Exam 3: Ch 10,11,12,13

Suppose an institution has purchased a $250,000 mortgage loan from the loan originator and wishes to create a mortgage pass-through security. In doing so, this institution will generate revenue by charging a servicing fee of 35 basis points. If the monthly mortgage payment on the loan is $1,250, how much income is passed through to the investor in the mortgage pass through each month (rounded to the nearest dollar)?

$1,177

Suppose that you decide to purchase a property that has annual property taxes of $2,427.22. If the closing occurred on March 13, calculate your share (buyer's share) of the total property taxes. For this problem, assume that we are dealing with a 365-day calendar year.

$1,955.06

Since hazard insurance premiums are paid up-front, the buyer will have to reimburse (credit) the seller a portion of the premium at the closing. Suppose that the insurance policy's coverage began on December 15 of the prior year and the property transaction is set to close on March 16 of a 365-day year. The premium paid originally by the seller was $250. If the coverage will expire as of the end of day December 14 in the current year, what is the dollar amount that the buyer must credit the seller?

$187.67

Assume that a veteran decides to purchase a house for $150,000 using a VA loan that amounts to $44,000. If the buyer were to default on the loan, what is the maximum amount that the VA guarantees the lender?

$22,000

If a property transaction is scheduled to close on May 14, calculate the individual tax responsibility for the buyer if the total tax owed at the end of the year is $5,000. For this problem, assume that we are dealing with a 365-day calendar year.

$3,178.08

Certain closing costs will be prorated to account for the period of time during which the seller occupied the house. If a transaction is scheduled to close on May 17 (136 days into a 365-day year), calculate the amount that the buyer will be credited if the particular closing cost in question is estimated to be $1,000 for the entire year.

$372.60

Jim has hired a real estate broker to help facilitate the sale of his home. If the broker requires a commission of 6%, how much will Jim clear from the sale (after the commission has been paid) if he is able to sell his house for $478,723? (Assume that Jim has already paid off his mortgage.)

$450,000

Loan servicing includes a number of responsibilities such as collecting monthly mortgage payments from the borrower, remitting principal and interest payments to investors, ensuring sufficient escrow payments are being made by the borrower, and managing default if it should arise. In exchange for these services, mortgage bankers receive a fee. If the outstanding loan balance is $250,000 and the annual servicing fee is 0.35%, what is the monthly fee for servicing the loan?

$72.92

Mortgage originators often offer many types and forms of available residential loans as part of their mortgage menu. However, the predominant form of prime conventional mortgage remains the

(fixed-rate) level-payment mortage (LPM)

When the mortgage banker originates a home loan, she actually creates two assets: the loan and the servicing rights. When the mortgage bank sells the servicing right to the loan, it historically has had a value of

0.75-1.25% of the loan.

If property owners fail to pay their taxes in a timely fashion, this can create a first lien on the mortgaged property. In order to protect against this, lenders often require that borrowers add what fraction of their estimated tax bill to their required monthly mortgage payments?

1/12

In accordance with RESPA, whenever a buyer obtains a new first mortgage loan from a chartered or insured lender, when the loan is insured by the FHA or guaranteed by the VA, or when the loan will be sold to one of the federally related secondary mortgage market agencies, an estimate of loan costs must be provided by the lender within

3 business days

Using the following information, calculate the housing expense ratio: monthly principal and interest on mortgage loan: $635; monthly tax and insurance payments into escrow: $125; gross monthly income: $2,500.

30.4%

Christopher has hired a real estate broker to help facilitate the sale of his home. Realizing that Christopher is most likely going to realize a loss on his investment due to the recent decline in housing values in his neighborhood, the broker has agreed to charge Christopher a lower commission rate as long as Christopher enters into an exclusive right of sale listing contract. If Christopher ends up selling his house for $364,583 and takes home $350,000 after paying the real estate broker's commission, what was the commission rate that the broker ended up charging?

4%

Suppose that you are in the process of deciding whether or not to refinance your fixed rate mortgage at a lower rate and you are interested in using the payback period rule of thumb to help you in your decision. Your lender has informed you that the cost of refinancing would be $4,300. If your original monthly mortgage payment was $1,250 and your new monthly mortgage payment would be $1,150 after refinancing, determine the payback period.

