Financing Progress Exam 1

Which of the following statements is incorrect? A. A reuonveyancce deed is signed by the trustee B. A trustee's deed is signed by the trustee C. A deed of trust is signed by the trustee D. A note secured by a deed of trust is signed by the trustor

A deed of trust is signed by the trustee ***A deed of trust is signed by the trustor, not the trustee. The rest of the answers are correct

What is junior loan? A. A loan recorded before a first deed of trust or mortgage B. A loan recorded after a first deed of trust or mortgage C. A loan made by a mortgage broker D. A loan made by a minor

A loan recorded after a first deed of trust or mortgagee **Any deed of trust or mortgage that is recorded after a first deed of trust or mortgage is a junior loan. It has less priority than those recorded before it is recorded

A real estate financing device that a seller can use to transfer equitable title to a buyer is known as. A. a land sales contract B. a contract of sale C. a conditional sales contract D. all of the above

A. a land sales contract B. a contract of sale C. a conditional sales contract D. all of the above

What kind of a promissory note has an interest rate varies upward or downward over the term of the loan? A. Straight note B. Partially amortized installment note C. Fully amortized installment note D. Adjustable note

Adjustable note **A promissory note whose interest rate is tied to a movable economic index is called an adjustable not (or adjustable rate mortgage)

Of the following loans, which loan never requires the borrower to pay discount points? A. FHA B. VA C. Cal-Vet D. Conventional

Cal-Vet A Cal-Vet borrower does not have to pay discount points; however, he or she does pay an origination fee

Which of the following are synonymous? A. Take-out loan and construction loan B. Construction loan and interim loan C. Interim loan and take out loans D. Construction loan and open end loan

Construction loan and interim loan **Construction and interior loans are short term loans. They would be taken out by a take-out loan.

Which loan is dissimilar from the others? A. VA B. Cal-Vet C. Conventional D. FHA

Conventional ***Conventional loans do not involve government participation in the form of insuring or guaranteeing the loan

Which of the following does not belong with the others? A. CRV B. Highest loan-to-value ratio C. FHA D. No down payment

FHA Answers (a), (b), and (d) all refer to VA loans. CRV(certificate of reasonable value) is the appraisal of the house for VA. 100% of the CRV can be obtained on a VA loan.

Which type of government financing insures lenders against loss? A. VA B. HUD C. Conventional D. FHA

FHA The FHA insures lenders against loss; the VA guarantees lenders against los.

As a condition of granting a loan, a lender will often charge discount points. Which statement is not correct concerning discounts points? A. FHA and VA regulations forbid the lender to charge discount points when their agencies insure or guarantee the loan B. If a lender charged a discount points on a 6-3/4% loan, the effective interest rate would be approximately 7-1/2% C. Discount points are considered an interest expense D. In a tight money market the number of a discount points demanded by lenders tends to increase

FHA and VA regulations forbid the lender to charge discount points when their agencies insure or guarantee the loan **Choice A is the only incorrect statement. Choice B is calculated as follows: one discount point is 1/8%, therefore 6 discount points would be 6/8% or 3/4%. By adding 6 3/4% and 3/4% you get 7 1/2%

Which of the following statement does not belong with the others? A. Not insured by a governmental agency B. Higher interest rate C. FHA loan D. Conventional loan

FHA loan Conventional loans are not insured by a governmental agency and have higher interest rates. The one that does not belong is an FHA loan

Assume a husband and wife are going to purchase a piece of real property. Which of the following would carry the least weight in granting the loan for the purchase of the property? A. Husband's overtime pay B. Wife's salary C. Amount of the down payment D. The appraisal of the property

Husband's overtime pay Since the husband may or may not receive overtime working pay, lending institutions, when granting loans, do not take this into

Notes are said to be negotiable and non-negotiable. Which of the following best defines a negotiable note? A. If it is endorsed without recourse it is non-negotiable B. An alienation clause in the note would make it non-negotiable C. If a note is secured by a mortgage the note is negotiable but the mortgage is non-negotiable. D. To be negotiable a note must be endorsed by the maker

If a note is secured by a mortgage the note is negotiable but the mortgage is non-negotiable **The maker signs a note and the payee endorses it.

