RE 250 (Intro to real estate) Chapter 11
Loan servicing includes a number of responsibilities such as collecting monthly mortgage payments from the borrower, remitting principal and interest payments to investors, ensuring sufficient escrow payments are being made by the borrower, and managing default if it should arise. In exchange for these services, mortgage bankers receive a fee. If the outstanding loan balance is $250,000 and the annual servicing fee is 0.35%, what is the monthly fee for servicing the loan?
$72.92
Utilizing the following information, calculate the housing expense ratio. Monthly Principal and interest on mortgage loan: $635 Monthly Tax and insurance payments into escrow: $125 Gross monthly income: $2,500
30.4%
In ascertaining whether a borrower has the ability to pay off his loan over time, a mortgage bank may rely on calculating a total debt ratio as part of its underwriting process. Utilizing the following information, calculate the total debt ratio. Monthly principal and interest on mortgage loan: $635 Monthly Tax and insurance payments into escrow: $125 Monthly Car lease payment (lease term is 3 years): $350 Gross monthly income: $2,500
44.4%
A lender is considering whether to approve a mortgage loan on a home recently appraised at a value of $500,000. If the borrower is willing to make a down payment of $100,000, determine the loan-to-value ratio associated with this property.
80%
Through the 1970s Fannie Mae primarily was a buyer of_____ and _____ mortgages.
Blank 1: FHA Blank 2: VA
Ginnie Mae securities are for pools of ____ and ____ home mortgages, plus a very small amount of US Rural Housing Services home loans.
Blank 1: FHA or FHA-insured Blank 2: VA or VA-guaranteed
In modern home mortgage underwriting, the credit score most widely used is the ____ from the Fair Isaac Company. A score above ____ is generally regarded as high, while a score below ____ is generally regarded as risky.
Blank 1: FICO Blank 2: 660 Blank 3: 620
Almost all loans created by mortgage banking find their way into mortgage securities. Conforming conventional loans will end up in securities of ____ ____ or ____ ____.
Blank 1: Fannie Blank 2: Mae Blank 3: Freddie Blank 4: Mac
For judging "capacity" - ability to pay - the more complex of the two traditional ratios has long been the debt-to-income ratio ("back-end" ratio). Using the customary initials, the numerator of the ratio is ____ +____.
Blank 1: PITI Blank 2: LTO
Mortgage loan underwriters traditionally use a(n) ____ to confirm the value of the securing property. More recently this frequently has been replaced by ____ ____ models.
Blank 1: appraisal Blank 2: automated Blank 3: valuation
In modern home mortgage underwriting, the traditional examination of the "three Cs" has largely been displaced by the use of_____ underwriting, where all the information from the borrower's application is combined electronically along with a credit score in a statistical equation developed from massive amounts of historical data to predict the likelihood of _____.
Blank 1: automated Blank 2: default
Mortgage_____ is a business of simply bringing a mortgage borrower and a mortgage lender together and collecting a fee for that service.
Blank 1: brokerage, brokering, or broker
Total residential mortgage debt in the US at $10 trillion in 2015, is just_____ to US Government marketable debt, more than_____ as large as the total amount of corporate bonds, and_____ times as large as all consumer debt.
Blank 1: equal, comparable, or same Blank 2: twice Blank 3: three or 3
A mortgage broker does not create or own mortgage loans. Rather, the broker is an_____ bringing lender and borrower together and collecting a fee.
Blank 1: intermediary
Numerous "affordable housing" loan programs were created in the mid-1990s. The dominant strategy for such programs was to alter the "three Cs" of traditional underwriting by relaxing ____ of the three standards while maintaining all else at conventional norms.
Blank 1: one or 1
While banks are ____ mortgage lenders, originating mortgages that are held and funded with deposits, mortgage ____ is a process of originating mortgages strictly to be sold as quickly as possible.
Blank 1: portfolio Blank 2: banking
The profit source in mortgage banking is in_____ the loans created
Blank 1: servicing
Views diverge on the importance of a down payment in underwriting a home mortgage loan. Underwriters tend to believe that the down payment is a ____ of the buyer's sincerity or intention to meet the obligation. Economists tend to believe that what matters is not the cash a borrower has put into a house, but what the borrower can ____ from it.
Blank 1: signal, indicator, or gauge Blank 2: recover, get, or gain
Private home mortgage conduits grew rapidly in the period from 2002 to 2007, and then almost disappeared, reflecting that they were driven at that time mainly by ____ loans.
Blank 1: subprime
State and local housing finance agencies predominantly provide housing finance assistance to:
First-time home buyers low and moderate income households
Many state and local housing authorities are able to fund low and moderate income housing with below-market interest rate loans. They can do this because they are allowed to:
Fund the loans with tax-exempt bonds
In the late 1960's, Congress created a number of agencies designed to address a struggling secondary market for residential mortgages. Which of the following organizations was developed primarily to guarantee mortgage-backed securities based on pools of FHA, VA and Rural Housing Service loans, rather than issue, buy or sell mortgages?
