Real Estate Finance

Question 1

In the familiar phrase, a ready, willing, and able buyer, the word able means able to pay. Since few buyers have sufficient financial resources to allow them to pay cash for the entire purchase price of a
property, most buyers pay for real property through one form or another of ____ _________.

Answer 1

debt financing

Question 2

The ______ ______ was a carefully structured pyramid of lords, knights, vassals, and serfs which gradually evolved into the ________ ______ of land
ownership and which allowed ownership in ___ ______, that is, the private ownership of real property.

Answer 2

feudal system
freehold system
fee simple

Question 3

We now have the ________ ______ of land ownership which allows individuals to own land absolutely, without obligation to political superiors.

Answer 3

allodial system

Question 4

In time, it became possible for the borrower to petition a court of equity or a church court (chancery) for an extension of his loan. The borrower, in a phrase still in use today, could hope to be allowed an
“_________ _____ of __________”, that is, additional time within which to pay his debt.

Answer 4

equitable right of redemption

Question 5

This promise to repay and its specific conditions and stipulations are contained in the central instrument of the loan agreement, the __________ ____. It is proof of the debt.

Answer 5

promissory note

Question 6

Therefore, the promise to repay has been traditionally backed up by some sort of security arrangement, a second loan instrument with which the borrower pledges an interest of one kind or another in the property he is financing to the
lender. The pledged property is called __________.

Answer 6

collateral

Question 7

Most states follow what is known as the ____ ______ (the lender holds a lien), but some follow the _____ ______ (the lender holds the title), and a few use a mixture of both concepts.
*In Louisiana, the title is in the borrower’s name, but the lender has a lien.

Answer 7

Lien theory
title theory

Question 8

In the _____ _____, the lender receives a limited form of legal title to the pledged property. The borrower is held to have conveyed, or alienated, limited legal title to the lender. This conveyance is valid as long as the mortgage debt is unpaid. Paying off the debt is said to ______ the conveyance.

Answer 8

title theory
defeat

Question 9

_______________ of _____ ______:
1. Lender’s rights are manifested by contract for deed.
2. Lender remains the legal owner of the property until the debt is paid.
3. Borrower retains equitable rights in the property.

Answer 9

Characteristics of Title Theory

Question 10

The ____ ______ is used in most states, including Louisiana. A lien simply confers the legal right to attach a claim against a property, to go into court, if necessary, to enforce that claim, and to secure whatever compensation the court deems just and appropriate. In states which apply the lien theory to real property
pledged as collateral, the borrower is said to ___________ title to the lender. It means that the lender is given a lien against the borrower’s collateral property and, if default occurs, the lender can file foreclosure proceedings in order to recover his interest in the property.

Answer 10

Lien theory
hypothecate

Question 11

_______________ of ____ ______:
1. Borrower’s and lender’s rights are described in a promissory note and mortgage agreement.
2. Borrower holds legal title with the lender having a lien or security interest.
3. The defaulted borrower is allowed to retain possession, title and rights in the property until the lien is
perfected by foreclosure.
4. Borrower, after default, may have equitable right of redemption. After foreclosure sale, borrower may
have statutory period of redemption.

Answer 11

Characteristics of Lien Theory

Question 12

In the _____ ______, the borrower deeds his property to the lender. The mortgage conveys title to the borrower when the
property is paid for. In the ____ ______, the borrower gives only a lien right to the lender. The borrower retains title to the property.

Answer 12

title theory
Lien theory

Question 13

A few states have adopted a _____ or intermediate ______ of collateral property midway between the lien and the title
theories. In these states, the mortgage is considered to be a lien, but if the borrower defaults, title is conveyed to the
lender. It is important to notice that even though there are these differing theories of collateral property, that under
either theory, or a mixture of these theories, the borrower actually retains possession of the mortgaged property until the debt is paid off, at which time the mortgage is said to be ________.

Answer 13

mixed theory
defeated

Question 14

_________ and _____ _____ are security instruments that creates a lien, or in other words, it is a document that makes property security for the repayment of a debt. This collateral interest is created on behalf of the lender. The participants of a real estate loan are the _________ and the _________. The ________ is a person or entity who makes a mortgage, the borrower. The borrower conveys a lien on his or her
property to another person, bank or other institution. The _________ is the party receiving the mortgage, the lender. The lender receives a lien on the borrower’s property as security for the debt.

Answer 14

Mortgages
trust deeds
mortgagor
mortgagee

Question 15

________ of a ________:
1. The provisions of the agreement.
2. Legally competent parties.
3. Mutual consent.
4. Exchange of consideration.
5. Legal purpose.

Answer 15

Elements of a Mortgage

Question 16

The _________ ____ is the borrower’s personal, unconditional promise to repay the loan. This promise can be found in clause #1 of the specimen note which follows. The borrower’s promise to repay is construed to be an unconditional promise, that is, it makes the note a negotiable instrument, one which
may be assigned freely by the lender to another party, in much the same way as a check can be endorsed to make it payable to another party. It is important to remember that it can be a debt instrument without a mortgage. If so, it is an _________ ____. A signature loan is one having no mortgage and no collateral.

Answer 16

promissory note
unsecured note

Question 17

The note contains the name of the borrower and the lender, the amount of the borrower’s debt (loan principle), and the specifics of arrangements for repayment: the rate of interest, which cannot exceed the usury rate, the amount and number of monthly installments, and the duration of the loan - its time of beginning and ending.

Answer 17

Promissory Note Clause # 1

Question 18

The late pay clause, is self-evident. This clause both encourages the borrower to make his payments on time and compensates the lender for delays in receiving his expected payments.

Answer 18

Promissory Note Clause #2

Question 19

The note is termed the ____________ ______, and is included in the promissory note as well as the mortgage. It gives the lender the right to demand payment in full of the entire unpaid debt in the event of default. Without this clause the lender would have to go into court month by month to collect a delinquent borrower’s obligation. This process could conceivably last as long as the duration of the loan itself. The lender avoids the possibility of having to go through this process by incorporating the
acceleration clause. Once the borrower defaults, his entire debt comes due automatically.

Answer 19

Promissory Note Clause #3
acceleration clause

Question 20

The Interest Escalation clause, pushes the interest rate up to the highest rate allowed by law if default occurs and the debt is accelerated. (The practice of charging more that the legally allowable
interest is termed _____)

Answer 20

Promissory Note Clause #4
usury

Question 21

This is the __________ _____ or the __________ _______ ______. (This clause is absent in FHA
and VA loans). Many notes include a penalty for prepayment or restrict loan prepayment, following the legal reasoning that the lender has contracted to perform no more and no less than stated in the note. Since accepting payments larger than their agreed upon amount or before their due dates in effect deprives the lender of a portion of the interest which the borrower has promised to pay, lenders protect their yield through the _________ _______ ______. To asses a penalty fee, the fee is based on a percentage of the unpaid loan balance if the note is paid in advance of its maturity date. Prepayment penalties are usual in the first few years of existence of the note. If the borrower is not permitted to pay off
any or all of the loan’s balance before the regularly scheduled payment dates, the prepayment penalty clause is called a ____-__ ______.

Answer 21

Promissory Note Clause #5
prepayment clause
prepayment penalty clause
lock-in clause

Question 22

This clause is especially important in that it joins the promissory note to the mortgage or trust deed agreement. Without this clause, the promissory note would be a personal loan agreement. With it, the note is supported, or secured, by the mortgage, the borrower’s actual pledge of real property which backs
up his promise to pay.

