RE7 "Finance"
Thelma, a widow, owns her home free and clear. She has a fixed income which does not meet her current financial needs. Thelma wants to borrow money on her house in order to supplement her income. What type of loan would Thelma most likely apply for? Select one: a. A 15 year fixed rate fully amortized loan. b. An ARM (adjustable rate mortgage). c. A RAM (reverse annuity mortgage). d. A GPM (graduated payment mortgage).
The correct answer is: A RAM (reverse annuity mortgage). A RAM, reverse annuity mortgage, is most likely in the situation described here. The bank will "pay" Thelma an amount each month to supplement her income using her house as collateral for the loan. When Thelma sells the house, the bank holding the mortgage, will receive the money they have paid out, plus interest. The other types of loans mentioned will give Thelma a lot of money right now and of course she would have another monthly payment.
A loan origination fee is: Select one: a. Always 1% of the loan amount b. A fee charged by the lender to initiate a loan c. 1/8 of 1 percent of the loan amount d. A fee paid by the seller to assist a buyer obtaining a VA guaranteed loan
The correct answer is: A fee charged by the lender to initiate a loan The loan origination is often - but not always 1% of the loan amount. The loan origination fee is whatever the lender charges, sometimes it is a flat fee, depending on the lending market.
The promissory note accompanying a mortgage creates: Select one: a. A personal obligation of the borrower b. A double obligation between the buyer and the seller c. A mechanic's lien d. An obligation to pay rent
The correct answer is: A personal obligation of the borrower The promissory note accompanying a mortgage is legal evidence of the debt and is a personal obligation on the part of the borrower.
If you buy property with a conventional loan, your loan can be insured by: Select one: a. FHA mortgage insurance. b. A VA guarantee. c. A private company which sells mortgage insurance. d. FNMA.
The correct answer is: A private company which sells mortgage insurance. Conventional loans can be insured (the lender is insured against loss if the borrower defaults) by private mortgage insurance (PMI), which is issued by a private company selling mortgage insurance.
If a buyer gives a note and a mortgage to a seller as part of the purchase price, the resulting mortgage is commonly referred to as: Select one: a. A package mortgage. b. A wraparound mortgage. c. A purchase money mortgage. d. An open-end mortgage.
The correct answer is: A purchase money mortgage. Anytime that the seller assists with the sale of the property by holding all or part of the financing for the sale, it is commonly referred to as a purchase money mortgage. This is true even though the pure definition is much broader.
A mortgage loan that provides for changes in the interest rate at specified periods of time, is known as: Select one: a. FHA graduated payment mortgage. b. Adjustable rate mortgage. c. Reversible loan mortgage. d. Roll-over-loan.
The correct answer is: Adjustable rate mortgage. An FHA graduated payment loan provides for a lower monthly payment initially and higher monthly payments later. Payments increase according to a graduated scale, but the interest rate remains constant. The question asks about changes in the INTEREST rate and would therefore be an adjustable rate loan.
FHA is comparable to which of the following? Select one: a. An insurance company. b. A savings and loan association. c. A secondary mortgage market warehouse. d. A mortgage banker.
The correct answer is: An insurance company. The FHA INSURES loans. The borrower pays FHA a premium to insure his loan. Therefore, FHA is like a large insurance company.
A lender transfers a mortgage loan to another lender for servicing. Such action is an example of: Select one: a. Assignment. b. Hypothecation. c. Novation. d. Defeasance.
The correct answer is: Assignment. The key to this question is the word transfer. A transfer is associated with an assignment. Substitution is associated with novation.
A loan where the final payment is larger than any of the previous payments is referred to as a: Select one: a. Blanket mortgage b. Wraparound mortgage c. Purchase money mortgage d. Balloon mortgage
The correct answer is: Balloon mortgage A blanket mortgage is when more than one property is pledged as security for a single loan. A wraparound is when a single payment is used to satisfy more than one loan. A purchase money mortgage is held by the seller, when the seller is assisting with the purchase of the property by holding all or part of the mortgage. What is described in the stem is a balloon mortgage.
What type of mortgage would a builder offer to a buyer as an incentive to buy one of his houses? Select one: a. Open-end mortgage. b. Construction loan. c. Wraparound mortgage. d. Buy-down mortgage.
The correct answer is: Buy-down mortgage. A buy-down is one in which the builder pays the lender cash up front so that the lender will grant a loan at a reduced rate. The lender gets some ready cash and does not have to wait for the mortgage payments.
A mortgage contains all of the following EXCEPT? Select one: a. Property description. b. Acknowledgement. c. Covenant not to compete. d. Signature of borrowers.
The correct answer is: Covenant not to compete. A covenant not to compete is used in the sale of a business, not in the sale of real property.
The difference between a first and second mortgage is that the second mortgage must have a: Select one: a. Lower principal amount. b. Different lien position. c. Higher interest rate. d. Shorter term.
The correct answer is: Different lien position. The only thing that a second mortgage MUST have is a different lien position. That is what makes it a 2nd mortgage. More than likely it will have or be the other items mentioned, but the only thing it MUST be is 2nd.
If a veteran has an existing VA loan, under which of the following circumstances could he or she obtain another VA loan? Select one: a. If the first loan has been paid in full and the property sold. b. If the first loan is assumed by a qualified veteran buyer and the buyer's eligibility is substituted for the seller's. c. If the first loan is more than 5 years old. d. Either the earlier loan was fully repaid or assumed by another veteran with a substitution of eligibility.
The correct answer is: Either the earlier loan was fully repaid or assumed by another veteran with a substitution of eligibility. The age of the loan has no bearing. The only time that a veteran buyer can obtain another VA loan is if the existing loan is paid, OR if the existing VA loan is assumed by a qualified veteran buyer whose eligibility is substituted for that of the seller.
The difference between the value of property and any debt directly related with that property is described as: Select one: a. Collateral. b. Equity. c. Ownership interest. d. Novation.
The correct answer is: Equity. Equity is the difference between value and debt.
The maximum amount of an FHA insured loan is: Select one: a. Determined by individual lender policy. b. Nationally uniform, set by HUD. c. Established on a regional basis. d. Set by each state.
The correct answer is: Established on a regional basis. Anyone, regardless of income, may apply for an FHA LOAN. However, there are limits (which vary by community) as to how much can be borrowed under an FHA loan.
Discount points paid increases the yield of: Select one: a. Brokers. b. Lenders. c. Sellers. d. Buyers.
The correct answer is: Lenders. Discount points are charges imposed by the lender to increase his income from the loan, over and above the interest he will collect.
When a mortgagee substitutes a new party for another on a mortgage in order to release the original borrower of liability, it is referred to as: Select one: a. Satisfaction. b. Subordination. c. Novation. d. Substitution.
