Practice Tests

Lenders are more comfortable when borrowers have around 20% of the property's purchase price to serve as what kind of payment?

Down payment

Stephanie was having trouble making her mortgage payments. Now her payments are lower than they were, and she's able to pay them each month. This is because her lender ______.

Gave her a loan modification

How might a borrower avoid paying the mortgage insurance premium required by an FHA loan?

Get conventional financing

Janice is selling her five-bedroom, three-bath home. She has a marketable title. What does that mean?

Her property's title is free and clear of liens and is only subject to loan payoff and any taxes owed.

Which of the following best describes the state of the market during the recovery phase of the real estate cycle?

High but stabilized unemployment and a high number of foreclosures

During which phase of the real estate cycle do residents engage with local amenities and services?

Living

Store of value, medium of exchange, and what other factor define money?

Unit of value

What's the most common ratio for borrowers who use split, or piggyback, mortgages?

80/10/10

Who's the mortgagor in a mortgage?

Borrower

FHA-insured loan programs cover all of the following EXCEPT ______.

Recreational vehicles

Which of the following could be a concern for a lender regarding property condition?

A roof that's missing shingles

What type of property is Valerie appraising if she's using the sales comparison approach?

A single-family residence built six years ago

To which of the following borrowers might a lender be most likely to recommend an FHA loan?

A young couple with only a few thousand dollars saved for a down payment and relatively low credit scores Loans insured by the Federal Housing Administration require a 3.5% down payment and permit buyers with lower credit scores to qualify for a loan.

Under the "Summaries of Transaction" section on page three of the Closing Disclosure, amounts listed for the borrower's transaction are calculated to result in ______

An amount due from the borrower, which will match the cash to close amount

What is a reverse exchange?

An investor finds and closes on an investment property and then decides to immediately sell another investment property.

Which of the following is a likely effect when the discount window is closed?

Banks don't have access to additional funds.

How does Farmer Mac support agricultural producers?

By creating a secondary market for agricultural loans, making it possible for agricultural lenders to fund more loans

Chuck needs to make a few repairs and upgrades to his home, but he needs some cash to do it. He decides to tap into the equity in his home, which he purchased using a VA home loan. What VA program can Chuck use to do this?

Cash-Out Refinance

Kaycie is a new employee at a mutual savings bank. During orientation, she learned that mutual savings banks have limitations that are set by their ______.

Charter

Tyler is a developer who renovates a long-abandoned warehouse in a low-income neighborhood into a community center, complete with space for after-school programs, a daycare, and a gym. Tyler is able to complete the renovation with a loan funded by a local bank. Which act requires financial institutions to make credit available for this type of development?

Community Reinvestment Act

Which entity sets the requirements for qualified mortgages?

Consumer Financial Protection Bureau

Jackson has received several inquiries on his credit report. Which of these inquires was one he did NOT initiate?

Credit monitoring

What type of lien is placed on a property as a result of a court order?

Equitable

The contract Jack is signing has a clause that protects his assets from a deficiency judgment in case of foreclosure. What is this called?

Exculpatory

Fannie Mae, Freddie Mac, and the Federal Home Loan Bank are regulated by the ______.

Federal Housing Finance Agency

Which of the following is NOT an accurate statement regarding the title?

Foreclosed properties rarely have clouded titles.

Celia was obtaining a conventional loan, and she put $50,000 down as a down payment. Why might her lender also require her to obtain private mortgage insurance?

Her down payment of $50,000 isn't at least 20% of the purchase price.

Appraiser Jerry is looking past how a property is being used to determine a more optimal function. What is he determining?

Highest and best use

Lucas would like to be a homeowner, but his low credit score makes lenders unwilling to give him a mortgage. What makes the 203(b) loan a more likely option for Lucas to qualify for a mortgage?

It has less stringent qualifying requirements than a conventional loan.

What is the interest rate on a VA loan?

It varies by lender

Which of the following is a true statement about the Hardest Hit Fund?

