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Real Estate License > Law of Finance 2 > Flashcards

Law of Finance 2 Flashcards

1
Q

Gramm-Rudman act

A

allowed banks to engage in trading profitable derivatives that they sold to investors.

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2
Q

LIBOR

A

interbank borrowing costs; is the benchmark interest rate that banks charge each other for overnight, one-month, three-month, six-month and one-year loans.

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3
Q

Volcker Rule

A

Restricted United States banks from making certain speculative investments that did not benefit their customers
Prohibited banks from conducting investment activities with their own accounts
Limited banks ownership of hedge funds or private equity funds to 3% of total ownership interest; ban on proprietary trading by commercial banks

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4
Q

Consumer Financial Protection Bureau, or CFPB

A

responsible for supervising banks, credit unions, and other financial companies to enforce federal consumer financial laws.

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5
Q

Which are exempt from CFPB regulations?

A

reverse mortgages, home equity lines of credit, mobile home loans

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6
Q

goals of CFPB

A

Create easier-to-use mortgage disclosure forms
Improve consumer understanding
Aid in comparison shopping for the borrower
Prevent surprises at the closing table, a.k.a. “Know Before You Owe”

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7
Q

Secure and Fair Enforcement for Mortgage Licensing Act or SAFE Act

A

gave states one year to pass legislation requiring the licensure of mortgage loan originators (MLOs) that met national standards and the participation of state agencies on the Nationwide Mortgage Licensing System and Registry (NMLS).

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8
Q

Financial Choice Act

A

attempt to roll back Dodd frank act

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9
Q

Administrative Procedure Act, or APA

A

governs the way administrative agencies of the federal government may propose and establish regulations.

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10
Q

Internal Revenue Service, or IRS

A

xx

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11
Q

Mortgage Assistance Relief Services (MARS)

A

is a Federal Trade Commission Rule that protects consumers from predators while they’re in default on their mortgage.; makes it illegal for upfront fees and requires disclosure

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12
Q

Foreign Investment in Real Property Tax Act of 1980, or FIRPTA

A

If a seller is not a citizen, then the buyer (or their representative) must withhold 10 percent of the sale proceeds and send it to the IRS within 10 days of closing

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13
Q

exceptions for FIRPTA

A

residential real estate under $300,000,

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14
Q

HFA

A

Housing Finance Agencies, the many government agencies dedicated to providing fair housing standards and practices; coordinate and consolidate power through NCSHA national council of state housing agencies

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15
Q

TDHCA

A

Texas Department of Housing and Community Affairs, responsible for homeownership, affordable rental housing, community and energy assistance programs and activities serving primarily low-income Texans

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16
Q

MCC

A

Mortgage Credit Certificate, a certificate issued by certain state or local governments that allows a taxpayer to claim a tax credit for some portion of the mortgage interest paid during a given tax year

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17
Q

TSAHC

A

Texas State Affordable Housing Corporation, offers home down payment assistance programs, including first-time homebuyer grants for Texas families

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18
Q

VLB

A

Texas Veterans Land Board, finances land, home loans and home improvement loans for Texas veterans and active military members who are eligible under VLB requirements. It offers Texas veterans the opportunity to buy land at below-market rates with low down payments.

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19
Q

programs administered by NCSHA

A

Mortgage Revenue Bonds (MRB)
The Low Income Housing Credit
The HOME Investment Partnerships Program (HOME)

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20
Q

A consumer is considered a first-time homebuyer if they have not owned a home in ________.

A

3

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21
Q

How much tax credit can be issued under the MCC program?

A

The annual tax credit will be 40% of the annual interest paid on the mortgage loan and not to exceed $2000 per year

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22
Q

What demographic is specifically targeted by the efforts of the TSAHC?

A

low-income families and other underserved populations in Texas who don’t have acceptable housing options through conventional financial channels.

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23
Q

Homes for Texas Heroes Home Loan Program

A

provides homebuyer assistance specifically to teachers, police and correctional officers, firefighters and EMS personnel, and veterans.

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24
Q

DPA

A

down payment assistance

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25
Q

USDA

A

The United States Department of Agriculture, responsible for developing and executing federal laws related to farming, agriculture, forestry, and food

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26
Q

USDA Single Family Housing Programs

A

give direct loans or loan guarantees to help low- and moderate-income rural Americans buy safe and affordable housing in rural areas.

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27
Q

Multi-Family Housing Programs

A

offer loans to provide affordable rental housing for very-low-, low- and moderate-income residents, the elderly, and persons with disabilities.

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28
Q

Community Facilities Programs

A

provide loans, grants, and loan guarantees for essential community facilities in rural areas.

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29
Q

Section 502 Loans

A

commonly known as Single Family Housing Direct Home Loans, are loans that help low- and very-low-income applicants get decent and safe housing in eligible rural areas by providing payment assistance to increase an applicant’s repayment ability.

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30
Q

FSA

A

Farm Service Agency - This department serves farmers and ranchers who are unable to get credit to start, purchase, sustain, or expand a family farm.

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31
Q

Direct Operating Loans:

A

These loans are used to buy things like livestock and feed, farm equipment, fuel, farm chemicals, and insurance. They can cover family living expenses, be used to make minor improvements or repairs to buildings and fencing, and go toward general farm operating expenses.

