Exam 6: Finance Part 1

Question 1

If the Federal Reserve Bank tightens reserve requirements of its member banks, it would usually result in
A)
fewer private second trust deeds.
B)
a greater number of private second trust deeds.
C)
making more marginal loans available.
D)
favorable news from a broker’s standpoint.

Answer 1

a greater number of private second trust deeds.

Question 2

In real estate financing, lenders will sometimes find it necessary to refer to “nominal rate” when granting a loan. This means
A)
it is the rate of interest specified in the promissory note.
B)
that the rate of interest in the final granting of the loan will be greater than the commitment.
C)
the term used by lenders when the maximum rate of interest allowed by law is obtainable on financing a property.
D)
points will be required as the rate required by the lender would exceed the legal rate of interest.

Answer 2

it is the rate of interest specified in the promissory note.

Question 3

Which of the following defines insurance?
A)
Transfers the risk of loss from the insured to the insurance company
B)
Changes uncertainty into certainty
C)
All of these
D)
Guarantees the cost of replacement

Answer 3

All of these

Question 4

A subdivider bought 60 acres and wished to subdivide the land into residential parcels. She wanted to install streets, curbs, sewers, and gutters and pass the cost on to the buyers, selling for all cash. She wanted maximum financing and did not want any lien to show on the title insurance policies. She could BEST accomplish this with
A)
improvement bonds.
B)
sale of corporate stock.
C)
land contracts.
D)
maximum interim construction financing.

Answer 4

sale of corporate stock.

Question 5

In a period of inflation, the Federal Reserve Board would take which action to curb inflation?
A)
Reduce reserve requirements
B)
Raise reserve requirements and sell bonds
C)
Lower discount rates
D)
Raise discount rates and buy bonds

Answer 5

Raise reserve requirements and sell bonds

Question 6

The MOST important factor to a lender who is contemplating a loan to a developer of a shopping center would be the
A)
anchor tenant.
B)
long-term leases.
C)
credit of the purchaser.
D)
number of tenants.

Answer 6

anchor tenant.

Question 7

Which type of financing would LEAST likely create a need for a cash down payment from a borrower?
A)
Conventional
B)
Cal-Vet
C)
VA
D)
FHA

Answer 7

VA

Question 8

A developer bought 10 lots valued at $1,000 each with a 20% down payment, and the seller carried back the mortgage. The developer wants additional financing from a lender for construction purposes. What would LEAST likely protect the lender of the construction loan?
A)
Physical inspection of the property
B)
A posted notice of nonresponsibility
C)
An ALTA title insurance policy
D)
A subordination agreement in the purchase money deed of trust

Answer 8

A posted notice of nonresponsibility

Question 9

In real estate financing, lenders will sometimes refer to “nominal rate” when granting a loan. This means
A)
that the rate of interest in the final granting of the loan will be greater than the commitment.
B)
the maximum rate of interest allowed by law is obtainable on financing a property.
C)
the rate of interest specified in the promissory note.
D)
points will be required, as the rate required by the lender would exceed the legal rate of interest.

Answer 9

the rate of interest specified in the promissory note.

Question 10

The consumer price index is a measure of the cost of goods and services. Why does housing affect the CPI so significantly?
A)
Among consumer costs, food, clothing, and shelter are major elements, with housing the largest expense.
B)
Housing is the first to be affected by inflation.
C)
Housing costs are so volatile in an unstable economy.
D)
People invest more in housing than in business.

Answer 10

Among consumer costs, food, clothing, and shelter are major elements, with housing the largest expense.

Question 11

The real estate market in comparison to the general market is
A)
efficient.
B)
balanced.
C)
inefficient.
D)
self-regulated.

Answer 11

inefficient

Question 12

Annual percentage rate is defined as
A)
all loan costs, direct or indirect, expressed as a percentage rate.
B)
direct loan costs only.
C)
direct and indirect costs plus taxes and closing costs.
D)
relative amount of credit costs expressed as a dollar total.

Answer 12

all loan costs, direct or indirect, expressed as a percentage rate.

Question 13

Charles Smith offers to act as an agent in the sale of four promissory notes during the balance of this year for his business associate, Jane Jones. In order to do this Charles
A)
needs to have a license only if he sells real estate.
B)
needs to hold a broker’s license.
C)
needs to have a license only if he handles seven or more notes.
D)
need not have a license.

Answer 13

needs to hold a broker’s license.

Question 14

A woman purchases a home for $80,000 and executes a note for $78,000 secured by a first trust deed. The balance she pays in cash. Subsequently, a period of economic inflation sets in. This would benefit
A)
neither the beneficiary nor the trustor.
B)
the beneficiary.
C)
the trustor.
D)
the trustee.