43 months

In ascertaining whether a borrower has the ability to pay off his loan over time, a mortgage bank may rely on calculating a total debt ratio as part of its underwriting process. Using the following information, calculate the total debt ratio: monthly principal and interest on mortgage loan: $635; monthly tax and insurance payments into escrow: $125; monthly car lease payment (lease term is 3 years): $350; gross monthly income: $2,500.

44.4% Piti + LTO ÷ GMI = Debt Ratio

The development of Fannie Mae and Freddie Mac established the framework for a liquid secondary market for residential mortgages. In 2015, the share of all residential mortgage loans owned or securitized by Fannie Mae and Freddie Mac approached approximately

46%

The recent emergence of discount brokerage services has had a modest effect on the price of brokerage services. The average commission that a broker could expect to receive today would most likely range between

5% and 6%

Amy is trying to decide whether or not it would be beneficial to employ the services of a real estate broker in order to facilitate the sale of her home. She has estimated that the marketing costs and opportunity cost associated with time spent dealing with prospective buyers amounts to $5,000. If Amy were to sell the house on her own for $200,000, but a broker would have been able to negotiate a higher price of $206,350, what commission rate should Amy have been willing to accept from a real estate broker to make her indifferent between selling the house on her own and hiring a real estate broker?

5.5%

In analyzing a borrower's credit worthiness, the lender will typically examine the borrower's FICO score (a product developed by the Fair Isaac Corporation). High-quality (prime) borrowers are those with a credit score above

660

A conventional mortgage loan is one that is not insured or guaranteed by an agency of the U.S. government. The lender, however, can still pursue a private mortgage insurance (PMI) policy to provide a guarantee for the fulfillment of the borrower's obligations. Typically PMI is required for all loans that have a loan to value (LTV) ratio greater than

80%

There are a number of different types of listing contracts that can be used when marketing a property. Which of the following types of listings requires the broker to be paid a commission if any other broker, or even the owner, sells the property during the contract period?

?

When a borrower (the buyer) applies for a loan, the lender will provide him/her with which of the following forms that includes details pertaining to specific loan information and an estimate of expenses that the borrower is likely to incur at the closing?

?

Which of the following contract elements is an additional requirement that must be satisfied in a contract for sale of real estate that isn't necessarily a part of other contracts?

?

Federal Housing Administration (FHA) loans differ from conventional loans in a number of ways. All of the following statements regarding FHA loans are true except: -FHA loans are targeted toward first-time homebuyers who are in slightly weaker financial circumstances than the typical prime conventional borrower -FHA loans are more tolerant in terms of qualifying debt-to-income ratios. -FHA loans require higher credit scores than are needed for prime conventional loans -FHA loans contain lower limits on their maximum size than are available through conforming conventional loans.

FHA loans require higher credit scores than are needed for prime conventional loans

In 1989, Congress took major steps to establish depository institution accountability by requiring these institutions to hold more capital as they take on riskier assets. Which of the following congressional acts imposed these capital standards on depository institutions?

Financial Institutions Reform, Recovery, and Enforcement Act

In the late 1960s, Congress created a number of agencies designed to address a struggling secondary market for residential mortgages. Which of the following organizations was developed primarily to guarantee mortgage-backed securities based on pools of FHA, VA, and Rural Housing Service loans, rather than issue, buy, or sell mortgages?

Government National Mortgage Association (Ginnie Mae)

The Federal Housing Administration (FHA) insures loans made by private lenders that meet FHA's property and credit-risk standards. Which of the following statements concerning FHA insurance is true?

The insurance is paid by the borrower and protects the lender against loss due to borrower default

In general, most contracts—including a real estate contract—can be assigned. All of the following statements regarding assignment are true except: -any type of personal performance contracted by one party cannot be assigned without that party's permission. -land contracts are not assignable without the owner's permission -if buyers of real estate assign the contract, the new buyers may pay the agreed upon price and obtain title to the property. -when buyers assign their rights to someone else, they escape liability under the original contract.

When buyers assign their rights to someone else, they escape liability under the original contract.

