CA Real Estate Finance Flashcards
1
Q
Reliance on borrowed capital more than on equity funds would be known as the use of
secondary mortgage markets.
hypothecation.
disintermediation.
leverage.
A
Leverage
page 23
2
Q
The real estate cycle begins anew when
supply equals demand.
supply exceeds demand.
demand exceeds supply.
supply and demand are ignored.
A
demand exceeds supply.
Page. 26
3
Q
A fundamental aspect of real estate finance is the ability of borrowers to remain in possession and control of their property. This is defined as
a lien.
collateral.
leverage.
hypothecation.
A
hypothecation.
p.22
4
Q
Real estate finance is basically a manifestation of our
supply and demand economic system.
ability to pay cash for our property.
government sponsored home ownership program.
credit system economy.
A
credit system economy.
p.21
5
Q
One way to increase a property’s value without adding any physical improvements is to
lease it.
rezone it.
sell it.
refinance it.
A
Rezone it
Page. 24
6
Q
The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) was designed to
minimize the potential for fraudulent lending activities.
control interstate real estate transactions.
reduce the popularity of adjustable rate mortgages.
eliminate the use of leverage in real estate investing.
A
minimize the potential for fraudulent lending activities.
Page. 20
7
Q
The fact that a 1,500 square foot house sells for $300,000 in Los Angeles, $85,000 in Fresno, and $45,000 in El Centro is based on the property’s fixity and its being subject to the economies of which of the following markets?
Local
International
National
Regional
A
Local
Page. 23
8
Q
Lenders having a cash surplus in a low demand area would most likely
lower interest on deposits to reduce their surplus.
purchase loans in the secondary market.
raise the interest rates on new loans to raise profits.
sell loans in t
A
purchase loans in the secondary market.
Page. 25
9
Q
Disintermediation occurs when
savings withdrawals exceed savings deposits.
healthy banks acquire defunct thrift institutions.
the nation’s rate of savings declines.
supply exceeds demands.
A
savings withdrawals exceed savings deposits.
Page. 22
10
Q
The demographics of a real estate cycle would probably include all of the following inputs except the population’s
ages.
location.
family structure.
religion.
A
Religion
Page. 27
11
Q
Economic stability is linked with the supply and costs of money. Thus, all of the following statements are correct, except the
lower the costs of money, the greater the economic activity.
more money in circulation, the greater the economic activity.
higher the costs of money, the greater the economic activity.
less money in circulation, the less the economic activity.
A
higher the costs of money, the greater the economic activity.
P. 43
12
Q
The Federal Reserve is
controlled by the Federal Deposit Insurance Corporation.
under the Department of Housing and Urban Development.
a central banking system.
a public stock corporation.
A
a central banking system.
P.40
13
Q
When the Federal Reserve raises its members’ reserve requirements, it is acting to Correct increase financial activities. decrease interest rates. increase the money supply. decrease financial activities.
A
decrease financial activities.
p.43
14
Q
Deposits in banks and thrifts are insured by the
CLIC.
SAIF.
OTS.
FDIC.
A
FDIC.
p.50
15
Q
The Federal Home Bank System Correct supervises the activities of the RTC. is under the FDIC. is now defunct. provides its members with a national market for their securities.
A
provides its members with a national market for their securities.
p.52
16
Q
All of the following statements about the FDIC are true, except that it
may merge failed institutions with other institutions.
has been eliminated.
controls the Deposit Insurance Fund.
insures depositors accounts.
A
Has been eliminated
P. 50
17
Q
The California Bureau of Real Estate
deals with franchising of businesses.
settles commission disputes.
investigates complaints against licensees.
provides legal advice to complainants.
A
investigates complaints against licensees.
P.55
18
Q
The Federal Reserve is currently responsible for all of the following operations except
counteracting inflationary and deflationary movements.
stabilizing values.
maintaining sound credit conditions.
printing money.
A
Printing money
P.51
19
Q
From an economic theory point of view, money can best be described as a
value unto itself.
standard of value.
commodity.
measurement of inflation.
A
Standard of value
p.36
20
Q
Which agency is responsible for handling the assets of failed savings institutions? Correct U.S. Treasury. Federal Deposit Insurance Corporation. Federal Home Loan Bank. The Federal Reserve.
A
Federal Deposit Insurance Corporation.
