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California Mortgage > General Mortgage Knowledge > Flashcards

General Mortgage Knowledge Flashcards

1
Q

What type of loan would commonly use an extended rate lock?

A

new construction

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2
Q

Construction to permanent loans

A

allow for a cash-out in a two-time close if the equity exists.

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3
Q

A conforming loan

A

follows the secondary market criteria set by Fannie Mae/Freddie Mac.

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4
Q

Conforming loans follow the underwriting guidelines of

A

Fannie Mae and Freddie Mac.

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5
Q

The income housing expense and total debt-to-income ratios for conventional conforming loans are

A

28% and 36%.

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6
Q

Mortgage loans offered through FHA, VA, and USDA Section 502 programs are referred to as what type of loan?

A

non-conventional

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7
Q

When construction is complete, the appraiser verifies that plans and specifications have been met and the original opinion of value is valid; the loan is then replaced by a permanent amortizing loan, often called a

A

take-out loan.

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8
Q

A VA-guaranteed loan is to be assumed by another eligible veteran and the current borrower released of liability. Which statement about the assuming buyer is FALSE?

A

The buyer cannot hold the veteran who sells the property secondarily liable.

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9
Q

Under the conditions for a loan to be a general qualified mortgage, lenders must verify that the borrower has the ability to repay the loan and must retain the information used in the ability to repay analysis for how many years after loan consummation?

A

3

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10
Q

A borrower’s income is considered adequate for a conventional conforming mortgage loan if the proposed payment of principal, interest, taxes, and insurance (PITI) does NOT exceed what percentage of stable monthly income?

A

28%

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11
Q

The difference between the index value and the fully indexed rate on an adjustable-rate mortgage (ARM) is called a

A

margin.

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12
Q

What formula is used to determine how much lenders are willing to loan on a given property based on the value of the property?

A

Loan Amount / Lesser of Sale Price or Appraised Value

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13
Q

A security instrument that places into the hands of a disinterested third party a specific financial interest in the title to real property as security for the payment of a note is a(n)

A

trust deed.

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14
Q

Which of the following loan provides a “safe harbor” for mortgage lenders from liability if the loans are not also higher-priced?

A

qualified

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15
Q

The Federal National Mortgage Association is also known as

A

Fannie Mae.

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16
Q

Desktop Underwriter® is the industry-leading underwriting system that helps lenders efficiently complete credit risk assessments to establish a home loan’s eligibility for sale and delivery to

A

Fannie Mae.

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17
Q

A mortgage loan, typically a second mortgage, that has a predetermined maximum loan amount, has an adjustable rate, can be borrowed against and paid off as needed, and has an interest-only minimum monthly payment, is known as a

A

home equity line of credit.

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18
Q

The relationship between the cost of borrowing and the total amount financed, represented as a percentage, is known as

A

the APR.

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19
Q

All of the following statements are TRUE about an interest-only mortgage EXCEPT

A

Borrowers are not free to make payments toward the principal balance at any time during the mortgage term

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20
Q

A loan that is amortized over 30 years with the balance due in 15 years is known as a(n)

A

Balloon Mortgage

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21
Q

With a(n) ____ mortgage, a borrower only pays the interest on the loan for a certain period of time or throughout the duration of the loan.

A

Interest only

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22
Q

What term is best described as when a seller extends credit to a buyer to finance the purchase of the property?

A

Seller financing

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23
Q

What is the type of loan where a seller may finance all or part of the sale of property for the buyer?

A

Purchase money mortgage

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24
Q

Under a one-time construction close that has taken more than ___ to be completed, FNMA will require that the borrower pay a rate lock extension fee.

A

4 months

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25
Q

Funding for a construction loan is usually made

A

Periodically, as the building is constructed

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26
Q

A home equity line of credit tends to provide borrowers with all the following benefits EXCEPT the benefit of

A

A fixed interest rate

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27
Q

A buyer makes installment payments to the seller in exchange for the right to occupy the property; no deed transfers until all payments have been made or a specified point in the payment agreement. This scenario describes how a _____ works.