It was available in the states with the most underwater homeowners.

Which professionals are most utilized by the buyer prior to closing?

Lenders, title companies, appraisers, and home inspectors

Which of the following REITs focuses on lending money for mortgages and investing in mortgage-backed securities?

Mortgage REIT

An industrial development bond is a variety of ______ bond.

Municipal An industrial development bond is a variety of municipal bond. They give private investors an opportunity to take advantage of tax-exempt funds in exchange for helping to fund municipal projects, such as apartment buildings.

Which organization manages and charters credit unions?

NCUA

What information is included on the Loan Estimate form so that the consumer can confirm the reputation of lending institution and individual?

Nationwide Mortgage Licensing System IDs

Special mortgage loan programs for ______ include the FHA248 and HUD 184 programs.

Native Americans living on tribal land

Your buyer, Chet, is a veteran trying to buy a house, but the certificate of reasonable value came in $10,000 lower than the agreed-upon sales price. What can Chet do?

Negotiate with the seller

Which of the following is NOT a benefit government-sponsored enterprises receive?

Non-profit status

What percentage of closing costs can be included in a VA loan?

None; Closing costs may not be included in the loan, but the borrower may negotiate with the seller to pay these.

Lisa, a seller, is providing Darwin, a buyer, with a seller second on the purchase of her property. Darwin's conventional lender uses a note with deed of trust to secure the first loan. What instrument is Lisa most likely to use for her second loan with Darwin?

Note with deed of trust Lisa won't be able to use a contract for deed, and although the mortgage (with note) is an option, if Darwin's lender uses a deed of trust that means it is typical for the state, and would be Lisa's most likely choice.

Jacob is selling his unencumbered property to Shem and is acting as lender in the transaction. Which type(s) of finance instrument can Jacob use for the loan agreement?

Note with mortgage, note with deed of trust, or contract for deed

When a buyer uses an FHA loan, the down payment amount is calculated ______.

On the lesser of the sales price or the appraised value of the property

A ______ is a mortgage-backed security issued by Freddie Mac.

Participation certificate

The two most common insolvency methods put in place when a bank fails are the purchase and assumption method and the ______ method.

Payout

Kara is a lender who is working with prospective buyer, Stan. What does Kara ask Sam to provide to show his work history and earning information?

Paystub

Leslie has applied for a loan modification. As part of the process, her lender will likely ______.

Perform a title search

Which of the following is a piece of specific data an appraiser may gather?

Property lot size

Annual MIP can be removed from an FHA loan by ______.

Refinancing to a conventional loan. The annual MIP is paid for the life of the FHA loan and may only be removed by paying off the loan, by selling the home, or by refinancing to a conventional loan.

Violet purchased a house from Nick, and assumed the existing loan. Nick wants to make sure he isn't liable if Violet ever defaults. What can he do to remove his name from the loan agreement?

Request a novation

What kind of communities does Farmer Mac serve?

Rural communities

Which commitment section matches the schedule to its description and provides information related to the transaction, including legal description and parties?

Schedule A

Sally, Larry's appraiser, has provided her with a title commitment and indicated there's a problem with the title. Where can Larry find the requirements that must be met before a title insurance policy will be issued?

Schedule B-1

Rules and regulations that protect consumers of financial services are now the responsibility of ______, which was created by the Dodd-Frank Act.

The CFPB

Select the choice that best translates this clause into plain English. "Any partial prepayment shall be applied against the principal amount outstanding and shall not postpone the due date of any subsequent monthly installments or change the amount of such installments, unless the Note holder shall otherwise agree in writing."

The borrower is allowed to prepay the loan without penalty.

What do property taxes in a mortgage payment pay for?

The cost of public services as a percentage of the property value

Which of the following is a likely result if Federal Home Loan Banks did not exist?

There'd be fewer funds available for lending in the community.

Kendra has applied for a mortgage from Best Bank. When is Best Bank required to provide Kendra with a Loan Estimate?

