Texas Real Estate Finance Part 2
Using the rate factor chart, the monthly principal and interest payment for a $200,000 loan at 5% interest will be A) $1,074. B) $833.33. C) $1,000. D) $1,136.
$1,074. Divide the loan amount by 1,000, and multiply by the rate factor for 5% to calculate the monthly payment of principal and interest. This does not include payment for taxes and insurance. The equation is $200,000 ÷ 1,000 = 200 × 5.37 = $1,074.
A borrower has the income needed to qualify for a loan of $287,550. What is the maximum price this borrower can pay using a loan-to-value ratio of 90%? A) $210,142.91 B) $319,500.00 C) $254,449.10 D) $233,491.70
$319,500.00. $287,500 ÷ 0.90 = $319,500.
A 15-year self-amortizing loan of $170,000 at 5% interest has a fixed principal and interest payment of $1,344.70. How much of the payment will be credited toward interest on the first payment? A) $636.37 B) $431.80 C) $708.33 D) $912.90
$708.33. $170,000.00 × 5% = $8,500.00 ÷ 12 = $708.33.
The maximum rate that could ever be charged for an ARM mortgage tied to the one-year T-bill with an initial rate of 5.5% and 2/6 caps is A) 4%. B) 11.5%. C) 6%. D) 8%.
11.5%. Regardless of what happens with the index, the interest rate on this loan can never increase by more than 6% over the initial interest rate of 5.5%; 5.5% plus 6% = 11.5%.
A contract for deed can allow the seller/lender to recover property pledged as collateral in as little as A) 30 days. B) 10 days. C) 45 days. D) 60 days.
A) 30 days.
The Federal Home Loan Bank was initially organized in 1932 to A) Bring stability to the nation's savings associations. B) Increase the supply of money in commercial banks. C) Provide support to the Federal Reserve. D) Increase the supply of money in local markets.
A) Bring stability to the nation's savings associations.
HUD is directly responsible for which of the following? A) Federal Housing Administration (FHA) B) Farm Credit System C) Fannie Mae D) Freddie Mac
A) Federal Housing Administration (FHA)
Which HUD office enforces the Fair Housing Act and other civil rights laws? A) Office of Fair Housing and Equal Opportunity (FHEO) B) Federal Housing Administration (FHA) C) Office of Community Development D) Urban Renewal Department
A) Office of Fair Housing and Equal Opportunity (FHEO)
Which of the following fraud schemes is MOST likely to have been seen during the recent financial crisis period? A) Property flopping—foreclosure home purchased well below distressed value by agreeing to a deal with the lender, then immediately resold for a large profit B) Inflated appraisal—property knowingly appraised with higher-than-market value to obtain higher loan amount C) Unrecorded second mortgage—a seller-paid concession outside of closing D) Identity theft—false identity used on a loan application
A) Property flopping—foreclosure home purchased well below distressed value by agreeing to a deal with the lender, then immediately resold for a large profit
HUD enforces all of the following civil rights laws EXCEPT A) Regulation Z of the Truth in Lending Act. B) Title II of the Americans with Disabilities Act. C) the Architectural Barriers Act. D) the Fair Housing Act.
A) Regulation Z of the Truth in Lending Act.
HUD sponsors urban renewal projects, which can include all of the following EXCEPT A) acquisition of rural properties. B) site acquisition in an urban area. C) large-scale planning. D) construction of new homes in the inner city.
A) acquisition of rural properties.
The Ginnie Mae Type I MBS requires all mortgages in the pool of mortgages to A) be all of the same type (e.g., single-family). B) remain insured only by the FHA. C) allow for more geographic dispersal. D) have the first payment date within 12 months of issue.
A) be all of the same type (e.g., single-family).
Although some borrowers may choose to pay part or all of the private mortgage insurance at closing, it is MOST common for the annual renewal fee to be paid A) monthly. B) bi-weekly. C) yearly. D) quarterly.
A) monthly.
All of the following are related in some way to Ginnie Mae EXCEPT A) qualified residential mortgages. B) collateralized mortgage obligation. C) pass-through certificates. D) platinum securities.
A) qualified residential mortgages.
The discount rate is BEST described as the A) rate the Federal Reserve charges its member banks. B) interest rate banks charge their best customers. C) increase in yield the lender receives for lowering the interest rate. D) rate Federal Reserve member banks charge each other.
