MLO-General Mortgage Knowledge Flashcards
1
Q
- Every ARM includes a(n):
a. level payment plan.
b. biweekly payment.
c. index
d. capitalization rate.
A
c. index
Correct answer is (c).
A lender may offer a variety of ARMS, but they all share similar features—initial interest rate and payment, adjustment period, index, margin, and caps. These basic features are incorporated into every ARM loan.
2
Q
- A borrower obtaining a 3/1 hybrid ARM will have a loan with a:
a. fixed rate for 3 years and an annual rate adjustment thereafter.
b. fixed rate for 1 year and a rate adjustment every 3 years thereafter.
c. cap on the interest rate for the first 3 years and an interim cap thereafter.
d. cap on the interest rate for the first year and an interim cap every 3 years thereafter.
A
c. cap on the interest rate for the first 3 years and an interim cap thereafter.
Correct answer is (c).
A lender may offer a variety of ARMS, but they all share similar features—initial interest rate and payment, adjustment period, index, margin, and caps. These basic features are incorporated into every ARM loan.
3
Q
“CRV” is a common phrase used in the financing of real estate. The CRV is issued by the:
a. Federal National Mortgage Association.
b. Federal Housing Administration.
c. Government National Mortgage Association
d. Veteran’s Administration.
A
d. Veteran’s Administration.
Correct answer is (d).
Certificate of reasonable value is the VA appraisal.
4
Q
Hard money loans are usually offered by __________ who want to earn a return on their investment.
a. city officials b. credit unions c. private lenders d. savings and loans
A
c. private lenders
Correct answer is (c).
Hard money loans are typically offered by private investors who are seeking to earn a return on their investment through the interest rates on the loan.
5
Q
On an ARM, what limits the amount an interest rate moves up or down from one period to the next after the first adjustment?
a. Credit percentage cap b. Initial interest cap c. Periodic adjustment cap d. Prime loan cap
A
c. Periodic adjustment cap
Correct answer is (c).
The periodic adjustment cap limits the amount the interest rate can adjust up or down from one adjustment period to the next after the first adjustment.
6
Q
The annual percentage rate is:
a. a measure of the cost of credit, expressed as a yearly rate. b. an annualized simple interest rate. c. the cost of a loan, expressed as a biannual rate. d. the cost of credit, expressed as a monthly rate
A
a. a measure of the cost of credit, expressed as a yearly rate.
Correct answer is (a).
The annual percentage rate is a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the consumer to the amount and timing of payments made.
7
Q
Which would not be a conforming loan that Fannie Mae would purchase?
a. Single-family second home b. Non-owner occupied 1-4 residence c. Timeshare d. Condominium
A
c. Timeshare
Correct answer is (c).
Fannie Mae purchases conforming loans made on 1-4 family unit residences (both owner and non-owner occupied), single-family second homes, co-ops, condos, PDs, and leaseholds.
8
Q
8. When interest is not paid on a payment-option ARM because of a payment cap, the interest is: a. added to next period's interest. b. added to the balance of the loan. c. dismissed. d. waived.
A
Correct answer is (b).
b. added to the balance of the loan
Many payment-option ARMs have a payment cap to prevent any one adjustment from increasing excessively, even if the index rate would merit a high increase. However, any interest not paid because of the payment cap is added to the balance of the loan.
9
Q
9.
Which of the following statements is true about a no-ratio loan?
a. Assets are not disclosed.
b. Employment is not disclosed.
c. Income is not used in qualifying the borrower.
d. The amount of debt the borrower can handle is not calculated.
A
c. Income is not used in qualifying the borrower.
Correct answer is (c).
Under no ratio documentation, income is not disclosed or used in qualifying the borrower. The loan decision is based on the borrower’s credit rating and down payment or equity in the property.
10
Q
All of the following are FHA loan programs, except:
a. 245 graduated payment mortgage. b. Title 1 home improvement loan. c. Energy Efficient Mortgage. d. Traditional 30-year fixed-rate loan.
A
d. Traditional 30-year fixed-rate loan.
Correct answer is (d).
FHA loan programs include the 203(b) residential loan, 251 adjustable-rate mortgage, 245 graduated payment mortgage, 255 reverse mortgage, 203(k) rehabilitation loan, Title 1 home improvement loan, and the Energy Efficient Mortgage.
11
Q
Kendra and Bobby lost their last home due to job layoffs, which negatively affected their credit. Ocean Bank is helping them finance an affordable home that is closer to Bobby’s new employer. Kendra and Bobby are aware their loan interest rate will be high but would like a mortgage to help rebuild their credit. What loan type might the lender suggest to Kendra and Bobby to meet their needs?
a. Conforming loan b. Reverse mortgage c. Non-conforming loan d. “A” paper loan
A
c. Non-conforming loan
Correct answer is (c).
Non-conforming or “B” paper loans allow borrowers with less-than-perfect credit to rebuild their credit and refinance the loan at a better rate.
12
Q
What is included in the finance charge for a loan secured by real property?
a. Application fee b. Broker fee c. Notary fee d. Title fee
A
b. Broker fee
Correct answer is (b).
The broker fee refers to the broker origination fee paid to the mortgage loan originator (mortgage broker). The finance charge includes the following types of charges: interest, points, loan fees, assumption fees, finder’s fees. Charges excluded from the finance charge for a real estate loan include: application fees, seller’s points, title insurance, property survey, abstract of titles, preparing loan documents (deeds or settlement documents), notary fees, credit report fees, appraisals, inspections (pest, geologic, flood hazard, etc.), and amounts placed in impound accounts. [FDIC 6500, Reg. Z Part 226, Section 226.4 Finance Charge]
13
Q
When compared to a 25-year amortized loan, a 30-year amortized loan has:
a. less interest over the term of the loan. b. more principal over the term of the loan. c. higher monthly payments of principal and interest. d. lower monthly payments of principal and interest.
A
d. lower monthly payments of principal and interest.
Correct answer is (d).
The longer the term of the loan, the lower the monthly payments. Since interest will be paid for a longer period, the total financing costs over the life of the loan would be higher.
14
Q
How can home buyers protect themselves from claims by others to legal rights in their new property?
a. Assume the seller's homeowner's insurance policy b. Buy mortgage insurance c. Buy an owner's title insurance policy d. Buy a lender's title insurance policy
A
c. Buy an owner’s title insurance policy
Correct answer is (c).
A buyer will buy, or have the seller buy for him, an owner’s title insurance policy insuring him against loss due to claims of others to the title or to legal rights in the property.
15
Q
5. If the payments on a loan financing a real estate purchase are insufficient to service the debt, the result will be: a. a smaller balloon payment. b. negative amortization. c. positive cash flow. d. default on the debt.