The correct answer is: Novation. Substituting a new party (mortgagor) for an old one is an example of novation. When one party to the contract agrees to the substitution of another party it is Novation. The transfer of rights and or obligations without approval constitutes an assignment.
The discount points to be paid on a loan are established by: Select one: a. The buyer b. VA or FHA c. The lender d. HUD
The correct answer is: The lender The lender sets the loan discount points which must be paid.
An insured loan, amortized over 25 years, in which payments would increase or decrease in accordance with some economic indicator would be an example of: Select one: a. Balloon mortgage. b. Graduated payment mortgage. c. Variable rate mortgage. d. VA mortgage.
The correct answer is: Variable rate mortgage. A variable rate mortgage is one in which the interest rate is keyed to an economic indicator or index. A change in the interest rate would cause the monthly payment to increase or decrease according to that index.
A promissory note is best described as? Select one: a. A pledge of property. b. An earnest money deposit. c. Written evidence of debt. d. A form of unilateral contract.
The correct answer is: Written evidence of debt. A promissory note is written evidence of the debt.
A son and daughter-in-law wanted to buy their parents house and assume the mortgage. The son and daughter-in-law had just gone through bankruptcy. Which of the following clauses in a mortgage would prevent this sale and assumption from taking place? Select one: a. Acceleration clause b. Alienation clause c. Subordination clause d. Defeasance clause
The correct answer is: Alienation clause (B) The alienation (due-on-sale) clause calls the loan balance due and payable upon the transferring of property, thereby making the loan non-assumable. (A) The acceleration clause in a mortgage calls the loan balance due and payable upon non-payment. (C) The subordination clause changes the priority of a mortgage that is different than the recording date - it's where a lender waives their right in favor of someone else. (D) The defeasance clause is where a lender voids the security when the loan is paid off.
If Tony is planning to build a house on a vacant lot that he owns, he could apply to a bank for a construction loan. A typical construction loan is BEST described as: Select one: a. An open end mortgage. b. An open mortgage. c. A wraparound mortgage. d. A blanket mortgage.
The correct answer is: An open end mortgage. In a typical construction loan, the bank agrees to the maximum amount that it will lend. The money is advanced (loaned) to the borrower in installments as various stages of construction are completed. This is an open end loan because there is an end to the amount that the bank will lend. It can be compared to a line of credit.
A promissory note must contain all of the following EXCEPT: Select one: a. Amount of the principal. b. Rate of interest. c. Description of the collateral. d. Payment terms.
The correct answer is: Description of the collateral. The question deals with a note and does not specify that it is given along with a mortgage, therefore no description of the collateral would be required. An example would be a signature loan. A note is legal evidence of a debt owed.
To pledge real estate as collateral without giving up possession is known as: Select one: a. Hypothecation. b. Dedication. c. Amortization. d. Capitalization.
The correct answer is: Hypothecation.
Hardwick defaults on his mortgage loan which has a remaining balance of $94,500. The foreclosure sale brings $97,250 after expenses. What will happen to the extra $2,750? Select one: a. It will go to Hardwick. b. It will go to the lender as punitive damages. c. The $2,750 will be applied to the new purchasers closing costs. d. The money is used to pay the cost of the court appointed trustee that handled the sale.
The correct answer is: It will go to Hardwick. Any excess funds realized from the sale of the property at a foreclosure sale, go the foreclosed owner, in this case Hardwick.
A conventional loan can be described as: Select one: a. One insured by the Federal Housing Administration. b. One guaranteed by the Veterans Administration. c. One obtained from the Department of Housing and Urban Development (HUD). d. None of the above.
The correct answer is: None of the above. Conventional loans are those other than FHA insured or VA guaranteed. HUD does not make loans.
A couple buys a furnished home by assuming the existing loan. Which of the following papers would the settlement attorney NOT have to prepare? Select one: a. Note and mortgage. b. Bill of sale. c. Assumption papers. d. Warranty deed.
The correct answer is: Note and mortgage. The settlement agent will prepare a new deed and the assumption papers. The personal property in the home will be conveyed using a bill of sale. The buyers agree to make the payments on the existing loan which allows the existing note and mortgage to remain in effect.
A loan in which the final payment on principal is exactly equal to the amount of the original loan is known as any of the following EXCEPT: Select one: a. Straight loan b. Partially amortized loan c. Interest only loan d. Term loan
The correct answer is: Partially amortized loan If the amount of the final payment is exactly equal to the original amount of the loan, any payments made would be interest only. This loan is called a term loan, straight loan, or interest only loan, but never a partially amortized loan.
Clint is a qualified veteran and is getting a loan to buy a house for $110,000. The CRV (appraisal) comes back at $105,000. Which of the following statements is true? Select one: a. Clint can get a VA loan for the full amount because the appraised price is within 10% of the selling price. b. Clint can obtain a 2nd mortgage to finance the $5,000 difference. c. Clint can pay more than the appraised price, if the difference is paid from his personal funds. d. Clint can borrow the $5,000 for the difference from a relative, as long as he does not pledge the property as collateral.
The correct answer is: Clint can pay more than the appraised price, if the difference is paid from his personal funds. The VA will not guarantee a loan for more than the appraised value or the selling price, whichever is LOWER. Clint may pay more than the appraised value ONLY if he uses personal funds. He may not borrow the difference from any source, including relatives.
The largest source of second mortgage money is provided by: Select one: a. Fannie Mae. b. FHA. c. Private individuals. d. Mortgage bankers.
The correct answer is: Private individuals. In this question, we are talking about second mortgages, NOT the secondary mortgage market. As strange as it may seem, private individuals provide the greatest amount of funds for second mortgage loans. One of the most common is when a seller "takes back" all or part of the selling price in the form of a 2nd mortgage.
A mortgage is released by? Select one: a. Revision. b. Reconveyance. c. Quitclaim deed. d. Satisfaction.
The correct answer is: Satisfaction. The lien is released by a satisfaction of mortgage.
A lender advertises 80% LTV conventional loans. 80% is applied to: Select one: a. Appraised value b. Selling price c. The buyers income d. The purchase price or appraised value, whichever is lower
The correct answer is: The purchase price or appraised value, whichever is lower The loan to value (LTV) ratio is always applied to the appraised value of the property or the selling price, WHICHEVER IS LOWER.
The primary purpose of the secondary mortgage market is. Select one: a. To aid in the resale of property. b. To provide investment vehicles for lenders. c. To ensure a flow of mortgage money to primary lenders. d. To assist small mortgage companies.
The correct answer is: To ensure a flow of mortgage money to primary lenders.
