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real estate > section 17 real estate finance > Flashcards

section 17 real estate finance Flashcards

1
Q

Financing that uses mortgaged real property as security for borrowed funds.

A

Mortgage Financing:

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2
Q

Use of real property as collateral for a mortgage loan.

A

Hypothecation

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3
Q

A state whose laws give a lender on a mortgaged property equitable title rather than legal title.

A

Lien Theory:

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4
Q

A state whose laws give legal title of a mortgaged property to the mortgagee until the mortgagor satisfies the terms and obligations of the loan.

A

Title Theory:

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5
Q

An agreement to repay a loan of an indicated amount under certain terms.

A

Note

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6
Q

A legal document wherein a mortgagor pledges ownership interests in a property to a lender, or mortgagee, as collateral against performance of the mortgage debt obligation.

A

Mortgage

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7
Q

The borrower in a mortgage.

A

Mortgagor:

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8
Q

The lender in a mortgage.

A

Mortgagee:

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9
Q

An instrument used by a borrower to convey title to mortgaged property to a trustee to be held as security for the lender, who is the beneficiary of the trust.

A

Deed of Trust:

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10
Q

The loan balance to which interest charges are applied.

A

Principal

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11
Q

At any point during the life of a mortgage loan, the remaining unpaid principal is called the loan balance, or remaining balance.

A

Loan Balance:

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12
Q

A lender’s charge for the use of the principal amount of a loan.

A

Interest:

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13
Q

A discount point is one percent of the loan amount. Thus, one point on a $100,000 loan equals $1,000. The lender charges this as pre-paid interest at closing by funding only the face amount of the loan minus the discount points. The borrower, however, must repay the full loan amount, along with interest calculated on the full amount.

A

Points:

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14
Q

The loan term is the period of time over which the loan must be repaid. A “30-year loan” is a loan whose balance must be fully paid off at the end of thirty years.

A

Term

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15
Q

The loan term, loan amount, and interest rate combine to determine the periodic payment amount. When these three quantities are known, it is possible to identify the periodic payment from a mortgage table or with a financial calculator. Mortgage payments are usually made on a monthly basis. On an amortizing loan, a portion of the payment goes to repay the loan balance in advance, and a portion goes to payment of interest in arrears.

A

Payment:

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16
Q

An insurance policy, purchased by a borrower, that protects a lender against loss of that portion of a mortgage loan which exceeds the acceptable loan-to-value ratio.

A

Mortgage Insurance:

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17
Q

A process of investigating the financial capabilities and creditworthiness of a prospective borrower and granting credit to a qualified borrower.

A

Underwriting

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18
Q

A mortgage underwriting procedure to determine the financial capabilities and credit history of a prospective borrower.

A

Qualification:

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19
Q

An underwriting ratio that relates the size of a loan to the market value of the collateral. The closer the loan value is to market value, the riskier the loan is for the lender , since the lender is less likely to recover the debt fully from the proceeds of a foreclosure sale.

A

Loan-To-Value Ratio:

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20
Q

Requires a lender to evaluate a loan applicant on the basis of that applicant’s own income and credit rating, unless the applicant requests the inclusion of another’s income and credit rating in the application.

A

Equal Credit Opportunity Act:

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21
Q

An underwriting ratio that relates a borrower’s gross or net income and the debt service of a loan; used to determine how large a loan a borrower can reasonably afford.

A

Income Ratio:

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22
Q

An underwriting equation that is used to determine how much debt an individual can reasonably afford in view of the party’s or household’s income.

A

Debt Ratio:

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23
Q

A lender’s written pledge to lend funds under specific terms. May contain deadlines and conditions.

A

Loan Commitment:

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24
Q

A fair financing law applying to residential loans; lenders must disclose financing costs and relevant terms of the loan to the borrower.

A

Regulation Z:

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25
Q

A federal law which aims to standardize settlement practices and ensure that buyers understand settlement costs. RESPA applies to purchases of residential real estate (one- to four-family homes) to be financed by “federally related” first mortgage loans.

A

Real Estate Settlement Procedures Act:

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26
Q

Lenders and mortgage brokers who originate mortgage loans directly to borrowers.

