Chapter 6: EXAM

If advertised alone, which would be in violation of TRUTH IN LENDING? "FHA financing available" "Assumable loan" "No down payment required" "Easy financing terms"

"No down payment required" Truth in lending is violated when the phrase "no down payment required" is advertised without any other information. However, general terms such as "low down payment", "competitive interest rates", or "low monthly payments" are acceptable.

The Pickets are purchasing a home for $78,000 and the lender is giving them a 90% loan at 10% interest, plus a 2% loan origination fee. How much is the loan origination fee? $1,404 $1,560 $1,650 $7,020

$1,404

On a $50,000 loan the borrower is required to pay 2 points. How much does the borrower have to pay the lender? $49,000.00 $50,000.00 $51,000.00 $52,000.00

$51,000.00

On an 8% straight term loan of $6,071 the borrower paid total interest of $1,700. What is the term of the loan? 30 months 36 months 42 months 48 months

42 months $6,071 x 0.08 = $485.68, $485.68 ÷ 12 = $40.47, $1,700 ÷ $40.47 = 42

A house sold for $42,000. The buyer made a 20% down payment. Monthly interest on the loan was $252. What was the interest rate on the loan? 5% 7% 9% 11%

9% $42,000 x .2 = $8,400, $42,000 - $8,400 = $33,600, $252 x 12 = $3,024, $3,024 ÷ $33,600 = 0.09 = 9%

When the amortized payment of a mortgage remains constant over the period of the loan but leaves an outstanding balance to be paid at the end, this payment is called: An escalation payment A balloon payment A satisfaction payment An acceleration payment

A balloon payment

______ is the cost per thousand that is required to create the principal and interest payment necessary to pay off a loan. A rate A point A factor A power

A factor

A standardized yardstick expressing the true annual cost of borrowing is expressed as a/an ECOA Regulation Z APR RESPA

APR A standardized yardstick expressing the true annual cost of borrowing is expressed as the annual percentage rate, or APR. This does not include a computation of unearned finance charges.

Which of the following describes a mortgage that requires principal and interest payments at regular intervals and calls for the liquidation of the debt by periodic installments until the debt is satisfied? Amortized loan Annuity loan Acceleration loan Assemblage loan

Amortized loan Under a fully amortized loan regular payments are made to both the principal and the interest until the entire loan is paid off at the end of the term. A fully amortized loan is the liquidation of a debt by periodic installments.

Which of the following is considered a conventional loan? FHA insured VA guaranteed Commercial bank ARM loan FNMA mortgages

Commercial bank ARM loan FHA, VA and FNMA loans are all government-backed loans, whereas conventional loans do not have government backing. Mortgages issued by commercial banks, including ARMs are conventional loans.

The lender is not insured or guaranteed against a loss, by reason of the borrower's default in repayment, under which type of loan? FHA Conventional VA GI

Conventional Conventional loans have no government guarantees or insurance against loss. A conventional loan can be insured by taking out a private mortgage insurance (PMI) policy.

Discrimination is prohibited in lending practices under _____________ ECOA. RESPA. Truth in Lending Act. FNMA.

ECOA. The Equal Credit Opportunity Act (ECOA) is a law prohibiting lenders from discriminating against race, color, religion, national origin, sex, marital status, age or dependency on public assistance in the granting of credit to consumers.

Who is NOT an originator of primary loans? Savings and loans Credit unions Mortgage brokers FHA

FHA The primary mortgage market financing originators are savings and loans, banks, insurance companies, mortgage brokers, and mutual savings banks.

Who is the largest purchaser in the secondary market? Ginnie Mae Fannie Mae FHA Freddie Mac

Fannie Mae Federal National Mortgage Association or Fannie Mae (FNMA) is the largest purchaser in the secondary market.