Three business days

How is title usually conveyed to the buyer during a foreclosure process?

Through a referee's deed

Monica is selling her house in Hawaii. Her appraiser, Tom, is using a less common title search method, only going back as far as when the last title search was performed. The method he's using assumes the last search was done accurately and legally, and that any issues were resolved. Which method is Tom using?

Torrens system

Which of the following acts created regulations for advertising credit services?

Truth in Lending Act

Which of the following is considered an ineligible property type for which a loan to purchase or refinance wouldn't be purchased by Fannie Mae?

Vacant lot

A Treasury note is a Treasury security ______.

With a maturity term between two and 10 years Treasury notes are issues in terms of two, three, five, seven and 10 years.

What is a lock-in clause?

a form of pre-payment penalty typically used only for high-yield loans

The _______ section contains the seller's existing mortgage loan payoff amount that must be paid to complete the transaction.

"Due from Seller at Closing"

Consumers in the _______ range are well above the average credit score and generally have an easy time getting approved for new credit.

800+

How's interest defined as it's related to a mortgage loan payment?

A fee paid to lenders for the use of their money

Which of the following statements best describes a mortgage broker?

A person who works with multiple lenders to find the product that works best for the client

When borrowers miss scheduled mortgage payments, fail to pay property taxes, or ______, they could face loan default.

Allow the property to go into disrepair

Which of the following individuals would qualify to purchase a home under the Good Neighbor Program?

An emergency medical technician

Andrea's lender has notified her of its intent to foreclose. Her loan is secured with a deed of trust. What rights does she have to redeem her property?

Andrea can cure the default and reinstate the loan.

Which of the following helps to protect the appraisal process from outside undue influence?

Appraiser Independence Requirements

Which event led to the establishment of the FDIC?

Bank failures during the Great Depression

What information does Schedule A of a title commitment provide?

Basic facts related to the transaction and property, including a legal description

To qualify as a Texas veteran, a person must ______.

Be at least 18 years old

Bill's loan is secured by a mortgage. Who holds legal title when this security instrument is used?

Bill

Rick, a builder, is using two properties as collateral for a loan. This is an example of a(n) ______ loan.

Blanket

As part of a deficiency judgment sought by a lender, a ______ may be placed on any current and future property the borrower owns until the lender recovers all losses.

Blanket lien

Chapo's property was foreclosed on and he is facing a deficiency judgment so the lender can recover losses incurred from the foreclosure process. What type of lien may the lender levy against Chapo until the losses are paid?

Blanket lien

The borrower's closing costs and down payment have changed from the Loan Estimate, and the seller's credit has increased. Which section on page three of the Closing Disclosure can help borrowers identify information that has changed from the Loan Estimate?

Calculating Cash to Close

Seller concessions on a VA loan ______.

Can't exceed 4% of the sales price

Which of the following is the primary goal for a consumer when reviewing a Loan Estimate?

Check for accuracy of personal and transaction information and understanding of the loan terms

Which of these items is a demand deposit?

Checking account

Synergy National Bank issued a conventional loan that is eligible for purchase by Fannie Mae. When Fannie Mae purchases the loan, what will Synergy National Bank receive in return?

Collection fee

Victor is a buyer reviewing the Closing Disclosure he received from his lender. On the last page of the form, he sees a signature line. By signing the form, Victor has ______.

Confirmed receipt of the Closing Disclosure

A local company wants to build a new office building. What type of loan will it most likely be seeking from its commercial bank?

Construction loan

Which type of loan provides short-term financing for the purpose of developing improvements on vacant land or on land that has improvements, but will soon have more?

Construction loan

What's another term for voluntary conveyance?

Deed in lieu of foreclosure

When reviewing her mortgage documents, Reva learns that should she miss scheduled payments, fail to pay property taxes, or allow the property to fall into disrepair, she may be in ______.

