Financing and Settlement

An FHA-insured mortgage loan is obtained from A) any FHA-approved lending institution. B) the Federal Housing Administration. C) the Department of Housing and Urban Development (HUD). D) any FHA-approved insuring institution.

A) any FHA-approved lending institution. The FHA operates under HUD. The FHA neither builds homes nor lends money itself. The FHA insures loans. Loans must be obtained from FHA-approved lending institutions.

The lender who provides a real estate loan to a borrower is known as A) the mortgagee. B) the optionee. C) the optionor. D) the mortgagor.

A) the mortgagee. The lender is the mortgagee. The borrower who receives a loan and in return gives a note and mortgage to the lender is the mortgagor. An optionor is an owner who gives an optionee—a prospective purchaser or lessee—the right to buy or lease the owner's property at a fixed price within a certain period of time.

The component of an adjustable-rate mortgage (ARM) that sets the maximum amount the borrower will have to pay for a mortgage payment is A) the payment cap. B) the margin. C) the life-of-the-loan rate cap. D) the periodic rate cap.

A) the payment cap. The payment cap sets the maximum amount a borrower will have to pay for a mortgage payment in the term of an ARM. The periodic rate cap limits the amount an ARM's interest rate may change over a specific period of time, usually a year. The life-of-the-loan rate cap limits the amount the interest rate may increase over the entire life of an ARM. The margin is the premium added to the index rate to adjust an ARM's current interest rate.

Conventional loans are viewed as the MOST secure loans because A) their loan-to-value (LTV) ratios are often lower than other types of loans. B) private mortgage insurance protects the lender for the full amount of the loan. C) they are not purchased by investors in the secondary mortgage market. D) they are government-insured loans.

A) their loan-to-value (LTV) ratios are often lower than other types of loans. The borrower with a conventional loan usually makes a down payment of at least 20%, so that the LTV ratio is 80%. The security for the loan is provided by the mortgage, and the payment of the debt rests on the borrower's ability to pay. Conventional loans are not insured or guaranteed by the government, unlike FHA or VA loans. Private mortgage insurance protects the lender only for the excess of the loan amount over 80% of the property's appraised value. Conventional loans are often purchased from the original lenders through the secondary mortgage market.

Which of the following would be considered a trigger item under Regulation Z? A) "Low monthly payments." B) "Only $10,000 down." C) "A steal at only $175,000!" D) "FHA financing available."

B) "Only $10,000 down." Specific credit terms, such as a down payment, monthly payment, dollar amount of the finance charge, or term of the loan are referred to as trigger items. If such items are included in any advertisement, the advertisement must include additional information required by the regulation.

The ratio of debt to the value of the property is A) the amortization ratio. B) the loan-to-value ratio (LTV). C) the debt-to-equity ratio. D) the capital-use ratio.

B) the loan-to-value ratio (LTV). The LTV is the ratio of debt to the value of the property—value being the sales price or appraisal value, whichever is less. The amortization rate is the interest rate in an amortized loan.

Which of the following act as security for a loan? A) Conveyance deed B) Promissory note C) Deed of trust D) Subordination agreement

C) Deed of trust A deed of trust or a mortgage are the two security instruments used in loans. The promissory note is a promise to pay the debt. A conveyance deed conveys title to real property, and a subordination agreement is used to hold positions when new documents are recorded.

A junior lien may become first in priority if the original lender agrees to execute A) an alienation clause. B) a deed of trust. C) a subordination agreement. D) a second mortgage agreement.

C) a subordination agreement. If the original (first mortgage) lender signs a subordination agreement, another loan made more recently (later) may be allowed to take first place and the original one drop to second place. A deed of trust is a third-party instrument in which the deed is given as security for the loan to a third party—the trustee. A second mortgage agreement binds a borrower to repay a loan taken on a property on which the borrower already has a first mortgage. An alienation clause provides that when a property is sold, a lender may declare the entire debt due immediately.

In a fixed-rate, fully amortized loan, A) each mortgage payment reduces the principal by the same amount. B) the principal amount in each payment is greater than the interest amount. C) each mortgage payment amount is the same. D) a balloon payment will be made at the end of the loan. Explanation

C) each mortgage payment amount is the same. A fully amortized loan is paid off slowly, over time, in equal payments. Regular periodic payments are made over a term of years. In a partially amortized loan such as a balloon mortgage, the principal and interest payments do not pay off the entire loan. A loan balance remains when the final payment is made. In the fully amortized loan, the lender credits each payment first to the interest due, then to the principal amount of the loan. As a result, while each payment remains the same, the portion applied to repayment of the principal grows and the interest due declines as the unpaid balance of the loan is reduced.

A promissory note A) is a guarantee by a government agency. B) may not be executed in connection with a real estate loan. C) is an agreement to perform or not to perform certain acts. D) makes the borrower personally liable for the debt.

D) makes the borrower personally liable for the debt. A promissory note is the borrower's personal promise to repay a debt according to agreed-upon terms. A promissory note is a contract, an agreement to perform a certain act. A borrower of real estate who secures a mortgage loan will sign a promissory note agreeing to repay the loan.

A purchaser is qualified to obtain an FHA loan for his new home. Which of the following would he apply to? A) An FHA lender B) Fannie Mae C) The FHA D) Freddie Mac

A) An FHA lender The FHA insures loans, which means the loan is backed by the government. Loans are made through an FHA-approved lending institution. Fannie Mae does not lend money directly to homebuyers but purchases mortgages in the secondary market. Freddie Mac is a federally chartered corporation that purchases mortgages in the secondary market.

Three years ago, a couple moved from the house they had owned for 20 years but did not sell it. They decided to travel and bought a mobile home as their residence. They now decide to sell the house. How much of their capital gain on the house will be taxable? A) None of it if the capital gain is less than $500,000. B) 28%, depending on their tax bracket. C) 15%, depending on their tax bracket. D) All of it if the capital gain is more than $500,000.

A) None of it if the capital gain is less than $500,000. Federal law requires that the couple must have lived in the house for two out of the past five years to receive the $500,000 exemption from capital gains tax. The couple lived in the house for two years before they purchased the mobile home three years ago. The couple qualifies for the capital gain exception of $500,000.

A homeowner purchased her home for cash 30 years ago. Today she receives monthly checks from a mortgage lender that supplement her retirement income. The homeowner MOST likely has obtained A) a reverse mortgage. B) an adjustable-rate mortgage. C) a package mortgage. D) a shared-appreciation mortgage.

A) a reverse mortgage. A reverse mortgage allows people 62 and older to borrow money against the equity they have built in their homes. The equity diminishes as the loan amount increases. Reverse mortgages have a fixed rate of interest and are not adjustable. In a shared-appreciation mortgage, the lender, in exchange for a favorable interest rate, participates in the profits the borrower receives upon selling the property. A package mortgage secures both real and personal property, typically used in a resort purchase where the unit is fully furnished.