A) rate the Federal Reserve charges its member banks.
The Real Estate Investment Trust Act of 1960 provided vehicles for real estate investors to enjoy special income tax benefits through investment in A) real estate trusts. B) stocks and bonds. C) mutual funds. D) regulated investment companies.
A) real estate trusts.
An investor refinanced a rental property with an existing loan balance of $50,000 with a new $90,000 mortgage. The $40,000 cash-out the investor received is called A) realized capital gains, not subject to being taxed. B) recognized capital gains, subject to being taxed. C) realized capital gains, subject to being taxed. D) recognized capital gains, not subject to being taxed.
A) realized capital gains, not subject to being taxed.
The primary activities of HUD include all of the following EXCEPT A) regulating the Federal Housing Finance Agency. B) directing Ginnie Mae. C) supervising the Federal Housing Administration. D) enforcing the Fair Housing Act and RESPA regulations.
A) regulating the Federal Housing Finance Agency.
When the U.S. Treasury issues and sells short-term and long-term debt instruments to generate cash, these instruments are called A) securities. B) mortgage-backed securities. C) commercial paper. D) government notes.
A) securities.
The initial rate on an adjustable-rate mortgage is sometimes called the A) teaser rate. B) misleading rate. C) beginning rate. D) index.
A) teaser rate.
The annual percentage rate is A) the effective rate of interest on the loan. B) usually lower than the nominal interest rate. C) required by state law. D) required by RESPA.
A) the effective rate of interest on the loan.
A couple is at the scheduled closing of their new home. The settlement agent is looking at the Loan Estimate and comparing its figures with those given on the Closing Disclosure. The agent finds that there has been a change in the APR (annual percentage rate) of ½% more than the APR originally quoted, and there has also been a change to a different loan product. What must happen in order for the closing to occur? A) The couple can sign a waiver that they accept the changes and the settlement can continue. B) A new, corrected Closing Disclosure must be prepared by the lender and a new three-day waiting period must be initiated. C) The settlement agent must prepare a corrected Closing Disclosure and a new three-day waiting period must be initiated. D) The settlement must be canceled and the contract terminated.
B) A new, corrected Closing Disclosure must be prepared by the lender and a new three-day waiting period must be initiated.
Which act gave the Fed new regulatory powers in 2010 over 17,000 other depository institutions in addition to the 3,000 member banks? A) Real Estate Settlement Procedures Act B) Dodd-Frank Act C) Mortgage Forgiveness Debt Relief Act D) Truth in Lending Act
B) Dodd-Frank Act
What aggressive action has the FHFA taken in an attempt to recover some of the losses to Fannie Mae's and Freddie Mac's portfolios? A) Restructured both agencies B) Sued financial institutions C) Requested a moratorium on foreclosures D) Required oversight by a new advisory board
B) Sued financial institutions
Which of the following statements regarding the Federal Deposit Insurance Corporation (FDIC) is NOT true? A) The FDIC responds immediately when a bank or thrift fails. B) The FDIC is funded through congressional appropriations. C) The FDIC insures bank deposits up to $250,000 per title per account. D) The FDIC does not insure securities, mutual funds, stocks, or bonds.
B) The FDIC is funded through congressional appropriations. The FDIC is not funded through congressional appropriations. It is funded by premiums that are paid by banks and thrifts and from earnings from U.S. Treasury securities.
A young couple is attempting to purchase their first home, but they do not have adequate funds for a down payment at this time. They should investigate the possibility of a lease-purchase, which would enable them to move in right away, but go to settlement at a later date. The lease-purchase contract should include all of the following EXCEPT A) any amount that is to be credited back to the purchaser at settlement. B) all financing terms for the purchase. C) the agreed-upon sales price. D) provisions for the amount of monthly rent to be paid.
B) all financing terms for the purchase.
All of the following statements would be true about a contract for deed EXCEPT A) it directs buyers to take possession of the property. B) equal rights are provided to buyers and sellers. C) signatures are required by buyers and sellers. D) it gives more foreclosure power to sellers.
B) equal rights are provided to buyers and sellers.
