RE 83 Examen 1

The Chavez family is buying a house with a loan for $200,000. They will pay an origination fee of one point, and they are also paying two discount points. How much will they pay in loan costs? a. $2,000 b. $3,000 c. $4,000 d. $6,000

$6,000

A borrower takes out a loan of $562,500 to purchase a home with an appraised value of $625,000. This loan would have a loan-to-value ratio of: a. 80% b. 85% c. 90% d. 95%

90%

Who would be best served by a 15-year loan? a. A buyer planning to start a small business soon b. A buyer who hopes to eventually retire early c. A buyer who plans to live in the house for only a few years d. A first-time buyer wanting to purchase the largest, most expensive house possible

A buyer who hopes to eventually retire early

Which of the following is true? a. The lender who originates a loan always services the loan b. The lender who services the loan never originates the loan c. A loan may be serviced by a secondary market entity d. A loan may be serviced by the originating lender or another lender

A loan may be serviced by the originating lender or another lender

Which provision in a mortgage allows the lender to demand immediate payment of the entire outstanding loan balance if the borrower defaults (for example, by repeatedly failing to pay the full amount of the loan payment)? a. Alienation clause b. Statutory default clause c. Acceleration clause d. Both A and C

Acceleration clause

Which of the following was not a component of the Housing and Economic Recovery Act? a. Bailout funds for insolvent financial institutions b. Increased FHA loan limits c. Increased regulation of Fannie Mae and Freddie Mac d. Provided neighborhood revitalization funds to deal with foreclosed homes

Bailout funds for insolvent financial institutions

An unmarried taxpayer may deduct: a. up to $250,000 in capital gains on the sale of a residence b. depreciation of income-earning property c. mortgage interest for a first or second residence on loans of up to $1,000,000 d. Both B and C

Both B and C

Which of the following is an example of a real estate finance instrument? a. Bond b. Deed of trust c. Certificate of deposit d. Savings account

Deed of trust

Which federal regulatory agency placed Fannie Mae and Freddie Mac into conservatorship in 2008? a. Federal Deposit Insurance Corporation b. Federal Housing Finance Agency c. Office of Federal Housing Enterprise Oversight d. Office of Thrift Supervision

Federal Housing Finance Agency

The bill that imposed new rules on savings and loan associations as a result of the S&L crisis was the: a. Glass-Steagall Act b. Depository Institutions Deregulation and Monetary Control Act c. Garn-St. Germain Depository Institutions Act d. Financial Institutions Reform, Recovery, and Enforcement Act

Financial Institutions Reform, Recovery, and Enforcement Act

Prior to the 2008 takeover of Fannie Mae and Freddie Mac, the federal government explicitly backed the securities issued by which secondary market agency or agencies? a. Fannie Mae b. Freddie Mac c. Ginnie Mae d. All of the above

Ginnie Mae

Which of the following is not a government-sponsored enterprise? a. FNMA b. Freddie Mac c. Ginnie Mae d. All of the above

Ginnie Mae

Which secondary market entity is a part of the Department of the Housing and Urban Development, rather than a government-sponsored enterprise? a. Fannie Mae b. Freddie Mac c. Ginnie Mae d. Sallie Mae

Ginnie Mae

Which of the following is not a primary market source of residential mortgage funds? a. Commercial bank b. Savings and loan c. Investment bank d. Credit union

Investment bank

For a buyer, which of the following would NOT be an advantage of having a preapproval letter? a. It enables buyers to look for a home without having to complete a loan application b. It helps streamline the closing process c. It provides assurance to the seller that a financing contingency won't be a problem d. It signifies that the buyer is ready, willing, and able to buy at the agreed price

It enables buyers to look for a home without having to complete a loan application

Which of the following statements regarding Ginnie Mae is not true? a. It is a wholly owned government corporation b. It issues mortgage-backed securities based on FHA, VA, and conventional loans c. It is an agency created within HUD d. It helps finance urban renewal and housing projects

It issues mortgage-backed securities based on FHA, VA, and conventional loans

How is the federal funds rate set? a. By the Federal Advisory Council b. By the Federal Reserve Board of Governors c. By each of the individual Federal Reserve Banks, with the approval of the Board of Governors d. Member banks decide how much they will charge each other, although the Federal Open Market Committee sets a target for the federal funds rate