Page 50
21
Q
Commercial banks tend to make loans for
construction activities.
mobile homes.
the purchase of land.
subdivision improvements.
A
Construction activities
p.65
22
Q
The pension funds tend to invest in which of the following types of real estate investments?
Mortgage-backed securities
Personal property loans
Farm loans
Home loans
A
Mortgage-backed securities
Page 73
23
Q
State-chartered savings and loan associations regulated by the California Department of Savings and Loans are authorized to lend up to what percent of the appraised value of the collateral for a real estate mortgage loan?
100%
70%
80%
90%
A
100%
p.69
24
Q
Life insurance companies become partners with project developers through the use of commercial loans called
participation loans.
home purchase loans.
bridge loans.
home equity loans.
A
Participation loans
p.71
25
Which of the following institutional lenders is increasing its participation in real estate finance?
Thrifts
Credit unions
Life insurance companies
Commercial banks
Credit unions
p.74
26
All of the following sources of funds for real estate finance are considered financial intermediaries except
savings institutions.
commercial banks.
sellers as lenders.
life insurance companies.
Sellers as lenders
p.61
27
Which of the following statements is true regarding life insurance companies?
Their costs of funds are higher than other fiduciaries.
Their lending policies are subject to federal control.
They are more concerned with safety than with liquidity.
They prefer small loans for diversity.
They are more concerned with safety than with liquidity.
p.71
28
Savings institutions, major providers of home mortgage loans, are also referred to as
co-ops.
credit unions.
trusts.
thrifts.
Thrifts
p.69
29
The department in a commercial bank that manages relatively large quantities of money and property for their beneficiaries is the
escrow department.
treasury department.
mortgage-lending department
trust department.
Trust department
p.66
30
Which institutional lender has the most flexibility in mortgage lending activities?
thrifts.
credit unions.
life insurance companies.
commercial banks.
Thrifts
p.69-70
31
Mortgage banking services include providing
trust departments.
savings accounts.
checking accounts.
real estate loans.
Real estate loans
p.87
32
Mortgage brokers assume a large part of the responsibility for
appraisals.
loan underwriting.
insuring loans.
qualifying borrowers.
Qualifying Borrowers
P.81
33
Mortgage brokers earn most of their profits from
collection fees.
loan interest.
placement charges.
insurance premiums.
Placement charges
P.81
34
Mortgage bankers
specialize in commercial lending.
manage real estate loans.
originate home mortgage loans.
match borrowers with lenders.
Manage real estate loans
p.83
35
Individuals participate as lenders in real estate mainly by creating
senior loans.
junior loans.
insured loans.
guaranteed loans.
junior loans.
p.104
36
The payments on revenue bonds come from
income from developments.
property taxes.
income taxes.
special assessments.
income from developments.
| P.96
37
Private loan companies deal mainly in
senior financing.
FHA-insured home loans.
junior financing.
owner carry-back loans.
Junior financing
P.100
38
Real estate investment trusts are created for all of the following reasons except to
limit personal liability.
pool funds for larger investments.
avoid double taxation.
avoid probate costs.
Avoid probate costs
p.90
39
The payment for the entire amount of principal due at the end of a mortgage loan term is called a(n)
zero coupon.
equity.
balloon.
balance.
Balloon
p.83
40
All of the following terms are associated with a syndicate except
limited partner.
active income.
general partner.
blue-sky laws.
Active income
p.91
41
A veteran’s total monthly obligations equal $1,500. What is the gross monthly income required to qualify for the loan?
$5,172
$4,166
$3,658
$1,500
$3,658
P.148
42
The FHA is responsible for which of the following actions?
Guaranteeing new loans
Issuing new loans
Refinancing existing loans
Insuring new loans
Insuring new loans
p.128
43
All of the following statements describe the advantages of the FHA, except:
there are different loan types.
they have high L/V ratios.
it has lower than market interest rates.
there is no prepayment penalties.
it has lower than market interest rates.
P.130
44
According to Fannie Mae and Freddie Mac guidelines, private mortgage insurance is required on conventional loans when the loan-to-value ratio is in excess of
20%
80%
40%
60%
80%
p.116
45
Which document stipulates the DVA loan amount that establishes the maximum loan available on a specific property?
