Briefing Exam 4 Flashcards

Question

25. What distinguishes VA loans from FHA and other loans? a. no points b. maximum loan of $100,000 c. down payment determined by CRV d. no down payment

Answer 1

d. no down payment VA loans can be made with no down payment.

Answer 2

a. contract of sale The property the veteran wishes to buy is purchased by the Department of Veteran's Affairs and in turn, re-sold to the veteran on a Land Contract of Sale.

Answer 3

b. Cal-Vet loan The Department of Veteran's Affairs buys the property and then sells it to they veteran on a Land Contract of Sale.

Answer 4

d. State of California Cal-Vet loans are administered by the California Department of Veterans Affairs (CDVA). CDVA buys the selected property from the seller and resells the property to the veteran on a land contract.

Answer 5

b. DVA This is a CAL vet loan. Buyer is buying the property using a land contract. DVA retains title until the veteran pays off the loan.

Answer 6

d. Cal-Vet A veteran is required to secure life insurance under the Cal-Vet Home Protection Plan.

Answer 7

c. grant deed The CDVA holds title until the veteran has repaid the amount owed. Upon repayment, title is conveyed to the veteran in the form of a grand deed.

Answer 8

a. state bonds Funds for Cal-Vet loans come from voter approved State General Obligation Bonds and Revenue Bonds issued by the legislature.

Answer 9

b. lower risk A government guarantee or government insurance lowers the risk for the lender.

Answer 10

c. overtime earnings Since overtime is typically sporadic, it is of least concern to the lender.

Answer 11

b. loan to value ratio The loan to value ratio is the percentage of a property value that can or may loan to a borrower. For example, if the ratio is 87%, this means that a lender may loan 87% of the property's appraised value to a borrower. For instance, if someone borrows $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000 to $150,000 or $130,000/$150,000, or 87%. The remaining 13% represent the lender's haircut, adding up to 100% and being covered from the borrower's equity. The higher the LTV ratio, the riskier the loan is for a lender.

Answer 12

c. a large down payment A large down payment by the borrower would lower the loan to value ratio.

Answer 13

d. all of the above Most lenders realize that the greater the equity a borrower has in a property, the less inclined he or she will be to default and lose the property through foreclosure. This should also encourage the borrower to keep the property in good shape. A large down payment usually streamlines the loan qualification process.

Answer 14

c. 23% Lenders use the monthly payment on a property in determining a borrower's qualifications. This is in the relationship between the total mortgage payment and the monthly gross income called the "front end" ratio. The payment includes principal and interest, property taxes, and insurance (commonly referred to as PITI). The formula is: mortgage payment/gross income = front end ratio. $1,171/$5,000 = 23%.

Answer 15

c. 30% Lenders also take into account the borrower's long term debt for loan qualification purposes. This is the relationship between the borrower's long term debt payments and the monthly income called the "back end" ratio. The formula is: total monthly expense/gross income = back end ratio. In this question, long term debts total $325 per month, which, added to the mortgage payment of $1,171, gives us the total monthly expense of $1,496. $1,496/$5,000 = 30%

Answer 16

b. the deed of trust secures the promissory role The deed of trust secures the promissory note and the property. If payment is not made according to the terms of the note and deed of trust, the beneficiary may instruct the trustee to foreclosure as set forth in the deed of trust.

Answer 17

d. the are the evidence of the debt The promissory note is the evidence of the debt. The trust deed is the security (or more incidence) of the debt.

Answer 18

a. straight note A straight note is defined as one in which payments of interest only are made periodically during the term of the note, with the principal payment due in one lump sum upon maturity.

Answer 19

b. to make minimum monthly payments Since a straight note is an interest only note, the monthly payments would be smaller because there is no payment of principal. The drawback is a potential balloon payment at maturity.

Answer 20

c. fully amortized note Amortization is the gradual repayment or resting of a debt by means of systematic payments of principal and/or interest over a set period, so that at the end there is a zero balance.

Answer 21

c. increases while the interest payment decreases Amortization is the gradual repayment or retiring of a debt bemoans of systematic payments of principal and/or interest over a set period, so that at the end there is a zero balance.