Default

A bank obtaining a loan from its Federal Reserve bank is likely to do so at what rate?

Discount rate

A defect on a title that can be monetary or physical is called an ______.

Encumbrance

Lauren obtained a loan that's insured and that only required a down payment of 3.5%. Which of these is most likely the type of loan Lauren has?

FHA

The Farm Credit System is overseen by the ______, an agency of the federal government.

Farm Credit Administration

When a bank obtains an overnight loan from another bank, at what rate would this loan likely be made?

Federal funds rate When a member bank seeks a short-term loan from another bank, the federal funds rate applies. This is for short-term (overnight) loans without collateral.

"Private companies created by the U.S. Congress to make borrowing easier and more cost effective" describes ______.

Government-sponsored enterprises

Fannie Mae, Freddie Mac, and the Federal Home Loan Bank are examples of ______.

Government-sponsored enterprises

Sam has a mortgage that has a static interest rate, but monthly payments that increase over time according to a set schedule. What type of mortgage does Sam have?

Growing equity Sam has a growing equity mortgage. His interest remains the same, but his monthly payments increase over time according to a set schedule.

With this common loan type, the home is used as collateral and the loan creates a second mortgage if the first mortgage hasn't been paid off.

Home equity

A line of credit that's based on a percentage of the equity a person has in a property and which can be drawn upon for a number of years is known as a ______.

Home equity line of credit These loans are usually lower interest rates than other types of short term financing, because they're based on a known asset (the equity in the home). Their interest rates may be fixed or adjustable.

The ______ Act was legislation aimed primarily at addressing the effects of the subprime mortgage crisis.

Housing and Economic Recovery

The ______ were enacted to address the effects of the subprime mortgage crisis, spur economic activity, and increase accountability in government spending.

Housing and Economic Recovery Act of 2008 and the American Recovery and Reinvestment Act of 2009

What does a credit score tell a lender?

How likely a consumer is to repay a loan

Jamal is active military. His cousin, Piper, is in the National Guard. If they both qualify for a VA loan ______.

Jamal will pay less than Piper for his funding fee.

The CFPB uses education to accomplish its mission, such as the ______ publications.

Know Before You Owe

Bambi is buying a property on an installment sales contract. Due to her financial interest in the property, she retains equitable title. What does the seller retain?

Legal title

The FHA sets limits on how much of a loan it will insure based on the ______.

Median home price for the area and property type

Bernie works for Quickwell Lending and accesses several lenders to find a loan product that works best for his clients. What is Bernie?

Mortgage broker

The SAFE Act is intended to help consumers select which professionals, knowing that they are honest and competent?

Mortgage loan originators

Both the Housing and Economic Recovery Act and the American Recovery and Reinvestment Act funded a program called the ______ program, which provided emergency assistance grants to states to purchase and redevelop foreclosed and abandoned homes and residential properties.

Neighborhood Stabilization

Trixie purchased her one-bedroom beach cottage in 1992 with an FHA loan. Now she's selling it, and the buyer wants to assume her loan. The buyer intends to rent the cottage to vacationers. Will the FHA allow this buyer to assume Trixie's loan?

No, investors aren't allowed to assume FHA loans; the property must be owner-occupied

The Veterans Home Improvement Program in Texas ______.

Offers qualified veterans help with repairs on their current home

HUD's ______ has a goal of increasing the availability of safe and affordable housing to Native American families.

Office of Native American Programs The Office of Native American Programs administers housing and community development programs that benefit American Indian and Alaska Native tribal governments, tribal members, the Department of Hawaiian Home Lands, Native Hawaiians, and other Native American organizations

How are real estate investment trusts sold?

On a major exchange like stocks

What's the definition of a qualified mortgage?

One that meets stringent CFPB guidelines A qualified mortgage must meet stringent CFPB guidelines that are designed to curb lending practices that led to the late-2000s financial crisis.

Borrowers with which credit rating are considered subprime?