Answer 22

Promissory Note Clause #6

Question 23

The ________ __________, that is, the mortgage or trust deed, gives the lender legal recourse in the event of the borrower’s failing to meet his obligations as contained in the promissory note, and they also contain certain covenants regarding how the borrower may or may not use the collateral property. Though
mortgages and trust deeds are similar in purpose, they differ in many respects

Answer 23

security instrument

Question 24

The ________ is a contract between the borrower and the lender. The borrower is referred to as the _________, and the lender is referred to as the _______. The borrower is the giver of his pledge of his property as collateral. He gives a lien or sometimes a title interest in it to the lender. The lender’s lien or title interest allows him to foreclose if the borrower defaults.

Answer 24

mortgage
mortgagee
mortgagor

Question 25

In the mortgage agreement, the mortgagor (borrower) is said to __________ an interest in his property to the mortgagee (lender). To ___________ an interest in real property is to pledge a specific property as collateral without actually giving up possession or the other rights associated with ownership. The
mortgagee’s rights allow him to go into court and obtain a judgment against the
mortgagor in the event of his default.

Answer 25

hypothecate

Question 26

In order to give notice of the lien, the mortgage must be ________ at the office of the county or parish ________ in which the property is located.

Answer 26

recorded
recorder

Question 27

A real estate mortgage always requires an accompanying promissory note that is identified by the legal action of a ______.

Answer 27

notary

Question 28

When the mortgagor’s debt is completely satisfied, the mortgagee cancels the note by executing a ____________ of _________, which cancels the debt and defeats any interest the mortgagee has had in the
collateral property. Like the mortgage itself, the satisfaction should be recorded to insure its legal effectiveness.

Answer 28

satisfaction of judgment

Question 29

Because mortgage law varies from state to state and mortgage practice is partially a matter of the needs and preferences of the various lenders and borrowers, there is no such thing as a “________” mortgage
form.

Answer 29

standard

Question 30

________ Of a ________:
Clause #1: contains date, place and names of parties.
Clause #2: amount of mortgagor’s debt and schedule of payments.
Clause #3: the ________ ______, pledging the collateral property to the mortgage. In lien theory states, this clause will read “________ and ______”; in title theory states, it will read “________ and _____”.
Clause #4: legal description of mortgaged property, also listing any personal property included in the mortgage.
Clause #5: the ________ of _____ ______, affirms that mortgagor holds good and clear title to the property and has the right to convey it.
Clause #6: the __________ ______ removes the mortgage when the debt is paid.
There may also be an __________ ______ which gives the lender the right to increase the rate of interest during the length of the mortgage.

Answer 30

Elements of a Mortgage
Granting Clause
mortgage and pledge
mortgage and grant
Warranty of Title clause
Defeasance clause
escalation clause

Question 31

Covenant to pay _____ and _______ _______.

Answer 31

taxes and special assessments

Question 32

_________ _______ obligates the borrower to maintain adequate hazard insurance to protect the property. In some mortgages called ____ _________ (principle, interest, taxes, and insurance), the mortgagor agrees to assign a certain portion of each monthly payment for insurance and taxes. These funds are placed in escrow accounts.

Answer 32

Insurance covenant
PITI Mortgages

Question 33

________ of ____ _______ is a covenant against waste. This means keeping the property in good repair, not allowing it to go to ruin.

Answer 33

Covenant of good repair

Question 34

________ _______ _______ prohibits the mortgagor from removing any property covered by the mortgage.

Answer 34

Covenant against removal

Question 35

________ _________ ________ permits the mortgagee to inspect the property to determine whether the mortgagor is keeping the property in good repair.

Answer 35

Property inspection covenant

Question 36

__________ ______, also known as ___ on ____ ______, makes the mortgage non-assumable by giving
the lender the following rights:
a. right to demand payment in full.
b. right to investigate credit of and approve any buyer who wishes to assume the mortgage.
c. allows lender to raise the interest rate on alienated property above that of the original loan.

Answer 36

Alienation clause
Due on Sale clause

Question 37

________ ______, provides for a receiver to oversee the operations of income producing properties while in foreclosure. This prohibits a borrower from collecting rents while neglecting to pay property taxes, and perform maintenance, etc. In trust deeds, this clause is called the __________ of _____ ______.

Answer 37

Receiver clause
assignment of rents clause

Question 38

______ ____ ______, applies to owner occupied residences in foreclosure.

Answer 38

Owner’s rent clause

Question 39

_____________ ______, is a feature of certain types of mortgages. It gives the lender’s permission for a subsequent lender to assume first mortgage lien rights. That is, if the mortgage goes into foreclosure, the
holder of a second, or junior mortgage can take first priority for satisfaction of his claim at the foreclosure proceedings. The most common instance of subordination occurs in the sale of vacant land. Frequently, such a transaction is carried out with owner financing.

Answer 39

Subordination Clause

Question 40

If the buyer plans to build on the property, he may require ____________ _________, and to obtain a construction loan, it is essential that the owner financing
contain a subordination clause, since lending institutions are only permitted to make first mortgages in this type of situation. In this instance, subordination actually works to the first lender’s advantage, since the lender may be able to sell the property for a greater price than he could before.

Answer 40

construction financing

Question 41

Like the mortgage, the _____ ____ is an instrument that is employed to pledge an interest in real property in exchange for a loan or other consideration. However, unlike the mortgage, the _____ ____ involves not two, buy three parties. The borrower is the _______, the lender is the ___________, and the added third party is the _______.The _______ is an impartial party appointed to oversee the trust agreement. They may be a private
institution, such as a title company, or it may be a private person.

Answer 41

trust deed
trustor
beneficiary
trustee

Question 42

The _________ of the _____ ____:
1. The owner of a property (trustor) transfers title to a third party (trustee) in exchange for a loan or other
consideration from the lender or beneficiary. The borrower or trustor executes both a promissory note and
a trust deed. The borrower’s signature is required on both documents.
2. The trustee holds the title for the benefit of the lender or beneficiary to secure the loan the lender has made to the trustor.
3. The trust deed is said to convey “bare” or “naked” title which is held by the third party, the trustee. As long as the trustor does not go into default, he retains full legal rights to the property. The trust deed
conveys along with the title, a power of sale. If the trustor does not pay his debt, the trustee may sell the property and turn the proceeds of the sale over to the lender.
4. When the trust deed is paid off, the trustee must give the trustor a ____ of __________ which transfers the title back to the original owner. (The clause of reconveyance is similar to the defeasance clause in a mortgage)

Answer 42

The Mechanics of the Trust Deed
deed of reconveyance

Question 43

If the borrower or trustor does default, the beneficiary conveys the trust deed to the trustee and instructs him to sell the property. Because of the trust deed’s _____ of ____ ______, the property can be sold
without the necessity of going through the court action of a foreclosure.

Answer 43

Power of Sale Clause

Question 44

The primary difference between a ________ and a _____ ____ is that a mortgage creates a lien and a deed conveys title. The clauses and covenants of the trust deed are basically similar to those of a mortgage. However, it should be noted that three parties must be named in the trust deed as opposed to two in the
mortgage. The trust deed also contains a power of sale clause, warranty to title clause, reconveyance clause, acceleration clause, receiver clause, and owner’s rent clause.

Answer 44

mortgage and trust deed

Question 45

________ for ____ , also known as the ___________ ____ ________, ___________ _____ ________, _________ to ______, and in Louisiana, Bond for Deed.In this type of financing, the sale and financial agreement are generally in one document. The buyer gives a downpayment plus a promissory note and mortgage or trust deed in exchange for certain rights to the
seller’s property. No third party lender need be involved. The buyer does not receive full title until the terms of the contract have been met. The seller delivers the deed when all of the payments have been made. The purchaser, however, has all of the privileges of ownership in the meantime.