Member banks decide how much they will charge each other, although the Federal Open Market Committee sets a target for the federal funds rate

Who "owns" a Federal Reserve Bank? a. Individual investors who buy shares b. Member commercial banks within the district c. The Board of Governors d. The federal government

Member commercial banks within the district

A life-of-loan cap: a. restricts the amount of the monthly payments over the loan term b. limits the amount the interest rate may increase each adjustment period c. limits the amount the interest rate may decrease over the life of the loan d. None of the above

None of the above

A bridge loan, also called a swing or gap loan, is used to: a. finance personal property and real property with a single mortgage loan b. replace a construction loan with permanent financing c. provide funds to close the purchase of a new home before the buyers old home has been sold d. provide monthly income to an elderly homeowner

Provide funds to close the purchase of a new home before the buyers old home has been sold

Which of the following is not an aspect of the federal government's fiscal policy? a. Debt financing b. Government spending c. Setting key interest rates d. Taxation

Setting key interest rates

How is the nine-member board of directors of each Federal Reserve Bank chosen? a. Nine directors are appointed by the U.S. president b. Six directors are appointed by the U.S. president and three are elected by stockholders c. Six directors are appointed by the Federal Reserve Board of Governors and three are elected by stockholders d. Six directors are elected by stockholders and three are appointed by the Federal Reserve Board of Governors

Six directors are elected by stockholders and three are appointed by the Federal Reserve Board of Governors

Which of the following would not be considered as contributing to the growth and subsequent collapse of the housing bubble? a. ARMs with low introductory rates for short periods of time b. Increased use of subprime lending c. Stricter underwriting standards d. Tax breaks on sales of principal residences

Stricter underwriting standards

Which of the following statements about the Securities and Exchange Commission is NOT true? a. The SEC regulates securities trading to protect investors b. Companies are required to disclose their financial information to the public c. SEC regulations prohibit insider trading d. The securities regulated by the SEC include stocks, bonds, and savings accounts

The securities regulated by the SEC include stocks, bonds, and savings accounts

What bill, passed in 2008, authorized the Treasury Department to purchase stock in and assets of failing financial institutions? a. American Recovery and Reinvestment Act b. Financial Services and Modernization Act c. Housing and Economic Recovery Act d. Troubled Assets Relief Program

Troubled Assets Relief Program

What federal law requires the disclosure of a loan's annual percentage rate in certain circumstances? a. Fair Credit Reporting Act b. Financial Institutions Reform, Recovery, and Enforcement Act c. Real Estate Settlement Procedures Act d. Truth in Lending Act

Truth in Lending Act

All of the following statements regarding certificates of deposit are true, except: a. a CD is an ownership investment b. a CD holder agrees to keep funds on deposit with the financial institution during a specified period c. the holder of a CD may be charged a penalty for early withdrawal d. a CD generates interest in return for the depositor's investment

a CD is an ownership investment

In certain cases, if the proceeds of a sheriff's sale aren't sufficient to pay off the foreclosed mortgage, the lender may sue the borrower for the remainder owed. If the court rules in the lender's favor, it will grant the lender: a. a writ of attachment b. a lis pendens c. a deficiency judgment d. Both A and C

a deficiency judgment

Under the Financial Services Modernization Act of 1999: a. a commercial bank is prohibited from providing investment services b. a holding company may own both a bank and a securities firm c. the federal government may charter savings banks d. a savings and loan may make nonresidential real estate loans

a holding company may own both a bank and a securities firm

The face amount of a bond is the: a. interest rate paid on the bond b. discounted purchase price c. total amount paid over the life of the bond d. amount paid at maturity

amount paid at maturity

A due-on-sale clause is the same thing as: a. an alienation clause b. a transfer exclusion clause c. a sale-exclusion provision d. None of the above

an alienation clause

The power of sale clause in a deed of trust: a. authorizes the borrower to sell the property b. gives the trustee the power to sell the property judicially c. authorizes the trustee to sell the property in a trustee's sale d. None of the above

authorizes the trustee to sell the property in a trustee's sale

A certificate of indebtedness issued by a governmental body or corporation is a: a. bond b. treasury c. stock d. certificate of deposit