Only B-, C-, and D-rated borrowers

Lenders who ______ can underwrite and approve FHA loans without requiring the FHA to review each borrower's qualifications

Participate in the direct endorsement program

Which type of partnership may involve several mortgagors financing a multi-family dwelling?

Partnership among mortgagors

Which clause is standard in a deed of trust and affects the foreclosure process that can be used if the borrower defaults?

Power of sale

Roger has a sufficient income, has never missed a loan or credit payment, and has an adequate credit history. His credit score makes him a very creditworthy consumer. When obtaining a loan, which rate will he most likely get?

Prime rate

Traditionally, what represents supply and demand in the real estate market?

Properties and buyers

What does the FHLB do?

Provides loans to member banks to keep credit and money flowing into local communities

What type of loan may be used if the buyer is obtaining seller financing?

Purchase money mortgage Buyers may use a purchase money mortgage when they need seller assistance with financing. The seller issues a mortgage to the buyer as part of their purchase agreement.

What's the acronym for the legislation that eliminates illegal referral fees among settlement service providers?

RESPA

Since the FHA was established, it has taken strategic action to stabilize the mortgage market. Which of these items is one of the FHA's strategies?

Reduce lender risk by establishing borrower qualification standards

Which approach to value used by appraisers relies on the sales price of comparable properties to help determine the adjusted market price?

Sales comparison approach

When the Treasury collects fewer funds than what is needed to pay the government's bills, what action might it take?

Sell securities The Treasury may sell securities in the form of treasury bonds, bills, or notes as a way to raise additional funds to pay bills. The Treasury does not control interest rates.

Why is it common for lenders to sell mortgages on the secondary market?

So they can obtain additional funds to continue making loans available to the community

After bonds are ______, their value goes up and down with the market.

Sold

What did the Troubled Asset Relief Program allow the U.S. Treasury to do in response to the 2007 financial crisis?

Spend billions

Brendon is obtaining a loan to buy a home. When reviewing his loan documents, he sees one called a note and one called a mortgage. What is the role of the note?

States who owes money to whom, how much, and how it will be repaid

Which of the following would the FDIC most likely not insure?

Stock certificates

A developer, Howard, has purchased land with the expectation of constructing an apartment building. He explains to his lender that he'll need a construction loan as well, so the mortgage they sign includes what kind of clause to allow the construction loan's lien position to take priority?

Subordination

Which of these programs provides eligible homeowners the opportunity to reduce their federal tax liability?

Texas Mortgage Credit program

Which of these programs provides information and counseling resources to those purchasing a home?

Texas Statewide Homebuyer Education Program

Bank failures and the loss of depositors' funds occurred during the Great Depression. This led to the creation of which agency?

The Federal Deposit Insurance Corporation

What U.S. Department of Veterans Affairs program assists Native Americans in financing the purchase, construction, or improvement of homes on federal trust land?

The Native American Direct Loan

Some foreign lenders provide loans for real estate purchases in the U.S., but not many! Countries that had banks that issued real estate loans were Canada, Taiwan, and ______.

The U.K.

The veteran's certificate of eligibility describes ______.

The amount of entitlement the veteran has available for the VA home loan program The certificate of eligibility describes the veteran's eligibility and amount of entitlement available for a VA home loan.

What does the cost approach to finding an appraised value measure?

The cost to acquire land and construct a reproduction

Which of the following outcomes is most likely if the Fed decreases reserve requirements?

The economy will heat up If reserve requirements are decreased, member banks can decrease the amount they keep on deposit at the reserve bank. This means they have more money to lend. An increase in lending activity could heat up the economy.

Maria is applying for a loan. Maria's employer has been asked to provide employment verification. Who else must complete parts of the request for proof of employment form?

The lender

What is a margin, as it relates to an adjustable rate mortgage?

The number of percentage points that are added to the index to determine the rate

Juanita invests in mortgage-backed securities. What is the likely impact on her as an investor when mortgage interest rates rise?