Answer 45

Contract for Deed
Installment Land Contract
Conditional Sales Contract
Agreement to Convey

Question 46

The _____ ________ of a ________ for ____are:
1. A description of the deed for the property.
2. Conditions of the sale, such as purchase price and terms of the loan.
3. The buyer is responsible for paying taxes and insurance.
4. Signatures of both parties, dated and notarized.
5. Escrow provisions and prepayment privilege.
6. Protections for the seller, such as the right to declare entire purchase price due if buyer defaults.

Answer 46

The basic elements of a contract for deed

Question 47

________ _____ _______ also known as a ________ _____ _____ ____.The seller accepts a promissory note and mortgage or trust deed from the buyer in partial or complete payment for the property. The buyer in turn receives legal title to the property and all the accompanying
rights of ownership. In effect, the property becomes the buyer’s collateral for the loan.Purchase money agreements may be either first or second mortgages. If a first purchase money mortgage is executed simultaneously with a deed to the property, the purchase money mortgage has first claim against the property, superseding any homestead rights which might normally prevail in the state in
which the property is located. The primary difference between the purchase money mortgage and the contract for deed is that, in the contract for deed, the seller retains legal title to the property until part or all of the debt is paid. Until this time the buyer holds equitable title only. With the purchase money mortgage, the buyer receives full legal title at the time of sale.

Answer 47

Purchase Money Mortgage
Purchase Money Trust Deed

Question 48

___________: If the borrower fails to meet the obligations of the mortgage, the lender has the right to foreclose on the
collateral property and sell the property to redeem the debt. Under the method termed ______ ___________, if the amount received from the sale exceeds the borrower’s debt, the lender profits. This method has gradually been modified to treat the borrower more fairly. Under the practice which has evolved, ___________ by ____, the lender is required to refund to the borrower any profit realized on the sale of the foreclosed property. If the lender is unable to recover his full interest in the collateral property, he may, in some states, be permitted to seek a __________ ________ against the borrower in order to recover the remaining debt. The __________ ________ allows the lender to attach and seize the borrower’s unsecured personal and real property to make up the difference between the amount realized at the foreclosure sale and the borrower’s remaining outstanding obligation. However, if the buyer has acquired the property “subject to” an existing mortgage he cannot have a __________ ________entered against him.

Answer 48

Foreclosure
strict foreclosure
foreclosure by sale
deficiency judgment

Question 49

____ of _____ __________: Because of the trust deed’s “_____ of ____” ______, the property can be sold without the necessity of going through the court action of a foreclosure. The lender or its trustee has the right to sell the collateral property upon default, rather than having to file expensive legal proceedings. The trust deed also eliminates the _________ ______ of __________. The deed of trust is the most common form of ____ __________. The lender/beneficiary notifies the trustee in writing of the delinquency of the trustor/borrower and instructs the trustee to start foreclosure proceedings. A 90 day
notice is forwarded to the trustee and the sale is advertised in the newspaper. The trustee or any junior lienholders have the right to bring the loan up to date with payment of delinquent payments plus accrued collection costs, delinquency fees, etc.

Answer 49

Deed of Trust Foreclosure
power of sale clause
statutory period of redemption
sale foreclosure

Question 50

Upon default, the property is sold at the Sheriff’s sale and proceeds, up to the amount of the debt, go to the lender.

Answer 50

Mortgage Foreclosure

Question 51

____ with ____________: Louisiana permits this type of foreclosure. If the property does not sell for the full amount owed, the creditor may obtain a deficiency judgment for the amount owed by the borrower
above the proceeds of the sheriff’s sale. The debtor has the right to bid for the property only if the bid equals at least two-thirds of the appraised value.

Answer 51

Sale with Appraisement

Question 52

____ without ____________: If no appraisal has been made, the lender forfeits the right to obtain a deficiency judgment.

Answer 52

Sale without Appraisement

Question 53

____ in ____ of ___________, also known as a “friendly foreclosure”. Under this process the borrower, “sells” the property to the lender in return for the lender canceling the note. The lender does not retain the
right of a deficiency judgment if the property sells for less than the borrower owed.
* In Louisiana, this process is called dation en paiement.

Answer 53

Deed in Lieu of Foreclosure

Question 54

Foreclosure may take place by either ________ _______ or _________ _______. _________ _______ is much quicker because it does not have to go through the judicial process. It already includes a waiver of
notice, that is, the legal delay of foreclosure have been waived.

Answer 54

ordinary process
executory process

Question 55

_________ _____ of __________ If the borrower’s property is in foreclosure, he may elect to redeem it in one of two possible ways, depending on the practice of his own state.

Answer 55

Borrower’s Right of Redemption

Question 56

_________ __________ - occurs during the period of time after the borrower goes into default but before the actual foreclosure sale. During this period, the borrower, or other lien holder, can redeem the property by paying the current indebtedness. If the mortgage contains an acceleration clause, the entire debt mayhave to be paid in order to redeem the property.

Answer 56

Equitable redemption

Question 57

_________ ______ of __________- occurs after the actual foreclosure sale. Depending on the state, the borrower may have up to two years to redeem his property by paying off the debt in full, and he may be
permitted to remain in possession of the property. During this period, the court may appoint a receiver to pay operating costs, collect rents, and otherwise look after the property. The time limit for statutory redemption varies from state to state.
*In Louisiana there is no statutory redemption except for tax sales which is 3-5 years..

Answer 57

Statutory rights of redemption

Question 58

Foreclosure by power of sale is referred to as ___-________ ___________. The borrower is allowed only a period of reinstatement, extending only to the time the property is sold.

Answer 58

non-judicial foreclosure

Question 59

Parties of a Mortgage

Answer 59

Mortgagor and Mortgagee

Question 60

Parties of a Trust Deed

Answer 60

Trustor, Beneficiary and Trustee

Question 61

Security of Agreement of Mortgage

Answer 61

Mortgage ( may require a lien, title or mixture)

Question 62

Security of Agreement of Trust Deed

Answer 62

Deed in Trust

Question 63

Default Provision of Mortgage

Answer 63

Equitable Right of Redemption, Statutory Rights in some states

Question 64

Default Provision of Trust Deed

Answer 64

Equitable or Statutory Rights of Redemption depending on state.

Question 65

Default of Mortgage

Answer 65

Court foreclosure: deficiency

Question 66

Default of Trust Deed

Answer 66

Power of Sale or Judicial Foreclosure

Question 67

Remedy of Mortgage

Answer 67

Judgments allowed in some states

Question 68

Remedy of Trust Deed

Answer 68

Deficiency judgment in some states

Question 69

Release of Collateral of Mortgage

Answer 69

Via “release of mortgage”

Question 70

Release of Collateral of Trust Deed

Answer 70

via “reconveyance” or “deed of reconveyance”

Question 71

Loans may be divided into two general categories:
A. ____________ _____
B. __________ ______ _____

Answer 71

A. Conventional Loans
B. Government Backed Loans

Question 72

Non-government backed loans are called ____________ _____. Until the Depression and the resulting new deal legislation, all loans were ____________. The lender’s only protection against the borrower’s default
was the lender’s own skill in underwriting the loan, and ultimately, the value which might be realized from selling the collateral property at a foreclosure sale.

Answer 72

conventional loans
conventional

Question 73

The process of determining the risk a lender is incurring by lending a sum of money to a certain borrower to finance a particular property is referred to as ____________, or ____ _____________.

Answer 73

underwriting
loan qualification

Question 74

When underwriting a loan, the lender concentrates on three areas:
1. ________
2. ________
3. ________ of the _______.

Answer 74

1. borrower
2. property
3. location of the property.