As an agent for the buyer or seller, a broker has six basic fiduciary responsibilities. Which of the following definitions best describes the responsibility of obedience?

a broker must follow the instructions of the principal to the limits of what is legal and ethical

The emergence of mortgage securities propelled the development of mortgage companies, an entity significantly different from the thrifts and banks that previously dominated the mortgage landscape. Which of the following parties is responsible for providing mortgage origination services and initial funding within this new framework?

a mortgage banker

Since mortgages typically have multiple costs associated with them, a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages. Which of the following measures is a popular tool for comparing the cost of several mortgages?

annual percentage rate

Suppose that a recent purchase of a residential home has been facilitated equally by a listing agent and a buyer broker. Based on your understanding of how commissions are determined, which of the following scenarios best describes who would be entitled a commission upon sale of the property? (Note: For simplicity, you can assume the seller did not procure the buyer on his or her own.)

both the listing broker and the buyer broker

Traditional home mortgage underwriting is said to rest on three elements, the "three C's." The housing expense ratio is one tool that lenders will use to address concerns associated with which of the "three C's"?

capacity

Traditional home mortgage underwriting is said to rest on three elements, the "three C's." Recent research (e.g., Archer and Smith, 2011) has confirmed that the underwriting characteristic most strongly associated with default is

collateral

Real estate brokers serve as intermediaries by bringing buyers and sellers together in the real estate market. For this service, brokers are paid what is commonly referred to as a

commission

Created by Congress to promote an active secondary market for home mortgages, Fannie Mae and Freddie Mac purchase loans that meet specific underwriting standards such as loan size, documentation, and payment-to-income ratio. The loans that Fannie Mae and Freddie Mac are eligible to purchase are commonly referred to as

conforming conventional loans

Recording documents in the public records informs anyone who may have a potential interest in a property of both the owner and lender. In so doing, it provides what is commonly referred to as ____________ of an interest in real property.

constructive notice

Contracts for sale may contain sections that cause implementation of the contract to depend on the successful completion of some prior action such as the buyer's ability to obtain financing on specified terms. This type of contract is commonly referred to as a(n)

contract with contengencies

Considered the most common type of home loan, which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S. government?

conventional home loan

According to the law of agency, real estate brokers are required to observe several duties as they act as an agent for an individual trying to buy or sell a property. Which of the following duties refers to a broker's obligation to be completely open and honest with the principal?`

disclosure

In the early 1970s, home mortgage lenders were predominantly depository institutions. By the end of the decade, the growth of deposits at these institutions became negative due to the emergence of more attractive investment opportunities such as money market funds. This change in the distribution chain of funds is more commonly referred to as

disintermediation

When a buyer signs an offer to purchase a property, the broker receives a monetary amount from the purchaser of 5% or 10% of the purchase price. This deposit is commonly referred to as the

earnest money

One of the traditional requirements for individuals who wish to obtain a brokerage license has been to demonstrate financial capacity to cover damage judgments brought against them by clients. In order to address this concern, some states have required licensees to first obtain

errors and omission insurance

Suppose that a mortgage bank locked in an interest rate for a prospective borrower at 8.5%. However, prior to the loan closing, the market mortgage rate falls to 7.5%. In this scenario, the mortgage banker would be most concerned with which of the following risks?

fallout risk

Which of the following types of institutions has historically been the largest purchaser of residential mortgages?

government sponsored enterprises

While many closings are conducted as a live event in which both buyer and seller parties are present, a number of states have moved towards the practice of escrow closings as the primary mode of real estate transaction. Based on your understanding of an escrow closing, all of the following parties are able to be an escrow agent except -bank -attorney -broker -grantor/grantee

grantor/grantee

State licensing laws prescribe behavioral requirements with which licensees must comply to keep their licenses. Licensing laws generally seek to prevent brokers from partaking in all of the following activities except -handling money in trust for clients -taking kickbacks without the employer's knowledge -offering the property at terms other than those specified by clients -failing to submit all offers to the client

handling money in trust for clients

At the closing, the buyer will be credited for a number of costs that have been paid up-front (or will be paid after closing) as well as a number of prorated expenses that account for the period of time during which the seller occupied the house. All of the following items detailed in the closing costs involve credits that are commonly passed on to the buyer except -earnest money -hazard insurance premiums -property taxes -mortgage interest

hazard insurance premiums

When the contract rate at closing is less than the current market rate (i.e., interest rates have increased since the time of the loan commitment), the mortgage banker will have to sell the newly originated loan at a discount. This scenario best depicts the mortgage banker's exposure to which of the following risks?

interest rate risk

While fee splitting between cooperating real estate brokers is permitted, RESPA explicitly prohibits such actions as rebating part of the title insurance premium to the lender who recommended or required the title insurance. These unearned fees are commonly referred to as

kickbacks

It would be hard to overstate the importance of the Federal Housing Administration (FHA) in the history of housing finance. Which of the following instruments created by the FHA is considered the single most important financial instrument in modern housing finance?

