Financing and Mortgages

Question 1

When a buyer purchases real property under an agreement of sale payable at 10% interest for three years, he is usually entitled to which of the following at the time of closing?

I. Deed to the property
II. Possession of the property

A) I only
B) II only
C) Both I an II
D) Neither I nor II

Answer 1

B) II only - possession of the property

He has equitable title and will get the deed upon satisfaction in three years unless paid off earlier

Question 2

In a sale-leaseback transaction, which the following is an advantage to the seller-lessee?

I. Transaction makes working capital available
II. The transaction offers unique capital gains tax savings

A) I only
B) II only
C) Both I an II
D) Neither I nor II

Answer 2

A) I only - Transaction makes working capital available

There are no unique capital gains tax savings with sale-leasebacks

Question 3

Which of the following is true?

I. The FNMA is an agency which provides secondary market for VA and FHA mortgages, but it does not purchase or sell conventional loans;
II. The FNMA makes direct loans to borrowers when other sources of funds are not available

A) I only
B) II only
C) Both I an II
D) Neither I nor II

Answer 3

D) Neither I nor II

Question 4

When you purchase a property under an installment contract of sale (agreement of sale), you have:

I. An insurable interest
II. An equitable interest

A) I only
B) II only
C) Both I and II
D) Neither I nor II

Answer 4

C) Both I and II
I. An insurable interest
II. An equitable interest

Since the vendee has the risk of loss, he should get adequate insurance

Question 5

Conveyance tax on an Agreement of Sale is paid:

I. At the initial closing
II. At the final closing when title transfers

A) I only
B) II only
C) Both I an II
D) Neither I nor II

Answer 5

A) I only - at the initial closing

It is only paid once

Question 6

A mortgage broker:

I. Arranges loans between lenders and borrowers
II. Lends his own money

A) I only
B) II only
C) Both I an II
D) Neither I nor II

Answer 6

A) I only - arranges loans between lenders and borrowers

Question 7

When a buyer assumes an existing loan on the property:

A) The seller is relieved from liability
B) The buyer, together with the seller, is liable on the loan
C) Only the seller is liable
D) Only the buyer is liable

Answer 7

B) The buyer, get together with the seller, is liable on the loan

Unless there is a novation, the seller is not released under an assumption

Question 8

In a purchase money mortgage:

A) The seller takes back a mortgage as part of the purchase price
B) The seller is disposing of a mortgage loan
C) The buyer is denied the prepayment privilege
D) The seller is denied the prepayment penalty

Answer 8

A) The seller takes back a mortgage as part of the purchase price

Question 9

Under a Veterans Administration loan:

I. The Veteran can transfer his VA loan to another home
II. The Veteran can sell his home and allow a non-veteran buyer to assume the loan with VA Approval

A) I only
B) II only
C) Both I an II
D) Neither I nor II

Answer 9

B) II only
II. The Veteran can sell his home and allow a non-veteran buyer to assume the loan with VA Approval

The veteran does not restore his eligibility for a new loan until the old loan is paid off or it is assumed by a veteran-buyer who substitutes his eligibility

Question 10

A clause in a mortgage which permits the lender to call the entire balance due if the property is sold or otherwise conveyed by the mortgagor is called:

I. Defeasance clause
II. Alienation clause

A) I only
B) II only
C) Both I an II
D) Neither I nor II

Answer 10

B) II only - Alienation clause

This is also a form of an acceleration clause

Question 11

A statement from a borrower setting forth the amount of the unpaid balance, the interest rate, and any claims he may have against the lender is called a:

A) Lender certificate
B) Title certificate
C) Estoppel certificate
D) Financial certificate

Answer 11

C) Estoppel certificate

Question 12

Where seller wanted to be relieved for all obligations under his VA mortgage which the veteran buyer would assume and substitute eligibility, this would be best described as which of the following?

A) Subordination
B) Novation
C) Acceleration
D) Subrogation

Answer 12

B) Novation

Question 13

Buyer purchased a furnished fee simple home. He is going to assume the existing mortgage. Settlement company will draw all the following with the exception of:

A) Bill of Sale
B) Note and mortgage
C) Assumption agreement
D) Warranty deed

Answer 13

B) Note and mortgage

The deed will contain an assumption clause referring to the original note and mortgage

Question 14

A blanket mortgage:

I. Covers several parcels of land
II. Finances the furniture and appliances in a dwelling

A) I only
B) II only
C) Both I an II
D) Neither I nor II

Answer 14

A) I only - Covers several parcels of land

Part II refers to a package mortgage

Question 15

An example of written evidence of a promise to repay borrowed money is:

A) An abstract
B) Acknowledgment
C) Covenant
D) Promissory note

Answer 15

D) Promissory note

It is not recorded

Question 16

All but one of the following is transaction involving a collateralized debt:

A) Chattel mortgage
B) Debenture
C) Mortgage
D) Deed of trust

Answer 16

B) Debenture

Debentures are not unsecured notes, thus no collateral

Question 17

A mortgage which allows for advances to a mortgagor up to a certain maximum is a:

A) Package mortgage
B) Open ended mortgage
C) Purchase money mortgage
D) Wraparound mortgage

Answer 17

B) Open ended mortgage

Both very popular since mortgages are frequently assigned in the secondary mortgage market

Question 18

The money for making Federal Housing Administration (FHA) loans is supplied by:

A) Qualified lending institutions
B) Government agency
C) The Federal Fair Housing Administration
D) The Federal Home Loan Bank

Answer 18

A) Qualified lending institutions

Question 19

Some of the functions of the FHA are:

I. To help stabilize the mortgage market
II. Improve housing standards

A) I only
B) II only
C) Both I an II
D) Neither I nor II

Answer 19

C) Both I an II
I. To help stabilize the mortgage market
II. Improve housing standards

Lower interest rates help give some stability. FHA requires the secured property to meet certain minimum property requirements (MPR). FHA does not, however, build housing

Question 20

A requirement of a borrower under an FHA insured loan is that:

A) The property be owner-occupied
B) If married, have his wife sign as co-borrower
C) Certify that he will rent the premises
D) Must have a minimum annual income of $15,000

Answer 20

A) The property be owner-occupied

No secondary financing permitted to cover these costs

Question 21

When an owner-seller finances the sale, it is known as:

I. Agreement of Sale
II. Purchase money mortgage

A) I only
B) II only
C) Both I an II
D) Neither I nor II

Answer 21

C) Both I an II
I. Agreement of Sale
II. Purchase money mortgage

A seller could give a purchase money first mortgage or agreement of sale

Question 22

The FHA will insure:

I. First mortgage
II. Second mortgages

A) I only
B) II only
C) Both I an II
D) Neither I nor II

Answer 22

A) I only - First mortgage

Only under certain circumstances are second mortgages permitted; they are not insured however

Question 23

When a loan is approved by FHA:

I. The appraised value must not be less than the sale price
II. The government guarantees the value of the property.

A) I only
B) II only
C) Both I an II
D) Neither I nor II

Answer 23

D) Neither I nor II

But the loan will be based on the lower appraisal value and the borrower must pay the difference in case.

Question 24

Which of the following is true:

I. The acceleration clause is placed in a mortgage document for the benefit of the mortgagor
II. The escalation clause is placed in the mortgage contract to facilitate foreclosure

A) I only
B) II only
C) Both I an II
D) Neither I nor II

Answer 24

D) Neither I nor II

Benefits mortgagee and escalation causes help compensate for effects of inflation and increased taxes

Question 25

A mortgage that permits their interest to range up and down according to the money market is called a(n):

A) Package mortgage
B) Net mortgage
C) Open mortgage
D) ARM loan

Answer 25

D) ARM loan

Question 26

The monthly payment on a loan remains the same yet the amount applied to interest decrease and the amount applied to principal increases as the loan gets older. This is an illustration of which of the following:

I. Amortization
II. Depreciation

A) I only
B) II only
C) Both I an II
D) Neither I nor II

Answer 26

A) I only - Amortization

In the early years of the loan, most of the monthly payment is applied to interest

Question 27

Another name for a swing loan is a:

A) Package loan
B) Bridge loan
C) Interest only loan
D) Amortized loan

Answer 27

B) Bridge loan

Question 28

All the of the following are true about Growing Equity Mortgages Except

A) Provides for gradually decreasing payments
B) Initial interest rates similar to conventional rates
C) Increase may be tied to an index
D) Is a full term loan

Answer 28

A) Provides for gradually decreasing payments

Question 29

Under the Hula Mae loan program:

A) Borrower applies directly to state financing agency
B) Mainland investors are eligible
C) Applies to short-term leasehold properties
D) Borrower is at least 18 years of age and a Hawaii resident

Answer 29

D) Borrower is at least 18 years of age and a Hawaii resident

Question 30

When a property is refinanced using a wraparound mortgage, the title to the property is held by the:

A) Seller
B) Property owner
C) Title Company
D) Lender

Answer 30

B) Property owner

As with other mortgaged property, the buyer/owner has the title