Question 75

In __________ the ________, a variety of factors are taken into consideration
including income, character, expenses, savings and other assets, occupation, income stability, length of time at current employment, and desire to repay. Standard procedure is to obtain a credit report from which the lender determines the borrower’s credit history. The lender usually uses a ratio of 2 1/2 to 1 in
verifying the ability to repay the loan. In other words, the purchaser should be able to afford a home loan that is 2 1/2 times as large as his or her annual gross income.

Answer 75

evaluating the borrower

Question 76

__________ the ________: An appraisal and title report are usually ordered to establish the property’s present value and to uncover any unsatisfied liens or other encumbrances against it. The appraisal
establishes the fair market value of the property, which may or may not be the same as the purchase
price.

Answer 76

Evaluating the Property

Question 77

_________ the ________: The lender takes into consideration such factors as the presence of adequate utilities, street paving and proximity to schools, churches, shopping and recreational facilities. ________ ____________, that is, forces outside the property itself which cause a decline in its value, is also considered.

Answer 77

Evaluating the location
Economic obsolescence

Question 78

Note however, that federal legislation prohibits the lender from refusing to make a loan on a property
based solely on undesirability of the location. In the past, some lenders have systematically discriminated against certain neighborhoods by use of a practice termed _________.

Answer 78

redlining

Question 79

____ to _____ _____: This is the term used to describe the relationship between the amount of the down payment and the amount of the loan. To find the LTVR, divide the amount of the loan by either the appraised value or the selling price, whichever is less.
Example: Fred wishes to purchase a property for $95,000. The appraised value is $98,000. The bank will lend Fred $85,500.
What is the LTVR?
LOAN AMOUNT divided by Sales Price = $85,500 divided by $95,000 = .90, or 90% LTVR

Answer 79

Loan to Value Ratio

Question 80

Before the Depression, _____ were extremely conservative, ranging from 40% to 60%. However, conventional loans of today normally have an ____ of 80%. The reason for this change is the use of
public and private loan insurance and guarantee programs.

Answer 80

LTVR’s

Question 81

Your ____-to-______ _____ is all your monthly debt payments divided by your gross monthly income. This number is one way that lenders measure your ability to manage the monthly payments to repay the money you plan to borrow.

Answer 81

debt-to-income ratio

Question 82

To calculate your ____-to-______ _____ you add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out.
Example: If you pay $1500 a month for your mortgage, $100 a month for an auto loan and $400 a month for the rest of your debts, your monthly are $2000. If your gross monthly income is $6000, then your ____-to-______ _____ is 33%. In most cases 43% is the highest ratio a borrower can have and still get qualified mortgage.

Answer 82

debt-to-income ratio

Question 83

____________ ____ ________: Generally, any loan approved for more than 80% LTVR must have _______ ________ _________ (PMI). The borrower pays an insurance premium for an insurance policy which covers the top portion of the loan proceeds advanced over and above the standard 80%. This insurance covers the potential deficiency in proceeds which the lender might experience after foreclosure and sale of the collateral.

Answer 83

Conventional Loan Insurance
private mortgage insurance

Question 84

There are two type of government-backed loans: ___ _______ _____ and __ __________ ___

Answer 84

FHA Insured Loan & VA Guaranteed Loans

Question 85

The federal government created the ___ in 1934, as an alternative to conventional lending practices when it became apparent that conventional lenders were unable to cope with extreme fluctuations in the economy. The ___ is entirely self-supporting and operates over fifty programs providing assistance to
homeowners and other borrowers. It is important to note that government backed loans, including VA, are exempt from the federal usury law. (Usury laws set the maximum interest rate that can be charged.)

Answer 85

FHA

Question 86

The FHA rarely provides mortgage funds directly to borrowers; the FHA does not build houses and the FHA does not set interest rates. Rather, the FHA is a large _______ ________ ________ ______. FHA
loans are insured by the federal government through the __________ of _______ and _____ ___________ (HUD). The FHA insures lenders against loss from borrower default. As the mortgage
industry continues to change, FHA loans have taken on greater significance. In the first half of fiscal year 2008, for example, FHA-insured loans made up approximately ¼ of the mortgage insurance market. A year later, FHA-insured loans had more than a 60% share of the mortgage insurance market.

Answer 86

federal mortgage insurance agency
Department of Housing and Urban Development

Question 87

The FHA’s main objective is to assist in providing housing opportunities for low- and moderate-income families. The Federal Housing Administration does not have income limits to determine who is eligible for FHA assistance. Anyone who is a U.S. citizen, permanent resident, or non-permanent resident with a work visa and who meets the lending guidelines can obtain a loan. The FHA does, however, set a _______ _______ amount that it will insure.

Answer 87

maximum mortgage

Question 88

Note that lenders who make FHA-insured loans must first be approved by ___. Mortgage brokers who wish to originate FHA loans should also apply for some category of ___ approval. A non-approved
mortgage broker cannot receive any fee for the processing and origination of an FHA-insured mortgage. ___ does allow non-approved mortgage brokers to receive fees for counseling the borrower under certain circumstances, however.

Answer 88

HUD

Question 89

____________ for ___ _______ _____:
 Downpayment of at least 3.5% of the purchase price, but closing costs can be included in the loan
 Borrower is charged a mortgage insurance premium
 Property must be appraised by an approved FHA appraiser
 Maximum mortgage limits are set for various regions of the country
 Borrower must meet standard FHA credit qualifications
 Includes financing for manufacture or factory-built housing

Answer 89

Requirements for FHA Insured loans

Question 90

The FHA’s ______ ________ _________ ____ (MMI) provides a function similar to private mortgage insurance companies: Insuring private lenders against losses caused by borrower defaults on FHA-insured loans.

Answer 90

Mutual Mortgage Insurance Fund

Question 91

Under the plan, lenders approved by the FHA either submit applications from prospective borrowers to the regional HUD Homeownership Center for approval or may act as ______ _________. ______ _________ (DEs) are lenders authorized to underwrite their own FHA loan applications. They are responsible for the
entire mortgage process, through closing, and perform underwriting functions themselves (credit examination, appraisal review, etc.). When a ______ _________ approves and closes a loan, the application for mortgage insurance is then submitted to the FHA.

Answer 91

Direct Endorsers

Question 92

___ ___________ _________: The FHA established guidelines for approving borrower and property, as well as other loan regulations, for FHA loans; and their regulations have the force and effect of law. These guidelines generally apply to
all standard ___ ___(_) loans on single-family homes. Other FHA loan types may have different guidelines or additional criteria.

Answer 92

FHA Underwriting Standards
FHA 203(b)

Question 93

As you’ll see, the main difference between FHA loans and conventional loans is that FHA loans have more liberal income __________ _________. When evaluating an application for an FHA loan, underwriters
or lenders also look at the borrower’s ______ _______, ______, and ___ _____ – just as for conventional loans, however they can be more lenient. For example, while an underwriter would fee more secure if the borrower has sufficient cash (net worth) to pay the down payment and closing costs on an FHA loan, the
entire down payment may be a non-repayable gift from a relative.

Answer 93

qualifying standards
credit history, income, and net worth

Question 94

Also, while the FHA typically allows more ___________ when evaluating a borrower’s past situations and difficulties, many lenders impose minimum credit score requirements when approving a borrower.

Answer 94

flexibility

Question 95

The FHA is also less stringent when it comes to a borrower’s level of income. While no _______ or _______ income is required for an FHA loan, the borrower must have sufficient income to service the
debt on the home mortgage and all other credit obligations. This is determined by _______ _______ and _____ ____ _______ ______ that are slightly higher than those allowed for conventional loans.

