Exam One other multiple choice question Chapter 1 to 8
Assume that the loan in the previous question allowed for negative amortization. What would be the outstanding balance on the loan at the end of Year 3? (A) $190,074 (B) $192,337 (C) $192,812 (D) $192,926
$192,337
A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments. The first two years of the loan have a "teaser" rate of 4%, after that, the rate can reset with a 5% annual payment cap. On the reset date, the composite rate is 6%. What would the Year 3 monthly payment be? (A) $955 (B) $1,067 (C) $1,003 (D) $1,186 (E) Because of the payment cap, the payment would not change.
$1,003
A borrower takes out a 30-year mortgage loan for $250,000 with an interest rate of 5% and monthly payments. What portion of the first month's payment would be applied to interest? (A) $694 (B) $1,042 (C) $1,342 (D) $1,355 (E) Not enough information
$1,042
A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments. The first two years of the loan have a "teaser" rate of 4%, after that, the rate can reset with a 2% annual rate cap. On the reset date, the composite rate is 5%. What would the Year 3 monthly payment be? (A) $955 (B) $1,067 (C) $1,071 (D) $1,186 (E) Because of the rate cap, the payment would not change.
$1,067
If you deposit $1,000 in an account that earns 5% per year, compounded annually, you will have $1,276 at the end of 5 years. What would be the balance in the account at the end of 5 years if interest compounds monthly? (A) $784 (B) $1,000 (C) $1,276 (D) $1,283
$1,283
A borrower takes out a 30-year mortgage loan for $250,000 with an interest rate of 5%. What would the monthly payment be? (A) $694 (B) $1,042 (C) $1,342 (D) $1,355 (E) Not enough information
$1,342
Present Value Factor for Reversion of $1 Period 6% 7% 8% 9% 10% 1 .943396 .934579 .925926 .917431 .909091 2 .889996 .873439 .857339 .841680 .826446 3 .839619 .816298 .793832 .772183 .751315 4 .792094 .762895 .713503 .708425 .683013 5 .747258 .712986 .680583 .644931 .620921 6 .704961 .666643 .630170 .596267 .564474 Using only the information in the table above, approximately how much would you pay today for an investment that pays $0 annual interest, but earns 8% interest over the next four years and has a face value at maturity of $13,500? (A) $8,000 (B) $9,000 (C) $10,000 (D) $11,000
$10,000
Mr. Fisher has built several houses and is offering buyers mortgage rates of 10% with 15 year term. Current rates are 10.75%. Fourth National Bank will provide the loans, if Mr. Fisher pays an equivalent amount up front to buy down the interest rate. If a house is sold for $290,000 with a 90% loan, how much would Mr. Fisher have to pay to buy down the loan? (A) $1,957.50 (B) $11,989.34 (C) $11,250.25 (D) $10,790.41
$10,790.41
A borrower has secured a 30 year, $150,000 loan at 7% with monthly payments. Fifteen years later, an investor wants to purchase the loan from the lender. If market interest rates are 5%, what would the investor be willing to pay for the loan? (A) $75,000 (B) $111,028 (C) $118,478 (D) $168,646
$118,478
A loan was made 10 years ago for $140,000 at 10.5% for a 30 year term. Rates are currently 9.25%. What is the market value of the loan? (A) $128,271 (B) $147,600 (C) $139,828 (D) $151,395
$139,828
Your friend has a trust fund that will pay him $100,000 at the end of 10 years. Your friend, however, wants his money today. He promises to sign his trust fund over to you if you give him some money today. You require a 20% interest rate on money you lend to friends. How much would you be willing to lend under these terms? (A) $16,151. (B) $50,000 (C) $80,000 (D) $0—it would be impossible to earn 20% interest on the loan.