Certificate of entitlement
Certificate of eligibility
Borrowers’ financial statement
Certificate of reasonable value
Certificate of reasonable value
P.147
46
Most loans today are
DVA loans.
FHA loans.
owner carry-back loans.
conventional loans.
conventional loans.
| p.112
47
The FHA allows second mortgages to be acquired on the collateral property, but the second mortgage must not contain
maturities in excess of five years.
variable payments.
a prepayment penalty.
loan-to-value limits.
A prepayment penalty
p.142
48
Under the CAL-VET program, during the period that the veteran is living in the home and making payments, the veteran
is party to a land contract.
has full legal title.
has no equitable interest in the property.
is a tenant in a leasehold estate.
Is party to a land contract
p.154
49
Property serving as collateral for an FHA-insured loan
cannot be valued at $250,000 or above.
must meet certain minimum standards of acceptability.
need not be appraised
must be located within a 50-mile radius of the lender.
must meet certain minimum standards of acceptability
p.128
50
A conventional guaranteed loan may be insured by
a private insurance company.
the DVA.
the FHA.
a title insurance company.
A private insurance company
p.115
51
All of the following developments are exempt from the provisions of the Interstate Land Sales Full Disclosure Act except
residential subdivisions sold exclusively in one state.
cemetery land.
subdivisions of 25 or more lots to be sold nationally.
subdivisions of five acres or more.
subdivisions of 25 or more lots to be sold nationally.
P.185
52
Farm and ranch loans are unique types of real estate finance because their success depends to a large degree on the
nation’s economic circumstances.
borrower’s credit.
property’s productivity.
local zoning ordinances.
Property’s productivity
p.164
53
The Department of Housing and Urban Development includes all of the following functions except the
management of the FHA.
Supervision of the FDIC.
supervisor of the GNMA.
member of the President’s cabinet.
Supervision of the FDIC
p.167
54
The required property reports delivered to potential buyers of lots in subdivisions under HUD’s jurisdiction must include information on all of the following items except
roads.
schools.
churches.
utilities.
Churches
P.185
55
The Community Reinvestment Act is designed primarily to
require banks to meet the needs of all residents in the neighborhoods.
require banks to make subprime loans.
require banks to make low interest rate loans.
finance urban renewal projects.
require banks to meet the needs of all residents in the neighborhoods.
P.189
56
Which of the following types of loans is NOT exempt from California’s usury ceilings?
Credit union loans
Loans from real estate brokers secured by real property
Business loans
Mortgage loans made by savings associations
Business loans
P.192
57
The USDA Rural Development Program aims to
reverse the trend of job loss.
protect rural areas from rezoning.
restrict the import of agricultural products.
stabilize credit costs to ranchers.
reverse the trend of job loss.
P.166
58
The federal regulator of the Farm Credit System is the
U.S. Treasury.
Department of Housing and Urban Development.
Farm Credit Administration.
Farmers Home Administration.
Farm Credit Administration.
P.165
59
Community Redevelopment Agencies are sometimes funded by which of the following programs?
State income taxes
Tax-increment financing
Rental overrides
Federal income tax rebates
Tax-increment financing
P.193
60
Which of the following entities controls the Farm Credit System?
Its members
HUD
The Fed
The U.S. Treasury
It’s members
p.165
61
Lenders solicit borrowers for home equity loans because they can mitigate the risks of these loans by controlling the interest rate and
periodically checking the value of the collateral.
requiring private loan insurance.
obtaining priority lien position.
limiting loan terms to 12 months.
periodically checking the value of the collateral.
P.205
62
Equity in one’s home is generally acquired through a paydown of the first mortgage balance or a(n)
decrease in the property's value.
decrease in general interest rates.
increase in general interest rates.
increase in the property's value.
increase in the property's value.
| p.205
63
When home equity loans become due, borrowers usually
sell their property.
refinance the entire property.
have adequate funds to repay both loans.
seek junior loans.
refinance the entire property.
P.205
64
Some lenders provide combinations of first and second mortgages which are known as
split loans.
piggy-back loans.
jumbo loans.
convertible loans.
Piggy-back loans
p.202
65
A lifting clause in a junior loan contract allows the
borrower to refinance without disturbing the status of the junior loan.
lender to raise the interest rates periodically.
borrower to sell the property subject to the balance of the loan.
lender to sell the loans.
borrower to refinance without disturbing the status of the junior loan.
