Financing - 9/17
Which of the following is prohibited by RESPA? Select one: A. Steering B. Redlining C. Kickbacks D. Blockbusting
(financing/credit laws) Accepting kickbacks is a violation of the Real Estate Settlement Procedures Act (RESPA). Steering, blockbusting, and redlining are violations of Fair Housing laws. The correct answer is: Kickbacks
In relation to the Closing Disclosure Form, which situation would not trigger an additional 3 day waiting period before settlement? Select one: A. Increasing the APR B. Increasing the loan amount C. Switching to a different type of loan D. Adding a pre-payment penalty to the loan
(financing/credit laws) After presenting the Closing Disclosure Form, there are only 3 situations which trigger an additional waiting period: an increase in the APR rate; the addition of a prepayment penalty; or changing the basic loan product (for example, switching from a fixed rate to an adjustable rate loan). The correct answer is: Increasing the loan amount
Lending institutions are required to provide a Good Faith Estimate of closing costs for a: Select one: A. Loan to purchase a duplex B. Cash sale C. Reverse mortgage D. Refinance
(financing/credit laws) For most loans covered under RESPA, a lending institution is required to provide a Loan Estimate within 3 days of application. However, lenders must provide a Good Faith Estimate (GFE) in place of the Loan Estimate for: home equity lines of credit (HELOCs); reverse mortgages; mortgages for mobile homes or dwellings not attached to land; and loans made by a person that is not a creditor. Note that a cash sale is not subject to any RESPA requirements. The correct answer is: Reverse mortgage
The Real Estate Settlement Procedures Act (RESPA) requires lending institutions to provide a Good Faith Estimate of closing costs: Select one: A. When the loan application is submitted B. Within 3 days of the loan application C. Within 3 days of closing D. Within 10 days of the loan application
(financing/credit laws) In certain situations, RESPA requires that a Good Faith Estimate be provided in place of the Loan Estimate form, and a Uniform Settlement Statement (HUD-1) be provided in place of the Closing Disclosure Form. When applicable, the Good Faith Estimate must be provided within 3 days of the loan application. The correct answer is: Within 3 days of the loan application
According to RESPA, which disclosure documents must be provided within 3 days of the loan application? Select one: A. Special Information Booklet, Good Faith Estimate, and Escrow Account Statement B. Special Information Booklet, Loan Estimate, and Mortgage Servicing Statement C. Mortgage Servicing Statement, Good Faith Estimate, and Escrow Account Statement D. Closing Disclosure, Good Faith Estimate, and Escrow Account Statement
(financing/credit laws) In most cases, lenders must provide the Special Information Booklet, Loan Estimate, and Mortgage Servicing Statement within 3 business days of receiving a loan application. However, if applicable, a Good Faith Estimate (GFE) must be provided in place of the Loan Estimate form. The correct answer is: Special Information Booklet, Loan Estimate, and Mortgage Servicing Statement
The Truth-in-Lending law requires full disclosure of financing terms when certain "trigger" terms are used in ads. Which of the following is least likely to trigger Truth-in-Lending laws? Select one: A. The APR B. Downpayment C. Miscellaneous closing costs D. The number, amount, and frequency of payments
(financing/credit laws) Miscellaneous closing costs like attorney fees, appraisal fees, recording costs, prepaid insurance, and taxes are NOT costs of borrowing money. Therefore, they are NOT required by TILA/Regulation Z. The correct answer is: Miscellaneous closing costs
The purpose of Regulation Z is to disclose: Select one: A. Interest rates B. Total interest C. Financing charges D. The term of the loan
(financing/credit laws) Regulation Z requires disclosure of all finance charges associated with granting a loan. Finance charges include interest rates, total interest, and the term of the loan. However, these are all individual components of the finance charge. Therefore, the general "financing charges" choice is the best answer. The correct answer is: Financing charges
Regulation Z requires that all of the following be disclosed to the borrower, EXCEPT: Select one: A. Finance charges B. The annual percentage rate C. The cost of title insurance D. The total amount of interest
(financing/credit laws) Regulation Z requires disclosure of any and all charges associated with the financing. Title insurance, attorney fees, surveys, and recording charges do NOT relate to the financing. The correct answer is: The cost of title insurance
Under RESPA, the Mortgage Servicing Statement informs borrowers of: Select one: A. All the payments expected to be deposited into the escrow account B. The actual fees and services that will be provided C. Whether the lender expects someone else to service the loan D. Settlement service charges that the borrower will likely have to pay
(financing/credit laws) The Mortgage Servicing Statement must be provided to the borrower within three (3) business days for receiving a loan application. It informs borrowers of whether the lender expects someone else to service the loan (collect payments). The correct answer is: Whether the lender expects someone else to service the loan
The Closing Disclosure Form informs borrowers of: Select one: A. Whether the lender expects someone else to service the loan B. Settlement service charges that the borrower will likely have to pay C. The actual fees and services that will be provided D. All the payments expected to be deposited into the escrow account
(financing/credit laws) The Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) require that lenders provide a Closing Disclosure at least 3 days before settlement. This disclosure itemizes the services provided and the actual fees charged. The correct answer is: The actual fees and services that will be provided
