Chapter 9

Caps for an adjustable rate loan can limit the change in

the interest rate over the lifetime of the loan. the interest rate from one period to the next. the payment from one period to the next.

The note defines the exact ____ and ____ of a loan.

terms. conditions.

If the interest rate is 6 percent on a home mortgage loan and the beginning of month balance is $200,000, then the interest payable at the beginning of the next month would be ____.

$1,000

If the interest charge for the current month for a standard home loan is $1,000.00, and the stated interest rate is 4.0 percent per year, what is the current balance on the loan?

$300,000

When the term for maturity is less than the term for amortization then the final payment is:

Equal to the regular payment plus an unpaid balance

Common types of prepayment penalties for mortgage loans include:

fee equal to a percentage of the remaining balance. yield maintenance penalty. defeasance requirement.

Late fees are assessed as a percentage of:

the amount of principal and interest over-due

The right of a lender to pursue a deficiency judgment when a home mortgage loan is sold at foreclosure auction for less than the mortgage balance exists in some _________ states.

40

A deed of trust and a mortgage are generally equivalent, except that the deed of trust is held for the lender by a third party, the ____, who acts in case of default, or returns the deed of trust to the borrower when the loan is paid off.

trustee

The contract for deed can be a useful means of financing a property sale

when either the buyer or the property are substandard to a mortgage lender. when the purchase is too "speculative" to qualify for standard mortgage financing.

ECOA, the Equal Credit Opportunity Act of 1974 prohibits consideration in home mortgage lending of:

whether income is from part-time or full-time work. information about a spouse who is not part of the loan application. child bearing plans of a woman applicant. whether income is from public assistance.

Because it is the quickest form of bankruptcy proceeding, and still preserves the mortgage lien of the lender, lenders prefer, if bankruptcy is to happen, that it be a Chapter ____ proceeding.

7 (or seven)

Reasons a deficiency judgment seldom is pursued include:

nonresidential loans usually are nonrecourse loans. some states do not always permit deficiency judgments. a defaulting borrower usually has few, if any, financial resources.

An important difference between states requiring judicial foreclosure and states allowing power of sale is that the latter do not require a ____ - administered public auction.

court

A mortgage note usually adds to its clauses all the ____ of the mortgage.

covenants

A mortgage note usually incorporates all of the _________ of the mortgage.

covenants

In some states, including California, a ____ of ____ is used instead of a mortgage.

deed. trust.

In some states, including California, a of ____ is ____ used instead of a mortgage.

deed. trust.

In case of default, funds not recovered by a lender through foreclosure can be pursued through a ____ judgment.

deficiency

Default is failure to meet the requirements of the ____ and, by reference, the ____.

note. mortgage.

The two documents of a mortgage loan are the ____ and the ____.

note. mortgage.

While a demand clause is rare in fixed-term standard ____ mortgage loans it is common in "home equity" credit line loans from a ____ bank.

home (or residential). commercial.

In case of default on a mortgage payment, if the lender could not declare the entire loan due and payable, the lender could foreclose only on the amount ____, which would never be worth the cost of foreclosure.

overdue (or defaulted)

Foreclosure is a legal process of terminating the ____ of the borrower and all ____ inferior to the mortgage.

ownership. liens.

A due-on-sale clause in a mortgage gives the lender the right to require that the borrower ____ ____ the loan if they sell, or in substance, sell the property.

pay off (or back)

A demand clause in a mortgage loan gives the lender the right, at any time they deem necessary, to demand ____ of the loan.

prepayment (or payoff)

Reasons for using debt financing in real estate include to:

preserve cash for use in one's primary business. enable the purchase of a home. enable greater diversification by purchase of more assets. lever the purchase of investment property for higher returns.

Power of sale foreclosure has statutory protections for the borrower, including requirements for:

proper sale procedure. required minimum time before the sale. proper legal notice to the borrower.

Problems or risks with a contract for deed include:

seller may encumber the property with liens after the sale. no assurance that clear title can be delivered. absence of standards of practice in such transactions.