bond

Deductions for depreciation of income-generating property are also known as: a. cost recovery deductions b. exclusion of gain c. installment sales d. mortgage interest deductions

cost recovery deductions

In contrast to wholesale lenders, retail lenders: a. deal directly with loan applicants b. generally work with loan correspondents c. focus on conventional loans d. tend to be large, nationwide institutions

deal directly with loan applicants

When an investor provides money to an entity that will eventually repay the debt, the investment is considered a/an: a. liquid asset b. ownership investment c. capital investment d. debt investment

debt investment

To lower interest rates, the Federal Reserve would: a. decrease reserve requirements and buy government securities b. decrease reserve requirements and sell government securities c. increase reserve requirements and buy government securities d. increase reserve requirements and sell government securities

decrease reserve requirements and buy government securities

The interest rate charged by the Federal Reserve System to member banks who borrow funds to cover shortfalls is the: a. discount rate b. federal funds rate c. open market rate d. reserve rate

discount rate

A loan's annual percentage rate is an annual percentage that expresses the relationship of the: a. finance charge to the amount financed b. amount financed to the length of the loan term c. lender's profit margin to the amount financed d. amount of discount points charged to the amount financed

finance charge to the amount financed

The underwriting guidelines established by Fannie Mae and Freddie Mac: a. have a minimal impact on lending standards in the primary market b. have a significant impact on lending standards in the primary market c. provide lenders with sample forms and standards d. None of the above

have a significant impact on lending standards in the primary market

In the early 1980s, the problem facing the economy that the Federal Reserve tried to resolve was: a. budget deficits b. low savings rates c. high and volatile interest rates d. stagnant growth

high and volatile interest rates

An ARM with a two-tiered rate adjustment structure is called a: a. dual-rate ARM b. hybrid ARM c. diversified ARM d. structured ARM

hybrid ARM

Mortgage-backed securities are purchased directly from secondary market entities by all of the following, except: a. individual investors b. life insurance companies c. pension funds d. charitable endowments

individual investors

A note that requires payments of principal and interest is called a/an: a. straight note b. annual note c. installment note d. interest note

installment note

A satisfaction of mortgage is a/an: a. instrument given to the mortgagee when the mortgage is executed b. document recorded with the county to validate the mortgage c. instrument that releases the property from the mortgage lien d. document that establishes the lien priority of the mortgage

instrument that releases the property from the mortgage lien

A loan closes on February 25. The buyer does not need to make the first mortgage payment until April 1. The interest charged for February 25 through February 28, which is paid at closing, is known as: a. impounded interest b. interim interest c. short-term interest d. unearned interest

interim interest

Mortgage-backed securities are: a. guaranties b. collateral c. investment instruments d. mortgage instruments

investment instruments

A security instrument in a title theory state transfers: a. legal title to the borrower b. equitable title to the lender c. legal title to the lender d. None of the above

legal title to the lender

Because the Federal Reserve will provide short-term emergency loans to banks who can't meet reserve requirements, it is known as a: a. lender of last resort b. primary market lender c. secondary market entity d. wholesale lender

lender of last resort

In the event that the proceeds of a foreclosure do not cover the remaining balance on the loan, the mortgage insurer will pay the: a. lender the entire loan balance b. borrower the entire loan balance, plus foreclosure costs c. lender the shortfall d. borrower the shortfall

lender the shortfall

A security instrument does not transfer title in: a. title theory states b. lien theory states c. hybrid title theory states d. hybrid lien theory states

lien theory states

The primary mortgage market was originally a: a. national market made up of large financial conglomerates b. local market made up of local lending institutions c. national market made up of local lending associations d. local market made up of financial cooperatives

local market made up of local lending institutions

A lender tells a buyer that the interest rate quoted at the time of the loan application will be guaranteed for a certain period. This is known as a/an: a. annual percentage rate b. loan guaranty c. lock-in d. teaser rate

lock-in

The return of, and on, investment in a mortgage-backed security usually comes in the form of: a. annual dividend payments b. monthly interest payments c. annual guaranty fees d. monthly principal and interest payments

monthly principal and interest payments

Mortgage loans are pooled together and sold on the secondary market as: a. package loans b. mutual funds c. bond groups d. mortgage-backed securities

