Financing

A construction loan would most likely be made by a(n): (a) bank. (b) insurance company. (c) private individual. (d) mortgage broker

The correct answer is a: Commercial banks typically prefer short-term, high interest rate construction loans.

Which of the following describes the term "beneficiary statement?" (a) A statement of the unpaid balance of a loan. (b) A statement designating the one who will receive the property if the borrower dies. (c) An itemization of the amount paid to the policy holder for insurance purposes. (d) A description of the beneficial features of an assumable loan.

The correct answer is a: A beneficiary statement is a statement of the unpaid balance of a loan and the condition of the indebtedness, as it relates to a deed of trust transaction.

A broker negotiated a loan for a buyer. He will need to prepare a: (a) Mortgage Loan Disclosure Statement. (b) Real Estate Transfer Disclosure Statement. (c) Good Faith Estimate. (d) Natural Hazard Disclosure Statement.

The correct answer is a: A person who acts as a Mortgage Loan Broker and negotiates a loan for which a license is required and for compensation which is secured directly or collaterally by a lien on real property regardless of the size of the loan, must deliver a written disclosure statement to the borrower. The statement must be delivered within three business days of receipt of the borrower's written loan application or before the borrower becomes obligated to the loan, whichever is earlier. This is true whether the loan is being processed manually or electronically.

A seasoned loan is a: (a) loan with a payment record. (b) long-term loan. (c) first encumbrance. (d) None of the above

The correct answer is a: A seasoned loan is one with a payment history. If a note shows a good payment record by the payor, it is considered more desirable and usually sells for more in the secondary market.

A home loan in which the lender offers a below-market interest rate in exchange for a share of the profit when the house is sold describes a: (a) shared appreciation mortgage (b) reverse equity mortgage (c) adjustable rate mortgage (d) open-ended mortgage

The correct answer is a: A shared appreciation mortgage, or SAM, is a home loan in which the lender offers a below-market interest rate in exchange for a share of the profit when the house is sold. A SAM usually has a deadline for paying off the principal, for example, 10 years.

Most real estate loans charge the following kind of interest rate: (a) simple. (b) compound. (c) usurious. (d) Any of the above.

The correct answer is a: Interest is termed "simple" or "compound". Simple interest is interest paid only on the principal owed. Compound interest is interest paid on accrued interest as well as on the principal owed. Most real estate loans charge simple interest rates.

Which of the following is correct regarding current rules and requirements of reverse mortgage loans? (a) The borrower must complete credit counseling before a reverse mortgage. (b) The borrower must meet with at least three reverse mortgage providers. (c) The borrower is required to take out an equity line of credit as a condition of the reverse mortgage loan. (d) The borrower has three months after loan closing to change their mind and cancel the reverse mortgage loan.

The correct answer is a: The FHA has set some additional safeguards to protect borrowers and encourage responsible reverse mortgage loan use. Before loan approval, part of the process is to complete a counseling session with an FHA-approved counselor. This counselor will make sure the borrower knows all of his/her options and has all the reverse mortgage information they need to be able to decide if this loan is best for their situation. (See Reverse Mortgage Rules & Requirements: https://www.americanadvisorsgroup.com/news/reverse-mortgage-rules). Note: Reverse Mortgage may also be referred to as a Reverse Equity Mortgage (RAM) loan on the state exam.

The purchasing power of a dollar is measured: (a) by reference to price indexes. (b) by the interest paid on savings. (c) by the Federal Reserve Board. (d) by reference to the local real estate market.

The correct answer is a: The purchasing power of a dollar is measured by the Consumer Price Index.

The trustor under a trust deed is the party who: (a) signs the note as maker. (b) holds the title to the property in trust. (c) acknowledges the note for recording. (d) lends the money.

The correct answer is a: The trustor is the borrower under a deed of trust and is the one who signs the note and deed of trust.

A commercial bank agreed to loan George $180,000 for a one year term, but required George to maintain a savings account of $180,000 at all times during the term of the loan. This provision is known as: (a) risk control. (b) compensation balance. (c) mortgage insurance. (d) security deposit.

The correct answer is b: A compensation balance is used when the borrower has less than perfect credit. The lender will require a savings account. If the borrower defaults, the lender will use the funds in the savings account to offset any losses during foreclosure.

After a trustee's sale, there is money left over after paying the beneficiary of the first trust deed. This money would go first to the: (a) trustor. (b) beneficiary of the second. (c) state. (d) beneficiary of the first.

The correct answer is b: A deficiency occurs when the foreclosure sale of a property produces less than the amount needed to pay the costs and expenses of the action and to pay off the balance of the loan. The parties to the transaction are paid in order of their priority.

