Types of Mortgages and Sources of Financing

Harley and Quinn are refinancing their home and their lender is charging them 1% for their loan commitment fee. Their loan amount is $192,000, their interest rate is 4.75%, and their appraised value is $275,000. Harley and Quinn will pay a ______ loan commitment fee.

$1,920 192,000 x 0.01 = $1, 920

Ivan locked in a 3.04% interest rate for his home purchase. His lender charged him a 3% loan commitment fee. His loan amount was $424,000 and his appraised value was $525,000. Unfortunately, Ivan's financing fell through. He owes the lender ______.

$12,720 $424,000 x 0.03 = 12,720

Cheryl is getting her mortgage through her small-town credit union, called Mid-State Meadows Credit Union. Mid-State recently needed extra funding. Which of these agencies most likely provided that funding?

A Federal Home Loan bank

Which of the following is an example of a loan that originated in the primary mortgage market?

ABC bank loan

The Federal Reserve System is made up of 12 Federal Reserve districts. Which of the following statements about the Fed is true?

All national banks must be part of the Fed.

Noah owns an LLC that buys and sells stocks on the NASDAQ 100. He needs some additional financing. To which type of lending institution might he prefer to go?

An investment group

A commitment fee is calculated based on the undisbursed loan amount and is usually paid ______.

At closing

Which of the following is a likely effect when the discount window is closed?

Banks don't have access to additional funds.

Shelly's flower business is blooming and it's time for her business to grow. She plans to take out a business loan to open two more shops on the north side of town. Which lending institution would she most likely go to for the loan?

Commerical bank

Which type of lender is a member-based cooperative that provides credit for auto loans and home loans, takes deposits, and offers savings vehicles and money markets?

Credit Union

The rate at which a bank can obtain a loan from its Federal Reserve bank when using commercial paper as collateral is called the ______ rate.

Discount

Which of the following is part of the Consumer Financial Protection Bureau's mission of consumer protection?

Enforce consumer financial protection laws.

The secondary mortgage market buys loans from the primary market. How does this aid the lending market?

Ensure funds are available to borrowers

What institution was established in 1938 to purchase FHA-insured loans from individual lenders, group the loans together, and sell them as mortgage-backed securities to investors?

Fannie Mae (FNMA)

You're a farmer. Which loan program might be tailor-made for you?

Farmer Mac

Which government entity oversees open-market operations?

Federal Open Market Committee

The rate at which a bank can obtain an overnight loan from another bank without providing collateral is called the ______ rate.

Federal funds

A commitment fee may be a percentage of the loan amount or ______.

Flat fee

Which of the following is regulated by the Federal Housing Finance Agency?

Frannie Mae

Any financial institution with deposits that are insured by a federal government agency can sell mortgages to which institution?

Freddie Mac (FHLMC)

What institution was formed in 1968 and took over the sale of the government loan market?

Ginne Mae (GNMA)

How does the Federal Housing Finance Agency affect mortgages?

It sets limits for conforming loans and controls the amount of money that lower-income people can borrow.

Which of the following is a characteristic of the primary mortgage market?

It works directly with borrowers to fund loans.

What could be a consequence if there were no secondary mortgage market?

Lenders might not have funds available to make new loans to the public.

Lenders often look at the appraised value of a property compared to the amount of the loan when considering how much a borrower must provide as down payment. What is this value called?

Loan-to-value ratio

Mick focuses on originating mortgage loans at a company that has in-house loan processors and underwriters. The options he offers consumers are limited to the products his company offers. What's Mick's position?

Mortgage banker

Darrel loves working in the mortgage lending industry. On a daily basis, he works with multiple lenders to find and negotiate the best deals for his customers. What is Darrel's profession?

Mortgage broker

Several actions take place on the secondary mortgage market. Which of these is a common activity?

Packaging loans into mortgage-backed securities

Amy purchased a new home and obtained financing through a bank located in her city called Natula Bank. Natula originated the loan, but before Amy's first mortgage payment was due, it sold her loan to CitiMortgage. As a loan originator, what market is Natula Bank operating in?

Primary mortgage market

In which market do lenders that originate real estate loans operate?

Primary mortgage market

Roger has a sufficient income, has never missed a loan or credit payment, and has an adequate credit history. His credit score makes him a very creditworthy consumer. When obtaining a loan, which rate will he most likely get?

Prime rate

Rachel loves convenience. As you can imagine, she was thrilled when she was able to finance her mortgage through the same institution where she deposits her payroll checks. Which of these most likely financed Rachel's mortgage?

Savings and loan

Which type of lender specializes in taking in savings deposits and then lending money out to consumers through mortgages and other loans?

Savings and loan

Pam is taking out a mortgage for her home purchase. Which of the following is a true statement?

She will be working with lenders in the primary mortgage market.

The Federal Reserve System has just raised interest rates. Which of the following situations is the most likely outcome?

Six months later, the Connors can no longer afford the mortgage for the house they've been keeping their eye on.

Which of the following statements is true of the secondary mortgage market?

The borrower's rights are unaffected.

How do the primary and secondary mortgage markets work together?

The primary market packages loans to sell to the secondary market.

Which of the following describes the discount rate?

The rate at which a bank can obtain a loan from its Federal Reserve bank when using commercial paper as collateral

The mortgage industry is made up of the primary and secondary markets. What's the role of the primary mortgage market?

To originate and fund mortgage loans to consumers

What's the purpose of the secondary mortgage market?

To service loans

What's the role of the primary mortgage market?

To work with borrowers in originating and funding mortgage loans

Patel and Rakhi just had twins, so they need a bigger home. The loan amount on their new home is $205,000, and their interest rate is 3.7%. Their lender is charging them a 2% loan commitment fee, and when they close in two weeks, they expect to pay $6,150 in closing costs. Patel and Rakhi will pay a ______ commitment fee.

$4,100 $205,000 x 0.02 = $4,100

A buyer is purchasing a property for $500,000. He has a down payment of $50,000 and is financing the rest. What's the amount of the loan origination fee if the lender charges one-and-a-half points?

$6,750 $500,000 - $50,000 = $450,000 1.5% = 0.015 $450,000 x 0.015 = $6,750

In what way could the Fed make it harder for people to obtain mortgages?

By increasing reserve requirements

In which of these ways could the Fed make it harder for people to obtain mortgages in the local economy?

By increasing reserve requirements

The secondary mortgage market serves a very important role in real estate finance. Which of these statements best describes that role?

The secondary market purchases loans from primary lenders and helps keep credit available to loan originators.