A
b. negative amortization.
Negative amortization means that a portion of the interest is not paid each month. This portion is added to the unpaid principal.
16
Q
In real estate financing, the role of the Department of Veterans Affairs is to:
a. make loans to qualified veterans. b. guarantee loans made by an approved lender. c. make loans to any qualified resident of the United States. d. guarantee loans made to qualified veterans by an approved lender.
A
The Department of Veterans Affairs (DVA or VA) does not make loans. It guarantees loans made by approved lenders, much like the FHA.
17
Q
The DVA has programs that provide benefits to all of the following, except:
a. veterans. b. government employees. c. family members. d. survivors of veterans.
A
b. government employees.
The DVA is a government-run military veteran benefit system with the responsibility of administering programs of veteran’s benefits for veterans, their families, and surviviors.
18
Q
Harry is 67 years old. He has no outstanding loans on his home. He would like to have additional income so that he can travel. What loan product is suitable for Harry in this situation?
a. Exploding ARM b. Reverse mortgage c. Graduated payment mortgage d. 20-year fixed-rate mortgage
A
b. Reverse mortgage
A reverse mortgage allows homeowners 62 years and older to borrow the equity in their personal residence and not repay the loan until they no longer occupy the property.
19
Q
Which index reacts quickly to changes in the market?
a. 11th District Cost of Funds b. Certificate of Deposit c. Common Market d. Monthly Treasury Average
A
b. Certificate of Deposit
These indexes are averages of the secondary market interest rates on nationally traded Certificates of Deposit. The 6-month Certificate of Deposit (CD) index generally reacts quickly to changes in the market.
20
Q
What happens to portfolio loans after the lender originates them?
a. They are sold in the secondary market. b. Fannie Mae purchases them. c. They are kept in the lender's loan portfolio. d. Freddie Mac purchases them.
A
c. They are kept in the lender’s loan portfolio.
. A portfolio loan is a loan retained by the lender. Since these loans do not conform to Fannie Mae/Freddie Mac credit standards, they cannot be sold into the secondary market. They are either retained in the lender’s portfolio or privately securitized.
21
Q
The FHA was established to:
a. make loans to qualified borrowers. b. make loans to veterans. c. stabilize the mortgage market. d. set FNMA/FHLMC lending standards.
A
c. stabilize the mortgage market.
Originally created to stabilize the mortgage market, the FHA caused the some of the greatest changes in the housing industry in the 20th century. It forever changed home mortgage lending by insuring long-term, amortized loans; creating standards for qualifying borrowers; and by establishing minimum property and construction standards for residential properties.
22
Q
A loan discount:
a. increases the interest rate on the loan. b. lowers the interest rate on the loan. c. improves the chances of getting loan approval. d. is only used in reverse mortgages.
A
b. lowers the interest rate on the loan
Loan discount, often called “points” or “discount points”, is a one-time charge imposed by the lender or broker to lower the interest rate on the loan. [HUD-1, Section 802]
23
Q
A borrower who applies for a subprime loan is most likely someone who:
a. has an immaculate credit history. b. experienced bankruptcy or foreclosure in the past. c. is not perceived as a high credit risk. d. usually makes his or her loan payments on time.
A
b. experienced bankruptcy or foreclosure in the past.
Subprime loans are offered to borrowers who may have recently filed for bankruptcy or foreclosure, or have late payments on their credit reports.
24
Q
With a stated income stated assets loan:
a. assets are disclosed and only income is verified. b. income is disclosed and only assets are verified. c. both income and assets are disclosed and verified. d. both income and assets are disclosed but not verified.
A
d. both income and assets are disclosed but not verified.
A loan based on disclosure but no verification of assets and income may be called a stated income stated assets loan.
25
A(n) _____________ is a fee charged when a loan is paid off early.
a. ARM penalty
b. cash-out penalty
c. prepayment penalty
d. rate penalty
c. prepayment penalty
| A prepayment penalty is a fee charged when the loan is paid off early.
26
Benefits of FHA-insured loans include all of the following, except:
a. low down payments.
b. complicated qualifying.
c. competitive interest rates.
d. low closing costs.
b. complicated qualifying.
FHA-insured loans allow low to moderate-income people to buy a home with lower initial costs. FHA-insured loans feature low down payments, competitive interest rates, easy qualifying, and low closing costs. In addition, FHA loans are assumable and have no prepayment penalties.
27
Sam wants a home loan with rates that will not change during the loan term. He just learned from the lender that he does not qualify for the $250,000 traditional 30-year fixed-rate loan for which he applied. However, the lender told Sam he does qualify for another fixed-rate loan with lower monthly payments. Based on this information, Sam qualifies for a ___________________ fixed-rate loan.
a. 40-year
b. 20-year
c. 15-year
d. 10-year
a. 40-year
A 40-year fixed-rate loan extends the repayment term of a fixed-rate mortgage, which results in smaller monthly payments. This longer term fixed-rate loan product provides another way to put a more expensive home within the reach of buyers.
28
Which of the following will necessarily involve a balloon payment?
a. Fully amortized loan
b. Partially amortized loan
c. Variable rate loan
d. Fixed rate loan
b. Partially amortized loan
If it were fully amortized, it would be paid off at the end of the term. Partial amortization means that a large (balloon) payment will be due at the end of the loan term.
29
A(n) __________ loan is a type of loan a borrower can get to finance the costs associated with construction.
a. internal
b. intermittent
c. interim
d. inherent
c. interim
| An interim loan is a short-term loan that finances construction costs, such as the building of a new home.
30
All of the following types of loans could be used for a construction loan, except a(n):
a. adjustable rate mortgage.
b. balloon mortgage.
c. 30-year fixed rate loan.
d. reverse mortgage.
d. reverse mortgage.
Correct answer is (d).
Reverse mortgages are for senior citizens, using existing residences as collateral.
31
In a deed of trust, the power of sale in the event of default is given from the:
a. beneficiary to the trustee.
b. buyer to the seller.
c. trustor to the trustee.
d. trustee to the beneficiary.
c. trustor to the trustee.
The buyer is the trustor and gives the power of sale to the trustee. If the buyer defaults, the trustee is authorized by the lender (beneficiary) to sell the property and give the proceeds to the lender.
32
The liquidation of a financial obligation on an installment basis defines:
a. amortization.
b. appreciation.
c. hypothecation.
d. leverage.
a. amortization.
Correct answer is (a).
Amortization is the liquidation of a financial obligation on an installment basis.
