***Ch 16. Types and sources of mortgage money***

Question 1

A mortgage loan with a calculated interest rate that may increase or decrease during the term of the loan based on a pre-determined index

Answer 1

Adjustable Rate Mortgage (ARM)

Question 2

A mortgage loan that is fully repaid according to a periodic and consistent schedule that includes both principal and interest

Answer 2

Amortized Mortgage

Question 3

A final installment payment on a note that is much larger than the previous monthly payments on the note

Answer 3

Balloon Payment

Question 4

when two or more items of real property are pledged as collateral undergone mortgage loan

Answer 4

Blanket Mortgage

Question 5

A loan that meets FNMA and FHLMC borrowing requirements

Answer 5

Conforming Loan

Question 6

When depositors withdraw money from savings for direct investment with a borrower. Removes the intermediary and allows individuals to lend money to borrowers directly.

Answer 6

Disintermediation

Question 7

typically a junior loan that is based on the equity portion of the home value

Answer 7

Home Equity Loan

Question 8

Financial indicator that will be the basis for an adjustable rate mortgage interest fluctuations

Answer 8

Index

Question 9

acting as middlemen between depositors and borrowers by allowing consumers to deposit funds and in turn invest that money for a profit

Answer 9

Intermediation

Question 10

Also known as a Contract for Deed, seller finances the transaction, because of the outstanding debt the buyer owes the seller, the seller withholds title at closing and agrees to deliver title when the loan has been repaid in full or pre-agreed amount

Answer 10

Land Contract

Question 11

A method for amortizing a mortgage whereby the borrower pays the same amount each month, and the principal and interest change each payment

Answer 11

Level Payment Plan

Question 12

Sets the upper and lower interest limits for an adjustable rate mortgage

Answer 12

Lifetime Cap

Question 13

The additional rate of interest charged over and above the index rate in an adjustable rate mortgage. also fixed and remains constant throughout the life of the loan

Answer 13

Margin

Question 14

payment for mortgage insurance which protects the lender in the event of default

Answer 14

Mortgage Insurance Premium (MIP)

Question 15

When the monthly payment is insufficient to pay the accumulated interest for that month, resulting in an increase in the amount of the principal

(instead of reducing the principal balance of a loan, the loan balance actually gets larger)

Answer 15

Negative Amortization

Question 16

A loan that does not meet FNMA and FHLMC borrowing requirements

Answer 16

Nonconforming Loan

Question 17

A debt secured by pledge of both real property and personal property such as range, refrigerator or furniture.
(chattel = personal property)

Answer 17

Package Mortgage

*commercial loans often accept chattels as part of the mortgage

Question 18

principal and interest are made, but not enough is paid by the end of the loan term to pay the loan amount in full and a balloon payment is due at the end.

Answer 18

Partially Amortized Mortgage

Question 19

Limits the time period interval for ARM interest rate adjustments

Answer 19

Periodic Cap

Question 20

Non-governmental mortgage insurance needed to insure the portion of the mortgage balance that exceeds an 80% loan to value ratio

Answer 20

Private Mortgage Insurance (PMI)

Question 21

is often associated with seller financing. It differs from a traditional mortgage in that the mortgage is exchanged for a debt without money actually transferring. the seller allows the buyer to pay an agreed amount over time without money actually passing hands.

Answer 21

Purchase money mortgage

Question 22

designed to help senior citizens stabilize their income. Homeowners 62 years of age or older can “sell their equity” to the bank for payments over the remaining portion of their lives. When the homeowner dies, their property is either transferred to the bank or sold to pay the bank back for the payments.

