FL Real Estate Unit 13

Open Market Operations

Purchase and sale of U.S. Treasury securities Fed purchases securities: Money supply increases and interest rates decrease. Fed sells securities: Money supply decreases and interest rates increase.

total monthly obligations (PITI + MIP + LTO) ÷ monthly gross income = total obligations ratio (TOR) - usually no more than 35%

principal, interest, property taxes, and hazard insurance (PITI) and the monthly mortgage insurance premium (MIP)

The interest portion on the first monthly payment of a 30-year 6% mortgage is $650. If the loan-to-value ratio is 80%, how much did the owner pay for the house? A) $162,500 B) $68,750 C) $130,000 D) $168,750

A

The law requiring lenders to furnish borrowers with the APR disclosure is the A) Truth in Lending Act. B) Consumer Credit Protection Act. C) Real Estate Settlement Procedures Act. D) Fair Housing and Lending Act.

A

When investors bypass thrift institutions for direct investment elsewhere, the process is called A) disintermediation. B) capital-deficit area support. C) intermediation. D) loan correspondence.

A

Which individual must be state licensed as a mortgage loan originator? A) Employee who works as a loan originator for a mortgage brokerage company that is not federally regulated B) Employee who processes loans for First National Bank of Orlando C) Employee who works as a loan originator for First USA Credit Union D) Employee of Bank of Florida who works as a bank teller

A

Reserve Requirement

Amount of funds that an institution must hold in reserve against deposit liabilities as determined by the Fed Reserve requirement increased: Money supply decreases and interest rates increase. Reserve requirement decreased: Money supply increases and interest rates decrease.

A commercial bank sold a group of 2,000 mortgages directly to Fannie Mae. This is an example of A) loan correspondence. B) intermediation. C) secondary market activity. D) primary market activity.

C

A partial release clause is found in which type of mortgage loan? A) Reverse mortgage B) Package mortgage C) Adjustable rate mortgage D) Blanket mortgage

D

A partially amortized mortgage has a final payment required to completely pay off the loan called A) secondary market activity. B) a negative amortization payment. C) Intermediation. D) a balloon payment.

D

A prospective borrower has a projected PITI of $1,000, an MIP of $260, a monthly car payment of $290, and a student loan payment of $175 per month. The borrower's gross monthly income is $4,200. What is the borrower's HER? A) 28% B) 38% C) 24% D) 30%

D

The loan-to-value ratio is 80%. A buyer wants to acquire a property with a purchase price of $116,000. Calculate the required down payment. A) $32,800 B) $92,800 C) $20,000 D) $23,200

D

Which statement is TRUE regarding VA mortgage loans? A) The VA buyer may be charged for the real estate commission of the closing statement. B) The total obligations ratio for a VA mortgage loan is 36%. C) Lenders use a housing expense ratio and a total obligations ratio to qualify VA borrowers. D) The VA funding fee may be added to the loan amount and financed over the life of the loan.

D

You have a VA loan of $89,000 at 6% with a 30-year term. The monthly principal and interest payment is $533.60. What portion of the second month's payment will apply to amortization of the mortgage? A) $444.56 B) $177.20 C) $88.60 D) $89.04

D = $89,000 loan amount × .06 rate = $5,340 annual interest ÷ 12 months = $445 interest month 1. $533.60 monthly payment - $445 interest = $88.60 principal paid month 1. $89,000 loan - $88.60 principal paid = $88,911.40 outstanding balance. $88,911.40 × .06 rate = $5334.684 ÷ 12 months = $444.557 or $444.56 (rounded). $533.60 month payment - $444.56 interest = $89.04 principal paid month 2.

Conventional loans usually have a higher loan-to-value ratio (LTV) than either FHA or VA loans.

FALSE

The VA sets strict loan limits on all VA loans.

FALSE

Adjustable-rate mortgages (ARMs) typically include rate caps, which limit the maximum interest that may be charged.

FALSE - rate caps limit how much the interest rate may change.

A lender quotes a mortgage loan of $100,000 at 4% interest. The monthly payment is $477.42. The principal is reduced by $333.00 in the first month's mortgage payment.