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32
Q

microloans

A

Microloans are operating loans meant be put toward the needs of small and beginning farmers, non-traditional, specialty crop and niche type operations. They ease some of the requirements and offer less paperwork.

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33
Q

direct farm ownership loans

A

These loans are used to do things like purchase or enlarge a farm or ranch, construct a new or improve existing farm or ranch buildings, and for soil and water conservation and protection purposes.

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34
Q

guarenteed loans

A

Guaranteed loans allow lenders to extend credit to family farm operators and owners who don’t qualify for standard commercial loans. Farmers receive credit at reasonable terms to finance their current operations or to expand their business; financial institutions receive additional loan business and servicing fees, as well as other benefits from the program, like protection from loss.

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35
Q

youth loans

A

Youth loans are used by young people participating in clubs like 4-H clubs or FFA to finance educational, income-producing, agriculture-related projects. (Oh, to be young and in loans!)

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36
Q

Minority and Women Farmers and Ranchers Loans:

A

These loans encourage full participation from minority and women family farmers by targeting a portion of direct and guaranteed farm ownership and operating loan funds for minority and women farmers to buy and operate a farm or ranch.

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37
Q

Beginning Farmers and Ranchers Loans:

A

These loans provide credit opportunities to eligible family farm and ranch operators and owners who’ve been in business less than 10 years. Aw, newbies!

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38
Q

emergency loans

A

These are designed to assist farmers and ranchers recover from any production or physical losses suffered from drought, flooding, other natural disasters or quarantine.

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39
Q

Native American Tribal Loans:

A

These loans are a resource for Tribes to acquire land interests within tribal reservations or Alaskan communities. The loans can be used to advance and increase current farming operations, provide financial prospects for Native American communities, increase agricultural productivity, and preserve cultural farmland for future generations.

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40
Q

loan estimate is provided to consumer within

A

3 days of application

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41
Q

The Consumer Financial Protection Bureau’s program that created new, streamlined forms that consumers receive when they apply for and close on a mortgage is known as ____.

A

know before you owe

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42
Q

Loan estimate form replaced what two documents?

A

Good Faith Estimate GFE and Truth in lending TIL

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43
Q

Total INterest Percentage TIP

A

the total amount of interest that will be paid over the loan term as a percentage of the loan amount

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44
Q

revised loan estimates must be mailed

A

at least 7 business days before closing to allow three days for receipt.

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45
Q

closing disclosure

A

A five-page form that provides final details about the mortgage loan you have selected; replaced the HUD-1 settlement and Final TIL Disclosure in 2015

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46
Q

escrow account

A

An account set up by a mortgage company for paying property taxes and insurance during the term of the mortgage

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47
Q

settlement statement

A

Statement that summarizes all the fees and charges that both the homebuyer and seller face during the settlement process of a housing transaction

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48
Q

The Closing Disclosure can be completed by:

A

a title company representative or a real estate attorney

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49
Q

Signing the Loan Estimate and Closure Disclosure forms constitutes which of the following?

A

receipt of forms

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50
Q

settlement statement

A

was a document used when a borrower is lent funds to purchase real estate.; this form was replaced by closing disclosure; also known as settlement statement; were supposed to get this 1 days before settlement

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51
Q

Department of Housing and Urban Development (HUD)

A

is a government agency with the mission “to increase homeownership, support community development, and increase access to affordable housing free from discrimination.”

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52
Q

Federal Housing Administration, or FHA

A

provides mortgage insurance on loans made by FHA-approved lenders throughout the United States

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53
Q

TILA contains two regulations

A

regulation M (focuses on leased property) and regulation Z (focuses on consumer credit)

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54
Q

Regulation Z

A

requires that certain disclosures be made to all consumers seeking credit

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55
Q

mortgage bankers

A

usually work for a financial institution and are able to loan the money of that institution

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56
Q

mortgage broker

A

have NO money to lend. They bring lenders and borrowers together.

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57
Q

Reconstruction Finance Corporation, or RFC

A

purpose was to build confidence in the economy. The RFC created a mortgage company to sell and buy FHA and VA loans, making them more appealing to lenders/mortgage originators; dissolved in 1957

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58
Q

Federal National Mortgage Association (FNMA)

A

fannie mae was created by RFC; bought existing and established mortgages and lower income housing; became privately funded (government backed) ; work with larger commercial banks

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59
Q

Government National Mortgage Association (GNMA)

A

ginnie mae created in 1968; took over FNMA part in housing assistance and support programs under HUD; guarentee mortgage backed securities MBS

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60
Q

Federal Home Loan Mortgage Corporation (FHLMC),

A

Freddie Mac created as a part of the Emergency Home Finance Act of 1970; the focus is on conventional loans (government backed); work with smaller thrift banks

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61
Q

aggregator

A

work with government-sponsored enterprises, such as Freddie Mac and Fannie Mae, and create mortgage pools that turn into mortgage-backed securities (MBSs).

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62
Q

securities dealers

A

buy the MBS’s

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63
Q

Asset-Backed Securities (ABS)

A

They are a pool of mortgages that are securitized by Wall Street.