level-payment, fully amortizing loan

he final step in a real estate transaction is the closing. In most closings, which party is responsible for seeing that the closing is completed successfully?

listing broker

Recently, mortgage banking has become the natural method for doing mortgage lending. Within the mortgage lending process, which of the following roles serves as the primary revenue source for mortgage banks?

loan servicing

Throughout the process of originating and selling mortgages, mortgage companies face a number of risks. Therefore, it is important for a lending institution to evaluate the risks of mortgage loan default through a process commonly referred to as

loan underwriting

Since the issues in many transactions are similar, brokers often use standard preprinted contract forms. Generally, the best standard form contracts are those prepared and approved by which of the following parties?

local board of realtors

Lenders generally require private mortgage insurance (PMI) for conventional loans over 80% of the value of the security property. PMI protects a lender against which of the following?

losses due to default on the loan

Which of the following duties refers to a broker's obligation to never subordinate the best interest of their principal to the interests of others?

loyalty

It is common for real estate firms to identify submarkets, such as property types or particular sections of a city, in which they can specialize and concentrate their transaction activity. This practice is referred to as

market segmentation

With the arrival of subprime mortgages in recent years, a new kind of trigger event became apparent in leading households to default. Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis?

mortgage payment spikes

Mortgage banks typically will attempt to sell loans as quickly as possible after they are originated by either issuing mortgage securities or selling the loan to an intermediary that will subsequently sell the loan in the secondary market. The period between loan commitment and loan sale is referred to as the

mortgage pipeline

There are three basic types of listing contracts. These include all of the following except -open listing -exclusive agency listing -exclusive right of sale listing -multiple listing

multiple listing

State licensing laws generally prescribe two levels of real estate brokerage licensing: the broker license and the salesperson license. Which of the following responsibilities is an individual with a salesperson license permitted to do?

negotiate listing contracts or contracts for sale

In the modern framework of home mortgage lending, there are four channels by which first mortgage home loans are created. Within which of the following channels would you typically find a Wall Street investment bank obtaining loans, pooling loans, and creating a senior-subordinate security structure?

nonconforming conventional loan securitization

In recent years, mortgage lenders responded to the demand from home buyers who were unable to put 20% down on their purchase and were looking to avoid the private mortgage insurance (PMI) requirement that would typically accompany such a loan by developing a second mortgage that is created simultaneously with the first mortgage in an amount of 10% of the value of the home. This enabled the borrower to obtain 90% financing while avoiding the additional cost of PMI. These loans are more commonly referred to as

piggyback mortgage loans

While the principal parties to a transaction must be legally competent for a contract to be valid, it is possible for a party acting on behalf of a principal to obtain this legal right. In order for personal representatives and trustees to be authorized to act on behalf of a principal, a legal instrument commonly referred to as ____________ must be in place.

power of attorney

The loan origination market, in which borrowers and lenders come together to provide adequate financing for the purchase of a property, is more commonly referred to as the

primary mortgage market

Suppose a buyer agrees to purchase a tract of land for $40,000. The buyer is only able to obtain a mortgage for $32,000. Rather than let the deal fall through, the seller agrees to accept $4,000 in cash and a note from the buyer for the remaining $4,000. This type of transaction is commonly referred to as a

purchase money mortgage

The Dodd-Frank Wall Street Reform and Consumer Protection Act created an important new class of home mortgages that is aimed at helping mortgage lenders implement an "ability to repay" standard imposed by the law. These mortgages are more commonly referred to as

qualified mortgage loans

In an open-listing contract, an individual broker is entitled to a commission if

she procures the buyer of the property

In recent years, home equity loans have become a popular form of second mortgage. Their popularity has been a result of all of the following except: -lower interest rates than other consumer debt -shorter terms than other consumer debt -tax favored status -aggressive marketing by lenders

shorter terms than other consumer debt

Which of the following duties refers to a broker's obligation to represent the interests of their principals to the best of their ability in the same way they would represent themselves, acquiring and applying the necessary knowledge and information about relevant laws and regulations, the market, and subject property?

