Chapter 15
Under the Texas Veterans Home Improvement Loan Program, veterans are permitted to borrow up to what amount for 20 years for an FHA-insured loan?
The answer is $25,000. In addition to loans through the Texas Veteran Land Program and the Texas Veterans Housing Assistance Program, a veteran is permitted to borrow up to $25,000 for 20 years on a home improvement loan. A veteran may participate in all loan programs simultaneously but may have only one loan in each of the three programs at one time
If a borrower obtains a home loan, the interest-rate ceiling for that loan may NOT exceed what percentage per year?
The answer is 18
If a foreclosure is against a debtor's residence, by state law, the debtor must be given at LEAST how many days to cure the default before notice of sale is given?
The answer is 20
The maximum rate of interest charged for business, commercial, investment, or similar-purpose loans may be raised via the floating index to what percentage per year?
The answer is 28. This maximum rate of interest may float between 18% and 28% per year.
Closing costs on equity loans may NOT exceed
The answer is 3%
How far out will many lenders extend loan payments in order to help borrowers avoid foreclosure?
The answer is 40 years
The true yearly rate of interest describes
The answer is APR
Which secondary market entity issues pass-through certificates that are guaranteed by that entity and backed by the full faith and credit of the United States?
The answer is Ginnie Mae
The foreclosure process is faster, less expensive, and less complex when the security instrument is
The answer is a deed of trust
A party other than the borrower pays interest in advance to the lender and the loan rate is reduced for the first couple of years in
The answer is a loan buydown
Which of the following statements BEST characterizes a note, a mortgage, or a deed of trust?
The answer is a mortgage creates a lien, conveying real estate as security for payment of a note. The promissory note is the promise, or agreement, to repay a debt in definite installments with interest. The mortgage is a document that creates the lien, or conveys the property to the lender as security for the debt. The deed of trust is the mortgage document generally used in Texas to secure payment of the debt.
The person or institution that lends the money in a mortgage is
The answer is a mortgagee. The mortgagor (borrower) gives title to the property to the lender (mortgagee) who holds it until the debt is satisfied. The terms mortgagee and mortgagor come from Anglo-Saxon law.
What is a mortgage modification?
The answer is a procedure by which troubled borrowers may work with lenders to avoid foreclosure
An interest-only loan is also called
The answer is a term loan. A straight-payment loan, also called an interest-only or term loan, requires periodic payments of interest only, with the principal paid in full at the end of the loan term.
A borrower has defaulted on a home loan. Which clause permits the lender to declare the unpaid balance of the debt due and payable immediately?
The answer is acceleration clause
In order to be eligible for a loan under the Texas Veterans Housing Assistance Program, loan applicants must
The answer is be bona fide residents of Texas at the time of application and live in Texas with the intent to remain in Texas but may include serving on active military duty outside of Texas. To qualify as a Texas veteran, a loan applicant must have served no fewer than 90 days of active duty service or training or be discharged sooner due to a service-connected disability; not have been dishonorably discharged; be a bona fide resident of Texas at the time of application and live in Texas with the intent to remain in Texas (which may include serving on active military duty outside of Texas);have repaid a previous Veterans Land Board (VLB) loan in the specific loan program for which the veteran is applying; or under certain circumstances, be the unmarried, surviving spouse of a Texas veteran.
Where homestead or community property is involved and both spouses have an interest in the property, who must sign the note and deed of trust?
The answer is both spouses must sign the note and deed of trust. Where homestead or community property is involved, both spouses must sign the note and deed of trust. An exception is nonhomestead community property where one spouse is designated as the manager of that particular piece of community property.
Who loses when a home is sold in foreclosure, the buyer or the lender?
The answer is both, because the borrower has ruined credit and the lender has spent thousands of dollars in legal fees it cannot recoup. Because losses are substantial on all sides, plans have been developed to avoid foreclosures.
If a borrower runs into financial trouble and believes he will be unable to make future payments on his home, he should
The answer is contact the lender immediately and discuss options for reduced payments
In which does the mortgagee (lender) take title subject to any other existing liens?