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64
Q

Collateralized Debt Obligation (CDO)

A

pools of risky and non risky mortgages backed by mortgages and other debts

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65
Q

Collateralized Mortgage Obligation (CMO)

A

pool of risky and non risky mortgages backed by mortgages

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66
Q

Mortgage Backed Security (MBS)

A

A pool of mortgages packaged together and sold

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67
Q

Government-Sponsored Enterprises (GSEs)

A

The major participants of buying and selling mortgages in the secondary market. This includes: Fannie Mae, Freddie Mac, Farmer Mac, and the Federal Home Loan Bank

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68
Q

Non-Conforming loans:

A

Higher risk loans that do not fit Fannie Mae or Freddie Mac guidelines

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69
Q

conservatorship

A

When one entity takes control over a corporation to ensure they don’t go bankrupt

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70
Q

Home Owners Loan Act

A

gave savings and loans the ability to be chartered by the federal government, and the thrifts were given essential lending authority to offer emergency relief for homeowners who could refinance their home loan for 20 years.; first fixed rated amortized loan was created

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71
Q

Real Estate Mortgage Investment Conduit (REMIC)

A

A REMIC is an investment vehicle that holds commercial and residential mortgages in trust, assembles said mortgages into pools based on risk, and then issues bonds (securities) on these pools to sell to investors on the secondary mortgage market

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72
Q

Collateralized Mortgage Obligations (CMOs)

A

Collateralized debt obligations (CDOs) that are made up of bundles or pools of mortgage-back securities (MBS) created by government agencies or investment banks and issued as investment-grade bonds

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73
Q

What does a REMIC do?

A

holds commercial and residential mortgages in trust, assembles mortgages into pools and issues bonds to investors in the secondary mortgage market.

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74
Q

tranches

A

These risk levels and classes of loans are known as this

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75
Q

Savings and Loan Associations (S&Ls):

A

Originally established by the government for the purpose of offering long-term, single-family home loans

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76
Q

commercial banks

A

Institutions that provide financial services to the general public and businesses

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77
Q

Secured Loan

A

A loan that is backed by collateral, which can be sold if necessary to recover the lender’s loss if the borrower defaults

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78
Q

What takes place in the primary market?

A

Mortgage lenders and borrowers come together to negotiate and create new mortgages in the primary market.

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79
Q

S&L downturn was

A

less regulation on loans and cutting of regulatory staff

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80
Q

Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)

A

bailout measure for S&L failed banks; created RTC

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81
Q

Resolution Trust Corporation (RTC)

A

Duties of the Resolution Trust Corporation included:

Reselling savings and loan assets
Paying back the depositors with the proceeds

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82
Q

Which type of loan is granted based on the creditworthiness of the borrower AND the value of the collateral?

A

secured loan

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83
Q

The Glass-Steagall Act (passed in 1933

A

legislative response to the great depression ; separated investment and commercial banking activities

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84
Q

The Gramm-Leach-Biliey Act (passed in 1999)

A

replaced GSA and allowed investment and commercial banks to affiliate with each other once again

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85
Q

Financial Stability Oversight Council (FSOC)

A

This group of 15 members monitors the stability of the financial system, looks for risks in the system, and addresses those risks.

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86
Q

Consumer Financial Protection Bureau (CFPB)

A

The name kind of says it all. This agency’s job is to protect consumers in the realm of the financial sector. They do this by requiring lending institutions to have clear documentation regarding their transactions.

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87
Q

What is the goal of the Dodd-Frank Act?

A

prevent the excessive risk taking that led to the financial crisis of 2008.

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88
Q

The primary goals of the CFPB are:

A

Creating easier-to-use mortgage disclosure forms
Improving consumer understanding
Aiding in comparison shopping for borrowers
Preventing surprises at the closing table, a.k.a. “Know Before You Owe”

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89
Q

Why do life insurance companies tend to invest in commercial multifamily real estate?

A

it’s considered low risk compared to stocks

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90
Q

self directed IRA

A

An individual retirement account that allows for alternative investments (like real estate) that traditional IRAs do not

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91
Q

holding cost

A

The investor’s cost of owning a property (including taxes, insurance, and utilities) for the time period before it is sold

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92
Q

credit union

A

A not-for-profit financial cooperative created to serve its members’ needs and provide services similar to those of a bank

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93
Q

depository institutions

A

Institutions that use money from their depositors to loan out for mortgages

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94
Q

Which of the following does NOT generate a profit?

A

credit unions

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95
Q

Which of the following is NOT an example of a depository institution?

A

insurance companies are not depository institutions.

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96
Q

Deposits at credit unions are insured by the

A

National Credit Union Administration (NCUA)

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97
Q

Deposits at banks are insured by the

A

Federal Deposit Insurance Corporation (FDIC).