A home improvement company was negotiating with a home owner to add two rooms onto a home. The company agreed to take a second mortgage as long as the homeowner also included the rest of the property in the loan. The company and the homeowner agreed to a price and the company provided the necessary disclosure form on Monday and the homeowner signed the agreement at noon the following day. Assuming that the week had five business days, until what time could the homeowner rescind the loan? Tuesday, midnight Thursday, midnight Friday, midnight There is no rescission on a house.

Friday, midnight A rescission clause in a contract provides a purchaser with rescission rights for 3 days. In this case the third day after the Tuesday signing would be the Friday.

If a single parent is applying for a real estate loan, when would the fact have to be revealed that part of the parent's income is from child support? When applying for a VA or FHA loan if the parent's income is less than $25,000 If more than 50% of the parent's income is non-wage sources If the parent was relying on the income for repayment of the loan This type of income never needs to be disclosed. It would be a violation of ECOA.

If the parent was relying on the income for repayment of the loan Under ECOA, a lender can base lending decisions on an individual's income, net worth, job stability and credit rating. If a person applying for a loan is relying on income from child support for repayment of a loan, the income must be revealed to the lender.

An increase in the availability of money would lead to which effect? Interest rates would go up. Interest rates would go down. Interest rates would NOT be affected due to RESPA guidelines. Interest rates would NOT be affected due to TRUTH IN LENDING.

Interest rates would go down. When there is more money in the market, interest rates go down, and when there is less money available in the market, interest rates go up.

Which of the following is true of a second mortgage? It has priority over a first mortgage. It cannot be used as a security instrument. It is not negotiable. It is usually issued at a higher rate of interest.

It is usually issued at a higher rate of interest. When a person gets a second, or wraparound mortgage, the new lender pays off the first loan, but charges a higher interest for the second mortgage.

In an installment land contract, what type of title did the seller retain? Joint Legal Equitable Record

Legal In a contract for deed, or installment land contract, the buyer does not receive legal title until the final payment is made. The seller keeps legal title until the debt is paid in full and the buyer receives equitable title until the debt is paid in full.

Under an FHA graduated payment mortgage, which of the following fluctuates over the term of the loan? Interest rate Monthly payments Finance charge Annual rate

Monthly payments Under a graduated payment plan the monthly payments are lower during the first year, after which the monthly payments gradually increase.

An owner advertised "beautiful acreage only $5,000 down, owner will personally finance down payment." Would this be in violation of the Truth in Lending Act? Yes, acreage is not exempt from Reg Z. Yes, since a down payment was stated. No, owners are not covered by Reg. Z. No, brokers can advertise the down payment.

No, owners are not covered by Reg. Z. Truth In Lending Law (Regulation Z) applies to lenders, not owners.

A buyer assumes the mortgage. How is the owner relieved of the liability? Subject to mortgage Novation Substitution Graduation

Novation Novation is a contract in which a buyer assumes the liability for the seller's existing mortgage debt. In other words the buyer assumes the seller's mortgage along with the property.

RESPA would prohibit which of the following acts? Steering Paying of kickbacks Blockbusting Redlining

Paying of kickbacks RESPA prohibits kickbacks or unearned fees to be paid to a lender for referring customers to insurance agencies, etc.

The Smiths' purchased a residence for $75,000. They made a down payment of $15,000 and agreed to assume the seller's existing mortgage, which had a current balance of $23,000. The Smiths' financed the remaining $37,000 of the purchase price by executing a second mortgage whereby the seller became a mortgagee. This type of loan is called a Wraparound mortgage Package mortgage Balloon note Purchase money mortgage

Purchase money mortgage A purchase money mortgage (PMM) is a mortgage issued to the borrower by the seller as part of the transaction. It is often used when the borrower can't qualify for a mortgage, so the borrower is borrowing from the seller in lieu of purchase money.

