Real Estate Finance Missed Questions
Licensee Lynn has several accounts set up as part of her personal financial plan to help her manage cash flow. She's allocated 10% of each commission check to business expenses, 15% to taxes, 8% to her retirement fund, 12% to various savings goals, and the rest goes to her living expenses. When she receives a check, how does she direct the funds?
After depositing it in her business checking account, she puts 90% of it in her personal checking account to be distributed to the other savings accounts as appropriate.
Molly's father has a service-related disability. He lives with Molly and her family in a home that she owns. Can funds from a VA-specific housing grant be used to modify Molly's home to accommodate her father's disability?
Yes, the smaller Special Housing Adaptation grant may be used to adapt a home owned by a family member where the eligible veteran lives.
Kendra has applied for a loan from Acme Savings and Loan, but when she compares the Loan Estimate the loan officer gave her with the one from Best Bank, where she also applied for a loan, she decides she'd rather go with the loan from Best Bank. Which of the following is a true statement about this situation?
The Loan Estimate expires in 10 business days if Kendra doesn't tell Acme Savings and Loan that she wants to move forward with it.
Sylvia is a single mother living in a small town surrounded by ranch and farm land. She would like to buy a house there, but her income level and her status as an independent contractor makes it hard for her to qualify for a conventional loan. What government program might provide her with a direct loan to purchase a home?
USDA Rural Development Single Family Housing Program
Nadia uses a VA loan to buy a house for $125,000. She wants to buy the neighboring property, an empty lot, so she can improve the house using the extra land. The lot is for sale for $135,000. Can she use a VA loan for this purchase?
Yes, she should have partial entitlement left.
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
Who or what entity directs the activities of credit unions?
A board of directors
What is a collateralized mortgage obligation?
A debt security holder
What is an encumbrance?
A defect on a title that can be monetary or physical
Vantagestar Ltd. would like to construct a high-end condominium complex. Where will they likely go for financing this project?
A life insurance company
A foreclosure occurs January 1, 2016. Of the following, which lien takes priority?
A property tax lien filed January 1, 2014
What is a carryback loan?
A second loan financed by the seller
Assuming a CMO uses the sequential pay structure, how is interest passed through from borrowers paid to investors?
All tranches receive interest payments.
When a buyer takes over the seller's original loan with the lender's permission, this is called ______.
An assumption
Andrea's lender has notified her of its intent to foreclose. Her loan is secured with a deed of trust. What rights does she have to redeem her property?
Andrea can cure the default and reinstate the loan.
A standardized measure for interest rates and other costs of the loan is called _______.
Annual percentage rate
A short-term security issued by the Treasury that has a maturity term of one year or less is called a Treasury ______.
Bill
In a deed of trust, who is the trustor?
Borrower
Who's the mortgagor in a mortgage?
Borrower
Which of the following is an event that has a direct impact on property?
Builders required by the state to recycle aluminum during demolition
Under which section of the Loan Estimate will you find any credits provided by the seller?
Calculated Cash to Close
Which of these individuals may benefit from USDA Rural Development program offerings?
Community-managed lenders
Which of the following is NOT part of the Other Considerations section of the Loan Estimate?
Comparisons
The ______ uses education, enforcement, and research to promote fairness and transparency for consumer financial services.
Consumer Financial Protection Bureau
Which entity sets the requirements for qualified mortgages?
Consumer Financial Protection Bureau
Craig's loan is secured by a mortgage. Who holds legal title when this security instrument is used?
Craig
Because of the Mortgage Disclosure Improvement Act, the only advance fee that a creditor can charge to a consumer before providing required loan disclosures is a(n) ______ fee.
Credit report
Which of the following actions did the Federal Reserve take in response to the 2007 financial crisis?
Decreased rates
Which of the following is a true statement about tranches?
Each tranche has specific rules for distributing income received from the collateral, and has differing balances, maturities, and risks.
