REAL ESTATE FINANCE I

Suppose a homeowner purchased a three-year hazard insurance policy for $2,000. Based upon a banker's year, what is the daily rate for the policy?

$1.85/day

What is the formula for determining a borrower's total debt service ratio?

(PITI + Long-Term Liabilities) ÷ Gross Monthly Income

Suppose that a borrower has a gross monthly income of $3,000 and wants to qualify for a conforming loan (total debt service ratio of 36%) with a monthly PITI payment of $800. What is the maximum amount of additional long-term obligations this borrower may have?

280

If the listing broker and seller agree to a 6% commission and the listing broker agrees to split the commission with the selling broker 50/50, each company will receive _______. 3%

3%

What is the daily penalty for failure to follow the regulations of the CFPB?

5,000

What effect does a debit to the seller have on charges made to the parties involved in the transaction?

A debit to the seller decreases the amount the seller receives at closing. (Lesson 9, Credits and Debits)

Which of the following is a legally written contract that transfers a property's title (temporarily in case of default) to a third party as security for a loan?

A deed of trust transfers a property's title (temporarily in case of default) to a third party as security for a loan. (Lesson 6, The Note and Deed of Trust)

What is a "float-to-fixed" loan?

A float-to-fixed rate loans is a type of ARM loan that converts to a fixed-rate loan after a period specified in the note. Borrowers can take advantage of lower rates initially and avoid the risk of later rate increases. (Lesson 7, Adjustable Rate Mortgages, Float-to-Fixed Rate Loans)

Which of the following is NOT a common way for a lender to recast the loan of a borrower in financial difficulty after a moratorium?

A lender may recast a loan of a borrower in financial difficulty after a moratorium. The lender may allow for a balloon payment at the end of the loan term, increase the monthly payments, or extend the term of the loan. (Lesson 10, Adjustments and Modifications)

Which of the following things does a lender require to underwrite a loan?

A lender requires title insurance to underwrite a loan. Lenders require an extensive examination of public records before they issue a loan; therefore, lenders consider title insurance the ideal form of evidence of title because insurance companies thoroughly examine public records before issuing a policy to protect against any defects in the title. (Lesson 9, Qualifying the Title)

What is a moratorium?

A moratorium is a period during which a lender allows a borrower in financial difficulty to not make principal and/or interest payments. (Lesson 10, Adjustments and Modifications, Moratorium)

What is a moratorium?

A period during which a lender allows a borrower in financial difficulty to not make principal and/or interest payments

If a current serviceperson's Leave and Earnings Statement (LES) indicates that his or her contract is up within the next 12 months, which of the following statements is sufficient to establish a continued income for the applicant for a mortgage loan?

A statement from a civilian employer that the applicant has been offered employment

A dollar for dollar reduction in the appraised tax value of a property is a _______.

A tax exemption is a dollar for dollar reduction in the appraised tax value of a property. (Lesson 1, Property Tax Incentives)

Which of the following statements are TRUE?

All liens are encumbrances. (Lesson 6, Encumbrances and Liens)

Which of the following things is an encumbrance?

An encroachment is an encumbrance. (Lesson 6, Encumbrances and Liens)

Which one of the following statements about the reserve requirement is TRUE?

An increase in the reserve requirement will tend to cause the interest rate to increase and loan availability to decrease. When the reserve requirement is high, banks literally have less money to lend. This shifts the demand curve for real estate, causing prices to drop and sales to fall off. (Lesson 2, The Federal Reserve, The Reserve Requirement)

Fannie Mae's Desktop Underwriter is also known by which one of the following terms

Computerized loan origination

The Federal Housing Administration (FHA) is part of what other government agency?

Department of Housing and Urban Development

What is NOT a recorded document?

Documents that need to be recorded in the public record include deeds, deeds of trust, judgment liens, and mechanics' liens, so that the history and background of a property are available for reference. (Lesson 6, Recorded Document)

What is NOT a property tax incentive?

Estate tax

Which of the following is NOT one of the three major credit reporting bureaus?

Fair Isaac

Hazard insurance covers which one of the following things?

Fire

Government Sponsored Entities (GSEs) include all of the following EXCEPT _______.

Government Sponsored Entities (GSEs) include Fannie Mae, Freddie Mac, and Ginnie Mae. (Lesson 4, Government Sponsored Entities)

Which organization has encouraged the use of computerized loan analysis?

HUD

If a borrower does not pay a lock-in fee, at what point in the transaction will the note rate be locked in?

If a borrower does not pay a lock-in fee, the note rate be locked in at origination. (Lesson 9, Loan Application, Floating Rates)

Suppose a sale closes on April 12 and prorations are carried to the day of closing. Which of the following is true of accrued items?

If prorations are carried to the day of closing, the seller owes for 12 days in April. An accrued item is an expense that the buyer will pay after closing that must be divided between the buyer and the seller, such as the interest on an assumed mortgage or real estate taxes. (Lesson 9, Prorating Expenses)

In a title theory state, which party has equitable rights to a property?

In a title theory state, the mortgagor has equitable rights to a property. (Lesson 6, Lien Theory and Title Theory)

Which of the following is NOT a common way for a lender to recast the loan of a borrower in financial difficulty after a moratorium?

Increase the interest rate

What does RESPA prohibit in federally related mortgage loans?

Kickbacks for settlement service referrals

Which property owner expenses are tax deductible?

Loan interest

What is money?

Money is an officially-issued legal tender, the circulating medium of exchange as defined by a government. It is often synonymous with cash, including negotiable instruments such as checks. (Lesson 1, Money and the Federal Reserve)

Sam owns a company that receives money from investors that the company uses to make mortgage loans. What is Sam?

Mortgage Banker

Which of the following is NOT a benefit of the FHA program?