A

Land contract

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28
Q

___________, the HECM program requires prospective borrowers to participate in a consumer counseling session given by an approved counselor.

A

Before they can apply for the loan

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29
Q

______ loans are secondary loans that are paid after all first liens have been paid in the event of a default.

A

Subordinate

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30
Q

To protect themselves, lenders use plans for disbursing construction loan proceeds to guard against overspending by the borrower. With the _____, the lender directly pays bills presented by the various suppliers and laborers on a project.

A

Warranty System

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31
Q

What is NOT an advantage of a fixed-rate balloon mortgage for a borrower when compared to a traditional fixed-rate mortgage loan?

A

Faster approval process

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32
Q

A mortgage loan that is secured by real estate that allows the borrower to obtain multiple advances of funds up to an approved amount is known as a(n)

A

Home equity line of credit

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33
Q

Under a land contract, who holds title to the land?

A

The vendor (seller)

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34
Q

Which of the following is NOT a reason that a typical reverse mortgage becomes due?

A

No withdrawals are made in a consecutive 12 month timeframe

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35
Q

When a mortgage broker closes a mortgage loan with funds from XYZ lender and then assigns the loan to XYZ lender, this process is called

A

Table funding

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36
Q

Which of the following allows a borrower to make a tradeoff between paying more upfront costs and receiving a lower interest?

A

Discount points

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37
Q

The loan-to-value ratio is used by lenders to determine

A

The amount they are willing to loan on a given property based on its value

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38
Q

A ____ is money a lender gives to a borrower to offset closing costs when, in exchange, the borrower pays a higher interest rate.

A

Lender credit

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39
Q

In terms of a mortgage loan closing, conveyance is best described as

A

The transfer of title through the deed

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40
Q

A mortgage based on the calculation of interest daily is called a(n)

A

Simple interest mortgage

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41
Q

A ____ is the compensation paid to a mortgage broker for giving a borrower an interest rate above the lender’s par rate on a loan in exchange for lower upfront costs.

A

Yield spread premium

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42
Q

A popular way to reduce a buyer’s payment amount when interest rates are high is a

A

Temporary buydown

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43
Q

A _____ plan is where payment subsidies, usually from a seller or developer, in the early years of the loan keep payments low but payments increase each year until they are sufficient to fully amortize the loan.

A

2/1 buydown

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44
Q

The succession of conveyances of the title to real property is known as the

A

Chain of title

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45
Q

A ____ is the cost of consumer credit as a dollar amount.

A

Finance charge

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46
Q

What is the name of the account that a lender maintains to hold a borrower’s monthly payments for property insurance and property tax until those bills are due?

A

Escrow account

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47
Q

What is the term used to describe interest on a loan that has accumulated since the principal investment or since the previous coupon payment if there has been one already?

A

Accrued interest

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48
Q

As defined by Regulation X, which loan type does NOT fall under the definition of a federally-related mortgage loan?

A

Temporary construction loan

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49
Q

A _____ is a written or electronically transmitted agreement between a lender and an applicant for a mortgage loan which, subject to the terms outlined in the agreement, obligates the lender to make a mortgage loan at a specified rate and a specific time period.

A

Rate Lock Agreement

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50
Q

The term “par rate” is best described as

A

A rate that requires no discount points and pays no yield spread premium

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51
Q

The act of voluntarily allowing another lender to take senior lien position is called

A

Subordination

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52
Q

Which item is NOT included in the calculation that determines the annual percentage rate?

A

Purchaser’s title insurance premium

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53
Q

What is the name of the market that is BEST defined as the place borrowers and MLOs come together to negotiate terms and close mortgage loan transactions?