Chapter 5 of the Texas Property Code set requirements and penalties for ______.
Executory contracts
The ______ is a government-sponsored enterprise that works through a cooperative system to provide agricultural and rural loans.
Farm Credit System
Farm and Country Bank provides credit to the farmers, ranchers, and other rural residents of its community. What government program helps the bank maintain enough capital to fund those loans?
Farmer Mac
Which entity provides disclosures and public information about the financial condition of FCS?
Federal Farm Credit Banks Funding Corporation
Which entity regulates government-sponsored enterprises?
Federal Housing Finance Agency
Morris still owes his lender for the financing obtained in purchasing his home. Several years later, Morris took out a home equity line of credit. This means that ______.
If Morris is foreclosed on, the home equity line of credit won't be paid until Morris's first loan is paid off
What's the purpose of a typical subordination agreement?
It allows a junior mortgage to move into first lien position.
Which type of support does the USDA Rural Development Program offer to its target audience of rural residents
It offers direct loans, grants, and loan guarantees for housing and other rural needs, as well as advisor services to agricultural producers.
Which of the following describes a mechanic's lien?
It's a specific involuntary lien.
What is the name for a loan that creates a lien against property that already has been pledged as collateral?
Junior loan
What type of provision is standard with either the mortgage or the deed of trust, but is included in the promissory note rather than the security instrument?
Late charge
Which of the following clauses is included in Fannie Mae's multi-state note?
Late charge
In a deed of trust, who is the beneficiary?
Lender
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 items directly influences real estate demand?
Loan availability
Conforming loan limits vary based on two factors: the number of units being purchased with the property and what else?
Location
Maggie has a neighbor, Jim, who is facing foreclosure. She likes Jim and wants to help him out, so they agree to do a "subject to" purchase. What does this mean?
Maggie will take over Jim's loan payments without telling his lender she's doing so.
Which of the following is the best example of the economic principle of leveraging, as it applies to a real estate transaction?
Making a down payment
The Morris family home went into foreclosure December 15, 2016, and sold January 1, 2017. Their contractor had begun work on May 15, 2015, and was not paid, and finally filed a mechanic's lien on October 1, 2016. What date will be used for lien priority for the mechanic's lien?
May 15, 2015
Financing for a real estate transaction can use a note with a ______ or a note with a deed of trust.
Mortgage
Babs is buying Kirk's property. Babs needs help with the down payment, and Kirk offers to supplement Babs' bank loan with a second loan, allowing her to meet her lender's down payment requirements. Which finance instrument(s) may be used for the agreement between Babs and Kirk?
Mortgage or deed of trust
Both the Housing and Economic Recovery Act and the American Recovery and Reinvestment Act funded a program called the ______ program, which provided emergency assistance grants to states to purchase and redevelop foreclosed and abandoned homes and residential properties.
Neighborhood Stabilization
Which is one of the benefits of the USDA loan program?
No down payment is required.
Which of the following is NOT a benefit government-sponsored enterprises receive?
Non-profit status
Lisa, a seller, is providing Darwin, a buyer, with a seller second on the purchase of her property. Darwin's conventional lender uses a note with deed of trust to secure the first loan. What instrument is Lisa most likely to use for her second loan with Darwin?
Note with deed of trust
In which phase of the real estate market would you expect to see properties selling for more than they're worth, many buyers in the market, and lots of new construction?
Over supply
Leslie has applied for a loan modification. As part of the process, her lender will likely ______.
Perform a title search
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
Which clause is standard in a deed of trust and affects the foreclosure process that can be used if the borrower defaults?
Power of sale
Which of the following made mortgages attractive investments in the early 2000s?
Price of homes relative to anticipated future value
Assuming a CMO uses the sequential pay structure, how is principal passed through from borrowers paid to investors?
Principal payments are only made to the first tranche until it retires, then to the second tranche, and so on.