Why would a lender be interested in making a government-insured or government-guaranteed loan over a traditional conventional loan? (a) faster repayment (b) lower risk (c) easier qualification (d) faster foreclosure

The correct answer is b: A government guarantee or government insurance lowers the risk for the lender.

What loan has negative amortization for the first few years? (a) Interest only (b) Graduated Payment Mortgage (c) FHA (d) VA

The correct answer is b: A graduated payment mortgage loan, often referred to as GPM, is a mortgage with low initial monthly payments which gradually increase over a specified time frame. In finance, negative amortization (also known as NegAm, deferred interest or graduated payment mortgage) occurs whenever the loan payment for any period is less than the interest charged over that period so that the outstanding balance of the loan increases.

A legal act to bring about a trust deed sale can be: (a) judicial. (b) judicial or trustee. (c) trustee. (d) public taking.

The correct answer is b: A mortgage without a power of sale can only be foreclosed judicially (i.e., by owner proceeding). A mortgage or deed of trust which expressly provides for power of sale may be foreclosed judicially or by trustee's sale.

Naked legal title is held by the: (a) trustor. (b) trustee. (c) beneficiary. (d) lender.

The correct answer is b: A trustee in a deed of trust holds naked legal title to a secured property. Naked legal title is only such title as is needed to carry out the terms of the lien document, and is lacking the usual rights and privileges of ownership.

The clause in a mortgage note which permits the lender to declare the unpaid balance due and payable upon default by the borrower is called a(n): (a) defeasance clause. (b) acceleration clause. (c) due on sale clause. (d) None of the above

The correct answer is b: An acceleration clause is a provision in a mortgage, trust deed, promissory note or land contract that upon the occurrence of a specified event, gives the lender the right to call all sums due and payable in advance of the fixed payment term.

Which of the following would contribute the most in creating a period of inflation? (a) Declining dollar value (b) Appreciation (c) Lack of investment (d) Rising rent costs

The correct answer is b: Appreciation is really a result of inflation as well as a contributor to inflation. Rising rent costs are a result of inflation. Declining dollar value abroad is also a contributor to inflation.

Who would sign an assignment of a land contract? (a) vendee (b) vendor (c) trustor (d) beneficiary

The correct answer is b: If the seller (vendor) under a land Contract wishes to sell his/her interest to a third party through assignment, he/she must also convey title. The vendor's (seller's) signature would be required. The new contract holder must notify the buyer that title has been conveyed so they don't keep paying the original contract holder.

If the payments of the buyer under a Land Contract include taxes and insurance, the seller must: (a) pay the insurance company and the IRS on behalf of the buyer. (b) hold this money in a trust account for this purpose. (c) hold this money in his or her personal checking account. (d) cash the buyer's check within three working days of receipt.

The correct answer is b: If the seller receives money from the buyer under a land contract for taxes and insurance, either as part of the payment or separately, he/she must hold this money in trust for this purpose.

Upon receiving notification of default on the first trust deed, the holder of a second trust deed would most likely: (a) wait until the sale to buy the property at a bargain price. (b) redeem the first mortgage and foreclose under the second. (c) foreclose on the first to eliminate the second. (d) None of the above

The correct answer is b: In the event of default under the first trust deed, the holder of a second trust deed can elect to make the trustor's payments and thereby stop foreclosure. The junior liens holder may then foreclose on his or her own lien and take title subject to prior liens. If the junior lienholder does nothing, he/she will have to bid cash for the purchase price at the foreclosure sale or risk losing out completely, since foreclosure wipes out all junior lien. This is an inherent risk associated with junior loans.

Commercial banks are interested in liquidity and marketability of their loans. Which of the following loans would they prefer? (a) secondary money market (b) short-term (c) long-term (d) home improvement

The correct answer is b: Liquidity means assets that can be turned into cash quickly. Since short-term loans pay off quickly, the lender has access to a ready cash reserve.

The term mortgage warehousing refers to: (a) long-term loans. (b) selling loans. (c) low interest rate loans. (d) unsecured loans.

The correct answer is b: Mortgage warehousing is the process by which a mortgage banker or mortgage broker assembles mortgages that he/she has made and prepares the mortgages to be sold in the secondary market.

Broker Jones uses ABC Escrow for every transaction because of an arrangement with ABC Escrow that the company gives Broker Jones $100 for every transaction. This arrangement violates: (a) FIRPTA (b) RESPA (c) TILA (d) Regulation Z

The correct answer is b: Section 8 of RESPA prohibits any settlement service provider from giving or receiving any fee, kickback, or anything of value for the referral of business. By reimbursing the real estate agent for the referral of business, the title agency has given the broker a thing of value in consideration for the referral of business. Both the escrow company and the broker could be held responsible for the RESPA violation.