In foreclosure, the priority of a lien is very important since all liens tend to default at once, and the ____ lien gets total satisfaction before the next lien gets anything.

senior, first, 1st, or superior

If a buyer purchases a property "subject to" an existing mortgage this means that the buyer did not ____ the ____, and is not personally liable for the loan.

sign. note.

In general, a mortgage borrower takes on personal liability for a loan upon ____ the note.

signing

The Home Ownership and Equity Protection Act (HOEPA) was enacted out of concern for abuse and predatory practices in _________ mortgage lending.

subprime

The Home Ownership and Equity Protection Act (HOEPA) was enacted out of concern for abusive and predatory practices in ____ mortgage lending.

subprime

An initial arbitrarily reduced interest rate on an adjustable rate mortgage usually is called a ____ rate.

teaser

Failure to meet some condition required by a mortgage while still maintaining timely payments is referred to as ____ default.

technical

The index rate in an adjustable mortgage interest rate is

the "moving part" of the rate. required to be regularly reported. beyond the control of the borrower.

If a default goes into a residential borrower's record, it remains for ____ years.

7 (or seven)

In selecting from alternative responses to default that are short of foreclosure, the probable order of choices in terms of severity, from mildest to most severe would be:

1. counseling and financial reorganization 2. reduction or postponement of mortgage payments 3. short sale 5. deed in lieu of foreclosure

If a default goes into a residential borrower's recored it is likely to lower their credit score by at least ____ points.

100

A late fee commonly is charged on a home mortgage loan at a rate of 4 to 5 percent of the overdue payment if the payment is delayed more than ____ days after it is due.

15

Under RESPA as modified in 2013, the completed Closing Disclosure form must be available for inspection to a mortgage loan applicant ____ business days before the closing date.

3 (or three)

A defaulted borrower who is seeking to obtain a new home mortgage may have to wait as long as:

3 years for an FHA loan. 7 years for a loan going to Fannie Mae or Freddie Mac. 2 years for a VA loan.

Default generally becomes considered substantiative when payments have been missed for ____ days. Then the ultimate response of the lender is likely to be ____.

90 (or ninety). foreclosure.

Under the Equal Credit Opportunity Act (ECOA) which of these practices probably would be prohibited? Asking a woman applicant:

About child bearing plans

Match the bankruptcy title to the description.

Chapter 7 - traditional bankruptcy where the debtor's unincumbered assets are divided among unsecured creditors in proportion to each creditor's claim. Chapter 11 - Court supervised workout of a troubled business. Creditors must accept a workout plan from the debtor and court. Chapter 13 - Court supervised workout of a troubled household. Creditors must accept a workout plan from the debtor and court.

Lenders prefer Chapter 7 bankruptcy over both Chapter 11 and Chapter 13. A major reason is:

Chapter 7 is much faster, avoiding delays in recovery of funds and neglect of the property

Which residential mortgage lender tends to require a demand clause in certain common types of home mortgage loans?

Commercial bank

For home mortgage lending, important results of the Dodd-Frank of 2010 include

Creating the standard of "Qualified Mortgages". Integrating all consumer protection regulation concerning home mortgages under a single agency. Creating the CFPB (Consumer Financial Protection Bureau).

A buyer acquires a property with existing mortgage debt either "subject to" the debt or by assuming the debt. In which case can default result in foreclosure?

In both cases

Which of these statements is (are) correct about the amortization of a standard, level payment home mortgage loan?

More than half the monthly payment is interest for about half the loan term. The principal reduction increases each month.

In the United States today, the general pattern for right of prepayment for home mortgage loans is as follows:

Most first mortgage home loans allow prepayment without penalty

A mortgage loan where the borrower is not personally liable is called a nonrecourse loan.

True Reason: A mortgage loan where the borrower is not personally liable is called a nonrecourse loan.

For a mortgage loan the number of months over which a level payment will fully pay off the loan is called the term for ____.

amortization

The repayment of a loan through a series of scheduled balance reductions is called ____.

amortization

Late fees on standard residential first mortgage loans range ____________ of the late amount.

around 4 to 5 percent

Advantages from a lender's perspective with power of sale rather than judicial foreclosure include:

less costly. faster.