Violet purchased a house from Nick, and assumed the existing loan. Nick wants to make sure he isn't liable if Violet ever defaults. What can he do to remove his name from the loan agreement?
Request a novation
How do falling interest rates impact investors in mortgage-backed securities?
Returns on investments decrease.
When interest rates increase, what is the impact on mortgage-backed security investors?
Returns on investments increase.
Which of the following types of residential dwellings do life insurance companies purchase from the secondary mortgage market?
Single-family on one lot
Krista is obtaining a loan to buy a home. Her loan agreement consists of one document called a note and one called a deed of trust. What's the role of the note?
States who owes money to whom, how much, and how it will be repaid
Regina has defaulted on the terms of her mortgage, and now her lender has foreclosed. The property was sold at a sheriff's sale three months ago. Regina suddenly learns that she has inherited a great deal of money. She wants her property back. Under a judicial foreclosure, what right might allow her to buy her property from the winner of the foreclosure auction?
Statutory right of redemption
Which agency regulates FHLBanks?
The Federal Housing Finance Authority
Maria is a borrower reviewing her Closing Disclosure. She notices that the appraisal fee is listed under "Paid by Others" and has an L listed with the amount. What does this mean?
The L indicates that the creditor pays the item at consummation.
Which act establishes general requirements that state agencies must follow when adopting rules or conducting contested cases?
The Texas Administrative Procedures Act
The signature lines on the multi-state Fannie Mae promissory note are set up for ______ to sign.
The borrower
Which of the following is a potential concern of a buyer who's entering into a contract for deed with a seller?
The buyer could lose the property after missing only one mortgage payment.
Page one of the Loan Estimate includes a section called "Costs at Closing." The amount shown as estimated cash to close is ______.
The estimated amount the client will pay by cashier's check or wire transfer at closing
How does a 3-2-1 buydown work?
The interest rate starts low but increases by 1% each year for three years until it reaches the rate stated in the note.
Which of the following is a true statement about when a promissory note is sold?
The promissory note is endorsed to the new owner of the loan.
Which of the following describes the federal funds rate?
The rate at which a bank can obtain a loan from another bank
What program allowed the U.S. Treasury to spend hundreds of billions of dollars to stabilize our financial system, boost credit markets, help families avoid foreclosure, and promote economic growth?
Troubled Asset Relief Program
Which of the following statements is true about the Federal Reserve?
Twelve district banks comprise the Fed.
The ______ can offer direct loans to farmers and ranchers. The loans are funded by congressional appropriation.
USDA Farm Service Agency
Which government program assists rural Americans by offering loans, grants, and loan guarantees for housing?
USDA Rural Development
To be eligible for a ______, an applicant must have participated in farm or ranch management for at least three years.
USDA loan through the Farm Service Agency
A mortgage lien is a(n) ______ lien.
Voluntary and specific
Select the choice that best translates this clause into plain English. "Upon payment of all sums secured by this Mortgage, Mortgagee shall discharge this Mortgage without cost to Mortgagor. Mortgagor shall pay all costs of recordation, if any."
When the borrower has fully paid off the loan, the lender will record that the note is satisfied.
What's the most common way that a seller can help a buyer come up with the funds to complete a real estate transaction?
With a contract for deed
The American Recovery and Reinvestment Act provided mortgage assistance to ______.
Wounded servicemen and servicewomen
Brandon's home has been foreclosed on. He had an outstanding loan balance of $145,000, which he owed to his lender, XYZ Lending for a loan taken out in 2009. There's also a lien against the property recorded in 2014 for an unpaid student loan of $25,000, and a HELOC established in 2012 of $30,000, of which he'd used $10,000. If his foreclosure nets $150,000, how much will each creditor be paid?
XYZ Lending will receive $145,000, the HELOC lender will receive $5,000, and the lien holder for his student loan will not be repaid.