P.204
66
Unlike other types of home equity loans, home improvement loans may have
longer repayment terms.
lower-than-market interest rates
senior lien position.
no collateral requirements.
Longer repayment terms
p.206
67
Land developers sometimes use junior financing to pay for
foreclosed property.
unimproved land.
offsite improvements.
their own offices.
Offsite improvements
p.202
68
A property seller may choose to carry back a portion of the sale price when the buyer
pays for private mortgage insurance.
does not qualify for a conventional mortgage loan.
has another outstanding mortgage .
has insufficient cash for the entire down payment.
has insufficient cash for the entire down payment.
| p.202
69
Home equity loans are popular among borrowers because the interest they pay on these loans is
limited by federal usury laws.
deductible on federal income taxes.
limited by federal and California state usury laws.
exempt from federal income taxes.
deductible on federal income taxes.
P.205
70
The risk inherent in junior finance is that the
collateral property value will increase over time.
owner of the property will sell it before the junior loan is repaid.
underlying loan will be repaid before the junior loan.
senior lender will get all the money at a foreclosure.
senior lender will get all the money at a foreclosure.
| p.203
71
A completion bond for a construction loan is generally issued by
municipal governments.
a savings and loan.
an insurance company.
Freddie Mac.
An insurance company
p.228
72
When two or more properties are pledged as collateral for one loan, one of the properties may be removed from the obligation through the loan contract’s
blanket mortgage.
completion bond.
lease-option.
release clause.
release clause.
| p.230
73
Borrowers are attracted to 15-year mortgages because they allow them to
save money on interest.
suspend making payments for two-month periods.
borrow with zero downpayments.
qualify with even poor credit history.
save money on interest.
P.219
74
A three-year adjustable-rate loan
has annual interest rate adjustments for three years.
must be renewed every three years.
has its interest adjusted every three years.
is due in full in three years.
has its interest adjusted every three years.
P.216
75
A graduated payment loan with less than interest-only payments results in
negative amortization.
a high risk of default.
the interest rate being adjusted frequently.
the principal balance being reduced quickly.
Negative amortization
p.216
76
A construction lender requires all of the following activities to take place before advancing any draws except that the
lender will inspect the construction to confirm that it conforms with the plans and specifications.
builder will provide a take-out commitment for a permanent loan.
builder will deliver lien waivers for the work accomplished during the period.
builder will pay additional points at each draw to offset the time value of money.
builder will pay additional points at each draw to offset the time value of money.
p.229
77
Under HUD’s Home Equity Conversion Mortgage, monthly payments are paid to borrowers for
as long as equity is available.
ten years.
as long as they live in the home.
five years.
as long as they live in the home.
p.222
78
Under an open-end loan calling for obligatory future advances, the borrower is able to secure additional funds
only after the original loan advance is repaid.
under the terms of the original mortgage.
through a piggy-back loan at a higher interest rate.
by signing an addendum to the mortgage.
under the terms of the original mortgage.
P.224
79
An adjustable rate loan drawn at 8% with an annual interest rate cap of 2% and an overall interest rate cap of 4% can be adjusted to which of the following rates in the second year?
8%
12%
11%
10%
10%
The initial interest rate is 8%. It can only have a 2% max increase annually. Therefore, the first year is 8%, the second year can be increased by 2%, making it 10% total.
80
A lender’s annual return on a $100,000 wraparound loan drawn at 10% interest-only for five years, subject to an existing $65,000 loan at 7.5% interest is
4. 64%.
16. 50%.
14. 64%.
7. 14%.
14.64%
p.235
Step 1. The lender’s return (profit) of 100K at 10%, however they have existing loan (debt) of 65K at 7.5%
Step 2. Let’s take the 65K. Although they are paying 7.5 (debt) on this 65K, they are also receiving 10% (profit) on it. The difference is 2.5% profit on the 65K (10%-7.5%=2.5%), written as:
65,000 × 0.025 = 1,625
Step 3. We figured the profit for the 65K, now we will calculate the profit for the remaining balance of the total 100K (100K-65K= 35K). This remaining 35K is receiving a full 10%, written as:
35,000 × 0.10 = 3,500
Step 4. Add both profits. Reminder, the first 65K at 7.5% debt is covered (blanket) by the 10% profit, leaving only 2.5% of profit for the 65K. The remaining 35K receives the full 10%.