Under the Truth-in-Lending Act, a home mortgage borrower has the right to cancel a mortgage loan within three business days after consummation of the loan, so long as it is not for purchase or construction of a principal residence. This is known as the right to:

rescind

Probably the best known provision of the Truth-in-Lending Act of 1968 is the required computation of ____ (enter the acronym).

APR

A mortgage prepayment penalty calculated to equal the amount of interest income the lender loses due to prepayment is frequently used in commercial property mortgages, and is called a:

Yield maintenance penalty

Common interest rates that have been used as the index rate in an adjustable mortgage rate include:

a cost-of-funds rate for depository lenders. a LIBOR interest rate. a commercial bank prime rate. one-year constant maturity Treasury rate.

The Real Estate Settlement Procedures Act (as modified by the Dodd-Frank Act of 2013) requires for virtually every standard home loan:

a document explaining the Closing Disclosure and fees. a standard closing statement: Closing Disclosure. a good-faith estimate of closing costs: Loan Estimate. Prohibition of "kickbacks".

The Dodd-Frank Act, in creating new standards for home mortgages adopted as a central standard ____ to ____.

ability. repay.

Clauses of a mortgage that commonly are also restated in the note include:

acceleration clause. due-on-sale clause.

Elements unique to an adjustable mortgage interest rate, rather than a fixed rate, can include

adjustment period. change date. caps. index rate. margin.

A mortgage loan without a due-on-sale clause is called a(n) ____ loan.

assumable

In foreclosure the defaulted borrower has the right to redeem the property up to the time of sale at public auction by paying off the defaulted loan and paying foreclosure expenses of the lender. This is the right called ____ ____ ____.

equity of redemption

In addition to requirements concerning use of the Loan Estimate and the Closing Disclosure, RESPA sets limits on required ____ deposits.

escrow

In case of default, accepting a deed in lieu of foreclosure can be preferable to foreclosure for the lender because:

it can be less disruptive to a business property. it creates less public attention. it is quicker.

A major risk to the lender in foreclosure is that the process will overlook or fail to properly treat someone with a ____ on the property.

lien (or claim)

ECOA, the Equal Credit Opportunity Act of 1974, prohibits discrimination in home mortgage lending on the basis of numerous criteria, including:

marital status and familial status. disability. national origin. age. sex. race. religion.

For a mortgage loan the number of months until the final payment is the term to ____.

maturity

The borrower in a mortgage loan, because they convey the mortgage lien to the lender is called the ____, while the lender who receives the lien is the ____.

mortgagor. mortgagee.

Under traditional common law, a mortgage borrower had ____ right of prepayment unless it was explicitly stated in the note.

no

Different methods of amortization of a mortgage loan include:

non-amortizing, in which the regular payments are interest only and the full balance is paid off in the last payment. fully amortizing, in which the loan exactly pays off with the last regular payment. partially amortizing, in which a final, larger balance payoff is required in the last payment.

Fill in the blanks to complete the sentence. A risk that a lender faces in agreeing to change the schedule of payments for a defaulting borrower is that courts may view the change as a new, replacement mortgage, with priority below any other existing lien. This risk is known as ____ of the mortgage.

recasting

A major focus of the Home Mortgage Disclosure Act (HMDA) was to prohibit home mortgage lenders from the practice called:

redlining

Creation of the CFPB (Consumer Financial Protection Bureau) was a significant departure in national consumer protection in that CFPB was empowered to oversee and enforce:

regulation of unfair or deceptive practices. national consumer protection laws. national anti-discrimination laws in consumer finance.

In modern times most state laws provide for some right of prepayment at least for ____ first mortgage loans.

residential (or home)

Prepayment penalties are limited to a small percentage of ____ mortgage loans, while they exist for most mortgage loans on ____ real estate.

residential (or home). commercial.

While the borrower is personally liable in almost all ____ mortgage loans, most borrowers are not personally liable for ____ property mortgage loans.

residential (or home). commercial.

A contract for deed differs from a "normal" sale of property with seller financing in that ______ by the seller until the installment payments are largely completed.

title is retained