The primary lenders of real estate loans may be called financial intermediaries. An essential characteristic of a financial intermediary is that A) only institutional lenders are eligible. B) funds remain available to their owners when called for. C) interest must be paid at market rates. D) investment is limited to real estate loans.
B) funds remain available to their owners when called for.
A city looking to build several parks in the community, along with other civic projects, would issue A) industrial revenue bonds. B) general obligation bonds. C) industrial development bonds. D) mortgage revenue bonds.
B) general obligation bonds.
VLB allows veterans to purchase land A) containing at least half an acre. B) in Texas only. C) anywhere in the United States. D) for commercial purposes.
B) in Texas only.
The number of rental households has increased since 2007 due to all of the following factors EXCEPT A) there are tighter qualifying standards for buying a home. B) it is cheaper to rent than buy. C) there is a large number of foreclosed households. D) there is a growing number of single-person households.
B) it is cheaper to rent than buy.
A major function of the Federal Home Loan Bank (FHLB) system is to A) regulate the thrifts. B) loan money to members using real estate mortgages as collateral. C) supervise the FDIC. D) purchase Fannie Mae and Freddie Mac securities.
B) loan money to members using real estate mortgages as collateral.
The Community Reinvestment Act (CRA) requires a financial institution to do all of the following EXCEPT A) delineate its community. B) provide below-prime financing options. C) specify the types of credit services offered. D) prepare a community reinvestment statement available to the public.
B) provide below-prime financing options.
The Ginnie Mae Platinum Securities Program allows investors to A) divide Ginnie Mae MBS pools into several REMICs. B) receive multiple payments from individual pools. C) combine Ginnie Mae MBS pools into a single security. D) purchase FHA and VA mortgage loans.
B) receive multiple payments from individual pools.
In addition to meeting housing and debt ratios established by Fannie Mae and Freddie Mac, the borrower must have good credit and A) no debt. B) stable employment. C) substantial savings. D) have lived two years at the same residence.
B) stable employment.
The actual printing of Federal Reserve notes is done by A) the U.S. Treasury Department. B) the Bureau of Engraving and Printing. C) the Comptroller of the Currency. D) the U.S. Mint.
B) the Bureau of Engraving and Printing.
Other lesser-known participants in the secondary market include all of the following EXCEPT A) the Federal Agricultural Mortgage Corporation (Farmer Mac). B) the Federal Housing Administration (FHA). C) the private real estate mortgage investment conduit (REMIC). D) the Federal Home Loan Bank (FHLB).
B) the Federal Housing Administration (FHA).
All of the following statements regarding the Federal Home Loan Bank (FHLB) are true EXCEPT A) FHLBanks receive no direct taxpayer assistance. B) there are currently 12 FHLB district banks. C) equity in FHLB district banks is held by the owner-members. D) FHLBanks are self-capitalizing and exempt from state and local income taxes.
B) there are currently 12 FHLB district banks. there are 11
As government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac enjoy all of the following benefits EXCEPT A) they are allowed to carry a large line of credit with the U.S. Treasury Department. B) they have the full official backing by the federal government. C) they pay state and local corporate income tax. D) they are not required to register their securities with the Securities and Exchange Commission.
B) they have the full official backing by the federal government.
When a building and the land on which it stands are pledged to a lender as the borrower's guarantee that the terms of a loan contract will be satisfied, this is an example of A) hypothecation. B) collateral. C) leverage. D) equitable title.
B) collateral. collateral. A building and the land on which it stands are pledged to a lender as the borrower's guarantee that the terms of a loan contract will be satisfied. If a borrower defaults on repayment promises, the lender is legally able to foreclose on the real estate and sell it to try to recoup the loan balance.
Office of the Comptroller of the Currency (OCC)
Bureau charged with chartering, regulating, and supervising all national banks.
There are two general categories of real estate loans: conventional and government. Types of government loans include all of the following EXCEPT A) FHA insured. B) VA guaranteed. C) Fannie Mae conforming. D) USDA provided.
C) Fannie Mae conforming.
Which statement regarding Ginnie Mae is TRUE? A) Ginnie Mae is under the supervision of the FHFA. B) Ginnie Mae is an independent stockholder owner corporation. C) Ginnie Mae works with both issuers and investors of mortgage-backed securities. D) Ginnie Mae purchases loans from primary market lenders.
C) Ginnie Mae works with both issuers and investors of mortgage-backed securities.