Why would the payor consider a straight note over an amortized note? (a) To collect maximum interest (b) To make minimum monthly payments (c) To put working capital back into his/her business (d) None of the above

The correct answer is b: Since a straight note is an interest only note, the monthly payments would be smaller because there is no payment of principal. The drawback is a potential balloon payment at maturity.

The government actually lends the money for a(n): (a) FHA loan. (b) Cal-Vet loan. (c) VA loan. (d) All of the above

The correct answer is b: The Department of Veteran's Affairs buys the property and then sells it to the veteran on a Land Contract of Sale.

The FHA was created primarily to provide: (a) a primary market for home mortgages. (b) insurance for home loans from qualified lenders. (c) insurance for depositors in banks. (d) a flow of money and credit.

The correct answer is b: The Federal Housing Administration (FHA) was established to encourage improvement in housing standards and conditions and to provide an adequate home-financing system through the insurance of housing mortgages and credit. FHA does not make loans, but it insures loans made by lending institutions such as banks, life insurance companies, and mortgage companies.

The Truth-in-Lending Act is part of the: (a) Business and Professions Code. (b) Federal Consumer Protection Act. (c) Uniform Commercial Code. (d) None of the above.

The correct answer is b: The Federal Truth-in-Lending Act is part of the Federal Consumer Protection Act.

Who prepares the "beneficiary statement?" (a) agent (b) lender (c) trustor (d) trustee

The correct answer is b: The beneficiary (lender) prepares the beneficiary statement upon written demand by an entitled person or his/her authorized agent. A beneficiary statement is usually requested in connection with the recording of a notice of default under a deed of trust or mortgage.

Which of the following pairs of words are synonymous (the same)? (a) take-out loan - interim loan (b) construction loan - interim loan (c) construction loan - take-out loan (d) take-out loan - progressive payment loan

The correct answer is b: The construction loan is often a short-term or interim loan. When the construction is completed, the take-out loan is used to pay off the construction loan

How much is the borrower paying if a lender charges 1 points on a $250,000 loan with a purchase price is $300,000? (a) $1,500 (b) $2,500 (c) $3,000 (d) $6,000

The correct answer is b: The lender sometimes charges points as a form of pre-paid interest. One point equals one percent of the loan amount. By charging a borrower points, a lender effectively increases the yield on the loan above the amount of the stated interest rate. Borrowers can offer to pay a lender "discount points" as a method to reduce the interest rate on the loan, thus obtaining a lower monthly payment in exchange for this up-front payment.

The nominal rate of interest is the: (a) legal rate. (b) rate set forth in the note. (c) maximum rate allowed by law. (d) discount rate.

The correct answer is b: The nominal rate of interest is the rate set forth in the promissory note.

Which of the following would be security for a note and deed of trust? (a) credit of borrower (b) value of property (c) stability of the money market (d) All of the above

The correct answer is b: The value of the property serves as security for a note and deed of trust.

A veteran is eligible to use either the VA program or the DVA program in purchasing his owner occupied house. In which of these programs would the governmental body retain legal title to the house? (a) VA (b) DVA (c) The buyer would have title regardless of which program he used (d) The VA and DVA both retain legal title

The correct answer is b: This is a Cal-Vet loan. Buyer is buying the property by using a land contract. DVA retains title until the veteran pays off the loan.

Deregulation of financial institutions most nearly means: (a) government controls no longer apply to financial institutions. (b) the amount of interest paid on savings accounts is no longer regulated. (c) financial institutions can no longer respond to market conditions. (d) examining the enforcement responsibilities of regulators have been relaxed.

The correct answer is b: Under deregulation, financial institutions may now pay any amount of interest on deposits.

What is the definition of an Offset Statement? (a) Notes the unpaid balance remaining on a mortgage loan as of a certain date. (b) Uncovers defects in the note that the property owner might assert against enforcement. (c) Indemnity insurance that protects lenders and homebuyers from financial loss sustained from defects in a title to a property. (d) An official document that proves your work is genuine and authentic

The correct answer is b: When a note and trust deed is offered for sale, a due diligence investigation is conducted that includes obtaining a trustor's offset statement to uncover defects in the note that the property owner might assert against enforcement. The offset statement is prepared by the beneficiary selling the note (or the loan broker or escrow), then delivered to the property owner for review and confirmation of the information contained in the statement. Once reviewed and signed by the property owner, it is delivered to escrow for further approval by the trust deed investor prior to closing and acquiring the trust deed note.

A low loan-to-value ratio indicates: (a) use of government financing. (b) a low down payment. (c) a large down payment. (d) the presence of government insurance.

The correct answer is c: A large down payment by the borrower would lower the loan-to-value ratio.

A package mortgage is a loan in which: (a) more than one parcel of land in a subdivision is covered. (b) the first and second trust deeds are included in one instrument. (c) personal property is included in the real estate loan. (d) additional financing is secured from a lender at a later date.