A participant in the secondary market is A) a lender of residential mortgages and deeds of trust. B) an institutional investor that buys and sells loans. C) a lender who deals exclusively in second mortgages. D) an institutional investor who supplies money for FHA and VA loans.

B) an institutional investor that buys and sells loans. Secondary market participants buy and sell previously originated loans. Participants in the secondary market are not lenders for residential mortgages and do not make first or second mortgages. The FHA insures loans, and the VA guarantees loans.

When real estate is sold under an installment land contract and the buyer takes possession of the property, the legal title is A) transferred to a land trustee. B) kept by the seller until the purchase price is paid according to the contract. C) subject to a purchase money mortgage. D) transferred to the buyer.

B) kept by the seller until the purchase price is paid according to the contract. In a land contract, the seller retains legal title to the property during the contract term, and the buyer is granted equitable title and possession. At the end of the loan term, the seller delivers a clear title to the buyer.

For the borrower, one discount point equals A) 1% of the loan amount. B) 2% of the purchase price. C) 1% of the purchase price. D) 2% of the loan amount.

A) 1% of the loan amount. A discount point is 1% of the loan amount, not the purchase price. If a house sells for $100,000 and the borrower seeks an $80,000 loan, each discount point would be $800 (not $1,000): 1% (.01) x 80,000 = 800.

When compared with a 30-year payment period, taking out a loan with a 20-year payment period would result in A) higher monthly payments. B) lower monthly payments. C) greater impound requirements. D) slower equity buildup.

A) higher monthly payments. A 20-year loan is paid off faster than a 30-year loan, with the payments spread out over a shorter period of time. This arrangement results in payments that are higher than those in a 30-year loan. The borrower's equity would build up quicker in the 20-year loan, as the borrower is paying more toward the principal each month than with a 30-year payment.

The purpose of a mortgage is to A) provide security for a loan. B) convey title of the property to a lender. C) create a lien on the property. D) restrict the borrower's use of the property.

A) provide security for a loan. A mortgage is a financing instrument by which real estate is used as security, or collateral, for a debt. A restrictive covenant may limit a borrower's use of a property. While a mortgage does create a lien on the property, the lien is removed when the lender records satisfaction of the mortgage in the public record.

If the amount realized at a sheriff's sale as part of a mortgage foreclosure is more than the amount of the indebtedness and expenses, then the excess belongs to A) the mortgagor. B) the sheriff's office. C) the mortgagee. D) the county.

A) the mortgagor. The mortgagor, or borrower, receives any money remaining from a foreclosure sale after paying the debt and any other liens.

The financial return on investment in a property is known as A) the rate of return. B) the equity. C) the interest. D) the principal.

A) the rate of return. The rate of return, usually expressed as a percentage, is the financial return on the initial investment or the appraised value of a property. The principal is the balance owed on the original loan amount. Interest is the sum paid or accrued in return for the use of a lender's money. An owner's equity is the amount of money remaining once current liens, including the mortgage, are subtracted from the current market value of the property.

In the case of residential real estate transactions for refinancing a loan, which are covered by truth-in-lending laws, the borrower has how many days in which to rescind the transaction? A) 7 days B) 3 days C) 5 days D) 10 days

B) 3 days the borrower has 3 days to rescind the transaction by merely notifying the lender. The 3-day right of rescission applies only to loans for refinancing and home equity loans. It does not apply to purchase or construction loans.

A real estate loan payable in periodic installments that are sufficient to pay the principal in full during the term of the loan is A) an interest-only loan. B) a fully amortized loan. C) a straight loan. D) a partially amortized loan.

B) a fully amortized loan. The payment in an amortized loan partially pays off both principal and interest. The mortgagor pays a constant amount, usually monthly. At the end of the term, the full amount of the principal and interest due is reduced to zero. In a straight loan and interest-only loans, the borrower makes periodic payments of interest only, followed by a lump sum balloon payment of full principal balance at the end of the loan term. In a partially amortized loan, the periodic payments are not enough to pay the principal balance, so a final payment (a balloon payment) is larger than the other payments to satisfy the debt.

The defeasance clause in a mortgage requires the mortgagee to execute A) an assignment of mortgage. B) a satisfaction of mortgage. C) a partial release agreement. D) a subordination agreement.

B) a satisfaction of mortgage. A defeasance clause requires the lender to execute a satisfaction, also known as a release or discharge, when the note has been fully paid. Satisfaction of the mortgage returns to the borrower all interest in the real estate originally conveyed to the lender. A mortgagee may assign a note to a third party, such as investor or another mortgage company (the assignee). When the debt is paid in full, the assignee is required to execute the satisfaction of the mortgage.

A borrower has just made the final payment to her lender for her home's mortgage. A lien on her property will remain until the lender records A) a reversion of mortgage. B) a satisfaction of mortgage. C) a reconveyance of mortgage. D) an alienation of mortgage.

B) a satisfaction of mortgage. A satisfaction of mortgage, also known as a release or discharge, is executed by the lender when a note has been fully paid. This document returns to the borrower all ownership interest in the real estate originally conveyed to the lender. This release must be recorded in the public record to show that the debt has been removed from the property.

Homeowners may deduct all of the following expenses when preparing their income tax return EXCEPT A) some origination fees. B) homeowners' association dues. C) mortgage interest. D) real estate taxes.

B) homeowners' association dues. Homeowners may not deduct homeowners' association dues from annual tax returns. Points for loans, some origination fees, mortgage interest, and real estate property taxes can be deducted on income tax returns (remember POIT).

With a Veterans Affairs-guaranteed mortgage, A) discount points must be paid by the seller. B) the borrower must apply for a certificate of eligibility. C) the funding fee amounts are negotiable. D) the borrower may have a prepayment penalty clause in the loan.

B) the borrower must apply for a certificate of eligibility. A borrower must apply for a certificate of eligibility, which sets forth the maximum guarantee to which the veteran is entitled. Discount points can be paid by either the buyer or the seller. Prepayment penalties are prohibited. Funding fees are determined by Veterans Affairs.

An owner's equity in his residence is A) the balance remaining on the mortgage loan. B) the difference between the current value of the property and any mortgage liens on the property. C) the purchase price of the residence minus current mortgage liens. D) the amount paid each month for the use of the lender's money.

B) the difference between the current value of the property and any mortgage liens on the property. An owner's equity is the amount of money remaining once current liens, including the mortgage, are subtracted from the current market value of the property. The amount paid each month for the use of the lender's money is the interest paid for that month. The purchase price of the residence is the original amount paid for the property. Equity = value today - debt today.

