Chapter 11 Quiz

Question 1

Land contracts are:

A. A form of seller financing.

B. When a borrower pays monthly mortgage payments to a bank.

C. Always prepared by attorneys.

D. Not usually recorded because they are private.

Answer 1

A. Land contracts are a form of seller financing where a buyer receives equitable title, and a seller retains legal title until the terms of the payment contract are fulfilled.

Question 2

Which of the following statements best describes loan insurance or a loan guarantee?

A. If a borrower is unable to pay, the monthly mortgage payments will be made.

B. If the borrower is unable to pay, the lender has some protection against potential loss.

C. If a borrower dies, the mortgage is paid off.

D. If the property declines in value, the buyer will not lose equity.

Answer 2

B. Private mortgage or FHA insurance or a VA guarantee protect the lender in the event of borrower default.

Question 3

What does a lender not have to disclose under the Truth in Lending Act?

A. Credit report fees.

B. The annual percentage rate.

C. Discount points.

D. Origination fees.

Answer 3

A. The Truth in Lending Act requires lenders to disclose finance charges. Finance charges include interest rates, loan fees, discount points and service fees. Real estate service costs that a borrower would pay regardless of whether a lender will extend credit, such as fees for a credit report, are not finance charges.

Question 4

What is the monthly principal and interest payment on a $150,000 loan at 8% that is amortized over 25 years? The factor is 7.72.

A. $1,113

B. $1,158

C. $1,101

D. $1,170

Answer 4

B. To calculate a mortgage payment, multiply the loan amount by the factor divided by 1,000. $150,000 / 1,000 = 150 x 7.72 = $1,158.

Question 5

Which federal legislation prohibits a real estate licensee from receiving fees from a mortgage originator for a referral?

A. FHA.

B. RESPA.

C. TILA.

D. USDA.

Answer 5

B. Under RESPA, no person may give or receive fees or kickbacks for referral of settlement services, or give or receive a split or percentage of settlement charges other than for services actually provided.

Question 6

Which of the following is not a participant in the secondary market?

A. FHLMC.

B. FNMA.

C. GNMA.

D. RESPA.

Answer 6

D. The Real Estate Settlement Procedures Act (RESPA) is legislation aimed at protecting borrowers. It is not involved in the purchase of loans from the primary market.

Question 7

Which of the following is mortgage fraud?

A. A borrower receives a loan that will be difficult to repay based on the borrower’s income.

B. A licensee drafts an amendment that gives a buyer credit at closing, but the closing statement does not reflect this credit.

C. A licensee rewrites an offer increasing the purchase price and incorporating the terms of the original offer by reference.

D. A borrower receives a loan for a property without a down payment.

Answer 7

B. A licensee does not draft or use any document that portrays an interest in real estate. Drafting an amendment with a credit that is not reflected on a closing statement is fraudulent behavior.

Question 8

The secondary loan market is for:

A. Borrowers who are considered “sub-prime” and unable to qualify for primary loans.

B. Unregulated and frequently illegal trade involving sales of existing loans.

C. Loans issued by government agencies.

D. Investors to purchase bundles of mortgages.

Answer 8

D. The secondary loan market is where the primary loan market sells its debts to replenish reserves so that additional lending can occur.

Question 9

Which would have the least effect on a borrower’s ability to obtain financing?

A. A car repossession from 10 years ago.

B. A credit score of 400.

C. A 3% down payment.

D. A late rent payment from six months ago.

Answer 9

A. Underwriters look at the last seven years of an applicant’s credit history. A repossession that occurred 10 years ago would have the least effect on a borrower’s ability to obtain credit.

Question 10

A borrower is putting 5% down on a $100,000 property. On which amount will a lender require PMI?

A. $20,000

B. $5,000

C. $95,000

D. $15,000

Answer 10

D. Private mortgage insurance insures the top 20% of the loan, which is $20,000. Because the borrower has only $5,000 for a down payment, a lender will require insurance on the $15,000 that would make up the conventional 20% down payment.

Question 11

What is an advantage of a VA loan?

A. It is much lower in interest rate than FHA loans.

B. It is government-guaranteed.

C. It is insured by the government.

D. It is easier to pay off than other types of loans.

Answer 11

B. VA loans are guaranteed, which means that the VA will compensate the lender for losses incurred in the case of borrower default.

Question 12

Fran wants to remain in her home but is on a fixed income. She is 65 years old. Which financing tool can help her remain in her home and receive monthly payments from the home’s equity?

A. Shared appreciation mortgage.

B. Reverse mortgage.

C. Bridge loan.

D. Adjustable rate mortgage.

Answer 12

B. When a homeowner has a reverse mortgage, a lender makes payments to the homeowner based on the equity in the homeowner’s property. The reverse mortgage is often repaid from sale of the property upon the death of the homeowner. Only individuals ages 62 and older are eligible for reverse mortgages.

