Real Estate Financing

Question 1

The Federal Reserve controls economic growth by raising and lowering the discount rate charged to member banks to borrow funds. Lower rates

(a) contract the economy.
(b) cause inflation.
(c) fuel the economy.
(d) increase unemployment.

Answer 1

c) fuel the economy.

Question 2

Which of the following is correct regarding the relationship between interest rates and housing sales?

(a) Sales are related inversely to interest rates.
(b) Rising interest rates affect affordability.
(c) Higher housing costs associated with higher interest rates tend to increase the number of foreclosures.
(d) All of the above.

Answer 2

(d) All of the above.

Question 3

_____________ compensate the lender for accepting an interest rate less than the lender wishes.

(a) discount points
(b) kickbacks
(c) origination points
(d) yield spread premiums

Answer 3

(a) discount points

Question 4

Since most buyers are unable or unwilling to pay cash for real estate, long-term financing is usually necessary. For this reason, an agent should

(a) build a list of private individuals willing to lend.
(b) be constantly aware of lender policies, interest rates, points, and lending costs.
(c) be a mortgage broker as well as a real estate licensee.
(d) obtain a broker’s license to deal directly with large commercial lenders.

Answer 4

(b) be constantly aware of lender policies, interest rates, points, and lending costs.

Question 5

Primary financing refers to

(a) the first loan recorded against the property.
(b) any junior trust deed recorded against the property.
(c) the down payment or equity position in the property.
(d) any seller financing used to fill the gap between loan and value.

Answer 5

(a) the first loan recorded against the property.

Question 6

The Federal National Mortgage Association (FNMA) was primarily created to

(a) increase the availability of secondary financing.
(b) standardize construction guidelines.
(c) serve as a secondary mortgage market.
(d) subsidize low income housing.

Answer 6

(c) serve as a secondary mortgage market.

Question 7

Interest rates for conforming loans eligible for purchase by Fannie Mae or Freddie Mac are generally less than rates charged for nonconforming loans because

(a) wealthy people seeking larger loans have better back-end ratios.
(b) lower loan amounts generally carry less risk.
(c) of their strict underwriting guidelines.
(d) buyers of medium priced homes have better job security.

Answer 7

(c) of their strict underwriting guidelines.

Conforming loans are conventional loans that meet the underwriting standards for purchase by Fannie Mae and Freddie Mac. Because of their strict underwriting requirements, the interest rates for conforming loans are generally less than rates charged for nonconforming loans.

Question 8

Which of the following lenders invest more heavily in single-family home loans?

(a) savings and loan associations
(b) commercial banks
(c) insurance companies
(d) individuals

Answer 8

(a) savings and loan associations

Question 9

Which of the following is NOT an institutional lender?

(a) insurance company
(b) savings and loan
(c) commercial bank
(d) mortgage company

Answer 9

(d) mortgage company

Question 10

Mortgage bankers are regulated primarily by

(a) city laws and regulations.
(b) the Mortgage Loan Brokers Association.
(c) federal regulations.
(d) state laws.

Answer 10

(d) state laws.

Mortgage bankers are regulated by two state agencies, the Department of Real Estate and the Department of Corporations, depending on which license the mortgage banker is operating under.

Question 11

When conventional financing is not available in the amount required or is too costly, purchasers often turn to

(a) nonconforming financing.
(b) renting.
(c) seller carryback financing.
(d) credit unions.

Answer 11

(c) seller carryback financing.

Question 12

The majority of 1-4 unit dwellings are still financed by

(a) nonconventional loans.
(b) conventional loans.
(c) seller financing.
(d) family and friends.

Answer 12

(b) conventional loans.

Question 13

Title I FHA loans are for

(a) purchases of homes only.
(b) property improvement loans.
(c) purchases of multiple units.
(d) none of these.

Answer 13

(b) property improvement loans.

Question 14

Which of the following requires a down payment?

(a) Cal Vet
(b) FHA
(c) VA
(d) Conventional

Answer 14

(d) Conventional

Conventional loans require a down payment. The other financing programs may not.

Question 15

The type of trust deed loan which permits borrowing additional funds at a later date is called a(n)

(a) equitable mortgage.
(b) junior mortgage.
(c) open-end trust deed.
(d) extendible mortgage.

Answer 15

(c) open-end trust deed.

Question 16

What is the main disadvantage of the 40-year loan term for the buyer?

(a) decreases affordability
(b) higher total loan payments
(c) lower initial interest rate
(d) lower down payment.

Answer 16

(b) higher total loan payments

While the payments are reduced by the longer amortization period, making payments for an extra 10 years substantially increases the total payments and payoff.