3,500 + 1,625 = 5,125
Step 5. That additional 35K that the lender provided will bring them a return of $5125. The percent of return would be written as $5,125/35K
$5125 divided by 35K= 0.1464= 14.64%
81
The inclusion of a Due-On-Sale clause in a loan contract
requires the owners to subordinate to a new loan.
is now prohibited by law.
requires the lender’s permission for its assumption.
creates an agreement for future advances.
requires the lender’s permission for its assumption.
p.281
82
A charge against a property wherein the property itself is made security for the performance of a certain act describes a(n)
lease.
easement.
lien.
license.
Lien
p.250
83
The note executed for a loan
is a lien on real property.
requires an accompanying mortgage.
is a recordable instrument.
is a fully enforceable promise to pay.
is a fully enforceable promise to pay.
| p.255
84
A Covenant of Seisin in a loan document
stipulates that the borrower has the authority to pledge the property as collateral.
eliminates the statutory redemption period.
allows the lender to dispossess a delinquent borrower.
accelerates the loan balance in a default.
stipulates that the borrower has the authority to pledge the property as collateral.
P.266
85
When a property is purchased ”subject-to” the balance of an existing loan, all of the following statements are true except that the
loan terms remain the same.
buyer becomes personally liable for the loan.
buyer must now make the loan payments.
seller remains personally liable for the loan.
buyer becomes personally liable for the loan.
p.282
86
A mortgage is a(n)
promise to pay.
lien on the property.
right in a property held by one who is not the legal owner of the property.
right in a property being held by one party for the benefit of another.
lien on the property.
P.250
87
Where possible, lenders prefer to use the deed of trust as a financing instrument primarily because it
transfers legal ownership to the beneficiary.
allows the loan to be paid off sooner.
avoids the time and costs of a judicial foreclosure.
allows a higher rate of interest to be charged.
avoids the time and costs of a judicial foreclosure.
P.254
88
Covenants that “run with the land” mean that they
must be renewed each time title changes.
expire automatically when a home is built on the land.
expire when the land is sold.
endure no matter how many times the property sells.
endure no matter how many times the property sells.
| p.250
89
The power of sale clause in a trust deed in a nonjudicial foreclosure allows the lender
a share in the delinquent borrower's other assets.
a lien against the property.
a shorter foreclosure period.
immediate title upon the borrower's default.
a shorter foreclosure period.
P.254
90
The provisions of a real property sales contract
allow the vendor to charge a high rate of interest to offset the risks involved.
retain title in the name of the vendor.
prohibit the vendee from selling the collateral.
pass legal title to the vendee.
retain title in the name of the vendor.
p.270
91
Credit scoring reflects a borrower’s
willingness to repay.
preferences regarding borrowing.
credit risk factors.
financial and social habits.
Credit risk factors
p.321
92
Underwriting a loan for real estate finance includes all of the following procedures except checking the
borrower’s ability to make payments.
borrower’s past credit history.
value of the property being pledged as collateral.
willingness of the lender to make the loan.
willingness of the lender to make the loan.
| p.291
93
Under a conventional loan with principal, interest, taxes, insurance, and homeowners fees totaling $850 per month, a borrower must earn at least which of the following gross monthly incomes to qualify (refer to the table on page 324 in your Finance textbook)?
$2,361
$2,073
$3,035
$2,931
$3,035
p.324
94
What is meant by the phrase “net worth is anything you want it to be, while cash is king”?
Net worth is the determining factor in credit evaluation.
Value is in the eye of the beholder.
Lenders place great weight upon a borrower's cash position.
Assets must exceed liabilities.
Lenders place great weight upon a borrower's cash position.
p.315
95
Borrowers are considered good credit risks and eligible for real estate loans when their
liabilities exceed their assets.
assets equal their liabilities.
current ratio is 2:1.
assets are increasing compared to their liabilities.
current ratio is 2:1.
p.315
96
When creating a loan for 50 percent of a collateral property’s value, most of the underwriting will be focused on the
borrower’s past credit history.
property’s location.
value of the collateral.
borrower’s ability to pay.
value of the collateral.
p.292
97
The income approach estimate of value for an apartment project generating $200,000 gross annual income with a total of 40% used for operating expenses and a 10% market capitalization rate is
$80,000.