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98
Q

Loan Officer:

A

Professional who facilitates the mortgage loan process and is employed by one specific financial institution

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99
Q

Mortgage Loan Originator (MLO)

A

A licensed professional who helps consumers get mortgage loans; can be commercial or residential (RMLO)

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100
Q

Sandi went to John, a loan officer at Ace Lending, and filled out an application for a mortgage loan. The loan was approved and Ace Lending funded the loan. Ace Lending is a:

A

mortgage banker

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101
Q

Real Estate Investment Trust (REIT)

A

A registered company that owns and operates commercial real estate; investors can buy and sell interests in real property in the form of REITs

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102
Q

Real Estate Mortgage Trust (REMT)

A

A type of real estate investment trust that buys and sells real estate mortgages instead of real property

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103
Q

Price-to-Earnings Ratio (P/E)

A

A common method of predicting the price of a stock that tells an investor how much dividend they will receive per dollar of stock purchased (low P/E means stable/established; high P/E means riskier)

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104
Q

3 types of REIT’s

A

Equity REIT, mortgage REIT, Hybrid REIT

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105
Q

What is the difference between a REIT and a REMT?

A

A Real Estate Mortgage Trust (REMT) is a REIT that buys and sells real estate mortgages (usually short-term junior instruments) rather than real property. REMTs are involved in the secondary mortgage market and not the primary market.

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106
Q

increase in interest rates effects REIT’s and REMT’s how?

A

REIT’s are positively impacted due to increase in occupancy of rental real estate (commercial); REMT’s are negatively impacted because consumers are less likely to get a mortgage

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107
Q

Mortgage Backed Securities:

A

Asset-backed securities that are secured (collateralized) by either a mortgage or group of mortgages

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108
Q

Real Estate Bond:

A

A bond that is secured by a mortgage or group of mortgages

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109
Q

Hard Money Loan:

A

An asset-based loan in which a borrower receives funds secured by real property; typically issued by private investors or companies; usually short term

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110
Q

Which financial conditions are more likely to encourage seller financing?

A

when institutional loans are difficult to get and interest rates are high

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111
Q

As of 2018, the annual gift tax exclusion is set at for X an individual; double that for a married couple Y

A

$15,000; $30,000

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112
Q

portfolio lenders

A

originate mortgages and then hold onto them and service them.They seek to make their profits from the loan origination and interest payments.

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113
Q

soft money

A

These loans are most often obtained by investors who just miss the bank qualifications necessary for a more traditional loan. The lenders in this process use bank statements, property cash flow, profit and loss forms, and/or tax returns to qualify borrowers.

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114
Q

CISP

A

certified international property specialist ; valid for 3 years

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115
Q

Encumbrance:

A

A claim on a property belonging to someone other than the owner

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116
Q

easement

A

The right to enter the property of another without owning it

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117
Q

Affirmative Easement:

A

An easement that gives people the right to use someone else’s personal property for a specific purpose

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118
Q

negative easement

A

An easement that prohibits a property owner from performing an otherwise legal activity on their own property

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119
Q

servient estate

A

The party that has the burden of granting the other party access in an easement

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120
Q

dominant estate

A

The party that is gaining access to the servient estate’s land in an easement

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121
Q

easement appurtenant

A

An easement that applies to the land regardless of the owner

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122
Q

easement in gross

A

An easement that applies to the person or entity, not the specific land

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123
Q

floating easement

A

An easement that does not have a clearly marked, fixed location to which access is granted

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124
Q

express easement

A

An easement created by a written agreement between two or more parties

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125
Q

implied easement

A

An easement created as a logical feature of the land

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126
Q

prescriptive easement

A

Easement created when a dominant party has been using the servient party’s land continually, out in the open, for a statutory amount of time

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127
Q

restrictive covenant

A

A type of encumbrance that restricts how a buyer could use the property they are buying

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128
Q

security interest

A

A legal claim of collateral in exchange for a loan

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129
Q

lien

A

A right to possession of a property by someone other than the owner until a legal duty is satisfied by the owner

130
Q

Statutory Lien

A

A lien that is obtained through a government law — such as a tax lien, mechanic’s lien, vendor’s lien, etc.

131
Q

Judgment Lien:

A

A nonconsensual lien that is created through the power of a court

132
Q

2 categories of easements:

A

affirmative and negative

133
Q

3 ways to create an easement

A

express, implied or prescriptive

134
Q

3 general categories of liens

A

voluntary, statutory and judgement

135
Q

2 subcategories of voluntary liens:

A

purchase money security interest liens and non purchase money security interest liens

136
Q

Purchase-Money Security Interest Liens

A

a type of consensual lien that holds the actual purchase as collateral.

137
Q

Non-purchase-money security interest liens

A

instead of putting the purchased property up as collateral for the loan, the lendee puts up their already owned personal property up as collateral.

138
Q

actual notice

A

the buyer is actually aware

139
Q

constructive notice

A

when it is so obvious that the person should have known about it.

140
Q

General Warranty Deed

A

Warranty that identifies the owner of the property and guarantees that the property is free of defects

141
Q

special warranty deed

A

Limited warranty that guarantees there are no defects against the title since the seller has owned the property

142
Q

What information is specified by the note?

A

It specifies the amount of the debt, the rate of interest, the date on which interest charges are to begin, and the amount and terms of repayment.

143
Q

mortgager

A

The person who takes a loan out from a bank (the borrower)

144
Q

mortgagee

A

entity that lends money

145
Q

In a deed of trust, a borrower is called a ____.

A

trustor

146
Q

in a deed of trust, the lender is called a

A

beneficiary

147
Q

in a deed of trust, the trustee is called a

A

third party

148
Q

In a deed of trust, who holds the title to the real property while the borrower pays off their loan?

