RE Finances Midterm Exam 1

Millie and Jerry are purchasing a home using their VA loan benefit. The sale price on the home they buy is $320,000, with 100% financing. Assuming that Jerry has a typical level of entitlement, how much of their loan does the VA guarantee?

$80,000. The VA guarantees up to a quarter of the total loan amount, up to $104,250. ($320,000)

How many members are on the FOMC?

12. The members include the seven members of the Board of Governors, the president of the Federal Reserve Bank of NY, and four other reserve bank presidents (who rotate participation). (10)

Which of the following describes a Treasury bill?

A Treasury security with a maturity term of one year or less (security with a maturity term between two and 10 years)

What is the HECM program?

A form of reverse mortgage insured by the FHA, the program is a reverse mortgage that allows the homeowner to remain in the home by borrowing against the equity of their home. (A grant from the FHA made to senior citizens)

Horace recently purchased 1,000 shares of a security that's made up of hundreds of mortgages. The principal and interest that borrowers of these underlying mortgages pay are eventually passed through to Horace and the other investors. What did Horace purchase?

A mortgage-backed security. They don't actually have ownership of the property or the mortgage (A cooperative)

What is a government-sponsored enterprise (GSE)?

A private company created by the U.S. Congress to make certain borrowing easier and cheaper

In this type of loan, the interest rate fluctuates with the economic index to which it's tied.

Adjustable-rate (Amortized)

Which act made some mortgage insurance premium deductions available to certain taxpayers?

American Taxpayer Relief Act of 2012, which expired in 2014, made some mortgage insurance premium deductions available to certain taxpayers (Mortgage Forgiveness Debt Relief Act of 2007)

Regional State Bank is a member bank of the Federal Home Loan Bank. In exchange for mortgage collateral, Regional State Bank received a loan from the FHLB so it can make additional loans to consumers. What is the loan called that Regional State Bank received?

An advance (A collateralized mortgage obligation)

California's Seller Financing Disclosure Law requires the arranger of credit to provide both the buyer and seller with disclosures. What's the timing requirement for this disclosure?

As soon as possible before the execution of any note or security document (No more than three days after the execution of the purchase agreement)

Kendra and her real estate agent are preparing to close on the property she's purchasing on Thursday. Kendra will sign the paperwork with her lender to close on the loan at the same time. When does the lender need to provide Kendra with the Closing Disclosure form?

At least three business days prior to closing on the loan

he Federal Housing Administration funds its mortgage insurance program _______________.

By charging borrowers a mortgage insurance premium

How does Farmer Mac support agricultural producers?

By creating a secondary market for agricultural loans, making it possible for agricultural lenders to fund more loans (By funding and servicing loans directly to farmers and ranchers who need them)

Which real estate finance instrument includes the promise to repay and the security instrument within the same document?

Contract for deed. It can also include the purchase agreement (Mortgage)

Craig's loan is secured by a mortgage. Who holds legal title when this security instrument is used?

Craig, the borrower (Craig's lender)

Interest-only loans are a form of __________ buyer financing.

Creative

River City Bank needs to cut back on lending. For several months, the bank has seen more withdrawals from customers than deposits. This has led to a decrease in deposits typically used for lending. What term can be used to describe what the bank has experienced?

Disintermediation (Hypothecation)

A second mortgage on property secured by a VA loan is acceptable under certain conditions, one of which is that the first and second mortgage liens __________.

Don't exceed the CRV (Are within VA guarantee limits)

Which type of Real Estate Investment Trust is designed to deal exclusively in equities?

Equity REITS are owners improved income properties and are designed to deal in equities.

Which of these HUD programs is primarily responsible for providing mortgage insurance on home loans?

FHA (Office of Fair Housing and Equal Opportunity)

Which of the following entities buys primarily conventional loans from large commercial banks?

Fannie Mae

Conventional loans from large commercial banks are the primary target for which secondary market player?

Fannie Mae (Freddie Mac)

Farm and Country Bank provides credit to the farmers, ranchers, and other rural residents of its community. What government program helps the bank maintain enough capital to fund those loans?

Farmer Mac

_________ is regulated by the Federal Housing Finance Agency.

Freddie Mac

Which of the following specifies a requirement of pre-loan counseling for consumers?

Homeowner and Equity Protection Act (HOEPA)

Which of these is actually an amendment to the Truth in Lending Act (TILA)?

Homeowner and Equity Protection Act (HOEPA) [RE Settlement Procedures ACT]

Which type of Real Estate Investment Trust derives its income from rent or sale of property and interest dividends?

Hybrid REIT are a combination of mortgage lending and equity investing. They derive their income from rent or sale of property and interest dividends (Equity REIT)

Which of the following best describes the state of the market during the expansion phase of the real estate cycle?

Increases in hiring, employment, and public confidence, and lots of buyers in the market

Mortgage revenue bonds are a variety of what other type of bond?

Industrial development bond - This can be used to finance industrial developments including senior and assisted-care living centers (Corporate bond)

CDs valued at less than $100,000 are accounted for in which money measure?

M2?

An industrial development bond is a variety of _________ bond.

Municipal - They give private investors opportunity to take advantage of tax-exempt funds in exchange for helping to fund municipal projects, such as apartment buildings. (Corporate)

Sandra is a single woman fresh out of college. She hopes to qualify for an FHA loan. Her lender calculates her housing ratio as 31% and her total debt obligation as 43%. Her credit score is 480. Does she qualify under FHA underwriting guidelines?

No, she doesn't meet the credit score requirement.

Ron and Dawn hope to qualify for an FHA mortgage so they can buy a home for their family. Their housing ratio is 28%, their total debt obligation is 45%, and their credit score is 650. Do they qualify under FHA underwriting guidelines?