The finance charges recorded on the Truth in Lending statements would include all of the following EXCEPT: Loan fees charged by the lender Insurance premiums for mortgage insurance payment Discount points and service fees Recording fees and title insurance premiums

Recording fees and title insurance premiums Truth In Lending Law requires lenders disclose to buyers all finance charges and the true annual interest rate. It does not cover the costs to close a transaction, which is covered by RESPA.

In which of the following markets may a lender sell a loan that a mortgage banker has previously originated? Primary market Secondary market Mortgage market Consumer market

Secondary market Lenders sell their promissory notes, including loans originated by mortgage bankers, on the secondary mortgage market to free up money with which they can make more loans.

Which transaction requires a securities' license? Leasing a commercial building Selling a commercial warehouse Selling shares in Fannie Mae Arranging a sale-leaseback on a commercial property

Selling shares in Fannie Mae Selling shares (securities) of FNMA, GNMA, FHLMC requires a securities license.

In a repayment of a mortgage loan, which type of interest is used? Simple Discount Compound Floating

Simple Simple interest is the type of interest charged on a mortgage loan, and principal is the loan balance itself.

the mortgagor has the right to regain the property. What is this right called? Equitable right of redemption Owner's right of redemption Vendee's right of redemption Statutory right of redemption

Statutory right of redemption

Effective October 1, 2015, the real estate industry has new requirements as specified in the HUD-1A Rules. TILT/RESPA Loan Disclosure (TRLD) Rule. Consumer Protection Rules (CPR). TILA/RESPA Integrated Disclosure (TRID) Rule.

TILA/RESPA Integrated Disclosure (TRID) Rule. The real estate industry had new requirements as specified in the TILA/RESPA Integrated Disclosure (TRID) Rule that became effective on October 1st, 2015.

An impound or reserve account MOST benefits whom? The borrower The lender The trustee The trustor

The lender By having a purchaser place money in an impound or reserve account, the lender is assured that the tax and insurance bills will be paid and the lender also benefits from holding the money.

Which of the following would usually occur in a sale-and-leaseback transaction? The seller gets a return on the purchase in the form of rental payments. The property is sold on the condition that the new owner lease it back to the seller at the time title passes. The buyer keeps capital in inventories rather than in realty. The rent that the seller pays is not income-tax deductible.

The property is sold on the condition that the new owner lease it back to the seller at the time title passes. Under a sale-leaseback the owner sells his or her improved property and at the same time, signs a long-term lease to occupy the property him or herself.

All of the following are true of conventional loans except what? They are made to the buyer without governmental insurance or guarantee. The policy requirements of the lenders are not uniform. The requirements to qualify are uniformly fixed by state law. They require a higher down payment than non-conventional loans.

The requirements to qualify are uniformly fixed by state law. Qualification for a conventional loan is dependent upon several factors such as income, credit history, and net worth. Qualification requirements are not fixed by law and are at the discretion of the lender.

When the lender under a deed of trust required title insurance, who would be the most likely person to pay for it? The mortgagee The trustee The trustor The beneficiary

The trustor

Why would a mortgagee (beneficiary) have an appraisal on the property? To make sure the buyer did not pay too much To determine the property's potential for appreciation To protect the buyer from fraud To assure the property value is sufficient to cover the loan

To assure the property value is sufficient to cover the loan Before issuing a loan, a lender (mortgagee) will qualify the property as well as the borrower. The lender will have the property appraised to determine its value, and compare that value against the sum of the loan.

A mortgage company makes a number of loans to be assembled into one package and sold to permanent investors. This process is an example of interim financing to the mortgage company and is called: Blanket financing Packing financing Warehousing Discounting

Warehousing Institutional lenders purchase a number of mortgage loans offered on the secondary mortgage market, assemble them into one or more packages of loans, and then re-sell these packages to investors. These institutional lenders are holding warehouse agencies.

An owner was selling his own home. Can he advertise the down payment? No, because it violates RESPA No, because it violates Regulation Z Yes, as long as it was listed with a broker Yes, because it was his own home

Yes, because it was his own home Truth In Lending Law (Regulation Z) covers lenders, not owners. Therefore an owner selling his or her own property can advertise using trigger terms such as down payments without violating the law.