Answer 14

the trustor.

Question 15

Depending on the availability of funds and market rates, the rate of interest MOST likely to be charged is
A)
an interior loan rate.
B)
a fluctuating money market rate.
C)
a variable interest rate.
D)
the rate charged on a short-term land contract of sale.

Answer 15

a fluctuating money market rate.

Question 16

Which statement regarding a prepayment penalty in Cal-Vet financing is correct effective 1998?
A)
If a Cal-Vet loan is paid off within the first five years there is a prepayment penalty based on the original loan amount.
B)
If a Cal-Vet loan is paid off within two years of inception it requires a 2% penalty based on the current loan balance.
C)
There is no prepayment penalty for an early payoff on a Cal-Vet loan.
D)
The prepayment is 2% of the current loan balance.

Answer 16

There is no prepayment penalty for an early payoff on a Cal-Vet loan.

Question 17

To a conventional lender dealing with loans on commercial and income properties and considering loans on motels and apartment houses, which statement would be TRUE?
A)
Motels would pay higher interest rates.
B)
Motels would have longer amortization periods than apartments.
C)
Motels would be considered lower risks.
D)
Motels would have a higher loan-to-value ratio.

Answer 17

Motels would pay higher interest rates.

Question 18

In the sale of real property, all of these statements concerning financing are true EXCEPT
A)
selling a note for less than its face value is known as discounting.
B)
an owner who borrows and executes a trust deed is a trustor.
C)
a promissory note is security for the trust deed.
D)
a mortgage is a lien on real property; an execution of a mortgage does not transfer title.

Answer 18

a promissory note is security for the trust deed.

Question 19

As the first line of defense in lending money on a residential property, a lender would look to
A)
loan-to-value ratio.
B)
income of the borrower.
C)
installment payments of the amortized loan.
D)
property value.

Answer 19

property value.

Question 20

The Jacksons bought a residence with a first trust deed loan from a savings and loan. The Londons bought a residence with a first trust deed loan from a bank. The Londons refinanced, obtaining a first trust deed loan from a savings and loan, to get money for a business opportunity. Which statement is correct?
A)
Neither has the right of rescission.
B)
Both have the right of rescission.
C)
The Londons do not have the right of rescission, the Jacksons do.
D)
The Jacksons do not have the right of rescission, the Londons do.

Answer 20

Neither has the right of rescission.

Question 21

Truth-in-Lending regulations with regard to real estate advertising would apply to all of the following EXCEPT
A)
a homeowner advertising that his loan is capable of being assumed under certain terms.
B)
a broker advertising a piece of property with an APR.
C)
a financing institution advertising to promote consumer credit.
D)
a homeowner who is advertising his own home for purchase subject to the existing mortgage.

Answer 21

a homeowner who is advertising his own home for purchase subject to the existing mortgage.

Question 22

A lender requires a 1/3% per annum fee for loans on single-family dwellings for non-English speaking people. The charging of this fee
A)
is permitted if the fee is included in the financial disclosure under Truth-in-Lending.
B)
does not violate the Housing Financial Discrimination Act of l977 if the fee was used for translation purposes.
C)
would not be acceptable for FHA, Cal-Vet, or VA financing, but would be acceptable if charged by conventional lenders.
D)
violates the Housing Financial Discrimination Act of 1977.

Answer 22

violates the Housing Financial Discrimination Act of 1977.

Question 23

If the holder of a note wished to endorse the note and did not want to be liable for payment, she would use which of the following endorsements?
A)
Restrictive
B)
None of these
C)
In blank
D)
Qualified

Answer 23

Qualified

Question 24

Some real estate loans are written so that, if there are changes in the money market, the interest rate on the loan may be changed. This is a(n)
A)
variable interest rate loan.
B)
fluctuating money market loan.
C)
interim loan.
D)
loan secured by a short-term land contract of sale.

Answer 24

variable interest rate loan.

Question 25

Which statement is TRUE with regard to a trust deed that is in default?
A)
If the trust deed contained a specific clause requiring a copy of the “notice of default” be sent to the trustor, no publication of the notice is necessary for a valid foreclosure.
B)
The trustor’s right to keep the property from being sold ends three months after the “notice of default” is recorded.
C)
The trustor’s right to reinstate remains with the trustor until the trustee’s sale.
D)
The trustor’s right to keep the property from being sold ends following the trustee’s sale.

Answer 25

The trustor’s right to keep the property from being sold ends following the trustee’s sale.