause An alienation clause requires the repayment of the entire loan balance in the event of the sale of the property. This serves to protect the lender's security position, as it prevents assumption of an unprofitable loan or assumption by an unqualified buyer.
A developer places a mortgage on 40 acres of property and begins building a housing development. Whenever he sells a lot to a purchaser, a partial release is obtained for the lot the buyer purchased. This type of mortgage is a/an: A.package mortgage B.net-equity mortgage C.blanket mortgage D.closed mortgage
C.blanket mortgage Blanket mortgages and trust deeds frequently contain release clauses that permit the release of portions of the secured property on payment of a predetermined portion of the debt.
Once a contract for deed is signed by the parties, the buyer immediately receives: A.a life estate B.legal title C.equitable title D.the right to lease the property
C.equitable title A buyer receives equitable title to the property once the land contract (or contract for deed) has been signed. The seller retains legal title. The seller transfers legal title once the buyer finishes paying off the contract/purchase price.
Anna takes out a loan to purchase real estate by signing a note and a mortgage. Anna is the: A.beneficiary B.trustee C.mortgagor D.mortgagee
C.mortgagor A mortgagor (the borrower) gives the mortgage to the mortgagee (the lender).
A mortgage that uses both real and personal property to secure the borrower's debt is a: A.reverse equity mortgage B.budget mortgage C.package mortgage D.deed of trust
C.package mortgage A package mortgage includes both real and personal property as collateral.
Buyer Perry would like to assume Seller Joan's loan with ABC Mortgage Company, in a way that would mean no further liability for Joan. To accomplish this, Perry and Joan should use a/an: A.acknowledgment of the agreement from ABC Mortgage B.purchase contract signed by the buyer and seller C.release of liability signed by ABC Mortgage D.release of liability signed by Joan
C.release of liability signed by ABC Mortgage In a loan assumption, if the seller wants to be released from further liability, she must obtain a document called a release of liability from the lender.
The government created the Federal Home Loan Mortgage Corporation, Freddie Mac, to help: A.the Department of Housing and Urban Development (HUD) B.the Federal Housing Administration (FHA) C.savings and loan associations D.commercial banks
C.savings and loan associations Freddie Mac was created in the 1970s to buy mortgages, mainly from savings and loans.
The main difference between an open-end mortgage and an open mortgage is that an open-end mortgage allows: A.a variable interest rate B.prepayment C.some additional borrowing under the original security agreement D.Nothing; there is no difference
C.some additional borrowing under the original security agreement An open-end mortgage allows the borrower to obtain additional money under the terms of the original security agreement. An open mortgage is one that allows prepayment; however, an open-end mortgage may also allow prepayment so that is not a distinguishing factor.
Most conventional loans contain an alienation clause which prohibits: A.the sale of the property B.prepayment of the loan C.the loan from being assumed D.increases or decreases in the loan's interest rate
C.the loan from being assumed The alienation clause, also called the due-on-sale clause, prohibits the assumption of the loan. It means that if the property is sold, the loan must be paid off (unless the lender agrees to assumption of the loan by a particular buyer).
Seller financing that involves taking back a loan secured by a mortgage that is in the amount of the seller's existing loan, plus all or a portion of the seller's equity, is known as a: A.package loan B.budget mortgage C.wraparound mortgage D.purchase money mortgage
C.wraparound mortgage The wraparound mortgage wraps the seller's existing loan(s), plus that portion of the seller's equity that remains after the buyer's downpayment. The wraparound mortgage is junior in priority to the seller's existing loan(s).
Pamela agrees to buy Cindy's home using a purchase money mortgage for part of the purchase price. Which of the following is true? A.Cindy will deliver a promissory note at closing B.Cindy will buy back the property if Pamela defaults C.Cindy will remain in possession of the property until the loan has been paid D.Cindy is financing a portion of the purchase price
D.Cindy is financing a portion of the purchase price A purchase money mortgage is one that the buyer gives to the seller in a seller-financed transaction.
Integrity Savings and Loans is interested in the possibility of selling some mortgage loans to the secondary market. It could approach all the following except: A.Government National Mortgage Association (Ginnie Mae) B.Federal Home Loan Mortgage Corporation (Freddie Mac) C.Federal National Mortgage Association (Fannie Mae) D.Federal Savings and Loan Insurance Corporation (FSLIC)
D.Federal Savings and Loan Insurance Corporation (FSLIC) The FSLIC is not a player in the secondary market; all the other agencies listed are. In fact, the FSLIC no longer exists; it was incorporated into the Federal Deposit Insurance Corporation in the 1990s.
Interest on a loan for a home purchase is which type of interest? A.Annually paid B.Compound C.Complex D.Simple
D.Simple The interest paid on real estate loans is simple interest.
ABC Mortgage is seeking a deficiency judgment against a borrower. The most likely reason is because: A.the property has lost value in the local market B.the borrower failed to pay the second part of his annual property taxes C.the borrower was late making his mortgage payment D.a foreclosure sale produced insufficient funds to satisfy the unpaid debt
D.a foreclosure sale produced insufficient funds to satisfy the unpaid debt Under some circumstances, a lender may seek a deficiency judgment when the proceeds of a foreclosure sale are insufficient to satisfy the borrower's unpaid debt.
A mortgage often includes a clause requiring the lender's consent before another borrower may assume the mortgage. This clause is called a/an: A.power of sale clause B.subordination clause C.defeasance clause D.alienation clause (due-on-sale clause)
D.alienation clause (due-on-sale clause) An alienation clause (or due-on-sale clause) prevents assumption without the lender's consent by stipulating that the loan balance is due and payable in full if the property is sold.
Jacob defaults on his mortgage, but has the right to redeem the property before the foreclosure sale. Jacob has a/an: A.default redemption B.owner's right of redemption C.statutory right of redemption D.equitable right of redemption
D.equitable right of redemption With an equitable right of redemption, the defaulting borrower can redeem the property before the foreclosure sale by paying off the mortgage debt in full, plus costs.
If you have a graduated-payment loan, this means that your loan payments: A.decrease B.balloon in five years C.vary according to interest rates D.rise for a number of years and then remain level
D.rise for a number of years and then remain level The graduated payments start at what is usually a below-market rate and then annually increase until they reach a predetermined level. After that, they remain constant for the remainder of the loan's term.
Ryan needs to replace his roof; not having the cash available, he decides to borrow several thousand dollars through a home equity line of credit, which is a: A.fully amortized fixed-term loan B.loan financing the purchase of both real and personal property C.loan with smaller payments at first and larger payments later D.secured loan
D.secured loan A home equity line of credit is a revolving credit account rather than a loan with a fixed term and amount. Unlike a credit card, though, it is secured by the borrower's real property.
The law that sets interest ceilings on certain types of loans is: A.Regulation Z B.the Statute of Limitations C.the Uniform Commercial Code D.the state usury law
D.the state usury law Usury is the act of charging interest at a higher rate than the law allows.