Land contracts, also referred to as installment contracts, are commonly used when the purchaser does not have sufficient cash to take title and pay the balance of the purchase price. Of the following, which is a correct statement concerning a land contract.? A. It normally involves a third-party lender B. A purchaser may never assign his interest in the property prior to full payment of the purchase price C. An agreement prohibiting the recording of the contract is enforceable D. It is a security instrument

It is a security instrument **The contract of sale is a financing instrument with many names. It may be called an installment sale contract, a contract of sale, an agreement of sale, a conditional sales contract, a contract for deed, or a land sales contract

What type of contract does a veteran receive in a Cal-Vet purchase? A. Trust deed B. Mortgage C. Land contract D. any of the above

Land Contract **The California Department of Veterans Affairs sell bonds to purchase homes and then sell the homes to qualified California veterans using a land sale contract

What provides the most security to the lender of a junior loan? A. Prepayment penalty B. Notice of default C. Loan to value ratio D. Request for foreclosure

Loan to value ratio ***Loan to value ratio refers to the percentage of the value of the property the loan amount is. For example, if the value of he property is $100,000 and the loan amount is $80,000, the loan amount is 80% of the value. The lower percentage, the less risk to the lender or the holder of a 2nd, 3rd, etc. loan

FHA uses MPR in connection with loans they insure. MPR means: A. maximum percentage rate. B. minimum percentage rate C. minimum property requirement D. maximum property requirement

Minimum Property requirement Both FHA and VA financing impose housing and construction regulations through their roles as federal home building financing programs. As a prerequisite to participation, these programs require that the involved house meet Minimum Property Requirements (MRPs)

Mortgage markets are classified as primary and secondary markets. Of the following statements concerning these markets, which is correct? A. Secondary financing is generally obtained in the secondary market B. A lender wishing to reduce its holding of FHA and VA loans would probably sell them on the primary mortgage market C. Mortgage companies are primarily engaged in the primary market D. Lenders in the primary mortgage market are not permitted to engage in secondary mortgage market. activities.

Mortgage companies are primarily engaged in the primary market ***primary mortgage market deals with loans directly to the original borrower. Secondary mortgage market deals with the paper(deeds of trust and mortgages) being bought and sold in the opened market. Answer (c) is the only correct statement

What clause is used to change the priority of a financial instrument? A. Alienation clause B. Subordination clause C. or more clause D. Acceleration clause

Subordination clause **A subordination clause is one in which the holder of a security instrument (mortgage or deed of trust) permits a subsequent loan to take priority

What is a swing loan? A. Long term loan B. Temporary equity loan C. Construction loan D. Loan using playground equipment as security

Temporary equity loan A swing loan is a short term loan used while a seller is waiting for his or her home to sell, but must close an escrow on the next home.

A man purchased a residence for $125,000. He deposited $115,000 cash, and a note secured by a deed of trust for the balance of the purchase price. Three years after the closure of escrow he executed a second deed of trust on the property to secure a loan he used to purchase an automobile. Considering the above facts which is a correct statement? A. The beneficiary of the first trust deed may foreclose in the vent of default but has no recourse to a suit for a deficiency B. The beneficiary on the second deed of trust may not sue for a deficiency judgment because it is classified as a purchase money trust deed. C. Both beneficiaries have the right of foreclosure and to sue for any deficiency they suffer D. Neither beneficiary has any right to sue after the foreclosure as they have received their full rights under a trust deed relationship

The beneficiary of the first trust deed may foreclose in the event of default but has no recourse to a suit for a deficiency ***The second deed of trust is on a hard money loan and may therefore get a deficiency judgment. The first trust deed is on a purchase money loan and therefore may not get a deficiency judgment.

Of the following, which is a correct statement concerning a junior mortgage? A. The holder of a second mortgage may not record a request for notice of default until the holder of the first mortgage has recorded his notice of default B. The holder of a junior mortgage would most likely make the payments for the mortgagor on a delinquent first mortgage and start his own legal proceedings C. A second mortgage is always classified as purchase money mortgage D. The holder of a second mortgage may not bid on his own foreclosure sale

The holder of a junior mortgage would most likely make the payments for the mortgagor on a delinquent first mortgage and start his own legal proceedings ***The holder of a second mortgage usually records a request for notice of default on the first mortgage when recording he second. A second mortgage may be a purchase money or a hard money loan. The holder of a second mortgage may bid on his own foreclosure sale. Anser (b) is a statement of fact.