Answer 22

a. partially amortized loan Under a partially amortized loan, the balance at maturity has only been partially reduced. The remaining balance due at maturity is referred to as a balloon payment.

Answer 23

a. loan secured by collateral of real property A mortgage is an instrument recognized by law by which property is pledged as security for the loan without the necessity of giving up possession of it.

Answer 24

c. mortgagor The mortgagor (borrower) signs the note.

Answer 25

a. security The property is security for a loan under both a mortgage and deed of trust. A mortgage has two parties while a trust deed has three. A mortgage promises the title --- a trust deed conveys legal title from the truster to trustee.

Answer 26

c. bank In a trust deed, the beneficiary is the lender (usually a bank).

Answer 27

c. personal property Both a mortgage and trust deed are considered personal property.

Answer 28

c. satisfaction of mortgage A satisfaction mortgage is a certificate issued by the mortgagee when a mortgage is paid in full. It describes the mortgage, recites where it is recorded and certifies that it has been paid and that the mortgagee consents that it be discharged of record.

Answer 29

a. initiate court action In the event of the mortgagor's default before final payment, the mortgagee's remedy is judicial (court-ordered) foreclosure. The mortgagee's first step would be to initiate the court action.

Answer 30

b. trustee A trustee in a deed of trust holds naked legal title to a secured property. Naked legal title is only such title as is needed to carry out the terms of the lien document, and is lacking the usual rights and privileges of ownership.

Answer 31

a. signs the note as maker The trustor is the borrower under a deed of trust and is the one who signs the note and deed of trust.

Answer 32

c. trustee by trustor A power of sale clause is found in a trust deed where the trustor gives the trustee authority to sell the trust property under certain circumstances.

Answer 33

b. value of property The value of the property serves as a security for a note and deed of trust.

Answer 34

d. all of the above A default is generally defined as nonperformance of a duty or obligation that is part of a contract.

Answer 35

a. mortgage The one year redemption period under a mortgage gives the greatest protection to the owner.

Answer 36

b. deed of reconveyance A deed of reconveryance is used to transfer legal title from the trustee back to the borrower (truster) after a debt secured by a deed of trust has been paid to the lender (beneficiary).

Answer 37

d. four months A three month reinstatement period plus 20 days advertising of the sale by publishing the Notice of Sale.

Answer 38

b. superior court A deed of trust may be foreclosed upon by judicial proceedings in superior court.

Answer 39

c. both (a) and (b) The redemption period is a period of time established by state law during which a property owner has a right to redeem real estate after a judicial foreclosure by paying the sales price, interest and costs.

Answer 40

b. beneficiary of the second A deficiency occurs hen the foreclosure sale of a property produces less than the amount needed to pay the costs and expenses of the action and to pay off the balance of the loan. The parties to the transaction are paid in order of their priority.

Answer 41

a. costs of sale first, then first lien holder, then junior lien holders, with the balance to the truster Costs and expenses of the action are paid first, then the sprites to the transaction are paid in order of their priority.

Answer 42

b. where foreclosure is by court action A deficiency judgment is a judgment against a borrower of rat balance of a debt owed when the security for a loan is insufficient to satisfy the debt. A deficiency occurs when the foreclosure sale of a property produces less than the amount due on the loan. In California, a mortgagee cannot recover a deficiency judgment on a purchase money loan. In those states where mortgagees generally carry a "power of sale," creditors must bring a separate action to obtain a deficiency judgment.

Answer 43

c. the time and date of recording The time and date of recording establishes the priority of the lien. The first trust deed would have an earlier time and date of recording.

Answer 44

b. redeem the first mortgage and foreclose under the second In the event of default under the first trust deed, the holder of a second trust deed can elect to make the trustor's payments and thereby stop foreclosure. The junior lien holder may then foreclose on his or her own lien and take title subject to prior liens. If the junior lien holder does nothing, he/she will have to bid cash for the purchase price at the foreclosure sale or risk losing out completely, since foreclosure wipes out all junior liens. This is an inherent risk associated with junior loan.

Answer 45

a. beneficiary of a second trust deed Since foreclosure wipes out all junior liens, the holder of a junior lien should request the recording of a request for notice of default announcing that a default has occurred.