A buyer wanted to use a promissory note for consideration on the purchase of a property. Can he do this? Yes, the buyer can do as he wishes since he is making the contract. Yes, this is acceptable as long as the seller agrees. No, only money can be used for consideration. No, only the seller can write a promissory note.

Yes, this is acceptable as long as the seller agrees. A promissory note is considered to be personal property that is readily negotiable and can be bought and sold. Therefore a note can be used as consideration, provided the seller agrees.

A borrower bought a $74,000 house with no down payment. The loan was probably ______________ a conventional insured loan. a VA loan. a FHA loan. a conventional loan.

a VA loan. For VA loans of up to $417,000, it is usually possible for qualified veterans to obtain no down payment financing.

The clause in a trust deed or mortgage which permits the mortgagee to declare the entire unpaid sum due upon a default by a mortgagor is called a(n) ______________ judgment clause. acceleration clause. escalator clause. forfeiture clause.

acceleration clause. The clause in a trust deed or mortgage which permits the mortgagee to declare the entire unpaid sum due upon a default by a mortgagor is called an acceleration clause.

A buyer wants to take out an FHA loan. The broker should refer the buyer directly to ______________ any approved lending institution such as a bank or savings and loan association. an FHA appraiser in the area. the Federal Housing Administration office. the Federal National Mortgage Association.

any approved lending institution such as a bank or savings and loan association.

A mortgage broker _____________ arranges loans between borrowers and investors. is a lender. buys mortgages in the secondary mortgage market. buys mortgages and resells them at a profit.

arranges loans between borrowers and investors.

The maximum permissible "loan to value ratios" are _____________ based on sale price or appraised value, whichever is lower. not determined by federal statute in the case of FHA loans. based on the banker's competitive market analysis. fixed by law for conventional loans.

based on sale price or appraised value, whichever is lower. The ratio of loan amount compared to the value of the property is called the Loan to Value Ratio or LTV. The amount a lender will loan is generally based on the appraised value for loan purposes or the sale price, whichever is lower.

Under Regulation Z, consummation is defined as the time when a consumer requests a loan application. becomes contractually obligated on a credit transaction. is within three days of closing a transaction. is given a completed Loan Estimate.

becomes contractually obligated on a credit transaction.

The primary purpose of Truth in Lending is to _____________ control interest rates on behalf of the consumer. control the true costs to close a transaction. disclose the true costs of only an FHA loan. disclose the true costs of obtaining credit.

disclose the true costs of obtaining credit. The Truth In Lending Law (Regulation Z) law requires lenders to disclose to buyers the true cost of obtaining credit so that the borrower can compare the costs of various lenders.

Usury MOST nearly means ______________ making loans without the benefit of co-signors. lending money at fluctuating interest rates. being capable of multiple usage. illegal interest.

illegal interest. Charging interest in excess of a maximum rate that was set by state law is called usury, or illegal interest.

The discount points charged by a lender on a federal VA or FHA loan are a percentage of the ________________ sale price. appraised price. loan amount. down payment.

loan amount.

The seller under a land contract is called _____________ the grantor. the grantee. the vendor. the vendee.

the vendor.

A VA loan may be granted for the purchase of a one-family to four-family if _________________ the veteran certifies the rent collected will equal the mortgage payments. the loan will be amortized for not more than 20 years. the down payment will be at least ten percent. the veteran agrees to live there.

the veteran agrees to live there. To be eligible for a VA loan the property must be owner-occupied for a least 1 year. A VA loan may be granted for the purchase of a one-family to four-family if the veteran agrees to live there.

The Loan Estimate must be delivered to an applicant at the time the loan request is first made. within three calendar days prior to closing. within three calendar days of loan application. within three business days of loan application.

within three business days of loan application.