Answer 22

Reverse annuity mortgage (RAM)

Question 23

a below market interest rate offered on adjustable rate mortgages utilized attract new borrowers

Answer 23

Teaser rate

Question 24

A mortgage loan that provides for periodic payments of interest only, with a balloon payment at the end of the loan term

Answer 24

Term mortgage

Question 25

lump sum mortgage insurance premium paid at closing for FHA loans

Answer 25

UFMIP

Up Front Mortgage Insurance Premium

Question 26

This type of mortgage accelerates the principal debt reduction, which satisfies the mortgage debt sooner, payments are made 26 times each year rather than 12 times

Answer 26

Biweekly mortgage

Question 27

Brokers are not allowed to accept a listing on real property covered by a blanket mortgage unless there is a what in place to avoid fraud

Answer 27

Release clause

Question 28

a type of loan where the interest rate remains the same, but payments in the early stage of the loan are low, but rise gradually through the term of the loan because it is anticipated that the borrower’s income will rise in the future. This type of loan does NOT include negative amortization

Answer 28

Growing Equity Mortgage

(GEM)

Question 29

stimulates construction of new homes and homeownership by encouraging lenders to release greater amounts of funds for financing residential home. protects lenders in the event of borrowers default.

Answer 29

Federal Housing Administration (FHA)

Question 30

Which loan has loan limits?

Answer 30

FHA loan

Question 31

What is the qualifying ratio for FHA loans?

Answer 31

31% housing expense ratio / 43% total obligations ratio

Question 32

What is the qualifying ratio for a VA loan?

Answer 32

obligations ratio not to exceed 41% of how much they make per month

Question 33

What is the qualifying ratio for a conventional loan?

Answer 33

28%housing expense ratio / 36% total obligation ratio

Question 34

Who has the ability to influence the cost of borrowing money in the banking system and control the amount of money in circulation with several economic tools

Answer 34

Federal Reserve System

Question 35

What are the 3 main things the Federal reserve system does?

Answer 35

Changing the discount rate
Changing the reserve requirement
Open market operations

Question 36

what is the interest rate that the Federal reserve system charges its member banks?

Answer 36

discount rate

Question 37

what is the most effective method of influencing long term mortgage interest rates?

Answer 37

open market operations

Question 38

what happens when the feds buy and sell securities

Answer 38

buy securities interest rates go down
sell securities interest rates go up

*think buy low sell high

Question 39

What are the 3 agencies that are the major contributors in the secondary mortgage market?

Answer 39

Federal National Mortgage Association(FNMA) “Fannie Mae”

Government National Mortgage Association (GNMA) “Ginnie Mae”

Federal Home Loan Mortgage Corporation (FHLMC) “Freddie Mac”

Question 40

Which agency purchases all three types of loans and has become a corporation trade on the New York stock exchange?

Answer 40

Federal National Mortgage Association(FNMA) “Fannie Mae”

Question 41

Which agency is a government agency guaranteeing funding through mortgage-backed securities,does not lend money, but rather acts as a guarantor with the support of the full faith and credit of the United States Government.

Answer 41

Government National Mortgage Association (GNMA) “Ginnie Mae”

Question 42

Which agency buys not only conventional loans, but FHA and VA loans as well, and is a quasi-government agency that competes with FNMA, and is a corporation traded on the New York Stock Exchange

Answer 42

Federal Home Loan Mortgage Corporation (FHLMC) “Freddie Mac”

Question 43

created to prohibit discrimination by lenders based on race, religion, age, sex, marital status, national origin or receipt of money from public assistance programs.

Answer 43

Equal Credit Opportunity Act (ECOA)

Question 44

What act is implemented by the Federal Reserve Regulation “Z”.

Answer 44

Truth in lending act

Question 45

Which act informs consumers on the true cost with interest

Answer 45

Real Estate Settlement Procedures Act (RESPA)

Question 46

What 3 things are lenders required to provide applicants according to RESPA?

Answer 46

An information booklet on borrowing within three days of application
A good-faith estimate of closing costs within three days of application
A uniform settlement statement (HUD-1) no later than closing. If the borrower wishes to review the settlement statement prior to closing, the lender/closing agent must provide at least one day for such a review

Question 47

In a fully amortized mortgage although the monthly payment stays the same, what happens to the portion of each monthly payment thats applied to reduce the principal debt?

Answer 47

increases each month

Question 48

Which type of mortgage requires an upfront mortgage insurance payment plus a monthly mortgage insurance payment?

Answer 48

FHA

Question 49

Mortgage bankers area example of?

Answer 49

Disintermediation

Question 50

The amount of a VA guarantee on a mortgage loan depends on?

Answer 50

the amount of the loan