A

Primary mortgage market

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54
Q

If a customer wants to refinance his first mortgage and leave an existing second mortgage in place, the second lender must sign a(n)

A

Subordination agreement

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55
Q

A buyer offers to purchase a home for $350,000 with an FHA-insured mortgage. The maximum FHA loan amount for that county is $341,250. The home appraised for $345,000. The buyer

A

May buy the home, but only borrow up to the maximum FHA loan amount from the FHA approved lender

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56
Q

What mortgage clause prevents someone from assuming a loan without lender permission?

A

Alienation clause

57
Q

A 10% overage may be calculated as part of the final loan amount determination when underwriting a construction loan to account for

A

Cost overruns

58
Q

What do you call a deed that carries guarantees of clear title and the grantor’s right to convey?

A

Warranty deed

59
Q

The type of mortgage that provides the borrower with an option to receive a monthly check without the borrower paying a required monthly payment is known as a

A

Reverse mortgage

60
Q

What is described as the act of one party taking over primary liability for the loan of another party, usually implying no change in loan terms?

A

Assumption

61
Q

With a trust deed, an independent third party, called the ____, holds the trust deed.

A

Trustee

62
Q

After mortgage banks sell mortgages to third-party investors in the secondary market, these lenders may continue to generate income by

A

Servicing the loans for the investors who have purchased the loans

63
Q

Which characteristic distinguishes an FHA-insured loan from a conventional loan?

A

FHA loans cannot have prepayment penalties

64
Q

Total cost of financing a loan in percentage terms is the

A

Annual percentage rate

65
Q

A borrower pays the seller for the right to occupy the property, but the seller retains title until the borrower pays a specified number of payments. This describes a

A

Land contract

66
Q

According to the Interagency Guidance on Nontraditional Mortgage Products, simultaneous second lien loans with minimal owner equity should generally not have a payment structure that allows for

A

Negative amortization

67
Q

A partially amortized mortgage requires a

A

Balloon payment

68
Q

What is the maximum seller concession for a VA-guaranteed loan?

A

4% and reasonable discount points

69
Q

A borrower with bad credit or other risk factors such as high debt, low credit scores, and other creditworthiness issues may qualify most easily for what type of loan?

A

Subprime

70
Q

Which is used to allow access to funds from the construction loan?

A

Draw process

71
Q

If a borrower exercises his right to change from an adjustable-rate mortgage to a fixed-rate mortgage one time during the loan term, provided certain conditions are met, he has what type of mortgage?

A

Convertible ARM

72
Q

Which statement is TRUE about interest rate buydowns on FHA loans?

A

A borrower must qualify at the note rate

73
Q

Which borrower would be the best candidate for a reverse equity mortgage?

A

A borrower who is age 62 or older who owns their home free and clear

74
Q

The loan type which limits the LTV to 96.5% for credit scores of 580 or higher after all allowable financed items is

A

FHA insured

75
Q

An A-minus loan is

A

Riskier than a prime loan and less risky than subprime loan

76
Q

What type of loan has a minimum down payment requirement of 3.5% in most circumstances?

A

FHA Insured

77
Q

Loans that combine construction and permanent financing cannot be pooled or delivered to Fannie Mae until

A

All construction is complete and the terms of the construction loan have converted to permanent financing

78
Q

Which statement about VA-guaranteed loans is FALSE?

A

A veteran’s parent may co-sign

79
Q

On the Loan Estimate, a permanent buydown of the interest rate by the borrower will show as a

A

Charge to the borrower

80
Q

Which statement about a reverse mortgage is FALSE?

A

The borrower needs to be at least 50 years old to qualify

81
Q

An amortized loan that has a final payment due earlier than the amortization term necessary to pay off the entire remaining balance is an example of a

A

A balloon loan

82
Q

When the lender loans money to a borrower and the borrower gives the lender a mortgage, this relationship is referred to as the

A

Primary mortgage market

83
Q

With a fixed-rate loan,

A

Principal and interest payments remain constant

84
Q

A home equity conversion mortgage and an adjustable-rate mortgage are both examples of

A

Nontraditional loans

85
Q

A _____ mortgage must be a 30-year, fully amortizing mortgage and the MLO must verify that the borrower has the ability to repay the loan.