Parties to a deed of trust are? Select one: a. Mortgagor/mortgagee/broker. b. Borrower/lender/broker. c. Trustor/beneficiary/trustee. d. Mortgagor/trustee/mortgagee.
The correct answer is: Trustor/beneficiary/trustee. The three parties to a trust deed are the borrower (the trustor), the lender (the beneficiary) and the trustee (the neutral third party).
In times of a tight money market where the money supply is short, the secondary mortgage market helps first time home buyers by: Select one: a. lowering interest rates b. providing liquidity to primary lenders c. raising required ratios on qualifying d. insisting on larger mortgage insurance premiums
The correct answer is: providing liquidity to primary lenders The secondary mortgage markets primary purpose is to buy notes from primary lenders, thus providing liquidity for the lenders. This results in lenders being willing to make loans in a time of tight money as the lender knows the loans can be sold to the secondary mortgage market, thus keeping the lender supplies with loan money - hence the answer is (B). (A) is incorrect as the federal reserve involves itself with lowering interest rates if necessary, not the secondary mortgage market. (C) and (D) would hinder borrowers.
If your friend told you that he had just purchased a home with no money down, he probably obtained: Select one: a. An FHA insured loan. b. A VA guaranteed loan. c. A purchase money mortgage. d. A wraparound mortgage.
The correct answer is: A VA guaranteed loan. The term, no money down, generally refers to a VA guaranteed loan. FHA and conventional loans require some type of down payment. Obviously the friend could have borrowed the full purchase price from a relative with no money down, but that is not one of the choices here.
A buyer purchases a piece of property and pays equal amounts over 5 years, with a lump sum payment at the end of that time. This loan would be considered: Select one: a. A balloon loan. b. An amortized loan. c. A direct loan. d. An open loan.
The correct answer is: A balloon loan. The lump sum payment at the end (the remaining balance of the loan) is a balloon payment making this a balloon loan.
Which of the following is true relative to a construction loan? Select one: a. A construction loan cannot be amortized. b. A construction loan never carries any points. c. A construction loan carries the highest risk for a lender. d. The construction loan lender provides the money to the contractor in one lump sum when construction is completed..
The correct answer is: A construction loan carries the highest risk for a lender. A construction loan provides money to the contractor in increments as construction progresses. It carries the highest degree of risk for a lender who would normally charge a higher rate of interest for a construction loan.
When a clause is included in a mortgage, requiring it to assume a lower lien priority position, it is called: Select one: a. An estoppel clause. b. An acceleration clause. c. A subordination clause. d. A participation clause.
The correct answer is: A subordination clause. A subordination clause states the rights of the mortgagee shall be secondary (subordinate) to a subsequent mortgage.
Which mortgage clause allows a lender to regain their investment if a borrower does NOT pay their payment? Select one: a. Alienation b. Due on sale c. Acceleration d. Defeasance
The correct answer is: Acceleration A loan "accelerates" and the entire loan balance becomes due upon default by the borrower. An "alienation" (A) is a "due-on-sale" clause (B) which makes the loan non-assumable. "Defeasance" is a "null and void" clause which makes the mortgage void upon the note being paid (usually the lender issues a mortgage release).
A young couple has a minimal down payment. They anticipate periodic salary increases in the future. Which type of loan would be most appropriate for them to use when buying a home? Select one: a. FHA fixed rate, fully amortized loan b. FHA graduated payment loan c. Short term straight loan d. Partially amortized loan with a large balloon
The correct answer is: FHA graduated payment loan The FHA Graduated Payment Loan (FHA 245), would allow the couple to make smaller monthly payments initially. These payments would increase in later years at a predetermined rate on the assumption that the buyer's income has increased enough to support the higher payments.
The largest purchaser of home loans in the secondary mortgage market is : Select one: a. FNMA b. GNMA c. Freddie Mac d. FHA
The correct answer is: FNMA The Federal National Mortgage Association is the largest purchaser of home loans in the secondary market (A). The Government National Mortgage Association is a government corporation under HUD that buys mainly FHA and VA loans (B). The Federal Home Loan Mortgage Corporation primarily buys conventional loans from Savings and Loans (C). The Federal Housing Administration insures loans to lenders (D).
Which of the following is an investor in the secondary mortgage market? Select one: a. VA. b. FHA. c. HUD. d. FNMA.
The correct answer is: FNMA. One investor (purchaser) of mortgages in the secondary mortgage market is FNMA or the Federal National Mortgage Association. Others are GNMA (Ginnie Mae) and FHLMC (Freddie Mac).
Which of the following is NOT involved in the secondary mortgage market? Select one: a. Federal National Mortgage Association. b. Government National Mortgage Association. c. Federal Housing Administration. d. Federal Home Loan Mortgage Corporation.
The correct answer is: Federal Housing Administration. The FHA does not purchase loans and so is not in the secondary market. The other three entities are significant in the secondary market.
Which of the following statements is NOT correct? Select one: a. Prepayment penalties are prohibited with VA and FHA financing. b. HUD establishes market-based interest rates for VA and FHA loans. c. VA can make certain direct loans. d. Conventional loans may require PMI insurance.
The correct answer is: HUD establishes market-based interest rates for VA and FHA loans.
Which of the following statements about the Federal National Mortgage Association is true? Select one: a. It raises funds to purchase loans by selling government guaranteed bonds. b. It regulates interest rates. c. It borrows money from itself. d. None of the above.
The correct answer is: It raises funds to purchase loans by selling government guaranteed bonds. The FNMA (Fannie Mae) raises funds through the sale of government guaranteed bonds (backed by its pool of mortgages) for further secondary mortgage market operations.
Which of the following statements is true relative to Regulation Z? Select one: a. It prohibits discrimination. b. It requires the use of a HUD-1 sheet for closing It prohibits kickbacks. c. It requires full disclosure of all financing terms regardless of the type of financing offered. d. It requires disclosure of the APR.
The correct answer is: It requires disclosure of the APR. Regulation Z implements the Truth in Lending Act. It does not deal with fair housing issues or settlement issues kickbacks. The best answer is that it requires disclosure of the APR (Annual Percentage Rate). The choice about full disclosure is almost correct except that some loans - such as seller financing - are exempt from Regulation Z.
John is buying a house from Ellen for $100,000. National Bank is going to loan John $70,000 and Ellen is going to hold a purchase money mortgage in the amount of $10,000 and John will pay the difference in cash. The $10,000 owed to Ellen can be described as: Select one: a. Participation mortgage. b. Junior mortgage. c. Senior mortgage. d. First mortgage.
The correct answer is: Junior mortgage. Ellen, the seller, holds a junior mortgage or a second deed of trust since the senior mortgage or first mortgage will be held by the bank.
