CE SHOP - National: Financing and Settlement Exam

prepayment penalty

A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost

Loan Estimate

A combination of the TILA initial disclosure and the RESPA good faith estimate which must be provided to a buyer at the time of, or within three days of loan application. Required by Dodd-Frank Act, informs buyers of the costs they're likely to pay at settlement and discloses mortgage loan specifics, such as key features, costs, risks.

Defeasance Clause

A necessary mortgage clause in title theory states. When the debt is satisfied, this clause causes title to pass automatically back to the borrower. Satisfaction of mortgage; release from records. Lender may not pursue borrower for additional funds when the loan balance is paid in full.

The Adams family is financing their loan through Acme Bank and their agent negotiated a great sales price on their new home. Smith Title Company processed the loan documents. The Adamses must purchase mortgage insurance. Who does the insurance protect?

Acme Bank

Shirley's lender discharged the mortgage lien on Shirley's property after processing her final payment. Which clause requires the lender to take this action?

Defeasance

Accrued Adjustments

Expenses owing but not yet payable. Ex: Mortgage interest which is paid at the end of the month or property taxes which may be paid after the tax year begins. On closing statement for a sale, the buyer would be credited with these amounts and would be responsible for their payment.

Fannie Mae and Freddie Mac

Fannie Mae buys mortgages from larger, commercial banks. Freddie Mac buys mortgages from much smaller banks. Both are federally backed home mortgage companies created by US Congress.

Which of the following is an acceptable ad based on Regulation Z?

Get a low interest rate of 4.75% (4.925% APR) with as little as 10% down payment and a 30-year fixed rate with no points.

When the deed of trust is used as the security instrument for a mortgage loan, which of the following is a true statement?

It is much easier for a lender to foreclose on a property.

Kara is representing Leo in the sale of his property. Zoe represents the buyers, Trish and Todd Melvin. The closing officer, Regina, has worked closely with all the parties to bring the transaction to a successful close. Which of these statements about commission rebates under RESPA regulations is true?

Kara may offer a rebate to both Leo and the Melvins. RESPA Prohibits licensee from offering any kind of rebate or referral fee to third party service providers.

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

What attracts borrowers to adjustable rate mortgages?

Lower interest rate

Bo's real estate ad states: "Custom homes for sale with scenic mountain views. Easy financing and low down payments." What else must be included in the ad in order for it to comply with TILA?

Nothing

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

Packaging loans into mortgage-backed securities

A closing agent has several duties to perform both before and after the closing. Which of the following is a task the closing agent must complete during or after the closing?

Pay off the existing loan.

Upon examination of his mortgage document, Jared finds a clause stating he'll owe additional interest if he pays off his loan within one year of the loan origination date. What type of penalty does this describe?

Prepayment.

The purpose of the Truth in Lending Act (TILA) is to ______.

Require lenders to make disclosures that allow consumers to compare the costs of making a purchase using credit from different lenders, and to compare those with the cost of using cash

Which type of mortgage requires the borrower to pay interest for a set term then pay off the loan in a lump sum or through another loan?

Straight Term

A "homes for sale" magazine contains the following ad: "Cozy two-bedroom starter home, neat and clean, ready for move-in. $140,000. Low down payment and easy financing!" Which of these statements is true?

The ad complies with TILA because it doesn't contain any of the trigger terms that require full disclosure of all financing terms.

Land Contract

The seller accepts a down payment on a parcel of land but title to the property does not pass until the last principal payment has been received. This is referred to as an installment sales contract or a contract for a deed.

Jamison, the seller, is closing on his property with Conrad, the buyer. Jamison paid the current year's property taxes already. Is this a prepaid or accrued expense, and how will it be represented on the settlement statement?

The taxes are a prepaid expense and will appear as a buyer debit and a seller credit

Danette hasn't paid the first quarter water bill on her property. It was due on April 1. She's closing with the buyer, Jason, on April 1. What type of expense is this and how will it appear on the settlement statement?

This is an accrued expense, and will appear as a seller debit and buyer credit

When Stacy's clients ask her if she can recommend a mortgage broker, she promptly gives them the name of the best mortgage broker she knows, Gary Jones. Later, she always receives a check from Gary as payment for the referral. Is this legal or illegal under the Real Estate Settlement Procedures Act (RESPA)?

This is illegal under RESPA because it's considered a kickback between settlement service providers.

How many parties does a deed of trust involve?

Three: borrower, lender, and trustee

Budget mortgages

Type of amortized loan that include principal, interest, taxes, and insurance (PITI) in each amortized monthly payment

How long does the borrower have to pay private mortgage insurance?

Until the borrower reaches a 22% equity position

Equity Skimming

When an investor receives title to a property— often by using a straw buyer—doesn't make the mortgage payments, and usually rents out the home until foreclosure occurs.

Kickback

the return of a portion of the money received in a sale or contract, often secretly or illegally, in exchange for favors