The Loan Estimate Form informs borrowers of: Select one: A. Settlement service charges that the borrower will likely have to pay B. All the payments expected to be deposited into the escrow account C. Whether the lender expects someone else to service the loan D. The actual fees and services that will be provided
(financing/credit laws) The Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) require that lenders provide a Loan Estimate within 3 days of receiving a loan application. This form lists settlement service charges that the borrower will likely have to pay. Note that the amounts listed only estimates; actual costs may vary. The correct answer is: Settlement service charges that the borrower will likely have to pay
RESPA does not apply to which of the following sales? Select one: A. A residential property with 100% seller assisted financing B. A residential condominium unit C. A townhouse in a new development with more than 25 units D. A single family dwelling
(financing/credit laws) The Real Estate Settlement Procedures Act (RESPA) only applies to federally regulated loans; therefore, a house sold with 100% seller assisted financing would NOT be subject to RESPA. The correct answer is: A residential property with 100% seller assisted financing
Which of the following loans would NOT be subject to RESPA? Select one: A. A VA loan B. An assumption without lender approval C. A conventional loan from a federal S&L, used to purchase a single family residence D. A mortgage purchased by FNMA
(financing/credit laws) The Real Estate Settlement Procedures Act (RESPA) prescribes certain settlement procedures which must be followed when real property is purchased with a federally related loan. All answer choices would be considered federally related, except for an assumption where the lender's approval is not required or obtained. The correct answer is: An assumption without lender approval
Under RESPA, the Settlement Costs Booklet informs borrowers of: Select one: A. All the payments expected to be deposited into the escrow account B. The actual fees and services will be provided C. Whether the lender expects someone else to service the loan D. How to get the best possible mortgage and tips on homeownership
(financing/credit laws) The Settlement Costs Booklet (also known as the Special Information Booklet) contains a guide on how to get the best possible mortgage, information about closing costs and procedures, and general advice about homeownership. The correct answer is: How to get the best possible mortgage and tips on homeownership
The Real Estate Settlement Procedures Act (RESPA) requires lending institutions to provide a Loan Estimate of closing costs: Select one: A. When the loan application is submitted B. Within 3 days of the loan application C. Within 3 days of closing D. Within 10 days of the loan application
(financing/credit laws) The age of computers has made it possible for the lender to disclose estimated closing costs on the spot (at the time of loan application), but the law requires that the estimate be provided within 3 days of application. The correct answer is: Within 3 days of the loan application
In certain instances, if a consumer signs a note that places a lien on his or her property, the owner has the right to rescind the agreement within 3 days and without penalty. This right exists under which of the following laws? Select one: A. Real Estate Settlement Procedures Act B. Truth-in-Lending Act C. Equal Credit Opportunity Act D. Statute of Frauds
(financing/credit laws) The right of a consumer to rescind a financial agreement under certain circumstances is provided under the Truth In Lending Act. This right of rescission does NOT apply to an original mortgage on real property. The correct answer is: Truth-in-Lending Act
Which of the following disclosures could be omitted without violating TILA? Select one: A. Interest rate B. Number, amount, and frequency of payments C. Amount of down payment D. Selling price
(financing/credit laws) The selling price of the property is NOT required under TILA because it is unrelated to the financing. The correct answer is: Selling price
Which of the following items is not covered as a trigger term under Regulation Z? Select one: A. loan amount B. down payment amount C. frequency of payments D. number and amount of payments
(financing/credit laws) Trigger terms under Regulation Z include: the amount of the down payment, the amount of any payment, the number of payments, and the amount of any finance charge. However, the frequency of payments is considered to be too general to trigger additional disclosures (ex. "pay weekly"). The correct answer is: frequency of payments
Truth-In-Lending (Regulation Z) applies to which of the following loans? Select one: A. A loan to purchase a single family home B. A purchase money mortgage C. A loan to purchase a 16-unit apartment building D. All of the above
(financing/credit laws) Truth-In-Lending only applies to consumer loans. If an individual loans money (as with a purchase money mortgage), Regulation Z would NOT apply. In addition, this regulation does not apply to commercial property or multi-family dwellings with more than 4 units. The correct answer is: A loan to purchase a single family home
Under the Truth-In-Lending Act, all of the following items must be in the Loan Estimate EXCEPT: Select one: A. Total finance charges B. Pay-off penalties C. Attorney fees D. Annual percentage rate
(financing/credit laws) Under the Truth In-Lending, the lender is only required to disclose the charges related to obtaining credit, like the total finance charges, payoff penalties (pre-payment penalties), and the annual percentage rate (APR). Attorney fees need not be included in this disclosure. The correct answer is: Attorney fees