Answer 46

b. Mr. Johnson is primarily liable and Mr. Jones would remain secondary liable When the buyer agrees to assume the seller's liability on a trust deed, the seller (Mr. Jones) would remain secondarily liable on the loan unless there is a substitution of liability, which would relieve the seller of all liability.

Answer 47

d. borrower to lender The relationship of the trustor to the beneficiary is similar to the borrower/lender relationship in that the mortgagees (lender) extends credit to the mortgagor (borrower). Memory Aid: The "OR" gives something of value to the "EE" in exchange for money.

Answer 48

c. beneficiary An assignment of rents clause in a trust deed is an agreement between the trustor (property owner) and the beneficiary by which the beneficiary receives, as security, the right to collect rents from the trustor's tenants.

Answer 49

d. both a and b Violation of RESPA may result in a monetary fine and/or jail time.

Answer 50

a. first mortgages RESPA applies to federally related first mortgagees for the purchase of one to four residential units.

Answer 51

a. RESPA RESPA applies when the purchase of a one to four family residential dwelling is financed by a federally related mortgage loan.

Answer 52

a. ok under RESPA If the advertisement contains certain "triggering terms," then the ad must also contain other credit terms. If only the Annual Percentage Rate (APR) is disclosed in an ad, additional disclosures are NOT required.

Answer 53

d. the agent can give $50 to the buyer or seller The agent can five a monetary incentive to prospective clients as long as a full disclosure is made to all parties to the transaction.

Answer 54

c. to assure a meaningful disclosure of credit terms The purpose of the Federal Truth In Lending Act is to assure consumers that they are provided information on the costs of credit by disclosing credit terms.

Answer 55

a. home equity loan The borrowers rescission rights apply on non business loans only.

Answer 56

b. the amount of interest paid on savings accounts is no longer regulated Under deregulation, financial institutions may now pay any amount of interest on deposits.

Answer 57

d. all of the above The Federal Reserve Board (Fed) would take all of the above actions to curb inflation.

Answer 58

c. interest rates go up A tight money market is an economic situation in which the supply of money is limited and the demand of money is high. Due to the economic forces of supply and demand, interest rates typically go up during a period of tight money.

Answer 59

c. Federal Trade Commission The Federal Trade Commission is in charge of enforcing the Truth in Lending Act (Regulation Z).

Answer 60

b. acceleration clause An acceleration clause is a provision in a mortgage, trust deed, promissory note or land contract that, upon the occurrence of a specified event, gives the lender the right to call all sums due and payable in advance of the fixed payment term.

Answer 61

d. be secondary Subordinate means to occupy a lower position in a regular descending series.

Answer 62

c. releases a portion of property covered by the blanket encumbrance when certain conditions are met This is referring to a partial release clause which enables the mortgagor to obtain partial releases of specific parcels from the mortgage upon a payment larger than the pro rata portion of the loan.

Answer 63

a. hypothecation Hypothecate means to pledge specific real or personal property as security for an obligation without surrendering possession of it.

Answer 64

c. personal property is included in the real estate loan A package mortgage is a method of financing in which the loan that finances the purchase of a home also finances the purchases of items of personal property.

Answer 65

d. period to file a lien has expired The usual waiting period for the final disbursement is 35 days after the recording of the Notice of Completion. It would be hazardous to advance the final disbursement before that time for fear that there might be subcontractors who have not been paid and will file mechanic's liens. The subcontractors are wiped out 31 days after recording the Notice of Completion.

Answer 66

c. open-end mortgage An open end provision in a mortgage allows the borrower to borrow additional amounts in the future without rewriting the loan documents.

Answer 67

b. rate set forth in the note The nominal rate of interest is the rate set forth in the promissory note.

Answer 68

b. selling loans Mortgage warehousing is the process by which a mortgage banker or mortgage broker assembles mortgages that he/she has made and prepares the mortgages to be sold in the secondary market.

Answer 69

a. loan with a payment record A seasoned loan is one with a payment history. If a note shows a good payment record by the payor, it is considered more desirable and usually sells for more in the secondary market.

Answer 70

d. borrowing on the difference between property value and liens Equity is the difference between the property value and the amount of remaining debt. A property owner's equity will bid up gradually though periodic amortized payments. Equity financing refers to borrowing against this value.