An intermediate-term security issued by the Treasury that has a maturity term of between two and 10 years is called a Treasury ______.
note
Your client, Ray, wants to purchase a home listed for $200,000. The home is in a revitalization area, and Ray can purchase it under the Good Neighbor Program. How much will he have to pay for the home?
$200,000, less 50%, plus $100
John 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
Millie and Jerry are purchasing a home using their VA loan benefit. The sales price is $320,000, with 100% financing. Assuming that Jerry has a typical level of entitlement, how much of their loan does the VA guarantee?
$80,000
Interest rates that are more than ______ over the current market rate are considered predatory lending.
5%
Homeowners over the age of ______ are eligible for the HECM program.
62
What's the most common ratio for borrowers who use split, or piggyback, mortgages?
80/10/10
Which of the following would be the best place to keep monies intended for long-term savings?
A certificate of deposit
How does the FHA control the use of 203(k) money loaned for repairs to a home?
A cost estimate must be provided prior to loan approval, and repairs are approved by an FHA inspector when completed.
What is a moratorium (or forbearance)?
A lender temporarily suspends a borrower's payments.
Barb is considering a refinance. She wants to stick with a conventional loan. Why might she be wary of an introductory rate?
After an initial low rate, her payments may increase beyond the level of affordability.
Paulina is buying her first house. Which of these costs will she NOT be expected to pay?
Agent's commission
Which of the following best describes a recourse mortgage?
Allows the lender to sue the borrower for damages if foreclosure occurs
Which of the following is a true statement about FHA financing?
An FHA loan is usually more attractive to borrowers who have lower credit scores and down payments.
For borrowers who already have an FHA loan, the Streamline Refinance program offers the benefit of ______.
An unlimited loan-to-value ratio
By when must a borrower be provided with a closing disclosure?
At least three days prior to closing
To qualify as a Texas veteran, a person must ______.
Be at least 18 years old
Chapo's property was foreclosed on and he is facing a deficiency judgment so the lender can recover losses incurred from the foreclosure process. What type of lien may the lender levy against Chapo until the losses are paid?
Blanket lien
How does Farmer Mac support agricultural producers?
By creating a secondary market for agricultural loans, making it possible for agricultural lenders to fund more loans
The ______ is provided by a VA-assigned appraiser.
CRV
Which of the following tells the lender how much entitlement the veteran has available under the VA loan program?
Certificate of eligibility
Fatima is using a VA loan to purchase a home from Sue. Sue agrees to pay Fatima's closing costs. Which of the following statements is true?
Closing costs aren't considered a seller concession.
Joe's applying for a mortgage that meets all of the Fannie Mae/Freddie Mac criteria. Based on this, how would we classify this loan?
Conforming
Which of the following is a true statement about an IRA?
Contributions to a SEP IRA are pre-tax contributions.
Jackson has received several inquiries on his credit report. Which of these inquires was one he did NOT initiate?
Credit monitoring
Andy is selling his home to Erika and Doug, who are using an FHA loan for the purchase. To facilitate the purchase, Andy can agree to pay ______.
Discount points to buy down Erika and Doug's interest rate
Which factor is NOT used to determine a FICO® credit score?
Employment history
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 of these transactions must comply with Appraiser Independence Requirements?
Four-unit residence being purchased with a conventional loan
One of the following entities is primarily a secondary market player. Which one?
Freddie Mac
Which of the following applicants fall within the guidelines for an FHA-insured loan?
Gena is a single mom with three kids. Her credit score is 620, her housing ratio is 29%, and her total debt obligations come to 40%.
A property owner has a mortgage that has a static interest rate, but monthly payments that increase over time according to a set schedule. What type of mortgage does the property owner have?
Growing equity
Which is a requirement for veterans to use the VA's Specially Adapted Housing grant?
Have permanent and total service-connected disability
A seller buydown can ______.
Help a borrower meet lender qualification standards
Which of the following specifies a requirement of pre-loan counseling for consumers?