Under Truth-In-Lending requirements, the mortgagee: Select one: A. Is regulated on how much interest it may charge B. Must provide an accurate amortization schedule C. Must advise the borrower of the total interest paid if the loan is fully satisfied on the scheduled maturity date D. Must allow the loan to be assumed
(financing/credit laws) Under the Truth-In-Lending law, the lender (mortgagee) is required to disclose the cost of obtaining credit to the borrower. Usury laws (state laws), not TILA, limit the amount of interest a lender may charge. While Truth-In-Lending requires a lender to provide the total interest to be paid, it does not require that the lender provide an amortization schedule (a breakdown of each payment into the amount paid to principal and interest). Finally, Truth-In-Lending does not address the issue of assumptions. The correct answer is: Must advise the borrower of the total interest paid if the loan is fully satisfied on the scheduled maturity date
RESPA does NOT apply to: Select one: A. VA loans B. Owner financing C. FHA loans D. None of the above
(financing/credit laws) VA, FHA, and conventional loans purchased by FNMA are federally related loans subject to RESPA. Loans made through owner financing (purchase money mortgages) are not subject to RESPA. The correct answer is: Owner financing
Which of the following statements is NOT true regarding points charged on a loan? Select one: A. They increase yield B. They are based on the selling price C. They are generally 1% of the loan amount D. They are negotiable
(general concepts) Each point is 1% of the LOAN amount (not the sale price), and they increase the yield to the lender over and above the loan interest rate. Because points vary from lender to lender, they are negotiable. The correct answer is: They are based on the selling price
The difference between the property value and its debts is known as: Select one: A. Ownership B. Equity C. Collateral D. Novation
(general concepts) Equity is the difference between property value and debt. The correct answer is: Equity
Which items are set by Federal regulations? Select one: A. Real estate license laws B. Lending institution regulations C. Zoning ordinances D. Real estate tax rates
(general concepts) Lending institutions are controlled by Federal regulations. License laws are established by State governments. Zoning ordinances and tax rates are set by local municipalities. The correct answer is: Lending institution regulations
A budget mortgage payment (PITI) would normally NOT include: Select one: A. A payment toward the principal of the loan B. A payment toward the interest of the loan C. 1/12 of the annual real property taxes D. 1/12 of the annual life insurance premium
(general concepts) PITI means principal, interest, taxes, and insurance. This is also known as a budget mortgage because the owner pays exactly the same amount each month. The insurance portion of the PITI is hazard insurance, NOT life insurance. The correct answer is: 1/12 of the annual life insurance premium
A lender advertises 80% LTV conventional loans. 80% is applied to: Select one: A. Appraised value B. Selling price C. The buyer's income D. Either A or B
(general concepts) The loan-to-value (LTV) ratio is always applied to the appraised value of the property or the selling price, WHICHEVER IS LOWER. The correct answer is: Either A or B
As theorized by lenders, why is the loan-to-value ratio (LTV) important? Select one: A. The higher the LTV, the smaller the risk of a default B. The higher the LTV, the greater the risk of a default C. The lower the LTV, the greater the risk of a default D. There is no relationship between LTV and risk that a borrower will default
(general concepts) The loan-to-value ratio is the ratio between the loan amount and price of the property. Higher LTVs mean that the borrower has given a low down payment; thus, the lender is providing a large percentage of the purchase price. Lenders theorize that the more equity a borrower has (higher down payment, lower LTV), the less likely a person will default because he/she is more invested in the property. The correct answer is: The higher the LTV, the greater the risk of a default
The maximum interest rate charged for a home mortgage is most likely to be determined by which of the following? Select one: A. Federal law B. State law C. Federal Home Loan Bank Board D. Federal Reserve
(general concepts) The maximum interest rate that may be charged on a loan is governed by a state's usury law. The correct answer is: State law
The right of a person to possess and use real property, while pledging its title to another, is known as: Select one: A. Seisin B. Hypothecation C. Novation D. Habendum
(general concepts) To hypothecate is to pledge something while retaining possession of the item. The correct answer is: Hypothecation
Usury laws protect: Select one: A. Sellers B. Lenders C. Borrowers D. Licensed real estate brokers and salespersons
(general concepts) Usury laws establish maximum interest rates for real estate and any other type of credit extension, like credit cards or auto financing. The purpose of usury laws is to protect the borrower. The correct answer is: Borrowers
Discount points increase yields for: Select one: A. Brokers B. Lenders C. Sellers D. Buyers
(government programs) Discount points are charges imposed by the lender to increase their yield on a loan, over and above the interest collected over the term. The correct answer is: Lenders
What affect does HUD and FHA have on interest rates? Select one: A. Influences maximum interest rates B. Subsidizes interest payments C. Controls maximum interest rates D. None of the above
(government programs) FHA and HUD do not set, guarantee, or regulate interest rates. The correct answer is: None of the above
Which characteristic is NOT associated with an FHA loan? Select one: A. Must be owner occupied B. Insured C. Guaranteed D. Second trusts are not permitted
(government programs) FHA loans are insured, but they are not guaranteed. The correct answer is: Guaranteed