Answer 71

c. security agreement A security agreement is a document that creates a lien on personal property. To perfect a security interest, a form called a financing statement should be recorded.

Answer 72

d. a penalty the buyer is charged for paying the contract off early A prepayment penalty clause is charged against the borrower for early retirement of the loan. The main reason for the charge is that money paid early to the lender often sits dormant and does not earn interest. To avoid this, the lender charges the borrower a penalty.

Answer 73

a. a subordination clause A subordination clause is a clause in which the holder of a mortgage or trust deed holder permits a subsequent lien to take priority. Subordination is the act of yielding priority. This clause provides that fi a prior mortgage is paid off or renewed, the junior mortgage will continue in its subordinate position and will not automatically become a higher or first mortgage.

Answer 74

b. the effective interest return obtained from a first trust deed by an investor The mortgage yield is the return on an investment or the amount of profit, stated as a percentage of the amount invested; the rate of return. In real estate, yield refers to the effective annual amount of income that is being accrued on an investment. The yield, or profit, to a lender is the spread of differential between the cost of acquiring the funds lent and the interest rate charged.

Answer 75

c. discounting To discount means to sell at a reduced value. When an investor sells a note at a discount, he/she is converting investment inflows to a present value. Since money has a time value, every dollar of that note to be received in the future is worth less than one dollar now, thus the discount.

Answer 76

c. usury Usury is defined as a conscious taking by a lender of more than the maximum amount of interest as allowed by law.

Answer 77

a. simple Interest is termed "simple" or "compound." Simple interest paid only on the principal owed. Compound interest is interest paid o accrued interest as well as on the principal owed. Most real estate loans charge simple interest rates.

Answer 78

a. obligatory advances Obligatory advances represent one form of construction loan distribution, often used in subdivision financing activities.

Answer 79

a. accelerates all sums owing The phrase "calling a loan" refers to accelerating the remaining payments of the loan and making them all due and payable at the present time.

Answer 80

c. beneficiary/trustor The Real Property Sales Contract, also known as the Land Contract, is an agreement between two parties in which the seller (vendor) passes possession and equitable title of the property to the buyer (vendee) but retains title until the total or a substantial portion of the purchase price is paid. This type of contract usually does not require conveyance of title within one year. It is similar to the beneficiary/trustor relationship in that the buyer only has a possessory interest with equitable title and is making monthly installment payments over a period time.

Answer 81

d. all of these Under the terms of a Land Contract, the seller (vendor) passes possession and equitable title of the property to the buyer (vendee) but retains title until the total or a substantial portion of the purchase price is paid.

Answer 82

a. legal title During the term of a Land Contract, title remains in the name of the seller (vendor) until the provisions of the contract have been met. Upon satisfactory performance, the vendor conveys legal title to the buyer (vendee). During the term of the contract, the vendee holds the equitable title or equitable ownership.

Answer 83

b. ($210,000 - $203,000) + ($203,000 x 20%) The lender always uses the appraised value, not purchase price. Since the lender is willing to finance 80% of the appraised value, the down payment calculation is ($210,000 - $230,000) + ($203,000 x 20%) or $47,600 down payment.

Answer 84

c. ok to use for the purchase of rental units

Answer 85

b. insurance company

Answer 86

c. transferring of loans by mortgagees

Answer 87

d. individual and family savings

Answer 88

d. mortgage company

Answer 89

b. mortgage bankers usually lend their own funds, while mortgage brokers arrange loans

