Chapter 13: Financing: The Process

Question 1

What is the role of the Fed?

Answer 1

To stabilize the economy through the judicious handling of the money supply and credit available in the US.

Question 2

Explain the difference between the primary and secondary mortgage markets.

Answer 2

The primary market lends money directly.

The secondary market buys, sells and trades loans.

Question 3

Differentiate between mortgage brokers and mortgage bankers.

Answer 3

Mortgage bankers originate loans.

Mortgage brokers act as middlemen to bring borrowers and lenders together.

Question 4

What do Fannie Mae and Ginnie Mae do that Freddie Mac does not?

Answer 4

Guarantee payment of mortgages.

Question 5

If lenders intend to sell mortgages in the secondary market, what must they do?

Answer 5

Use the standardized procedures - called uniform procedures - outlined in the Fannie Mae and Freddie Mac forms.

Question 6

List the steps of underwriting.

Answer 6

Qualify the buyer.
Qualify the property.
Decide yes or no to the loan.

Question 7

What makes up a mortgage?

Answer 7

A mortgage has two parts: debt and security for the debt.

Question 8

What actions does a lender take to sell a mortgage in the secondary market?

Answer 8

The original lender signs the note over to a third party investor or other mortgage company and then executes a document called an assignment of mortgage.

Question 9

What is the basic purpose of Truth in Lending - Regulation Z?

Answer 9

Give buyers information about the true cost of obtaining credit, so that borrowers can compare the costs of various lenders.

Question 10

What is the right to rescind and what is not covered by this rule?

Answer 10

The borrower has a right to cancel the transaction by notifying the lender within three days. This does not apply to residential first mortgage loans.

Question 11

What are the penalties for violating Regulation Z?

Answer 11

Twice the amount of the finance charge or a minimum of $100, up to a maximum of $1,000.
Also court costs, attorney fees and actual damages.

Willful violation of regulation Z is a misdemeanor that is punishable by a fine of up to $5,000 or one year in prison, or both.

Question 12

What does ECOA prohibit?

Answer 12

Discrimination against applicants on the basis of race, color, religion, national origin, sex, marital status, age or dependency on public assistance.

Question 13

ECOA requires that a lender send a denial notice within:

30 days

60 days

90 days

120 days

Answer 13

30 days

Question 14

Regulation Z applies to:

$35,000 farm loan

$50,000 restaurant loan

$75,000 condominium loan

$85,000 warehouse loan

Answer 14

$75,000 condominium loan

Question 15

Fannie Mae does all of the following activities except which?

Buys conventional, FHA and VA loans.

Buys pools of mortgages in exchange for mortgage-backed securities.

Guarantees payment of all interest and principal on mortgage-backed securities.

Administers special assistance programs.

Answer 15

Administers special assistance programs.

Question 16

Which of the following statements is not true about the Federal Reserve?

Regulates reserve requirements for all institutions that offer checking accounts.

Supervises the Truth in Lending Act.

Supervises the Federal Housing Authority.

Engages in open market operations.

Answer 16

Supervises the Federal Housing Authority.

The Federal Reserve System is the nation’s central bank that supervises the Truth-in-Lending Act, regulates reserve requirements for all banks offering checking accounts, sets a discount rate of interest, and engages in open market operations. It does not supervise the FHA.

Question 17

California law requires that a licensee acting as a loan broker keep the Mortgage Loan Disclosure Statement on file for how long?

1 year

2 years

3 years

4 years

Answer 17

3 years

Question 18

Who is FNMA?

Fannie Mae

Ginnie Mae

Fannie Mac

Freddie Mac

Answer 18

Fannie Mae

Question 19

Which statement is not true?

Mortgage brokers do not lend money.

Mortgage bankers bring borrowers and lenders together.

Mortgage bankers are a large source of residential loans in California.

Mortgage bankers originate loans.

Answer 19

Mortgage bankers bring borrowers and lenders together.

Question 20

When a lender is evaluating a buyer’s ability to repay a loan, the lender looks at all of these items except which one?

Educational history

Past credit history

Present employment status

Liabilities

Answer 20

Educational history

Question 21

The amount of debt, time and method of payment, interest rate and other loan terms are part of the:

Mortgage

Promissory note

Contract for deed

Purchase agreement

Answer 21

Promissory note

A promissory note is the buyer’s promise to repay the loan according to the terms. The note states the amount that is being borrowed, the time and method of repayment, the interest rate, and any other loan terms.

Question 22

All of the following are primary mortgage market lenders except which?

Investment groups

Credit unions

Mortgage bankers

Holding warehouse agencies

Answer 22

Holding warehouse agencies

Question 23

The maximum commission amount a mortgage loan broker can charge on a second mortgage loan of 3 years for $18,000 is what?

$900.00

$1,500.00

$1,800.00

$2,700.00

Answer 23

$2,700.00

The maximum commission a loan broker can charge for a loan of 3 years or more is 15%, so $18,000 loan x 15% = $2,700 maximum commission.

Question 24

RESPA applies to:

Second mortgage on a time-share

First mortgage on a single-family home

Primary mortgage on an office building

Settlement charges on a shopping center

Answer 24

First mortgage on a single-family home