What is an advantage of FHA financing? Select one: A. No insurance premiums are required B. Lenders cannot charge prepayment penalties C. Loans are fully guaranteed D. The FHA establishes maximum interest rates
(government programs) Federally backed loans, like FHA and VA loans, allow the loan to be paid off at any time prior to maturity and without penalty. FHA loans are insured, NOT guaranteed. VA loans are guaranteed. The correct answer is: Lenders cannot charge prepayment penalties
The funds for originating VA loans are usually provided by: Select one: A. Approved lenders B. FHA C. FNMA D. None of the above
(government programs) In rare circumstances, the VA may originate loans. However, in most situations, VA funds come from approved lending institutions, not from FHA or FNMA. The correct answer is: Approved lenders
Prior to 1986, what was an advantage of FHA financing? Select one: A. No insurance premiums were required B. Lenders could not charge discount points C. Loans were fully guaranteed D. Loans were automatically assumable
(government programs) Note that prior to 1986, FHA loans were automatically assumable without lender approval. However, this changed in 1986 and now the lender must approve an FHA assumption. The correct answer is: Loans were automatically assumable
Jon is purchasing a home from Sally. Jon wants to assume the FHA loan that Sally currently has on the property. Jon has the best chance to assume the loan if which of the following is true? Select one: A. Sally originated the loan between 1986 and 1989 B. Sally originated the loan prior to December 1986 C. Sally originated the loan after 1989 D. Sally's loan is at least 50% paid in full
(government programs) Note that the FHA does not restrict a buyer's ability to assume a loan originated prior to December 1986. For loans originated between 1986 and 1989, buyers must satisfy a credit worthiness review. For loans originated after December 1989, buyers must be completely qualified before assuming a loan. The correct answer is: Sally originated the loan prior to December 1986
Which of the following statements is incorrect? Select one: A. Prepayment penalties are prohibited with VA and FHA financing B. HUD establishes market-based interest rates for VA and FHA loans C. The Department of Veterans Affairs (VA) can make certain direct loans D. Conventional loans may require PMI insurance
(government programs) Remember, you are looking for the INCORRECT answer. All of the above statements are true except that HUD establishes interest rates. The correct answer is: HUD establishes market-based interest rates for VA and FHA loans
The FHA's involvement in real estate is comparable to which of the following entities? Select one: A. An insurance company B. A savings and loan C. A secondary mortgage market warehouse D. A mortgage broker
(government programs) The FHA insures, but does not guarantee or originate, loans. Therefore, of the choices presented, it is most analogous to an insurance company. The correct answer is: An insurance company
The maximum amount of a VA guaranteed loan is: Select one: A. Determined by lenders B. Nationally uniform C. Established regionally D. Set by the VA
(government programs) The amount of guarantee is determined by the VA, but the amount of the loan is determined by the lender. That is, a lender is always free to lend more money than the VA will guarantee. The correct answer is: Determined by lenders
The money under an FHA loan is provided by: Select one: A. The Federal Housing Administration B. Qualified lenders C. The FDIC D. The Federal Treasury
(government programs) The money for the loan comes from a qualified lending institution, not FHA. The FHA insures the lender against loss; they do NOT loan money to finance the purchase of property. The correct answer is: Qualified lenders
One of the functions of the FHA is to: Select one: A. Build homes B. Plan homes C. Provide insurance D. Loan money
(government programs) When it was first established, the purpose of FHA was to set standards of construction for houses. FHA now provides insurance protection for lenders, enabling low downpayments and low interest loans for qualified buyers. The correct answer is: Provide insurance
Mrs. O'Leary has owned her house, free and clear, for several years. She has a fixed income and would like to take some of the equity out of her property. She would most likely apply for which type of loan? Select one: A. GPM B. RAM C. SAM D. GRM
(mortgages/deeds of trust) A RAM is a reverse annuity mortgage. The lender would send a specified amount every month to Mrs. O'Leary, expecting to be repaid when the property is sold. The correct answer is: RAM
A developer divides his property into 5 separate lots. He pledges all 5 as security for a loan that will be used to construct a house on each parcel. When he sells one lot with improvements, the bank releases that particular lot from the security. This allows the developer to convey title to the new purchaser. What type of loan meets this description? Select one: A. Package mortgage B. Blanket mortgage C. Wraparound mortgage D. Open mortgage
(mortgages/deeds of trust) A blanket mortgage is a loan that covers more than one piece of property. A blanket mortgage usually contains a partial release clause, as described in the question. The correct answer is: Blanket mortgage
A mortgage could include all of the following clauses, EXCEPT: Select one: A. Defeasance B. Alienation C. Subrogation D. Acceleration
(mortgages/deeds of trust) A mortgage will generally contain all of the clauses mentioned, except for the subrogation clause. Subrogation clauses are commonly associated with insurance policies. If your insurance company pays you, a subrogation clause provides them with the right to seek reimbursement from the other party. You subrogate (give) this right to seek damages to your insurance company. The correct answer is: Subrogation