Answer 95

minimum
maximum
housing expense
total debt service ratios

Question 96

A borrower’s _______ _______ _____ is the relationship of the borrower’s total monthly housing expense to income, expressed as a percentage.

Answer 96

housing expense ratio

Question 97

The lender uses a top ratio and a bottom ratio in deciding what a borrower can afford in _______ ________. The top ratio is calculated by dividing the borrower’s new monthly mortgage payment by his monthly gross income. Typically this ratio should not exceed 28%. The bottom ratio is equal to his new monthly mortgage payment plus his monthly debt divided by his gross income per month. Typically this ratio should not exceed 36%

Answer 97

housing expenses

Question 98

FHA considers a borrower’s income adequate for a loan if the proposed total mortgage payment does not exceed 31% of gross stable monthly income. Although this is higher than allowed for conventional loans, FHA’s maximum mortgage payment includes _________,
________, _____, and _________ (PITI) as well as any monthly homeowners association dues.

Answer 98

principal, interest, taxes and insurance

Question 99

When you know a borrower’s stable monthly income, you can multiply that by the _______ _______ _____ to determine the maximum monthly housing expense the borrower can afford. For example, if a borrower has a stable monthly income of $3,200, the maximum housing expense on an FHA loan would be $992 ($3,200 X .31).

Answer 99

housing expense ratio

Question 100

An FHA loan requires a down payment of at least 3.5% of the home’s purchase price or appraised value, whichever is less. The minimum down payment can be a non-repayable gift from a relative or a borrower may qualify for a down _______ __________ _____.

Answer 100

payment assistance grant

Question 101

___ permits no pre-payment penalties or lock-in clauses on its insured loans.
 ___ only insures first mortgages.
 ___ loans can be assumed without an interest increase.
 Effective for loans made after 1989, the person assuming the loan must be able to qualify.

Answer 101

FHA

Question 102

Lenders will only permit those loans that have a “subject to transfer” clause to be taken over through a formal assumption process. They can also be sold in the secondary mortgage market. To qualify for FHA financing, the property must meet _______ ________ _________ and the buyer must be qualified.

Answer 102

minimum property standards

Question 103

________ _________ _______ (MIP) – not to be confused with PMI for conventional loans- is required for all FHA loans, regardless of down payment size. You may also see this described as UFMIP, or _______ ________ _________ _______. For most FHA programs, the MIP has an initial premium and an annual premium. The initial MIP on a new home purchase is 1.75% of the loan amount for 30-year loans, with and annual premium of 0.55% of the outstanding loan balance, divided into 12 monthly payments.

Answer 103

Mortgage Insurance Premium
upfront mortgage insurance premium

Question 104

The 15-year mortgage has the added benefit of a lower annual MIP. The initial MIP premium for new purchases is 1.75% of the loan amount, but the annual premium is on _.__% of the outstanding loan balance divided into 12 equal monthly payments.

Answer 104

0.25%

Question 105

Some borrowers may be eligible for a ______ of a portion of the MIP at the termination of the loan; for example, a borrower who refinances an FHA loan after three years.

Answer 105

refund

Question 106

FHA Loan in Review:
____ _________ qualifying standards. It’s generally easier for borrowers to qualify for FHA loans because higher debt ratios are allowed (31/43).
______ ________ _________. FHA scrutinizes houses to determine if they will need any obvious major repairs so borrowers don’t need to spend money fixing them.
___ ____ ________. FHA down payments are often lower than conventional loans, and although minimum down payments can’t be borrowed, they can be gifts.
___ is ________. For high LTV loans, an upfront mortgage insurance premium is cheaper than private mortgage insurance, and the MIP initial premium can be financed, ever over FHA limits.
____-____ _____. Most FHA loans are for 30 years, keeping payments lower.
_____ are _________. FHA loans may be assumed, with FHA completing a credit check and approving the new borrower for loans made after December 15, 1989.
__ __________ _______. FHA loans may not contain prepayment penalties, but borrowers may have to pay an extra month’s interest if the loan is paid off after the premium due date.

Answer 106

Less stringent
Higher property standards
Low down payments
MIP is required
Long term loans
Loans are assumable
No prepayment penalty

Question 107

________ ______________ __________ _____: This program was established in 1944 to aid veterans or their surviving spouses in obtaining financing for the purchase or construction of owner-occupied homes and farms. This financing is also available for owner-occupied mobile homes and condominiums.

Answer 107

Veterans Administration Guaranteed Loans

Question 108

FHA and VA loans are not really loans at all. They are loan insurance. While FHA loans are insured, VA loans are _________. Veteran borrowers pay no insurance premium on VA loans VA loans do not
require a downpayment and are therefore considered to be 100% financing.

Answer 108

guaranteed

Question 109

The loan guarantee amount which the veteran is eligible to receive on a VA loan is referred to as his ___________. There are a few ways in which a person can have two VA loans at once. The second VA loan must be used to purchase a second primary residence. To be eligible, you must have enough ___________ and income to qualify for both houses.

Answer 109

entitlement

Question 110

To determine what portion of a mortgage loan the VA will guarantee, a veteran must apply for a ___________ of ___________. This certificate establishes the maximum guarantee entitlement of the veteran.
The VA will also issue a ___________ of __________ _____ (CRV) for the property being purchased stating the current market value based on a VA-approved appraisal.

Answer 110

certificate of eligibility
certificate of reasonable value

Question 111

There is no VA limit on the ______ of the ____ a veteran can obtain. The VA limits the amount of the ____ it will _________. If a mortgagor defaults on a VA loan, the VA will pay the lender a set amount toward the remaining balance after foreclosure sale. After the property has been foreclosed, the VA may elect to make full restitution to the lender and take title to the property.

Answer 111

amount of the loan
loan it will guarantee

Question 112

VA loans made before March 1, 1988, are freely assumable, although an assumption processing fee will be charged. For loans made after that date, the VA must approve the buyer and the assumption
agreement. The original veteran borrower remains personally liable for the repayment of the loan unless the VA approves a _______ of ________.

Answer 112

release of liability

Question 113

The dollar amount of ________ paid is calculated as a percentage of the loan’s principle. ________ is always calculated on a yearly basis. To calculate the amount of ________ in any given month, multiply the ________ rate by the principle balance and divide by twelve.
Example: Mary has a loan balance of $25,000 as of June 1st. Her interest rate is 10%. What is the amount of interest due on the loan for June?
$25,000 X 10% = $2,500
$2,500/12 = $208.33 (interest for month of June)
You can then figure the amount of principle reduction for June by subtracting the monthly interest from the monthly note.
Example: If Mary’s monthly note is $285.00, by how much is her principle reduced for the month of
June?
$285.00 - $208.33 = $76.67

Answer 113

Interest

Question 114

To calculate the total ________ which will be paid on a standard amortized loan, multiply the amount of each payment by the total number of payments, then subtract the face value of the loan from the total amount of principle and interest paid.
Example: Mary secures a mortgage for $75,000 at 9% interest for 30 years. Her monthly notes are
$728.60. How much interest will Mary have paid at the end of the 30 years?
$728.60 X 360 months = $262,296.00 (principle and interest)
$262,296 - $75,000 = $187,296 (interest)

Answer 114

interest

Question 115

_______ ______, also known as ____ ____________ _______, are used to lower the interest rate on the loan while increasing the yield to the lender. _______ ______ can be thought of as ___-____ ________, as they
are paid as a lump sum at the time of closing. The amount paid for the ________ ______ is equal to 1% of the loan amount for each point paid.
Example: A loan is obtained for $100,000. The buyers will be paying 2 discount points.
$100,000 X 2% = $2,000
Example: A house sold for $150,000. The buyer obtains an 80% loan and is paying 2 discount points. How much cash will he need to bring to the closing?
$150,000 X 80% = $120,000 (loan amount)
$150,000 - $120,000 = $30,000 (down payment)
$120,000 X 2% = $2,400 (cost of points)
$30,000 + $2,400 = $32,400 (cash needed at closing)

Answer 115

Discount points
rate equalization factors
Discount points
pre-paid interest
discount points

Question 116

A _______ ________covers several properties, but each may be released from the mortgage separately. A _______ _______ ______ drafted into the mortgage permits each parcel to be released from the mortgage as it is sold. This is the type of mortgage that is usually used by a
developer constructing tracts of homes.