Homeowner and Equity Protection Act
How do VA loan programs compute "residual income"?
Income minus shelter expenses and debts
Which of the following is the cost of replacing a building in the case of total loss?
Insured value
In the early years of a mortgage loan term, which portion of the payment is likely to be the largest?
Interest
For which of the following programs are veterans not required to submit a COE, get a new appraisal, or verify income?
Interest Rate Reduction Refinance
Your client has a VA loan and wants to refinance to a lower rate. Which of the following is likely the simplest option?
Interest rate reduction refinance
Which of the following best describes a blanket lien?
It gives lenders the ability to recover losses due to a foreclosure sale from any current or future property the borrower owns.
Lucas would like to be a homeowner, but his low credit score makes lenders unwilling to give him a mortgage. What makes the 203(b) loan a more likely option for Lucas to qualify for a mortgage?
It has less stringent qualifying requirements than a conventional loan.
Which of the following characteristics applies to a partnership between mortgagors?
It involves more than one mortgagor as owner, sharing responsibility for payment of a single mortgage.
Which of the following best describes the non-judicial foreclosure process?
It may be used if the deed of trust includes a power-of-sale clause.
David purchased a house three years ago for $300,000. Considering historical property value fluctuations, what is the likely value of the property today?
It's difficult to tell. Historically, property values fluctuate up and down in the short term.
Business expenses, personal expenses, and financial goals can all be tracked easily when you ______.
Manage cash flow through appropriate accounts
The interest rate on an FHA Section 251 loan is adjusted based on ______.
Market indices approved by the FHA
FHA county loan limits are based on ______.
Median price for the area and property type
Two examples of loan adjustments or modifications are recasting and ______.
Moratorium (or forbearance)
How can liens, such as those created by non-payment of federal income tax, result in mortgage default?
New liens can threaten the lender's position as primary lienholder. Default can occur for this reason.
A refinance is always a ______.
New loan
What percentage of closing costs can be included in a VA loan?
None
To qualify for the FHA Streamline Refinance program, a homeowner must ______.
Not be delinquent on mortgage payments
Maurice always keeps twice what he'll need to pay his quarterly taxes in his tax savings account. This is ______.
Not the best use of his money
Which of the following statements best describes a foreclosure by advertisement?
Notification of pending auction, public auction, notice of eviction
When a buyer uses an FHA loan, the down payment amount is calculated ______.
On the lesser of the sales price or the appraised value of the property
Which of the following is a true statement about retirement accounts?
Only self-employed individuals can use SEP IRAs
Which type of participation agreement involves more than one mortgagee as owner of the finance instrument in which each receives an equal share of the mortgage payment?
Partnership among mortgagees
What type of partnership is a real estate mortgage investment conduit?
Partnership between mortgagees
What type of partnership is a cooperative?
Partnership between mortgagors
Which of the following is the best investment for a licensee?
Paying down outstanding credit card debt
Which of the following best describes foreclosure by entry and possession?
Petition to enter, repossession, notice of eviction
Which of the following can a lender do if a borrower fails to keep homeowner's insurance on the collateral property?
Place lender-acquired insurance on the property and bill the borrower
How common are interest-only loans today?
Rare
What factors directly affect an adjustable rate mortgage?
Rate, index, and margin
A lender qualifies a borrower for a VA loan based on ______.
Residual income and debt-to-income
A loan that's offered based on a homeowner's equity in which funds are drawn over time and the bank gains corresponding property ownership is called a ______.
Reverse annuity mortgage
Because of the funding fee required for a VA loan, a borrower with no down payment funds saved should ______.
Roll the funding fee into the loan
Contributions for this type of IRA aren't tax-deferred.
Roth
The Addams family has an FHA-insured loan. The family's mortgage payment has a fixed interest rate, but after the first five years, the rate will adjust annually. Which FHA loan insurance program are they using?