$16,151
A borrower has a 30-year mortgage loan for $200,000 with an interest rate of 6% and monthly payments. If she wants to pay off the loan after 8 years, what would be the outstanding balance on the loan? (A) $84,886 (B) $91,246 (C) $146,667 (D) $175,545 (E) Not enough information
$175,545
A house is sold with an assumable $156,000 below-market loan at 8.5% for a remaining term of 15 years. Current rates are 9.75% for 15 year mortgages. If the house sold for $240,000, what is the cash-equivalent value of the house. (A) $250,834.82 (B) $229,165.18 (C) $260,660.40 (D) $219,339.60
$229,165.18
A property is encumbered as follows: First mortgage, A: $250,000 Second mortgage, B: $40,000 Third mortgage, C: $10,000 How much can mortgagee B pay for the property at a foreclosure sale without having to raise additional funds? (A) $290,000 (B) $40,000 (C) $300,000 (D) $50,000
$290,000
Your friend just won the lottery. He has a choice of receiving $50,000 a year for the next 20 years or a lump sum today. The lottery uses a 15% discount rate. What would be the lump sum your friend would receive? (A) $312,967 (B) $316,426 (C) $500,000 (D) $1,000,000
$312,967
At the end of 8 years, your friend wants to have $50,000 saved for a down payment on a house. He expects to earn 8%—compounded monthly—on his investments over the next 8 years. How much would your friend have to put in his investment account each month to reach his goal? (A) $188 (B) $374 (C) $392 (D) $521
$374
A borrower obtains a $150,000 reverse mortgage with monthly payments over 10 years. If the interest rate of the mortgage loan is 8%, what is the monthly payment received by the borrower? (A) $820 (B) $863 (C) $1,250 (D) $1,820
$820
The APR estimate must be accurate only to the nearest ___ percent. (A) 1/2 (B) 1/4 (C) 1/8 (D) 1/16
1/8
When purchasing a $210,000 house, a borrower is comparing two loan alternatives. The first loan is a 90% loan at 10.5% for 25 years. The second loan is an 85% loan for 9.75% over 15 years. Both have monthly payments and the property is expected to be held over the life of the loan. What is the incremental cost of borrowing the extra money? (A) 20.25% (B) 16.17% (C) 11.36% (D) 12.42%
12.42%
A house is for sale for $250,000. You have a choice of two 20-year mortgage loans with monthly payments: (1) if you make a down payment of $25,000, you can obtain a loan with a 6% rate of interest or (2) if you make a down payment of $50,000, you can obtain a loan with a 5% rate of interest. What is the effective annual rate of interest on the additional $25,000 borrowed on the first loan? (A) 1.00% (B) 6.00% (C) 12.95% (D) 18.67% (E) 20.10%
12.95%
A borrower is purchasing a property for $180,000 and can choose between two possible loan alternatives. The first is a 90% loan for 25 years at 9% interest and 1 point and the second is a 95% loan for 25 years at 9.25% interest and 1 point. Assuming the loan will be held to maturity, what is the incremental cost of borrowing the extra money? (A) 13.66% (B) 13.50% (C) 14.34% (D) 12.01%
13.66%
Use the information in problem 1, except assume that the loan will be repaid in 5 years. What is the incremental cost of borrowing the extra money? (A) 13.95% (B) 13.67% (C) 14.42% (D) 12.39%
13.95%
A property is purchased for $200,000 with an 80 percent LTV. After five years, the owner's equity is $80,000. What would be the approximate annual expected appreciation rate on home equity (annual EAHE)? (A) 13.9% (B) 14.9% (C) 20.0% (D) 80.0% (E) 100%
14.9%
Ms. Madison has an existing loan with payments of $782.34. The interest rate on the loan is 10.5% and the remaining loan term is 10 years. The current balance of the loan is $57,978.99. The home is now worth $120,000 and Ms. Madison would like to borrow an additional $30,000 through a wraparound loan which would increase the debt to 487,978.99. Terms of the wraparound loan are 12.25% interest with monthly payments for 10 years. What is the incremental cost of borrowing the extra $30,000 through a wraparound loan? (A) 15.47% (B) 11.38% (C) 12.96% (D) 13.41%
15.47%
A typical RESPA closing statement contains which of the following characteristics? (A) 2 columns - summary of borrower's and seller's transactions (B) 2 columns - summary of borrower's and broker's transactions (C) 3 columns - summary of borrower's, seller's, and broker's transactions (D) 3 columns - summary of borrowers, seller's, and lender's transactions
2 columns - summary of borrower's and seller's transactions
A borrower has secured a 30 year, $150,000 loan at 7% with monthly payments. Fifteen years later, the borrower has the opportunity to refinance with a fifteen year mortgage at 6%. However, the up front fees, which will be paid in cash, are $2,500. What is the return on investment if the borrower expects to remain in the home for the next fifteen years? (A) 6.00% (B) 7.00% (C) 13.00% (D) 22.62% (E) 28.89%
28.89%
Ten years ago, you put $150,000 into an interest-earning account. Today it is worth $275,000. What is the effective annual interest earned on the account? (A) $225,000 (B) 6.00% (C) 6.25% (D) 8.33% (E) 74.99%
6.25%
A borrower takes out a 30-year mortgage loan for $100,000 with an interest rate of 6% plus 4 points. What is the effective annual interest rate on the loan if the loan is carried for all 30 years? (A) 5.6% (B) 6.0% (C) 6.4% (D) 6.6%
6.4%
Mr. Tramp made a mortgage 5 years ago for $85,000 at 8.25% interest and a 15 year term. Rates have now risen to 10% for an equivalent loan. Mr. Tramp's lender is willing to discount the loan by $2,000 if he will prepay the loan. What rate of return would Mr. Tramp receive by prepaying the loan? (A) 10.24% (B) 8.95% (C) 14.32% (D) 9.14%
8.95%