A mortgage that includes both real and personal property is a(n): Select one: A. Blanket mortgage B. Open mortgage C. Chattel mortgage D. Package mortgage
(mortgages/deeds of trust) A package mortgage includes both real and personal property. Most people have package mortgages on their homes. The correct answer is: Package mortgage
The difference between a first and second mortgage must depend upon: Select one: A. The principal B. The position C. The term D. All of the above
(mortgages/deeds of trust) A second mortgage MUST have a subordinate lien position. That is what makes it a 2nd mortgage. It could include the other items mentioned, but the only thing it MUST be is subordinate. The correct answer is: The position
What is a clause included in a 1st mortgage, which requires that it assume a lower priority? Select one: A. An estoppel clause B. An acceleration clause C. A subordination clause D. A participation clause
(mortgages/deeds of trust) A subordination clause states that the rights of the mortgagee shall be secondary (subordinate) to a subsequent mortgage. The correct answer is: A subordination clause
A mortgage where the total principal is due at maturity is a: Select one: A. Package loan B. Term loan C. Fully amortized loan D. All of the above
(mortgages/deeds of trust) A term loan is a loan in which only interest is paid during the loan term, and the entire principal amount is paid on the maturity date. This type of loan is also known as an "interest only loan" or a "straight mortgage." The correct answer is: Term loan
Liquidation of a loan is: Select one: A. Amortization B. Depreciation C. Capitalization D. Acceleration
(mortgages/deeds of trust) Amortization is the repayment of a debt by making systematic and regular payments to principal until the debt is retired. You are liquidating (eliminating) the debt a little at a time. The correct answer is: Amortization
What loan has constant payments, where increasing amounts are credited to the principal and decreasing amounts are charged for interest? Select one: A. A variable loan B. A variable constant loan C. An amortized loan D. A straight loan
(mortgages/deeds of trust) An amortized loan has a fixed payment for the life of the loan. The amount paid to principal increases and the amount paid to interest decreases with each succeeding payment. The correct answer is: An amortized loan
John is buying a house from Ellen for $100,000. National Savings and Loan is going to loan $70,000 to John, Ellen is going to hold a purchase money mortgage in the amount of $10,000, and John will pay the difference in cash. The $10,000 owed to Ellen is most likely to be a: Select one: A. Participation mortgage B. Junior mortgage C. Buy down D. First mortgage
(mortgages/deeds of trust) Ellen, the seller, holds a junior mortgage or a second trust because the senior mortgage or first mortgage will be held by the savings and loan. The correct answer is: Junior mortgage
A loan's final payment is exactly equal to the amount of the principal (which is exactly equal to the amount of the original loan). Such a loan is referred to as any of the following, EXCEPT: Select one: A. Straight loan B. Partially amortized loan C. Interest only loan D. Term loan
(mortgages/deeds of trust) If the final payment is exactly equal to the original amount of the loan, then any previous payments would have paid towards the interest only. This loan is called an interest only mortgage (also known as a straight mortgage or term loan), not a partially amortized loan. The correct answer is: Partially amortized loan
Surplus funds from a foreclosure sale generally belong to the: Select one: A. Purchaser at the sheriff's sale B. Sheriff C. Mortgagee D. Foreclosed owner
(mortgages/deeds of trust) If the property is sold at foreclosure and the sale brings in more than the debt owed, the excess belongs to the foreclosed owner. The correct answer is: Foreclosed owner
A mortgage lender is known as the: Select one: A. Trustor B. Trustee C. Mortgagee D. Devisee
(mortgages/deeds of trust) In a mortgage, the lender is called the mortgagee. A trustee is one of the three parties in a deed of trust, and a devisee is a person who inherits real property through a will. The correct answer is: Mortgagee
Tony is planning to build a house on a vacant lot. Tony will finance his house with a construction loan. A typical construction loan is BEST described as: Select one: A.An open-end mortgage B. An open mortgage C. A wraparound mortgage D. A blanket mortgage
(mortgages/deeds of trust) In a typical construction loan, the bank agrees to the maximum amount that it will lend. The money is advanced (loaned) to the borrower in installments as various stages of construction are completed. This is an open-end loan because the amount is open up to a limited amount that the bank will lend. This is very similar a line of credit. The correct answer is: An open-end mortgage
An individual defaults on a $100,000 mortgage and only $95,000 is received by the lender as a result of foreclosure. In this situation, which of the following statements is true? Select one: A. The lender must fine a $5,000 judgement B. The lender may be entitled to a $5,000 judgement C. The lender cannot recover the $5,000 D. None of the above
(mortgages/deeds of trust) In the situation described, the lender could file for a deficiency judgment against the original borrower and could recover the full amount, depending on the borrower's other assets. The correct answer is: The lender may be entitled to a $5,000 judgement
Helen obtained a loan from ABC Mortgage Company. The monthly payments were set at a rate that would fully amortize the loan over a 25-year period. However, in the note that Helen signed, it specified that the entire balance was due at the end of 120 payments (10 years). What type of mortgage does this most likely describe? Select one: A. Open end B. Purchase money C. Balloon D. Participation