The correct answer is c: A package mortgage is a method of financing in which the loan that finances the purchase of a home also finances the purchases of items of personal property.

Under the "power of sale" clause in a trust deed, the authority to sell is placed with the: (a) County Sheriff by court order. (b) clerk of the County Court by court order. (c) trustee by trustor. (d) beneficiary by trustee.

The correct answer is c: A power-of-sale clause is found in a trust deed where the trustor gives the trustee authority to sell the trust property under certain circumstances.

The seller (vendor) under a real property sales contract CANNOT: (a) sell his or her interest. (b) encumber the property. (c) use something other than a legal description. (d) All of the above

The correct answer is c: A real property sales contract (formerly referred to as an "installment land sale contract") must contain the names of the buyer and seller, the sales price, the terms of payment, a full legal description and a lengthy statement of the rights and obligations of the parties.

During periods of tight money: (a) interest rates go down. (b) interest rates stay the same. (c) interest rates go up. (d) None of the above

The correct answer is c: A tight money market is an economic situation in which the supply of money is limited and the demand for money is high. Due to the economic forces of supply and demand, interest rates typically go up during a period of tight money.

A loan to be completely repaid, principal and interest, by a series of regular equal installments is a: (a) straight note. (b) balloon payment loan. (c) fully amortized note. (d) variable rate mortgage loan.

The correct answer is c: Amortization is the gradual repayment or retiring of a debt by means of systematic payments of principal and/or interest over a set period so that at the end there is a zero balance. The principal is thus directly reduced or amortized over the life of the loan.

An assignment of a rent's clause in a trust deed benefits the: (a) trustor. (b) trustee. (c) beneficiary. (d) buyer.

The correct answer is c: An assigment of rents clause in a trust deed is an agreement between the trustor (property owner) and the beneficiary by which the beneficiary receives as security the right to collect rents from the trustor's tenants.

The type of mortgage loan which permits borrowing additional funds at a later date is called a(n): (a) equitable mortgage. (b) junior mortgage. (c) open-end mortgage. (d) extendible mortgage.

The correct answer is c: An open-end provision in a mortgage allows the borrower to borrow additional amounts in the future without rewriting the loan documents.

The term "Secondary Market" as used in financing, refers to: (a) second loans. (b) transferring of loans by mortgagors. (c) transferring of loans by mortgagees. (d) transferring of loans by sellers.

The correct answer is c: Broadly speaking, mortgage markets are classified as "primary" and "secondary." A secondary market is one in which existing mortgages are bought, sold, or borrowed against. The mortgagee (lender) transfers the loan.

If a real estate licensee sells a real property sales contract for a seller (vendor), the licensee is responsible for making sure the contract is recorded: (a) immediately. (b) as soon as practical. (c) within 10 working days. (d) within one year.

The correct answer is c: If a real estate broker negotiates the sale of a real property sales contract (formerly referred to as an "installment land sale contract"), he/she is responsible for making sure it gets recorded within 10 working days.

The beneficiary of a trust deed is usually a: (a) Realtor. (b) borrower. (c) bank. (d) trustee.

The correct answer is c: In a trust deed, the beneficiary is the lender (usually a bank).

How long does a lender like to see a person in the same job or field to qualify for a loan? (a) 6 months (b) 1 year (c) 2 years (d) 3 years

The correct answer is c: It is typical for lenders to consider your last two years of employment. But that doesn't mean you need to have been in the exact same job for the past two years. Generally, lenders will accept a 2-year history of consistent work in the same field.

Which of the following is a general difference between individual and institutional lenders? (a) Individual lenders make larger loans than institutional lenders. (b) Individudal lenders charge lower interest rates. (c) Individual lenders give loans for shorter terms. (d) Individual lenders do not undertake foreclosure proceedings.

The correct answer is c: Loans made by individual lenders are usually for a shorter loan term. Private individuals are the primary source of secondary financing.

The Real Estate Settlement Procedures Act provides for violation penalties of: (a) a fine of up to $10,000. (b) up to one year in jail. (c) loss of real estate license. (d) both (a) and (b).

The correct answer is d: Violation of RESPA may result in a monetary fine and/or jail time

Which of the following statements is most nearly true concerning the activities of mortgage companies? (a) They are organized under federal laws and thus are not subject to state regulations. (b) They never service the loans they create. (c) They prefer negotiating loans which are saleable in the secondary market. (d) They are not active in the field of government insured loans.

The correct answer is c: Mortgage companies (loan brokers) often do service the loans they originate, are active in FHA and VA loans and are usually organized under state laws. They prefer to negotiate loans which are sold on the secondary market.