A deposit placed in an interest-earning account earning 8% a year will double in value in ___ years. (A) 6 (B) 8 (C) 9 (D) 72 (E) It will never double in value
9
A borrower made a mortgage loan 7 years ago for $160,000 at 10.25% interest for 30 years. The loan balance is now $151,806.62 and rates for this amount are currently 9.0% for 23 years. Origination fees and closing costs are $4,500 and closing costs are not financed by the lender. What is the effective cost of refinancing? (A) 9.00% (B) 10.85% (C) 15.32% (D) 9.39%
9.39%
Bud is offering a house for sale for $180,000 with an assumable loan which was made 5 years ago for $140,000 at 8.75% over 30 years. Kelsey is interested in buying the property and can make a $20,000 down payment. A second mortgage can be obtained for the balance at 12.5% for 25 years. What is the effective cost of the combined loans, if Kelsey would like to compare this financing alternative to obtaining a first mortgage for the full amount? (A) 10.63% (B) 9.39% (C) 9.04% (D) 11.27%
9.39%
The subject of an appraisal has only two bedrooms, but one of the comparables used in the appraisal has three. If the adjustment for a third bedroom is $5,000, the adjustment would be: (A) A $5,000 increase to the comparable's selling price (B) A $5,000 decrease to the comparable's selling price (C) A $5,000 increase to the subject's selling price (D) A $5,000 decrease to the subject's selling price.
A $5,000 decrease to the comparable's selling price
Which is NOT a component of an ARM? (A) A margin (B) An index (C) A chapter (D) Caps
A chapter
Which of the following is not a basic component of any compounding problem? (A) An initial deposit (B) An interest rate (C) A period of time (D) A net present value
A net present value
The Acceleration Clause says notice of all, but which of the following must be given to the mortgager? (A) Acceleration of debt secured by the mortgage has taken place because of default (B) Action required to cure default (C) Time by which default must be cured (D) Default
Acceleration of debt secured by the mortgage has taken place because of default
A "short sale" of real estate is: (A) A sale that closes in less than 30 days (B) The sale of a house by someone who is not the owner; it is a way to profit from an anticipated decline in real estate prices (C) A sale in which the proceeds from the sale are less than the balance owed on the loan secured by the property sold (D) A sale in which the balance owed on the loan secured by the property sold is less than the proceeds from the sale
A sale in which the proceeds from the sale are less than the balance owed on the loan secured by the property sold
The appraised value of a property usually represents the: (A) Actual value of the property (B) Actual selling price of the property (C) Actual opinion of an appraiser (D) Actual replacement value of the property
Actual opinion of an appraiser
Which of the following clauses leads to higher risk for an ARMs lender? (A) Negative amortization is not allowed when interest is not covered by the payment due to a payment cap (B) There is floor for payments (C) Adjustment interval is longer than one year (D) All of the above
Adjustment interval is longer than one year
Given that every other factor is equal, which of the following ARMs will have the lowest expected cost? (A) An ARM with payment caps and negative amortization (B) An ARM with interest rate caps (C) An ARM with longer Adjustment interval (D) An ARM with no caps or limitations
An ARM with no caps or limitations
Which of the following is FALSE regarding a tax sale? (A) An accurate and complete description of the property is required to be posted for possible purchasers before the sale (B) The property owner may not have had a court appearance through due process, thus creating a cloud on the title (C) The line of authority for the sale may not be clear (D) The purchaser is usually expected to pay all delinquent taxes at the time of sale
An accurate and complete description of the property is required to be posted for possible purchasers before the sale
If an investment earns 12% annually: (A) An equivalent monthly investment would have to earn a higher equivalent nominal rate to yield the same return (B) An equivalent monthly investment would have to earn a lower equivalent nominal rate to yield the same return (C) An equivalent monthly investment would have to earn the same equivalent nominal rate to yield the same return (D) A relation cannot be determined between a monthly and annual investment
An equivalent monthly investment would have to earn a lower equivalent nominal rate to yield the same return
APR stands for which of the following? (A) Annual percentage rate (B) Amortized percentage regulator (C) Accrued percentage rate (D) Annual percentage regulator
Annual percentage rate
In order to calculate the APR for an ARM, you must, (A) Only use the first year's given interest rate (B) Estimate interest rates over the life of the loan (C) Assume the worst case scenario and use interest rates at their highest possible point over the life of the loan (D) Use only the first five year's interest rates because they can easily be estimated and most people only own a property for five years
Assume the worst case scenario and use interst rates at their highest possible point over the life of the loan
Which of the following terms refers to the prohibition of the commencement or continuation of collection proceedings during a bankruptcy proceeding? (A) Preferential transfer (B) Deficiency judgment (C) Automatic stay (D) Extension
Automatic stay