(mortgages/deeds of trust) In this loan, the final payment (remaining balance after 10 years) would be considerably larger than Helen's regular monthly payments, which were set according to a 25-year amortization schedule. That makes the loan a balloon mortgage. The correct answer is: Balloon
The right of a mortgagor to regain his property pending foreclosure is known as: Select one: A. Reposession B. Recovery C. Redemption D. Rescission
(mortgages/deeds of trust) Redemption is the right which allows the mortgagor (borrower) to regain his property prior to or after foreclosure. The correct answer is: Redemption
If a promissory note (given for payment on a parcel of land) has a lower lien priority than a succeeding claim, what is this called? Select one: A. Estoppel B. Enumeration C. Subordination D. None of the above
(mortgages/deeds of trust) Subordination is the term for when a security instrument (mortgage or trust deed) voluntarily takes a priority position that is LOWER than a succeeding claim. The correct answer is: Subordination
A husband and wife own property, and their mortgage payment is due on the 1st of the month. They are thirty days late on their payment when they receive a notice saying that they MUST make payment within ten days. If they fail to pay, the entire loan balance is due immediately. Which mortgage clause would set these terms? Select one: A. Alienation clause B. Acceleration clause C. Estoppel clause D. Forfeiture clause
(mortgages/deeds of trust) The acceleration clause states that the entire loan balence is due immediately if the borrower violates the covenants of the mortgage agreement (for example, the promise to make payments on time). The correct answer is: Acceleration clause
What is a clause in a mortgage that prevents a buyer from assuming an existing loan? Select one: A. Condemnation B. Defeasance clause C. Alienation clause D. Acceleration clause
(mortgages/deeds of trust) The alienation clause is also referred to as the "due on sale" clause. This means that if you sell the property, the entire loan balance is DUE. If interest rates are going up, lenders do not want anyone to assume a loan at lower than market rates. The correct answer is: Alienation clause
Mortgage covenants require the mortgagor to do all of the following, EXCEPT: Select one: A. Pay taxes B. Maintain the property C. Pay principal and interest D. Maintain life insurance
(mortgages/deeds of trust) The borrower is NOT required to have life insurance. He must have fire and hazard insurance to protect the lender. The correct answer is: Maintain life insurance
Which of the following covenants is most often included in a mortgage? Select one: A. Seisin B. Further assurances C. Quiet enjoyment D. Pay taxes
(mortgages/deeds of trust) The covenant or promise to pay the taxes on the property is contained in a mortgage. All of the other covenants mentioned are covenants found in a deed. The correct answer is: Pay taxes
When would the defeasance clause in a mortgage take effect? Select one: A. When the entire debt is repaid B. When the borrower misses a payment C. When the borrower sells the property for less than the amount of the existing loan D. When the property is destroyed by natural causes
(mortgages/deeds of trust) The defeasance clause will take effect when the promissory note has been paid in full, thus defeating the mortgage. The acceleration clause allows a lender to call for the entire loan balance if the buyer defaults. The alienation clause (due on sale clause) allows the lender to do the same thing if the buyer conveys (alienates) the property. The correct answer is: When the entire debt is repaid
Which of the following clauses would prevent a mortgage from being assumed by a subsequent buyer? Select one: A. Condemnation clause B. Defeasance clause C. Due-on-sale clause D. Right of first refusal clause
(mortgages/deeds of trust) The due on sale clause--legally referred to as the alienation clause--allows the lender to demand immediate payment of the entire debt if the title to the property is transferred (sold). This would likely prevent an assumption without lender approval. The correct answer is: Due-on-sale clause
If a promissory note contains an exculpatory clause, the lender: Select one: A. May seek a deficiency judgment B. May not seek a deficiency judgment C. May not foreclose D. May foreclose
(mortgages/deeds of trust) The exculpatory clause prevents the lender from obtaining a deficiency judgment in the event of a foreclosure. Note that the clause doesn't permit/prohibit foreclosure in case of default. The correct answer is: May not seek a deficiency judgment
A buyer purchases a piece of property and pays equal amounts over 5 years, with a lump sum payment at maturity. This loan is most likely to be a(n): Select one: A. balloon loan B. amortized loan C. direct loan D. open loan
(mortgages/deeds of trust) The lump sum payment at the end (the remaining balance of the loan) is a balloon payment, making this a balloon loan. The correct answer is: balloon loan
The promissory note accompanying a mortgage could create a: Select one: A. Personal obligation B. Two-way obligation C. Three-way obligation D. None of the above
(mortgages/deeds of trust) The promissory note accompanying a mortgage is legal evidence of the debt. This expresses the personal obligation of the borrower. The correct answer is: Personal obligation
Which of the following instruments provides the best evidence of a debt? Select one: A. Note B. Option C. Contract D. Reduction certificate
(mortgages/deeds of trust) The promissory note, which a borrower signs with a mortgage or deed of trust, shows legal evidence of the debt (the money borrowed). Meanwhile, a reduction certificate only certifies the status of the loan as of a certain date. The reduction certificate is furnished when a buyer assumes an existing, valid note. Therefore, a note is the best evidence of a debt, not a reduction certificate. The correct answer is: Note