No, they don't meet the total debt obligation requirement.? 38%

One common predatory lending practice is to charge fees for unnecessary or ____________ loan products or services.

Non-existent. Another is to charge int. rates greater than 5% over the current market rate (Expensive)

The signature lines on the multi-state Fannie Mae promissory note are set up for _____________ to sign.

Only the borrower, as maker of the promise, is required to sign the note (The lender and the borrower)

Lenders who ______________ can underwrite and approve FHA loans without requiring the FHA to review each borrower's qualifications.

Participate in the direct endorsement program (Are FHA approved)

In which type of partnership do participants have shared responsibility for a single mortgage?

Partnership between mortgagors. They operate as a corporation that sells stock in exchange for the proprietary right to a unit (such as an apartment) [Partnership between mortgagees]

Leslie has applied for a loan modification. As part of the process, her lender will likely __________.

Perform a title search to see if another lien will affect the priority of the modified loan (Offer her a new loan)

The _________ clause in a deed of trust allows the lender to foreclose non-judicially.

Power of Sale can be understood as the borrower granting to the lender a right to sell the property in case of default (Statutory right of redemption)

__________ lending was a contributing factor to the housing collapse in the mid-2000s.

Predatory (Excessive)

Which of the following best describes the state of the market during the over-supply phase of the real estate cycle?

Properties selling for more than their appraised value, many buyers in the market, and lots of new construction. (Unemployment increasing, prices falling, and foreclosures on the rise)

Annual MIP can be removed from an FHA loan by _______________.

Refinancing to a conventional loan, Paying off the loan or by selling the home. (Achieving a loan-to-value ratio of at least 85%)

Which of the following made mortgages attractive investments?

Rising home prices made mortgages attractive investments prior to the 2007 financial collapse (Falling interest rates)

Unit of value, medium of exchange, and what other factor define money?

Store of Value (Permanence)

When a veteran assumes a VA loan, the _________________ agreement can restore the original buyer's level of entitlement as if the loan were repaid in full.

Substitution of entitlement

Which of the following items directly influences real estate supply?

Supply is directly influenced by construction of new homes, conversion of existing properties to residences, and construction costs (Loan availability)

Daniella is a mortgage broker. Under the SAFE Act, she must be fully licensed and carry what type of bond?

Surety

Which of the following would the FDIC most likely insure?

The FDIC protects deposits in checking, saving, and money market accounts at insured banks and thrifts, as well as certificates of deposits at these institutions (Mutual fund investment)

Kendra has applied for a loan from Acme Savings and Loan, but when she compares the Loan Estimate that loan officer gave her with the one from Best Bank, where she also applied for a loan, she decides she'd rather go with the loan from Best Bank. Which of the following is a true statement about this situation?

The Loan Estimate expires in 10 business days if Kendra doesn't tell Acme Savings and Loan that she wants to move forward with it (If she doesn't advise that she doesn't accept the loan she applied for within 3 days, she will be liable for the loan origination fee)

Select the choice that best translates this clause into plain English. "Any partial prepayment shall be applied against the principal amount outstanding and shall not postpone the due date of any subsequent monthly installments or change the amount of such installments, unless the Note holder shall otherwise agree in writing."

The borrower is allowed to prepay the loan without penalty.

How is a loan assumption documented?

The buyer and seller both sign an assumption agreement.

What are property taxes in a mortgage payment?

The cost of public services divided by the value of property for the area (The cost of the local community budget divided by the total number of homes in the area)

The FHA has helped to significantly improve the mortgage market through _________.

The introduction of the long-term amortized loan significantly improved the ability of prospective homeowners to purchase a home. (Setting standards for interest rates on mortgage loans)

When a mortgage is sold, how is the transfer made?

The note is endorsed and the mortgage is assigned - The note is negotiable and is transferred by endorsement. The attached security instrument must be assigned and recorded (A bill of sale is attached to the note and the mortgage)

Real estate professionals handle many documents related to real estate transactions. Which one of the items listed below is one of the most important in detecting mortgage fraud?

The original sales agreement and any addenda to that agreement must be accurate. They should clearly identify the property and all parties to the transaction. (The title)

Under the "Summaries of Transaction" on page three of the Closing Disclosure, the "Seller's Transaction" table is completed by _____________.

The settlement agent

Page four of the Closing Disclosure includes consumer education about ________.

The use of an escrow account (Refinancing)

What role did CMOs (Collateralized Mortgage Obligation) play in the financial crisis of 2007?

They increased market speculation

The house payment Tim and Vickie are considering would give them a housing ratio of 34%? and a total debt obligation of 40%. Their credit score is 640. What do they need to change to meet the underwriting requirements for an FHA loan?

They should look for a home in a lower price range.

Kendra has applied for a mortgage from Acme Savings and Loan. When is Acme Savings and Loan required to provide Kendra with a Loan Estimate?

Three business days

Beverly has applied for a loan to purchase a Craftsman-style home for herself and her teenage son. Her mortgage broker helps her find an FHA loan program that accommodates her low down payment. Which program will serve Beverly's needs?

Title II, Section 203(b) loan program is for the purchase of 1 to 4 unit residences

Dana and Phil have evaluated their situation, and have decided to purchase a unit in a cooperative housing project. Which FHA loan program might work for them?

Title II, Section 203(n)

Which agency is responsible for the production of coins?

U.S. Mint

Direct farm ownership loans from the ______________ may be used to buy farmland, construct and repair buildings, and make farm improvements.

USDA Farm Service Agency (USDA Rural Development Program)