One of the MOST frequently used indexes for adjustable-rate mortgages used by leading banks around the world is the A) Federal Reserve rate. B) prime rate. C) London Interbank Offered Rate. D) U.S. Treasury rate.
C) London Interbank Offered Rate.
When must the borrower of a VLB land loan move into the property? A) Within 3 days after closing B) Within 30 days after closing C) Within 60 days after closing D) On the day of closing
C) Within 60 days after closing
Participation financing is a type of financing most commonly seen with a lender such as A) a pension fund. B) a mutual savings bank. C) a life insurance company. D) a credit union.
C) a life insurance company.
Farm loans are unique in that they must have flexibility due to A) changes in interest rates. B) emphasis on credit scores. C) climatic conditions affecting productivity. D) availability of funds.
C) climatic conditions affecting productivity.
In MOST deed scams, fraud is committed by A) homeowners who are encouraged to refinance their property repeatedly. B) creating a fictional buyer and false loan documentation to obtain a loan. C) forging the homeowner's signature. D) using a false identity on a mortgage application.
C) forging the homeowner's signature.
The Federal Reserve System works to create conditions in the economy that are favorable to all of the following EXCEPT A) high employment. B) rising levels of consumption. C) increased availability of home loans for minorities. D) internal growth of the country.
C) increased availability of home loans for minorities.
The Fed can slow down economic growth by A) decreasing the discount rate and increasing the reserve requirement. B) decreasing the discount rate and decreasing the reserve requirement. C) increasing the discount rate and increasing the reserve requirement. D) increasing the discount rate and decreasing the reserve requirement.
C) increasing the discount rate and increasing the reserve requirement. Increasing either the discount rate or the reserve requirement puts less money out into the economy, thereby slowing down any anticipated inflation.
The four functions of the Fed that are most closely related to real estate finance are all of the following EXCEPT A) regulation of the amount of its member banks' reserves. B) determination of the discount rates. C) insuring depositors' accounts. D) open-market operations.
C) insuring depositors' accounts.
PMI premiums continue until the lender releases the coverage, which depends not only on the increased equity position of the borrower but on the A) current market conditions. B) lender's cash reserve requirements. C) payment history. D) private mortgage insurance guidelines.
C) payment history.
In the open-market operations, the Fed purchases or sells government securities in lots, including securities issued by all of the following EXCEPT A) U.S. Treasury issues. B) the FHA. C) private Wall Street investors. D) the FHLB system.
C) private Wall Street investors.
Real estate mortgage investment conduits (REMICs) deal in pools of loans divided into classes called A) Treasury notes. B) platinum securities. C) tranches. D) pass-through certificates.
C) tranches.
A lender must extend credit into any community where the bank provides services according to which of the following congressional acts? A) Fair Housing Act B) Equal Credit Opportunity Act C) Home Mortgage Disclosure Act D) Community Reinvestment Act
Community Reinvestment Act. Enforcement of the CRA became more active in the 1990s due to mergers and acquisitions among banks.
All of the following contribute to real estate cycles EXCEPT A) supply of money. B) general business conditions. C) changing tax structures. D) Consumer Price Index.
Consumer Price Index. Real estate cycles are affected by many variables, including general business conditions, the supply of money, and changing tax structures. The Consumer Price Index does not contribute to the ups and downs of real estate cycles.
The U.S. Treasury's Treasury bonds run for longer than A) 30 years. B) 20 years. C) 15 years. D) 10 years.
D) 10 years.
One of the MOST significant impacts on the Federal Home Loan Bank's member banks' ability to lend funds is A) Cost of funds. B) Federal funds rate. C) Discount rates. D) Accumulated savings.
D) Accumulated savings.
Which of these is a responsibility of the Department of the Treasury? A) Enforcing federal finance and tax laws B) Supervising national banks C) Collecting money due to the United States D) All of these
D) All of these
Which of the following may review a federal agency action? A) State Supreme Court B) U.S. Attorney General C) State court D) Federal court
D) Federal court
Mortgage-backed securities (MBSs) based on FHA and VA loans are insured by A) Freddie Mac. B) Fannie Mae. C) Farmer Mac. D) Ginnie Mae.
D) Ginnie Mae.