A couple buys a furnished home by assuming the existing loan. Which of the following papers would the settlement attorney NOT have to prepare? Select one: A. Note B. Bill of sale C. Assumption papers D. Warranty deed
(mortgages/deeds of trust) The settlement agent will prepare a new deed and the assumption papers. The personal property in the home will be conveyed using a bill of sale. The buyers agree to make the payments on the existing loan, which allows the existing note and mortgage to remain in effect. The correct answer is: Note
A mortgage that permits periodic changes to the payment amount or interest rate is known as: Select one: A. Conventional B. Blanket C. Adjustable D. Purchase money
(mortgages/deeds of trust) This would describe an adjustable mortgage. The correct answer is: Adjustable
A buyer purchases a seller's home "subject to" the existing loan. If the buyer defaults, who is liable for the balance of the debt? Select one: A. Seller only B. Buyer only C. Seller and buyer, jointly D. Seller and buyer, jointly and severally
(mortgages/deeds of trust) When a buyer purchases property "subject to" the existing loan, the seller alone remains responsible to the lender for the repayment of the debt. The correct answer is: Seller only
A seller sells her home to a buyer who assumes her existing loan. If the buyer defaults, who is responsible for the balance of the debt? Select one: A. Seller only B. Buyer only C. Seller and buyer, jointly D. Seller and buyer, jointly and severally
(mortgages/deeds of trust) When the buyer "assumes" the existing loan of the seller, the seller remains a co-maker on the note with the buyer. Thus, both the seller and the buyer are jointly (both) and severally (individually) liable to the lender for the debt. This means that the lender may go after either or both parties in case of default. The correct answer is: Seller and buyer, jointly and severally
Which of the following statements about the Federal National Mortgage Association is true? Select one: A. It raises funds to purchase loans by selling government guaranteed bonds B. It regulates interest rates C. It borrows money from itself D. None of the above
(sources of lending money) The FNMA (Fannie Mae) raises funds through the sale of government guaranteed bonds (backed by its pool of mortgages) to further secondary mortgage market operations. The correct answer is: It raises funds to purchase loans by selling government guaranteed bonds
Which of the following statements is true of mortgage brokers? Select one: A. They close, but do not service, mortgage loans in their own name B. They service, but do not close, mortgage loans in their own name C. They close, but do not service, loans in the name of the lender D. They service, but do not close, loans in the name of the lender
(sources of loan money) A mortgage broker is merely an intermediary (middle man) who arranges and closes loans in the name of a lender. Unlike mortgage bankers, a mortgage broker does not originate or service loans. The correct answer is: They close, but do not service, loans in the name of the lender
Mortgage brokers could be all of the following, except a: Select one: A. Person B. Firm C. Corporation D. Bank
(sources of loan money) A mortgage broker may be a person, firm, or corporation. However, mortgage brokers are not banks because they do not take in deposits. The correct answer is: Bank
Who is an intermediary between a lender and a borrower? Select one: A. Insurance company B. Mortgage broker C. Federal Reserve Board D. FDIC
(sources of loan money) An intermediary is a go-between. A mortgage broker serves as the liaison between the people who have money to lend and the people who want to borrow money. Think of the mortgage broker in the same way that you would a real estate broker. The broker knows someone who wants to sell a house and also someone who wants to buy a house. He acts as the go-between and helps close the deal. The correct answer is: Mortgage broker
Banks and S&Ls can be best distinguished from mortgage bankers by which of the following? Select one: A. Source of funds B. Participation in the secondary market C. Origination of loans D. Level of risk
(sources of loan money) Banks and S&Ls use deposited funds to fund mortgages, whereas mortgage bankers usually pool investor funds for mortgage funding. The correct answer is: Source of funds
A conventional loan could be: Select one: A. FHA insured B. VA guaranteed C. HUD originated D. None of the above
(sources of loan money) Conventional loans are those which are not FHA insured or VA guaranteed. HUD does not originate loans. The correct answer is: None of the above
Mortgage brokers: Select one: A. Discount loan B. Service a loan C. Act as intermediaries D. Close a loan
(sources of loan money) Mortgage brokers are true intermediaries--they neither close nor service loans in their own name. The correct answer is: Act as intermediaries
Which of the following entities is NOT involved in the secondary mortgage market? Select one: A. Federal National Mortgage Association B. Government National Mortgage Association C. Federal Housing Administration D. Federal Home Loan Mortgage Corporation
(sources of loan money) Of the choices provided, only the Federal Housing Administration (FHA) does not participate in the secondary mortgage market. The Federal National Mortgage Association is also known as Fannie Mae; The Government National Mortgage Association is also known as Ginnie Mae; and The Federal Home Loan Mortgage Corporation is also known as Freddie Mac. Recognize these programs, both when they are spelled out and when they are listed as acronyms. The correct answer is: Federal Housing Administration
Which of the following entities is an investor in the secondary mortgage market? Select one: A. VA B. FHA C. HUD D. FNMA
(sources of loan money) Only one of the choices is an investor that buys and sells mortgages in the secondary mortgage market--the Federal National Mortgage Association (FNMA). Other investors in the secondary market are GNMA (Ginnie Mae) and FHLMC (Freddie Mac). The correct answer is: FNMA
