Government Financing Regulations

Question 1

FOMC (Federal Open Market Operations)

Answer 1

The Federal Open Market Committee

• Buying and selling of US debt to and from Fed members banks
• The more FOMC buys the more money available for banks to lend out, vice versa
• Stabilizes US government borrowing

Question 2

Discount Rate

Answer 2

Rate at which banks borrow directly from the Fed
Set by the Fed
-Lowest interest rate

Question 3

Fed Funds Rate

Answer 3

The rate at which banks loan to each other
Short term interbank lending

Highest

Question 4

Prime Rate

Answer 4

The theoretical best interest rate available from a bank

Typically not possible to borrow at the prime rate unless a large corporation

Used as a benchmark, pay a premium over it

Set by the market, floats above the Fed Funds Rate

The best interest rate, middle ground

Question 5

Raising Revenue (Define and state drawback)

Answer 5

Make People and businesses pay taxes

Drawback: Reduces purchasing power of consumers

Question 6

Borrowing Money

Answer 6

Issuing Government securities, such as bills, bond

Drawback: Deficit spending - compete with consumers for loans

Question 7

Printing Money (Define and state drawback)

Answer 7

Print money to pay for debts

Drawback - reduces value and causes inflation

Question 8

What are the three ways that the government raises Money?

Answer 8

US Department of Treasury manages government revenue.

• Raising Revenue
• Borrowing Money
• Printing Money

Question 9

Which rate has the greatest impact

Answer 9

Federal Funds Rate

Question 10

Real Estate Settlement Procedures Act (RESPA)

Answer 10

A federal law that requires lenders to provide borrowers with information about closing costs (fee, points, commissions, etc.) for financing 1-4 family residential homes.
Prohibits certain kickbacks, referral fees, and unearned fees.
The lender must report transactions to the IRS.

Question 11

Affiliated Business Arrangements (ABA’s)

Answer 11

Mortgage and brokerage companies, title companies, home inspectors and other service providers package services together are permitted to package services together under RESPA

• Must share at least 1% common ownership
  Consumer must:
• be fully informed
• be given other options if desired

ABA providers can be paid for their services and receive a return on 1% investment but nothing more (no additional fees)

Question 12

Dodd Frank Act & TILA-RESPA

Answer 12

• Changed some RESPA requirements and processes
• Loan estate Form must be given details at closing
• Must be given to consumer no later than 3 business days after loan app
• Closing Disclosure is called a CD (must be given at least 3 days prior to the date of the closing)

Question 13

Truth in Lending Act

Answer 13

(Regulation Z

• Enforced by Consumer Financial Protection Bureau
• Provides consumers with full disclosure of the cost of credit

Question 14

APR (Annual Percentage Rate)

Answer 14

TILA requires lenders to calculate their cost of credit and express them as APR if they advertise specific loans terms

Must express them as APR
APR includes = interest rates, points, loan fees, disclosure of penalties, etc.
-APR doesn’t include - municipal taxes, attorney fees, credit reports, etc.

APR Disclosure required when triggered
Ex. 3% down payment
No triggered terms
Ex. low down payment

Question 15

When is regulation triggered?

Answer 15

Anytime you are advertising a specific rate.

Question 16

Do real estate agents fall under TILA?

Answer 16

If advertising loan arrangements for a referral fee.

Question 17

Proration

Answer 17

If there is an expense prepaid or unpaid at closing, or income that must be divided between the buyer and seller, it will be prorated and reflected on the Closing Disclosure

Question 18

Proration : What would prepaid expenses show at closing?

Answer 18

Credit to the seller, and debit to the buyer

Question 19

Proration : What do unpaid expenses show at closing?

Answer 19

Debit to the seller and credit to the buyer.

Question 20

Closing Disclosure (Closing statement)

Answer 20

• Consumers must receive a closing disclosure
• Replaced HUD-1
• Details the actual costs of closing no later than 3 days before the date of closing

Question 21

TRID (TILA -RESPA Integrated Disclosure

Answer 21

• Established under the Dodd Frank Act

- Combines Truth in Lending and the RESPA rules

Question 22

Redlining

Answer 22

Illegal practice of credit discrimination. It is outlawed under the Equal Credit Opportunity Act (ECOA)

Question 23

Blockbusting

Answer 23

Employing fear tactics to induce panic selling or panic peddling a neighborhood
illegal

Question 24

Steering

Answer 24

Directing client to or away from certain areas or properties based on protected class status

Question 25

Property taxes payment?

Answer 25

Paid quarterly (4times per year

Question 26

RESPA (Real Estate Settlement Procedures Act)

Answer 26

A federal law that requires lenders to provide borrowers with information on closing
costs for financing 1-4 family residential homes and sets forth additional prohibitions
- Banks must provide a borrower with a bona die (good faith) estimate of the amount
and range of charges for real estate settlement within 3 days of the loan application

Question 27

TILA (Truth in Lending Act) or Regulation Z

Answer 27

• Law enforced by the Consumer Financial Protection Bureau.
• Supposed to provide consumers with full disclosure of the cost of credit.
• Requires the disclosure of pertinent information such as down payment and annual percentage rate if a triggering item such as interest rate is advertised.

Question 28

In a 1031 taxes are:

Answer 28

Deferred

Question 29

Residential properties are depreciated on a ______year schedule.

Answer 29

27.5 YEAR

Question 30

Equal Credit Opportunity Act (ECOA)

Answer 30

• Prohibits discrimination in lending

- requires credit application only based on income and stable source of income, credit rating

Question 31

Predatory Lending

Answer 31

When lending is unfair, deceptive and abusive.

Lenders fail to disclose loan costs and risks, steer borrowers towards unfairly high-interest rates

Question 32

Usury

Answer 32

When someone charges an illegally high rate of interest

Question 33

1031 Like Kind Exchanges

Answer 33

Defers the payment of capital gains taxes

alleviates the disincentive for business growth created by tax code

Question 34

203b

Answer 34

FHA section that allows anyone to qualify for assistance as long as they are purchasing a primary residence

• generally for 1-4 family owner occupied homes
• condos and co-ops qualify