unit 15 review

A man is buying a house for $123,000. His lender will give him a mortgage loan for 95% of the purchase price. How much down payment must the buyer pay?

6150

types of financing

A straight loan (term loan or interest-only loan) uses periodic payments of interest only for the life of the loan, with payment of principal in full at the end of the loan term. A growing equity (rapid-payoff) mortgage has a fixed interest rate but payments of principal increased according to an index or schedule so that the loan is paid off more quickly. An open-end loan secures the current loan to the borrower and future advances made by the lender to the borrower. Construction loans finance construction of property improvements. A buydown is a payment made at closing to reduce the interest rate on the loan. A home equity loan (home equity line of credit or HELOC) is junior to the original lien.

primary mortgage market lenders

Fiduciary lenders—thrifts, savings associations, commercial banks—subject to the Federal Deposit Insurance Corporation (FDIC) Insurance companies—generally investing in long-term commercial, industrial, and large multifamily properties Credit unions Pension funds Endowment funds of universities, colleges, and other institutions Investment group financing—joint ventures, syndicates, limited partnerships, and real estate investment trusts (REITs) Mortgage banking companies Mortgage brokers

secondary mortgage market

Provides additional income to lenders and frees up funds to make more loans, with lenders often retaining servicing functions for a fee Purchases mortgage loans through agencies, assembles them into packages called pools, and sells them as shares (securitized) to investors or other agencies

truth in lending act

The Truth in Lending Act, Regulation Z of the Federal Trade Commission (FTC), requires that when a loan is secured by a residence, lenders inform borrowers of the true cost of obtaining credit. Regulation Z provides strict regulation of real estate advertisements that include mortgage financing terms. If trigger terms (such as numbers related to the loan) are used, advertisers must comply with this regulation.

conventional loans are most secure loans

The loan-to-value ratio (LTV) is often lowest for these loans—traditionally 80%—meaning the down payment is 20%, but the LTV may be as high as 100%. Conventional loans are not government-insured or guaranteed. Conventional loans meet all the requirements of the secondary market, set by Fannie Mae and Freddie Mac, for conforming loans, including the following:The borrower's monthly housing expenses, including PITI, should be no more than 28% of total monthly gross income.The borrower's total monthly obligations, including housing costs and other regular monthly payments, must not exceed 36% of the total monthly gross income. Nonconforming loans must be retained in the lender's investment portfolio. Private mortgage insurance (PMI) may be required for LTVs higher than 80% (i.e., down payments of less than 20%). Note the following PMI conditions:Federal law requires PMI to automatically terminate if the borrower has accumulated 20% equity in the home (based on purchase price) and is current on mortgage payments.Fannie Mae and Freddie Mac have extended the automatic termination option to all loans that are in good standing and have had no additional financing added to the original loan.

The Equal Credit Opportunity Act A) requires that a rejected credit applicant be told why credit was denied. B) has protected classes that are identical to fair housing laws. C) is a state banking law that regulates mortgage lender practices. D) is a federal law that regulates real estate agent actions in advertising financing for listings.

a

Which of the following is NOT a participant in the secondary market? A) RESPA B) FHLMC C) GNMA D) FNMA

a

Ginnie Mae

administers special-assistance programs, and guarantees mortgage-backed securities using FHA and VA loans as collateral.

All the following statements about junior mortgages are true EXCEPT, A) "they are more subject to default than first mortgages." B) "they are always purchase money mortgages." C) "they are usually for a shorter term than first mortgages." D) "their interest rates are usually higher than rates charged on first mortgages."

b

Fannie Mae and Freddie Mac have a common purpose of A) purchasing existing mortgage loans. B) guaranteeing existing mortgage loans. C) insuring residential mortgage loans. D) originating residential mortgage loans.

b

If a loan application for clients is rejected, they should request an explanation from the lender as to why the application was denied. The lender is required to provide the applicant with an explanation in writing if requested and must to provide copies of the credit score A) for an approved loan for comparison. B) upon which the denial was based. C) that was the client's lowest. D) that the client would need to be approved.

b

The federal agency that is tasked with the oversight of the public welfare in connection with lending practices is A) the Housing and Urban Development Agency. B) the Consumer Financial Protection Bureau. C) the Federal Reserve. D) the Federal Trade Commission.

b

Two terms are very misunderstood by clients. One means a casual look at the overall picture for a client and the client's ability to buy a property based on credit score and high-level information. The second term requires a conscious effort to run all of the client's information through a desktop underwriting program or an underwriter to get a clear picture of any challenges the client may face. If the second term is a loan approval, what is the first term? A) Pledge letter B) Prequalification C) Buyer authorization D) Loan officer approval

b

Which of the following is NOT a required chief disclosure for compliance with the Truth in Lending Act? A) Total of all finance charges B) Loan-to-value ratio C) Total amount financed D) Annual percentage rate

b

annie Mae's activities include buying and selling of all of the following EXCEPT A) conventional mortgages. B) mortgages at full face value. C) FHA and VA mortgages. D) mortgages at discounted values.

b

The typical ratios used to qualify buyers are A) 27% and 39%. B) 28% and 37%. C) 28% and 36%. D) 26% and 36%.

c

If a borrower has an annual gross income of $42,000 and will have monthly recurring debts of $500, not including housing expenses, what will be the maximum monthly housing expenses using the 28:36 ratios? A) $1,260 B) $920 C) $760 D) $980

c $42,000 annual gross income ÷ 12 months = $3,500 × 0.36 = $1,260 - $500 = $760

A borrower obtains a line of credit to make repairs on her home. The mortgage document secures the maximum amount of funds to be used for the current home repairs as well as any future funds to be advanced to the borrower by the lender. This borrower has obtained A) a blanket contract. B) a reverse mortgage. C) an open-end mortgage. D) a package loan.

c Open-end mortgages act as a line of credit or equity line, allowing the mortgagee to make additional future advances of funds to the mortgagor, and are generally set up as home equity loans.

A mortgage broker generally offers which of the following services? A) Handling the escrow procedures B) Granting real estate loans using investor funds C) Providing credit qualification and evaluation reports D) Bringing the borrower and the lender together

d

Interest rates are MOST likely to be impacted by A) depreciation and capital gains law. B) government guarantees on loans to veterans. C) government loan insurance programs such as FHA. D) policies set by the Federal Reserve.

d

The Truth in Lending Act sets forth requirements regarding real estate loans to individuals for all of the following purposes EXCEPT A) additions to residential properties. B) equity lines of credit. C) installation of a backyard swimming pool. D) commercial purposes.

d

The owners' equity in their property is BEST described as A) the total outstanding debt against the property. B) the current market value of the property. C) the difference between the original purchase price and the amount owed. D) the difference between current market value and the amount owed.

d

Which of the following is NOT a factor to be considered when determining the amount of the monthly housing expense? A) HOA dues B) PMI payment C) PITI payment D) Cost of utilities

d

The primary mortgage market consists of lenders that originate mortgage loans based on

finance charges collected at loan closing, includingloan origination fees, anddiscount points; recurring income—interest collected during the term of loan, if kept; funds generated by sale of loans on the secondary mortgage market; and fees for loan servicing for other mortgage lenders or investors who have purchased the loans

Freddie Mac

government-owned, and has authority to purchase mortgages, pool them, and use them as security for bonds sold on the open market but does not guarantee payment of mortgages.

Fannie Mae

government-owned; creates mortgage-backed securities using pool of mortgages as collateral; and deals in conventional, FHA, and VA loans.