Real Estate Finance Exam 3

Ken and Sue are purchasing a home but are short on the down payment required by their lender. Sue's mother offered to give them cash to help with the down payment. How much can Sue's mother give under current tax laws?

$30,000

What is the formula for calculating the total debt ratio?

(Monthly debt payments ÷ gross monthly income) × 100

What is a collateralized mortgage obligation?

A debt security holder

What is the HECM program?

A form of reverse mortgage insured by the FHA

Vantagestar Ltd. would like to construct a high-end condominium complex. Where will they likely go for financing this project?

A life insurance company

Larry is a lender processing a loan application. Which of the following might he request to verify the applicant's bank deposit information?

Account statement

The ______ clause is also known as a due-on-sale clause.

Alienation

Assuming a CMO uses the sequential pay structure, how is interest passed through from borrowers paid to investors?

All tranches receive interest payments.

What is an appraisal?

An opinion or estimate of a property's value as of a specific date

Which of the following is true about the Federal Housing Administration's qualifying standards for a mortgage loan?

Are somewhat less stringent than standards for conventional loans

When completing a loan application, applicants must list any items of value they own. What's another term for these items?

Assets

Which of the following is a likely effect when the discount window is closed?

Banks don't have access to additional funds.

Which of the following represents a potential concern when borrowing funds from a pension or retirement plan?

Borrowing without consulting a financial expert can result in unintended consequences, such as income tax liability and loss of retirement income.

Which of these items is a liability on a residential loan application?

Child support

When obtaining a mortgage to purchase a home, for what does the borrower use the property?

Collateral

If you have a specific health issue, which of the following is most critical for you to thoroughly investigate when selecting health insurance?

Covered events

Farmer Mac is an entity that ______ for agricultural property loans, rural utility loans, and certain loans guaranteed by the U. S. Department of Agriculture.

Creates a secondary market

Percy is buying a home with an FHA loan. He uses the ______ to borrow enough money to cover the cost of replacing most of the windows in the home, which will improve its energy usage by 15%.

Energy Efficient Mortgage

In an installment sales contract arrangement, the seller retains legal title until the contract is paid in full. What type of title does the buyer retain during the contract fulfillment period?

Equitable

The ______ clause protects the borrower's assets that aren't part of the voluntary lien from a deficiency judgment in case of foreclosure.

Exculpatory

Federal Home Loan Bank is regulated by what agency?

Federal Housing Finance Agency

Which process temporarily stalls foreclosure?

Filing for Chapter 7 bankruptcy

Community Banks is being sued for intentionally violating the Truth In Lending Act. What fines and imprisonment possibilities can the company face?

Fines up to $5,000 and up to a year of imprisonment

Robbie's lender notified him of an impending foreclosure, and told Robbie that his property will be sold at public auction. After the auction occurred, he receives a notice of eviction for which the lender had to petition a court. What does this describe?

Foreclosure by advertisement

Which type of loan is insured by the Federal Housing Administration?

Government

Scott has plenty of money saved and is ready to make a down payment on his $14 million dream home. One problem: Scott doesn't want to end up with a jumbo loan because he goes over the conforming loan limit. What option does Scott have?

He can take out a piggyback loan.

Veronica is an independent contractor, so in addition to setting aside money for an emergency fund in case there is a lapse in her income, she knows that she must save money to pay for ______.

Her income taxes

Which of the following was created as part of the Homeowner Affordability and Stability Plan?

Home Affordable Modification Program (HAMP)

Which of the following is a risk most associated with wholesaling as a real estate investment strategy?

Inability to immediately resell the property for a profit

As interest rates fall, what is the number of buyers in the market likely to do?

Increase

What is the purpose of the request for verification of employment?

It allows the lender to verify the employment listed on the applicant's loan application.

Which of the following describes a mechanic's lien?

It's a specific involuntary lien.