A

trustee

149
Q

In a lien theory state, which party has equitable rights to the property?

A

mortgagor

150
Q

In a title theory state, when the trustor defaults on their mortgage payments, who owns the property before the foreclosure sale?

A

the beneficiary

151
Q

In a title theory state, what kind of rights does a trustor have?

A

equitable rights and right of possession.

152
Q

What is the difference between a grantor and a grantee?

A

A grantor is an individual who is voluntarily conveying title to another. A grantee is a person accepting the property. They are the purchaser.

153
Q

Habendum Clause

A

If the type of interest or use of the property under the deed needs further explanation, then the deed will include this

154
Q

A person may not convey an interest in or enter into a contract to convey an interest in residential real property that will be encumbered by a recorded lien” without giving a -X day notice to both lender and purchaser.

A

7 day

155
Q

Mortgage Subordination Agreement:

A

A legal document used to sort out situations when there are two mortgages on a home, and the homeowner wants to refinance the first mortgage

156
Q

Wraparound Mortgage:

A

An arrangement in which the seller of a property extends a mortgage to a buyer; the seller maintains their original loan and continues to pay it while also receiving mortgage payments from the buyer

157
Q

Lock-in Clause:

A

A provision that prohibits a borrower from making early payments on a loan for a specified period of time

158
Q

Due-on-Sale Clause:

A

A clause stating that if a property is sold, then the mortgage must be repaid in full

159
Q

Assumption Loan:

A

A loan that is transferred (assumed) by another party, usually the buyer, with the full acknowledgment and consent of the lender

160
Q

Subject-to Loan

A

A loan that gives the buyer the title to the property but lets the seller’s financing remain in place

161
Q

Exculpatory Clause:

A

A clause that relieves the borrower of personal liability to repay the loan

162
Q

Non-Recourse Clause:

A

A clause that prohibits a lender from seizing any property outside of the property that the loan was secured with

163
Q

Recourse Clause:

A

A clause that states that if a lender still has a deficit after seizing the secured property, then they have the right to seize other assets of the buyer

164
Q

Form 3044

A

deed of trust promulgated for texas

165
Q

What does the deed of trust do?

A

the buyer conveys the property to the trustee, to be held in trust, unless and until a default occurs under the deed of trust.

166
Q

uniform covenants

A

are standardized terms for mortgage documents that exist in a number of states and are used in both mortgages and deeds of trust.

167
Q

non uniform covenant

A

are standardized terms for mortgage documents that are state specific and are used in both mortgages and deeds of trust.

168
Q

Except in the sale of unplatted land, sellers are not required to disclose easements related to the property. It is up to the buyer to make any inquiries.

A

true

169
Q

Primary Lending Discount Rate:

A

The interest rate the Fed charges to other banks

170
Q

amortized

A

Describes a loan that is to be paid off with equal monthly payments that contribute to both principal and interest; payments will be credited first to the interest, with any remainder credited to the principal

171
Q

negative amortization

A

Occurs when the loan payment(s) are not sufficient to cover the interest due, causing the unpaid interest to be added to the principal balance

172
Q

Annual Percentage Rate (APR)

A

The ratio of the total cost of financing to the loan amount (not to be confused with the interest rate)

173
Q

discount points

A

Fees that the lender charges to lower the lending rate; one point is 1% of the loan amount

174
Q

primary lending discount rate

A

is the interest rate the Fed charges to other banks.

175
Q

Interest rates are influenced by the Federal Reserve System’s _____

A

open-market activities, its primary lending discount rate, and the reserve requirement for banks.

176
Q

interest rate and property values are

A

inversely correlated

177
Q

The purpose of disclosing the annual percentage rate (APR) is to assist consumers in _____.

A

comparing mortgage loans AND seeing one rate that includes both interest and loan fees.

178
Q

conventional loan

A

Any loan that is neither insured by the government nor guaranteed by the government

179
Q

conforming loan

A

Loan that conforms to the guidelines set by Fannie Mae and Freddie Mac and thus can be sold to them on the secondary market

180
Q

non conforming loan

A

Loan that does not follow Fannie Mae and Freddie Mac guidelines and thus will not be purchased by them on the secondary market

181
Q

adjustable rate mortgage ARM

A

A loan with an interest rate that can change during adjustment periods throughout the life of the loan

182
Q

LTV

A

A ratio of debt to value of the property

183
Q

Float-to-Fixed Rate Loan:

A

Loan that has an initial interest rate determined by a margin and an index, and after the initial float rate period the loan converts to a fixed-rate loan

184
Q

balloon mortgage

A

A type of loan, at the end of which the (often large) remaining balance of the mortgage is due as a lump sum

185
Q

blanket mortgage

A

A loan for which more than one collateral property acts as security

186
Q

home equity loan

A

A loan in which funds are borrowed using the homeowner’s equity for collateral; funds can be used for any purpose

187
Q

The guidelines that determine if a conventional loan is conforming or non-conforming are set by:

A

fannie mae and freddie mac

188
Q

3 ARM Periods are

A

initial rate period, adjustment period and lookback period

189
Q

index

A

Each ARM loan selects an external economic indicator, such as the Treasury bond yield rate, as the index for the loan. lenders select external economic indicators to index their ARM loans.