FALSE = $100,000 loan amount × .04 rate = $4,000 interest ÷ 12 months = $333.33 interest (rounded to nearest penny); $477.42 payment - $333.33 interest = $144.90 principal payment month 1.

Ginnie Mae primarily purchases existing conventional mortgage loans.

FALSE = Ginnie Mae purchases FHA and VA mortgage loans.

An FHA borrower has monthly PITI of $2,276 MIP of $160, a car payment of $479, a revolving credit card minimum monthly payment of $165 per month, and a student loan of $200 per month. The borrower's gross monthly income is $8,000. The borrower's housing expense ratio (HER) is 32%.

FALSE = The borrower's housing expense ratio is 30%. $2,276 + $160 = $2,436 monthly housing expense ÷ $8,000 gross monthly income = .3045 or 30% HER

The interest portion of the first month's mortgage payment is $937.50 with an interest rate of 4.5%, and the LTV is 80%. The sale price of the property is $250,000.

FALSE = The statement is false. $937.50 × 12 months = $11,250 interest per annum; $11,250 ÷ 4.5% = $11,250 ÷ .045 = $250,000 mortgage amount; $250,000 mortgage ÷ 80% or .80 LTV = $312,500 sale price.

Discount Rate

Interest rate charged to member banks to borrow money from the Fed Discount rate increased: Fewer loans are made and money supply decreases. Discount rate decreased: More loans are made and money supply increases.

Step 1: principal balance × annual interest ÷ 12 = first month's interest Step 2: monthly mortgage payment - first month's interest = payment on principal Step 3: beginning principal balance - principal payment = new principal balance For the second month, repeat these steps using the new principal balance.

Step 1: $150,000 unpaid balance × .05 rate = $7,500 interest ÷ 12 months= $625 first month's interest Step 2: $805.23 monthly payment - $625 interest = $180.23 payment on principal So the first month's interest was $625, and the principal reduction in month one was $180.23. However, the buyer wanted to know about the first three months, so take credit for the $180.23 paid on the principal by subtracting that amount from the $150,000. Step 3: $150,000 - $180.23 principal paid first month = $149,819.77 new principal balance Now, repeat the steps above to determine the answers for the second and third months, beginning with: Step 4: $149,819.77 new principal balance × .05 rate = $7,490.9885 ÷ 12 months = $624.25 interest

A conventional loan is one that is NOT insured or guaranteed by a government agency.

TRUE

A straw buyer is someone who applies for a residential mortgage but who doesn't intend to actually own the property.

TRUE

Borrowers must receive the Closing Disclosure at least three business days before the loan closing.

TRUE

Fannie Mae purchases existing FHA, VA, and conventional mortgages.

TRUE

Mortgage lenders originate new mortgage loans and then sell them to secondary-market participants.

TRUE

Negative amortization results from a mortgage payment that does NOT pay all of the principal and interest due for the period.

TRUE

Portfolio lenders can hold mortgage loans permanently in their portfolios.

TRUE

Real estate licensees should recognize potential red flags, such as a sale contract that states "owner of record" in the place where the seller's name is indicated.

TRUE

The Fed's principal and MOST effective tool for implementing monetary policy is the purchase and sale of U.S. Treasury and federal agency securities.

TRUE

The VA borrower's total obligations ratio cannot exceed 41%.

TRUE

The discount rate is the interest rate charged member banks for borrowing money from the Federal Reserve.

TRUE

Under a purchase money mortgage (PMM), title passes to the buyer and the seller retains a vendor's lien right as security for the debt.

TRUE

In a partially amortized mortgage, the payments do NOT fully amortize the loan.

TRUE = With a partially amortized mortgage, the buyer makes regular payments smaller than what is required to completely pay off the loan by its date of termination. In other words, the payments do not fully amortize the loan.

An FHA borrower has the following monthly expenses: PITI of $1,225, MIP of $175, car payment of $400, homeowners association fee of $60, college loan of $350, and a revolving credit card of $125. This borrower's total monthly housing expense for calculating the borrower's housing expense ratio is $1,460.

TRUE = the housing expense ratio is $1,225 PITI + $175 MIP + $60 homeowners association fee = $1,460.

The figure borrowers must be provided that includes the interest rate and other costs associated with a loan stated as a yearly rate is the annual percentage rate (APR).

TURE