Ch. 10 Exam Questions

Question 1

In a tight money market, one would expect to find:

Answer 1

A slower sales pace, as potential buyers wait for interest rates to fall.

In a tight money market, interest rates are high because there is less money for lending.

Question 2

The Federal Reserve, in order to slow down and escalating rate of inflation, May:

Answer 2

Raise the discount rate charged to member banks.

In an inflationary trend, the government will want to slow down the economy and may raise the discount rate as one method of decreasing the money supply in circulation.

Question 3

The Federal Reserve normally affects the supply of money in circulation by all of the following, except:

Answer 3

Buying or selling gold on the international market.

Changing reserve requirements, buying or selling bonds, and adjusting the discount rate are ways the federal reserve affect the money supply in circulation.

Question 4

The prime rate is governed by:

Answer 4

Individual banks.

The prime rate is the rate each bank offers to their most preferred commercial customers.

Question 5

The federal national mortgage Association (Fannie Mae) was originally created for the primary purpose of:

Answer 5

Increasing the amount of housing loan funds available.

Question 6

Today, Fannie Mae’s primary responsibility is to:

Answer 6

Maintain an active secondary market for a mortgages.

Question 7

All of the following are primary lenders, except:

Answer 7

FHA.

FHA is not lender, rather it is an insurer of private mortgages.

Question 8

And endorsement by a payee in which the payee signs the negotiable instrument but does not specify a particular person who is to receive the funds is known as a:

Answer 8

Blank endorsement.

Question 9

The period within which a mortgagor may reclaim ownership after foreclosure and sheriffs sale is known as the:

Answer 9

Statutory period of redemption;

A judicial foreclosure and sheriffs sale provides an opportunity for a foreclosed property owner to redeem the property following the sale. This is called the statutory period of redemption.

Question 10

A provision in any mortgage that prohibits or limits a borrower from paying more than the monthly mortgage amounts in order to pay off a loan ahead of schedule is known as:

Answer 10

Pre-payment penalty clause.

Conversely, a prepayment privilege allows accelerated payment with no penalty.

Question 11

Construction loans are generally designed to:

Answer 11

Provide high interest short term funds to builders.

Question 12

Elite and sale contract refers to the:

Answer 12

Purchase of property wherein the seller becomes the buyers lender.

Land contracts are used when a seller becomes the lender for the buyer and retains title until the debt is retired.

Question 13

When an individual obtains financing for undeveloped land with the intent on constructing a home on the land, the individual should make sure that the loan has:

Answer 13

A subordination clause.

A subordination clause in the loan allows a subsequent lien to take lien priority.

Question 14

Sean owns five parcels of property that he is willing to hypothecate for a loan to develop the parcels. Sean will be required to execute a:

Answer 14

Blanket mortgage;

A blanket mortgage encumbers more than one parcel of land as security for one loan.

Question 15

In a sheriffs sale for foreclosure, any excess money received beyond the lenders judgment and costs:

Answer 15

Must be given to the foreclosed upon owner.

Question 16

A mortgage who’s payment includes a share of the property taxes and hazard insurance in addition to principal and interest is known as a:

Answer 16

Budget mortgage;

A budget mortgage is any mortgage having an impound account for taxes and insurance.

Question 17

When a property secured by a deed of trust has been paid in full, the beneficiary will direct the trustee to execute a:

Answer 17

Deed of reconveyance;

Under a deed of trust, within 30 days of a loan pay off the beneficiary (lender) must send the trustee a request for reconveyance to the trustor (property owner). Within 21 days of receipt, the trustee must execute and record a deed of reconveyance and notify the parties. This extinguishes the lien and deeds back to the owner the right of sale given to the trustee under the deed of trust.

Question 18

When a trustees sale has been held and the successful bidder is given a trustees deed, the alienated homeowner has no:

Answer 18

Statutory right of redemption.

A non-judicial foreclosure under a trust deed provides no statutory right of redemption, nor can a lender obtain a deficiency judgment if the proceeds do not cover the amount owing to the lender.

Question 19

A state where the loan creates an encumbrance on the title to the Real Property pledged as security for the loan, rather than the title being held by the lender until the debt is fully retired, is known as a:

Answer 19

Lien theory state.

In a lien theory state, a lien creates a lien on the property and the buyer receives title at closing. In a title theory state, the lender retains title until the debt is retired (paid in full).

Question 20

A first mortgage is defined as the:

Answer 20

Mortgage that has been recorded ahead of all other mortgages.

A first mortgage is one that has first lien priority position. This will be the mortgage that was recorded first, regardless of when it was executed.