If a mortgage is subordinate, what type of mortgage is it? Select one: a. Junior. b. Blanket. c. Amortized. d. Adjustable.
The correct answer is: Junior. All junior mortgages (second or third trusts, etc.) are subordinate to the senior (first) mortgage.
A mortgagee's title insurance provides protection to which of the following? Select one: a. Borrower. b. Lender. c. Trustee. d. Seller.
The correct answer is: Lender. The mortgagee is the lender, therefore mortgagee's title insurance protects the lender. Mortgagors title insurance would protect the owner, buyer, borrower.
According to the Truth-in-Lending Law, certain words used in advertisements trigger full disclosure of ALL of the terms of financing. Which of the following statements would NOT require any additional disclosure? Select one: a. Liberal terms available b. Down payment - $1000 c. Only 9 1/2% interest d. Payments of only $1,200 per month
The correct answer is: Liberal terms available "Liberal terms available" would not require additional details. Any of the other phrases in an ad would require disclosure of ALL finance charges.
All mortgages are? Select one: a. Due on sale. b. Liens. c. Recorded. d. None or these choices.
The correct answer is: Liens. All mortgages are liens.
If a promissory note contains an exculpatory clause, the lender: Select one: a. May seek a deficiency judgment b. May not seek a deficiency judgment against the maker c. May not foreclose d. May call the note due and payable in the event of covenant violations
The correct answer is: May not seek a deficiency judgment against the maker The exculpatory clause prevents the lender from obtaining a deficiency judgment in the event there is a foreclosure.
When a buyer obtains a loan for the purchase of property, the lender will require: Select one: a. Mortgage and a promissory note. b. Deed of trust and a hypothecation note. c. Promissory note and a purchase agreement. d. Deed of trust note and a contract for sale.
The correct answer is: Mortgage and a promissory note. The two items that are required are a promissory note, which is written evidence of debt, and a mortgage (or deed of trust), which is to pledge title to the property as security for the debt. A hypothecation note is NOT a requirement.
Who is an intermediary between a lender and a borrower: Select one: a. Insurance company. b. Mortgage broker. c. Federal Reserve Board. d. FDIC.
The correct answer is: Mortgage broker. An intermediary is a go-between. A mortgage broker acts between the people who have money to lend and the people who want to borrow money. Think of the mortgage broker in the same way you would a real estate broker. The broker knows someone who wants to sell a house and also someone who wants to buy a house. He acts as the go-between and closes the deal.
When property is secured by a mortgage, the lender is known as the: Select one: a. Trustor b. Trustee c. Mortgagee d. Devisee
The correct answer is: Mortgagee In a mortgage, the lender is called the mortgagee. A trustee is one of the three parties in a deed of trust and a devisee is a person who inherits real property through a will.
A veteran with full entitlement may be able to do which of the following? Select one: a. Purchase any home with no money down. b. Purchase an investment property through a VA loan. c. Obtain a guaranteed VA loan regardless of income. d. None of these choices.
The correct answer is: None of these choices. None of these statements is correct. The veteran cannot purchase just ANY house, as there are maximum loan amounts. VA loans cannot be used to purchase investment property. The veteran must also have sufficient income to support the payment.
Which of the following instruments shows evidence of a debt? Select one: a. Note b. Option c. Contract d. Abstract
The correct answer is: Note The promissory note, which a borrower signs with a mortgage or deed of trust, shows legal evidence of the debt (the money borrowed).
A borrower who had repaid a portion of the original loan could borrow those funds again without rewriting the original terms of the note under which of the following types of mortgages? Select one: a. Package b. Blanket c. Wraparound d. Open end
The correct answer is: Open end An "open end" is much like a secured line of credit that allows the borrower to reborrow funds that have already been repaid on the original note. "Package" (A) mortgages use BOTH real and personal property as security. A "blanket" mortgage (B) covers more than one piece of real estate. A "wraparound" (C) mortgage occurs when a lender assumes a first mortgage, advances additional funds to the borrower, writes a second mortgage which includes the first and the additional funds, collects on the second and then pays on the first.
Which of the following mortgages provides for funds to be available at a later date, but also limits the total amount to be advanced? Select one: a. Open end. b. Open. c. Package. d. Blanket.
The correct answer is: Open end. An open end mortgage would allow a borrower to obtain additional money from a lender, up to a specified amount, under the same mortgage instrument. Common in construction loans.
A mortgage which includes both real and personal property would be referred to as a: Select one: a. Blanket mortgage. b. Open mortgage. c. Chattel mortgage. d. Package mortgage.
The correct answer is: Package mortgage. A package mortgage includes both real and personal property, such as appliances. It is the type of mortgage that most people have on their homes.
A subdivision developer obtained a construction loan to build new houses on 20 lots. What type of clause would he request so that individual lots could be unencumbered as the loan amount is paid down? Select one: a. Subordination. b. Partial release. c. Exculpatory. d. Safety.
The correct answer is: Partial release. The partial release clause would mean the lender would release the lien from one lot each time a specified amount of the loan was repaid.
Which of the following covenants is generally included in a mortgage? Select one: a. Seizen. b. Further assurances. c. Quiet enjoyment. d. Pay taxes.
The correct answer is: Pay taxes. The covenant or promise to pay the taxes on the property is contained in a mortgage. All of the other covenants mentioned are covenants found in a deed.
A homeowner sells his property and realized a profit on the sale. The lender, per contract, is to receive a portion of the profits. What type of mortgage did the homeowner have? Select one: a. Shared appreciation b. Wraparound c. Percentage d. Open end
The correct answer is: Shared appreciation This is a shared appreciation mortgage. Perhaps better known as a shared equity mortgage. As the property APPRECIATES, the equity increases.
FHLMC (Freddie Mac) requires lenders to use standardized forms. The purpose of such standardization is: Select one: a. To allow loans to be warehoused. b. So that loans may be easily sold in the secondary market. c. To establish uniform interest rates. d. So that consumers are well informed.
The correct answer is: So that loans may be easily sold in the secondary market. The standardization of forms used by lender and settlement agents makes it much easier to review each loan which will be sold in the secondary mortgage market.
The maximum interest rate that can be charged for a home mortgage is determined by which of the following? Select one: a. FDIC. b. State usury laws. c. Federal Home Loan Bank Board. d. Federal Reserve.
The correct answer is: State usury laws. The maximum interest rate which may be charged on a loan is governed by a state's usury law.
An agreement to waive prior rights in favor of another is? Select one: a. Subordination. b. Subrogation. c. Subornation. d. Subjugation.
The correct answer is: Subordination. A subordination clause waives prior rights in favor of another's.
