CH. 16

When a qualified borrower is approved for a mortgage loan, the loan is referred to as what? "A" paper "B" paper "C" paper "D" paper

"A" paper

Licensees who violate Regulation Z advertising requirements may be fined up to $100. $1,000. 10% of the finance charge. Three times the amount of the finance charge.

$1,000.

Sub-prime borrowers are those who fall into the Above C category. Below A category. Above A category. Below C category.

Below A category.

How does a lender determine if the buyer's income is enough to pay the loan?

By establishing an income ratio and a debt ratio.

What is the risk of debt consolidation? Forgetting to pay many different bills. A person could lose all his financed assets when they cannot pay the one bill. The total debt is increased by at least 75%. There are no major risks.

A person could lose all his financed assets when they cannot pay the one bill.

Define the term "predatory lender."

A predatory lender is one that literally preys on the customers who may fall into the below "A" paper lending categories, particularly those who do not speak English, are poorly educated or are elderly.

What is loan flipping?

Encouraging a borrower to refinance a loan so that the lender can charge high points and fees for the new loan.

Which of the secondary mortgage market agencies is a shareholder-owned company? Freddie Mac Ginnie Mae Fannie Mae None of the above

Fannie Mae

______________ is a shareholder-owned company that works to make sure mortgage money is available for people across the country. Freddie Mac Ginnie Mae Freddie Mae Fannie Mae

Fannie Mae

Which of the secondary mortgage market agencies is a division of HUD? Ginnie Mae Fannie Mae Freddie Mac None of the above

Ginnie Mae

Who are the three major players in the secondary mortgage market?

Ginnie Mae Fannie Mae Freddie Mac

What is the basic purpose of Truth in Lending - Regulation Z?

Give buyers information about the true cost of obtaining credit, so that borrowers can compare the costs of various lenders.

Which of the following is NOT a primary mortgage market lender? Credit unions Commercial banks HUD Mortgage brokers

HUD

Why is information about net worth important?

It gives an indication of the borrower's ability to keep up the payments on the loan in the event that the borrower would lose his or her job.

What was the first mortgage-backed security called and why was it called this?

It was called a pass-through security because the monthly principal and interest payments were collected from the borrowers and then "passed through" to the investors.

If Tara and Al are putting 35% down on their home purchase, this is considered a(n) Low loan-to-value ratio. High loan-to-value ratio. "A" paper. "B" paper.

Low loan-to-value ratio.

Predatory lenders would most likely not target People with "A" paper People with "B" paper People with "C" paper People with "D" paper

People with "A" paper

What kinds of income are considered stable income?

Permanent employment Self-employment under certain conditions Employment that has generated a regular income for at least one to two years, such as bonuses or commissions Some income from secondary sources, such as rental income or investments

When a lender requires a higher down payment due to the neighborhood where the property is located, this is called Redlining. Divisional lending. Smart lending practices. Targeting.

Redlining.

What is not a common way that mortgage funds are shifted? Lenders selling loans to one another. Through mortgage-backed securities. The Federal Reserve purchasing mortgages from smaller member banks. One institution selling a part interest in a block of loans to another institution.

The Federal Reserve purchasing mortgages from smaller member banks.

Why did the Federal government establish Fannie Mae?

The Federal government established Fannie Mae to increase the flow of mortgage money by creating a secondary market to purchase Federal Housing Administration (FHA)-insured mortgages.

What is the right to rescind and what is not covered by this rule?

The borrower has a right to cancel the transaction by notifying the lender within three days. This does not apply to residential first mortgage loans.

Why is the borrower's net worth significant to the lender? The borrower's net worth shows how the borrower spends their cash. The borrower's net worth is a reflection of the borrower's income. The borrower's net worth indicates ability to keep up with loan's payments if the borrower loses their job. The borrower's net worth only displays the borrower's assets.

The borrower's net worth indicates ability to keep up with loan's payments if the borrower loses their job.

Define underwriting.

The evaluation process used to determine the borrower's ability to repay a loan and estimate the value of the property being used as collateral.

List three prohibited practices of the New York Anti-Predatory Lending Law. (See screens 43 and 44 for other correct answers.)

The lender cannot lend to unqualified borrowers; lenders and brokers must verify sources of income. A lender may not finance points and fees that exceed 3% of the total loan amount. A lender may not refinance an existing home loan unless the new loan provides a tangible net benefit to the borrower (no loan flipping).

Jake and Myra Smith are purchasing a $150,000 home. They are making a $15,000 down payment and getting a loan for the balance. What's the loan-to-value ratio?

The loan-to-value ratio is 90%. They are making a 10% down payment and getting a 90% loan.

Why is a balloon loan a particularly bad idea for a low-income borrower?

The major problem with a balloon payment loan is that the borrower has to come up with a large sum of money at the end of the term. In some cases, the lender requires an even higher interest rate to give an extension. If the borrower doesn't have the income to meet the higher payment, he or she will be in trouble and possibly face foreclosure.

A lender may consider a owner-occupied dwelling as less risk than a rental unit because The owner will maintain the condition of the property better than a renter will. The owner will be less willing to be evicted for default on loan payments. Renters cannot be evicted if the lender needs to foreclose. The owner-occupied property will be in a better neighborhood than a rental property.

The owner will maintain the condition of the property better than a renter will.

What is the role of the secondary mortgage market?

The secondary mortgage market consists of holding warehouse agencies that purchase a number of mortgage loans and assemble them into one or more packages of loans for resale to investors.

It is important for the lender to determine the ___________ of a particular piece of property at any given point in time. rental value land value book value market value

market value

Which of the secondary mortgage market agencies has a goal of helping minority populations obtain homeownership. Ginnie Mae Fannie Mae Freddie Mac None of the above

Freddie Mac

Why was Freddie Mac created and what is its mission?

Freddie Mac was created in 1970 to develop a mortgage-backed security for conventional loans. Freddie Mac's mission is to provide stability, affordability and opportunity to the housing market by putting homeownership within reach for minority populations and making rental housing more affordable.

Lenders evaluate a borrower's ability to repay the loan by looking at the borrower's Education Age Marital status Debts

Debts