Who funds private mortgage companies? (a) Government National Mortgage Association (b) Federal Deposit Insurance Corporation (c) Private premiums of insurance and pools of insurance policies (d) Federal Home Loan Mortgage Corporation

The correct answer is c: Private mortgage companies are really Mortgage Bankers. Most Mortgage Bankers fund loans themselves through a contract with an insurance company.

All of the following fees are allowed under RESPA except: (a) Cooperative agreements between listing and selling real estate brokers. (b) Payments to an attorney for services actually rendered. (c) Payment for the referral of business, rather than for services actually performed. (d) Payments for services actually rendered or goods actually provided

The correct answer is c: Section 8 of RESPA prohibits a person from giving or accepting any "thing" of value for referrals of settlement service business related to a federally related mortgage loan. It also prohibits a person from giving or accepting any part of a charge for services that are not performed.

Which of the following would have the least impact on evaluating a prospective borrower's income for a loan? (a) his spouse (b) stock investments (c) overtime earnings (d) salary from second job

The correct answer is c: Since overtime is typically sporadic, it is of least concern to the lender.

Who would be responsible for paying the 1% origination fee on an FHA loan? (a) Escrow officer (b) The seller (c) The buyer (d) The lender

The correct answer is c: The 1% loan origination fee is required by FHA and is paid by the borrower.

Upon full repayment of a Cal-Vet loan, the borrower receives a: (a) new loan commitment. (b) reconveyance deed. (c) grant deed. (d) quitclaim deed.

The correct answer is c: The CDVA holds title until the veteran has repaid the amount owed. Upon repayment, title is conveyed to the veteran in the form of a grant deed.

Why are housing prices so heavily weighted when calculating the Consumer Price Index? (a) Increasing down payment amounts contribute significantly to inflation. (b) The most significant portion of the CPI is building costs. (c) Housing prices and the associated interest costs form the bulk of most homeowner. (d) All of the above.

The correct answer is c: The Consumer Price Index (CPI) is designed to measure the change in the average level of prices paid for consumer goods and services by all private households. In measuring the CPI, not all goods and services are treated equally or in other words, given the same weight. Since housing prices and the associated interest costs form the bulk of most homeowners' outlay, changes in mortgage interest rates are heavily weighted when calculating the CPI.

Who enforces the Truth-in-Lending Act? (a) local government (b) state governor (c) Federal Trade Commission (d) Fair Housing Administration

The correct answer is c: The Federal Trade Commission is in charge of enforcing the Truth-in-Lending Act (Regulation Z).

An adjustable-rate loan has an index that has risen from 5% to 10% with a margin of 2%, but the lender is still charging only 11% interest on the loan. This lower interest rate is most likey due to: (a) negative amortization. (b) usury. (c) the cap rate. (d) Regulation Z.

The correct answer is c: The cap rate is a ceiling or limit on the adjustments made in the payments, interest rate or balance of an adjustable-rate loan.

With a mortgage, who signs the note? (a) trustee (b) beneficiary (c) mortgagor (d) mortgagee

The correct answer is c: The mortgagor (borrower) signs the note.

Which of the following is the purpose of the Federal Truth-In-Lending Act? (a) To limit interest rates (b) To regulate fees charged by lenders (c) To assure a meaningful disclosure of credit terms (d) All of the above

The correct answer is c: The purpose of the Federal Truth-in-Lending Act is to assure consumers that they are provided information on the costs of credit by disclosing credit terms.

During the one-year redemption period of a mortgagor in default: (a) the mortgagee can sue for rent. (b) the mortgagee is not entitled to possession. (c) both (a) and (b) (d) neither (a) nor (b)

The correct answer is c: The redemption period is a period of time established by state law during which a property owner has a right to redeem real estate after a judicial foreclosure by paying the sales price, interest and costs.

The beneficiary of a second trust deed sold his interest in the property for less than the unpaid balance of the note. This action is most commonly described as: (a) leveraging. (b) liquidating. (c) discounting. (d) subrogating.

The correct answer is c: To discount means to sell at a reduced value. When an investor sells a note at a discount, he/she is converting investment inflows to a present value. Since money has a time value, every dollar of that note to be received in the future is worth less than one dollar now, thus the discount.

The conscious charging by a private lender of more than the maximum amount of interest allowed by law is known as: (a) penury. (b) leverage. (c) usury. (d) assemblage.

The correct answer is c: Usury is defined as a conscious taking by a lender of more than the maximum amount of interest as allowed by law.

Which of the following would not require a down payment? (a) Cal Vet (b) FHA (c) VA (d) Conventional

The correct answer is c: VA loans can be made with no down payment required. The other financing programs generally require a down payment.

Default in a mortgage may be caused by: (a) failure to pay taxes. (b) failure to maintain insurance. (c) failure to make payments. (d) All of the above

The correct answer is d: A default is generally defined as nonperformance of a duty or obligation that is part of a contract.