Answer 90

a. Mortgage Loan Disclosure Statement

Answer 91

c. individual lenders give loans for shorter terms

Answer 92

a. savings and loan associations

Answer 93

b. insurance company

Answer 94

d. insurance company

Answer 95

b. short-term

Answer 96

c. serve as a secondary mortgage market

Answer 97

c. government insured and guaranteed loans

Answer 98

d. insuring home loans

Answer 99

d. All of the above

Answer 100

a. a conventional bank or savings & loan

Answer 101

a. the homeowner who assured an FHA loan

Answer 102

d. buyer is protected with FHA insurance

Answer 103

a. the buyer under an FHA loan

Answer 104

b. property improvement loans

Answer 105

b. guarantees loans

Answer 106

c. ok to use for the purchase of rental units

Answer 107

d. no down payment

Answer 108

a. contract of sale

Answer 109

b. Cal-Vet loan

Answer 110

d. State of California

Answer 111

d. Cal-Vet

Answer 112

c. grant deed

Answer 113

a. state bonds

Answer 114

b. lower risk

Answer 115

c. overtime earnings

Answer 116

b. loan to value ratio

Answer 117

c. a large down payment

Answer 118

d. all of the above

Answer 119

b. the deed of trust secures the promissory role

Answer 120

d. the are the evidence of the debt

Answer 121

a. straight note

Answer 122

b. to make minimum monthly payments

Answer 123

c. fully amortized note

Answer 124

c. increases while the interest payment decreases

Answer 125

a. partially amortized loan

Answer 126

a. loan secured by collateral of real property

Answer 127

c. mortgagor

Answer 128

a. security

Answer 129

c. personal property

Answer 130

c. satisfaction of mortgage

Answer 131

a. initiate court action

Answer 132

b. trustee

Answer 133

a. signs the note as maker

Answer 134

c. trustee by trustor

Answer 135

b. value of property

Answer 136

d. all of the above

Answer 137

a. mortgage

Answer 138

b. deed of reconveyance

Answer 139

d. four months

Answer 140

b. superior court

Answer 141

c. both (a) and (b)

Answer 142

b. beneficiary of the second

Answer 143

a. costs of sale first, then first lien holder, then junior lien holders, with the balance to the truster

Answer 144

b. where foreclosure is by court action

Answer 145

c. the time and date of recording

Answer 146

b. redeem the first mortgage and foreclose under the second

Answer 147

a. beneficiary of a second trust deed

Answer 148

b. Mr. Johnson is primarily liable and Mr. Jones would remain secondary liable

Answer 149

d. borrower to lender

Answer 150

c. beneficiary

Answer 151

d. both a and b

Answer 152

a. first mortgages

Answer 153

a. ok under RESPA

Answer 154

d. the agent can give $50 to the buyer or seller

Answer 155

c. to assure a meaningful disclosure of credit terms

Answer 156

a. home equity loan

Answer 157

b. the amount of interest paid on savings accounts is no longer regulated

Answer 158

d. all of the above

Answer 159

c. interest rates go up

Answer 160

c. Federal Trade Commission

Answer 161

b. acceleration clause

Answer 162

d. be secondary

Answer 163

c. releases a portion of property covered by the blanket encumbrance when certain conditions are met

Answer 164

a. hypothecation

Answer 165

c. personal property is included in the real estate loan

Answer 166

d. period to file a lien has expired

Answer 167

c. open-end mortgage

Answer 168

b. rate set forth in the note

Answer 169

b. selling loans

Answer 170

a. loan with a payment record

Answer 171

d. borrowing on the difference between property value and liens

Answer 172

c. security agreement

Answer 173

d. a penalty the buyer is charged for paying the contract off early

Answer 174

a. a subordination clause

Answer 175

d. a penalty the buyer is charged for paying the contract off early

Answer 176

a. a subordination clause

Answer 177

a. a subordination clause

Answer 178

b. the effective interest return obtained from a first trust deed by an investor

Answer 179

c. discounting

Answer 180

a. obligatory advances

Answer 181

a. obligatory advances

Answer 182

b. ($210,000 - $203,000) + ($203,000 x 20%)

Answer 183

a. accelerates all sums owing

Answer 184

c. beneficiary/trustor

Answer 185

d. all of these

Answer 186

a. legal title

Answer 187

b. ($210,000 - $203,000) + ($203,000 x 20%)

Answer 188

c. use something other than a legal description

Answer 189

b. index rate

Answer 190

b. holder of the second

Answer 191

c. housing prices and the associated interest costs form the bulk of most homeowners' outlay

Answer 192

b. use of second trust deeds in real estate financing

Answer 193

b. judicial or trustee's sale

Answer 194

c. to prohibit lenders from discriminating on the basis of race, color, religion, national origin, age, sex, family size, handicap, or marital status

Answer 195

c. Private premiums of insurance and pools of insurance policies

Answer 196

b. the money market is tight

Answer 197

c. the buyer

Answer 198

d. impounds for property taxes

Answer 199

a. by reference to price indexes

Answer 200

c. the seller will remain liable for the loan

Answer 201

d. increases, decreases

Answer 202

d. income earned on investment

Answer 203

c. use something other than a legal description A land contract must contain the names of the buyer and seller, the sales price, the terms of payment, a full legal description, and a lengthy statement of the rights and obligations of the parties.