mortgage-backed securities

The initial interest rate for an ARM is also called the: a. discount rate b. margin c. credit rate d. note rate

note rate

An owner using her money to buy an asset or a property interest in an asset is acquiring a/an: a. security investment b. debt investment c. diversified investment d. ownership investment

ownership investment

Ordinarily, interim or prepaid interest is: a. paid to the lender by the buyer at closing b. prorated between the buyer and the seller c. not required for conventional loans d. refunded to the seller at closing

paid to the lender by the buyer at closing

A lender charges an origination fee to: a. buy down the buyer's interest rate b. increase the lender's yield c. pay for costs associated with making a loan, such as salaries and overhead d. pay the mortgage broker's commission

pay for costs associated with making a loan, such as salaries and overhead

Prior to beginning house hunting, a buyer contacts a lender and completes a loan application. The lender evaluates the application and issues a letter agreeing to loan the buyer up to a specified amount when she finds a home she wants to buy. This is: a. preapproval b. predetermination c. prequalification d. preverification

preapproval

To minimize the risk of lower yields, lenders sometimes charge a penalty for: a. prepayment b. foreclosure c. increased interest rates d. None of the above

prepayment

To use secondary financing, a borrower generally must: a. pay all of the downpayment with personal funds b. qualify for the combined payments on both loans c. pay the primary lender an additional fee d. have a loan guaranty for the second mortgage

qualify for the combined payments on both loans

When an investor breaks even on an investment, he has received a/an: a. return of the investment b. return on the investment c. appreciation on the investment d. appreciation of the investment

return of the investment

For an investor, three key characteristics of a potential investment are: a. term, rate, and yield b. yield, exchange, and pay-out c. safety, liquidity, and yield d. rate, liquidity, and profit

safety, liquidity, and yield

The interest paid on a real estate loan is almost always: a. compound interest b. variable interest c. simple interest d. accrued interest

simple interest

A conversion option allows an ARM borrower to: a. switch to a lower interest rate b. change the ratio of principal and interest in the monthly payments c. alter the rate adjustment period d. switch to a fixed interest rate

switch to a fixed interest rate

When construction is finished, a construction loan is often replaced by a: a. take-out loan b. nonrecourse mortgage c. package mortgage d. bridge loan

take-out loan

An ARM's margin is: a. the difference between the interest rate cap and the interest rate charged b. the difference between the index rate and the interest rate charged c. the difference between the mortgage payment cap and the interest rate charged d. None of the above

the difference between the index rate and the interest rate charged

Generally, the longer the loan term: a. the lower the total interest paid b. the lower the interest rate c. the lower the interest rate risk d. the higher the interest rate risk

the higher the interest rate risk

When an ARM reaches the maximum limit set in the negative amortization cap: a. the interest rate is adjusted to lower the monthly payments b. the lender has the option of resetting the cap c. the borrower may opt to change the ARM to a fixed-rate loan d. the monthly payment is set to fully repay the loan over the remaining loan term

the monthly payment is set to fully repay the loan over the remaining loan term

All of the following are disadvantages of a longer loan term, except: a. the borrower's equity builds slowly b. the monthly payments are lower c. the borrower pays more total interest over the loan term d. the interest rate on the loan is higher

the monthly payments are lower

Disintermediation is caused by changes in: a. the national supply of mortgage funds b. the local supply of mortgage funds c. the national interest rates and investment yields d. the local interest rates and investment yields

the national interest rates and investment yields

A lender's risk of loss is associated with: a. the likelihood that the borrower won't qualify for the loan b. the probability that interest rates will decrease during the loan term c. the possibility that a foreclosure sale of the property won't cover the loan amount d. None of the above

the possibility that a foreclosure sale of the property won't cover the loan amount

The introduction of the Federal Housing Administration and the mortgage insurance that it provided led to increased use of: a. adjustable-rate mortgages b. interest-only mortgages c. mortgages with balloon payments d. thirty-year fixed-rate mortgages

thirty-year fixed-rate mortgages

Because of their emphasis on savings accounts for small depositors, savings and loans are also commonly known as: a. credit unions b. people's banks c. savings banks d. thrifts

thrifts