Present Value Factor for Reversion of $1 Period 6% 7% 8% 9% 10% 1 .943396 .934579 .925926 .917431 .909091 2 .889996 .873439 .857339 .841680 .826446 3 .839619 .816298 .793832 .772183 .751315 4 .792094 .762895 .713503 .708425 .683013 5 .747258 .712986 .680583 .644931 .620921 6 .704961 .666643 .630170 .596267 .564474 Using only the information in the table above, what would the IRR be for an investment that cost $500 in period 0 and was sold for $750 in period 5? (A) Between 6% and 7% (B) Between 7% and 8% (C) Between 8% and 9% (D) Between 9% and 10%
Between 8% and 9%
A reversion and a remainder are similar in that: (A) Both can be sold or mortgaged (B) Both cause the property to go back to the grantor after the sale (C) Neither is an actual interest in the property (D) Neither is considered a future estate
Both can be sold or mortgaged
The internal rate of return: (A) Is also known as the investment of investor's yield (B) Represents a return on investment expressed as a compound rate of interest (C) Is calculated by setting the price of an investment equal to the stream of cash flows it generates and solve for the interest rate (D) Can be defined by all of the above
Can be defined by all of the above
Over the life of the loan, which of the following loans would continually have a lower principal balance given each loan had the same term, principal amount, and average interest rate? (A) CAM (B) CPM (C) GPM (D) Cannot be determined with this information
CAM
When calculating taxes, the difference between the acquisition cost and selling price of a house is called: (A) Ordinary income (B) Amortization (C) Capital gain (D) Deferred income
Capital gain
Which of the following types of bankruptcy is available to a business to reorganize and rehabilitate the debtor? (A) Chapter 7 (B) Chapter 11 (C) Chapter 13 (D) Chapter 17
Chapter 11
Which of the following types of bankruptcy is filed with the end result of liquidating the debtor's assets? (A) Chapter 7 (B) Chapter 11 (C) Chapter 13 (D) Chapter 17
Chapter 7
Which of the following is typically NOT one of the financing costs associated with the financing of real estate? (A) Closing fees (B) Loan application and credit report fees (C) Property inspection and appraisal fees (D) Loan discount and prepaid interest fees
Closing fees
If an ARM index increased 15%, the negative amortization on a loan with a 5% annual payment cap is calculated by: (A) Using the same payment as last year and deducting 5% from the principal balance (B) Increasing the payment by 5% (C) Totaling the difference between the payment as if no cap existed and the 5% capped payment (D) Compounding the difference between the payment as if no cap existed and the 5% capped payments
Compunding the difference between the payment as if no cap existed and the 5% capped payments
One of the first amortizing mortgages was the constant amortization mortgage. Which of the following characterized the components of the CAM payment over the life of the loan? Interest Amortization Payment (A) Decreasing Decreasing Decreasing (B) Constant Decreasing Decreasing (C) Decreasing Constant Decreasing (D) Constant Constant Constant
Decreasing; Constant; Decreasing
What legal document conveys title from one person to another? (A) Mortgage (B) Note (C) Deed (D) Title
Deed
Demand for a mortgage loan is considered: (A) Stable demand (B) Derived demand (C) Interest rate demand (D) Nominal demand
Derived demand
Mr. Smith has allowed Mrs. Jones to run a sewer line through Mr. Smith's backyard so that Mrs. Jones has access to the city sewer system. This is an example of a(n): (A) Easement (B) Encumberance (C) Estate for years (D) Title assurance
Easement
Federal income tax policy has generally been thought to: (A) Discourage homeownership (B) Encourage renting (C) Increase interest rates (D) Encourage homeownership
Encourage homeownership
An escrow account: (A) Ensures that a default insurance policy does not lapse if a borrower is in danger of default (B) Ensures that sufficient funds are collected to make annual hazard insurance and property tax payments (C) Is a non-interest-bearing account into which a borrower prepays certain fees and taxes (D) All of the above (E) None of the above
Ensures that a default insurance policy does not lapse if a borrower is in danger of default
The objective of appraisal is to: (A) Establish the highest possible price that a property can sell for (B) Establish the most probable price that would be paid for property under competitive market conditions (C) Establish the market value for a property's land without any structures (such as a house) (D) Establish the market value for a property if the property is put to its highest and best use
Establish the most probable price that would be paid for property under competitive market conditions
Which of the following statements best describes the "wealth effect," as described in the textbook? (A) Households with equity in their houses are wealthier than households that rent their housing (B) Expected appreciation in assets, such as home equity, may increase spending on other goods and services in the economy (C) Economists believe that wealthier households have a positive effect on the housing market, while low-income households have negative effect (D) A 10 percent increase in homeownership is associated with a 12 percent increase in economic growth
Expected appreciation in assets, such as home equity, may increase spending on other goods and services in the economy
The future value of $1,000 compounded annually for 8 years at 12% may be calculated with the following formula: FV = $1,000 * (1 + 12%)8 If the same $1,000 was compounded quarterly, what formula would you use to calculate the FV? (A) FV = $1,000 * (1 + 3%)8 (B) FV = $1,000 * (1 + 12%)32 (C) FV = $1,000 * (1 + 3%)32 (D) FV = $1,000 * (1 + 12%)2