A mortgage loan which provides for payment of the total principal amount of the loan at the maturity date would be referred to as a: Select one: a. Package loan. b. Term loan. c. Fully amortized loan. d. All of the above.
The correct answer is: Term loan. A term (straight) loan is one on which only interest is paid during the loan period and the entire principal loan amount is paid on the maturity date.
Which of the following statements about a VA guaranteed loan is INCORRECT? Select one: a. The borrower must be a qualified veteran. b. The borrower must sign a statement that he or she intends to live in the property being financed. c. The borrower must be married. d. The buyer may pay some or all of the discount points required by the lender making the loan.
The correct answer is: The borrower must be married. If points are required by the lender, either the buyer or the seller may pay them. There is no requirement that the buyer be married.
What is the margin of an ARM? Select one: a. The difference between the current rate and the future rate. b. The difference between the index and the note rate. c. The difference between the cap rate and the current rate. d. The lenders increase in yield.
The correct answer is: The difference between the index and the note rate. When lenders make adjustable rate mortgage loans (ARM), the rate is tied to a particular INDEX or base. For example: The rate of your note may be the prime rate, as established by Bank of New York, PLUS 2%. This 2% is the margin. If the Bank prime rate goes up, your interest rate goes up OR if the rate goes down, so does your rate, hence the name ADJUSTABLE rate mortgage (ARM).
A lender making an 80% loan for property valued at $80,000 and purchased for $70,000 would make a maximum loan of: Select one: a. $80,000. b. $64,000. c. $56,000. d. $14,000.
The correct answer is: $56,000. The 80% loan is based on the lower of the lower of the appraised value or the purchase price. $70,000 X 80% = $56,000.
When a buyer obtains a loan for the purchase of property, the lender will require: Select one: a. Deed of trust and promissory note. b. Deed of trust and hypothecation note. c. Promissory note and purchase agreement. d. Deed of trust note and contract for sale.
The correct answer is: Deed of trust and promissory note. Of the answer choices given, the correct answer is a promissory note and deed of trust. In many parts of the country it would be a mortgage and promissory note instead, but that was not a choice.
A budget mortgage payment (PITI), would normally NOT include: Select one: a. A payment toward the principal of the loan. b. A payment toward the interest on the loan. c. 1/12 of the annual real property taxes. d. 1/12 of the annual life insurance premium.
The correct answer is: 1/12 of the annual life insurance premium. PITI means principal, interest, taxes and insurance and is known as a budget mortgage because the owner pays exactly the same amount each month. The insurance portion of PITI is hazard insurance NOT life insurance.
Which of the following mortgage loans would afford the borrower the lowest monthly payment? Select one: a. 12% for 25 years. b. 12% for 30 years. c. 12.5% for 20 years. d. 12.5% for 30 years.
The correct answer is: 12% for 30 years. Of these answers, the one with the LOWEST interest rate for the LONGEST term would provide the purchaser the lowest monthly payment.
Which of the following statements regarding federally insured or guaranteed loans is true? Select one: a. A Federal Housing Administration (FHA) loan may be made only to a borrower whose intent is to occupy the property. b. A Veterans Administration (VA) loan may be made to a qualified veteran whose intent is to rent the property for which the loan is obtained. c. A Veterans Administration (VA) loan can only be obtained by a veteran that is at least 21 years old. d. Both FHA or VA allow the borrower to obtain a 2nd deed of trust in order to raise the down payment.
The correct answer is: A Federal Housing Administration (FHA) loan may be made only to a borrower whose intent is to occupy the property. FHA insured and VA guaranteed loans are only allowed for owner occupied properties. There is no specified minimum age for a VA loan. Neither VA or FHA allow junior loans to raise the down payment.
A husband and wife own property with a mortgage payment due on the first of each month. They are thirty days late in making a payment and receive notice from the lender to make payment within ten days. If they fail to make the payment the entire loan balance becomes payable immediately. Which clause in the mortgage allows the lender the right to take such action? Select one: a. Alienation clause b. Acceleration clause c. Estoppel clause d. Forfeiture clause
The correct answer is: Acceleration clause Any covenant (promise) in a mortgage which is not kept by a mortgagor, such as the promise to make payments on time, may result in making the entire loan balance due immediately under the acceleration clause.
A clause in a mortgage to prevent a buyer from assuming an existing loan is called the: Select one: a. Condemnation clause b. Defeasance clause c. Alienation clause d. Acceleration clause
The correct answer is: Alienation clause The alienation clause is also referred to as the "due on sale" clause. It means that if you sell the property, the entire loan balance is DUE. If interest rates are going up, lenders do not want anyone to assume a loan at the lower rate.
In order to be valid, a mortgage or deed of trust must be? Select one: a. In writing. b. Executed by the parties. c. Between competent parties. d. All of these choices.
The correct answer is: All of these choices. All of these choices would be required.
Negative amortization is a loan feature that? Select one: a. Allows more of each monthly payment to be applied to principal than the previous payment. b. Allows the principal to be paid off early. c. Allows the principal balance to increase because payments are insufficient to pay the interest owed. d. Allows the interest rate to increase.
The correct answer is: Allows the principal balance to increase because payments are insufficient to pay the interest owed.
A loan with constant payments, where increasing amounts are credited to the principal and decreasing amounts are charged for interest, is called: Select one: a. A variable loan. b. A variable constant loan. c. An amortized loan. d. A straight loan.
The correct answer is: An amortized loan. An amortized loan has a fixed payment for the life of the loan. The amount paid to principal increases and the amount paid to interest decreases with each succeeding payment.
The certificate that shows the unpaid balance of a mortgage and the amount of unpaid interest associated with that debt is referred to as: Select one: a. A waiver. b. An estoppel. c. An acknowledgment. d. A satisfaction.
The correct answer is: An estoppel. A satisfaction is the certificate, issued by the lender after the entire mortgage is paid, stating that the debt has been satisfied. It is the ESTOPPEL certificate that provides the information referred to in the stem of the question.
As a general rule, VA loans are fixed rate, fixed term loans. What would cause the monthly payment of a VA loan to increase? Select one: a. If there was an increase in the Consumer Price Index. b. An increase in the interest rates allowed for VA loans. c. An increase in the assessed value of the property. d. None of the above, the payment cannot change
The correct answer is: An increase in the assessed value of the property. VA loans are fixed rate for a fixed term, so any change in the CPI or allowed interest rates would have no effect on the payments. However, all VA loan monthly payments must include the principal, interest and 1/12th of the taxes and the hazard insurance (PITI). If the assessed value of the property goes up, the real estate taxes will also increase causing the monthly payment to increase accordingly.