An individual who obtains a real estate loan and signs a note and a mortgage is known as A) the optionee. B) the mortgagor. C) the mortgagee. D) the optionor.

B) the mortgagor. The borrower who receives a loan and in return gives a note and mortgage to the lender is the mortgagor. The lender is called the mortgagee. An optionor is an owner who gives an optionee—a prospective purchaser or lessee—the right to buy or lease the owner's property at a fixed price within a certain period of time.

To qualify for a conventional loan under Fannie Mae guidelines, a borrower's monthly housing expenses, including principal, interest, taxes, and insurance (PITI) must NOT exceed A) 28% of the borrower's total monthly net income. B) 36% of the borrower's total monthly gross income. C) 28% of the borrower's total monthly gross income. D) 36% of the borrower's total monthly net income.

C) 28% of the borrower's total monthly gross income. Generally speaking, a conventional loan under Fannie Mae guidelines requires that a borrower's monthly housing expenses not exceed 28% of the borrower's total monthly gross income. The borrower's total monthly obligations, including housing costs plus other regular monthly payments, must not exceed 36% of the borrower's total monthly gross income.

Which of the following BEST expresses the concept of equity? A) Current market value minus capital gain B) Replacement cost minus depreciation C) Current market value minus property debt D) Current market value minus cost of land

C) Current market value minus property debt Equity is the amount of money remaining after owners sell their property at market value and then pay off any mortgage debt. Equity is that portion of a property's value that exceeds the debt remaining on the property's loan. Current market value minus capital gain equals the actual total a property owner would acquire after selling a property and paying any capital gain taxes owed as a result of the sale. Current market value minus the cost of land provides the value of the improvements (home, garage, etc.) of a property. Replacement cost plus the cost of land minus depreciation equals the depreciated value of a structure.

A couple refinances their home with a new lender under a new loan agreement. They currently have a separate line of credit under their original lender. The original lender granting the line of credit agrees to take a second lien position on the property, granting first position to the new lender. The lenders have made this arrangement through A) a due-on-sale clause. B) a defeasance clause. C) a subordination agreement. D) an acceleration clause.

C) a subordination agreement. The lenders sign a subordination agreement which places the line of credit in a junior position to the new loan created through the refinancing of the property. A defeasance clause requires a lender to execute a satisfaction (release or discharge) of a loan when the borrower fully pays off the loan. A due-on-sale clause provides that when the property is sold, the lender may declare the entire debt due or permit the buyer to assume the loan. The acceleration clause in a mortgage permits the lender to declare the entire debt due and payable immediately if the borrower defaults on payments.

A person who assumes an existing mortgage loan is A) not in danger of losing the property by default. B) generally released from liability, but not always. C) personally responsible for paying the principal balance. D) not personally liable for the repayment of the debt.

C) personally responsible for paying the principal balance. A buyer who purchases property and assumes the seller's debt becomes personally obligated for the payment of the entire debt. If the buyer defaults on the loan, the buyer is in danger of losing the property.

Institutions in the secondary mortgage market A) provide loans to lenders in the primary mortgage market to raise capital for new loans. B) set the interest rates required for loans made in the primary mortgage market. C) purchase a number of mortgage loans already funded and assemble them into packages to form marketable securities for investors. D) make direct loans to purchasers for second mortgages.

C) purchase a number of mortgage loans already funded and assemble them into packages to form marketable securities for investors. In the secondary mortgage market, loans are bought and sold only after they have been funded by lenders in the primary mortgage market. The secondary market activity enables lenders to sell mortgage loans to raise capital for new loans.

The borrower with a construction loan receives the loaned amount in A) one sum at the beginning of the construction period. B) one sum at the end of the construction period. C) stages, called draws, during the construction period. D) two payments at the beginning and at the end of the construction period.

C) stages, called draws, during the construction period. With a construction loan, the borrower receives money in stages, called draws, and makes periodic payments of interest. At the end of the construction period, the borrower must secure long-term financing to pay off the entire balance of the loan.

In an FHA-insured loan transaction, A) the interest rate is set by the FHA. B) the mortgage insurance premium may be paid by the seller or the buyer. C) the discount points may be paid by the seller or the buyer. D) the mortgage insurance premium must be paid by the seller.

C) the discount points may be paid by the seller or the buyer. Either the seller or the buyer may pay discount points in an FHA loan transaction. Interest rates are not set by the FHA, but are negotiated between the lender and the buyer. An FHA loan includes a one-time upfront mortgage insurance premium (MIP)—which can be financed—paid by the buyer, with an additional ½% MIP added to the monthly payments.

The loan-to-value ratio (LTV) may be defined as the ratio of a mortgage loan principal to A) the assessed value of the property. B) the listed price of the property. C) the property's value. D) the interest rate on the loan.

C) the property's value. Mortgage loans are generally classified based on their LTV, which is the ratio of the mortgage loan principal to the value of the property. The value the lender will use is the sales price or the appraised value, whichever is less.

A homeowner has equity in his property and would like to consolidate some of his debt. Which of the following loans would be the BEST for the homeowner? A) A new term loan B) A reverse mortgage C) An adjustable-rate mortgage (ARM) loan D) A home equity loan

D) A home equity loan This loan is designed to allow the homeowner to tap into equity to pay off bills. A reverse mortgage may only be used by those 62 and older and would not consolidate debt. A term and an ARM loan would not be used in this situation.

The Consumer Financial Protection Bureau (CFPB) requires a lender to give the borrower what at the time of application? A) A new loan closing disclosure three days before application B) A special information booklet C) The lender's most recent report of financial stability D) A new loan estimate of settlement costs

D) A new loan estimate of settlement costs CFPB requires that a lender provide the borrower a new loan estimate of closing costs no later than three days after the borrower has applied for a loan. CFPB also requires that the new loan closing disclosure be available for the borrower three days before closing. Lenders must provide the HUD special information booklet to every person from whom they receive a loan application, except for applications for refinancing. CFPB does not require a lender to provide any report of the lender's financial stability.

Fannie Mae, Ginnie Mae, and Freddie Mac all A) guarantee existing mortgage loans. B) insure residential mortgage loans. C) originate residential mortgage loans. D) purchase existing mortgage loans.

D) purchase existing mortgage loans. Fannie Mae, Ginnie Mae, and Freddie Mac are all part of the secondary mortgage market and purchase existing mortgage loans. Lenders in the primary mortgage market originate residential mortgage loans. The FHA insures residential mortgage loans. VA guarantees mortgage loans for eligible veterans.