FV = $1,000 * (1 + 3%)32
Which of the following default is LEAST often used for foreclosure? (A) Failure to fulfill financial obligation (B) Failure to pay taxes (C) Failure to pay insurance premiums when due (D) Failure to keep the security in repair
Failure to keep the security in repair
A(n) ___ estate represents the most complete form of ownership of real estate; the owner is free to divide it up into lesser estates and sell, lease, or borrow against them as he or she wishes. (A) Fee simple (B) Freehold (C) Leasehold (D) Life (E) Outright
Fee simple
In jurisdiction where a deed of trust is used to finance real estate, there are three parties to the loan secured by the deed of trust. Which of the following is NOT one of those three parties? (A) Borrower (B) Trustee (C) Holder of the note (D) Grantor
Grantor
What term BEST describes a person that owns a property and is conveying title to the property to another person? (A) Mortgagor (B) Grantor (C) Mortgagee (D) Grantee
Grantor
What type of estate lasts for an indefinite period of time? (A) Freehold estate (B) Estate from year to year (C) Leasehold estate (D) Estate for years
Freehold estate
If you saw a table containing the following factors, what kind of interest factor would you be looking at? End of Year 6% 1 1.06000 2 1.12360 3 1.19101 4 1.26247 5 1.33822 (A) Present value of a single amount (B) Future value of a single amount (C) Present value of an annuity (D) Future value of an annuity
Future value of a single amount
Because its payment stream looks like a staircase, which loan is sometimes referred to as "stepped-up" financing due to prearranged payment increases? (A) CAM (B) CPM (C) GPM (D) ARM
GPM
Which type of deed offers the grantee the MOST protection? (A) Quitclaim deed (B) Special warranty deed (C) General warranty deed (D) Officer's deed
General warranty deed
Which of the following would NOT result in an increase in housing demand? (A) Population growth (B) Employment growth (C) Higher interest rates (D) Higher household income
Higher interest rates
Which of the following statements is FALSE regarding foreclosure? (A) In judicial foreclosure, property subject to attachment and execution is limited to the mortgaged property (B) If the sale of the mortgaged property realizes a price above the claims of the mortgage and expense of the sale, the balance goes to the mortgagor (C) Redemption can be accomplished by paying 95% of the debt, interest and costs due to mortgage (D) All of the above
If the sale of the mortgaged property realizes a price above the claims of the mortgage and expenses of the sale, the balance goes to the mortgagor
Risk is an important component of interest rates. Which of the following risks is NOT a determinant of interest rates? (A) Default risks (B) Interest rate risks (C) Institutional risks (D) Marketability risks
Institutional risks
When considering the federal income tax treatment for housing, which of the following is tax deductible? (A) Loan amortization (B) Interest on mortgage loans (C) Insurance (D) None of the above
Interest on mortgage loans
Begin with a single sum of money at period 0. First, calculate a future value of that sum at 12.01%. Then discount that future value back to period 0 at 11.99%. In relation to the initial single sum, the discounted future value: (A) Is greater than the original amount (B) Is less than the original amount (C) Is the same as the original amount (D) Cannot be determined with the information given
Is greater than the original amount
In comparison to the first month's payment of a CAM, the first month's payment of a CPM: (A) Is higher (B) Is lower (C) Is the same (D) Cannot be determined with this information
Is lower
Which of the following is TRUE regarding the incremental cost of borrowing? (A) It should be less than the rate for a first mortgage (B) It should be compared to the cost of obtaining a second mortgage (C) It is used to calculate the APR for the loan (D) It is independent of loan-to-value ratio
It should be compared to the cost of obtaining a second mortgage
Which of the following documents conveys title to a property at the time the purchaser completes the performance of the obligation called for in the document? (A) Junior mortgage (B) Package mortgage (C) Purchase-money mortgage (D) Land contract
Land contract
Which of the following is FALSE concerning Mechanic's Liens? (A) Gives the right to attach a lien on real estate (B) Can get money through forcing judicial sale (C) Lasts even after the bill for labor and materials has been paid (D) Might not be disclosed by the public records
Lasts even after the bill for labor and materials has been paid
A historical summary of the publicly-recorded documents that affect the ownership of a property is know as a(n): (A) Estate (B) Deed (C) Abstract of title (D) Lien
Lien
Points are also known as: (A) Third party charges (B) Reduction in payment amount (C) Loan discount fees (D) Reduction of mortgage yield
Loan discount fees
Which of the following is NOT tax deductible for homeowners? (A) Points in mortgage loans (B) Mortgage interest (C) Property taxes (D) Maintenance expenses
Maintenance expenses
When calculating the cash equivalent value of an assumable loan, you find the present value of the payments using the: (A) Contract interest rate (B) Incremental borrowing cost (C) Market interest rate (D) Discount rate
Market interest rate
A conforming loan: (A) Exceeds the loan limits of loans that Fannie Mae and Freddie Mac can buy (B) Meets loan limits of loans that Fannie Mae and Freddie Mac can buy (C) Cannot be purchased by GSEs such as Fannie Mae and Freddie Mac (D) Is another term for fixed-rate mortgage loan