$120,000.
$1.2 million.
$2.0 million.
$1.2 million
p.306
$200,000 X 40% = $80,000 operating expenses.
$200,000 – $80,000 = $120,000 Net Operating Income
(Formula on pg. 306): Value = Net Income / Capitalization rate
$120,000/10% = $1,200,000 Answer as stated is correct.)
In the example on page 306 , Operating Ratio Reciprocal (55%) merely states the percentage of expenses that are deducted from Gross Annual Income (maximum income) to arrive at the Net Operating Income. As an aside, many investors look at the percentage of Operating Ratio Reciprocal, looking for it to not exceed more than a certain percentage that they would be comfortable with before purchasing income property. The 10% capitalization rate is the required rate of return hoped for by the potential investor.
98
When checking on a loan applicant’s employment circumstances, all of the following items will be questioned except
length of employment.
wages.
job qualifications.
prognosis for continued employment.
Job qualification
p.316
99
The cost approach estimate of the value of a 10-year old house (50-year life expectancy, straight line depreciation), with 2,500 square feet at an $82 replacement cost per square foot, and a lot value of $15,000 is
$15,000.
$164,000.
$205,000.
$179,000.
$179,000
p.305
100
If an appraiser finds that the market, cost, and income approaches indicate values of $100,000, $105,000 and $110,000, and they are weighted 50%, 30% and 20% respectively, then the reconciliation value will be
$105,000.
$103,500.
$110,000.
$100,000.
$103,500
p.307
101
The two-point discount on the sale of a $175,000 home subject to a new $150,000 loan is
$300.
$3,500.
$350.
$3,000.
$3,000
p.338
102
Which of the following items is usually charged to the buyer?
Impound fund balance on assumed loan
Proration of unpaid property taxes
Documentary transfer tax
Owner’s title policy premium
Impound fund balance on assumed loan
p.339
103
In real estate finance, an abstract is a(n)
plot plan of a parcel of land.
opinion of title.
title insurance policy.
synopsis of the recorded history of a property.
synopsis of the recorded history of a property.
| p.332
104
In order to remove a cloud from a property’s title, the owner must file a(n)
suit to quiet title.
lis pendens suit.
eviction suit.
suit to foreclose.
Suit to quiet title
p.335
105
If the property taxes and insurance premiums are due in November and a new loan closes on the following first day of January, how many months’ impounds will be charged to the borrower?
3 months
9 months
2 months
6 months
2 months
p.342
106
In the real estate lending business, assignment refers to
sale of a loan on the secondary market.
changing the interest rate on a loan.
substitution of one borrower for another.
transferring the servicing of a loan.
sale of a loan on the secondary market.
p.347
107
Title insurance guarantees the validity and accuracy of the
title search.
real estate transfer disclosures.
borrower's loan application.
homeowner's insurance policy.
Title search
p.333
108
All of the following items are categorized as actual notices except a(n)
tenant in possession.
recorded lien.
unrecorded lien.
encroachment.
Unrecorded lien
p.332
109
Which of the following amounts is the interest adjustment on a new $100,000 loan at 7% issued on March 20th, if the first payment is not due until May 1? (Use 360 days)
```
$360.00
$797.22
$7,000.00
$19.44
p.p. 343
100,000 × 0.07 = 7,000/360 = 19.44 × 41 = 797.22
```
$797.22
The reason for the use of 41 days is that “mortgage interest payments are normally paid in arrears.” (Please See page 341 of California Real Estate Finance, ninth edition, paragraph entitled Interest Adjustments). Thus, add the 11 days for March, and the 30 days for April totaling 41 days times $19.4444, daily proration, equals $797.22 interest adjustment. The first full mortgage payment is not due until May 1st and that payment is for the 30 days in May (in arrears).
110
Which of the following items is usually charged to the seller?
Loan origination fees
Lender’s title policy
Proration of prepaid insurance premiums
Prepayment penalties
Prepayment penalties
| p.342
111
Freddie Mac is a(n)
sub-agency of the DVA.
originator of junior loans.
insuring agency of the FHA.
secondary market player.
secondary market player.
| p.361
112
When Fannie Mae purchases mortgage loans from lending institutions, they are packaged into
debentures.
mortgage-backed securities.
real estate mortgage investment conduits.
pass-through certificates.
mortgage-backed securities.
p.358
113
Which agency guarantees that investors will receive timely payments of principal and interest on mortgage-backed securities backed by the FHA or DVA?