A

Qualified

86
Q

All of these fall under the category of a qualified mortgage (QM) EXCEPT

A

Any loan with a term of more than 30 years

87
Q

With a conforming conventional mortgage loan, borrowers may request PMI cancellation per the Homeowners Protection Act when they have paid down their loan to an

A

80% LTV

88
Q

Private mortgage insurance applies to

A

Conventional loans

89
Q

What is considered a toxic loan feature under the Ability to Repay/Qualified Mortgage (ATR/QM) Rule?

A

Negative amortization

90
Q

What type of mortgage loan is made by an institutional lender or a private party with real estate as security for the loan that the government neither guarantees nor insures?

A

Conventional

91
Q

Lenders that originate qualified mortgages will be presumed to have met the ATR/QM Rule mandated by the Dodd-Frank Act. The ATR/QM Rule applies to all of the following loan types EXCEPT

A

Home equity lines of credit

92
Q

Which of the following is a traditional conventional loan?

A

30 year fixed rate mortgage

93
Q

The type of mortgage that requires regular payment of principal and interest calculated to pay off the entire balance by the end of the loan term is called a _____ loan.

A

Fully amortizing

94
Q

With a conventional 97% LTV loan that conforms to Fannie Mae standards, what is the down payment requirement?

A

3%

95
Q

Federal Housing Administration loans are insured by the federal government through the

A

Department of Housing And Urban Development

96
Q

GNMA insures what type of mortgage-backed securities?

A

FHA

97
Q

Fannie Mae requires private mortgage insurance on home loans with less than

A

20% Down

98
Q

A veteran needs two documents to show eligibility to obtain a VA-guaranteed loan. One is a Certificate of Eligibility and the other is a

A

DD-214

99
Q

When applying for a VA-guaranteed loan, an inactive veteran needs to supply the DD-214 as proof of

A

Discharge

100
Q

Which borrower is eligible for a VA-guaranteed loan?

A

A veteran who has been issued a certificate of eligibility

101
Q

What type of income calculation is used for VA-guaranteed loans?

A

Residual income

102
Q

Who is the target borrower for a VA-guaranteed loan?

A

Veterans

103
Q

Susan has a FICO score of 620. What is the minimum down payment (cash investment) contribution for her to get an FHA-insured loan on a $75,000 home?

A

$2,625

(The minimum down payment required on an FHA loan is 3.5% when the borrower’s FICO score is 580 or above. $75,000 X .035 = $2,625.)

104
Q

What two agencies provide traditional government agency-backed mortgage products?

A

FHA and VA

105
Q

Veterans can generally purchase a home priced up to ____ times the amount of their entitlement with no down payment.

A

4

106
Q

What is the basic entitlement available to veterans for a VA-guaranteed loan?

A

$36,000

(All eligible veterans receive $36,000 of basic entitlement or maximum guarantee amount.)

107
Q

Lenders who are authorized to underwrite their own FHA-insured loan applications have what type of underwriters in their office?

A

Direct endorsers

108
Q

What program uses a Certificate of Reasonable Value to determine the value of the property?

A

VA-guaranteed

109
Q

The federal government insures what type of loan?

A

FHA

110
Q

What entity specializes in helping persons who live in rural areas with a population of less than 35,000 with obtaining mortgage loans?

A

Department of Agriculture

111
Q

Subprime loans are

A

Loans with a generally higher interest rate than prime loans

112
Q

The interest rate of a fixed-rate loan

A

Remains constant for the duration of the loan

113
Q

Which would the FHA NOT allow for a purchase price addition?

