Ch. 16 - Real Estate Finance 2

Question 1

______ _____ is a division within the
Department of Housing and Urban Development
(HUD). Its basic mission when it was established
in 1968 was to create and operate a
mortgage-backed security program for the
Federal Housing Administration and Veterans
Administration mortgages.

Answer 1

Ginnie Mae (It was called a pass-through
security because the monthly principal
and interest payments were collected
from the borrowers and then "passed
through" to the investors.)

Question 2

_____ _____ is a shareholder-owned company
that works to make sure mortgage money is
available for people across the country. It does
not lend money directly to home buyers. They
work with lenders to make sure the lenders don’t
run out of mortgage funds.

Answer 2

Fannie Mae

Question 3

_____ ______ was the first

mortgage-backed security

Answer 3

"pass-through security" It was called this
because the monthly principal and
interest payments were collected from
the borrowers and then "passed through"
to the investors

Question 4

The \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ requires lenders
to disclose to buyers the true cost of
obtaining credit, so that borrowers can
compare the costs of various lenders. It is
implemented by Regulation Z.

Answer 4

Truth in Lending Act

Question 5

A ________, is the ratio of
the mortgage principal to
the value of the property the
borrowers are purchasing.

Answer 5

loan-to-value-ratio (LTV) **(a higher
LTV means a larger loan amount is
being borrowed and a smaller down
payment is being made.)

Question 6

The \_\_\_\_ \_\_\_\_\_ establishes the
borrower's capacity to pay by
limiting the percent of gross income
a borrower may spend on housing
costs.

Answer 6

“Income Ratio” | Housing costs include the principal, the
interest, the taxes and homeowner’s insurance and may
also include some monthly assessments for mortgage
insurance and utilities. Conventional loans typically require
this ratio to be under 28%, but FHA guidelines require the
income ratio to be no more than 29%.

Question 7

The evaluation process used to
determine the borrower's ability to
repay a loan and estimate the value
of the property being used as
collateral.

Answer 7

Underwriting

Question 8

The following are examples of_______ :
Permanent employment
Self-employment under certain conditions
Employment that has generated a regular income for at
least one to two years, such as bonuses or commissions
Some income from secondary sources, such as rental
income or investments

Answer 8

Stable income

Question 9

When lenders provide loans to
unqualified homebuyers - those who
have poor credit and whose ability to
repay the loan is risky because of their
income, It is referred to as \_\_\_\_\_\_\_ .

Answer 9

sub-prime loans

Question 10

Encouraging a borrower to
refinance a loan so that the lender
can charge high points and fees for
the new loan is an example of,
\_\_\_\_\_\_\_\_

Answer 10

loan flipping