A borrower defaulted on a loan and the lender foreclosed. The lender obtained the property, which sold for less than what the borrower owed. In this case, the lender may A) file for a default judgment and attach all the borrower's real and personal property. B) do nothing since the property has gone through foreclosure. C) start a new foreclosure suit to collect the balance due from the borrower. D) seek a deficiency judgment, which can be used to collect the balance owed.

D) seek a deficiency judgment, which can be used to collect the balance owed. After the buyer defaulted and the loan has been foreclosed, lenders may seek deficiency judgments.

A buyer who signs a note and a mortgage is referred to as A) the beneficiary. B) the vendor. C) the mortgagee. D) the mortgagor.

D) the mortgagor. A buyer who signs a mortgage—the document to be given to the lender—is a mortgagor. The buyer is also the maker (obligor) on the note. The lender is the mortgagee. A lender who provides a deed of trust is known as the beneficiary and is the holder of the note. A vendor is the seller in a contract.

The difference between a term loan and a partially amortized loan is A) the partially amortized loan will have a lower payment and balloon. B) the term loan will have a larger payment and a smaller balloon. C) the partially amortized loan payment will pay the loan in full with the final payment. D) the term loan will have a smaller monthly payment with a larger balloon.

D) the term loan will have a smaller monthly payment with a larger balloon. Term loan payments are interest-only, so they will be smaller than a partially amortized loan in which the payment pays both interest and principal.

The Truth in Lending Act requires that lenders supply borrowers with information applying to A) an estimate of all the closing costs on the residential property. B) the HUD-1 and final settlement costs. C) any environmental issues impacting the property. D) the true cost of credit or annual percentage rate.

D) the true cost of credit or annual percentage rate. Truth in lending requires the disclosure of the annual percentage rate or the true cost of credit on the loan. RESPA requires a new loan estimate of closing costs and the new loan closing disclosure prior to settlement.

According to TRID disclosure rules, when must the loan estimate form be provided to consumers? A) No later than three business days after the loan application is received by the lender B) No later than three calendar days prior to the closing C) No later than three calendar days after the loan application is received by the lender D) No later than three business days prior to the closing

A) No later than three business days after the loan application is received by the lender A business day includes Saturdays that the lender is open for business.

A developer had a mortgage loan on his entire housing subdivision. When he sold a lot to a buyer, he was able to deliver title to that lot free of the mortgage lien by obtaining a partial release. The developer's loan is A) a blanket mortgage. B) an open-end mortgage. C) a package mortgage. D) a purchase money mortgage.

A) a blanket mortgage. A blanket loan covers more than one parcel or lot. Usually, the loan contains a provision called a partial release clause, which allows the borrower to obtain the release of a lot from the blanket lien by repaying a certain amount of the loan. A purchase-money mortgage is a second mortgage given back to the seller by a buyer to bridge the gap between the borrower's down payment and the first mortgage. In a package mortgage, the borrower pledges both personal and real property as security for a loan. An open-end mortgage secures a note executed by the borrower to the lender, as well as any advances of funds made by the lender to the borrower.

The type of loan that will MOST likely have the lowest loan-to-value (LTV) ratio is A) a conventional loan. B) an FHA loan. C) a VA loan. D) a PMI loan.

A) a conventional loan Conventional loans are viewed as the most secure loans because their loan-to-value ratios are often the lowest. Buyers in conventional loans make larger down payments than borrowers in FHA, PMI, or VA loans. Usually with the larger down payment in a conventional loan, no additional insurance or guarantee on the loan is necessary to protect the lender's interest.

All of the following clauses in a loan agreement enable the lender to demand that the entire remaining debt be paid immediately EXCEPT A) a defeasance clause. B) a due-on-sale clause. C) an alienation clause. D) an acceleration clause.

A) a defeasance clause A defeasance clause requires the lender to execute a satisfaction of the loan when the loan has been fully paid. A due-on-sale clause provides that when the property is sold, the lender may declare the entire debt due or permit the buyer to assume the loan. An alienation clause states that the lender may collect full payment on a loan if the property is conveyed to another party without the lender's consent. An acceleration clause permits the lender to declare the entire debt payable immediately if the borrower defaults on payments on the loan.

A purchaser negotiates a mortgage loan in which she will make equal monthly payments over a period of 30 years, with the balance of the loan being zero at the end of that term. The purchaser has negotiated A) a fully amortized loan. B) a straight mortgage. C) a balloon mortgage. D) a partially amortized loan.

A) a fully amortized loan. A loan with equal, constant payments which result in a zero balance at the end of the term is a fully amortized loan. A balloon mortgage is one type of partially amortized loan. In a partially amortized loan, the principal and interest payments do not pay off the entire loan; a balance remains and is due at the end of the term. A straight mortgage is a loan that requires periodic interest payments to the lender, but nothing is applied to the principal balance. A construction loan is a type of straight loan in which the borrower receives money in draws and makes periodic payments of interest on those draws.

Buyers seeking a mortgage on a single-family residence would be LEAST likely to obtain the mortgage from A) a life insurance company. B) a mutual savings bank. C) a credit union. D) a commercial bank.

A) a life insurance company. Life insurance companies make mortgage loans on large projects but rarely, if ever, on individual home purchases. Mutual savings banks, credit unions, and commercial banks are all sources of mortgages for individual residences.

A couple purchased a residence for $195,000. They made a down payment of $25,000 and agreed to assume the seller's existing mortgage, which had a current balance of $123,000. The buyers financed the remaining $47,000 of the purchase price by executing a mortgage and note to the seller. The type of loan in which the seller becomes the mortgagee is called A) a purchase money mortgage. B) a package mortgage. C) a balloon note. D) a reverse mortgage.

A) a purchase money mortgage. A purchase money mortgage is created when a seller agrees to finance all or part of the purchase price; in this case, the seller agrees to finance $47,000 of the purchase price and takes back a mortgage and note from the buyer. The term purchase money mortgage can mean either owner financing or any mortgage used as acquisition debt in the purchase of a property. Here, the owner-seller took back a mortgage for $47,000. An owner take back is a purchase money mortgage. In a package mortgage, a borrower secures a loan with both real and personal property. A balloon note includes a final payment called a balloon payment that is larger than the periodic payments made on the note. A reverse mortgage is created when the bank makes payments to an older home owner who wants to stay in the home but take advantage of equity.

The right of borrowers who have defaulted on a loan to redeem their property after foreclosure for a certain period of time established by law is called A) a statutory right of redemption. B) a mortgagee's right of redemption. C) an equitable right of redemption. D) an owner's right of redemption.

A) a statutory right of redemption. Certain states have a period of time after a foreclosure sale in which the borrower in default may redeem the property if the borrower pays the court; the right to redeem the property within the period is called a statutory right of redemption. If a borrower in default pays the lender the amount in default, plus costs, before the foreclosure sale, the debt will be reinstated in some states. This right is known as an equitable right of redemption.