Meets loan limits of loans that Fannie Mae and Freddie Mac can buy
The future value of a single deposit of $1,000 will be greater when this amount is compounded: (A) Annually (B) Semi-annually (C) Quarterly (D) Monthly
Monthly
Which of the following is the main objective of FTL legislation? (A) More effective advance disclosure of settlement costs (B) More informative disclosure of the cost of credit (C) Elimination of kickbacks and unearned fees (D) A reduction in the amount of escrow placed in accounts for homeowners
More informative disclosure of the cost of credit
RESPA has three specific objectives. Which of the following is NOT one of those objectives? (A) More effective advance disclosure of settlement costs (B) More informative of the cost of credit (C) Elimination of kickbacks and unearned fees (D) A reduction in the amount of escrow placed in accounts for homeowners
More informative of the cost of credit
A mortgage is BEST defined as a legal document that: (A) Creates an obligation to repay a loan under specific terms (B) Names real estate as the security or collateral for the repayment of a loan (C) Defines a possessory interest in real estate (D) Conveys ownership of a property to its purchaser
Names real estates as the security or collateral for the repayment of a loan
The expected cost of borrowing does NOT depend on which of the following provisions? (A) The frequency of payment adjustments (B) The inclusions of caps and floors on the interest rate, payment or loan balances (C) The spread over the index chosen for a given ARM (D) None of the above
None of the above
RESPA requires lenders to disclosure to buyers a uniform settlement statement detailing all closing costs within: (A) One day before the real estate closing (B) Three days before the real estate closing (C) One day after loan application (D) Three days after loan application
One day before the real estate closing
A loan in which the borrower arranges in advance with a total amount that will be advanced in stages, such as a construction loan is said to have which type of mortgage loan: (A) Assumption (B) Non-recourse (C) Open-end (D) Subordination
Open-end
When a homeowner improves some aspect of his property far in excess of comparable properties in the neighborhood, he is said to have: (A) Under-improved the property (B) Over-improved the property (C) Reached the point of increasing returns (D) Exceeded the breakeven point
Over-improved the property
Which of the following solutions is LEAST likely to be acceptable to a mortgagee when discussing alternatives to foreclosing a property? (A) Permanently extending the amortization period (B) Finding someone else to assume the mortgage (C) Providing a temporary grace period during which principal and interest are not paid (D) Permanently reducing the interest rate
Permanently reducing the interest rate
Assuming all APRs equal, the effective interest rate on a loan is highest when: (A) The loan has no points and a 30 year maturity and is prepaid in five years (B) The loan has no points and is prepaid at maturity (C) Points are charged and the loan is paid off at maturity in 30 years (D) Points are charged and the loan has a 30 year maturity but prepaid in five years
Points are charged and the loan has a 30 year maturity but prepaid in five years
Which of the following is NOT a minimum mortgage requirement? (A) Description of the property (B) Covenant of warranty (C) Prepayment clause (D) Covenant of seizing
Prepayment clause
At the end of five years, calculating the loan balance of a constant payment mortgage is simply the: (A) Present value of a single amount (B) Future value of a single amount (C) Present value of an ordinary annuity (D) Future value of an ordinary annuity
Present value of an ordinary annuity
What is usually executed at the same time as a mortgage and creates the obligation to repay the loan in accordance with its terms? (A) Recording acts (B) Ownership interests (C) Method of payment (D) Promissory note
Promissory note
In some cases, lenders require that borrowers obtain default insurance. The purpose of such insurance is to: (A) Decrease the effective interest rate on the loan (B) Increase the value of the underlying property (C) Protect the borrower from defaulting on the loan (D) Protect the lender from losses associated with borrower default on the loan
Protect the lender from losses associated with borrower default on the loan
Which of the following is NOT an alternative to foreclosure? (A) Restructuring the mortgage loan (B) Transfer of the mortgage to a new owner (C) Redemption (D) Prepackaged bankruptcy
Redemption
The capitalization effect: (A) Is one of the major factors leading to housing bubbles (B) Has no impact on housing prices (C) Relates the quality of public services that individuals receive relative to the taxes that are paid for the services (D) Relates the interest rate on mortgage loans to the value of residential real estate
Relates the quality of public services that individuals receive relative to the taxes that are paid for the services
A mortgage agreement provides the lender with ________ interests. (A) Unsecured (B) Secured (C) Nonpossesory (D) Possesory
Secured
If a lender is to repossess or bring about the sale of a property if the borrower defaults on the mortgage loan, the lender is said to have a ___ in the real estate. (A) Freehold interest (B) Lease interest (C) Secured interest (D) Quitclaim
Secured Interest
Which of the following is NOT a good method of title assurance? (A) Seller provides a warranty in the deed (B) An attorney searches recorded documents (C) Title insurance is purchased (D) Seller provides a quitclaim deed