FHA's role in the real estate mortgage market is best described as: Select one: a. A lender to the consumer. b. An insurance company. c. A secondary mortgage market warehouse. d. A mortgage banker.
The correct answer is: An insurance company. The role of the FHA in the real estate mortgage market is to act as an insurance company, in that the FHA INSURES loans made by approved lending institutions.
Which of the following is not a financing instrument? Select one: a. A mortgage. b. A deed of trust. c. An option. d. A note.
The correct answer is: An option. An option is not a financing instrument.
A person who owned a house ran into financial difficulty. Foreclosure on the house appeared to be a possibility. Which of the following actions should this person take in trying to protect the person's credit rating in the future? Select one: a. Ask Offer the lender for a deed in lieu of foreclosure b. Ask the lender for a deed of reconveyance c. Exercise the alienation clause in the mortgage d. Exercise the defeasance clause in the mortgage
The correct answer is: Ask Offer the lender for a deed in lieu of foreclosure (A) A deed in lieu of foreclosure does protect a person's credit rating better than an actual foreclosure. (B) A deed of reconveyance is a document a lender gives to a buyer when a loan is completely paid off. (C) An alienation clause in a mortgage calls the loan balance due and payable upon selling the property. (D) The defeasance clause in a mortgage voids the security once the loan is paid off.
Which of the following is NOT essential to the validity of a mortgage? Select one: a. Debtor. b. Attorney. c. Creditor. d. Pledge of property.
The correct answer is: Attorney. A mortgage is a pledge of property as security for the money borrowed by the mortgagor (debtor) from the mortgagee (creditor). Although usually involved, an attorney is NOT required to create a mortgage.
Why do people avoid balloon mortgages? Select one: a. This type of mortgage requires larger monthly payments. b. The borrower cannot have fee simple ownership. c. Because of the large lump sum payment that must be made when due. d. Balloon mortgages cannot be refinanced if interest rates should decrease.
The correct answer is: Because of the large lump sum payment that must be made when due. With a balloon mortgage the borrower makes regular payments and then at some predetermined time the remaining balance of the loan is due and payable, forcing the borrower to come up with large cash payment.
When a deed of trust is used to pledge real property as security for a loan, the lender is the? Select one: a. Beneficiary. b. Trustor. c. Trustee. d. Mortgagee.
The correct answer is: Beneficiary. In a trust deed, the lender is the beneficiary.
Which of the following clauses would prevent a mortgage from being assumed by a subsequent buyer? Select one: a. Condemnation clause b. Defeasance clause c. Due-on-sale clause d. Right of first refusal clause
The correct answer is: Due-on-sale clause The due-on-sale clause, legally referred to as the alienation clause, allows the lender to demand immediate payment of the entire debt if the title to the property is transferred (sold). This would prevent an assumption without lender approval.
A developer divides his property into 5 separate building lots. He pledges all 5 as security for a loan to obtain money for construction of a house on each parcel. When he sells one lot, with improvements, the bank will release that particular lot from the security so that the developer may convey title to the new purchaser. The loan obtained by the developer could be described as which of the following: Select one: a. Package mortgage. b. Blanket mortgage. c. Wraparound mortgage. d. Open mortgage.
The correct answer is: Blanket mortgage. Blanket mortgages cover more than one piece of property. A blanket mortgage usually contains a partial release clause described in the question.
When more than one piece of property is pledged as collateral to secure a loan, what type of mortgage is created? Select one: a. Blanket. b. Package. c. Purchase money. d. Balloon.
The correct answer is: Blanket. A blanket mortgage is one which covers more than one piece of property: several lots, for example.
Which of the following types of mortgages would normally allow a builder to remove a lien from a lot? Select one: a. Package. b. Blanket. c. Wraparound. d. Open end.
The correct answer is: Blanket. A blanket mortgage would usually have a partial release clause allowing a builder to pay off a prescribed amount of the loan to remove a lien from a lot so that the builder could give clear title to the buyer. Remember a blanket mortgage covers more than one piece of property.
A defeasance clause in a mortgage will take effect when the: Select one: a. Borrower defaults. b. Lender defaults. c. Lender forecloses. d. Borrower repays the entire debt.
The correct answer is: Borrower repays the entire debt. The defeasance clause is a promise by the lender, to return legal title to the borrower, when the debt is paid in full.
In making mortgage loans, the policies of the financial institutions making these loans are LEAST likely to be influenced by: Select one: a. Availability of other investments to the institution. b. Potential future value of the property. c. Borrower's income. d. Borrower's need for the loan.
The correct answer is: Borrower's need for the loan. The borrower's need for the loan would be the LEAST likely to influence the lending policies of a financial institution.
Usury laws, established by each state, provide for the protection of: Select one: a. Sellers. b. Lenders. c. Borrowers. d. Licensed real estate brokers and salespersons.
The correct answer is: Borrowers. Usury laws establish the maximum amount of interest that may be charged, not just in real estate but in any type of credit extension, such as credit cards, auto financing etc. The purpose of usury laws are to protect the borrower.
What is the advantage to a borrower if he chooses to make bi-weekly mortgage payments instead of monthly payments? Select one: a. Reduction of property taxes. b. Reduction of the amount of interest paid over the life of the loan. c. The loan is paid off sooner. d. Both reduced total interest costs and paying off the loan sooner are advantages.
The correct answer is: Both reduced total interest costs and paying off the loan sooner are advantages. In a bi-weekly payment plan you make 26 payments of half the monthly amount, for the equivalent of 13 monthly payments. This pays the loan off sooner and results in reduced total interest costs for the loan.
Which would NOT be included in a land sale installment contract? Select one: a. Monthly payments made to the seller b. Interest to be paid on the loan balance c. Buyer to receive equitable title to the property d. Buyer to receive a deed to the property at closing
The correct answer is: Buyer to receive a deed to the property at closing Buyers do not receive the deed at closing. Buyers receive legal title through the deed only after the contract is paid off some time in the future. The buyer does receive "equitable" title (C) (the right to get title in the future after the contract has been paid off). Usually the buyer makes monthly payments directly to the seller (no lender is involved) (A) which include principal and interest (B).
To determine qualifications of a VA loan applicant, a lender will consider: Select one: a. Rank, while in service. b. Income stream created by the subject property. c. CRV of the property being purchased. d. Dates the applicant served in the military.
The correct answer is: CRV of the property being purchased. The question is asking about loan qualification, not eligibility. The dates of service in the military can be significant because the length of service required to be eligible for VA loans varies according to when the service occurred.
What type of loan would probably have an 80% LTV ratio? Select one: a. Conventional. b. VA. c. FHA. d. Conventional guaranteed.
