Chapter 9: Finance | Understanding the Finance Process Flashcards
*Over what debt-to-income percentage are you considered a sub-prime borrower? FICO score?
Over 50% debt-to-income. 669 or lower FICO.
*To be a qualified borrower, under what percentage should your debt-to-income be and how many points can it not exceed?
Under 43% debt-to-income. Cannot exceed 3 points.
In California, based on lending tradition, trust deeds and other loans are commonly referred to as:
Mortgages
The party borrowing the money.
Trustor
This fee is based on the loan amount and is collected as compensation for processing the loan and setting it up on the books.
Loan origination fee
The rate charged on conventional loans.
Prevailing market rate
A charge to the borrower for paying off all or part of a loan balance before the due date.
Prepayment penalty
Reserves to cover property taxes, insurance, and/or MIP.
Impound account
Direct lenders that underwrite for usually hundreds of investors.
Mortgage bankers
These brokers shop for a lender for the borrowers and earn a fee by putting lender and borrower together.
Mortgage brokers
A loan on well-located properties to borrowers with good income and credit is called:
Prime loan
This type of insurance allows institutional lenders to make loans above the usual 75 to 80 percent of the sale’s price.
Private mortgage insurance
A loan for which the payments are usually the same each month for the life of the loan.
Fixed-rate mortgage
A variable rate mortgage.
Adjustable-rate mortgage
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.
Graduated-payment mortgage
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.
Negative amortization
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.
Reverse mortgage loan
Another name for the Federal National Mortgage Association that dominates the secondary mortgage market.
Fannie Mae
This gives lenders a fast, objective measurement for your ability to repay a loan or make timely credit payments.
Credit score (FICO)
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.
Truth in Lending Act (TILA; Regulation Z)
In a trust deed, this clause makes the entire note due and payable, should the property be sold or default occur.
Acceleration clause
Charging more than the legally allowed percentage of interest.
Usury
When a lender accepts less than what is owed in the loan.
Short sale
Which of the following is NOT a party to a trust deed?
a. beneficiary
b. executor
c. trustor
d. trustee
b. executor
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.
c. institutional loans.
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.
d. all of the above.
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
c. mortgage broker
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
a. fixed rate
A drawback of the graduated payment mortgage is its:
a. negative amortization
b. positive amortization
c. fluctuating interest rate.
d. none of the above.
a. negative amortization
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.
c. get a full release from the lender(s).
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.
a. can trigger an alienation (due on sale) clause.
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.
c. all real estate licensees performing duties as MLOs to have a DRE endorsement to their license.
The SAFE Act is administered by the:
a. SPCA.
b. DOJ.
c. CDC.
d. NMLS&R.
d. NMLS&R.
The third, disinterested party who holds naked legal title to the property.
Trustee
The lender who is lending money for the purchase of real property.
Beneficiary
The charge for borrowing money.
Interest
Savings banks, commercial banks, and life insurance companies.
Institutional lenders