Answer 116

Blanket Mortgage
partial release clause

Question 117

A _______ ________ is secured by both real and personal property, that is, both movables and immovables. This type of loan is commonly used to finance new homes along with major household appliances

Answer 117

package mortgage

Question 118

The ____-______ ________ is used for owner financing and is originated by a second lender combining equity and money owed into a second mortgage. In a common
____-______ transaction, a second lender agrees to assume payments on the borrower’s original loan and also to lend the borrower the additional funds he requires. The ____-______ ____ may be at a higher interest rate than the original loan, but still below the current market rate.

Answer 118

wrap-around mortgage
wrap-around
wrap-around loan

Question 119

____________ _____ are used for building or repairing either residential or commercial property and is a type of _______ _________. The loan is committed for the total cost of the construction project, but is paid out in draws at regular intervals after each stage of construction has been completed. Interest is paid only on the total amount of disbursements. ____________ _____ are generally made for periods of three years or less.

Answer 119

Construction loans
interim financing
Construction loans

Question 120

______ _________ Other forms of owner financing which were mentioned earlier are the ________ _____ ________ and the ___________ ____ ________, or ____ for ____.

Answer 120

Seller Financing
purchase money mortgage
installment Land Contract, bond for deed

Question 121

____ and _________ arrangements are used to finance large commercial or
industrial properties. The land and building, usually used by the seller for business purposes, are sold to
an investor, such as an insurance company. The real Estate is then leased back by the buyer to the seller, who continues to conduct business on the property as a tenant. The buyer becomes the lessor, and the original owner becomes the lessee. This enables a business firm with money invested in the real estate to free that money so it can be used as working capital.

Answer 121

Sale and Leaseback

Question 122

_________ _______ ________: Payments on a graduated loan start small and become larger as the mortgage goes on. For example, in a thirty year graduated payment loan, payments for the first ten years may be based on a forty year amortization, payments for the next ten years on a twenty-five year
amortization schedule, and payments for the last ten years on a twenty year schedule. GPM’s are generally used for commercial loans enabling a new business to defer a portion of their mortgage payments in the expectation of increased income in the future. In some GPM’s, the borrower pays only
interest for the first few years.

Answer 122

Graduated Payment Mortgage

Question 123

The ____ ___ ____: In this type of loan the borrower increases his existing mortgage to the original amount. This is, in effect, a way of borrowing against your equity without taking out a second mortgage.
This usually results in the borrower having a higher monthly note since the full amount must be repaid by the original expiration date of the loan.

Answer 123

The Open End Loan

Question 124

______ is the difference between the current loan balance and the current value of the property. For example, if you a have a loan balance of $50,000 and a current appraised value of $75, 000, then you have $25,000 ______.

Answer 124

Equity

Question 125

_______ ________ are tailored for older homeowners, retired, or near retirement,
who own a home free and clear and wish to use some of the equity they have in their home. Regular monthly payments are made to the borrower based on the equity the homeowner has invested in the
property. The loan is eventually paid from the sale of the property or from the borrower’s estate upon his or her death.

Answer 125

Reverse mortgage

Question 126

A _______ is a way of temporarily lowering the initial interest rate on a mortgage or deed of trust loan. By “pre-paying” some of the interest to the lender on the borrower’s behalf, one can “___ ____” the original interest rate for a period of time. Typical _______ arrangements reduce the interest rate by 1 to 3 percent over the first one to three years of the loan.

Answer 126

buydown

Question 127

The __________ ____ ________, or ________ ____ ________, is one in which the interest rate fluctuates according to some external index, such as the open market interest rate, prime lending rate, or consumer price index. Normally, the rate is adjusted once a year and can not change more than 2% in any one year period. There is also a ceiling or upper limit on the interest rate, and a lower limit.

Answer 127

adjustable rate mortgage
variable rate mortgage

Question 128

________ ____ or ____ ____: This loan, also known as the ________ ____ ____, calls for payments of interest only for the term of the loan. At the end of the term, the entire sum of the principle is due in one balloon payment plus any remaining interest.

Answer 128

Straight Loan or Term Loan
straight term loan

Question 129

_____ _________ ____: Also known as the direct reduction loan, this loan type features a schedule of equal payments consisting of both principle and interest. This is normally a long term loan, up to thirty years. The portion of the monthly payment that is applied toward the principle increases each month, and
the amount applied toward the interest decreases each month. In other words, as the loan matures, more and more of each payment is applied toward the principle, so that, in the beginning you are paying mostly interest, and at the end of the loan, you are paying mostly principle.

Answer 129

Fully Amortized Loan

Question 130

_________ _________ ____: This type of loan is known as the _______ _________ ____ or the
____________ ____ ________. Payments are typically calculated over a 20 or 30 year amortization period with a loan term of 5 years. The partially amortized loan is repaid in regular installments of principle and interest, but one or more payments is a balloon payment, that is, a payment larger than the loan’s regular payment amounts. The effect of the balloon payments is to reduce the amount of the regular payments.

Answer 130

Partially Amortized Loan
limited reduction loan
renegotiable rate mortgage

Question 131

The ____________ ________ is used to determine the monthly payment including principal and interest for loans at a given interest rate and a given term or length of the loan. To use the chart, first find the interest rate, then go to the years column and find the amortization factor. Multiply the amortization factor times the number of thousands that is being borrowed-this will give you the monthly payment including principal and interest.

Answer 131

Amortization Schedule

Question 132

____ ___________ ____ are not
prepaid interest. They are paid to the lender and are usually 1 percent of the loan amount.

Answer 132

Loan Origination Fees

Question 133

_____________ _______
1. Savings and Loans
2. Commercial Banks
3. Mutual Savings Banks
4. Life Insurance Companies

Answer 133

Sources of Financing
INSTITUTIONAL Lenders

Question 134

___-_____________ _______
 Mortgage brokers do not use their own funds. They find money to lend, acting as intermediaries between the borrower and the lender. He has nothing to do with servicing the loan.
 Mortgage bankers set up loan transactions using their own capital, and also service the loan.
 Pension funds
 Trust funds
 Private individuals
 Foreign investors
 University and hospital endowment funds, credit unions

Answer 134

Sources of Financing
Non-Institutional Lenders

Question 135

The _________ ________ ______ facilitates the buying and selling of mortgages that have been made by the primary mortgage market. Any time a lender takes over a loan that he himself did not originate, he is engaging in _________ ________ ______ activity. The secondary lender buys mortgages from primary lenders, thereby supplying him with the cash needed to originate more new loans.

Answer 135

secondary mortgage market

Question 136

_______ ________ ________ ___________ (FNMA): Nicknamed “______ ___”, the original purpose of this program was to establish a market for the buying and selling of government insured mortgages and thereby to assist holders of certain residential mortgages. FNMA deals in conventional and FHA and VA backed loans. In September 2008, ______ ___ became a government-owned enterprise. Until that time it was a privately owned corporation that issued its own stock.