There has just been an influx of available money for lending. What has the Fed likely just done? A) Temporarily suspended lending B) Raised the reserve requirements C) Nothing D) Lowered the reserve requirements
D) Lowered the reserve requirements. By lowering the reserve requirements, the Fed can permit more money to enter a sluggish economy. Member banks can retain a larger percentage of their total assets, allowing more money to become available for lending.
Which of the following is subject to change over the life of an adjustable-rate mortgage loan? A) Initial rate B) Margin C) Annual and life of loan caps D) Note rate
D) Note rate
The Housing and Urban Development Act of 1968 changed Fannie Mae to allow it to be reorganized as A) a division of HUD. B) a Federal Home Loan Bank. C) an entity of the Federal Reserve. D) a fully private corporation.
D) a fully private corporation.
A farmer obtained a mortgage loan that will allow him to secure additional funds in the future for the purchase of seed and fertilizer. He has A) a growing-equity mortgage. B) a blanket mortgage. C) a two-step mortgage. D) an open-end mortgage.
D) an open-end mortgage.
The Neighborhood Stabilization Program (NSP) was established to help stabilize communities that suffered from foreclosed and abandoned homes. The biggest change in the third round of NSP3 grants is that grantees A) are limited to Census Tract boundaries. B) must purchase and redevelop foreclosed and abandoned homes. C) may be a nonprofit entity. D) are not bound to Census Tract boundaries.
D) are not bound to Census Tract boundaries.
The demographic category that has more interest in green and environmentally friendly types of housing is A) generation X. B) generation Y. C) baby boomers. D) echo boomers.
D) echo boomers.
The stated mission of Ginnie Mae is to expand affordable housing in America by A) purchasing Treasury notes. B) being a competitor to Fannie Mae. C) providing a secondary market. D) linking domestic and global capital markets.
D) linking domestic and global capital markets.
One aspect of the original QRM proposal that was of major concern to lenders was A) the debt-to-income ratio of 43%. B) points and fees are limited to 3% of the loan amount. C) no burdensome down payment is permitted. D) loans that did not meet QRM standards required the lender to retain 5% of the loan amount.
D) loans that did not meet QRM standards required the lender to retain 5% of the loan amount.
Freddie Mac generally follows the same conforming loan underwriting standards as Fannie Mae except that it A) only considers the housing expense percentage and not the total debt-to-income ratio. B) accepts interest-only mortgages. C) issues loans for purchases only, not refinances. D) only considers the total debt-to-income ratio with no set percentage for housing expense.
D) only considers the total debt-to-income ratio with no set percentage for housing expense.
A note generally includes all of the following provisions EXCEPT A) amount and terms. B) date signed. C) payment due dates. D) purchase price.
D) purchase price.
In 1968, Fannie Mae was reorganized under HUD as a fully private corporation empowered to do all of the following EXCEPT A) offer over-the-counter common stock to the general public. B) purchase mortgages at a premium (in excess of par). C) retain the benefit of government sponsorship as a GSE. D) purchase securities backed by pools of mortgages.
D) purchase securities backed by pools of mortgages.
The increased activity of buying and selling junior loans on a regular basis has created a A) compliance agency for participating companies. B) demand for junior loans. C) need for government oversight. D) secondary market.
D) secondary market.
Rulemaking authority for the Truth in Lending Act now falls under A) the Federal Home Loan Bank (FHLB). B) the Office of the Comptroller of the Currency (OCC). C) the Office of Thrift Supervision (OTS). D) the Consumer Financial Protection Bureau (CFPB).
D) the Consumer Financial Protection Bureau (CFPB).
Under a contract for deed, the seller remains the legal fee owner of the property and is referred to as A) the grantee. B) the vendee. C) the grantor. D) the vendor.
D) the vendor.
What are the three housing loan programs available to Texas veterans? A) VIB, VBL, and VHAP B) VIH, VIP, and VLB C) VIP, VLB, and VHAP D) VLB, VHAP, and VHIP
D) VLB, VHAP, and VHIP. The three loan programs are the Veterans Land Board, the Veterans Housing Assistance Program, and the Veterans Home Improvement Program.
True or False. The Fed establishes the nation's interest rates.
False. The financial market establishes rates.