33
What home loan characteristic can possibly lead to foreclosure?
a. Following strict underwriting guidelines
b. Full documentation requirements
c. Higher rates and fees
d. No prepayment penalties
c. Higher rates and fees
Subprime borrowers pay higher rates and fees that make them more susceptible to predatory lending practices that can strip them of the equity in their homes and possibly lead to foreclosure.
34
What does COFI stand for?
a. Certificate of Financial Indebtedness
b. Cost of Funds Index
c. Cost of Fire Insurance
d. Capacity of Flood Insurance
Correct answer is (b).
b. Cost of Funds Index
COFI stands for cost of funds index. The COFI reflects the weighted-average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts and other sources of funds.
35
What do banks use as a base to determine interest charged on commercial loans?
a. Certificate of Deposit
b. Eurodollar market
c. Prime rate
d. Wall street
c. Prime rate
Banks use this rate as a base rate when determining the interest rates they charge on commercial loans and on some consumer loan products.
36
A promissory note:
a. is security for a trust deed.
b. is evidence of a debt.
c. must be recorded
d. is collateral for the loan.
b. is evidence of a debt.
Correct answer is (b).
A promissory note is evidence of the debt.
37
Which of the following is an FHA loan program?
a. Interest Rate Reduction Refinancing Loan
b. Conventional loan program
c. Section 203(b) loan
d. All of the above
c. Section 203(b) loan
| The majority of FHA loans made are Section 203(b) loans.
38
The adjustable-rate mortgage (ARM) loan has an interest rate that adjusts with a movable _____________ index.
a. economic
b. lender
c. price
d. public
a. economic
Correct answer is (a).
An adjustable-rate loan or adjustable-rate mortgage (ARM) is a loan with an interest rate that adjusts with a movable economic index. The interest rate on the loan varies upward or downward over the term of the loan depending on money market conditions and the agreed upon index.
39
Which of the four “Cs” of credit is associated with the ability to repay loans?
a. Capacity
b. Capital
c. Character
d. Collateral
a. Capacity
Capacity refers to the ability of the borrower to pay back the loan. Character refers to the borrower's credit history. Collateral refers to the property being used as security for the debt. Capital refers to the other assets owned by the borrower.
40
In 1968 a new organization was formed to assume many of the functions of the Federal National Mortgage Association. This organization also works hand in hand with the Department of Housing and Urban Development (HUD). This organization is known as:
a. Fannie Mae
b. Ginnie Mae.
c. Freddie Mac.
d. Farmer Mac.
Correct answer is (b).
| It is GNMA or Ginnie Mae.
41
Even though she had a debt-to-income ratio of 50%, Jane was able to qualify for a home loan of $525,000. The lender got Jane into a loan product with a low teaser rate that will increase dramatically after 2 years. Jane is unaware of the fact that the payment increase will cause her debt-to-income ratio to spike to 70%. What type of loan product did she secure?
a. Fixed-rate loan
b. Exploding ARM
c. Conforming loan
d. Fannie Mae loan
b. Exploding ARM
The exploding ARM is a notorious home loan product that features a low introductory teaser rate for which the borrower qualifies even with high debt-to-income ratios. When these rates adjust, typically in as little as 2 years, the new fully-indexed rate on this subprime home loan can increase debt-to-income ratios 20% or more. This dramatic rate increase causes the payments to jump to a level that is unmanageable for the majority of homeowners.
42
A lender with automatic authority from the DVA may:
a. originate home loans without FHA review or approval.
b. originate jumbo loans for sale to Fannie Mae or Freddie Mac.
c. close VA-guaranteed loans without the prior approval of the DVA.
d. do all of the above.
c. close VA-guaranteed loans without the prior approval of the DVA.
Correct answer is (c).
Many VA-approved lenders, such as mortgage companies, savings and loans, or banks, originate these loans and have automatic authority to close VA-guaranteed loans. Automatic authority is the authority of a lender to close VA-guaranteed loans without the prior approval of the DVA.
43
A way to finance several properties under one loan is to obtain a:
a. blanket loan.
b. takeout loan.
c. subordination loan.
d. timeshare.
a. blanket loan
| A blanket loan offers a convenient way to finance multiple properties under one security instrument.
44
The main benefit of a VA-guaranteed home loan is:
a. stringent qualifying criteria.
b. no down payment.
c. excessive loan charges.
d. a prepayment penalty.
b. no down payment.
| The main benefit is that veterans may not need to make a down payment.
45
What type of loan can a borrower get if he or she wants to purchase a cooperative unit?
a. HELOC
b. Reverse mortgage
c. Share loan
d. Proprietary lease
c. Share loan
Correct answer is (c).
For prospective purchasers of a cooperative, there is financing available in the form of a share loan. A share loan is a type of loan that is made to finance the purchase of shares in a corporation.
46
Which of the following is not a purchase money loan?
a. Second loan to purchase a condominium
b. Second loan to remodel the kitchen
c. Seller carry back financing
d. Loan obtained to buy a rural home
b. Second loan to remodel the kitchen
A loan used to purchase property is called a purchase money loan. They are used strictly for the purpose of financing the purchase of real property. Any loan made at the time of a sale, as part of the sale, is a purchase money loan. Even a second loan that finances part of the purchase of a property is a purchase money loan.
47
The Department of Veterans Affairs administers programs of veterans' benefits for veterans, their families, and survivors. The benefits include:
a. home loan programs.
b. education benefits.
c. medical benefits.
d. all of the above.
Correct answer is (d).
The Department of Veterans Affairs is a government-run military veteran benefit system with the responsibility of administering programs of veterans' benefits for veterans, their families, and survivors. In addition to home loan programs, the benefits provided include disability compensation, pension, education, life insurance, vocational rehabilitation, survivors' benefits, medical benefits, and burial benefits.
48
All of the following are nontraditional loan products, except:
a. interest-only ARMs.
b. hybrid ARMs.
c. option ARMS.
d. reverse mortgages.
d. reverse mortgages.
The SAFE Act defines a nontraditional loan as any loan product other than a
30-year fixed mortgage. The more exotic of these are Hybrid ARMs, Option ARMs, interest-only mortgages, no-money-down, and alternative-documentation (Alt-A) loans. While a reverse mortgage does not exactly meet the criteria of a traditional mortgage, it does have a fixed interest rate.
49
Who is an ideal candidate for a reverse mortgage?
a. First-time homebuyers with no down payment
b. Individuals, age 62 or older, who want to purchase a home
c. Homeowners, age 62 or older, with equity but little income
d. Investors purchasing a duplex
c. Homeowners, age 62 or older, with equity but little income
The reverse mortgage is a loan program for homeowners who are 62 or older and who have paid off their existing home loan or have only a small balance remaining.