The clause in a mortgage document that permits a lender to declare the entire debt payable if the borrower defaults on loan payments is A) an acceleration clause. B) an alienation clause. C) a subordination agreement. D) a defeasance clause.

A) an acceleration clause. The acceleration clause in a mortgage permits the lender to declare the entire debt due and payable immediately if the borrower defaults on payments. The defeasance clause requires the lender to execute a satisfaction (a release or discharge) of the debt when the note has been fully paid. An alienation clause states that the lender may collect full payment on a loan when the property is conveyed to another party without the lender's consent. In a subordination agreement, a lender with a first lien position will agree to take a second lien position to another loan on the property.

A mortgage loan in which the borrower only pays interest for a stated period of time and pays off the principal balance at the end of that term is A) an interest-only loan. B) an amortized loan. C) a package loan. D) a balloon loan.

A) an interest-only loan. Interest-only mortgages require payment of interest only for a certain period of time, with the principal balance and interest recalculated over the remaining years of the loan. A balloon payment loan is a partially amortized loan in which the periodic payments are not enough to fully amortize the loan by the time the final payment is due so that the final payment (called a balloon payment) is larger than the others. In a package loan, the borrower secures the loan with both personal and real property. In an amortized loan, the monthly payment partially pays off principal and interest slowly, over time, in equal payments.

The primary activity of Fannie Mae is to A) buy and pool blocks of conventional mortgages and sell bonds that use them as security. B) act in tandem with Ginnie Mae to provide special assistance in times of tight money. C) guarantee mortgages with the full faith and credit of the federal government. D) buy and sell only VA and FHA mortgages.

A) buy and pool blocks of conventional mortgages and sell bonds that use them as security. Fannie Mae buys and gathers existing conventional mortgages into bundles (pools) and raises money to do this by selling bonds backed by these pools of mortgages. Ginnie Mae is a division of HUD that administers programs using VA and FHA loans as collateral.

Real estate firms are often affiliated with title insurance companies or mortgage brokers. RESPA permits these business arrangements as long as A) companies disclose their relationships with one another to the consumer. B) consumers are required to use the services of the affiliated companies. C) companies pay referral fees between them. D) consumers are unaware of these arrangements.

A) companies disclose their relationships with one another to the consumer. RESPA permits such arrangements as long as the consumer is clearly informed of the relationship among the affiliated companies and told that he may use other service providers for the same services. The companies may not require a consumer to use the services of any affiliated company. The companies may not pay one another referral fees.

To increase yield on a loan, the lender charges A) discount points rates. B) origination fees and points prepayment fees. C) loan origination fees. D) setup fees interest.

A) discount points rates. The lender charges the borrower discount points to increase the yield—the true rate of return required by investors. Discount rates increase the lender's yield on loans. Loan origination fees cover the lender's costs in generating a loan. Interest is a charge for the use of the lender's money. A lender may recover unearned interest for payments made ahead of schedule by charging a prepayment penalty to a borrower who pays off a loan early.

With a construction loan, the borrower makes A) periodic payments of interest during the construction period. B) constant payments of principal and interest during the construction period. C) principal payments only during the construction period. D) monthly payments of interest and part of the principal.

A) periodic payments of interest during the construction period. A construction loan is a type of nonamortized loan in which periodic interest payments are made to the lender, but nothing is applied during the construction period to the principal balance. When the construction is complete, the borrower must secure long-term financing that will pay off the entire principal balance.

A fixed-rate home loan that is fully amortized according to the original payment schedule A) permits the borrower to pay the same amount each payment period. B) cannot be sold in the secondary market. C) has an interest rate that fluctuates based on an economic index. D) requires a monthly payment amount that fluctuates each month.

A) permits the borrower to pay the same amount each payment period. A fully amortized loan is a level-payment loan, with the same amount being paid by the borrower each payment period (usually monthly). The loan can be sold in the secondary market. An adjustable-rate mortgage has an interest rate that fluctuates based on an economic index.

What is the major difference between conventional and government loans? A) A conventional loan is sold on the secondary market, while a loan is not. B) A government loan is insured or guaranteed by the government, while a conventional loan is not. C) A government loan is sold on the secondary market, while a conventional loan is not. D) A conventional loan is guaranteed or insured by the government, while a government loan is not.

B) A government loan is insured or guaranteed by the government, while a conventional loan is not. Government loans, such as FHA or VA loans, are insured or guaranteed by the government. Conventional loans are not insured or guaranteed by the government. Both government and conventional loans may be sold on the secondary market.

A lender will take certain factors into consideration when deciding whether to grant a borrower a mortgage loan. A decision based on which factor is a violation of the Equal Credit Opportunity Act (ECOA)? A) Amount of the borrower's income B) Age of the borrower C) Ability of the borrower to make the payments D) Creditworthiness of the borrower

B) Age of the borrower ECOA prohibits lenders from discriminating against credit applicants on the basis of several factors, including age, race, sex, and marital status. A lender may consider a borrower's income, creditworthiness, and ability to make payments in determining whether or not to make a loan.

When a loan requires payments that do not fully pay off the loan balance by the final payment, which term BEST describes the final payment? A) Acceleration B) Balloon C) Adjustment D) Variable

B) Balloon When the term of the loan is over and the payments made have not paid off the debt, the last payment is a balloon payment. The loan is called a balloon loan. Acceleration occurs when a lender calls for full payment of a loan before its term has ended. The adjustment in an adjustable-rate mortgage establishes how often the rate may be changed. A variable payment is one that may change over time depending on the mortgage agreement.

In which type of loan are interest-only payments made with a lump sum balloon payment at the end? A) Amortized B) Straight C) FHA D) Adjustable-rate mortgage (ARM)

B) Straight In a straight/term or interest-only loan, the borrower makes payments of interest only. At the end of the loan term, the entire original principal debt must be paid in one lump sum balloon payment. An amortized loan requires equal periodic payments on both the principal and the interest. An ARM has an interest rate that fluctuates up or down during the loan term based on some economic indicator. FHA loans tend to be fully amortized loans, which are fully paid at the end of the term.

Which of the following are NOT costs or expenses of owning a home? A) Interest paid on borrowed capital B) Taxes on personal property C) Maintenance and repairs D) Homeowners insurance

B) Taxes on personal property Personal property is not real estate. Non homeowners and homeowners may pay taxes on personal property. Such taxes are not directly related to home ownership. Mortgage interest, home maintenance and repairs, and homeowners insurance all are costs directly related to owning a home.

