Chapter 9 Quiz: Conventional Financing Flashcards
A mortgage that remains at the same rate for the life of the loan is called a:
a. single-rate mortgage
b. fixed-rate mortgage
c. close-rate mortgage
d. non-assumable mortgage
b. fixed-rate mortgage (p. 227)
a long-term, fixed-rate real estate loan is one that is repaid over 15-30 years at an unchanging rate of interest.
A loan that exceeds Fannie Mae (FNMA) or Freddie Mac (FHLMC) loan limits is called a:
a. variable-rate mortgage
b. maximum loan
c. jumbo loan
d. none of the above
c. jumbo loan (p. 231)
jumbo loans are nonconforming loans that exceed the maximum loan limits set by FNMA or FHLMC for a single-family residence.
Conforming loans meet what standards?
a. primary market
b. secondary market
c. banks only
d. credit unions only
b. secondary market (p. 231)
today the trend is almost exclusively towards conforming loans, that is, loans that meet secondary market guidelines.
Jumbo loans:
a. are always sold into the secondary market (FNMA/FHLMC)
b. are no longer offered by lenders
c. must be held in the lender’s portfolio
d. none of the above
c. must be held in the lender’s portfolio (p. 231)
a jumbo loan exceeds the amount established by the secondary market and must be retained in the lender’s portfolio.
A loan origination fee:
a. is the commission paid to salespersons
b. is paid to the borrower by the lender for the privilege of processing the loan
c. is a fee to cover administrative costs
d. is prohibited by FNMA and FHLMC
c. is a fee to cover administrative costs (p. 232)
to cover the administrative costs of making a real estate loan, the lender will usually charge a loan origination fee, also called a “loan fee” or “loan service fee”.
The standard loan-to-value (LTV) ratio has historically been:
a. 95%
b. 90%
c. 80%
d. 75%
c. 80% (p. 232)
for many years now, the standard conventional LTV ratio has been 80% of the appraised value or the sales price, whichever is less.
In a loan with negative amortization, the balance owed:
a. decreases over time
b. remains the same
c. increases over time
d. none of the above
c. increases over time (p. 233)
negative amortization occurs when the monthly payment is insufficient to pay the monthly principal. thus, the unpaid interest is added back into the loan and the balance owed increases rather than decreases.
The practice of continuing to change interest for PMI that was included within the interest charges on a loan after the insurance has been cancelled is called:
a. default
b. a mortgage-insurance premium
c. a non-cancellation policy
d. loaded couponing
d. loaded couponing (p. 239)
The practice of collecting mortgage insurance premiums on a policy that has been cancelled by the lender:
a. is called self-insurance
b. is a violation of RESPA
c. is a fraudulent practice
d. all of the above
d. all of the above
The greatest risk of default is caused by:
a. large down payments
b. small or no down payments
c. overpriced housing
d. high interest rates
b. small or no down payments (p. 228)
studies show that the greatest risk of default is caused by very small or no downpayment because the borrower has very little invested.