Answer 204

b. index rate The index rate is the rate to which the interest rate on an adjustable rate mortgage is tied. At set adjustment periods, the borrower's interest rate will move up or down as the index rate changes.

Answer 205

b. margin The margin is the amount added to the interest rate of an adjustable rate loan that represents the lender's cost of doing business (includes costs, profits and risk of loss of the loan). Generally, the margin stays constant during the life of the loan.

Answer 206

c. margin Another variation to test your knowledge of the term margin.

Answer 207

b. holder of the second A "request for notice of default" is filed with the county recorder when the second trust deed is recorded. If there is a default on the first trust deed, the recorder will send a copy of the "Notice of Default" to the holder of the second. This gives the holder of the second time to reinstate the first and begin foreclosure on the second.

Answer 208

c. housing prices and the associated interest costs form the bulk of most homeowners' outlay The Consumer Price Index (CPI) is designed to measure the change in the average level of prices paid for consumer goods and services by all private households. In measuring the CPI, not all goods and services are treated equally or, in other words, given the same weight. Since housing prices and the associated interest costs form the bulk of most homeowners' outlay, changes in mortgage interest rates are heavily weighted when calculating the CPI.

Answer 209

b. use of second trust deeds in real estate financing The use of second trust deeds is most prevalent when there is a tight money market. This means that interest rates are high and money is more difficult to get.

Answer 210

b. judicial or trustee's sale A mortgage without a power of sale can only be foreclosed judicially (i.e. by owner proceeding). A mortgage or deed of trust which expressly provides for power of sale may be foreclosed judicially or by trustee's sale.

Answer 211

c. to prohibit lenders from discriminating on the basis of race, color, religion, national origin, age, sex, family size, handicap, or marital status The main purpose of the Equal Credit Opportunity Act is to prohibit lenders from discriminating on the basis of race, color, religion, national origin, age, sex, family size, handicap, or marital status or on the grounds of receipt of income from a public assistance program.

Answer 212

c. Private premiums of insurance and pools of insurance policies Private mortgage companies are really Mortgage Bankers. Most Mortgage Bankers fund loans themselves through a contract with an insurance company.

Answer 213

b. the money market is tight When the Fed takes steps to implement a "tight money" market, it usually means an increase in interest rates and a decrease in available loan funds. The sales volume of existing home sales decreases and borrowers have more difficulty in obtaining loans. The net effect is that sellers are forced to take back seconds to sell their property.

Answer 214

c. the buyer The 1% loan origination fee is required by FHA and is paid by the borrower.

Answer 215

d. impounds for property taxes Non recurring costs are only paid one time in escrow. Impounds for property taxes are recurring. They may collect a couple months in advance during escrow, but impounds will continue for the life of the loan.

Answer 216

a. by reference to price indexes The purchasing power of a dollar is measured by the Consumer Price Index.

Answer 217

c. the seller will remain liable for the loan If the VA does not approve the assumption, the loan is taken "subject to" the existing loan. This means the original borrower will remain liable for the loan. If there is a foreclosure it will be against the original borrower (the seller).

Answer 218

d. increases, decreases With an amortized loan, interest is charged on the unpaid balance each month. The principal is being pad down each month. The payment remains constant over the entire life of the loan. The interest part of the payment decreases each month and the amount applied to principal increases each month.

Answer 219

d. income earned on investment Cash on Cash Return is the ratio of income received by the investor based only on the cash invested. It is expressed as a percentage and does not include appreciation. Calculated as Annual Dollar Income/ Total Dollar Investment. For example when you purchase a rental property, you might put down only 10% for a cash down payment. Cash on cash return would measure the annual return you made on the property in relation to the down payment.