A purchaser buys a home using a mortgage loan from a local lender. The lender promptly recorded the mortgage. Three years later, the homeowner needs additional cash, so he places a second mortgage with a different lender. Based on these facts, which statement is TRUE? A) The loan from the original lender is a subordination loan. B) The loan from the original lender has priority over the loan made three years later with the new lender. C) Because it is older, the loan from the original lender is subject to the loan from the new lender, which assumes priority in time. D) The new lender cannot hold a security interest in the property already held as collateral by the original lender.

B) The loan from the original lender has priority over the loan made three years later with the new lender. The dates of the recording of the liens establishes their priority. The loan from the new lender is made and recorded more recently and is subject to (second in line behind) the loan from the original lender. If a second mortgage has a higher amount than a first mortgage, the second lender may require a subordination agreement in which the first lender lowers its lien position to that of the second lender; both lenders must sign the agreement.

A developer receives a loan that covers five parcels of real estate and provides for the release of the mortgage lien on each parcel when certain payments are made on the loan. This type of loan is known as A) a reverse loan. B) a blanket loan. C) a purchase-money loan. D) a package loan.

B) a blanket loan. A blanket loan covers more than one parcel or lot and may be used to finance subdivision developments. The loan permits a borrower to obtain the release of any one parcel or lot from the blanket lien by repaying a certain amount of the loan when a lot or parcel is sold. A purchase-money loan involves a seller taking back a second mortgage from the buyer to fill the gap between a down payment and the first mortgage on the property. In a package loan, the borrower secures the loan with both real and personal property. A reverse mortgage allows people 62 years of age or older who have considerable equity in their homes to borrow money against that equity.

A lender offers to take over the title of a property that is in foreclosure without going through the foreclosure process. This is called A) a reconveyance deed. B) a deed in lieu of foreclosure. C) a subordination agreement. D) an assumption.

B) a deed in lieu of foreclosure. A deed in lieu of foreclosure is an alternative to foreclosure and is carried out by mutual agreement between the lender and the borrower rather than by a lawsuit. A reconveyance deed is used by a trustee under a deed of trust to return title to the trustor. In an assumption, a buyer purchases a property by assuming the seller's debt and becoming personally obligated for the payment of the entire debt. A subordination agreement moves a first mortgage lien to a secondary position by mutual agreement of the two lenders.

A mortgage in which a payment partially pays off both the principal and interest on the loan is A) a reverse mortgage. B) an amortized loan. C) an interest-only loan. D) a construction loan.

B) an amortized loan. The payment in an amortized loan partially pays off both principal and interest. An interest-only mortgage requires the payment of interest only for a stated period of time, with the principal balance due at the end of the loan or with the remaining principal balance and interest recalculated after the stated period. A reverse mortgage allows people 62 years and older to borrow money against the equity built in their home, and no payments are due until the property is sold or the borrower defaults, moves, or dies. A construction loan is generally short-term or interim financing in which the borrower pays interest only on the money that has been disbursed in draws used to pay for construction.

A seller agrees to sell a house to a buyer for $100,000. The buyer is unable to qualify for a mortgage loan for this amount, so the seller and buyer enter into a contract for deed. The legal interest the buyer has in the property under a contract for deed is A) bare title. B) equitable title. C) joint title. D) legal title.

B) equitable title. The buyer in a contract for deed holds equitable title to the property. Equitable title gives the borrower the rights of possession and use of the property, while the seller retains the legal title during the contract term. If the buyer defaults, the seller can evict the buyer and keep any money the buyer has already paid, which is considered rent.

The difference between the current value and any liens on a property is the owner's A) interest. B) equity. C) term. D) principal.

B) equity. An owner's equity is the amount of money remaining once current liens, including the mortgage, are subtracted from the current market value of the property. The current value of a property, minus any liens, will provide the owner's equity in a property. The term is the length of time the borrower has to repay the lender. The principal is the balance remaining on the original loan amount. Interest is the charge from the lending institution for the use of money.

The main difference between a purchase money mortgage and a contract for deed is A) the type of payment being made. B) how title is held. C) when the buyer takes possession. D) the type of deed used to convey title.

B) how title is held. In a purchase money mortgage, the seller conveys title to the buyer at closing; then the seller is the lender on the mortgage. In a contract for deed, the seller does not convey title until the final payment. The buyer takes possession in both loan types and the deed type makes no difference.

In a fully amortized loan, A) the interest portion of each payment increases throughout the term of the loan. B) interest may be paid in arrears—at the end of each period for which it is earned. C) only the interest is paid in each payment period. D) the final interest payment will be determined after the last payment is made.

B) interest may be paid in arrears—at the end of each period for which it is earned. In fully amortized loans, interest is usually paid in arrears, although a lender may require that it be paid in advance at the beginning of the period for which it is earned. The lender credits each payment first to the interest due, then to the principal amount. The portion applied to repayment of the principal grows, and the interest due declines as the unpaid balance of the loan is reduced.

That portion of the value of an owner's property that exceeds the amount of the mortgage debt is called A) the escrow. B) the equity. C) the principal. D) the interest.

B) the equity. An owner's equity represents the ownership interest (the paid-off share) in the property that increases as the mortgage debt (the principal) is reduced. The value of the property minus the mortgage debt equals equity. The principal is the amount of money owed by a borrower on a property loan. The interest is the amount paid by a borrower to a lender in return for the use of money. Escrow is the process by which a third party holds money provided by one party in a transaction (usually a buyer) until the transaction is closed.

The principal distinction between the primary mortgage market and the secondary mortgage market is in A) the use of discount points versus the use of origination fees. B) the origination versus the purchase of mortgage loans. C) the insuring versus the guaranteeing of mortgage loans. D) the use of mortgages versus the use of deeds of trust.

B) the origination versus the purchase of mortgage loans. Loans are originated in the primary mortgage market and bought and sold in the secondary mortgage market after they have been funded. The use of mortgages or deeds of trust is determined by state law. Insuring, guaranteeing, and use of discount points and loan origination fees all occur in the primary lending market.

A homeowner has been making periodic payments of principal and interest on a loan, but the final payment will be larger than the others. This is A) a home equity loan. B) a fully amortized loan. C) a balloon payment loan. D) an FHA loan.

C) a balloon payment loan. When the periodic payments of principal and interest or interest-only are not enough to fully pay the loan by the time the final payment is due, the final payment is known as a balloon. A fully amortized loan requires equal periodic payments of principal and interest. An FHA loan is a fixed-interest loan with equal periodic loans of principal and interest and is insured by the FHA. A home equity loan typically does not have a balloon payment.

When an eligible veteran is negotiating to purchase a home with a Veterans Affairs (VA)-guaranteed loan, as part of the loan process, the VA will issue A) a certificate of discount. B) a uniform residential appraisal report (URAR). C) a certificate of reasonable value (CRV). D) a certificate of indebtedness.