The answer is deed in lieu of foreclosure. In this method, sometimes called a "friendly foreclosure," the lender accepts title to the property to satisfy the debt. If the property is worth more than the debt, the lender must pay the difference in cash to the borrower. In a power-of-sale foreclosure, all junior liens are eliminated.
Which is a security instrument that involves three parties?
The answer is deed of trust.
If a property sells for $100,000 at a foreclosure sale, but the debt owed was $110,000, the lender may be entitled to which against the borrower?
The answer is deficiency judgment
A homeowner is behind on his home loan payments. Which of the following is NOT a method by which he might avoid foreclosure on his home?
The answer is deficiency judgment. A deficiency judgment results when the foreclosure sale of real estate securing a deed of trust does not produce enough money to pay the loan balance in full, along with the expenses of sale.
To continually replenish their supplies of funds for mortgage loans, lending institutions often will sell their loans to investors. However, the interest rate that a lender charges for a loan may be less than the yield an investor demands. To make up the difference, what does the lender charge the borrower?
The answer is discount points. Discount points represent the percentage by which the face amount of a mortgage loan is discounted, or reduced, when it is sold to an investor to make its interest-rate yield competitive in the current money market. Without this discount, an investor would not be interested in purchasing a lower-rate loan. As a rule of thumb, each point of discount raises the effective yield by 1/8 of 1%. For the borrower, one discount point equals 1% of the loan amount.
Under what circumstances may a foreclosed property owner redeem his property?
The answer is if it was foreclosed because of a tax lien or a homeowners association lien. Texas has a two-year redemption on homestead property and 90 days for a homeowners association redemption.
When the Federal Reserve Board raises the discount rate, which of the following should happen?
The answer is interest rates will rise.
What is the purpose of an acceleration clause in a mortgage?
The answer is it enables the lender to demand payment in full on a loan in default.
Under which theory of mortgage law does Texas operate?
The answer is lien theory
What are the two theories of mortgage law?
The answer is lien theory and title theory
What is often the only option for troubled borrowers who are behind on their payments?
The answer is loan modification
Under the Consumer Finance Protection Bureau's ability-to-repay rule, what information must lenders consider before deciding how much to loan an individual?
The answer is mortgage-related obligations such as property taxes, insurance, and HOA fees. Lenders must consider a total of eight factors, which also include the borrower's alimony and child support, debt-to-income ratio, credit history, and other factors.
Which is NOT a characteristic of home loans through the Rural Development program?
The answer is no guaranty fees. Rural development housing loans are available in rural communities of 10,000 or less (up to 20,000 under some circumstances). The loans have no down payment, no monthly mortgage insurance, and no loan limits. The maximum loan amount is determined by the applicant's repayment ability, with qualifying ratios of 29%/41%. There is a guaranty fee payable at closing and an annual fee, based on the unpaid principal balance.
In case of foreclosure, under Texas law, how long does a borrower have to redeem and repossess the forfeited property?
The answer is no provision under Texas law for redemption of owner-occupied property foreclosed under a deed of trust. Some other states do allow property owners to redeem foreclosed properties under certain circumstances.
Can a mortgage lien be enforced if only one document—a promissory note or a deed of trust—is signed?
The answer is no, both the promissory note and the deed of trust must be signed. Under Texas law, a mortgage has not been created until both documents are signed.
If a forced sale fails to bring in enough money to pay off the mortgage, costs, and other fees, is the buyer still free of any additional action?
The answer is no, the lender may file for a deficiency judgment against the borrower to repay the loss. In many cases, the lender does not expect to collect from the borrower, but the judgment is needed to collect mortgage insurance or guarantees from federally backed loans.
The advertising section of Regulation Z covers all media EXCEPT
The answer is none of these because Regulation Z covers all form of advertising without exception
Which financing technique includes NOT only the real estate but also all personal property and appliances installed on the premises?
The answer is package mortgage. A blanket mortgage is generally used to finance subdivision developments, with more than one parcel or lot pledged as security for the loan. The home equity line of credit sets up an open-end account in which the borrower may request advances against the equity in his or her property. A purchase money mortgage is any note and deed of trust created at the time of purchase—whether from a third-party lender or from the seller.
Under forbearance, what happens to a borrower's payments?
