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RE Pre-Licensing Exam > Chapter 11 > Flashcards

Chapter 11 Flashcards

1
Q

Acceleration Clause

A

A provision in a mortgage or deed of trust that permits the lender to declare the entire principal balance of the debt immediately due and payable if the borrower is in default.

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2
Q

Adjustable Rate Mortgage (ARM)

A

One in which the interest rate changes according to changes in a predetermined index.

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3
Q

Alienation Clause

A

A clause in a mortgage or deed of trust that entitles the lender to declare the entire principal balance of the debt due and payable immediately if the borrower sells the property during the mortgage term. This clause prohibits the ability of a borrower to assume the loan. Also known as a due-on-sale clause.

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4
Q

Amortization

A

The gradual reduction of a mortgage loan through periodic payments or principal and interest over a specific term to satisfy a mortgage loan.

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5
Q

Arrears

A

Delinquent in meeting an obligation. The payment of interest for a prior period as scheduled.

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6
Q

Balloon Payment

A

One in which the scheduled payment will not fully amortize the loan over the term. Therefore, it requires a final payment called a balloon payment, larger than the uniform payments, to satisfy the debt fully.

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7
Q

Beneficiary

A

The recipient of a gift of personal property by will. The lender in a deed of trust.

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8
Q

Buydown Loan

A

A loan with a reduced interest rate that a seller, developer, or buyer has obtained by paying money up front.

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9
Q

Certificate of Reasonable Value (CRV)

A

A document establishing the value of a property as the basis for the loan guarantee by the Department of Veterans Affairs to the lender.

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10
Q

Conforming Loans

A

Those processed on uniform loan forms and according to FNMA/FHLMC guidelines.

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11
Q

Consumer Financial Protection Bureau (CFPB)

A

The CFPB was established to prevent abuses by lenders, including predatory lending and inappropriate fees, as well as to incorporate federal regulations pertaining to consumers into one overall agency. The CFPB has broad authority to implement necessary rules for consumer protection in financial products. In addition, many of the consumer financial protection responsible of many federal agencies were transferred to the CFPB, enabling the agency to respond quickly to any questionable business practice without the necessity of Congress having to pass legislation.

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12
Q

Conventional Loan

A

One in which the federal government does not insure or guarantee the payment to the lender.

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13
Q

Deed in Lieu of Foreclosure

A

A conveyance of title to the lender by a borrower in default to avoid a record of foreclosure. Also called friendly foreclosure.

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14
Q

Deed of Trust

A

A form of security instrument pledging real property as security for the loan by conveying legal title to a third party, who is called a trustee until the loan is paid in full.

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15
Q

Defaults

A

Failure to perform a mortgage obligation.

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16
Q

Defeasance Clause (to defeat the mortgage)

A

The clause in a mortgage or a deed of trust giving the borrower the right to redeem the title and have the mortgage lien released at any time prior to default by paying the debt in full.

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17
Q

Deficiency Judgment

A

A judgment obtained by a lender for the difference between the amount of foreclosure sale proceeds and the amount needed to satisfy the mortgage debt.

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18
Q

Disintermediation

A

The loss of funds available to lending institutions for making mortgage loans caused by the withdrawal of funds by depositors for making investments that provide greater yields.

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19
Q

Due-on-sale Clause

A

See alienation clause - A clause in a mortgage or deed of trust that entitles the lender to declare the entire principal balance of the debt due and payable immediately if the borrower sells the property during the mortgage term. This clause prohibits the ability of a borrower to assume the loan. Also known as a due-on-sale clause.

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20
Q

Equal Credit Opportunity Act (ECOA)

A

A federal law prohibiting discrimination in consumer loans.

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21
Q

Equity

A

Equity is the difference between the market value of the property and what is owed on it.

Example: If a homeowner pays $100,000 using a no-down payment Department of Veterans Affairs (VA) loan for a property valued at $100,000, he has no equity. If he uses a loan with a 5% down payment, he begins with equity of $5,000. As payments are made, the part of the payment applied to the principal reduces the amount owed, producing equity.

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22
Q

Equity of Redemption (Right of Redemption)

A

The right of the borrower to pay off what is owed and redeem the title to the property prior to final foreclosure sale. Also known as right of redemption

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23
Q

Escrow Account

A

An account maintained by a real estate broker in an insured bank for the deposit of other people’s money; also called trust account. An account maintained by the borrower with the lender in certain mortgage loans, also known as an impound account or reserve account, to accumulate the funds to pay an annual insurance premium, a real property tax, and/or a homeowner’s association assessment.

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24
Q

Federal Home Loan Mortgage Corporation (FHLMC), or Freddie Mac

A

The shortened name for the Federal Home Loan Mortgage Corporation, an agency that purchases mortgages, especially conventional mortgages, in the secondary mortgage market.

25
Q

Federal Housing Administration (FHA)

A

The federal agency that insures mortgage loans to protect lending institutions.

26
Q

Federal National Mortgage Association (FNMA), or Fannie Mae

A

A privately owned corporation that purchases FHA, VA, and conventional mortgages.

27
Q

FHA - insured Loan

A

A mortgage loan in which the payments are insured by the Federal Housing Administration.

28
Q

Foreclosure

A

The legal procedure in which the lender sells the collateral in order to pay off the existing loan in the event of default by the borrower. The process used to terminate the borrower’s equity, or right, of redemption.

29
Q

Foreclosure Under Power of Sale

A

See nonjudicial foreclosure - A form of foreclosure that does not require court action to conduct a foreclosure sale. Also called foreclosure under power of sale.

30
Q

Government National Mortgage Association (GNMA), or Ginnie Mae

A

A government agency that purchases FHA and VA mortgages.