C) a certificate of reasonable value (CRV). The VA will issue a certificate of reasonable value CRV based on a VA-approved appraisal of the property. The URAR is a standardized form used by licensed and certified appraisers to produce an opinion of value on residential property.

The type of mortgage loan that uses both real and personal property as security is A) a blanket loan. B) a purchase money mortgage. C) a package loan. D) a term loan.

C) a package loan. A package loan includes not only the real estate, but also all personal property and appliances installed on the premises. A blanket loan covers more than one parcel or lot and permits the borrower to obtain a release of a parcel or lot from the mortgage lien when the lot is sold. A purchase money mortgage refers to the instrument given by a borrower to a seller who takes back a note for part of or the entire mortgage. A term/straight or interest-only loan secures only real property.

When a seller and a buyer agree to a land contract, the buyer typically A) pays interest only on the loan in regular installments. B) becomes legally responsible for the seller's current mortgage on the property. C) agrees to pay the purchase price in monthly installments paid directly to the seller. D) agrees to acquire a loan from a lender who will make payments to the seller.

C) agrees to pay the purchase price in monthly installments paid directly to the seller. Under a land contract, also known as a contract for deed, the buyer agrees to pay the purchase price in monthly installments made directly to the seller. The buyer may pay installments of principal and interest or of interest only, with the balance of the loan due at maturity. The seller remains legally responsible for the mortgage on the property.

A deed of trust differs from a mortgage in A) the obligation of the borrower to repay the funds. B) the time period permitted to cure a default. C) the number of parties involved in the loan. D) the redemption rights allowed after foreclosure.

C) the number of parties involved in the loan. A deed of trust is a three-party instrument that conveys naked title to a third party, the trustee, who holds the title on behalf of the lender, also known as the beneficiary. The borrower is the trustor. A mortgage is a two-part instrument between the mortgagor and the mortgagee.

When a homeowner with an existing mortgage gets a home equity loan to consolidate existing credit card loans, A) the home equity loan amount is added to the existing mortgage balance. B) the home equity loan takes a senior position to the original mortgage. C) the original mortgage loan remains in place. D) the lender will usually require the homeowner to refinance the existing mortgage.

C) the original mortgage loan remains in place. Home equity loans are a source of money using the equity built up in a home and is an alternative to refinancing an existing mortgage. The original mortgage loan remains in place, and the home equity loan takes a junior position to the original mortgage lien. The home equity loan is a separate loan contract with its own balance and repayment schedule.

The component of an adjustable-rate mortgage (ARM) that limits the percentage that the interest rate may increase over a specific time period, usually a year, is A) the payment cap. B) the margin. C) the rate cap. D) the life-of-the-loan rate cap.

C) the rate cap. The rate cap limits the amount an ARM's interest rate may change over a SPECIFIC period of time, USUALLY A YEAR. The life-of-the-loan rate cap limits the amount the rate may increase over the ENTIRE LIFE of the loan. The payment cap sets a maximum amount the borrower will have to pay for a mortgage payment. The margin is the premium added to the index rate to adjust an ARM's interest rate.

Under a contract for deed or installment contract, the legal title to the property is held by A) the buyer/vendee. B) the seller/vendee. C) the seller/vendor. D) the buyer/vendor.

C) the seller/vendor. A contract for deed or installment contract is also known as a land contract. Under the contract, the buyer/vendee holds equitable titles and agrees to make a down payment and a monthly loan payment that includes interest and principal. The seller/vendor retains legal title to the property during the contract term.

Charging more interest than is legally allowed is A) allowed at a federal level. B) escheat. C) usury. D) a deficiency.

C) usury. Usury is charging more interest on a loan than permitted by law. Escheat is the reversion of property to a state or county in cases where a property owner dies intestate with no eligible heirs. A deficiency occurs when the foreclosure sale of a property produces less than the amount to pay for the foreclosure process and the outstanding debt on the property. Usury rates are set at the state, not federal, level.

If a mortgage lender discriminates against a loan applicant on the basis of age, it violates what law? A) Federal Housing Administration (FHA) B) Americans with Disabilities Act (ADA) C) U.S. Department of Veterans Affairs (VA) D) Equal Credit Opportunity Act (ECOA)

D) Equal Credit Opportunity Act (ECOA) Age is a protected category only under the ECOA. ADA, FHA), and VA do not have laws in regard to the age of applicants since the issue is covered under ECOA and applies to FHA and VA loans

In which type of mortgage would the mortgagor pay no principle on the loan until the end of the term? A) Partially amortized loan B) Contract for deed C) Fully amortized loan D) Straight loan

D) Straight loan The straight/term/interest-only loan requires payments of interest only. All other loans require some form of principal payment.

A couple applying for a residential mortgage loan has a combined monthly gross income of $8,000. Their total housing expense with a new loan would be $1,770, including principal, interest, taxes and insurance (PITI). Their total debt expense, including housing expenses, would be $2,800. Under these conditions, would the couple qualify for a conforming loan under Fannie Mae guidelines? A) Yes, because their total housing expense is less than 60% of their total debt expense. B) No, because their total housing expense is more than 50% of their total debt expense. C) No, because their debt to income ratio exceeds the limits set by Fannie Mae. D) Yes, because their debt to income ratios are within criteria set by Fannie Mae.

D) Yes, because their debt to income ratios are within criteria set by Fannie Mae. A conforming loan is one that qualifies under debt to income ratios set by Fannie Mae. The borrower's total housing expense must be no more than 28% of gross monthly income, and the borrower's total debt expense including housing must be no more than 36% of gross monthly income. To find the total housing expense ratio, divide the total housing expense ($1,770) by the monthly gross income ($8,000): 1,700 ÷ 8,000 = 22%. To find the total debt expense, divide that expense ($2,800) by the monthly gross income ($8,000): 2,800 ÷ 8,000 = 35%. In this situation, if their credit score and history are considered good by the lender, the couple would qualify for a conforming conventional loan.

All the following clauses in a loan agreement enable the lender to demand the entire remaining debt be paid immediately EXCEPT A) an acceleration clause. B) a due-on-sale clause. C) an alienation clause. D) a defeasance clause.

D) a defeasance clause. A defeasance clause requires a lender to execute a satisfaction when the note has been fully paid. An alienation clause, also known as a due-on-sale clause, provides that when the property is sold, the lender may declare the entire debt due immediately. An acceleration clause permits the lender to demand payment of a loan balance immediately if the buyer defaults on the loan payments.

A couple purchased a home for cash over 25 years ago. Today they receive monthly checks from a lender that supplement their retirement income. The couple MOST likely have obtained A) a home equity loan. B) an adjustable-rate mortgage. C) an interest-only loan. D) a reverse mortgage.