190
Q

index rate

A

The index value published on the ARM’s lookback date is the value that will be used to figure the rate on the mortgage for the next adjustment period

191
Q

How is an ARM’s interest rate calculated for the next adjustment period?

A

adding the index rate on the lookback date + the margin (a fixed value).

192
Q

adjustment period cap

A

limits the amount that the interest rate can increase in any given adjustment period.

193
Q

lifetime cap

A

puts a hard limit on the amount the interest rate may increase over the lifetime of the loan, no matter how high the index may increase.

194
Q

Mitch’s ARM has an initial rate of 4.3%. The margin is 2%, and the initial index rate is 2.3%. The initial rate will adjust only once every three years. The lifetime cap is 4%. What is the maximum interest rate that Mitch could pay?

A

8.3%

195
Q

Graduated payment mortgage (GPM

A

is a blanket term for a family of loans characterized by low initial payments that increase (or “graduate”) at set intervals and by set amounts during the term of the loan.

196
Q

In graduated payment mortgages, what increases during the term of the loan?

A

payments: A graduated payment mortgage (GPM) is characterized by low initial payments that increase (or “graduate”) at set intervals and by set amounts during the term of the loan.

197
Q

reverse annuity mortgage

A

is a financial arrangement where the homeowner pledges equity to a lender in exchange for periodic payments of the pledged equity

198
Q

refinancing

A

The process of obtaining a new mortgage in an effort to reduce monthly payments, lower interest rates, take cash out of a home for large purchases, or change mortgage companies

199
Q

equity

A

The difference between the amount owed to the mortgage company and the amount the home is worth

200
Q

subprime mortgages

A

Describes a type of lending or mortgage that involves borrowers with relatively low credit ratings

201
Q

prime rate

A

The interest rate that’s issued to mortgage borrowers with what lenders deem “good credit”

202
Q

federal funds rate

A

The interest rate that banks charge other banks for overnight loans

203
Q

predatory lending

A

The unfair, deceptive, or fraudulent practices of some lenders during the loan origination process; imposing unfair and abusive loan terms on borrowers

204
Q

NINJA loans

A

no income, no job, no assets

205
Q

equity stripping

A

The lender makes a loan based upon the equity in your home, whether or not you can make the payments. If you cannot make payments, you could lose your home through foreclosure.

206
Q

Bait-and-switch schemes:

A

The lender may promise one type of loan or interest rate but without good reason, give you a different one. Sometimes a higher (and unaffordable) interest rate doesn’t kick in until months after you have begun to pay on your loan.

207
Q

Packing:

A

You receive a loan that contains charges for services you did not request or need. “Packing” most often involves making the borrower believe that credit insurance must be purchased and financed into the loan in order to qualify.

208
Q

loan flipping

A

A lender refinances your loan with a new long-term, high cost loan. Each time the lender “flips” the existing loan, you must pay points and assorted fees.

209
Q

participation agreement

A

The agreement that governs the sale of a portion of an interest in an existing loan, plus the rights and obligations of the seller and buyer of an interest

210
Q

participation fee

A

A monthly servicing fee based on the outstanding principal balance of the loan and the participant’s percentage share of any expenses incurred by the lender in connection with the enforcement of the loan

211
Q

What is a participation fee?

A

a monthly servicing fee

212
Q

When a lender forecloses on a home and loses money, the borrower could actually owe more income tax if the lender _________ .

A

forgives the deby

213
Q

Compared to short-term capital gains, the tax rate for long-term capital gains is _____________.

A

lower

214
Q

benchmark

A

A figure that allows investors to compare how a given mortgage is doing compared to other similar types of mortgages based on qualities like risk and investment type; also known as the index

215
Q

spread

A

also known as the margin, is a fixed amount above the index which the borrower will pay.

216
Q

fully indexed spread

A

The rate you get when you add the index and the spread

217
Q

The ____________ is the difference between comparisons of similarly styled portfolios.

A

benchmark

218
Q

margin/index are inversely proportional

A

high margin is a low index level

219
Q

credit alert interactive voice response system (CAIVRS) identifies applicants through 6 different categories

A

No cases

A claim (that is, a lender’s claim on FHA insurance money)

A default

A foreclosure

A Department of Justice judgment

Multiple cases

220
Q

The FHA program is funded solely by:

A

mortgage insurance premiums

221
Q

Section 203(b)

A

insures fixed interest rate loans for owner-occupied, one- to four-family properties.

222
Q

FHA interest rates are set and negotiated by the lender and the ____.

A

borrower

223
Q

What is the minimum amount of investment a borrower must have to qualify for an FHA insured loan?

A

3.5%

224
Q

The benchmark for FHA loans is not necessarily a credit score, but a borrower’s ____.

A

history of reliable payment activity

225
Q

FHA; the current credit score that qualifies a borrower to pay the minimum of 3.5% down is

A

580

226
Q

FHA If the borrower has a credit score between 500 and 579, they would be required to put down at least

A

10%

227
Q

overlay

A

is something that is self-imposed by the mortgage company or investors to have stricter lending requirements, which means a less risky loan.

228
Q

203k

A

FHA loan for rehabilitation who need a loan in excess of $5000 to repair 1-4 residence

229
Q

With an FHA Adjustable-Rate Mortgage, a borrower ____.

