Real Estate Chapter 10: Multiple Choice and Short Answer

Name two government agencies that provide direct financing assistance to selected eligible households.

1. Rural Housing services 2. sometimes the Department of Veterans Affairs

give three reasons why homeowners might be interested in a home equity loan rather than a consumer loan.

1. better interest rate than found with consumer loans 2. longer term 3. tax deductibility of the interest

what were three major events in the evolution of conventional mortgages since 1930?

1. introduction of the mortgage loans --> assisted private mortgage insurance 2. introduced adjustable mortgage loans 3. introduced numerous alternatives to the standard 80-90% LPM beginning in the 1990s

what two conditions typically must be present to result in home mortgage default?

1. loan exceeds the value of the residence 2. household has experienced some traumatic economic event such as death, unemployment, or divorce

The maximum loan-to-value ratio on a VA guaranteed loan is:

100%

What is the maximum loan to value ratio for a VA loan?

100%

lenders usually require mortgage insurance for loans in excess of ________

80% of value

The maximum loan-to-value ratio for an FHA loan over $50,000 is approximately:

97%

a jumbo loan is:

A conventional loan that is too large to be purchased by Fannie Mae or Freddie Mac.

2. The dominant loan type originated and kept by most depository institutions is the:

Adjustable rate mortgage.

In comparing alternative mortgage choices, what is the principal tool of comparison?

Annual percentage rate (APR) a better one is effective borrowing cost

Conforming conventional loans are loans that:

Are eligible for purchase by Fannie Mae and Freddie Mac

Probably the greatest contribution of FHA to home mortgage lending was to:

Establish the use of the level-payment home mortgage.

Home equity loans typically:

Have tax-deductible interest charges

1. Private mortgage insurance (PMI) is usually required on _____ loans with loan-to-value ratios greater than _____ percent.

Home, 80 percent.

3. Which of the following mortgage types has the most default risk, assuming the initial loan-to-value ratio, contract interest rate, and all other loan terms are identical?

Interest only loans.

What is the unique risk of a reverse mortgage? How is it mitigated (ease/alleviate)

The mortgage will outgrow the value of the securing residence. Special mortgage insurance has been created by the FHA to reimburse the lender in case this occurs, without causing the borrower to lose the home.

What is a purchase-money mortgage?

a mortgage loan created simultaneously with the transfer of a property between buyer and seller. it can be by the buyer to the seller, but can be from a third party as well. (often a second mortgage loan)

what is a conventional home mortgage loan?

any standard home mortgage loan not insured or guaranteed by the US government

Which rule of thumb has a better chance of giving a valid result interest rate, spread rule or payback period?

because the payback period is equivalent to the net benefit computations for refinancing. it is superior to the spread rule

the difference between the mortgage primary market and secondary market is __________

in the primary market, new loans are created by borrowers and lenders; in the secondary market, existing loans are sold by one investor to another.

what was the greatest historic contribution of the FHA?

introduction of the level payment mortgage and to demonstrate its viability

The best method of determining whether to refinance is to use:

net benefit analysis

for who is a reverse mortgage intended? What problem does it address?

older households who need more cash flow and who have substantial wealth accumulated in their residence

whom does private mortgage insurance protect?

protects the lender from losses due to default. also indirectly helps the borrower by making the LPM a viable investment for the lender

4. A mortgage that is intended to enable older households to "liquify" the equity in their home is the:

reverse annuity mortgage

In the refinancing decision, the benefit of refinancing can be approximated by multiplying the _____ by the _______.

the reduction in monthly payment by the number of months the borrower will keep the new loan

what is the upfront fee for FHA insurances? What is the MIP for a 30 year loan with a percent of 97.5 percent LTV?

the upfront MIP for FHA mortgage insurance is 1.75% of the loan. It can be added to the loan amount. The annual MIP for an FHA loan of 30 years, 97.5% LTV, is 0.85% of the average outstanding balance

At a certain loan-to-value ratio, PMI must be canceled by the provider. For FHA insurance, MIP payments must be terminated. What is this "trigger" LTV ratio?

when the loan balance is below 78% of the original value, both PMI (private mortgage insurance) and MIP (mortgage insurance premium) must be discontinued