Armitage Bank is placing the Kellermans in default for failure to pay their homeowners insurance. The lender is concerned about property damage and ______.

Judgment liens

Private loan companies may place a ______ on the property for which the loan is being taken.

Lien

When an adjustable rate mortgage (ARM) makes its initial adjustment, it does so to its fully indexed rate. What makes up the fully indexed rate?

Margin plus index

Who originates their own loans?

Mortgage bankers

The ______ is where the borrower finds details about how, when, and by how much the interest rate will change in an adjustable rate mortgage (ARM).

Mortgage note

Why is it a good idea for real estate licensees to carry auto insurance?

Most states require it and it's recommended for all real estate licensees.

Which type of bond is used to pay for community improvements?

Municipal bond

Which organization manages and charters credit unions?

NCUA

Special mortgage loan programs for ______ include the FHA248 and HUD 184 programs.

Native Americans living on tribal land

Yancey purchased a home six months ago using a VA loan. Due to an inheritance, he is suddenly able to pay off his mortgage. Will he pay a pre-payment penalty?

No

Which of the following is NOT a benefit government-sponsored enterprises receive?

Non-profit status

To qualify for the FHA Streamline Refinance program, a homeowner must ______.

Not be delinquent on mortgage payments

Borrowers must list their liabilities when completing a residential loan application. What are liabilities?

Obligations a borrower owes

Which HUD program is responsible for developing and enforcing federal fair housing policies and laws?

Office of Fair Housing and Equal Opportunity

Which type of partnership may involve several mortgagors financing a multi-family dwelling?

Partnership among mortgagors

Besides interest paid over the life of the loan, what responsibility does the buyer have to the lender in a real estate transaction that requires financing?

Pay loan-related closing costs

Landon will pay interest over the life of his 30-year loan. What other responsibility does he have to lender Marco when he finances his loan?

Pay loan-related closing costs

Which of these is an appropriate use of a credit card?

Paying off credit card balances in full each month

Which interest rate do banks use to offer consumer loans?

Prime rate

Which of the following resources are extremely helpful when working with investors?

REIT analysts and bond rating agencies

Which act ensures a buyer in a residential transaction that's financed by a federally related mortgage loan has knowledge of all settlement costs?

RESPA

What does REIT stand for?

Real estate Investment trust

The ______ account is a recommended component of a personal financial plan that should be started as early as possible and contributed to throughout your working life.

Retirement

Tara has made an offer on a home and is completing the loan application. Which of the following is an asset that she'll list?

Savings account with a balance

More than 70% of the assets of mutual savings banks are derived from ______.

Savings accounts

Which act exempted homeowners from paying taxes on capital gains up to a specified value?

Taxpayer Relief Act of 1997

Which of the following was created as a result of the Housing and Economic Recovery Act?

The Federal Housing Finance Agency

Sarah is selling her home and must provide proof of ownership. She's received an abstract of title. Which of the following statements is NOT correct?

The attorney's opinion provides a guarantee of title.

Select the choice that best translates this clause into plain English. "Any partial prepayment shall be applied against the principal amount outstanding and shall not postpone the due date of any subsequent monthly installments or change the amount of such installments, unless the Note holder shall otherwise agree in writing."

The borrower is allowed to prepay the loan without penalty.

What is the most likely effect when the Fed buys securities on the open market?

The economy may grow due to an increased money supply.

Page four of the Closing Disclosure includes consumer education about ______.

The use of an escrow account

When does the need for mortgage insurance end for a borrower who has a VA loan?

There is no mortgage insurance requirement for a VA loan.

Which of the following statements is true about active real estate investments?

They require an effort to make a profit.

Which of the following will be issued only if title is acceptable and an attorney provides a certificate of title opinion?

Title insurance policy

Monica is selling her house. Her appraiser, Tom, is using a title search method that only looks back as far as when the last title search was performed. The method he's using assumes the last search was done accurately and legally, and that any issues were resolved. Which method is Tom using?