Treasury Notes
Intermediate-term U.S. Treasury debt with maturities of two to ten years
Lenders manage the risk of a loan going into default by the amount the buyer is required to A) verify as liquid funds available for down payment. B) pledge as collateral. C) leverage. D) withdraw from a savings account.
Leverage is the use of a proportionately small amount of money to secure a large loan for the purchase of a property. Buyers invest a portion of their money as a down payment and then leverage by borrowing the remaining amount.
Treasury Bonds
Long-term debt instruments that matures in 30 years
Treasury Bills
Short-term debt instruments, used for less than two years
Who is responsible for supervising the Truth in Lending Act (TILA)?
The Fed
Who is the nation's monetary manager?
The Fed
Who is the nation's fiscal manager?
US Treasury
Corporate bonds classified as coupon bonds have interest coupons attached to them that are removed as they become due and are cashed by the holder. These are also known as A) unsecured bonds. B) bearer bonds. C) corporate bonds. D) registered bonds.
bearer bonds. When the interest coupons are removed as they become due, the bearer cashes them.
True or False. The Federal Home Loan Bank System governs the nation's commercial banking system.
false. It governs the thrift industry.
The income received from separate property remains separate income. True False
false. The income received from a separate property is community property unless there is a separate written and notarized agreement stating that one spouse releases all rights and interests to the separate property.
True or False. Regulation Z specifies a real estate loan's interest rate.
false. The market establishes loan rates; Regulation Z is the truth-in-lending law requiring lenders to disclose all loan costs as a rate.
Borrowers with less than perfect credit or limited funds for down payment are usually forced into lower-cost financing programs. True False
false. They are forced into higher-cost financing programs.
Which of these is the largest holder of one- to four-family unit mortgage loans? A) Mortgage trusts B) Federal agencies C) Seller financing D) Commercial banks
federal agencies. Due to the mortgage bailout, federal agents surpassed mortgage pools and trusts as the major holders (buyers) of mortgage debt.
On February 19, 2010, the funding placed in the Hardest Hit Fund was administered by A) state housing finance agencies. B) local banks. C) Fannie Mae. D) FHA.
state housing finance agencies. The government intended for the funds to be administered by states hit hardest by the financial crisis
Discount Rate
the Fed charges the borrowing bank interest on its loan, interest that is considered to be the discount rate, which can also be interpreted as the cost of borrowed funds to the borrower bank
Prime Rate
the Fed discount rate is used by many major banks to set their prime rate, prime simply meaning the rate a commercial bank charges its most creditworthy customers or its prime customers.
Leverage
the use of a proportionately small amount of money to secure a large loan for the purchase of a property.
When two or more properties are pledged as collateral in one loan, a clause releasing a portion of the collateral is often included. True False
true. A release agreement is needed to release part of the property without paying the entire debt at that time.
Real estate investment trusts are designed to deal in equities. True False
true. Designed to deal in equities, real estate investment trusts (REITs) are owners of improved income properties, including apartments, office buildings, shopping centers, and industrial parks. As an equity trust, the REIT can offer small investors opportunities to pool their monies to participate as owners of larger and, hopefully, more efficient and profitable real estate investments.
Farmer Mac underwrites, purchases, and sells farm and ranch loans. True False
true. Its mission is to improve the availability of long-term credit at stable interest rates to America's farmers, ranchers, and rural homeowners, businesses, and communities. This mission is accomplished by purchasing qualified loans from agricultural mortgage lenders, thus providing them with funding to make additional loans. Farmer Mac is the secondary market for agriculture loans in the same way that Fannie Mae and Freddie Mac are for conventional and government loans.
The Interstate Land Sales Full Disclosure Act would apply to a subdivision of 25 lots sold in interstate commerce. True False
true. The act is designed to reduce fraud in the sales of land by developers, and the law requires compliance from anyone selling or leasing 25 or more lots of unimproved land comply.
Predatory lending is generally defined as the practice of charging interest rates and fees that are higher than justified by risk-based financing. True False
true. These lenders are benefiting financially by charging higher than normal rates and expenses.
In April 2010, enhancements were made to the Home Affordable Modification Program to assist more A) local governments building affordable housing. B) businesses relocating to distressed areas. C) unemployed consumers with declining home values. D) couples experiencing a divorce due to the mortgage crisis.
unemployed consumers with declining home values. The government realized a modification was needed when the program was not being used.