Freddie Mac
Fannie Mae
Federal Home Loan Bank
Ginnie Mae
Ginnie Mae
| p.363
114
Which of the following types of loans do lenders generally keep in their own investment portfolios rather than sell on the secondary market?
Adjustable-rate
Jumbo
Reverse mortgage
Conventional
Jumbo
p.360
115
The Federal Housing Finance Agency (FHFA) regulates
HUD, FHA, and Cal-Vet.
HUD, FHA, and the Federal Reserve.
Fannie Mae, Freddie Mac, and the FHLB.
FHLB, FHA, and DVA.
Fannie Mae, Freddie Mac, and the FHLB.
p.355
116
Loan originators that sell mortgages to Fannie Mae can
continue to count the loans as assets in their portfolios.
follow their own underwriting standards.
repurchase the loans at a later date.
continue to service the loans.
continue to service the loans.
| p.357
117
Fannie Mae is a
a quasi-private corporation with government oversight
government agency regulated by the Fed.
branch of the U.S. Treasury.
sub-agency of HUD.
A quasi-private corporation with government oversight
p.356
118
Fannie Mae currently buys loans at
par.
a free market auction.
an administered price.
a premium.
An administered price
p.356
119
All of the following agencies are participants in the secondary mortgage market except
CalHFA.
Fannie Mae.
Freddie Mac.
Ginnie Mae.
CalHFA
p.354
120
The term used to describe loans that conform to the Fannie Mae/Freddie Mac qualifying guidelines is
regular.
conforming.
standard.
conventional.
conforming
P.360
121
After a foreclosure of an FHA insured loan, the lender will receive compensation in the form of
10% of the balance owed.
5% of the balance owed.
the balance owed plus costs.
title to the property.
the balance owed plus costs.
p.390
122
Recasting a real estate loan involves all of the following activities except
clearing any mechanic’s or materialman’s liens.
forgiving any delinquent payments.
designing a new loan to take the place of the old.
clearing any junior liens.
forgiving any delinquent payments.
p.377
123
Most foreclosures occur as a result of the nonpayment of
insurance premiums.
principal and interest.
needed repairs.
property taxes.
principal and interest.
p.372
124
Under a DVA foreclosure, the lender usually recovers the
top portion of the loan balance.
property’s title.
full amount of the loan balance.
nothing.
top portion of the loan balance.
p.390
125
In California, borrowers pay a fee for a service company that track the borrowers’ payments of
hazard insurance premiums.
utility payments.
private mortgage insurance.
property taxes.
property taxes.
| p.372
126
A judicial foreclosure involves all of the following actions except
lis pendens.
strict forfeiture.
judgment decree.
public auction.
Strict forfeiture
p.383
127
Prior to actually foreclosing, many lenders attempt all of the following strategies except a(n)
payment moratorium.
workout.
advance of more funds.
loan recasting.
advance of more funds.
p.376
128
The clause in a real estate loan that triggers a foreclosure in the event of a default is the
acceleration clause.
escalation clause.
call clause.
due-on-sale clause.
acceleration clause.
P.372
129
As a practical matter, a foreclosure should occur only when the
I. market value of the collateral is less than the balance of the loan.
II. borrowers can no longer make the payments.
Both I and II
Neither I nor II
I only
II only
Both I and II
p.375
130
A Deed in Lieu of Foreclosure accepted by the lender
ends the borrower’s liability to the rights of third parties having an interest in the property.
completely clears the borrower’s credit record.
is valid to avoid the inclusion of the property as an asset in a bankruptcy.
ends the borrower’s liability for the loan balance.
ends the borrower’s liability for the loan balance.
| p.375
131
In an equity participation agreement, lenders assume a second role as
tenant.
insurer.
owner.
manager.
Owner
p.398
132
Under a split-fee financing agreement, a lender purchases land, leases it to a developer, and then
shares development and management decisions.
sells it to the developer at the end of the lease term.
finances the improvements to be constructed.
sells securities representing interests in the development.
finances the improvements to be constructed.
p.399
133
The portion of realized capital gain that is subject to income tax in the year received is called
liability gain.
net gain.
recognized capital gain.
retained capital gain.