50
The utilization of borrowed funds to increase purchasing power is:
a. amortization.
b. appreciation.
c. hypothecation.
d. leverage.
Leverage is the utilization of borrowed funds to increase purchasing power.
d. leverage.
51
Which statement is not true regarding the prime rate? The prime rate is:
a. the interest rate given to creditworthy customers.
b. a rate that follows market interest rates very closely.
c. a long-term rate that lags behind market rates.
d. a base rate used to determine interest rates on commercial loans.
c. a long-term rate that lags behind market rates.
Correct answer is (c).
The prime rate is the rate that banks charge their most creditworthy customers. It is a short-term rate that is typically uniform across all banks in the U.S. and follows market interest rates very closely. Banks use this rate as a base rate when determining the interest rates they charge on commercial loans and on some consumer loan products.
52
What advantage does a lender have by being DE approved?
a. Higher loan limits than Freddie Mac and Fannie Mae
b. No income verification loans can be originated
c. Originate home loans without FHA review or approval
d. Loans for commercial property are allowed
c. Originate home loans without FHA review or approval
Correct answer is (c).
Only an approved FHA lender can originate an FHA loan. Lenders who have met FHA standards are called Direct Endorsement (DE) lenders. Under the DE program, lenders may underwrite and close home loans without prior FHA review or approval.
53
Leah, a 64-year-old widow, owns her home free and clear but needs additional income. What type of loan should the lender recommend?
a. ARM
b. Reverse Mortgage
c. Graduated Payment Mortgage
d. LIBOR Loan
b. Reverse Mortgage
Correct answer is (b).
A reverse mortgage that allows homeowners 62 years and older to borrow the equity in their personal residence and not repay the loan until they no longer occupy the property.
54
Which of the following statements can be associated with jumbo loans?
a. Jumbo loans meet Fannie Mae guidelines.
b. Jumbo loans meet Freddie Mac guidelines.
c. Jumbo loans require additional underwriting conditions.
d. Jumbo loans have lower interest rates.
c. Jumbo loans require additional underwriting conditions.
Correct answer is (c).
A jumbo loan exceeds the maximum conforming loan limit set by Fannie Mae and Freddie Mac. Because jumbo loans are bought and sold on a much smaller scale, these loans usually carry a higher interest rate and have additional underwriting requirements.
55
An FHA 5/1 hybrid loan is a:
a. conventional loan.
b. jumbo loan.
c. nonconforming loan.
d. nontraditional loan.
Correct answer is (d).
A nontraditional loan is any loan except a fixed rate, 30-year loan. An FHA 5/1 hybrid loan has a fixed rate for 5 years and annual rate adjustments after that. A nonconforming loan is a conventional loan that is not eligible for purchase by FNMA or FHLMC. It may be a jumbo loan.
56
Which ARM loan product is desirable for borrowers who plan to sell or pay off their loan within a few years?
a. Hybrid ARM
b. Income-only ARM
c. Opt-out ARM
d. Series one ARM
a. Hybrid ARM
A hybrid loan may be desirable for borrowers who plan to sell their homes or pay off their loans within a few years. Before the interest rate on the loan begins to adjust, the borrower can decide to sell the property or refinance the loan.
57
Another name for underwriting is:
a. risk analysis.
b. packaging.
c. processing.
d. closing.
a. risk analysis.
| Another name for the underwriting step in obtaining a real estate loan is risk analysis.
58
Ben and Jane met with a lender to discuss various loan products before searching for their new home. Based on the loan Ben and Jane picked, they are required to submit 2 years of tax returns and verify income, deposits, and employment. They must have a high credit score and a clean credit history. The loan follows Fannie Mae/Freddie Mac guidelines. What type of loan is this?
a. This is a convenient conforming loan.
b. This is a conventional conforming loan.
c. This is a non-conforming loan.
d. This is a thrift loan.
b.This is a conventional conforming loan
The majority of loans originated by lenders for one-to-four unit residential properties are conventional loans and the majority of those are conforming loans. Conforming loans have terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac. These loans are called “A” paper loans, but are also known as prime loans or full documentation loans, for which the lender requires 2 years of tax returns, verification of income, deposits, employment, a high credit score, and a clean credit history. “A” paper loans can be made to purchase or refinance homes.
59
What is an SRP?
a. It is the payment received by a lender when a closed mortgage loan is sold to the secondary mortgage market
b. It is the payment received by a mortgage broker when a closed mortgage loan is sold to the secondary mortgage market
c. It is the fee paid by a borrower to prepare a Satisfaction of Mortgage
d. It is the fee that a lender pays the loan servicer to service the mortgage loan
a. It is the payment received by a lender when a closed mortgage loan is sold to the secondary mortgage market
A service release premium is the payment received by a lender (i.e. bank) on the sale of a closed mortgage loan to the secondary mortgage market.
60
Stan and Harriet find a perfect high-end co-op apartment on the gulf. They go to a commercial bank that offers a specific loan product to apply for a loan. The bank accepts their corporation of equity pledges as security for the loan. Based on their type of property purchase, what type of financing did Stan and Harriet secure?
a. Cooperative loan
b. Deferred group loan
c. Mixed-use loan
d. Share loan
d. Share loan
Correct answer is (d).
A share loan is a type of loan that is made to finance the purchase of shares in a corporation. Share loans are available from commercial banks that offer this specific type of loan product.
61
__________ is the process of analyzing the degree of risk involved in a real estate loan.
a. Financing
b. Lending
c. Underlining
d. Underwriting
d. Underwriting
Correct answer is (d).
Underwriting is the practice of analyzing the degree of risk involved in a real estate loan.
62
A graduated payment mortgage note rate is _____________ the note rate of a straight fixed-rate loan.
a. higher than
b. lower than
c. equal to
d. commensurate with
a. higher than
Correct answer is (a).
The note rate of a GPM is traditionally .5% (half of a percent) to .75% (three-quarters of a percent) higher than the note rate of a straight fixed-rate loan. The higher note rate and scheduled negative amortization of the GPM make the cost of the mortgage more expensive to the borrower in the end. In addition, the borrower's monthly payment can increase by as much as 50% by the final payment adjustment.
63
A partially amortized loan:
a. is fully repaid at maturity by periodic reduction of the principal.
b. is one in which the borrower receives all loan proceeds in one lump sum at the time of closing.
c. has a repayment schedule that is not sufficient to pay off the loan over its term.
d. allows the borrower to choose among several payment options each month.
c. has a repayment schedule that is not sufficient to pay off the loan over its term.
A partially amortized loan has a repayment schedule that is not sufficient to pay off the loan over its term. This type of loan calls for regular, periodic payments of principal and interest for a specified period of time.