The returns on her investment may increase.

What do sellers who agree to carry part of a loan for a buyer need to understand?

The risks involved

The Housing and Economic Recovery Act and the American Recovery and Reinvestment Act were enacted in response to ______.

The subprime mortgage crisis and economic meltdown of 2007-2008

What is the 95% rule as it relates to tax-deferred exchanges?

The total value of the property (or properties) being exchanged is at least 95% of the value of the property being sold.

Which of the following describes the Federal Reserve's open-market operations?

The trading of government securities with primary dealers

What may happen to a transaction if a cloud on the title is discovered?

The transaction comes to a standstill until the cloud is cleared.

Which of the following best explains the alternative foreclosure types, such as foreclosure by writ of entry?

They are an additional means of foreclosure that are to be used as a back-up to the legal process, but not in lieu of that process.

How many approaches to value do appraisers generally use?

Three

The lender is required to provide the consumer with a Loan Estimate form within what time period of application for a loan?

Three business days

What is the purpose of the loan transfer disclosure?

To notify the borrower that the loan is being resold on the secondary market, and how and where to make future payments

What is the purpose behind Appraiser Independence Requirements?

To protect appraisers' ability to assess an accurate value for a property by avoiding outside pressure or influence Appraiser Independence Requirements set certain criteria for lenders and real estate professionals in order to maintain appraiser independence and protect parties (homebuyers and investors) to the transaction.

Why do life insurance companies use participation financing for larger projects?

To realize higher returns

Why might a homebuyer use an FHA 203(k) loan instead of the standard 203(b) loan?

To roll the cost of rehabilitating the purchased home into the mortgage The 203(k) loan is the same as the 203(b) loan, except that it includes funds to be used for rehabilitating the purchased home.

Which entity guarantees loans?

U.S. Department of Veterans Affairs

Which of the following best describes the state of the market during the recession phase of the real estate cycle?

Unemployment increasing, prices falling, and foreclosures on the rise

What are debentures?

Unsecured bonds Debentures are also called unsecured bonds. Debentures are a claim against general assets.

Jack and Edith purchase a home using a loan from their bank. Their mortgage creates a(n) ______ lien on the property they've purchased.

Voluntary and specific

The American Recovery and Reinvestment Act provided mortgage assistance to ______.

Wounded servicemen and servicewomen

Jay's new loan to purchase a property includes the seller's existing mortgage. What type of loan is this?

Wraparound

Kelsey and Jerrod have a housing ratio of 30% and a total debt obligation of 41%. Their credit score is 640. Do they meet the underwriting requirements for an FHA loan?

Yes

What type of clause is this? "If any monthly installment under this Note is not paid when due and remains unpaid after a date specified by a notice to Mortgagor, the entire principal amount outstanding and accrued interest thereon shall at once become due and payable at the option of the Note holder."

Acceleration clause

Chris used the VA guaranteed loan program to purchase a home five years ago. He now wants to sell that house and buy a new one. Is Chris allowed to use the VA loan program a second time?

Yes, but Chris will need to apply to have his entitlement restored once the original loan is paid off with the sale of the home.

What might happen if borrowers miss scheduled mortgage payments, fail to pay property taxes, or allow the property to fall into disrepair?

They may be in default on their mortgage loan.

Iris is planning to purchase her first home. Based on what you know about the nature of real estate finance in our country, which approach is she most likely to use?

Obtaining a loan to purchase the home

Kendra has applied for a loan from Acme Savings and Loan, but when she compares the Loan Estimate the loan officer gave her with the one from Best Bank, where she also applied for a loan, she decides she'd rather go with the loan from Best Bank. Which of the following is a true statement about this situation?

The Loan Estimate expires in 10 business days if Kendra doesn't tell Acme Savings and Loan that she wants to move forward with it.

What are advances?

Loans the Federal Home Loan Bank makes to member banks

Who must provide the buyer and seller with a copy of the closing disclosure?

The buyer's lender