The correct answer is: Conventional. Usually an 80% loan would be a conventional loan. FHA insured loans can have a higher LTV ratio on owner occupied homes. VA guaranteed loans may be up to 100%. Conventional guaranteed is a meaningless term.
When computing property basis, which of the following is NOT added to the acquisition cost? Select one: a. Cost of adding more room. b. Cost of adding central air conditioning. c. Closing costs of purchase. d. Cost of repairing central air conditioning.
The correct answer is: Cost of repairing central air conditioning. Repair costs do not affect the basis of the property. The other choices do.
When buying a home with a VA loan, the buyer: Select one: a. Could pay more than the appraised value. b. May borrow the money needed for the down payment from a relative. c. Does not need to occupy the property. d. Must be at least 21 years of age.
The correct answer is: Could pay more than the appraised value. A buyer on a VA loan has the privilege of paying in cash, the difference between the appraisal (CRV) and the sales price, but may NOT borrow, from any source, the money needed to make up the difference. One of the VA requirements is that the buyer must occupy the property.
When a mortgagor has paid his debt in full, he is said to have defeated the mortgage. Which legal document is used to record the fact that the mortgage has been paid? Select one: a. Defeasance statement. b. Deed of release. c. Disclaimer. d. Novation certification.
The correct answer is: Deed of release. When the mortgage has been paid in full, the debt has been defeated or satisfied. The lender would prepare a deed of release to remove the lien.
Who pays discount points on a VA loan? Select one: a. Buyer. b. Seller. c. Agent. d. Either buyer or seller, as agreed between them.
The correct answer is: Either buyer or seller, as agreed between them. Either the buyer or the seller may pay the discount points.
A lender offers new home financing at an interest rate of 7.95%. When asked to sign the Truth-in-Lending disclosure statement the borrower notices that the APR is shown as 8-1/4%. The APR can be higher than the quoted rate because of: Select one: a. Points paid by the seller. b. Attorney fees. c. Points and the loan origination fee paid by the buyer. d. Assessments charged by the Homeowners Association.
The correct answer is: Points and the loan origination fee paid by the buyer. The APR shown on the disclosure statement includes ALL of the financing charges and costs that the BORROWER must pay to obtain a loan. When the lender adds the other costs to the quoted interest rate the true APR will result in a higher number. Fees paid by the seller are not included in the computation.
Lenders charge points to grant loans. Which of the following statements is NOT true regarding points charged? Select one: a. It increases the yield to the lender. b. Points are charged on the basis of the selling price. c. A point is the same as 1% of the loan amount. d. The number of points a lender charges is negotiable.
The correct answer is: Points are charged on the basis of the selling price. Each point is 1% of the LOAN amount (not the sales price) and increases the yield to the lender over and above the loan interest rate. Points vary from lender to lender, so are negotiable.
The covenants in a mortgage require that the mortgagor do all of the following, EXCEPT: Select one: a. Pay real property taxes. b. Maintain the property in good condition. c. Make payments of principal and interest. d. Protect the lender with a life insurance policy.
The correct answer is: Protect the lender with a life insurance policy. The borrower is NOT required to have life insurance. He must have fire and hazard insurance to protect the lender. There could be instances when a lender would require a life insurance policy, but it is not normally a requirement.
One of the functions of the FHA is: Select one: a. Build homes. b. Plan homes. c. Provide insurance protection to lenders. d. Loan money to qualified borrowers.
The correct answer is: Provide insurance protection to lenders. The purpose of the FHA, when it was established, was to set standards of construction for houses. Also, to provide insurance protection for lenders, thus making possible low down payment and low interest loans for qualified buyers.
On an FHA insured loan, the money is provided by: Select one: a. The Federal Housing Administration. b. Qualified lending institutions. c. The FDIC. d. The Federal Treasury.
The correct answer is: Qualified lending institutions. The money for the loan comes from a qualified lending institution, the FHA insures the lender against loss. The FHA does NOT loan money to finance the purchase of property.
If a homeowner is in default on mortgage payments, the lender may foreclose. The right of the mortgagor to regain title by payment of all debts is known as the equity of: Select one: a. Revestment b. Reversion c. Redemption d. Release
The correct answer is: Redemption The foreclosed mortgagor (borrower) has the right to redeem his property after the foreclosure process has started, if he pays the debt and expenses.
Brian has a mortgage and is paying 11% interest on the note. He obtains a new loan with an interest rate of 10% and pays off the old loan. This process is known as: Select one: a. Foreclosure. b. Refinancing. c. Redemption. d. Subrogation.
The correct answer is: Refinancing. What is described above is refinancing. This is a very common practice during periods of falling interest rates. Owners with high rate mortgages, pay them off and obtain a new loan at a lower fixed rate.
By including an exculpatory clause in a mortgage contract, the lender? Select one: a. Waives her right to escalate the interest rate. b. Releases the borrower from personal liability. c. Agrees to permit an assumption to a qualified buyer. d. Grants the borrower immunity from foreclosure.
The correct answer is: Releases the borrower from personal liability. An exculpatory clause releases the borrower from personal liability in the event of a foreclosure.
A mortgage in which payments are made from the mortgagee to the mortgagor is a: Select one: a. Reverse mortgage. b. Amortized loan. c. Budget mortgage. d. Shared appreciation mortgage.
The correct answer is: Reverse mortgage. In a reverse mortgage, the mortgagor (the lender) makes payments to the mortgagee (the borrower).
When a mortgage has been completely paid off it is known as: Select one: a. Estoppel b. Satisfaction c. Release d. Redemption
The correct answer is: Satisfaction Mortgage satisfaction denotes the payment of all principal and interest due. The lender executes a release deed to remove the obligation from the public records.
A seller sells her home to a buyer who purchases the property "subject to" the existing loan. If the buyer defaults, who is liable for the balance of the debt? Select one: a. Seller b. Buyer only c. Seller and buyer jointly d. Seller and buyer jointly and severally
The correct answer is: Seller When a buyer purchases property "subject to" the existing loan, the seller alone remains responsible to the lender for the repayment of the debt. The agreement is between the seller and the buyer and the lender may not even be involved.
A seller sells her home to a buyer who assumes her existing loan. If the buyer defaults, who is responsible for the balance of the debt? Select one: a. Seller only b. Buyer only c. Seller and buyer jointly d. Seller and buyer jointly and severally
The correct answer is: Seller and buyer jointly and severally When the buyer "assumes" the existing loan of the seller, the seller remains a co-maker on the note with the buyer, thus both the seller and the buyer are jointly (both) and severally (individually) liable to the lender for the debt, unless the seller is able to get a release of liability from the lender, which this question did not specify.