64
Loan products are available to:
a. purchase property.
b. refinance an existing loan.
c. get cash out of a property.
d. do all of the above.
d. do all of the above.
Correct answer is (d).
Lenders offer a variety of loans to help people purchase a property, refinance an existing loan, or get cash out of a property.
65
Closing is also known as:
a. transfer.
b. signing.
c. funding.
d. settlement.
d. settlement.
Correct answer is (d).
The closing process includes the signing of documents that transfer the title of the property from the seller to the buyer and the distribution of funds. Closing and settlement are interchangeable terms.
66
Sally is looking for a particular home loan product that offers a predictable monthly payment and a 40-year term to keep the payments low. Of the following, what kind of loan product should she consider?
a. Adjustable-rate mortgage
b. Community Home Buyer's Program™
c. Fixed-rate loan
d. InterestFirst™ loan
c. Fixed-rate loan
Correct answer is (c).
Fannie Mae's traditional offerings consist of fixed-rate loans. Fannie Mae offers them in 10, 15, 20, 30, and 40-year terms. These fixed-rate loans lock in an interest rate and stable, predictable monthly payments.
67
Which loan program includes only an appraisal and the borrower's credit score?
a. No documentation
b. No ratio
c. Stated income documented assets
d. Stated income stated assets
a. No documentation
Correct answer is (a).
In a true no-doc loan, employment, income, and assets are not stated on a loan application and only the applicant's credit and the property value are verified.
68
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When a purchaser borrows funds to finance real estate, he or she promises to repay the loan and offers the property as __________ to secure the loan.
a. collateral
b. a gift
c. compensation
d. a token of gratitude
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a. collateral
Correct answer is (a).
When money is loaned for financing real property, the borrower gives the promise to repay the loan and gives collateral as security for the loan.
69
Those who participate in the primary mortgage market include:
a. commercial banks.
b. various financial intermediaries.
c. thrift banks.
d. all of the above.
d. all of the above.
Correct answer is (d).
Participants in the primary mortgage market include commercial banks, thrifts, mortgage companies, and other financial intermediaries.
70
Which type of loan is a form of revolving credit in which a borrower's home serves as collateral?
a. First mortgage
b. Home equity
c. Purchase money
d. Wrap-around
b. Home equity
A home equity line is a form of revolving credit in which a borrower's home serves as collateral. Because the home is likely to be a consumer's largest asset, many homeowners use their credit lines only for major items, not day-to-day expenses. With a home equity line, a borrower will be approved for a specific amount of credit—the credit limit—meaning the maximum amount, he or she can borrow at any one time.
71
Pam has a loan in which she received all of the loan proceeds in one lump sum at the time of closing. This type of loan is a(n) __________ loan.
a. closed-end
b. open-end
c. purchase money
d. fixed-rate
a. closed-end
Correct answer is (a).
A closed-end loan is one in which the borrower receives all of the loan proceeds in one lump sum at the time of closing.
72
```
.
Lenders charge higher fees on subprime loans due to their higher risk. A mortgage broker is paid a __________ by lenders to deliver high interest rate loans.
a. junk fee
b. warehouse fee
c. endorsement fee
d. yield-spread premium
```
d. yield-spread premium
Correct answer is (d).
Yield-spread premiums are points paid by lenders to mortgage brokers for delivering high interest rate loans.
73
Which statement is INCORRECT regarding an SRP and a YSP?
a. The SRP is the payment received by a lender when a closed mortgage loan is sold to the secondary mortgage market
b. The YSP (or rebate) is paid to a borrower who accepts a higher interest rate on a loan, which usually results in lower settlement costs.
c. The SRP and the YSP fees have to be disclosed to the borrower/consumer
d. YSP fees must be disclosed to borrowers, but SRP fees do not have to be disclosed to borrowers
d. YSP fees must be disclosed to borrowers, but SRP fees do not have to be disclosed to borrowers
The service release premium (SRP) is a fee earned by a lender, such as a bank, and the fee does not need to be disclosed to the borrower/consumer. The yield spread premium (YSP) must be disclosed to the borrower/consumer.
74
Harper borrowed money from Roberts. As security for the loan, Harper gave Roberts a trust deed covering six separate parcels of previously unencumbered real property that Harper owned. Such a mortgage would be regarded as a _____ mortgage.
a. blanket
b. subordinated
c. reverse
d. second
Correct answer is (a).
A blanket mortgage is a voluntary lien placed over more than one parcel. A blanket deed of trust is one secured by several distinct properties or lots.
75
Adding an acceleration clause to a note would:
a. not make the note less negotiable.
b. be of no benefit to the holder.
c. make the note nonnegotiable.
d. greatly limit the negotiability of the note.
a. not make the note less negotiable.
Correct answer is (a).
Most promissory notes have acceleration clauses, which have no affect on the negotiability of the note.
76
Commercial One Bank and Loan Thrift Bank are changing their loan guidelines. Both lenders stopped lending on second homes. They also increased down payments and interest. Their borrower qualification guidelines have become more strict and they will only lend on newer single-family homes. What is the most probable cause of these guideline changes?
a. Lender competition
b. Management changes
c. Market conditions
d. Portfolio leasing
c. Market conditions
Correct answer is (c).
Conventional lenders may change their loan guidelines at any time. Changes are usually based on market conditions.
77
A prospective borrower who wants to finance a one-unit property with an FHA loan should:
a. apply directly to the FHA.
b. make application through an approved lender.
c. speak with an FDIC-insured lender.
d. apply to the DVA.
b. make application through an approved lender.
Correct answer is (b).
A borrower does not apply to the FHA for a home loan. Instead, the borrower applies for an FHA-insured loan through an approved lender, who processes the application and submits it for FHA approval.
78
The interest rate of an ARM is comprised of the ___________ and the ______________.
a. index / interest
b. COFI / CMT
c. index / margin
d. indent / margin
c. index / margin
Correct answer is (c).
The interest rate on an ARM changes periodically, usually in relation to an index, and payments may go up or down accordingly. The interest rate is made up of two parts: the index and the margin.
79
When an ARM has a convertibility feature, it means that it can be:
a. assumed by another borrower.
b. affected by a prepayment penalty for the first three years of the loan.
c. converted by the borrower from an adjustable-rate to a fixed–rate loan.
d. changed by the lender from a fixed-rate loan to an adjustable-rate loan.
c. converted by the borrower from an adjustable-rate to a fixed–rate loan.
Some ARMs have a convertible feature, which means the loan can be converted to a fixed rate by the borrower at some point during the loan term. As an example, a lender may have a 1-year ARM with a feature that allows conversion from the ARM to a fixed-rate loan during the first 60 months of the loan.
