Chapter 9

Which of the following acts prohibits discrimination in lending practices on the basis of race, color, religion, national origin, sex, marital status, age, or because all or part of an applicant's income derives from a public assistance program? A) Equal Credit Opportunity Act (ECOA) B) Truth-in-Lending Act (TILA) C) Real Estate Settlement Procedures Act (RESPA) D) Home Ownership and Equity Protection Act (HOEPA)

A) Equal Credit Opportunity Act (ECOA)

Assume that an individual has just lost his job and has been consistently late paying his bills. The bank recognizes deterioration in the individual's credit score and has notified him that he must pay his home equity line of credit in full. The mortgage clause that makes this possible is known as the A) demand clause. B) insurance clause. C) escrow clause. D) exculpatory clause.

A) demand clause.

Even after a property goes into foreclosure, it is still possible for the borrower to reclaim the property as long as he or she produces the outstanding mortgage balance and all foreclosure costs incurred to that point. In a state such as Georgia, this right only extends to the date of the foreclosure sale. When this occurs, this right is more commonly referred to as A) equity of redemption. B) statutory redemption. C) strategic default. D) substantive default.

A) equity of redemption.

A special contract in which the borrower pledges the mortgaged property as security to the lender is commonly referred to as the A) mortgage (deed of trust). B) listing contract. C) note. D) assignment of mortgage.

A) mortgage (deed of trust).

With most standard home loans, the lender can hold the borrower personally liable in the event of a default. Such loans are commonly referred to as A) recourse loans. B) nonrecourse loans. C) conforming loans. D) nonconforming loans.

A) recourse loans.

In certain states, such as the state of Georgia, there is a temporary transfer of title to the lender at the time the mortgage loan is made. The borrower then would obtain the rights to the title once the loan has been repaid. These states are referred to as A) title theory states. B) lien theory states. C) conforming states. D) nonconforming states.

A) title theory states.

Based on your understanding of the relation between the various types of bankruptcy and the foreclosure process, which of the following types of bankruptcy would you expect to be least harmful to a lender's mortgage interest? A) Chapter 1 bankruptcy B) Chapter 7 bankruptcy C) Chapter 11 bankruptcy D) Chapter 13 bankruptcy

B) Chapter 7 bankruptcy

Known popularly by its section in the Federal Bankruptcy Code, which of the following types of bankruptcy is the traditional form of bankruptcy wherein the court simply liquidates the assets of the debtor and distributes the proceeds to creditors in proportion to their share of total claims? A) Chapter 1 bankruptcy B) Chapter 7 bankruptcy C) Chapter 11 bankruptcy D) Chapter 13 bankruptcy

B) Chapter 7 bankruptcy

Congress has enacted a number of regulations that have established criteria for evaluating home loan applicants and mandating disclosures in the origination of home loans. Which of the following congressional acts requires important disclosures concerning the cost of consumer credit, including the computation of the annual percentage rate (APR)? A) Equal Credit Opportunity Act (ECOA) B) Truth-in-Lending Act (TILA) C) Real Estate Settlement Procedures Act (RESPA) D) Home Ownership and Equity Protection Act (HOEPA)

B) Truth-in-Lending Act (TILA)

In certain states, such as the state of Florida, the transfer of title to the lender does not occur until the borrower defaults. These states are referred to as A) title theory states. B) lien theory states. C) conforming states. D) nonconforming states.

B) lien theory states.

When a buyer acquires a property having an existing mortgage loan, a decision must be made as to whether or not the subsequent owner of the property can preserve the loan. If the buyer does not add his or her signature to the note, the buyer does not take on any personal liability. In this case, the buyer is said to A) assume the old loan. B) purchase the property subject to the existing loan. C) obtain the property through the use of a contract for deed. D) foreclose on the property.

B) purchase the property subject to the existing loan.

In addition to numerous congressional acts that focus more on national regulation, laws have been created that affect the practice of home mortgage lending at a community or neighborhood level. For example, laws have been enacted to prevent lenders from avoiding certain neighborhoods without regard to the merits of the individual loan applications, a practice more commonly referred to as A) rescinding. B) redlining. C) assuming. D) holdout.

B) redlining.