Seller provides a quitclaim deed
Which of the following is typically NOT one of the settlement costs that are escrowed over the life of the loan? (A) Property taxes (B) Mortgage insurance (C) Selling commissions (D) Hazard insurance
Selling commissions
Which of the following terms refers to an owner's right to redeem a property after foreclosure? (A) Equity of redemption (B) Statutory redemption (C) Attachment (D) Execution
Statutory redemption
A jumbo loan: (A) Is another term for an adjustable-rate mortgage loan (B) Meets loan limits of loans that Fannie Mae and Freddie Mac can buy (C) Tends to have a higher interest rate than conforming loans (D) Has lower LTV requirements than conforming loans
Tends to have a higher interest rate than conforming loans
An appraisal usually contains three approaches to valuation. Which of the following is NOT one of those approaches? (A) The Market Approach (B) The Ratio Approach (C) The Cost Approach (D) The Income Approach
The Ratio Approach
Which of the following statements regarding negative amortization in the previous question is true? (A) The Year 3 payments are less than the interest assessed on the loan, so the outstanding balance at the end of Year 3 is higher than at the end of Year 2. (B) The Year 3 payments are more than the interest assessed on the loan, so the outstanding balance at the end of Year 3 is higher than at the end of Year 2. (C) The Year 3 payments are less than the interest assessed on the loan, so the outstanding balance at the end of Year 3 is lower than at the end of Year 2. (D) The Year 3 payments are more than the interest assessed on the loan, so the outstanding balance at the end of Year 3 is lower than at the end of Year 2.
The Year 3 payments are more than the interest assessed on the loan, so the outstanding balance at the end of Year 3 is lower than at the end of Year 2.
Which of the following groups customarily does NOT attend real estate closing? (A) The buyer and seller (B) The buyer's and seller's immediate families (C) Real estate broker(s) (D) Settlement agent(s)
The buyer's and seller's immediate families
The influence on property values brought about by a net benefit related to the value of public goods less their cost is referred to as: (A) A capital gain (B) A capital loss (C) The capitalization effect (D) The depreciation effect
The capitalization effect
Which of the following is NOT a determinant of interest rates for single family residential mortgages? (A) The demand and supply of mortgage funds (B) Inflation expectations (C) Liquidity (D) The demand and supply of apartments
The demand and supply of apartments
If one of the terms of an ARM read, interest is capped at 2%/5%, what would that mean? (A) The borrower can choose the cap he wants by simply circling the appropriate choice (B) The interest rate has a 2% annual cap rate and a 5% lifetime cap rate (C) The interest rate has a 5% annual cap rate and a 2% lifetime cap rate (D) The interest rate has a 2% annual cap rate and a 5% floor cap rate
The interest rate has a 2% annual cap rate and a 5% lifetime cap rate
Which of the following is TRUE concerning Wraparound Loans? (A) The borrower makes payments on existing loan (B) The lender makes payments on existing loan (C) The lender only makes payments on the second mortgage (D) The borrower only makes payments on the second mortgage
The lender makes payments on the second mortgage
A senior mortgage holder is owed a mortgage balance of $140,000 and brings a foreclosure suit which includes all junior claimants in the suit. If the senior mortgage holder purchases the property for $140,000 at the foreclosure sale, what happens to the claim of the junior claimants? (A) The liens of the junior claimants are unaffected and the debt is due upon sale (B) The liens of the junior claimants are extinguished, but the debt owed to the junior claimants is unaffected (C) The liens of the junior claimants and the debt owed to them are extinguished (D) The liens of the junior claimants are unaffected, but the debt owed to them is extinguished
The liens of the junior claimants are extinguished, but debt owed to the junior claimants is unaffected
Which of the following statements about the loan in the question above are TRUE? (A) The market value of the loan is higher than the book value of the loan because the market rate of interest is lower than the interest rate on the loan (B) The market value of the loan is lower than the book value of the loan because the market rate of interest is lower than the interest rate on the loan (C) The market value of the loan is higher than the book value of the loan because the market rate of interest is higher than the interest rate on the loan (D) The market value of the loan is lower than the book value of the loan because the market rate of interest is higher than the interest rate on the loan
The market value of the loan is higher than the book value of the loan because the market rate of interest is lower than the interest rate on the loan
The market value of a loan is: (A) The loan balance times one minus the market rate (B) The loan balance times one minus the original rate (C) The future value of the remaining payments (D) The present value of the remaining payments
The present value of the remaining payments
Which of the following is a disadvantage of PLAMs? (A) Lenders face high levels of interest rate risk under PLAMs. (B) Fewer homebuyers are likely to qualify for financing using PLAMs in comparison to CPMs. (C) The price level used to index PLAMs is measured on an ex post basis and historic prices may not be an accurate reflection of future price. (D) All of the above.