Answer 136

Federal National Mortgage Association
Fannie Mae

Question 137

__________ ________ ________ ___________ (GNMA): Known as “______ ___”, this organization is sponsored and administered by the federal government and is under the auspices of the department of Housing and Urban Development. GNMA acquires loans for urban renewal projects, housing for the
elderly, and other federal housing programs which assist low and moderate income households.

Answer 137

Government National Mortgage Association
Ginnie Mae

Question 138

_______ ____ ____ ________ ___________ (FHLMC): “_______ ___” was founded in 1971 to allow savings and loans liquidity for their mortgage assets. FHLMC buys mortgages from these institutions and
supplies them with cash to originate new mortgages. Like FNMA, Freddie Mac is now a government-owned enterprise that provides a secondary market for mortgage loans, primarily conventional loans.

Answer 138

Federal Home Loan Mortgage Corporation
Freddie Mac

Question 139

________ _________ ________ ___________ (MGMC): “______ ___” is a private organization which specializes in buying and selling mortgages and is financed entirely by private funds.

Answer 139

Mortgage Guarantee Mortgage Corporation
Maggie Mae

Question 140

______ ___ (formerly the Federal Agricultural Mortgage Corporation, is similar to Fannie Mae and Freddie Mac except that it deals with agricultural loans. ______ ___ purchases agricultural loans from original lenders and issues guaranteed mortgage-backed securities

Answer 140

Farmer Mac

Question 141

The ____ _______ ______ (FSA), formerly the Farmers Home Administration is a federal agency of the Department of Agriculture. The FSA offers programs to help families purchase or operate family farms. It also provides loans to help families purchase or improve single family homes in rural areas.

Answer 141

Farm Service Agency

Question 142

In 1968, the _______ ________ __________ ___ was passed because of problems with
consumer confusion regarding interest charges, points, misleading advertising practices, and confusion as to the actual cost of consumer credit.

Answer 142

Federal Consumer Protection Act

Question 143

A portion of this legislation, Title I, known as The _____ In _______ ___(TILA), is enforced by __________ “_”.

Answer 143

Truth in Lending Law
Regulation Z

Question 144

__________ _ establishes guidelines for three aspects of the lending process:
1. Disclosure of Loan Cost
2. Borrower’s Right of Rescission
3. Fair Advertising Practice

Answer 144

Regulation Z

Question 145

Real estate loans for personal, family, and agricultural purposes are covered by __________ “_”. Business and commercial loans are not covered.

Answer 145

Regulation Z

Question 146

The _____ in _______ ___ requires that the lender provide the borrower with a formal disclosure statement containing the following items:
 Date finance charge will begin to accrue
 Annual percentage rate (APR)
 Number of monthly payments
 Due date of payments
 Prepayment penalties
 Balloon payments
 Default and delinquency charges
 Legal description of property
 Amount of credit which will be made available to the borrower
 Credit sales, cash price and total unpaid balance

Answer 146

Truth in Lending Law

Question 147

The ____-_____ ____ ______ ______ and ________ __________ ___ of ____ transferred most of the Federal Reserve’s responsibilities for enforcing TILA to the new ________ _________ __________ ______ (CFPB).

Answer 147

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Consumer Financial Protection Bureau

Question 148

Under the _____ in _______ ___ consumers must be fully informed of all finance charges and the true cost of financing before a transaction is completed.

Answer 148

Truth in Lending Act

Question 149

Under the Truth in Lending Act consumers must be fully informed of all finance charges and the true cost of financing before a transaction is completed.

Answer 149

Advertising

Question 150

The APR, or ______ __________ ____ is calculated based on all charges rather than the interest rate alone.

Answer 150

annual percentage rate

Question 151

The ____ ______ __________ __________ ___ RESPA applies to any residential real estate transaction involving a new first mortgage loan. The purpose of RESPA is to ensure that the buyer and the seller are both fully informed of all settlement costs.

Answer 151

Real Estate Settlement Procedures Act

Question 152

____-_____ __________ ___________
For more than 30 years, Federal law has required lenders to provide two different disclosure forms to consumers applying for a mortgage. The law also has generally required two different forms at or shortly
before closing on the loan. Two different Federal agencies developed these forms separately, under two Federal statutes: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA). The information on these forms is overlapping and the language is inconsistent. Not surprisingly, consumers often find the forms confusing. It is also not surprising that lenders and
settlement agents find the forms burdensome to provide and explain.

Answer 152

TILA-RESPA Integrated Disclosures

Question 153

The Dodd-Frank Act direced the Bureau to integrate the mortgage loan disclosures under TILA and RESPA. The first new form (the ____ ________) is designed to provide disclosures that will be helpful to
consumers in understanding the key features, costs, and risks of the mortgage for which they are applying. This form will be provided to consumers within:
_____ business days after they submit a loan application.

Answer 153

The Loan Estimate Form
Three business days

Question 154

The ____ ________ ____ replaces two former Federal forms. It replaces the Good Faith Estimate desingedby HUD under RESPA and the Truth in Lending disclosure designed by the Federal Reserve System (the Board) under TILA. The ____ ____________ also incorporates new Disclosures required by Congress under the Dodd-Frank Act. The form must be presented to the application withing 3 days after application is made.

Answer 154

Loan Estimate form

Question 155

The second form (the _______ __________) is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. This form will be provided to consumers
____ business days before they close on the loan.

Answer 155

Closing Disclosure
three business days

Question 156

The _______ __________ ____ replaces the former form used to close a loan, the HUD-1, which was designed by HUD under RESPA. It also replaces the revised Truth in Lending disclosure designed by the Board under TILA. The _______ __________ ____ contains additional new Disclosures required by the Dodd-Frank Act and a detailed accounting of the settlement transaction.

Answer 156

Closing Disclosure form

Question 157

The forms use clear language and design to make it easier for consumers to locate ___ ___________, such as interest rate, monthly payments, and costs to close the loan. The forms also provide more
information to help consumers decide whether they can afford the loan and to compare the cost of different loan offers, including the cost of the loans over time.

Answer 157

key information

Question 158

In developing the new ____ ________ and _______ __________ forms, the Bureau has reconciled the differences between the existing forms and combined several other mandated disclosures, such as the
appraisal notice under the Equal Credit Opportunity Act and the servicing application disclosure under RESPA.

Answer 158

Loan Estimate
Closing Disclosure

Question 159

______: The creditor must give consumers the Closing Disclosure form to consumers so that they receive it at least _____ business days before the consumer closes on the loan.

Answer 159

Timing
three business days

Question 160

If the creditor makes certain significant changes between the time the _______ __________ form is given and the closing, the consumer must be provided a new form and an additional _____-business-day waiting period after receipt of the new form. These changes include:
 changes to the APR above 1/8 of a percent for most loans (and 1/4 of a percent for loans with irregular payments or periods),
 changes the loan product, or
 adds a prepayment penalty to the loan

Answer 160

Closing Disclosure
three business day

Question 161

Less significant changes can be disclosed on a revised Closing Disclosure form provided to the consumer at or before closing, without ________ the _______.

Answer 161

delaying the closing

Question 162

__________ to the ____
The final rule applies to most closed-end consumer mortgages.
It does not apply to:
 home equity lines of credit (HELOC)
 reverse mortgages
 mortgages secured by a mobile home
 mortgages secured by a dwelling that is not attached to real property (in other words, land).
 loans made by a creditor who makes five or fewer mortgages in a year.

Answer 162

Exemptions to the Rule

Question 163

The _____ ______ ___________ ___ (ECOA) prohibits discrimination in the lending process based on the applicant’s race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.
Note that the applicant must be of legal age. Credit applications may only be considered on the basis of:
 Income
 Stability of the source of income
 Net worth
 Credit rating

Answer 163

The Equal Credit Opportunity Act

Question 164

If credit is denied the ____ ______ _________ ___ (FCRA) requires that the lender must provide the applicant with a statement detailing the reasons for rejection within 30 days.