D) a reverse mortgage. A reverse mortgage allows people 62 and older to borrow money against the equity they have built in their home. The borrower is charged a fixed rate of interest and no payments are due until the property is sold or the borrower defaults, moves, or dies. Adjustable-rate mortgages and interest-only loans require payments on the loans and do not provide any income to the borrower during the life of the loan. In a home equity loan, a borrower uses the equity built up in the home as a source of cash; the original mortgage remains in place, with the home equity loan being junior to the original lien.

The process through which a lender agrees to accept less from a distressed homeowner than the current principal balance on the outstanding loan is A) a judicial foreclosure. B) a redemption. C) a strict foreclosure. D) a short sale.

D) a short sale. When a lender agrees to accept less from a distressed homeowner than the current balance on the outstanding loan, the process is known as a short sale. In a strict foreclosure, the court establishes a deadline for the defaulted balance on a mortgage to be paid, and if not paid, awards full legal title to the lender. A judicial foreclosure allows a property in default to be sold by a court order after the mortgagee has given sufficient public notice. Redemption is the right of a defaulted borrower to redeem a property either before a foreclosure sale (the equitable right of redemption) or for a specific period of time after a foreclosure sale (a statutory right of redemption).

In an adjustable-rate mortgage, the interest rate is tied to an objective economic indicator called A) a reserve requirement. B) a mortgage factor. C) a discount rate. D) an index.

D) an index. The interest charged in an adjustable-rate mortgage varies with an outside economic indicator called an index. This index is beyond the control of either the borrower or the lender. The discount rate is the interest rate set by the Federal Reserve that member banks are charged when they borrow money. The mortgage factor is the number multiplied by the thousands of an amount borrowed to arrive at a monthly principal and interest payment. The Federal Reserve System requires that each member bank keep a certain number of assets on hand as reserve funds, which are unavailable for loans or any other use.

When a person buys a house using a mortgage loan, the difference between the amount owed on the property and its market value represents the homeowner's A) capital gain. B) replacement cost. C) tax basis. D) equity.

D) equity. Equity is created by a down payment and is the portion of the property held free of any mortgage. An owner's equity increases as a loan is paid down. The tax basis of a property is the amount of money the owner invests in the property. Replacement cost is one way to look at the construction cost of a building for appraisal purposes. It is the cost required to construct an improvement similar to the subject property using current materials and standards. Capital gain is the taxable gain from the sale of a property, the difference between the sales price, and the tax basis of the property.

A purchaser cannot qualify for conventional financing and negotiates a contract for deed with a seller. The buyer in this arrangement A) has a full legal interest in the property. B) must lease the property from the seller for the duration of the contract term. C) receives a deed to the property at closing. D) has possession and pays the property expenses and taxes.

D) has possession and pays the property expenses and taxes. In a contract for deed arrangement, the buyer takes full possession of the property and gets equitable title to the property. The buyer agrees to pay real property taxes, insurance premiums, and for the upkeep of the property. The seller is not obligated to execute and deliver the deed for the property to the buyer until all the terms of the contract have been satisfied.

An eligible veteran made an offer of $225,000 to purchase a home, contingent upon obtaining a no-down-payment VA-guaranteed loan. Three weeks after the offer was accepted, the VA issued a certificate of reasonable value (CRV) for $222,000 for the property. In this case, the veteran may A) withdraw from the sale with a three-point penalty. B) seek secondary funding for the $3,000. C) withdraw from the sale on payment of a commission to the seller's broker. D) purchase the property by making a $3,000 cash payment.

D) purchase the property by making a $3,000 cash payment. When the purchase price of a property is greater than the VA-issued certificate of reasonable value, the veteran may pay the difference in cash to purchase the property because secondary financing is somewhat restricted under VA regulations. Since the veteran's contract in this case was contingent on a no-down-payment VA-guaranteed loan, the veteran could also choose not to purchase the home and to seek another property to buy with no penalty.

The clause in a mortgage or deed of trust which gives a lender the right to demand the entire loan balance to be due upon the buyer's default is A) the due-on-sale clause. B) the alienation clause. C) the defeasance clause. D) the acceleration clause.

D) the acceleration clause. The acceleration (speedup) clause allows the lender to declare the entire loan balance due on a borrower's default. The alienation/due-on-sale clause allows the lender to accelerate the balance due if borrowers alienate/sell their mortgaged property. The defeasance clause requires the lender to release its lien claim against the property when the entire debt has been paid.

The Consumer Financial Protection Bureau (CFPB) states all of the following for residential loans EXCEPT A) borrowers must receive information on settlement charges. B) lenders must provide borrowers with a new loan estimate of closing costs. C) a new loan closing disclosure must be used at new loan closings. D) the borrower may cancel the first home purchase loan transaction within three days after settlement.

D) the borrower may cancel the first home purchase loan transaction within three days after settlement. A borrower has no right to cancel a first- or second-home purchase loan but does have cancellation rights for other loans, such as those for refinancing or home equity. CFPB does require that lenders provide borrowers with a new loan closing disclosure that states all charges to be paid by the borrower and the seller at the settlement of the loan. Lenders must provide a new loan estimate of closing costs no more than three business days after receiving a loan application, along with information on settlement costs.

In evaluating a prospective borrower's qualifications for a residential loan, a lending institution may consider all of the following EXCEPT A) the total amount of revolving debt the borrower has. B) the appraised value of the property. C) credit score and debit ratio. D) the buyer is retired so does not have a regular paycheck.

D) the buyer is retired so does not have a regular paycheck. The Equal Credit Opportunity Act prohibits discrimination in granting credit on the basis of age (in particular, because the borrower is retired), marital status, national origin, or dependence on public assistance. A credit score, appraised value, and total debt are used as part of a loan application evaluation process.

The charge for the use of the lender's money in a loan is A) the principal. B) the rate of return. C) the equity. D) the interest.

D) the interest. Interest is the sum paid or accrued in return for the use of a lender's money. Interest on a promissory note is usually due in arrears at the end of each payment period. The rate of return is the return on the investment in a property. An owner's equity is the amount of money remaining once current liens, including the mortgage, are subtracted from the current value of the property. The principal is the balance owed on the original loan amount.

Laws that determine the maximum interest rate a lender can charge are known as A) fraud statutes. B) borrower protection laws. C) truth-in-lending laws. D) usury laws.

D) usury laws. Laws that set the maximum interest rate are known as usury laws. Some states have set a specific interest limit, while others have set what is known as a floating interest rate, usually pegged each month at a certain percent above a fluctuating economic indicator. Truth-in-lending laws and fraud statutes are designed to provide honesty and disclosures in lending transactions but do not set minimum interest rates.