80
Amortization is the:
a. date on which a debt becomes due for payment.
b. interest rate lenders charge their most creditworthy customers.
c. liquidation of a financial obligation on an installment basis.
d. period between rate changes.
c. liquidation of a financial obligation on an installment basis.
81
```
.
A(n) __________ is a type of loan in which cash is placed in an account and drawn upon during the beginning years of a loan.
a. pledged account mortgage
b. shared appreciation mortgage
c. rollover mortgage
d. interim loan
```
a. pledged account mortgage
Correct answer is (a).
A pledged account mortgage (PAM) loan is a type of loan in which an amount of cash is set aside in an account to be drawn upon during the initial years of the loan, as a supplement to periodic mortgage payments.
82
If included in a financial instrument, a __________ changes its priority.
a. forward-takeout commitment
b. release clause
c. cooperative agreement
d. subordination clause
d. subordination clause
Correct answer is (d).
A subordination clause is a statement in a financial instrument that is used to change its priority. The priority of a deed of trust is fixed by the date it is recorded—the earlier the date, the higher its priority.
83
In adjustable rate loans, the note rate is the:
a. current market rate being charged at any time.
b. initial introductory interest rate.
c. rate being paid because of the cap.
d. rate that would be charged if there were no cap.
b. initial introductory interest rate.
Correct answer is (b).
In adjustable rate loans, the note rate is the initial introductory rate. It is lower than the market rate, and is the rate at which the borrower may be qualified for the loan.
84
If a borrower wishes to purchase a new vehicle without having to use a credit card or obtain a loan secured against his or her home, which of the following options is best?
a. HELOC
b. Interim loan
c. Swing loan
d. Unsecured loan
d. Unsecured loan
Correct answer is (d).
Consumers who need a small loan to repair a car, buy a new appliance, or take a trip choose a closed-end, unsecured loan instead of using their credit cards or getting a home equity loan.
85
What is the first thing a veteran must do in order to apply for a VA-guaranteed loan?
a. Apply at the DVA office
b. Obtain a certificate of value
c. Close the loan and move in
d. Apply for a Certificate of Eligibility
d. Apply for a Certificate of Eligibility
Correct answer is (d).
First, a veteran must request a Certificate of Eligibility (COE), which is a document issued by the DVA that provides evidence of an applicant's eligibility to obtain a VA loan.
86
Which of the following is true regarding an Interest Rate Reduction Refinancing Loan (IRRRL)?
a. Refinancing a VA ARM to a fixed-rate loan always results in a lower interest rate.
b. Refinancing a VA ARM to a fixed-rate loan may increase the existing interest rate.
c. To obtain an IRRRL loan, the VA requires a credit-underwriting package.
d. Lenders are not allowed to request a credit report or appraisal for an IRRRL loan.
b. Refinancing a VA ARM to a fixed-rate loan may increase the existing interest rate.
Correct answer is (b).
Except when refinancing an existing VA guaranteed ARM to a fixed rate, an IRRRL loan must result in a lower interest rate. When refinancing from an existing VA ARM to a fixed-rate, the interest rate is allowed to increase. The DVA does not require an appraisal or credit-underwriting package. However, the lenders may require an appraisal and a credit report.
87
If a $100,000 loan has a 7.5% payment cap and a current monthly payment of $1,000, at the next adjustment, the payment could not be increased to more than:
a. $1,007.50.
b. $1,075.00.
c. $107,500.00.
d. None of the above
b. $1,075.00.
88
Alan recently graduated from college, and found a great job opportunity with expected earning increases in the next few years. Meanwhile, he purchased a small cottage using a mortgage with initial payments lower than his future payments. The difference of the required amortized payment will add to the unpaid principal balance, which Alan will cover with future increased earnings. What loan product did Alan choose?
a. Convertible ARM
b. Hybrid ARM
c. Graduated payment mortgage
d. 30-year fixed rate mortgage
c. Graduated payment mortgage
89
In the field of real estate financing, the term secondary mortgage market usually refers to:
a. junior liens.
b. secondary financing.
c. unsecured financial instruments.
d. the resale or transfer of existing mortgages.
d. the resale or transfer of existing mortgages.
Correct answer is (d).
The secondary mortgage market is for buying and selling existing mortgages from the primary mortgage market or from lending institutions. Participants in the secondary mortgage market do not originate loans.
90
A lender who makes conventional loans has what basic protection against risk?
a. Government backing
b. Low down payments
c. A borrower's home equity
d. Fannie Mae insurance
c. A borrower's home equity
Correct answer is (c).
The basic protection for a lender who makes conventional loans is the borrower's equity in the property. Therefore, a low down payment means greater risk for the lender, who typically will charge the borrower a higher interest rate.
91
Which statement is incorrect regarding the Federal Housing Administration?
a. The FHA insures loans made by independent mortgage companies.
b. Savings banks can have loans insured by the FHA.
c. The FHA makes government-insured loans.
d. The FHA insures loans made by authorized lending institutions.
c. The FHA makes government-insured loans.
Correct answer is (c).
The Federal Housing Administration (FHA) is a federal government agency that insures private home loans for financing homes and/or home repairs. The FHA does not make loans.
92
A home equity line-of-credit (HELOC) is a good example of a(n):
a. wraparound mortgage.
b. all-inclusive trust deed.
c. open-end loan.
d. closed-end loan.
c. open-end loan.
Correct answer is (c).
A home equity line-of-credit (HELOC) is a typical open-end loan. An open-end loan is expandable by increments up to a maximum dollar amount. It is a line of credit secured by the borrower's home.
93
The ________________ is the interest rate charged on Eurodollars traded between banks in London.
a. CD
b. CMT
c. LIBOR
d. COFI
c. LIBOR
Correct answer is (c).
The London Inter Bank Offering Rate (LIBOR) is the interest rate charged on Eurodollars traded between banks in London.
94
Which of the following is not a typical characteristic of a subprime borrower?
a. High credit scores
b. Low FICO® scores
c. High debt-to-income ratios
d. Lack of credit history
a. High credit scores
Correct answer is (a).
Borrowers in the subprime category include those who have low credit scores or no credit score, income that is difficult or impossible to verify, an excessively high debt-to-income ratio, or a combination of these factors.
95
What type of loan is a 5/1 loan?
a. ARM
b. GRM
c. 15-year fixed
d. 30-year fixed
a. ARM
Correct answer is (a).
A 5/1 ARM has a 5-year cap for the first adjustment period and an annual cap thereafter.
96
What type of loan comes after a first loan?
a. Senior loan
b. Paramount loan
c. Junior loan
d. Superior loan
c. Junior loan
Correct answer is (c).