Even after a property goes into foreclosure, it is still possible for the borrower to reclaim the property as long as he or she produces the outstanding mortgage balance and all foreclosure costs incurred to that point. In a state such as Florida, this right may even extend beyond the date of the foreclosure sale. When this occurs, this right is more commonly referred to as A) equity of redemption. B) statutory redemption. C) strategic default. D) substantive default.

B) statutory redemption.

Most adjustable rate mortgage (ARM) loans have been marketed with a temporarily reduced interest rate commonly referred to as a A) rate cap. B) teaser rate. C) payment cap. D) prepayment rate.

B) teaser rate.

The difference between judicial foreclosure and power of sale in the treatment of defaulted mortgages can be significant. All of the following statements regarding power of sale are true except A) the power of sale treatment is faster than judicial foreclosure. B) the foreclosed property is typically sold through a public auction administered by the court. C) it is less costly for power of sale to be employed than judicial foreclosure. D) typically, lenders must give proper legal notice to the borrower, advertise the sale property, and allow a required passage of time before the sale.

B) the foreclosed property is typically sold through a public auction administered by the court.

Added to the index of the adjustable rate is a margin, which is the lender's markup. For standard adjustable rate mortgage (ARM) loans, the average industry margin has been stable at approximately A) 75 basis points. B) 175 basis points. C) 275 basis points. D) 375 basis points.

C) 275 basis points.

The risk of bankruptcy tends to travel with the risk of foreclosure since both can result from financial distress. Known popularly by its section in the Federal Bankruptcy Code, which of the following types of bankruptcy is a court-supervised workout for a troubled business? A) Chapter 1 bankruptcy B) Chapter 7 bankruptcy C) Chapter 11 bankruptcy D) Chapter 13 bankruptcy

C) Chapter 11 bankruptcy

A significant number of mortgage loans use adjustable interest rates, in which the interest rate of the loan is tied to an index rate that fluctuates over time. For income-producing property, the most common index rate is the A) one-year U.S. Treasury constant maturity rate. B) prime rate. C) London Interbank Offered Rate (LIBOR). D) cost-of-funds index.

C) London Interbank Offered Rate (LIBOR).

Certain mortgage loans contain a due-on-sale clause, which gives the lender the right to terminate the loan at sale of the property. Which of the following types of loans is the most likely to contain a due-on-sale clause? A) Federal Housing Administration (FHA) loan B) Veterans Affairs (VA) loan C) conventional home loan D) an assumable home loan

C) conventional home loan

When a borrower defaults on the payment requirements of a loan, there are several options that the lender has at its disposal. When the lender allows the borrower simply to convey the property to the lender rather than pursue a court-supervised process of terminating all of the borrower's claims of ownership of the property, this is commonly referred to as A) bankruptcy. B) foreclosure. C) deed in lieu of foreclosure. D) equity right of redemption.

C) deed in lieu of foreclosure.

For most mortgage loans on commercial real estate, the right of prepayment is constrained through a prepayment penalty. Which of the following types of prepayment penalties requires a borrower to provide the lender with some combination of U.S. Treasury securities that will serve to replace the cash flows of the loan being paid off? A) yield-maintenance prepayment penalties B) prepayment lockout C) defeasance prepayment penalty D) curtailment penalty

C) defeasance prepayment penalty

Because the mortgage conveys a complex claim for a long period of time, clauses are included in anticipation of possible future complications. Which of the following clauses requires a borrower to make monthly deposits into an account in order to pay obligations such as property taxes, community association fees, or causality insurance premiums? A) demand clause B) insurance clause C) escrow clause D) exculpatory clause

C) escrow clause

Foreclosure is considered the ultimate recourse of the lender because it allows the lender to bring about sale of the property to recover the outstanding indebtedness. All of the following statements regarding foreclosure are true except A) foreclosure is a costly process for all parties involved. B) only those claimants who are properly notified and engaged in the foreclosure suit can lose their claims to the property. C) when a lender forecloses on a property, it extinguishes all superior liens, bringing about a free and clear sale of the property. D) the net recovery by a lender from a foreclosed loan seldom exceeds 80% of the outstanding loan balance and commonly is much less than this amount.

C) when a lender forecloses on a property, it extinguishes all superior liens, bringing about a free and clear sale of the property.

