Chapter 9: Finance | Understanding the Finance Process

Question 1

*Over what debt-to-income percentage are you considered a sub-prime borrower? FICO score?

Answer 1

Over 50% debt-to-income. 669 or lower FICO.

Question 2

*To be a qualified borrower, under what percentage should your debt-to-income be and how many points can it not exceed?

Answer 2

Under 43% debt-to-income. Cannot exceed 3 points.

Question 3

In California, based on lending tradition, trust deeds and other loans are commonly referred to as:

Answer 3

Mortgages

Question 4

The party borrowing the money.

Answer 4

Trustor

Question 5

This fee is based on the loan amount and is collected as compensation for processing the loan and setting it up on the books.

Answer 5

Loan origination fee

Question 6

The rate charged on conventional loans.

Answer 6

Prevailing market rate

Question 7

A charge to the borrower for paying off all or part of a loan balance before the due date.

Answer 7

Prepayment penalty

Question 8

Reserves to cover property taxes, insurance, and/or MIP.

Answer 8

Impound account

Question 9

Direct lenders that underwrite for usually hundreds of investors.

Answer 9

Mortgage bankers

Question 10

These brokers shop for a lender for the borrowers and earn a fee by putting lender and borrower together.

Answer 10

Mortgage brokers

Question 11

A loan on well-located properties to borrowers with good income and credit is called:

Answer 11

Prime loan

Question 12

This type of insurance allows institutional lenders to make loans above the usual 75 to 80 percent of the sale’s price.

Answer 12

Private mortgage insurance

Question 13

A loan for which the payments are usually the same each month for the life of the loan.

Answer 13

Fixed-rate mortgage

Question 14

A variable rate mortgage.

Answer 14

Adjustable-rate mortgage

Question 15

With this type of special purpose loan, the rate and term are fixed, but monthly payments are smaller at the beginning of the term and increase over time.

Answer 15

Graduated-payment mortgage

Question 16

This occurs when monthly installment payments are insufficient to pay the interest accruing on the principal balance, so that the unpaid interest must be added to the principal due.

Answer 16

Negative amortization

Question 17

The type of loan for senior citizens is a loan where the lender pays the borrower a fixed monthly payment based on the value of the property.

Answer 17

Reverse mortgage loan

Question 18

Another name for the Federal National Mortgage Association that dominates the secondary mortgage market.

Answer 18

Fannie Mae

Question 19

This gives lenders a fast, objective measurement for your ability to repay a loan or make timely credit payments.

Answer 19

Credit score (FICO)

Question 20

This act lets borrowers and customer’s know the cost of credit so that they can compare costs with those of other credit sources and thereby avoid the uninformed use of credit.

Answer 20

Truth in Lending Act (TILA; Regulation Z)

Question 21

In a trust deed, this clause makes the entire note due and payable, should the property be sold or default occur.

Answer 21

Acceleration clause

Question 22

Charging more than the legally allowed percentage of interest.

Answer 22

Usury

Question 23

When a lender accepts less than what is owed in the loan.

Answer 23

Short sale

Question 24

Which of the following is NOT a party to a trust deed?

a. beneficiary
b. executor
c. trustor
d. trustee

Answer 24

b. executor

Question 25

Loans that are neither insured nor guaranteed by an agency of the government are termed:

a. prime loans.
b. fixed interest loans.
c. institutional loans.
d. none of the above.

Answer 25

c. institutional loans.

Question 26

In addition to the amount financed, the annual percentage rate (APR) includes:

a. interest rates.
b. points.
c. loan fees.
d. all of the above.

Answer 26

d. all of the above.

Question 27

Which of the following shop for a lender for a borrower and earn a fee for putting the lender and borrower together?

a. mortgage banker
b. mortgage auditor
c. mortgage broker
d. all of the above

Answer 27

c. mortgage broker

Question 28

Which type of loan is repaid in equal monthly payments for the life of the loan?

a. fixed-rate
b. adjustable-rate
c. graduated-payment
d. none of the above

Answer 28

a. fixed rate

Question 29

A drawback of the graduated payment mortgage is its:

a. negative amortization
b. positive amortization
c. fluctuating interest rate.
d. none of the above.

Answer 29

a. negative amortization

Question 30

When allowing a buyer to assume the seller’s existing loan(s), the seller should:

a. demand an increase in the purchase price.
b. pay for any cost to the buyer.
c. get a full release from the lender(s).
d. all of the above.

Answer 30

c. get a full release from the lender(s).

Question 31

Taking title “subject to” existing loans:

a. can trigger an alienation (due on sale) clause.
b. relieves the seller of any further responsibility for the loans.
c. is illegal in California.
d. none of the above.

Answer 31

a. can trigger an alienation (due on sale) clause.

Question 32

The SAFE Act requires:

a. all real estate licensees to be tested for communicable diseases.
b. all real estate licensees to be psychologically evaluated annually.
c. all real estate licensees performing duties as MLOs to have a DRE endorsement to their license.
d. all trust funds to be kept in an office safe until deposited in a bank.

Answer 32

c. all real estate licensees performing duties as MLOs to have a DRE endorsement to their license.

Question 33

The SAFE Act is administered by the:

a. SPCA.
b. DOJ.
c. CDC.
d. NMLS&R.

Answer 33

d. NMLS&R.

Question 34

The third, disinterested party who holds naked legal title to the property.

Answer 34

Trustee

Question 35

The lender who is lending money for the purchase of real property.

Answer 35

Beneficiary

Question 36

The charge for borrowing money.

Answer 36

Interest

Question 37

Savings banks, commercial banks, and life insurance companies.

Answer 37

Institutional lenders