A first mortgage or deed of trust is a senior loan. Any instrument recorded after it (2nd, 3rd, 4th, etc.) is a junior loan.
97
In a market of rising interest rates, how is the payment affected on an ARM product with an index that lags behind market changes?
a. Payments adjust upward quickly, which shortens the time before the interest rate adjusts upward.
b. Payments adjust more slowly, which lengthens the time before the interest rate adjusts upward.
c. Payments stay the same even in a market of rising interest rates.
d. Payments adjust on the same day the market index rate changes.
b. Payments adjust more slowly, which lengthens the time before the interest rate adjusts upward.
Each index has advantages and drawbacks. Each of these indices moves up or down based on conditions of the financial markets. Some indexes lag behind market changes. Generally, a loan tied to a lagging index, such as the COFI, is better for borrowers when interest rates are rising. Leading index loans, like those tied to the CMT, are best during periods of declining rates.
98
It is important to identify the note rate when considering an ARM because it:
a. is the basis for determining prepayment penalties.
b. is necessary to identify the amortization term of the loan.
c. identifies the index used for adjustments.
d. is used to calculate future monthly payments.
d. is used to calculate future monthly payments.
Correct answer is (d).
Interest rate caps are based on the note rate. The note rate is the interest rate on the ARM loan at the time it is funded. It is important to know the note rate in order to calculate future interest rate increases and future payments.
99
Subprime loans can also be referred to as:
a. "A" paper loans.
b. "B" paper loans.
c. conforming loans.
d. preferred loans.
b. "B" paper loans.
Correct answer is (b).
Loans that do not meet the borrower credit requirements of Fannie Mae and Freddie Mac are called subprime loans or “B” paper and “C” paper loans, as opposed to “A” paper, conforming loans.
100
Which statement is true regarding a GPM?
a. ARMs and GPMs are identical loans.
b. GPMs have adjustable interest rates.
c. GPMs allow borrowers to pay additional principal.
d. Additional principal payments increase the term of the loan.
c. GPMs allow borrowers to pay additional principal.
Correct answer is (c).
Unlike an ARM, GPMs have a fixed-rate loan and fixed payment schedule. Both GPMs and ARMs give the consumer the ability to pay the additional principal and avoid the negative amortization. However, in contrast to an ARM, the GPM has a fixed payment schedule so additional principal payments reduce the term of the loan.
101
One of the factors private mortgage insurance companies consider when they set their rates and coverage parameters is the:
a. age of the borrower.
b. type of property.
c. location of the property.
d. familial status of the borrower.
b. type of property.
Private mortgage insurance companies set their rates and coverage parameters based on the type of property, for loan amounts, loan type, LTV, credit scores, and other factors.
102
Which of the following is the slowest moving index among those commonly used for ARMs?
a. Bank deposit
b. COFI
c. LIBOR
d. Treasury
b. COFI
Correct answer is (b).
The Cost of Funds Index (COFI) is the slowest and LIBOR is the quickest.
103
Which of the following is true regarding interest rates in the subprime market?
a. They are usually close to prime rates.
b. Rates are the same for all lenders.
c. Rates vary from lender to lender.
d. Each lender calculates risk using the same method to determine rates.
Correct answer is (c).
| Since each lender measures risk differently, interest rates vary from lender to lender.
104
Becky has purchased a new home with a fully amortized loan. Her monthly payment schedule will have:
a. periodic payments of principal and interest.
b. interest payments only.
c. periodic reduction of the principal.
d. equal weekly payments of principal.
c. periodic reduction of the principal.
Correct answer is (c).
A fully amortized loan is fully repaid at maturity by periodic reduction of the principal. When a loan is fully amortized, the payments the borrower makes are equal over the duration of the loan.
105
Borrower Bill has an ARM with a note rate of 5.5%. He determines that he will be able to make the payments because the interest rate cannot exceed 10.5%. Bill's ARM has a(n):
a. introductory rate of 10.5%.
b. lifetime rate cap of 5.0%.
c. payment cap of 10.5%.
d. COFI of 6.0% and a margin of 4.5%.
b. lifetime rate cap of 5.0%.
Correct answer is (b).
The lifetime rate cap establishes the maximum interest rate that may be charged to the borrower at any time during the life of the loan. With a note rate of 5.5% and a lifetime cap of 5.0%, the interest rate on the loan can never exceed 10.5%.
106
Which of the following is the most widely used and volatile of the indexes used for ARMs?
a. CD
b. CMT
c. MTA
d. LIBOR
b. CMT
Correct answer is (b).
The 1-year Constant Maturing Treasury index (CMT) is the most widely used index. Nearly half of all ARMs are based on this index. It is used on ARMs with annual rate adjustments. The CMT index is a volatile index that responds quickly to market changes.
107
What happens to conventional loans after they are originated if they are not sold to the secondary mortgage market?
a. They are sold to the primary mortgage market.
b. Fannie Mae purchases them.
c. They are kept in the lender's loan portfolios.
d. Freddie Mac purchases these loans.
c. They are kept in the lender's loan portfolios.
Correct answer is (c).
Portfolio loans do not conform to Fannie Mae and Freddie Mac credit standards so they cannot be sold into the secondary market. They are retained in the lender's portfolio.
108
When a borrower considers a discounted ARM, the borrower should compare:
a. discounted initial rates for later low payments.
b. future payments with those of a fully indexed ARM.
c. current adjusted negative amortization payments.
d. carefully to make sure payments are affordable in later years.
Correct answer is (b).
a. discounted initial rates for later low payments.
When considering a discounted ARM, the borrower should compare future payments with those of a fully indexed ARM.
109
Which of the following is a type of secondary financing?
a. HELOC
b. Swing loan
c. Home equity loan
d. All of the above
d. All of the above
Correct answer is (d).
Secondary financing includes hard money loans from private lenders, swing loans, home equity loans (HEL), and home equity lines-of-credit (HELOC).
110
Edward wants an FHA loan for a property he wants to improve immediately upon purchase. What type of FHA loan program should he consider?
a. GPM
b. Rehabilitation loan
c. Reverse annuity mortgage
d. EEM
b. Rehabilitation loan
A rehabilitation loan is a great option for buyers who are planning to improve their property immediately upon purchase. This home loan provides the funds to purchase a residential property and the funds to complete an improvement project all in one loan, one application, one set of fees, one closing, and one convenient monthly payment.
111
If a manufactured home is not permanently attached to the land, financing is available through a:
a. interim loan.
b. personal property loan.
c. standby loan.
d. takeout loan.
b. personal property loan.
Correct answer is (b).
If the manufactured home is not permanently attached to the land, a borrower may obtain a personal property loan, which is a loan for anything movable that is not real property.