A

can switch to a fixed rate loan without financing

230
Q

streamline refinanced

A

is the process of refinancing an FHA mortgage to get a better rate, without borrowers having to:

Verify income/employment
Share bank or asset information
Have a minimum credit score
Get a home appraisal

231
Q

direct endorsement

A

When a lender has the authority to approve FHA loans in-house without submitting the file to the FHA regional office for prior approval

232
Q

The maximum guaranty amount equals 25% of the conforming loan limits and are adjusted ____. VA

A

by county

233
Q

Two methods are used to determine a veteran’s ability to qualify for a loan:

A

debt to income ratio 41% and residual income

234
Q

The housing expense ratio ____.

A

is not applicable to VA loans

235
Q

residual income

A

is defined as the amount of monthly income remaining after all the debts are deducted, including:

236
Q

If a buyer puts a $240,000 offer on a property and the Certificate of Reasonable Value comes back with a value of $235,000, according to the VA guaranty, the buyer ____.

A

has the option to back out of the contract without penalty

237
Q

What is a funding fee charged on VA loans used for?

A

to cover the cost of administering the VA home loan program

238
Q

seller concessions

A

are the seller’s agreement to pay for an amount of the buyer’s closing costs.

239
Q

Who may assume a VA loan (as long as they’re qualified)?

A

a non veteran, a veteran and an investor

240
Q

FHA minimum down payment

A

3.5%

241
Q

the required percentage of down payment for the MIP

A

1.75%

242
Q

Sale price - Down payment =

A

4 x (Entitlement + Down payment)

243
Q

loan amount=

A

sale price - down payment

244
Q

What is the funding fee?

A

2.15% with no down payment and 3.3% for a second loan

245
Q

Verification of Employment Form:

A

A form that requests the length of the applicant’s employment, gross salary, additional income, and the likelihood of continued employment

246
Q

underwriting

A

is when a mortgager gathers information in order to perform a financial analysis to determine the loan and interest rates they should provide.

247
Q

Desktop underwriter DU

A

Fannie Mae’s electronic CLO

248
Q

Which of the following is NOT used by Desktop Underwriter for risk analysis?

A

fico score

249
Q

Loan Prospector (LP)

A

freddie mac’s electronic CLO

250
Q

If an applicant does not meet the criteria for a loan, the Loan Prospector software can reject that loan.

A

Freddie Mac’s Loan Prospector does not reject loans. Instead, it refers them for manual underwriting.

251
Q

quantity survey method

A

the appraiser tallying up the value of everything that goes into the cost: labor and equipment, raw materials, business overhead, and other fees.

252
Q

unit-in-place method

A

It takes direct and indirect costs into account, but combines them into a simplified cost for a building component.

253
Q

square foot method

A

The appraiser estimates a cost per square foot for that specific type of building and then multiplies it by the square footage of the structure.

254
Q

cost approach equation: property value =

A

cost of reproduction - (cost or reproduction x percentage of depreciation) + land value

255
Q

depreciation %=

A

age of property/total useful life

256
Q

income approach: value=

A

net operating income/capitalization rate

257
Q

Residential Mortgage Credit Report (RMCR

A

Report containing information needed to underwrite a loan to sell on the secondary market

258
Q

Fair Credit Reporting Act (FCRA

A

Legislation that promotes accuracy, fairness, and privacy of consumer information in the files of consumer reporting agencies

259
Q

Equal Credit Opportunity Act (ECOA):

A

Law prohibiting credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or use of public assistance

260
Q

Requests for credit history can also be referred to as ________.

A

inquiries

261
Q

Loan companies may not inquire about:

A

marital status beyond asking if a borrower is married or single.

262
Q

Taxpayer Relief Act of 1997

A

provides that first-time homebuyers may withdraw up to $10,000 from their IRAs, at any time, penalty-free for the purchase of a principal residence

263
Q

2 qualifying ratios

A

housing expense ratio and total debt service ratio

264
Q

The housing expense ratio is also known in the real estate world as:

A

the front end ratio

265
Q

debt-to-income ratio (DTI)

A

(PITI + long-term liabilities) ÷ gross monthly income

266
Q

net worth

A

assets minus all their liabilities

267
Q

Debt-to-Equity Ratio

A

Total liabilities ÷ net worth*

268
Q

A lock-in fee allows the borrower to lock in the float rate at what point in the process?

A

at the time of loan approval

269
Q

Uniform Residential Loan Application:

A

Standard application used by banks to determine someone’s ability to secure a mortgage loan

270
Q

When a loan is being applied for, a loan officer sends the verified loan application to whom?

A

the underwriter

271
Q

Verifications of Deposit VOD’s

A

are requests sent to banks by state and federal agencies to verify whether a customer qualifies for subsidized housing, food stamps, medicare or medicaid

272
Q

What must a Verification of Deposit for a refinance or new mortgage be accompanied by?

