Chapter 16: Types and Sources of Mortgage Money

Question 1

Adjustable Rate Mortgage (ARM)

Answer 1

A mortgage loan with a calculated interest rate that may increase or decrease during the term of the loan

Question 2

Amortized Mortgage

Answer 2

A mortgage loan that is fully repaid according to a periodic and consistent schedule that includes both principal and interest

Question 3

Balloon Payment

Answer 3

A final installment payment on a note that is much larger than the previous monthly payments on the note

Question 4

Biweekly Mortgage

Answer 4

Mortgage payments that are made every other week (26 payments a year)

Question 5

Blanket Mortgage

Answer 5

A mortgage that is secured by two or more items of real property

Question 6

Conforming Loan

Answer 6

A loan that meets FNMA and FHLMC borrowing requirements

Question 7

Disintermediation

Answer 7

When depositors withdraw money from savings for direct investment with a borrower

Question 8

Home Equity Loan

Answer 8

A mortgage secured by a personal residence up to the value of the mortgagor’s equity

Question 9

Index

Answer 9

Financial indicator that will be the basis for an adjustable rate mortgage interest fluctuations

Question 10

Intermediation

Answer 10

The process of depositing funds in financial institutions that serve as “intermediaries” for flow of funds for investment and borrowing

Question 11

Land Contract

Answer 11

An agreement in which the seller of real estate obligates itself to deliver a merchantable title to the buyer upon buyer’s performance of certain agreed conditions such as payment of a certain number of installment payments; Also known as a Contract for Deed.

Question 12

Level Payment Plan

Answer 12

A method for amortizing a mortgage whereby the borrower pays the same amount each month

Question 13

Lifetime Cap

Answer 13

Sets the upper and lower interest limits for an adjustable rate mortgage

Question 14

Margin

Answer 14

The additional rate of interest charged over and above the index rate in an adjustable rate mortgage

Question 15

MIP

Answer 15

Mortgage Insurance Premium; payment for mortgage insurance which protects the lender in the event of default

Question 16

Negative Amortization

Answer 16

When the monthly payment is insufficient to pay the accumulated interest for that month, resulting in an increase in the amount of the principal

Question 17

Nonconforming Loan

Answer 17

A loan that does not meet FNMA and FHLMC borrowing requirements

Question 18

Package Mortgage

Answer 18

A debt secured by pledge of both real property and personal property such as range, refrigerator or furniture

Question 19

Partially Amortized Mortgage

Answer 19

Mortgage loan repayment with equal monthly payments, but there is a large balloon payment due at the end of the term

Question 20

Periodic Cap

Answer 20

Limits the time period interval for ARM interest rate adjustments

Question 21

Private Mortgage Insurance (PMI)

Answer 21

Non-governmental mortgage insurance needed to insure the portion of the mortgage balance that exceeds an 80% loan to value ratio

Question 22

Purchase money mortgage

Answer 22

A mortgage given by the buyer as part or all of the purchase price consideration for real property

Question 23

Reverse annuity mortgage

Answer 23

A loan arrangement in which a lender makes payments to the borrower

Question 24

Teaser rate

Answer 24

Below-market introductory rate for an adjustable rate mortgage

Question 25

Term mortgage

Answer 25

A mortgage loan that provides for periodic payments of interest only, with a balloon payment at the end of the loan term

Question 26

UFMIP

Answer 26

Up Front Mortgage Insurance Premium; lump sum mortgage insurance premium paid at closing for FHA loans

Question 27

If the Federal Reserve System sells securities from its inventory, what will happen to interest rates and the supply of money in circulation?

Answer 27

Interest rates will rise and the supply of money in circulation will be reduced

Question 28

In a fully amortized mortgage, although the monthly payment stays the same, the portion of each monthly payment that is applied to reduce the principal debt:

Answer 28

Increases each month

Question 29

Michael earns $4,000 per month (gross) and has a car payment of $600. He is applying for mortgage that will have monthly PITI of $1,100. How much is his total obligations ratio?

Answer 29

PITI + Other obligations / MGI = 42.5%

Question 30

The Federal Truth in Lending Act is governed by Regulation:

Answer 30

Federal Reserve Regulation Z

Question 31

Which of the following secondary mortgage market agencies is a government agency?

Answer 31

Government National Mortgage Association

Question 32

What are the qualifying ratios for a conventional loan?

Answer 32

28% housing expense ratio | 36% total obligations ratio

Question 33

Christina has entered into a mortgage for a condominium that she intends to rent on a weekly basis. The lender has accepted a mortgage that covers the condominium plus all its furnishings. Which type of mortgage has Christina entered into?

Answer 33

Package Mortgage

Question 34

A below-market interest rate offered on adjustable rate mortgages utilized to attract new borrowers is known as the:

Answer 34

Teaser rate

Question 35

The amount of a VA guarantee on a mortgage loan depends on

Answer 35

The amount of the loan

Question 36

The component of an adjustable rate mortgage that remains constant throughout the term of the loan is the:

Answer 36

Margin

Question 37

All of the following are sources of lendable funds for mortgages, except: A Credit unions B Savings associations C Life insurance companies D Federal Reserve System

Answer 37

Federal Reserve System

Question 38

A person borrowing money directly from the owner of the funds is an example of:

Answer 38

Disintermediation

Question 39

What is the association known as "Fannie Mae"?

Answer 39

Federal National Mortgage Association

Question 40

Which type of mortgage requires an upfront mortgage insurance payment plus a monthly mortgage insurance payment?

Answer 40

FHA