skill and care

When a borrower decides to stop making payments on an existing mortgage loan despite having the ability to make payments (typically when the home has lost value), this is more commonly referred to as a(n)

strategic default

Modern real estate brokerage normally relies on a multiple listing service (MLS) through which brokers have access to each other's listings. Which of the following types of agency agreements is established with the use of a MLS?

subagency agreement

When a party in a contract fails to perform (e.g. breach of contract, nonperformance, or default) the other party has a variety of remedies. All of the following are remedies that an aggrieved seller may pursue EXCEPT: A. Sue for damages. B. Retain the earnest money deposit as liquidated damages. C. Agree to rescission of the contract. D. Sue for specific performance.

sue for specific performance

The importance of brokers in the real estate market is often overlooked. In the absence of a real estate broker, one would expect all of the following to be true except

the asking price would most likely be higher, on average, than in the case where a broker was involved because seller is in total control of the sale

The distinction between legal title and equitable title is an important concept in the contract for sale of real estate. When the buyer obtains equitable title, the seller can no longer sell the property to someone else, even though the legal title has not officially passed on. In the contract for sale process, the creation of equitable title occurs when

the contract for sale is signed

Let's suppose that a lender has established a 90% loan-to-value ratio cutoff as one of its primary underwriting criteria. If a borrower is willing to make a down payment of $125,000 on a home recently appraised at $550,000, which of the following best describes the lender's decision on whether or not to approve the loan along this dimension?

the lender approves the loan because the LTV ratio is less than 90%

A common criticism of the annual percentage rate (APR) is that it usually understates the true cost of borrowing. The APR may understate the cost of borrowing because it assumes

the loan always goes to maturity

To be considered a qualified mortgage, the loan must have specific features and meet designated underwriting requirements. Based on your understanding of what constitutes a qualified mortgage, all of the following features describe a qualified mortgage except: -the loan cannot exceed thirty years in maturity -the loan cannot have fees in excess of 3% (if the loan is greater than $100,000) -the loan cannot have debt-to-income ratio greater than 4% -the loan does not require verification of underwriting information from third-party records

the loan does not require verification of underwriting information from third-party records

The traditional approach to loan underwriting has virtually been replaced by an automated underwriting process that involves a statistically derived equation to determine the level of default risk associated with a loan application. All of the following statements regarding the automated underwriting process are true except: -the marginal cost per loan underwritten using the automated process is greater than the case of traditional underwriting. -the time taken to approve a loan using the automated process is considerably shorter than the case of traditional underwriting. -the success in identifying risky loans is higher using the automated process than is the case with traditional underwriting. -automated underwriting has made home ownership available to households for whom it previously was inaccessible.

the marginal cost per loan underwritten using the automated process is greater than the case of traditional underwriting

Although the function of commercial brokerage is the same as that of residential brokerage, the activities of commercial brokers usually differ considerably from those of residential brokers due to fundamental differences in these two markets. All of the following statements regarding commercial brokerage are true except

the parties in commercial mortgage transactions are typically less knowledgeable that those in residential transactions

Both parties to a valid and enforceable contract must provide consideration. In a contract for the sale and purchase of real estate, which of the following depicts the seller's consideration?

the property to be given up

Federal and state laws prohibit discrimination in housing. However, exemptions do exist depending on the particular type of property that is being considered. All of the following activities could be considered exempt in specific scenarios except refusing to sell or rent

to a person because of race

In dual agency, conflicts of interest may arise since a single broker has both the listing contract with the seller and a buyer agency agreement with the purchaser. One way that states have attempted to deal with this issue is to develop a new type of brokerage relationship in which the broker assists the buyer and seller, but does not represent either party. This type of brokerage relationship is commonly referred to as

transaction brokerage

The hybrid ARM attempts to balance the fixed payment desire of a borrower with the lender's desire to increase interest rates if market rates rise in the future. In its most common form, known as a 2-28, the hybrid ARM will have a fixed-interest rate for

two years

In addition to providing home mortgages, large commercial banks have specialized in providing short-term funds to mortgage banking companies in order to enable them to originate mortgage loans and hold the loans until the mortgage banking company can sell them in the secondary market. This type of financing is commonly referred to as

warehousing

Any contract, whether it is for the sale of real estate or some other entity, must contain five basic elements. However, any contract for the sale of real estate must adhere to two additional requirements. Which of the following contract elements is an additional requirement that must be satisfied in a contract for sale of real estate that isn't necessarily a part of other contracts?

written form