Torrens system

What standards do appraisers follow?

Uniform Standards of Professional Appraisal Practice

What must a prudent lender do with the information received on a loan application?

Verify it.

Is a homeowner with an FHA loan allowed to obtain a second mortgage?

Yes, if the total of the first and second mortgages is within the maximum loan to value ratio

In which of the following situations is a catastrophic health insurance plan the most reasonable choice?

You have excellent health and get regular check-ups

ohn uses the VA home loan to purchase property. His mortgage is $200,000. Then, two years later, John defaults on his loan. How much will the VA reimburse the lender?

$50,000

Your client, Judy, with a credit score of 620, has been approved for an FHA loan for a home with a sales price of $200,000. What is the minimum down payment that will apply?

$7,000

Edward is an economic analyst. In his work, he keeps a particularly close eye on this industry, because action or inaction here is a leading indicator of the country's overall economy. Which industry is this?

Construction

Freddie Mac targets which type of loans to purchase?

Conventional

With a VA loan, the certificate of reasonable value is used to ______.

Determine the value of the loan that the VA will guarantee

Which government entity oversees open-market operations?

Federal Open Market Committee

Which of the following statements related to 1031 tax-deferred exchanges is true?

Foreign investors may participate.

Kobi, an appraiser, is appraising a single-family home used for a rental. If he wants to use the income approach, which of the following will come into play?

GRM

The Government National Mortgage Corporation was created in 1968 under the Department of Housing and Urban Development (HUD) and is more commonly known as ______.

Ginnie Mae

Lewis is reviewing his Loan Estimate and notices under "Other Costs" that there are items listed that don't include an amount. What does this mean?

Lewis should ask his lender about it.

Which of the following is a passive type of real estate investment?

Limited partnership

Martha and Ben are selling their home to Linda and her three kids. They've purchased title insurance for obtaining insurance of good title. Whom does the title insurance protect?

Linda and her kids

Kendra is purchasing a home and is ready to find a lender who will give her terms that she can afford. What lender-issued document can she use to compare loans and find the one that will best meet her needs?

Loan Estimate

Which of the following entities commonly acts in the primary market?

Local credit union

What's the price at which a willing buyer and a willing seller would strike a deal given normal market conditions?

Market value

When borrowers fail to pay property taxes, allow their property to go into disrepair, or ______, they could face loan default.

Miss scheduled mortgage payments

Julia is trying to buy a house and is going through the loan application process. As part of the process, her credit score was run. Which of these issues would harm her score?

Missed payments

Which act temporarily removed the requirement that taxpayers whose homes were sold as a result of a foreclosure had to include the loan write-off amount as taxable income?

Mortgage Forgiveness Debt Relief Act of 2007

Which type of real estate investment trust involves both residential and commercial properties?

Mortgage REIT

The section on the Loan Estimate called "Services You Cannot Shop For" includes fees for services ______.

Performed by a third party that the lender selects

If Jeff is healthy and always has excellent check-ups, which of the following would likely be the most important factor in his insurance selection?

Premiums

Bob just sold his investment property. Which taxes will apply?

Recaptured depreciation and capital gains

FHA-insured loan programs cover all of the following EXCEPT ______.

Recreational vehicles

The amount of money a member bank must keep on deposit at its reserve district bank describes ______.

Reserve requirements

Where can a party reviewing a title commitment find requirements that must be met before a title insurance policy will be issued?

Schedule B‒Section I

Which of these items did the Federal Housing Administration (FHA) implement to stabilize and improve the mortgage market?

Set construction standards for homes purchased with FHA loans

Which of the following types of residential dwellings do life insurance companies purchase from the secondary mortgage market?

Single-family on one lot

Unit of account, medium of exchange, and what other factor define money?

Store of value

______ make homeownership available for many who otherwise could not qualify for a mortgage loan.

Subprime lenders