Violations of the requirements of a note that do not disrupt the payments on the loan tend to be viewed as technical defaults. In practice, how many days must a payment be overdue in order for lenders to treat a default as serious (i.e., a substantive default)? A) 1 day B) 30 days C) 60 days D) 90 days

D) 90 days

Known popularly by its section in the Federal Bankruptcy Code, which of the following types of bankruptcy is a court-supervised workout for a troubled household? A) Chapter 1 bankruptcy B) Chapter 7 bankruptcy C) Chapter 11 bankruptcy D) Chapter 13 bankruptcy

D) Chapter 13 bankruptcy

In an attempt to regulate home mortgage lending after the mortgage crisis of 2007, which of the following acts created an independent oversight agency tasked with the responsibility of overseeing and enforcing federal consumer financial protection laws; enforcing antidiscrimination laws in consumer finance; restricting unfair, deceptive, or abusive acts or practices; receiving consumer complaints; promoting financial education; and watching for emerging financial risks for consumers? A) Equal Credit Opportunity Act (ECOA) B) Truth-in-Lending Act (TILA) C) Real Estate Settlement Procedures Act (RESPA) D) Dodd-Frank Wall Street Reform and Consumer Protection Act

D) Dodd-Frank Wall Street Reform and Consumer Protection Act

Which of the following acts was passed out of concern for abusive predatory practices in subprime lending? A) Equal Credit Opportunity Act (ECOA) B) Truth-in-Lending Act (TILA) C) Real Estate Settlement Procedures Act (RESPA) D) Home Ownership and Equity Protection Act (HOEPA)

D) Home Ownership and Equity Protection Act (HOEPA)

If a homeowner in mortgage distress owes more than the value of the home and is unable to make the loan manageable by refinancing or modifying the mortgage, the next recourse often is a short sale of the property. All of the following statements are true regarding a short sale except A) legal costs should be lower with a short sale than with foreclosure. B) a short sale usually enables a better sale price and a faster sale than foreclosure. C) a short sale is less damaging to the borrower's credit than a foreclosure, thereby enabling the borrower to be eligible for another mortgage loan sooner. D) a short sale relieves the seller of any other outstanding obligations on the home, such as owner association fees or a second mortgage.

D) a short sale relieves the seller of any other outstanding obligations on the home, such as owner association fees or a second mortgage.

In a mortgage loan, the borrower always creates two documents: a note and a mortgage. Which of the following pieces of information is provided in the mortgage? A) how the interest rate is to be computed B) whether the borrower has the right to prepay the principal during the term of the loan, and any prepayment penalties that would be incurred as a result C) whether the borrower is released from liability for fulfillment of the contract D) an unambiguous description of the property that is being pledged as collateral for the loan

D) an unambiguous description of the property that is being pledged as collateral for the loan

Most real estate loans have a definite term to maturity, stated in years. The majority of home loans will typically have a term to maturity between A) one and five years. B) five and seven years. C) seven and fifteen years. D) fifteen and thirty years.

D) fifteen and thirty years.

The ability of homeowners to prepay the principal on their outstanding mortgage balance creates cash flow uncertainty for the lender. As a result, the lender may wish to prohibit prepayment on a mortgage loan for a specified period of time after its origination. This is accomplished through which of the following? A) defeasance B) yield maintenance provision C) demand clause D) lockout provision

D) lockout provision

In a mortgage agreement, the borrower conveys to the lender a security interest in the mortgage property. The lender, i.e., the individual who receives the mortgage claim, is known as the A) broker. B) mortgagor. C) agent. D) mortgagee.

D) mortgagee.

Standard mortgage loans require monthly payments typically composed of two components: interest and principal repayments. When scheduled mortgage payments are insufficient to pay all of the accumulating interest, causing some interest to be added to the outstanding balance after each payment shortfall, the loan is said to be A) fully amortizing. B) partially amortizing. C) nonamortizing. D) negatively amortizing.

D) negatively amortizing.

When a borrower defaults on a mortgage loan, his or her credit record will be adversely affected. While borrowers can recover from this reduction in their credit score, if a default goes into the borrower's records it will remain for A) six months. B) one year. C) five years. D) seven years.

D) seven years.

It is possible to have a secured real estate loan without a mortgage through the use of a contract for deed. In contrast to the standard real estate sale, which of the following events occurs after the closing when dealing with a contract for deed? A) offer B) acceptance C) possession of the property passes to the buyer D) title to the property passes to the buyer

D) title to the property passes to the buyer