Answer 164

Fair Credit Reporting Act

Question 165

The role of the _______ _______ ______ is to maintain sound credit conditions, help counteract inflationary and deflationary trends and create a favorable economic climate. It divides the country into twelve federal districts, each served by a federal reserve bank. All nationally chartered banks must join the _______ _______ and purchase stock in its district reserve banks.The _______ _______ regulates the flow of money and interest rates in the marketplace indirectly, through
its member banks, by controlling their reserve requirements and discount rates.

Answer 165

The Federal Reserve System
Federal Reserve

Question 166

___ __________ Homeowners may deduct from their gross income:
 mortgage interest payments on most first and second homes
 real estate taxes (but not interest paid on overdue taxes)
 certain loan origination fees
 loan discount points (whether paid by buyer or seller)
 loan prepayment penalties

Answer 166

Tax Deductions

Question 167

_______ ____ is the profit realized from the sale or exchange of an asset, including real property. It is figured as the adjusted basis of the property (initial cost plus any physical improvements minus any
depreciation) minus its net selling price. To stimulate investment, Congress at various times has allowed part of a taxpayer’s _______ ____ to be free from income tax.

Answer 167

Capital Gain

Question 168

Current tax law specifies what percentage of _______ _____ is taxable as income. To determine the taxable amount, an investor multiplies the total _______ ____ by the current percentage.

Answer 168

capital gains

Question 169

Real estate investors can _____ taxation of capital gains by making property exchanges. A property owner will incur tax liability on a sale only if additional capital or property is also received. Note that the tax is ________ not eliminated. When the property is sold the capital gain will be taxed.

Answer 169

defer
deferred

Question 170

All or part of the gain on the sale of a personal residence is exempt from immediate taxation if another
residence is bought and occupied within __ ______ (before or after) the sale of the old residence.

Answer 170

24 months

Question 171

An unmarried individual may exclude from income up to $250,000 of gain realized on the sale or exchange or a residence. The individual must have owned and occupied the residence for an
aggregate of at least ___ of the ____ years before the sale or exchange. The exclusion can be used on a continuing basis – but not more frequently than once every two years. Effective for sales and
exchanges after May 6, 1997, this exclusion replaces the one-time $125,000 exclusion for taxpayers age 55 or older.

Answer 171

two of the five

Question 172

For married individuals, the excludable gain is increased to $500,000 if ______ ________ and if:
Either spouse meets the ownership test
Have lived in the house for at least 2 out of the last 5 years
The house is their primary residence

Answer 172

filing jointly

Question 173

Neither spouse is ineligible by virtue of a sale or exchange of a residence within the last ___ years

Answer 173

two

Question 174

____ ___-________ ________
1. under Section 1031 of the IRC, real estate investors can defer taxation of capital gains by making a property exchange.
2. a property owner may exchange one property for another property and have tax liability on the sale only if additional capital or property is received.
3. tax on an exchange is deferred rather than eliminated.
4. properties involved in exchange must be of like kind.
5. “like kind” refers to any real property to be held for income purposes or investment; it excludes dealer property and residences.
6. additional capital or personal property included in a transaction to even out the
exchange is considered boot; the party receiving boot is taxed at the time of the
exchange.

Answer 174

1031 tax-deferred exchange

Question 175

__________ of _________ or _______ - agreement among brokers to divide their markets and refrain from competing for each other’s business; division may take place on a geographic basis or on a certain price range of homes.

Answer 175

Allocation of customers or markets

Question 176

_____ ______ - conspiracy among brokers to set prices for their services, rather than
negotiate such fees.

Answer 176

Price fixing

Question 177

__________ - two or more businesses conspire against other businesses to reduce competition.

Answer 177

Boycotting

Question 178

People violating the _______ _________ ___ may be found guilty of a felony punishable by a maximum $100,000 fine and three years in prison.

Answer 178

Sherman Antitrust Act

Question 179

In a civil suit a _____ found guilty of violation of the Sherman Antitrust Act will be liable for 3 times the actual damages plus attorney’s fees and costs.

Answer 179

broker

Question 180

_______ __________ and ____ ________ ___ ___ (IRC Section 1445)
A. Ensures that nonresident aliens and foreign corporations pay U.S. income tax based on gains from the disposition of U.S. real property interest
1. in real property located in the U.S.
2. in any domestic corporation that was a U.S. real property holding corporation during the period that the taxpayer held the interest after June 18, 1980, or at any time during the five year period ending on the date of the disposition of the property, if earlier.
B. A transferee of any U.S. real property interest is required to withhold a tax equal to 10 percent of the amount realized by the foreign transferor on the disposition of the property.
C. If a transferor’s or transferee’s agent fails to furnish the notice required, the agent, for example, a broker, is required to withhold in the same manner as would be required of the transferee, except that the agent’s liability is limited to the amount of compensation that he
or she derives from the transaction.
D. A buyer or other transferee of a U.S. real property interest and any corporation, partnership or fiduciary required to withhold tax must file an ___ ____ ____ to report and transmit the
amount withheld.
E. Buyers or other transferees of a U.S. real property interest also must file an ___ ____ ____-_ to show the amount withheld.
F. Generally, the amount required to be withheld with respect to any disposition of a U.S. real property interest cannot exceed the amount of the transferor’s maximum tax liability.
G. Brokers involved in listing or selling a U.S. real property interest for nonresident aliens or foreign corporations should contact the IRS to establish the appropriate procedures.

Answer 180

Foreign Investment and Real Property Tax Act (IRC Section 1445)

Question 181

The promise to repay a debt along with conditions and stipulations is contained in the:
a. deed
b. promissory note
c. lien
d. title

Answer 181

b. promissory note

Question 182

The clause that allows the lender to demand payment in full of the entire debt in the event of default.
a. prepayment
b. lock in
c. acceleration
d. hypothecation

Answer 182

c. acceleration

Question 183

The clause which removes the mortgage when the debt is paid is the:
a. acceleration
b. granting
c. escalation
d. defeasance

Answer 183

d. defeasance

Question 184

Which of the following is/are forms of owner financing?
a. installment land contract
b. contract for deed
c. bond for deed
d. all of the above

Answer 184

d. all of the above

Question 185

PMI, or Private Mortgage Insurance covers:
a. the top portion of the loan proceeds over and above the standard 80%.
b. the full loan amount
c. the top 20% of the loan.
d. the top 10% of the loan.

Answer 185

a. the top portion of the loan proceeds over and above the standard 80%.

Question 186

In which type of loan must the borrower apply for a certificate of eligibility?
a. FHA
b. VA
c. conventional
d. any loan above 80%

Answer 186

b. VA

Question 187

A partially amortized loan with a balloon payment would have a _______ monthly payment than a fully amortized loan.
a. higher
b. lower

Answer 187

b. lower

Question 188

Which of the following is/are secondary mortgage lenders?
a. FNMA
b. GNMA
c. FHLMC
d. all of the above

Answer 188

d. all of the above

Question 189

The Loan Estimate Form must be presented to the borrower:
a. Within 3 days after applying for the loan
b. Within 3 days of the date of closing
c. Within 3 days before applying for the loan
d. Within 3 days after the date of closing

Answer 189

a. Within 3 days after applying for the loan

Question 190

In a 1031 tax exchange, capital gains tax on the sold property is:
a. eliminated
b. reduced
c. deferred
d. evaded

Answer 190

c. deferred