A

both a borrower’s certification and an authorization form signed by the borrower

273
Q

VOE

A

verification of employment

274
Q

Uniform Residential Appraisal Report (URAR):

A

Form used in real estate appraisal to allow for standard reporting and analysis of single-family homes or single-family homes with an accessory unit

275
Q

Consummation

A

The point at which the consumer becomes contractually obligated to the creditor on the loan

276
Q

servicer

A

The company to which mortgage payments are sent

277
Q

regulation x

A

the Initial Escrow Account Statement has to be supplied at settlement or within 45 days (calendar days!) of settlement.

278
Q

closing disclosure copies must be kept by creditors for how many years after consummation?

A

5

279
Q

Title Plant:

A

A collection of privately owned and maintained title records

280
Q

title

A

bundle of rights to property

281
Q

Who is qualified to perform the title search?

A

lawyers and insurance companies

282
Q

abstract of title

A

condensed version of title’s history

283
Q

chain of title

A

full history of a title

284
Q

Title Commitment:

A

A pre-closing document that lists all of the terms, conditions, and exclusions of the title policy; a “preview” of the final title insurance policy

285
Q

Which of the following is issued during court sales and protects the buyer’s interest in property sold by the court?

A

certificate of sale title insurance

286
Q

ABCD’s of Title Commitment

A

schedule A: actual facts
schedule B: buyer’s notice of things not covered
schedule C: clear this list prior to issue of title insurance
schedule D: disclosure of parties who will share any part of title insurance premium

287
Q

a bankers year has how many days in it?

A

360

288
Q

default

A

Any breach of a valid contract

289
Q

Acceleration Clause:

A

States that whenever there is a breach of contract on the part of the borrower, the lender may make the entire amount of the loan due immediately

290
Q

delinquent

A

Describes the state of a borrower who fails to pay the principal, interest, taxes, or insurance for a loan on time or at all

291
Q

5 d’s of foreclosure

A

death, divorce, drugs, disease, denial

292
Q

Moratorium:

A

A suspension of loan payments for a period of time

293
Q

Forbearance

A

The act of refraining from exercising a legal right

294
Q

recasting

A

Changing the terms of the loan

295
Q

short sale

A

A sale in which the lender will agree to accept less than what is actually due on the mortgage before the property goes into foreclosure

296
Q

deed in lieu of foreclosure

A

An alternative to foreclosure in which the defaulting borrower voluntarily transfers the property title to the lender

297
Q

Maximizing the lender’s return on their portfolio of properties acquired by foreclosure is the task of the _____.

A

asset manager

298
Q

Judicial Foreclosure

A

A foreclosure that is processed through the court

299
Q

Non-Judicial Foreclosure

A

A foreclosure that does not involve a suit or the ruling of the court (as a result of terms in the contract)

300
Q

Redemption Period:

A

Period of time after a home has been sold at a foreclosure sale when the former owner can reclaim it by paying the outstanding mortgage balance and all costs incurred during the foreclosure process

301
Q

Most common use of a judicial foreclosure

A

HOA foreclosure

302
Q

redemption period in Texas

A

two years (compared to 180 days for commercial property).

303
Q

Texas is a strict foreclosure state

A

true

304
Q

Deficiency Judgment

A

Requires the defaulted borrower to pay any remaining balance owed to the lender, generally after the sale of a foreclosed property (2 year time limit)

305
Q

Equitable Redemption

A

Occurs before the sale (auction) of a property; allows defaulting debtors to pay the defaulted portion of the debt (and costs the lender incurred) in order to reinstate the loan and prevent a foreclosure sale (allowed in texas)

306
Q

statutory redemption

A

A specified period in which debtors are allowed to recover their property after a foreclosure sale (not allowed in texas)

307
Q

When a third party purchases a property at the foreclosure auction, it is _____ the debt

A

not encumbered by

308
Q

When a mortgagee forgives the debt that remains after a foreclosure sale, it can have an effect on the borrowers’ _____.

A

income tax owed

309
Q

Mortgage Debt Relief Act of 2007

A

generally allowed taxpayers to exclude income from the discharge of debt on their principal residence. expired in 2014

310
Q

exemptions for capital gains tax

A

If this house is their primary residence, the first $250,000 (for single individuals) or $500,000 (for married couples) is excluded due to the tax code

311
Q

Which of the following is a duty of the Department of Housing and Urban Development?

A

the enforcement of the fair housing act and RESPA

312
Q

Which of the following is charged with assisting Texas from low-income families or other underserved populations who may not be able to secure conventional financing to purchase a home?

A

texas state affordable housing corporation

313
Q

With amortized loans, the borrower is:

A

paying in arrears

314
Q

Which of the following has 11 districts that cover the nation?

A

Federal Home Loan bank system

315
Q

If a buyer and seller agree to seller financing, at the end of the transaction the seller will own:

A

a note

316
Q

Which department insures bank deposits up to $250,000?

A

FDIC

317
Q

Which clause in a mortgage agreement establishes that the full and legal title will return to the owner when the mortgage is fully paid?

A

defeasance clause

318
Q

A client is interested in investing in real estate, but wants to incur the least amount of work and risk possible. Which investment vehicle would BEST fit these needs?

A

bonds

319
Q

In a title theory state, which party has equitable rights to a property?

A

trustor

320
Q

A VA loan may be used for all of the following EXCEPT:

A

investment property

321
Q

The 203(b) FHA loan program is MOST likely to be a solution for:

A

first time home buyers

Real Estate License (7 decks)

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