Chapter 3: Important Points

Question 0

IP Purpose of Loan Process

Answer 0

To verify all data the borrower presents in the loan application. Loan underwriting reviews the loan documentation and evaluates the borrower’s ability and willingness to pay.

Question 1

IP Without mortgages…

Answer 1

Comparatively few real estate transactions would occur.

Question 2

IP Commercial Mortgages Dependent On…

Answer 2

Financial strength of the borrower and may include personal guarantees as well as a large down payment.

Question 3

IP Gap Financing

Answer 3

Usually a short-term loan used until more permanent financing is in place. Bridge loans and swing loans are examples of this.

Question 4

IP Wraparound Mortgage

Answer 4

A subordinate mortgage that includes the same principal obligation secured by a superior mortgage against the same property.

Question 5

IP A provision in a convertible mortgage

Answer 5

Gives the lender the option of converting the outstanding balance into an agreed-upon percentage of property ownership.

Question 6

IP Home Equity Loan

Answer 6

Not necessarily a second mortgage. The amount of a home equity loan cannot exceed the original purchase price of the house.

Question 7

IP Construction Loan

Answer 7

Form of interim financing. The mortgage made to a developer is disbursed in progressive installments to finance each part of the project completed.

Question 8

IP Sale Leaseback

Answer 8

A transaction in which a property owner sells a property to an investor and the investor agrees to lease back the property immediately to the seller.

Question 9

IP Long-term Lease

Answer 9

A way of controlling property without buying it.

Question 10

IP Capital-Short Market

Answer 10

Occurs when lenders do not have funds for underwriting mortgages. The secondary mortgage market, which purchases mortgages from lenders, frees up capital so that lenders have money available for mortgages.

Question 11

IP FHA

Answer 11

An agency of the US Department of Housing and Urban Development (HUD). Licensees should keep abreast of all FHA changes and procedures.

Question 12

IP What helps free up capital for mortgages?

Answer 12

The sale and purchase of mortgages between lending institutions, Fannie Mae incentives, and private investors.

Question 13

IP Regulation Z of the Truth-in-Lending Act

Answer 13

Provides for disclosure by lenders and truth in advertising.

Question 14

IP Real Estate Market

Answer 14

Subject to cyclical changes in the economy and is often the first industry to feel the adverse effects of depressed conditions.

Question 15

IP What affects changes in market activity?

Answer 15

Employment levels, interest rates, the stock market, seller valuation of property, buyer’s ability to afford property, etc.

Question 16

IP What are the four cycles in the economy?

Answer 16

Recession, depression, inflation and stagflation.

Question 17

IP Lender Policies

Answer 17

Reflect the changing real estate climate. Some of the policies include non-income verification loans, loan-to-value and income ratios, and condominium and cooperative loans.

Question 18

IP Predatory Leading Practices

Answer 18

Including subprime loans, have brought about an increased number of foreclosure in recent years.