A

Primary Mortgage Market:

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27
Q

Lenders, investors, and government agencies who buy, sell, insure, or guarantee existing mortgages, mortgage pools, and mortgage-backed securities.

A

Secondary Mortgage Market:

28
Q

A government-sponsored agency in the secondary mortgage market which buys conventional, FHA, and VA loans, sells mortgage-backed securities, and guarantees payment of principal and interest on the securities.

A

Fannie Mae:

29
Q

A division of HUD which guarantees FNMA mortgages and securities backed by pools of VA-guaranteed and FHA-insured mortgages.

A

Ginnie Mae:

30
Q

A major secondary mortgage market organization which buys conventional, FHA, and VA loans and sells mortgage-backed securities.

A

Freddie Mac:

31
Q

The Federal Housing Administration (FHA) is an agency of the Department of Housing and Urban Development (HUD). It does not lend money, but insures permanent long-term loans made by others.

A

FHA:

32
Q

Rules for assumability vary according to when the FHA-insured loan was originated and whether the original loan was for an investment property or an owner-occupied principal residence. Loans originated before December 1, 1986, are generally assumable without restriction. Loans originated after December 1, 1986, require that the assumer show creditworthiness. Loans originated after December 15, 1989, may not be assumed unless the borrower fully qualifies. No loans for investment or non-owner-occupied properties originated after the latter date are assumable.

A

Assumability:

33
Q

The Veterans Administration (Department of Veterans Affairs) offers loan guarantees to qualified veterans. The VA, like the FHA, does not lend money except in certain areas where other financing is not generally available. Instead, the VA partially guarantees permanent long-term loans originated by VA-approved lenders on properties that meet VA standards. The VA’s guarantee enables lenders to issue loans with higher loan-to-value ratios than would otherwise be possible. The interest rate on a VA-guaranteed loan is usually lower than one on a conventional loan. The borrower does not pay any premium for the loan guarantee, but does pay a VA funding fee at closing.

A

VA

34
Q

A partial or complete reduction of a loan’s principal balance over the loan term, achieved by periodic payments which include principal as well as interest.

A

Amortization:

35
Q

A mortgage loan having an interest rate that can be periodically raised or lowered in accordance with the movement of a financial index.

A

Adjustable Rate Loan:

36
Q

Mortgage financing is the practice of

buying and selling mortgages as an investment vehicle.

lending money to real estate investors to finance the purchase of mortgages.

using borrowed funds secured by a mortgage or trust deed to purchase real estate.

obtaining equitable title to real estate by buying promissory notes.

A

using borrowed funds secured by a mortgage or trust deed to purchase real estate.

37
Q

What is a lien-theory state?

A state in which a lienor holds legal title to a secured property.

A state in which a mortgage is considered to be a lien against a secured property.

A state that allows a real estate owner’s creditors to record liens against the owner’s property.

A state in which a lien is considered as a conveyance.

A

A state in which a mortgage is considered to be a lien against a secured property.

38
Q

What is the function of a note in a mortgage or trust deed financing arrangement?

It is evidence of the lender’s interest in the collateral property.

It is evidence of ownership of the mortgage or trust deed.

It contains the borrower’s promise to maintain the value of the property given as collateral for a loan.

It is evidence of the borrower’s debt to the lender.

A

It is evidence of the borrower’s debt to the lender.

39
Q

The document that provides evidence that a certain property is pledged as collateral for a loan is the

trust deed or mortgage.

promissory note.

loan commitment.

collateral acknowledgment.

A

trust deed or mortgage.

40
Q

The borrower in a mortgage loan transaction is known as the

mortgagee.

mortgagor.

lienor.

trustee.

A

mortgagor.

41
Q

If a borrower obtains an interest-only loan of $75,000 at an annual interest rate of 8%, what is the monthly interest payment?
$720.
$625.
$42.
$500.

A

$500.

42
Q

If a borrower’s monthly interest payment on an interest-only loan at an annual interest rate of 9% is $375, how much was the loan amount?
$40,500.
$50,000.
$500,000.
$46,500.