Of the following, which is a correct statement concerning the promissory note and mortgage? A. The mortgage is worthless without the promissory note. B. The mortgage is negotiable in the ordinary course of business C. The promissory note is the instrument used to bring a deficiency action to court D. A promissory note is non-negotiable in the secondary mortgage market.

The promissory note is the instrument used to bring a deficiency action to court **The promissory note is negotiable, not the mortgage. The mortgage is the security and never worthless. Answer (c) is the only correct statement

Of the following, which is a correct statement concerning a dead of trust and note? A. The deed of trust is held by the trustee B. The deed of trust is acknowledged by a notary public C. The beneficiary holds naked legal title; however, the trustee has the power of sale D. The trustor to beneficiary relationships is not a fiduciary relationship but merely that of a borrower and lender.

The trustor to beneficiary relationship is not a fiduciary relationship but merely that of a borrower and lender The trustor is the owner/borrower. The beneficiary is the lender. The deed of trust is held by the beneficiary. Naked legal title is held by the trustee.

Which of the following doe not apply to a mortgage? A. Contract B. Trustee C. Note D. Hypothecation

Trustee Answers (a), (c), and (d) all apply to a mortgage transaction. A trustee is used in a deed of trust, not in a mortgage.

In a dead of trust, which of the following is the borrower? A. Grantor B. Mortgagor C. Trustor D. Trustee

Trustor The trustor is a borrower in a deed of trust

In purchasing a house, which of the following methods of financing could be accomplished without a down payment? A. FHA B. Cal-Vat C. VA D. Conventional

VA The others demand some down payment

The maximum FHA and VA loan amounts: A. May not be changed B. Vary in different regions of the country C. are the same everywhere D. depend on the buyer

Vary in different regions of the country *The FHA maximum loan amounts vary from one country to another. (VA maximum loan amounts also vary from one region to another because they are determined by a Certificate of Reasonable Value (an appraisal of reasonable value for the property in the area in which it is located)

A hard money loan is: A. a loan of money when money is hard to get B. a loan made to the trustor to help him purchase a piece of real property C. a loan of cash to an existing owner of real property to buy an automobile D. none of the above

a loan of cash to an existing owner of real property to buy an automobile **Hard money loans are given to existing owners of real property for any purpose other than buying a real property. Usually considered a personal loan

Another name for a wrap-around mortgage is A. swing loan B. shared appreciation loan C. reverse annuity loan D. all inclusive trust deed

all inclusive trust deed **Definition: A wrap-around mortgage or an all-inclusive trust deed, is a type of seller financing (wrapping an existing loan with a new loan, and allowing the borrower to make one payment for both loans)

The buyer under the terms of a land contract is referred to as: A. Vendee B. equitable title owner C. purchaser D. all of the above

all of the above Vendee is the buyer or purchaser. In a land contract the buyer is known as the equitable owner.

Article 7 of the Real Estate Law provides that interest on a loan may not be charged: A. prior to the date to the note B. until the proceeds of the loan have been made available to the borrower C. until the proceeds of the loan have been deposited in escrow D. all of the above are requirements of Article 7

all of the above are requirements of Article 7 *Review these requirements of Article 7 concerning when interest may begin on a loan.

A seasoned loan in a lender's portfolio would indicate: A. the time of year it was made B. the maturity date C. an established record of prompt payments D. the date after first payment is made

an established record of prompt payments **A loan with a stable history of payments made by the borrower

Federal National Mortgage Association (Fannie Mae) was created under the title III of the National Housing Act for the purpose of: A. lending money on Title II loans when the bank will not B. buying Title II loans to keep the market sound C. buying Title I home improvements loans. D. none of the above

buying Title II loans to keep the market sound ***Fannie Mae and was created to stabilize the mortgage market sound Fannie Mae and was created to stabilize the mortgage market.

