Chapter 12: Real Estate Finance

Question 1

_____ theory of mortgages are the oldest form, in which the lender retains the title during the duration of the loan period.

Answer 1

Title

Question 2

_____ theory of mortgages allows the borrower to retain the title, but places a lien on the property. The buyer is given the opportunity to cure the default before forfeiting the property.

Answer 2

Lien

Question 3

Florida uses the _____ theory of mortgages.

Answer 3

lien

Question 4

When money is borrowed, the lender requires the borrower to sign a _____, which is evidence of a personal debt. It contains the name of the parties, interest rate, amount of money.

Answer 4

promissory note

Question 5

A ______ accompanies a note and is security for its repayment.

Answer 5

Mortgage

Question 6

The pledge of property as security for a loan is called ______.

Answer 6

Hypothecation

Question 7

The party who gives the mortgage to the lender to secure the loan is the ______.

Answer 7

Mortgagor

Question 8

The party that receives the mortgage from the property owner is the _____.

Answer 8

Mortgagee

Question 9

The mortgagor owns ______ property while the mortgagee owns the mortgage, which is ______ property.

Answer 9

real

personal

Question 10

When a loan has been paid off in a lien theory state, the mortgagor should receive a _____.

Answer 10

Letter of satisfaction

Question 11

An ______ clause in a mortgage requires a borrower to carry fire and hazard insurance.

Answer 11

insurance

Question 12

A ______ clause in a mortgage requires the borrower to properly maintain the property during the loan term.

Answer 12

Maintenance

Question 13

The only legally necessary clause in a mortgage, it protects the borrower by requiring the lender to acknowledge performance by the borrower.

Answer 13

Defeasance clause

Question 14

The ______ clause in a mortgage allows the lender to declare the entire outstanding balance is due immediately.

Answer 14

Acceleration

Question 15

The _____ clause or _____ clause in a mortgage prevents the borrower from transferring any rights in the property without the lender’s approval.

Answer 15

alienation clause

due-on-sale clause

Question 16

The ______ clause in a mortgage allows the lender to change the interest rate due to change in use of the property.

Answer 16

escalator clause

Question 17

The ______ clause in a mortgage allows the lender to appoint a trustee to manage the property and collect rent upon default by the borrower.

Answer 17

receivership clause

Question 18

The ______ clause in a mortgage limits the lender’s rights in a foreclosure to the amount received from the sale of the property.

Answer 18

exculpatory clause

Question 19

The _____ clause, in a mortgage that covers more than once parcel, allows individual lots to be released.

Answer 19

release clause

Question 20

Loan origination fees are expressed in ______. One _____ is 1 percent of the amount borrowed, expressed in dollars.

Answer 20

points

point

Question 21

Loan origination fees must be paid by the ______.

Answer 21

borrower

Question 22

Discount points, or _______, are expressed in points and increase the lender’s yield by _____%.

Answer 22

prepaid interest

1/8%

Question 23

The rate actually received by the lender, including discount points, is called the _______.

Answer 23

effective yield

Question 24

The process of qualifying the applicant and the property (analyzing risk) is called ________.

Answer 24

mortgage underwriting

Question 25

When a lender refuses to loan based on racial or economic of a neighborhood, it's called _______, which is prohibited by federal law.

Answer 25

redlining

Question 26

The _______ Act require lenders to judge every applicant based on their own credit rating and income. They are also required to consider a spouse's income.

Answer 26

Equal Credit Opportunity Act (ECOA)

Question 27

Every applicant is evaluated for loan worthiness by 3 criteria: 1. _______ 2. _______ 3. _______

Answer 27

Credit history Income Other assets

Question 28

? ----------------------------- = HER (Housing Expense Ratio) Monthly gross income

Answer 28

PITI

Question 29

? ----------------------------- = TOR (Total Obligations Ratio) Monthly gross income

Answer 29

PITI + othe monthly obligations

Question 30

Front end ratio is another name for _________

Answer 30

HER (Housing Expense Ratio)

Question 31

Back end ratio is another name for _______.

Answer 31

TOR (Total Obligations Ratio)

Question 32

Conventional loan ratios (HER/TOR) are:

Answer 32

28% / 36%

Question 33

FHA loan ratios (HER/TOR) are:

Answer 33

31% / 43%

Question 34

VA loan ratio (TOR) is:

Answer 34

41%

Question 35

LTV ratio = ___________

Answer 35

Loan amount ------------------------------------- Sales price or appraised value

Question 36

Mortgages that do not contain _______ clauses can be assumed by the buyer without permission of the seller.

Answer 36

Due-on-sale clauses

Question 37

In an assumption of an existing mortgage, the original borrower (now the seller) has _______ responsibility for repaying the promissory note.

Answer 37

secondary

Question 38

In an assumption with notation, the lender would _______ the seller's name from the loan and _______ the name of the new buyer/borrower.

Answer 38

remove | substitute

Question 39

________ releases the seller from any further liability for the debt.

Answer 39

Novation

Question 40

If a mortgaged property is sold ________, the new owner acquires ownership without assuming responsibility for the promissory note.

Answer 40

subject to the existing mortgage

Question 41

Failure to perform as agreed in the promissory note is called ______.

Answer 41

default

Question 42

______ is the right of a borrower to cure a default before foreclosure.

Answer 42

Equity of redemption

Question 43

_______ gives a borrower the right to cure a loan that is in default by paying all owed plus late payments, lawyer fees, interest, etc.

Answer 43

Right to reinstate

Question 44

______ is enforcement of a mortgage.

Answer 44

Foreclosure

Question 45

If all lien holders have been paid for proceeds from a foreclosure, any excess remaining goes to the _______.

Answer 45

mortgagor

Question 46

Settlement is another word for ______.

Answer 46

closing

Question 47

Real Estate Settlement Procedures Act (RESPA) requires: 1. _____ 2. _____ 3. _____

Answer 47

Provide good faith estimates of closing costs Information booklet HUD-1 statement

Question 48

The ______ act requires that borrowers be clearly shown the costs of credit in dollars and percentages.

Answer 48

Truth-in-lending Act

Question 49

Borrowers are allowed ______ business days as a recision period on refinances of a principal residence.

Answer 49

3

Question 50

An ad that contains any numbers would be considered to have _______ and require disclosures including _____, ______, and ______.

Answer 50

triggering terms down payment terms APR