112
In the context of financing real property, the term warehousing most closely refers to:
a. a large loan on a storage facility.
b. a mortgage banker collecting loans into one package before selling them.
c. loans regulated by the Federal Reserve Board.
d. underwriting stock issues with loans secured by industrial property.
b. a mortgage banker collecting loans into one package before selling them.
Warehousing is the practice of extending a line of credit by a commercial bank to a mortgage banker. The banker borrows money to fund loans, and the loans are then offered as collateral. The collateral loans are warehoused or collected at the bank and later sold to secondary market investors.
113
What is the primary difference between an FHA loan and a VA loan?
a. Up to a certain loan amount, no down payment is necessary for an FHA loan.
b. Up to certain loan amount, no down payment is necessary for a VA loan.
c. An FHA loan caters to eligible veterans.
d. A VA loan contains less stringent guidelines.
b. Up to certain loan amount, no down payment is necessary for a VA loan.
The main differences between the FHA and DVA programs are that only an eligible veteran may obtain a VA loan and that the DVA does not require a down payment, up to a certain loan amount.
114
The Department of Veteran Affairs (DVA) offers a variety of loans and repayment plans. The DVA guarantees all of the following, except:
a. fixed-rate loans.
b. graduated payment loans with prepayment penalties.
c. adjustable-rate loans.
d. graduated payment loans without prepayment penalties.
b. graduated payment loans with prepayment penalties.
The DVA offers a variety of loans with a choice of repayment plans—fixed-rate loans, adjustable-rate loans, and graduated payment loans. These no-down payment loans have no prepayment penalty.
115
A movable economic index will alter an interest rate upwards or downwards for what type of loan?
a. Adjustable-rate loan
b. Closed-end loan
c. Fixed-rate loan
d. Interest-only loan
a. Adjustable-rate loan
Correct answer is (a).
An adjustable-rate loan (ARM) is a loan with an interest rate that adjusts in accordance with a movable economic index. The interest rate on the loan varies upward or downward over the term of the loan depending on money market conditions and the agreed upon index.
116
Payment options for a payment-option ARM typically include all of the following, except a(n):
a. interest-only payment.
b. minimum payment based, for the first year, on the initial discounted interest rate.
c. principal-only payment.
d. traditional payment of principal and interest.
c. principal-only payment.
Correct answer is (c).
Payment options for a payment-option ARM typically include a traditional payment of principal and interest; an interest-only payment; and a minimum payment based, for the first year, on the initial discounted interest rate; but not a principal-only payment.
117
Lenders of conventional loans:
a. set their own lending policies.
b. must follow government lending policies.
c. may change their loan guidelines at any time.
d. Both (a) and (c)
d. Both (a) and (c)
A conventional loan is any loan without any government insurance or guarantees. Lenders who originate conventional loans set their own lending policies and underwriting standards on loans they keep. They are only subject to federal or state agency regulations. Lenders can establish the types of loans they originate and the types of acceptable properties. Conventional lenders may change their loan guidelines at any time.
118
An example of an ad valorem tax is:
a. a bridge toll.
b. estate tax.
c. income tax.
d. property tax.
d. property tax.
Correct answer is (d).
Ad valorem means according to value. This is how property taxes are determined.
119
A questionable fee that is incorporated into the closing costs associated with the loan is a __________ fee.
a. warehouse
b. junk
c. document processing
d. yield-spread
b. junk
Correct answer is (b).
A junk fee is a questionable fee charged in closing costs that may not bear any significant relationship to the actual loan transaction.
120
A graduated payment mortgage:
a. is a fixed-rate loan.
b. has initial payments that are lower than the later payments.
c. has scheduled negative amortization.
d. is all of the above.
d. is all of the above.
Correct answer is (d).
A graduated payment mortgage (GPM) is a fixed-rate loan with initial payments that are lower than the later payments. The difference between the lower initial payment and the required amortized payment is added to the unpaid principal balance.
121
As measured by the Fair Isaac Corporation, which FICO® credit score is considered subprime?
a. 610
b. 650
c. 690
d. 700 and above
a. 610
| The benchmark FICO® credit score for subprime borrowers is a score below 620 as measured by the Fair Isaac Corporation.
122
What does LIBOR stand for?
a. London Interest Bonds of Record
b. Lisbon Interest Bonds Offering Rate
c. Lebanon Interbank Offered Rate
d. London Interbank Offering Rate
d. London Interbank Offering Rate
Correct answer is (d).
The London Interbank Offering Rate (LIBOR) is the interest rate charged on Eurodollars traded between banks in London.
123
Dawn wants a loan with level payments of principal and interest over the life of the loan that repay the debt by the end of the loan term. What type of loan should Dawn's lender recommend?
a. Graduated payment mortgage
b. Straight loan
c. Adjustable-rate mortgage
d. 30-year fixed-rate loan
d. 30-year fixed-rate loan
124
What is an encumbrance?
a. An interest in real property that is held by someone who is not the owner
b. Anything that burdens the use of the property
c. Anything that burdens the title of the property
d. All of the statements define an encumbrance
Correct answer is (d).
d. All of the statements define an encumbrance
Encumbrances fall into two categories: those that affect the title, known as financial encumbrances, and those that affect the use of the property, known as non-financial encumbrances. Financial encumbrances include liens, such as mortgages and trust deeds, mechanic's liens, judgments, and special assessments.
125
An escrow account (also referred to as an impound account) is a trust account for funds set aside for future, recurring costs relating to a property, such as payment of:
a. property taxes and transfer taxes.
b. hazard and title insurance.
c. property taxes and insurance.
d. recording and transfer fees.
c. property taxes and insurance.
Correct answer is (c).
An escrow account, which is sometimes referred to as an impound account, is a trust account for funds set aside for future, recurring costs relating to a property, such as payment of property taxes and hazard insurance.
126
The most common amortization types include:
a. fixed-rate loans.
b. ARMs.
c. GPMs.
d. all of the above.
d. all of the above.
Correct answer is (d).
The most common amortization types include fixed-rate loans, adjustable-rate mortgages (ARMs), and graduated payment mortgages (GPMs).
127
Jill wants a loan with level payments of principal and interest over the life of the loan that repay the debt by the end of the loan term. What type of loan should Jill's lender recommend?
a. Adjustable-rate mortgage
b. Straight loan
c. 30-year fixed-rate loan
d. Graduated payment mortgage
c. 30-year fixed-rate loan
Correct answer is (c).
A traditional fixed-rate loan has distinct features. The interest rate remains fixed for the life of the loan, the payments remain level, and the payments of principal and interest are structured to repay the debt completely by the end of the loan term