Recognized capital gain
p.400
134
A sale-leaseback offers the property owner an opportunity to
avoid paying real estate transfer fees.
retain ownership over the property.
refinance at a lower interest rate.
free capital for other investments.
free capital for other investments.
| p.404
135
Investors who use pyramiding anticipate that the
demand for property will decline.
lender will consolidate loans.
interest rates will fall.
original property will increase in value.
original property will increase in value.
| p.401
136
In real estate finance, a kicker refers to a(n)
discount.
low interest rate.
bonus payment.
unseen risk.
bonus payment.
Page 398
137
If the lease in a sale-leaseback is written for 30 years or longer, the IRS tends to consider the transaction a(n)
equity participation.
1031 exchange.
seller refinance.
prohibited transaction.
1031 exchange
p.396
138
Money acquired by refinancing is
subject to capital gains tax.
not taxable until the property is sold.
subject to taxes upon the completion of the refinance process.
subject to ordinary income tax .
not taxable until the property is sold.
P.400
139
An investor who periodically refinances owned properties and then uses proceeds from the new loans to purchase new properties is
exchanging.
pyramiding.
prorating.
split-fee financing.
Pyramiding
p.401
140
A seller might refinance a property prior to a planned sale in order to secure a loan
with an adjustable rate of interest.
that can be assumed by the buyer.
with a lower interest rate.
that requires a lower down payment.
that can be assumed by the buyer.
P.397
141
Which of the following single deposits must be made to accumulate $10,000 in five years at 8% interest (refer to the table on page 450 of the Finance textbook)?
$2,504.57
$6,000.00
$6,805.96
$1,704.56
$6,805.96
p.450
142
Using the rule-of-thumb approach, which of the following amounts will a 15% investor pay for a one-year old, three-year loan for $10,000 payable at 10% interest only?
$10,000
$9,000
$8,500
$7,000
$9000
p.When buying a loan, sometimes referred to as paper, the rule-of-thumb approach states, “take the difference of the nominal interest rate (the interest rate named on the loan) and the expected rate (the discount rate) and multiply it by the number of years the loan has to run.” (page 446)
Pg. 446
The difference between the nominal rate of 10% and the discount rate of 15% is 5%. The loan has two years remaining. Five percent difference times two years = 10% discount factor. Ten percent times $10,000 = $1,000. $10,000 minus the discount of $1,000 = $9,000. Thus, the investor buys a $10,000 loan for $9,000. However, the borrower must pay back the full amount of the $10,000 loan to the investor. Therein lies the potential for the investor’s profit.
143
Simple interest is described as interest paid on
interest earned.
the total loan.
the principal balance only.
savings accounts.
the principal balance only.
p.412
144
Which of the following regular annual deposits must be made to accumulate $10,000 in ten years at 8% (refer to the table on page 450 of the Finance textbook)?
$1,000.00
$4,631.98
$1,490.31
$690.29
$690.29
p.450
145
When points are charged to make a loan, the effective rate of interest is
equal to the nominal rate.
reported to Fannie Mae.
higher than the nominal rate.
lower than the nominal rate.
higher than the nominal rate.
p.416
146
What is the interest portion of the first payment on a $2,500 loan to be repaid in 12 equal monthly payments at 9% interest?
$225.00
$18.75
$208.33
$227.08
$18.75
p.438
147
The present value of money to be received in the future is worth
more than its face value.
less than its face value.
whatever the market indicates.
exactly its face value.
less than its face value.
p.424
148
Which of the following annual payments is required to amortize a $10,000 loan at 8% interest for 15 years (refer to page 450 of the Finance textbook)?
$368.29
$3,152.48
$1,168.30
$666.66
$1,168.30
p.450
149
When employing an add-on interest schedule, the effective rate of interest is
discounted.
doubled.
waived.
halved.
Doubled
p.414
150
Compound interest is described as interest paid on
the total principal owed.
installment loans.
interest earned.
the principal balance only.
Interest earned
p.417
151
List types of concurrent ownerships.
- Tenants in common
- Partnerships
- Community property
- Community property with right to survivorship
- Joint tenancy