Which of the following is the mortgagee in a purchase money mortgage? Select one: a. Lending institution. b. Seller. c. Veterans Administration. d. Federal Housing Administration.
The correct answer is: Seller. A purchase money mortgage is described as one in which the seller "takes back" all or part of the sales price of the property in the form of a mortgage. The seller becomes the lender and is therefore the mortgagee. The correct answer is: Seller.
Under Truth-in-Lending, full disclosure of all financing terms is required. Which of the following could be omitted and NOT violate the regulation? Select one: a. Interest rate. b. Number, amount and frequency of payments. c. Amount of the down payment. d. Selling price of the property.
The correct answer is: Selling price of the property. The selling price of the property is NOT required under the Truth in Lending Act. It will show up in other documents.
If an individual defaults on a $100,000 mortgage and only $95,000 is received by the lender as a result of a court-ordered sale (foreclosure), which of the following is true? Select one: a. The lender must file a $5,000 judgment against the person who purchased the property. b. The lender may be entitled to a $5,000 judgment against the original borrower. c. The lender cannot recover the $5,000. d. None of the above.
The correct answer is: The lender may be entitled to a $5,000 judgment against the original borrower. In the situation described, the lender could file for a deficiency judgment against the original borrower and could recover the full amount, depending on the borrower's other assets and the law of the particular state.
A buyer purchased a property from a seller and assumed the seller's loan. The seller wanted to be released from liability on the loan. Which of the following would accomplish this for the seller? Select one: a. The seller would have to sign a release of liability b. The lender would have to sign a release of liability c. The seller would need to note the release of liability in the sales contract d. The buyer would have to sign a release of liability
The correct answer is: The lender would have to sign a release of liability (B) The lender is the one who has to give a release of liability on an assumption of a loan - called a novation. (A) The seller signing a release, (C) the seller noting the release in a contract and (D) the buyer signing a release are all false as only the lender can give a release of liability on the loan.
Lenders charge "points". A "point" is considered to be 1% of: Select one: a. The selling price. b. The appraised value. c. The loan amount. d. The listed price or assessed value, whichever is lower.
The correct answer is: The loan amount. Points are charged by lenders. They are always calculated on the LOAN amount; not on the selling price, the listed price, or the appraised value.
Who holds the security for a mortgage loan? Select one: a. The grantor b. The grantee c. The mortgagor d. The mortgagee
The correct answer is: The mortgagee The security for the loan is the real property which is pledged in the mortgage document. The mortgage document is held by the mortgagee (lender).
If the mortgagor is in default on their mortgage payments, what is the legal process available to the mortgagee to collect? Select one: a. The mortgagee would obtain a power of attorney. b. The mortgagee would obtain an estoppel certificate. c. The mortgagee would obtain a satisfaction piece. d. The mortgagee would obtain a judgment causing foreclosure.
The correct answer is: The mortgagee would obtain a judgment causing foreclosure. The legal remedies for disposing of a property in default (the borrower defaults on the loan) would be by a foreclosure sale. The lender obtains a personal judgment and the court orders the foreclosure sale.
The loan contingency contained in an offer to purchase will contain all of the following EXCEPT: Select one: a. The loan amount. b. The rate of interest. c. The name of the financial institution. d. The date of the commitment.
The correct answer is: The name of the financial institution. The loan contingency in an offer states...."we will buy the house at the price specified and will pay for it by obtaining a loan for $........, at ....% interest with monthly payments of $......" and the offer is dated. The one thing not required and often not even known at the time of the offer is where the money will come from (the lending institution).
When a buyer wishes to finance a home purchased with an FHA insured loan, which of the following assurances does FHA provide? Select one: a. The property passed FHA inspection. b. The property cannot be condemned in the future. c. The area is not segregated. d. All of the above.
The correct answer is: The property passed FHA inspection. FHA only insures loans made to qualified borrowers after FHA or assigned appraisers have inspected the property. No assurances can be made about condemnation (a government action) or lack of segregation in the area.
Who holds the security in a deed of trust? Select one: a. The trustor. b. The mortgagor. c. The beneficiary. d. The trustee.
The correct answer is: The trustee. In this question we are talking about a deed of trust, NOT a mortgage. The security is held by a neutral third party known as the trustee. With a deed of trust, the mortgagor (borrower) is called the trustor and the mortgagee (lender) is called the beneficiary.
When would the defeasance clause in a mortgage take effect? Select one: a. When the entire debt is repaid b. When the borrower misses one payment c. When the borrower sells the property for less than the amount of the existing loan d. When the property is destroyed by natural causes
The correct answer is: When the entire debt is repaid The defeasance clause will take effect when the promissory note has been paid in full, thus defeating the mortgage. The acceleration clause allows a lender to call the entire loan balance if the buyer defaults. Alienation clause (due on sale) allows the lender to do the same thing if the buyer conveys (alienates) the property.
Mike has sold his home to Phil under the following conditions. Mike will remain responsible for his existing 6%, $15,000 loan. Phil will give Mike a note for the total purchase price of $95,000 at 10%. The mortgage created could be defined as: Select one: a. Blanket mortgage. b. Combination mortgage. c. Open-end mortgage. d. Wraparound mortgage.
The correct answer is: Wraparound mortgage. In this instance, Phil is making one payment to satisfy more than one loan. This is an example of a wraparound loan.
A clause in a mortgage releasing the indebtedness once the loan is paid off is: Select one: a. defeasance b. subrogation c. exculpatory d. non-disturbance
The correct answer is: defeasance "Defeasance" is a "null and void" clause which states that the mortgage is void after the note has been paid. The lender usually then issues a mortgage release which is recorded. "Subrogation" (B) is to sign over rights to an insurance company after receiving payment for a claim. The exculpatory clause is not testable. A "non-disturbance" clause is placed in a mortgage when the lender agrees not to disturb existing leases if forced to foreclose on the landlord.
A loan company was referring loan applicants to a particular insurance company which in turn paid the loan company a referral fee. This is: Select one: a. legal as long as it is a set fee and not based on the amount of business referred b. legal as long as the loan company does not require a loan applicant to purchase insurance from a particular company c. illegal since the Real Estate Settlement Procedures Act prohibits kickbacks d. illegal due to the Truth in Lending Law (Regulation Z)
The correct answer is: illegal since the Real Estate Settlement Procedures Act prohibits kickbacks RESPA prohibits the paying of referral fees or kickbacks. It cannot be paid regardless of how the fee is set (A). Even if the applicant can "shop around ,"referral fees are illegal for a lender to receive (B). The truth in lending law requires lenders to disclose all loan costs to borrowers. It, in and of itself, does not deal with whether referral fees can be paid.