A hard money loan is one made in exchange for: A. cash B. property C. a novation D. a deed

cash

Nonpayment of a debt is called: A. default B. defeasance C. deficiency D. defray

default

A trustee's sale is related to: A. yard sale B. foreclosure C. installment sale D. deficiency judgment

foreclosure There are two ways to foreclose: by trustee's sale and by judicial process. Foreclosure is the legal procedure used by lenders to terminate all rights, title and interest of the trustor or mortgagor in real property by selling the property and using the sale proceed to satisfy the liens of creditors

In real estate, reserves another name for: A. impounds B. assessment tax overpayment C. escrow account D. trust account

impounds Impounds or reserves are accounts required by some lenders to hold one year's taxes and insurance in advance when a buyer obtains a new loan. The buyer prepays the impound or reserve account

A subordination clause: A. is of primary benefit to the lender B. would prevent the sale of property subject to the existing loan unless it were waived by the lender C. would be of no value in a second mortgage as it is presently in a subordinate position D. is very often used in the purchase of raw land by a builder

is very often used in the purchase of raw land by a builder **A builder purchases raw land on a first mortgage inserting a subordination clause so that when he builds he can get a new first mortgage.

When there is more than one borrower on a promissory note, the lender will include term: A. due one sale B. power of sale C. no grace period D. jointly and severely

jointly and severely Jointly and severally means all borrowers are liable for the entire loan amount together or individually.

A purchase money loan is a(n) A. loan received from a mortgage broker B. equity loan C. loan made at the time of the sale whose proceeds go to the seller D. loan whose proceeds go to the buyer

loan made at the time of the sale whose proceeds go to the seller **Any loan made at the time of a sale, as part of the sale, is known as a purchase money loan. When a seller carries the paper on the sale of his or her home, it is also called a purchase money loan.

Mr. Dunn purchased his home from Mr. Spring using seller carry-back financing. Later, Mr. Kirk bought the property subject to the loan. If Mr. Kirk immediately defaulted, Mr. Spring: A. may get a deficiency judgment against Mr. Dunn B. may get a deficiency judgement against Mr. Kirk C. may get a deficiency judgement against Mr. Dunn and Mr. Kirk D. may not get a deficiency judgement because it was a purchase money loan

may not get a deficiency judgment because it was a purchase money loan. **In California and a few other states, the lender cannot recover a deficiency judgment on a purchase-money mortgage; these states have enacted antideficiency legislation

The lender under a mortgage is called: A. mortgagor B. grantor C. mortgagee D. assignee

mortgagee Mortgagee is the lender under a mortgage

A written promise to pay or evidence of a debt is called a: A. deed of trust B. promissory note C. mortgage D. deed

promissory note **A written agreement between a lender and a borrower to document a loan is called a promissory note.

To bring current and restore is to: A. pledge B. usury C. reinstate D. redeem

reinstate As in reinstating a loan

A borrower on a new loan is required to advance $412.00 for an escrow account. He would do so for the benefit of: A. the mortgagor only B. the mortgagor and the mortgagee C. Fannie Mae D. the mortgagee, primarily

the mortgagee, primarily An escrow (impound) account is an account into which money is paid by the borrower to insure the payment of taxes and hazard insurance when due. Lenders (mortgagees) require this of borrowers (mortgagors) who have a down payment of 10% or less. This projects the lender. For example, if a borrower fails to pay property taxes, the government could place a lien on the property, which would put the lender at risk.

A veteran applies for a loan to purchase a home. He request that the loan be processed as guaranteed loan by the Department of Veterans Affairs. A VA appraiser, in processing the CRV for the loan, would be most concerned with: A. the credit rating of the borrower B. the neighborhood in which the home is located C. the loan to value ratio of the request loan D. the veteran's access to additional funds

the neighborhood in which the home is located Any appraiser of real property is concerned only with the value of the property. He does not concern himself with credit, loans, interest, etc.

A deed of trust is the most common method of financing the purchase of real property in California. All of the following are correct statements concerning a trust deed except: A. the chief purpose of a trust deed is to create a lien B. a trust deed may be foreclosed without court action or approval C. a trust deed has no redemption period D. the promissory note is held by the beneficiary as his prime security for the loan

the promissory note is held by the beneficiary as his prime security for the loan.

In searching the files of the county recorder's office, you could most likely tell a first mortgage from a second mortgage by: A. reading of the document B. information received from the recorder C. reading the contents of the document D. time and date of recording

time and date recording Most likely. The exception would be if it had been subordinated

The power of sale is given to the trustee by the: A. beneficiary B. Seller C. Vendor D. trustor

trustor Borrower (trustor) irrevocably grants and conveys to trustee, in trust, with power of sale, the property in the event of default by the borrower