The price level used to index PLAMs is measured on an ex post basis and historic prices may not be an accurate reflection of future price.
Payment to income ratio is BEST described as: (A) The factor used to determine if interest on mortgage loans is tax deductible (B) The only measure of a borrowers ability to fulfill his or her loan obligations (C) The ratio of the estimated rental income to the expected payments on a rental property (D) The ratio of the expected payments on a property to the income of the borrower
The ratio of the expected payments on a property to the income of the borrower
A region has a location quotient of 0.5 for manufacturing. This means that: (A) The region's share of employment in manufacturing is twice as big as the share of manufacturing employment in the U.S (B) The region's share of employment in manufacturing is half as big as the share of manufacturing employment in the U.S (C) Manufacturing is a "base" or "driver" industry for the region (D) Both A and C (E) Both B and C
The region's share of employment in manufacturing is half as big as the share of manufacturing employment in the U.S.
Which of the following situations is NOT a common cause for the use of a purchase-money mortgage? (A) The buyer cannot come up with the down payment needed to qualify for a mortgage (B) The seller wants to receive the gain from the sale in installments (C) Third-party mortgage financing is too expensive of unavailable (D) The seller desires to artificially raise the price of the property by receiving a higher-than-market interest rate
The seller desires to artificially raise the price of the property by receiving a higher-than-market interest rate
What document usually summarizes the sources, disbursements, charges and credits associated with a real estate closing? (A) The purchase contract (B) The deed of trust (C) The listing agreement (D) The settlement statement
The settlement statement
Which of the following is FALSE concerning buydown loans? (A) They are often used during periods of high inflation (B) They always lower the rate on the loan for the borrower for the entire loan term (C) Help borrowers qualify for a loan (D) They can be offered by home builders
They always lower the rate on the loanb for the borrower for the entire loan term
Which one of the following is TRUE about Prepayment penalties: (A) They are never used with residential mortgages (B) They lower the effective cost if the loan is repaid before maturity (C) They are equivalent to charging additional points for the loan (D) They are not included in the APR calculation
They are not included in the APR calculation
When is seller financing NOT used? (A) The seller desires to take advantage of the installment method of reporting the gain from sale (B) The buyer does not qualify for long term mortgage credit because of low down payment or difficulty meeting monthly payments (C) Third-party mortgage financing is less expensive or easily available (D) The seller desires to artificially raise the price of the property by offering a lower-than-market interest rate on the mortgage
Third-party mortgage financing is less expensive or easily available
RESPA requires lenders to disclose to buyers a good faith estimate of certain closing costs within: (A) One day before the real estate closing (B) Three days before the real estate closing (C) One day after loan application (D) Three days after loan application
Three days after loan application
Which of the following closing costs do not increase the lender's effective loan yield? (A) Discount points (B) Prepayment penalties (C) Title insurance charges (D) Origination fees
Title insurance charges
Which of the following is NOT typically included in housing costs used to calculate a borrower's payment-to-income ratio? (A) Principal and interest on the mortgage applied for (B) Mortgage insurance (C) Property taxes (D) Utilities (E) All of the above are included in the housing costs
Utilities
The future value compound factor given for period (n) at 15%: (A) Would be less than the factor for period (n+1) at 15% (B) Would be greater than the factor given for period (n+1) at 15% (C) Would be the same as the factor given for period (n+1) at 15% (D) Bears no relationship to the factor for period (n+1) at 15%
Would be less than the factor for period (n+1) at 15%