A prepayment penalty clause found in a contract is often: (a) written into the contract for the trustee's protection. (b) a charge to the buyer if he/she is late in making a monthly payment. (c) for the benefit of the trustor. (d) a penalty the buyer is charged for paying the contract off early.

The correct answer is d: A prepayment penalty clause is charged against the borrower for early retirement of the loan. The main reason for the charge is that money paid early to the lender often sits dormant and does not earn interest. To avoid this, the lender charges the borrower a penalty.

Total foreclosure time under a trust deed most nearly approaches: (a) one year. (b) 18 months. (c) three months. (d) four months.

The correct answer is d: A three month reinstatement period plus 20 days advertising of the sale by publishing the Notice of Sale.

Under which of the following types of financing is the borrower required to purchase term life insurance? (a) conventional (b) VA (c) FHA (d) Cal-Vet

The correct answer is d: A veteran is required to secure life insurance under the Cal-Vet Home Protection Plan.

The source of money for most home loans by institutional lenders is: (a) bonds. (b) business profits. (c) government funds. (d) individual and family savings.

The correct answer is d: An institutional lender is a financial institution such as a bank, insurance company, savings and loan association, or any lending institution whose loan is regulated by law. Such institutions invest depositors' and customers' money.

A homeowner would be least likely to obtain a $50,000 home improvement loan from a(n): (a) savings and loan association. (b) credit union. (c) commercial bank. (d) insurance company.

The correct answer is d: In general, life insurance companies make conventional loans on most types of properties, but usually not on single-family homes.

Which of the following would NOT be illustrative of an institutional lender? (a) insurance company (b) savings and loan (c) commercial bank (d) mortgage company

The correct answer is d: Institutional lenders are those lenders who lend their own money. A mortgage company usually does not lend its own money, but rather acts in most cases as the representative of an institutional lender. They are sometimes referred to as "loan correspondents" or "loan brokerage firms."

From the lender's perspective, a large down payment: (a) reduces the possibility of default. (b) makes it more likely that the property will be properly maintained. (c) streamlines the loan qualification process. (d) All of the above

The correct answer is d: Most lenders realize that the greater the equity a borrower has in a property, the less inclined he/she will be to default and lose the property through foreclosure. This should also encourage the borrower to keep the property in good shape. A large down payment usually streamlines the loan qualification process.

All of the following are considered advantages of FHA financing EXCEPT: (a) low down payment. (b) long-term loans with lower payments. (c) easy to qualify for. (d) buyer is protected with FHA insurance.

The correct answer is d: The FHA neither builds homes nor lends money directly, rather it insures loans on real property. Should the homeowner default on the mortgage, the lender is protected, not the buyer.

Why was HUD, Section 8, created? (a) For minorities to obtain housing (b) For Federal employees to obtain housing (c) To create government jobs (d) To allow affordable housing for all United States citizens

The correct answer is d: The HUD, Section 8 Program is a federal rent subsidy program for low-income and moderate-income tenants. Section 8 allows families to choose privately owned rental housing. The public housing authority generally pays the landlord the difference between the HUD-determined payment standard and the fair market rent, which must be reasonable.

An agent places an ad in the newspaper saying that he will give $500 to anyone who sells or buys a property through him. Which of the following is TRUE? (a) The broker cannot give $500 to the buyer or seller. (b) The broker cannot give $500 to the buyer only. (c) This would violate the real estate law concerning compensation of unlicensed persons performing real estate acts. (d) The agent can give $500 to the buyer or seller.

The correct answer is d: The agent can give a monetary incentive to prospective clients as long as a full disclosure is made to all parties to the transaction.

Private Mortgage Insurance (PMI) can be canceled when you've paid down your mortgage to: (a) 50% of the loan. (b) 60% of the loan. (c) 70% of the loan. (d) 80% of the loan.

The correct answer is d: The federal Homeowners' Protection Act, which applies to people who bought their homes after July 29, 1999, says that you can ask that your PMI be canceled when you've paid down your mortgage to 80% of the original loan, if you have a good record of payment and compliance with the terms of your mortgage.

The relationship of the trustor to the beneficiary in a deed of trust is comparable to: (a) grantor to grantee (b) lessor to lessee (c) optionor to optionee (d) borrower to lender

The correct answer is d: The relationship of the trustor to the beneficiary is similar to the borrower/lender relationship in that the mortgagee (lender) extends credit to the mortgagor (borrower). Memory AID: The "OR" gives something of value to the "EE" in exchange for money.

Which of the following would most likely charge the highest interest rate? (a) commercial banks (b) savings and loan associations (c) insurance companies (d) individual lenders for cash

The correct answer is d: This type of loan is referred to as a "hard money loan." It is a mortgage loan given to a borrower in exchange for cash, as opposed to a mortgage given to finance a specific real estate purchase. Hard money loans often involve more risk for the lender and thus carry a higher interest rate.