Question 17

With an adjustable-rate mortgage (ARM) the interest rate changes periodically, usually in relation to an

(a) index.
(b) survey.
(c) poll.
(d) margin.

Answer 17

(a) index.

Question 18

In an adjustable-rate loan, the amount added to the index rate that represents the lender’s cost of doing business is called the

(a) marginal rate.
(b) margin.
(c) discount.
(d) overage.

Answer 18

(b) margin.

Question 19

A situation where payments do not cover all of the interest due on a loan and results in the borrower owing more later in the loan term than at the start is called

(a) inverse amortization.
(b) reverse amortization.
(c) backward amortization.
(d) negative amortization.

Answer 19

(d) negative amortization.

Question 20

A loan that allows the borrower to change from a variable-rate to the current rate for fixed-rate loans is called a(n)

(a) option ARM.
(b) convertible ARM.
(c) assumable ARM.
(d) bump-up ARM.

Answer 20

(b) convertible ARM.

Question 21

Borrowers who believe they will remain in a property for many years will likely want

(a) a loan that can be prepaid without a penalty.
(b) an ARM with low initial monthly payments.
(c) an overall lower interest rate.
(d) overall lower origination costs.

Answer 21

(c) an overall lower interest rate.

Question 22

A method used by lenders to determine the likelihood that credit users will pay their bills is called

(a) qualification ratio.
(b) FICO score.
(c) FTC score.
(d) employment history.

Answer 22

(b) FICO score.

Question 23

Which of the following strengthens the borrowers’ capacity or ability to repay the debt?

(a) an occupation that ensures a steady income
(b) a history of second job income
(c) dual household income
(d) all of the above

Answer 23

(d) all of the above

Question 24

Which of the following would be security for a note and deed of trust?

(a) credit of borrower
(b) value of property
(c) stability of the money market
(d) all of these

Answer 24

(b) value of property

Question 25

The Truth-in-Lending Act is part of the

(a) Business and Professions Code.
(b) Federal Consumer Protection Act.
(c) Uniform Commercial Code.
(d) None of these.

Answer 25

(b) Federal Consumer Protection Act.

Question 26

Which of the following statements is TRUE?

(a) Primary financing refers to loans made directly by the lender to the borrower.
(b) Secondary financing refers to the resale of existing loans.
(c) Both primary financing refers to loans made directly by the lender to the borrower and secondary financing refers to the resale of existing loans.
(d) None of these

Answer 26

(d) None of these

Question 27

Loans that meet the underwriting standards of Fannie Mae or Freddie Mac are known as:

(a) participation loans.
(b) conforming loans.
(c) portfolio loans.
(d) institutional loans.

Answer 27

(b) conforming loans.

Question 28

Which of the following is NOT an institutional lender?

(a) Commercial banks
(b) Savings associations
(c) Mortgage companies
(d) Insurance companies

Answer 28

(c) Mortgage companies

Question 29

Mortgage companies differ from mortgage loan brokers in that mortgage companies:

(a) use their own funds to make loans.
(b) service loans they make.
(c) both A and B
(d) neither A nor B.

Answer 29

(c) both A and B

Question 30

A loan whereby the borrower buys under a land contract would be a:

(a) Cal Vet loan.
(b) DVA loan.
(c) FHA loan.
(d) all of these.

Answer 30

(a) Cal Vet loan.

Question 31

A loan that can be increased to an agreed upon limit would be a:

(a) wrap-around loan.
(b) blanket loan.
(c) open-end loan.
(d) gap loan.

Answer 31

(c) open-end loan.

Question 32

Which of the following loans is MOST likely to have the highest initial interest rate?

(a) Adjustable rate mortgage
(b) 30-year-term amortized loan
(c) 15-year amortized loan
(d) 30-year loan due in 5 years

Answer 32

(b) 30-year-term amortized loan

Question 33

The margin on an adjustable rate loan refers to the:

(a) loan index.
(b) amount over the index the lender charges as interest.
(c) periodic increases possible.
(d) maximum that can be charged for the loan.

Answer 33

(b) amount over the index the lender charges as interest.

Question 34

A rescission right until midnight of the third day after signing is provided for by:

(a) the Truth-In-Lending Act.
(b) FHA.
(c) the Real Estate Settlement Procedures Act.
(d) none of these.

Answer 34

(a) the Truth-In-Lending Act.

Question 35

RESPA applies to:

(a) federally related loans.
(b) 1-4 residential units only.
(c) both A and B.
(d) neither A nor B.

Answer 35

(c) both A and B.