Section 251
Shania is having work done on the house she just purchased using an FHA 203(k) loan. How much time does the contractor have to complete the work?
Six months
When a veteran assumes a VA loan, the ______ agreement can restore the original buyer's level of entitlement as if the loan were repaid in full.
Substitution of entitlement
The annual MIP is recalculated each year using ______.
The end-of-year loan balance, plus the balance after the next 11 payments
The percentage recommended for a licensee to allocate when building an emergency fund is ______.
The largest percentage possible after paying all essential expenses
Carla and Sven have a previous foreclosure, but now they are a few years away from that. They make good money with their jobs, and have about $30,000 available to use for a down payment and closing costs. Why might they consider an FHA 203(b) loan, even if they have sufficient down payment for a conventional loan?
The lender can consider compensating factors, even if their credit history isn't great.
When a lender has a lien on a property via a mortgage, what rights does the lender hold?
The right to foreclose
The Farm Credit System funds are acquired from ______.
The sale of debt securities and international money markets
Who distributes the trust assets of a person who died?
The successor trustee
The funding fee on a VA loan is waived when ______.
The veteran has a 10% or higher VA disability
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 is a likely result if Federal Home Loan Banks did not exist?
There'd be fewer funds available for lending in the community.
Borrowers who refinance and use equity to pay off credit card debt should be aware that ______.
They're exchanging short-term debt for long-term debt
Which statement is true regarding most government loans?
They're insured or guaranteed by the government.
Kendra has applied for a mortgage from Best Bank. When is Best Bank required to provide Kendra with a Loan Estimate?
Three business days
How is title usually conveyed to the buyer during a foreclosure process?
Through a referee's deed
What's one reason a borrower would choose a split—or piggyback—loan option?
To avoid going over the conforming loan limit
Why might a homebuyer use an FHA 203(k) loan instead of the standard 203(b) loan?
To roll the cost of rehabilitating the purchased home into the mortgage
Buyers Romy and Steven are looking over closing documents and don't know if the Loan Estimate matches everything on the Closing Disclosure. Usually, amounts shown on the Closing Disclosure that don't exactly match the figures on the Loan Estimate will be due to _______.
Updates to reflect the terms of the borrower's legal obligation when the loan closes
When HUD pursues actions that are designed to end homelessness and promote the health and housing stability of vulnerable populations, which of its goals is it supporting?
Use housing as a platform for improving quality of life.
Which veteran loan program in Texas offers qualified veterans help with repairs on their current home?
Veterans Home Improvement Program
Which veteran loan program offers qualified veterans help with the purchase of land in Texas?
Veterans Land Program
The Mortgage Disclosure Improvement Act gives applicants a three-day ______ to review and approve the Loan Estimate and Closing Disclosure form.
Waiting period
What is one disadvantage of a will over a trust?
Wills are made public; trusts are not.
Which item would an appraiser find in the Improvements section of the Uniform Residential Appraisal Report?
Year built
Celeste hopes to qualify for an FHA loan. She calculates her housing ratio as 31%, and her total debt obligation as 42%. Her credit score is 580. Does she qualify under FHA underwriting guidelines?
Yes
Does the VA make direct loans?
Yes, for Native Americans on trust lands
What role did CMOs play in the financial crisis of 2007?
They increased market speculation.
Which of the following statements is true about national lending intuitions?
They sell packaged loans to investors.
Sophia and Antonio are expecting twins. They want to sell their old house and buy a larger home using a conventional loan. In order to be sure they'll get the PMI waived, what will they need to have?
They should have a loan-to-value ratio of 80% or less.
Which of the following statements is true about buydowns with a VA loan?
They're allowed only on fixed rate loans.
Fred is an agricultural lender who helps the ranchers and farmers in his community by providing credit for purchasing land, making repairs to their buildings, and improving their agricultural property. He's able to do this in part because of the ______ offered by the USDA Farm Service Agency.
Guaranteed loans