Question 13

Who establishes loan amounts for FHA-insured loans?

A. The primary mortgage market.

B. The Department of Housing and Urban
Development.

C. State governments.

D. Rural development.

Answer 13

B. The Department of Housing and Urban Development establishes the loan amounts for FHA loans.

Question 14

Who is the person who obtains a real estate loan by signing a note and a mortgage?

A. Vendor.

B. Mortgagor.

C. Beneficiary.

D. Mortgagee.

Answer 14

B. The borrower is the mortgagor. The lender is the mortgagee.

Question 15

What is a balloon loan?

A. A loan repaid in equal installments.

B. A negatively amortized loan that adds to the principal.

C. A loan with fluctuating interest rates.

D. A loan where the amortized payments are insufficient to repay the loan during the term.

Answer 15

D. The final payment of a balloon loan will be due before the amortized payments have paid off the loan.

Question 16

A house sells for $210,000. The buyer is borrowing 90% of the purchase price and paying two points to obtain a lower interest rate. How much will the points cost the borrower?

A. $3,950

B. $3,780

C. $2,100

D. $4,200

Answer 16

B. $210,000 x .90 = $189,000 $189,000 x .02 = $3,780 For testing purposes, one point equals 1% of the loan amount.

Question 17

The primary loan market refers to:

A. Government-sponsored loans for low-income individuals.

B. Insurance purchased by borrowers with a down payment of less than 20% of the purchase price.

C. Banks, credit unions and insurance companies that originate loans.

D. Government-sponsored loans for veterans.

Answer 17

C. Banks, credit unions and other major lending institutions make up the primary loan market as the sources of loan originators.

Question 18

What is a bridge loan?

A. A buyer uses equity in an existing home to secure lending to purchase a new home.

B. Financing for a commercial transaction.

C. A lender receives a share of a developer’s profits in exchange for issuing the loan.

D. When a buyer permits a seller to lease the property.

Answer 18

A. A bridge loan is a residential financing arrangement in which a borrower uses an existing home as collateral for a second mortgage to fund the purchase of a new home.

Question 19

A buyer has just closed on a VA loan. Due to the amount of the guarantee and the purchase price of the property, the buyer did not have to put any money down. What kind of title does the buyer receive?

A. Legal title.

B. Equitable title.

C. Marketable title.

D. Encumbered title.

Answer 19

A. Under lien theory, the buyer receives legal title at closing. The legal title that the buyer receives is marketable and encumbered.

Question 20

Private mortgage insurance is:

A. Required on all loans from banking institutions.

B. Often required of borrowers who have down payments that are less than 20% of the purchase price of a property.

C. Insurance purchased by a borrower that will pay off the mortgage if the borrower becomes unable to make payments.

D. A form of seller financing.

Answer 20

B. Banks often require borrowers with less than a 20% down payment to purchase private mortgage insurance. It is insurance for the lending institution in the event that a borrow defaults on a loan.

Question 21

In which of the following situations would a property owner not receive redemption rights?

A. When the borrower does not maintain the property, and the lender wants legal title before the buyer damages the property more.

B. When the property owner deeds the property to the lender to settle the mortgage debt.

C. When the borrower defaults on mortgage payments and the lender wants title to the property.

D. When the buyer under a land contract stops making payments to the seller.

Answer 21

B. A deed in lieu of foreclosure is a way for a property owner to avoid foreclosure. Because the borrower does not go through the foreclosure process, the borrower does not have redemption rights that a court awards with judicial or strict foreclosure.

Question 22

Which of the following best defines the secondary market?

A. Lenders who exclusively deal in second mortgages.

B. Loans originated on the primary market are sold to investors.

C. The major lender of FHA and VA loans.

D. The major lender of residential mortgage.

Answer 22

B. The secondary market is a market created for the purchase and sale of existing mortgages.

Question 23

What kind of mortgage does a buyer receive when a seller acts as a lender and grants a loan to the buyer for a portion of the purchase price?

A. Buydown mortgage.

B. Purchase money mortgage.

C. Package mortgage.

D. Blended rate mortgage.

Answer 23

B. With a purchase money mortgage, a seller acts as a lender and grants a loan to the buyer for a portion of the purchase price.

Question 24

What is a feature of conventional fixed-rate mortgage loans?

A. Borrowers must purchase private mortgage insurance if the down payment exceeds 20%.

B. They are easier to qualify for than nonconventional loans.

C. Borrowers must have a 20% down payment.

D. A lender does not sell them to the secondary market.

Answer 24

C. To qualify for a conventional loan, a borrower must have a down payment of 20% unless the borrower will purchase private mortgage insurance. Government loans and nonconforming loans have looser qualifying standards.