31
Q

Graduated Payment Mortgage (GPM)

A

One in which the payments are lower in the early years but increase on a scheduled basis until they reach an amortizing level.

32
Q

Grantor

A

One who conveys title to real property by deed.

33
Q

Home Equity Mortgages

A

Conventional mortgage loan - is the “home equity loan” (“home equity line of credit” (HELOC)). In this type loan, the borrower will pledge his home as collateral to set up a line of credit that can be drawn against.

Typically the lender will establish a maximum amount of loan that can be obtained using the HELOC; the borrower can borrow funds and later pay down the balance and later borrow again using the same mortgage. Unlike most mortgage loans, the borrower can pay the balance down to zero, but the mortgage loan still exists where the borrower can continue to borrow against the line of credit. These will often serve as a second mortgage and can result in foreclosure if the borrower becomes delinquent on the payments.

34
Q

Hypothecation

A

Pledging property as security for the payment of a debt without giving up possession.

35
Q

Insured (conventional loan)

A

One in which the loan payment is insured by private mortgage insurance to protect the lender.

36
Q

Interest

A

Money paid for the use of money. Also an ownership or right.

37
Q

Judicial Foreclosure

A

A court proceeding to require the property be sold to satisfy a mortgage lien.

38
Q

Know Before You Owe

A

Is a brief guide to the mortgage loan process and will explain the loan process and what the borrower’s rights and obligations will be. Just like the LE, this booklet must be provided to the borrower within three days of the loan application.

39
Q

Lien Theory

A

The legal theory that a mortgage creates a lien against the real property pledged in the mortgage to secure the payment of a debt.

40
Q

Liquidity

A

The ability to convert an asset into cash.

41
Q

Loan Assumption

A

The transfer of loan obligations to a purchaser of the mortgaged property.

42
Q

Loan Cap

A

To regulate how much the interest rate can adjust, the lender will utilize a cap. It is quite normal for conventional ARM loans to utilize caps of two-sixths. The lower number will reflect the periodic cap of 2%, and the higher reflects the life of the loan cap (6%). This means that the loan interest rate, no matter what the market index and margin may be, cannot increase more than 2% in any one adjustment period or more than 6% over the life of the loan.

43
Q

Loan-to-value (LTV) ratio

A

The relationship between the amount of a mortgage loan or the sales price, whichever is lower and the lender’s opinion of the value of the property pledged to secure the payment of the loan.

44
Q

Loan Underwriting

A

Is the process by which an underwriter reviews loan documentation and evaluates a buyer’s creditworthiness and the value of the property to be pledged as security for the payment of the note as well as to determine the ability of the loan to be sold within the secondary market.

The loan originator collects all the documentation and presents it to the underwriter who may be an employee of the mortgage company, a private mortgage insurance company, or a government agency such as FHA, VA, RD, or FSA. These government agencies, except RD and FSA, allow approved lenders to underwrite the government loans they process. The result of this evaluation is an approval or disapproval of the loan.

45
Q

Mortgage

A

A written instrument used to pledge a title to real property to secure the payment of a promissory note.

46
Q

Mortgage Banker

A

A form of organization that makes and services mortgage loans from its own monies.

47
Q

Mortgage Broker

A

One who arranges a mortgage loan between a lender and borrower for a fee.

48
Q

Mortgage Insurance Premium (MIP)

A

A fee charged by the Federal Housing Administration (FHA) to insure FHA loans. There is both an upfront fee, which can be added to the loan amount or paid in cash at closing, and an annual fee, which can be paid with the monthly payments.

49
Q

Mortgage Note

A

Is an IOU (promissory note) that is backed by a mortgage or a deed of trust pledging the property as collateral for the loan. A valid mortgage note must contain a promise to pay a specified amount of money, must specify the terms of the repayment, and must be signed by the borrower. When the note is repaid, the mortgage or deed of trust is canceled.

50
Q

Mortgagee & Mortgagor

A

Mortgagee: The lender in a mortgage loan receiving a mortgage from the borrower/mortgagor.

Mortgagor: The borrower in a mortgage loan who executes and delivers a mortgage to the lender.

51
Q

Negative Amortization

A

When the loan payment amount is not sufficient to cover interest due, the shortfall is added back into principal, causing principal to grow larger after payment is made.

52
Q

Negotiable Note

A

Is a written promise to pay a specified sum of money according to specified terms to the bearer or holder of the note.

The negotiable note will use such terms as “to bearer,” “to holder,” or “to a person or corporate or business entity, its heirs, successors, or assigns.

It will not name an individual or entity as the payee, but rather it allows the payee to transfer its rights to receive payment to a third party.

53
Q

Nonconforming Loans

A

Conforming loans - Those processed on uniform loan forms and according to FNMA/FHLMC guidelines. - Nonconforming conventional loans do not meet these guidelines and standards.

54
Q

Nonjudicial Foreclosure

A

A form of foreclosure that does not require court action to conduct a foreclosure sale. Also called foreclosure under power of sale.

55
Q

Nonnegotiable Note

A

Is a written promise to pay a specified sum of money according to specified terms to a particular individual or corporation, this limiting its ability to be sold in the secondary mortgage market.

56
Q

Nonrecourse Note

A

A note in which the borrower has no personal liability for payment.

57
Q

Open-end Mortgage

A

One that may be refinanced without rewriting the mortgage.

58
Q

Package Mortgage

A

One in which personal property as well as real property is pledged to secure payment of the note.

59
Q

Periodic Cap

A

Caps are usually both a periodic cap (per adjustment period) as well as a life of the loan cap.

RE Pre-Licensing Exam (20 decks)

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