S&Ls are least likely to engage in which of the following? Select one: A. Originating loans B. Secondary market activities C. Demand deposits D. Commercial loans
(sources of loan money) S&Ls generally promote deposits and longer term investments, like home ownership and private savings. The correct answer is: Commercial loans
Which of the following statements is true of S&Ls? Select one: A. They tend to offer higher interest rates on deposits than commercial banks B. They tend to be chartered by a federal or state government C. They could be regulated by the OCC or FDIC D. All of the above
(sources of loan money) Savings and Loan Associations (S&Ls) tend to offer higher interest rates on deposits than commercial banks. S&Ls must be chartered by either a state or federal government. If chartered federally, they are regulated by the Office of the Comptroller of the Currency (OCC) and their accounts are insured by the Federal Deposit Insurance Corporation (FDIC). The correct answer is: All of the above
Which of the following statements is true about state-chartered S&Ls? Select one: A. They only make conventional loans B. They may obtain FDIC insurance C. The must obtain FDIC insurance D. They only make government backed loans
(sources of loan money) State chartered S&Ls may, but are not required to, subscribe to the FDIC. They make both conventional and government backed loans. The correct answer is: They may obtain FDIC insurance
Question text The FDIC: Select one: A. Insures depositors up to $100,000 total B. Insures depositors up to $250,000 total C. Insures depositors up to $100,000 per individual account and institution D. Insures depositors up to $250,000 per individual account and institution
(sources of loan money) The FDIC insures depositors up to $250,000 per individual account and per institution. The correct answer is: Insures depositors up to $250,000 per individual account and institution
The policies of financial institutions that make mortgage loans are LEAST likely to be influenced by: Select one: A. Availability of other investments to the institution B. Potential future value of the property C. Borrower's income D. Borrower's need for the loan
(sources of loan money) The borrower's need for the loan would be LEAST likely to influence the lending policies of a financial institution. The correct answer is: Borrower's need for the loan
S&Ls primarily make: Select one: A. Government backed loans B. Commercial loans C. Conventional loans D. Both A and B
(sources of loan money) The majority of S&L loans are conventional loans, originated for residential dwellings with 1-4 units. The correct answer is: Conventional loans
The type of loan a person would most likely receive from a commercial bank is a: Select one: A. 1st mortgage on his or her home B. 2nd mortgage on his or her home C. Short-term commercial loan D. All of the above
(sources of loan money) This is a difficult question because most banks make all types of loans after banking deregulation. However, you generally seek commercial banks for commercial loans. The correct answer is: Short-term commercial loan
Which of the following entities makes direct mortgage loans available to prospective borrowers? Select one: A. Life insurance companies B. Commercial banks C. Mortgage brokers D. All of the above
(sources of loan money) Trick question! This one is a play on words to tempt you into an assumption. Note that the question asks you to identify entities that make direct loans AVAILABLE, not entities that MAKE DIRECT LOANS. All of the listed choices make direct loans, EXCEPT for mortgage brokers. However, in addition to the other choices, mortgage brokers make direct loans available by matching lenders with buyers. While arguably "unfair", this type of question illustrates how you must understand the content AND potential traps. The correct answer is: All of the above
What type of loan would most likely have an 80% LTV ratio? Select one: A. Conventional B. VA C. FHA D. Conventional guaranteed
(sources of loan money) Usually, an 80% loan would be a conventional loan. FHA insured loans and VA guaranteed loans may be up to 100%. Conventional guaranteed is a meaningless term. The correct answer is: Conventional
Private Mortgage Insurance (PMI) covers which portion of a loan? Select one: A. Top 10% of the loan B. Top 20% of the loan C. Top 30% of the loan D. One-half of the loan
(sources of loan money) When a lender lends more than the established loan to value ratio (usually 80% LTV), the lender may require insurance to cover the amount of the loan over and above the standard rate. For example, lenders could choose to lend as much as 95% of the property value. In these situations, the general rule is that PMI covers the top 20-25% of the loan. The correct answer is: Top 20% of the loan
Servicing a mortgage includes all of the following except: Select one: A. Collecting payments B. Distributing funds C. Supervision D. Selling loans
(sources of loan money) While primary lenders may sell loans on the secondary market, selling loans is not part of servicing a loan. The correct answer is: Selling loans
After delivery of the Closing Disclosure Form, RESPA requires an additional 3 day waiting period before settlement if: Select one: A. There is a typo on the disclosure form B. An expense increases by at least $20 C. The APR is lowered on the loan D. A prepayment penalty is added to the loan
The lender must provide a Closing Disclosure no later than 3 business days before settlement. However, an additional 3 day waiting period will be triggered if the lender changes the basic terms of the loan. This will include: (i) an increase to the APR; (ii) adding a prepayment penalty; or (iii) switching the type of loan product (ex. from fixed rate to adjustable rate loan). The correct answer is: A prepayment penalty is added to the loan