Which of the following is TRUE with regard to a "beneficiary statement?" (a) The lender may charge up to $60 for preparing the statement. (b) Upon the request of the borrower, the beneficiary must furnish the statement within 21 days. (c) Failure to provide the statement in time can result in $300 damages. (d) All of the above

The correct answer is d: Upon the written request of an authorized person, the beneficiary must furnish a beneficiary statement within 21 days. There may be a $300 penalty for failing to comply. Although the beneficiary must provide an annual statement at no charge, additional statements may carry a maximum $60 charge.

What distinguishes VA loans from FHA and other loans? (a) no points (b) maximum loan of $100,000 (c) down payment determined by Notice of Value (NOV) (d) no down payment

The correct answer is d: VA loans can be made with no down payment.

The owner of a property encumbered with a first and second trust deed wants to refinance the first trust deed. What should the second trust deed contain? (a) a subordination clause (b) an exculpatory clause (c) a release clause (d) an acceleration clause

Your answer: (a) is correct. A subordination clause is a clause in which the holder of a mortgage or trust deed holder permits a subsequent lien to take priority. Subordination is the act of yielding priority. This clause provides that if a prior mortgage is paid off or renewed, the junior mortgage will continue in its subordinate position and will not automatically become a higher or first mortgage.

At the close of a Land Contract, the vendee is entitled to: (a) legal title. (b) equitable title. (c) naked title. (d) nothing.

Your answer: (a) is correct. During the term of a Land Contract, title remains in the name of the seller (vendor) until the provisions of the contract have been met. Upon satisfactory performance, the vendor conveys legal title to the buyer (vendee). During the term of the contract, the vendee holds the equitable title or equitable ownership.

To pledge a thing as security for an obligation without surrendering possession of it refers to: (a) hypothecation (b) alienation (c) transformation (d) substitution

Your answer: (a) is correct. Hypothecate means to pledge specific real or personal property as security for an obligation without surrendering possession of it.

A buyer has a monthly gross income of $5,000; total mortgage payments of $1,171; and total long-term debts of $325 per month. The front-end ratio is: (a) 23% (b) 28% (c) 30% (d) 36%

Your answer: (a) is correct. Lenders use the monthly payment on a property in determining a borrower's qualifications. This is the relationship between the total mortgage payment and the monthly gross income called the "front-end" ratio. The payment includes principal and interest, property taxes, and insurance (commonly referred to as PITI). The formula is: mortgage payment ÷ gross income = front-end ratio. $1,171 ÷ $5,000 = 23%.

Who would most likley pay a premium for mutual mortgage insurance? (a) The homeowner who assures an FHA loan. (b) A buyer with a Cal-Vet loan. (c) A home buyer with a conventional loan from a life insurance company. (d) A home buyer who wants to insure real and personal property.

Your answer: (a) is correct. Mutual Mortgage Insurance (MMI) is mandatory on all FHA loans.

What can the lender advertise in the newspaper for a loan offering that includes negative amortization? (a) "We can help you finance the purchase of your home" (b) "We can approve you over the phone" (c) "No cost loan" (d) "Super low interest rate"

Your answer: (a) is correct. Negative amortization occurs when a monthly loan payment is too small to cover even the interest, which gets added to the unpaid balance. It can result in a borrower owing substantially more than the original amount borrowed. Certain "buzz words" in an ad trigger additional mandatory disclosures. For example, an ad that says, "Low Fixed Rate," or "No Cost Loan," must also prominently mention all associated fees. It is illegal to make loan approvals over the phone.

Which of the following lenders invest more heavily in single-family home loans? (a) savings and loan associations (b) commercial banks (c) insurance companies (d) individuals

Your answer: (a) is correct. Savings and loan associations, also known as "thrifts," fomerly accounted for more home loans than any other source. The distinction between banks and S&L's has almost disappeared since deregulation, and a great many S&L's have become banks.

A request for notice of default would be of most help to the: (a) beneficiary of a second trust deed. (b) trustor. (c) beneficiary of a first trust deed. (d) trustee.

Your answer: (a) is correct. Since foreclosure wipes out all junior liens, the holder of a junior lien should request the recording of a request for notice of default announcing that a default has occurred.

Mortgages and deeds of trust differ in every respect EXCEPT: (a) security. (b) parties. (c) statute of limitations. (d) title.

Your answer: (a) is correct. The property is security for a loan under both a mortgage and deed of trust. A mortgage has two parties while a trust deed has three. A mortgage promises the title - a trust deed conveys legal title from the trustor to trustee.

A veteran may purchase a home under Cal Vet by a: (a) contract of sale. (b) trust deed. (c) mortgage. (d) Any of the above

Your answer: (a) is correct. The property the veteran wishes to buy is purchased by the Department of Veteran's Affairs and in turn re-sold to the veteran on a Land Contract of Sale.