No credit check

Which FNMA loan document starts out by saying "I promise to pay"?

Note

What is the big difference between seller financing and a contract for deed?

On a contract for deed, the new owner does not get title until all the payments are paid. (Lesson 6, Contract for Deed)

If the heirs cannot pay off a debt when the borrower passes away, the lender will foreclose on the property. If the lender loses money, who will have to pay the deficiency?

One of the best things about reverse mortgages is that they are non-recourse loans. There is no personal liability. (Lesson 7, Types of Loans, Reverse Mortgage)

Common tax-deductible expenses (for income tax purposes) associated with real estate purchase and ownership include all of the following except _______.

Private mortgage insurance

Which of the following statements is TRUE of private mortgage insurance (PMI)?

Private mortgage insurance (PMI) may be paid as a lump sum at closing, in some instances. (Lesson 7, Private Mortgage Insurance)

What happens in the secondary market?

Real estate loans are bought and sold

Some FHA lenders have the authority to approve FHA loans in house. This is called _______.

Some lenders have the authority to approve FHA loans in-house without submitting the file to the FHA regional office for prior approval. This will save 10 to 14 days in processing time. (Lesson 8, Direct Endorsement)

Which of the following loan programs is NOT insured by the FHA?

The FHA insures Rehabilitation loans, graduated payment mortgages, and adjustable rate mortgages. (Lesson 8, FHA Insured loans)

Which of the following things is a provision of the Fair Credit Reporting Act (FCRA)?

The Fair Credit Reporting Act (FCRA) states that the information on the reports that is disputed by a consumer must be reinvestigated and removed if inaccurate. (Lesson 9, Fair Credit Reporting Act)

The Federal Reserve acts as the central bank of the United States. The purpose of the bank is to conduct the monetary policy of the United States and to ______

The Federal Reserve acts as the central bank of the United States. The purpose of the bank is to conduct the monetary policy of the United States and to supervise and regulate financial institutions for the protection of the consumer, maintain the financial system's stability, and provide services to the government, financial institutions, and the public. (Lesson 2, The Federal Reserve System)

What is the purpose of the Loan Estimate?

The Loan Estimate ensures the borrower has all the information about the loan to shop for money and the information clearer. (Lesson 3, Significant Legislation, Dodd-Frank)

Which of the following sections is NOT in the body of the Closing Disclosure (aka HUD-1)

The body of the Closing Disclosure (aka HUD-1) includes the Summary of Borrower's Transaction, Summary of Seller's Transaction, and Settlement Charges. (Lesson 3, Review of the Closing Disclosure)

A borrower wishes to take out an FHA-insured loan for a home that has a sales price of $100,000. What is the minimum cash investment (down payment) that the borrower must have in the property?

The borrower must have a minimum cash investment (down payment) of $3,500 in the property. (Lesson 8, Underwriting Guidelines)

Suppose a borrower has a monthly PITI payment of $800 and a gross monthly income of $2,200. What is her housing expense ratio?

The borrower's housing expense ratio would be 36%. The housing expense ratio is the ratio of a borrower's PITI payments (Principal + Interest + Taxes + Insurance) to her or his gross income. (Lesson 9, Qualifying the Borrower)

For how many days does the buyer owe for a prepaid item prorated for the month of April if closing is April 12?

The buyer will owe for 18 days. (Lesson 9, Lender Closing Cost, Credits and Debits)

In a 3-2-1 buydown with a note rate of 11%, what will be the interest rate in the second year?

The interest rate in the second year will be 9%. (Lesson 7, Types of Loans, Temporary Buydowns)

What is the qualifying ratio for VA-guaranteed loans?

The qualifying ratio for VA-guaranteed loans is a total debt service ratio of 41%. (Lesson 8, VA Loan Guarantee Program)

What is (are) the qualifying ratio(s) for FHA-insured loans?

The qualifying ratios for FHA-insured loans are a total housing expense ratio of 29% and a total debt service ratio of 41%. (Lesson 8, Underwriting Guidelines)

Which of the following statements is TRUE of an 80-10-10 (piggyback) mortgage?

The second mortgage is used in place of private mortgage insurance.

What is the secondary market investor for agricultural loans?

The secondary market investor for agricultural loans is Farmer Mac. (Lesson 4, Government Sponsored Entities, Farmer Mac)

Which of the following statements is TRUE concerning FHA ARMs?

They can convert to fixed-rate loans.

When a lender, in Texas, wants to foreclose on a property for default in payments, the first step is to send the borrower a notice that gives the borrower at least 30 days to cure the default. What must the notice include?

When the lender wants to start the foreclosure process the first step is to give the borrower a notice of how to cure the default at least 30 days prior to posting the property for foreclosure. The notice must tell the borrower how much to pay, when they must pay, and where they must pay. (Lesson 6, Special Provisions in Mortgage Lending Instruments, Deed of Trust)

When a lender, in Texas, wants to foreclose on a property for default in payments, the first step is to send the borrower a notice that gives the borrower at least 30 days to cure the default. What must the notice include?

When the lender wants to start the foreclosure process the first step is to give the borrower a notice of how to cure the default at least 30 days prior to posting the property for foreclosure. The notice must tell the borrower how much to pay, when they must pay, and where they must pay. (Lesson 6, Special Provisions in Mortgage Lending Instruments, Deed of Trust) all the above

Which one of the following statements about the reserve requirement is TRUE?

When the reserve requirement is high, banks literally have less money to lend. This shifts the demand curve for real estate, causing prices to drop and sales to fall off. (Lesson 2, The Federal Reserve, The Reserve Requirement)

The title is in whose name with a deed of trust?

With a deed of trust, the title is in the name of the new owner. (Lesson 6, Note and Deed of Trust)