The answer is payments may be reduced or even stopped for a period
The money supply decreases and the economy slows if the Federal Reserve (the Fed)
The answer is sells government securities
A low-income Texas resident who is purchasing his first home and needs down payment and closing cost assistance could apply to which program?
The answer is the My First Texas Home Program. The My First Texas Home Program channels below-market interest rate mortgage money through participating Texas lending institutions to very-low-income to moderate-income Texas residents who are purchasing their first home or who have not owned a home in the past three years.
For Texas residents who are purchasing their first home or who have not owned a home in the past three years, which agency channels below-market interest rate mortgage money through participating Texas lending institutions to very-low-income to moderate-income persons and families?
The answer is the Texas Department of Housing and Community Affairs.
A qualified Texas veteran may participate in which loan program if she needs to make substantial improvements to her existing primary residence?
The answer is the Veterans Home Improvement Program
Which loan program provides funds to a qualified Texas veteran to purchase a primary residence in Texas?
The answer is the Veterans Housing Assistance Program
What is the consumer rationale behind an adjustable-rate mortgage?
The answer is the borrower theoretically pays a low interest rate (meaning a lower payment) for the first few years, anticipating his income will have gone up by the time the higher rate kicks in. ARMs can be risky if incomes do not rise to the borrower's expectations.
If a property owner defaults on a mortgage loan, on what document has he defaulted?
The answer is the deed of trust
If a promissory note "creates debt," then what does the deed of trust do?
The answer is the deed of trust is the document used in Texas to guarantee payment of the debt. It is the document that posts the property as security.
When the Hackworths apply for a conventional home loan, they are told that they would be qualified by the lender on the basis of two ratios. Which statement describes the ratios to be used by the lender?
The answer is the housing-expense ratio is the total of the principal, interest, taxes, and insurance on the loan.
In an amortized loan, the initial payments are applied mainly to
The answer is the interest
Under the title theory of mortgages, who owns the property while the mortgage is being paid off?
The answer is the lender. Under title theory, the lender can take possession of the property in the event of a default. The lender also would be entitled to any rents from the property.
What are the two parts to the mortgage called?
The answer is the promissory note and the deed of trust. The promissory note is the agreement to repay the debt, and the deed of trust is the security for the debt.
When must the consumer receive the Closing Disclosure form, which replaced the HUD-1 and the Final Truth in Lending Disclosure?
The answer is three days before close.
If state law says that a mortgage conveys ownership to the mortgagee and the mortgagee may take possession of and rents from the property upon default by the mortgagor, this state follows the
The answer is title theory
What is the fundamental purpose of the secondary mortgage market?
The answer is to make sure lenders can replenish their supply of money to keep making loans.
To obtain a mortgage in Texas, what is the minimum number of documents that must be signed?
The answer is two. There are only two parts to mortgage—the debt and the security of the debt—which are the promissory note and the deed of trust.
When is mortgage forbearance typically allowed?
The answer is when there is a verifiable loss of income or an increase in living expenses. Loss of job or perhaps a sudden and dramatic increase in health expenses might require a request for forbearance.
If a loan's principal is reduced under forbearance, can the lender make that money back?
The answer is yes, the amount the loan is reduced is added to the end of the mortgage term and usually is paid back in a balloon payment. Depending on terms of the agreement, the final payment may or may not include interest.
When the owner of a rental property is declared in default of his mortgage, can he continue to receive rent collections?
The answer is yes, the landlord may continue to collect rents on properties. The landlord, not the lender, also is expected to maintain the property throughout the foreclosure proceedings.
May a lender maintain a property without evicting an owner who is in default (or who is even current in his mortgage)?
The answer is yes, to protect its interest in a property's value, a lender could order home repairs and other maintenance. The cost of the repairs would be added to the borrower's payments or default.
How many parts are there to a mortgage loan?
The answer two, the debt itself and the security for the debt. When a mortgage is received, the buyer must sign two separate agreements.
Which of the following service mortgage loans, even those loans they have sold to investors?T
he answer is mortgage bankers. Mortgage bankers originate, package, and service loans. They earn a fee for continuing to service loans they have sold to investors. Mortgage brokers simply act as intermediaries bringing borrowers and lenders together. They earn a finder's fee and do not service loans.