A

Hot tubs

114
Q

A nonconforming loan refers to a loan that does NOT

A

Follow Fannie Mae/Freddie Mac criteria

115
Q

Section 502 Direct Loans offered by the USDA are generally available to persons who live in a rural area with a population of less than

A

35,000

116
Q

With a fixed-rate mortgage loan, an increase in what item may increase the monthly payment amount?

A

Property taxes

117
Q

For a lower-income buyer with high debt ratios, a preferred loan choice might be a(n)

A

FHA insured loan

118
Q

Which is TRUE about nonconforming loans?

A

They may cost a homeowner more in fees

119
Q

A jumbo loan is a type of

A

Nonconforming loan

120
Q

With a(n) _____ loan the AUS recognizes a good credit risk and may require a reduced list of documentation; for example, only verbal verification of employment as opposed to two years of W-2s.

A

Alt-A

121
Q

To avoid having the cost of PMI included in the monthly payment of a fixed-rate mortgage loan, typically an LTV of ____ or higher is required when financing the purchase of a new home.

A

80%

122
Q

Borrowers with FHA-insured loans are required to establish bona fide occupancy of the property as their principal residence within ____ days of signing a security instrument.

A

60

123
Q

Which type of mortgage is most likely to cause payment shock, according to the Interagency Statement on Subprime Mortgage Lending?

A

Adjustable rate mortgage

124
Q

A disadvantage of a 15-year fixed-rate loan versus a 30-year fixed-rate loan is

A

Monthly payments are usually higher

125
Q

The property value acceptable to the FHA as loan collateral is determined by the

A

Lesser of the appraised value or purchase price

126
Q

Which of the following is NOT a feature of a Section 502 Direct Loan offered by the USDA?

A

3.5% down payment

127
Q

Jeremy is interested in buying a house, but he’s nervous about interest rates going up. Which would be the safest mortgage loan type for him to consider?

A

Fixed rate mortgage

128
Q

DeDe got a mortgage loan where she pays only interest for the first five years, then begins paying both interest and principal for the next 25 years. This arrangement could best be referred to as a(n)

A

Hybrid loan

129
Q

A limit on the amount the interest rate can increase for an adjustable-rate mortgage is its

A

Cap

130
Q

With an ARM, the margin is added to the selected index to determine the

A

Fully indexed rate

131
Q

To determine the fully indexed rate of an ARM, the margin is added to the

A

Index

132
Q

The interest rate of an adjustable-rate loan

A

Fluctuates according to a standard predetermined index

133
Q

Which of the following describes a mortgage loan that starts at a 3% interest rate, goes to 5% after 3 years, 6% in year 4, and never goes above 8%?

A

3/1 ARM with caps of 2/5

(The ARM would be labeled as 3/1 due to the fixed interest rate for three years. The loan has a cap of 2%, which is the most the rate can change the year after the fixed rate expires. We know the loan must have a cap of 2/5 instead of 1/5 because the interest rate increased by more than 1% the year the fixed rate expired.)

134
Q

Donna just graduated from college and is ready to buy her first house. If interest rates are high but she wishes to build equity, she will be more likely to consider a(n)

A

Adjustable rate mortgage

135
Q

With an adjustable-rate mortgage loan, a loan servicer must provide a borrower with a notice of interest rate change that will result in a new payment amount at least ___ days before the change occurs.

A

60

136
Q

Joe has an ARM with an initial rate of 6% and a rate cap of 2/6. What’s the highest his interest rate can be over the life of the loan?

A

12%

(With a 2/6 rate cap, the rate can increase 2% each adjustment period to a maximum of 12% over the life of the loan (6% start plus 6% lifetime cap).)

137
Q

A(n) _____ is specifically required within three business days of a complete application for an adjustable-rate mortgage loan.

A

CHARM Booklet

138
Q

The type of loan that has an interest rate that varies up or down depending on the cost of money as determined by an index is called a(n)

A

Adjustable rate loan

California Mortgage (5 decks)

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