Government National Mortgage Association (Ginnie Mae)
The most recent kind of lender to engage significantly in home mortgage lending is the:
Large online mortgage lender
Fannie Mae has become a major issuer of_____.
MBS
Reasons why the Federal Home Loan Bank system can be an attractive source of borrowing at low interest rates for its member clients is (are):
Their stock is not publicly traded, and so they don't feel pressure for earnings They are treated as if they have the same risk of default as the U.S. government
In the years preceding the Great Recession, there were three types of accommodative home loans programs for borrowers unable to qualify for standard home loans. The type that showed the least evidence of failure was:
affordable housing loans
Currently, Freddie Mac channels virtually all of it acquired loans into mortgage securities, and purchases the loans from:
all types of lenders
Depository institutions primarily engaged in the business of making short-term loans to businesses for inventory financing and other working capital needs are more commonly referred to as:
commercial banks.
In the securitization process, mortgages are pooled together and cash flows are packaged into securities to be sold in the secondary market. Agencies and private companies that pool mortgages and sell mortgage-backed securities (MBS) are often referred to as:
conduits.
Under the Dodd-Frank "ability-to-repay" standard, which of these must a lender consider in underwriting a home mortgage loan?
credit history
The Federal Home Loan Bank System, originally banker for savings and loan associations, now extends membership to:
credit unions banks insurance companies all thrifts
Common entities operating as mortgage brokers include:
credit unions small banks or thrifts individual persons
In the early 1970's, home mortgage lenders were predominantly depository institutions. By the end of the decade, the growth of deposits at these institutions became negative due to the emergence of more attractive investment opportunities such as money market funds. This change in the distribution chain of funds is more commonly referred to as:
disintermediation.
Important steps in laying the foundation for a modern home mortgage secondary market, starting in 1968, included:
establishment of Fannie Mae as a quasi-private purchaser of FHA and VA loans creation of GNMA as a US Government guarantor of FHA/VA mortgage securities creation of Freddie Mac as a purchaser of conforming conventional loans
The absence of an efficient secondary mortgage market before 1968 had numerous consequences, including:
fewer home loans higher mortgage interest rates vulnerability of local mortgage lenders to "shut-downs" when interest rates increased sharp variation by region in the level of interest rates
Issuers of private residential mortgage securities since 2000 have included:
large banks investment banking houses large finance companies
Recently, mortgage banking has become the natural method for doing mortgage lending. Within the mortgage lending process, which of the following roles serves as the primary revenue source for mortgage banks?
loan servicing
Throughout the process of originating and selling mortgages, mortgage companies face a number of risks. Therefore, it is important for a lending institution to evaluate the risks of mortgage loan default through a process commonly referred to as:
loan underwriting.
Mortgage banks typically will attempt to sell loans as quickly as possible after they are originated by either issuing mortgage securities or selling the loan to an intermediary that will subsequently sell the loan in the secondary market. The period between loan commitment and loan sale is referred to as the:
mortgage pipeline.
Factors to be considered by lenders in meeting the Dodd-Frank "ability-to-repay" standard for home mortgage loans include current:
payments on other obligations employment status monthly loan payment income or assets
Freddie Mac was originally created to provide a secondary mortgage market for:
savings and loan associations
In today's complex and confusing home mortgage world, some possible guides to shopping for a loan are these:
shop! banks have an affinity for ARM loans and might be expected to make the best ARM offers the shorter the lending chain, the lower should be the cost mortgage brokers and mortgage bankers are commission compensated and motivated to provide strong service.
The importance of requiring a down-payment for a mortgage loan is debated. An important argument for it is that making any cash down payment:
signals sincere intent to perform
Despite many innovations in the lending process that made mortgage loans more accessible and affordable to the general public, many potential borrowers faced considerable barriers in qualifying for a loan and making a down payment. Which of the following types of loans was designed for a borrower with weak credit, those who seek 100 percent financing, or who cannot document their income?
subprime mortgage loan
Multifamily debt (apartments) comprised just under ______ percent of all mortgage debt in the US in 2015.
ten
Characteristics of the Ginnie Mae securitization program include:
the Ginnie Mae guarantee gives its MBS the same credit quality as US Treasury securities Ginnie Mae never originates or owns the mortgages involved in its securities Ginnie Mae guarantees timely payment of interest and principal to every investor in a pool The loans in a Ginnie Mae pool are created by private mortgage lenders
Mortgage banking became a natural way of doing business in home mortgage lending in response to:
the rise of securitization
Which of the following entities is a primary example of a portfolio lender?
thrift
In the early 1970's, home mortgage lenders were predominantly depository institutions focused on collecting local savings deposits and using these funds to make local mortgage loans. The savings institutions of this era of mortgage financing are more commonly referred to as:
thrifts.
Barriers prior to 1968 that prevented an efficient secondary market for home mortgages included:
variation in appraisal practices variation by state in mortgage law and documents variation by lender in loan underwriting practices
In addition to providing home mortgages, large commercial banks have specialized in providing short-term funds to mortgage banking companies in order to enable them to originate mortgage loans and hold the loans until the mortgage banking company can sell them in the secondary market. This type of financing is commonly referred to as:
warehousing.
