Chapter 15 - Financing II: Primary and Secondary Markets

Question 1

A ___ loan is made to finance the construction of improvements on real estate under which the lender disburses the loan proceeds while the building is being constructed. Generally bears a higher interest rate because of the risk assumed by the lender.

Answer 1

Construction loan

Question 2

A cooperative organization for savers and borrowers is a ___ ___.

Answer 2

Credit union

Question 3

Sets standards and buys mortgages is ___ ___.

Those loans are then pooled together and sold to investors as mortgage backed securities.

Answer 3

Fannie Mae (formerly Federal Home Loan Mortgage Company)

Question 4

Warehouse packages of mortgages is done by ____ __.

Purchases mortgage loans from smaller banks and credit unions, also known as “thrift” savings institutions. Those loans are then pooled together and sold to investors as mortgage backed securities.

Answer 4

Freddie Mac

Question 5

Pools mortgages for investors.

Ginnie Mae guarantees mortgage backed securities of those loans that are the following: FHA-Federal Housing Administration; VA-Veterans Affairs; RD-Rural Development; and PIH- Office of Public and Indian Housing. Under HUD

Answer 5

Ginnie Mae

Question 6

Additional borrowings for homeowner: type of second mortgage is a ___ ___ ___.

Answer 6

Home equity loan

Question 7

Bridge or swing loan to cover the gap between purchase of a new home and sale of the old one, is considered ___ financing.

Answer 7

Interim financing

Question 8

Loan for higher amount than those bought by the secondary market is a ___ loan.

Answer 8

Jumbo loan

Question 9

___ ___ is an institution set up to make loans. Use money borrowed from other institutions and funds of their own to make real estate loans that may later be sold to investors. Subject to considerably fewer restrictions than commercial banks.

Answer 9

Mortgage banker

Question 10

Frequently used to obtain additional funds to improve their property one would look for an ___-__ mortgage. The borrower opens the mortgage to increase the debt after it has been reduced by payments over a period of time. The lender is not obligated to advance the additional funds.

Answer 10

Open-end mortgage

Question 11

A ___ mortgage covers not only the real estate but also all fixtures, appliances and the premises. In recent years it has been used extensively in financing furnished condominium units.

Answer 11

Package mortgage

Question 12

Loan not intended for sale in the secondary market is a ___ loan.

Answer 12

Portfolio loan

Question 13

Lenders who make individual loans directly to borrowers. In effect these lenders supply funds as an investment this is called the ___ ___ ___,

Answer 13

Primary mortgage market

Question 14

Percentage of income a borrower is allowed to spend on mortgage payments is called the ___ __.

Answer 14

Qualifying ratio

Question 15

___ __ implements the Truth-in Lending Act. requires lenders to inform borrowers of the true cost of obtaining credit so consumers can compare the costs various lenders and avoid uninformed use of credit, requires borrowers to be informed of all charges, as well as true annual interest rate (APR), defines creditor as anyone who makes 25 loans a year, or more than 5 times if a dwelling is used as security, three-day right of rescission, and adverting restrictions based on triggering terms.

Answer 15

Regulation Z

Question 16

Mortgage through which elderly homeowner can draw against equity, building up a gradual debt with no repayments until moving out is a ___ mortgage.

Answer 16

Reverse mortgage

Question 17

A __-___ transaction is one in which the owner sells their improved property and, as part of the same transaction, signs a long-term lease as to remin in possession of the premises.

Answer 17

Sale-leaseback

Question 18

A ___ ___ mortgage is a loan in which the lender, in exchange for a loan with a favorable interest rate, participates in the profits (if any) the mortgagor receives when the property is eventually sold.

Answer 18

Shared equity mortgage

Question 19

Applies to Regulation Z with respect to advertising in that is any one of the following ___ terms is used, three further items of information must be included:

Answer 19

Triggering terms

• Amount or percentage of down payment,
• Number of payments or period of repayment, amount of any payment
• Amount of any finance charge.

Any advertising must include the words “to a qualified borrower”.

Question 20

The ___-__-___ Act is implemented by Regulation Z.

Answer 20

Truth-in-lending

Question 21

___ is process by which the lender investigates the application information, studies credit reports and appraisal of the property before deciding whether to grant the loan. The lenders acceptance is written in the form of a loan commitment.

Answer 21

Underwriting

Question 22

A ___ mortgage is an additional mortgage in which another lender refinances a borrower by lending an amount including the existing first mortgage amount without disturbing the existence of the first mortgage.

Answer 22

Wraparound mortgage

Question 23

A mortgage covering more than one parcel of real estate is a ___ mortgage.

Answer 23

Blanket mortgage

Question 24

Seller buyer financing arraingements the (5) are:

Answer 24

• Seller financing
• Lease-option (tenant option to buy property, unilateral)
• Lease-purchase (tenant under contract for sale, bilateral)
• Land contract (seller financing, seller maintains title), ends in balloon payment)
• Sale-leaseback