Buyer B has purchased under a contract of sale from Seller A. "A" is one month behind in his mortgage payments on the property which is the same amount that "B" pays each month to "A". With regard to the current payment "B" makes to "A": (a) it must be immediately applied to A (b) it need not be applied unless A is three months delinquent. (c) "A" should not have sold his property with an outstanding loan balance. (d) a buyer on a land contract should check on encumbrances before entering into a contract of sale.

Your answer: (a) is correct. The seller is required by law to apply the payment received from the buyer to the amount due on the existing trust deed.

A loan that requires a balloon payment at its maturity is called a(n): (a) partially amortized loan. (b) fully amortized loan. (c) amortized loan. (d) hard money loan.

Your answer: (a) is correct. Under a partially amortized loan, the balance at maturity has only been partially reduced. The remaining balance due at maturity is referred to as a balloon payment .

In purchasing a home, the purchaser generally gives a note secured by a first deed of trust to a lending institution. In addition, he may give the seller cash and a note secured by a second deed of trust on the property. A "request for notice" would be filed for the benefit of the: (a) mortgagor. (b) holder of the second. (c) trustor. (d) holder of the first.

Your answer: (b) is correct. A "request for notice of default" is filed with the county recorder when the second trust deed is recorded. If there is a default on the first trust deed, the recorder will send a copy of the "Notice of Default" to the holder of the second. This gives the holder of the second time to reinstate the first and begin foreclosure on the second.

A deficiency judgment is possible: (a) where foreclosure is by sale. (b) where foreclosure is by court action. (c) on a purchase-money mortgage. (d) All of the above

Your answer: (b) is correct. A deficiency judgment is a judgment against a borrower for the balance of a debt owed when the security for a loan is insufficient to satisfy the debt. A deficiency occurs when the foreclosure sale of a property produces less than the amount due on the loan. In California, a mortgagee cannot recover a deficiency judgment on a purchase-money loan. In those states where mortgages generally carry a "power of sale," creditors must bring a separate action to obtain a deficiency judgment.

What is the form a lender must give the buyer-borrower when the loan terms have changed prior to the close of escrow? (a) Transfer Disclosure Statement (b) Closing Disclosure (c) Good Faith Estimate (d) Truth in Lending Disclosure

Your answer: (b) is correct. According to the new TILA-RESPA Integrated Disclosure (TRID) law (TILA and RESPA Integrated Disclosures), if there are changes in the loan terms prior to consummation, but after issuance of the Closing Disclosure, the lender must provide the buyer-borrower with updated information in a revised Closing Disclosure no later than consummation. "Consummation" occurs when the buyer-borrower becomes contractually obligated to the creditor (lender) on the loan. In California, the buyer-borrower becomes contractually obligated to the lender upon recordation of the loan documents. The TILA-RESPA Integrated Disclosure (TRID) rule went into effect on October 3, 2015.

Which of these pairs of terms have the closest relationship to each other: (a) Take-out/construction loans (b) Construction/interim loans (c) Take-out/interim loans (d) Wrap-around/construction loans

Your answer: (b) is correct. Interim loan is another name for a construction loan.

All of the following are characteristics of FHA loans EXCEPT: (a) for housing only (b) guarantees loans (c) insures loans (d) high loan-to-value ratio

Your answer: (b) is correct. The FHA does not guarantee loans, rather it insures loans on real property.

In an adjustable-rate loan, the amount added to the index rate that represents the lender's cost of doing business is called the: (a) marginal rate. (b) margin. (c) discount. (d) overage.

Your answer: (b) is correct. The margin is the amount added to the interest rate of an adjustable-rate loan that represents the lender's cost of doing business (includes costs, profits and risk of loss of the loan). Generally, the margin stays constant during the life of the loan.

Why should a buyer seek legal counsel before assuming the seller's first mortgage? (a) It is illegal to assume a loan in California. (b) The lender has to approve the assumption. (c) The buyer cannot qualify for a loan independently. (d) The seller will be able to foreclose.

Your answer: (b) is correct. The most obvious pitfall to a buyer is thinking that the loan is fully assumable, but in fact it is not, and the lender can declare the entire loan due and payable. In order to assume an existing mortgage loan it is generally necessary to obtain consent from the lender prior to the assumption process. Transfer of property with an existing mortgage loan that is made without the lender's consent is sometimes referred to as a sale "subject to" the existing loan. In most cases, this type of transfer does not avoid the lender's right to call the loan due under the due-on-sale provision in the loan.

To subordinate means to: (a) subrogate. (b) sell. (c) lease. (d) be secondary.

Your answer: (d) is correct. Subordinate means to occupy a lower position in a regular descending series.