A

$50,000.

43
Q

A borrower of a $95,000 interest-only loan makes annual interest payments of $8,312.50. What interest rate is the borrower paying?
8.75%.
7.29%.
.729 %.
9.125%.

A

8.75%.

44
Q

How much is a discount point?

.1% of the loan amount.

1% of the loan amount.

10% of the loan amount.

It depends on the interest rate and the loan amount.

A

1% of the loan amount.

45
Q

Which of the following is true of an amortizing loan?

The amount of annual interest paid is the same for every year of the loan term.

Part of each periodic payment is applied to repayment of the loan balance in advance and part is applied to payment of interest in arrears.

Except for any points that may be paid, the interest on the loan balance is usually paid in advance.

The interest rate is reduced each year to maintain equal payments even though the outstanding loan balance is smaller.

A

Part of each periodic payment is applied to repayment of the loan balance in advance and part is applied to payment of interest in arrears.

46
Q

For a loan that is not backed by the Federal Housing Administration or Veterans Administration, and for which the borrower is making a down payment of less than 20%, the lender is likely require the borrower to obtain

a subrogation agreement.

private mortgage insurance.

a letter of credit.

a co-signer on the note.

A

private mortgage insurance.

47
Q

What is a loan-to-value ratio?

The percentage of a lender’s portfolio that is composed of mortgage loans.

The ratio of borrowed principal plus total interest to the appraised value of the collateral property.

The ratio of a lender’s return on a mortgage loan to the value of the collateral property.

The fraction of the appraised value of the property offered as collateral which the lender is willing to lend.

A

The fraction of the appraised value of the property offered as collateral which the lender is willing to lend.

48
Q

The difference between what a borrower has to pay to purchase a property and the amount a lender will lend on the property is the

loan-to-value ratio.

lender’s profit margin.

buyer’s down payment.

origination fee.

A

buyer’s down payment.

49
Q

The Equal Credit Opportunity Act prohibits a lender from

refusing a loan because the property is located in a certain area.

including income from self-employment in the borrower’s qualifying income.

requiring both spouses to sign the loan application form.

refusing a loan because a borrower has a defective credit report.

A

refusing a loan because the property is located in a certain area.

50
Q

A loan applicant has an annual gross income of $36,000. How much will a lender allow the applicant to pay for monthly housing expense to qualify for a loan if the lender uses an income ratio of 28%?
$2,160.
$840.
$1,008.
$720.

A

$840.

51
Q

If a lender discovers that an applicant for a mortgage loan has borrowed the down payment from a relative and has to repay that loan, the lender is likely to

refuse the application.

adjust the applicant’s debt ratio calculation and lower the loan amount.

increase the loan amount to enable the borrower to pay off the loan to the relative.

require the borrower to make payments to an escrow account for repayment of the relative’s loan.

A

adjust the applicant’s debt ratio calculation and lower the loan amount.

52
Q

The Federal Reserve’s Regulation Z applies to which loans?

All loans.
All loans secured by real estate.
All loans secured by a residence.
All loans over $25,000.

A

All loans secured by a residence.

53
Q

If a particular loan falls under Regulation Z’s right of rescission provision,

the lender has the right to change the terms of the loan within a certain period.

the lender has the right to accelerate repayment of the loan because of a change in the borrower’s credit status.

the borrower has the right to pay off the loan ahead of schedule with no penalty.

the borrower has a limited right to cancel the transaction within a certain period.

A

the borrower has a limited right to cancel the transaction within a certain period.

54
Q

Under the Equal Credit Opportunity Act, a lender, or a real estate agent who assists a seller in qualifying a potential buyer, may not

tell a rejected loan applicant the reasons for the rejection.

ask the buyer/borrower about his/her religion or national origin.

ask the buyer/borrower to explain gaps in his/her employment history.

use a credit report if the loan applicant disputes any information in the report.

A

ask the buyer/borrower about his/her religion or national origin.

55
Q

A conventional mortgage loan is one that is

backed by the Federal National Mortgage Association.

insured under Section 203(b) of the Federal Housing Administration loan program.

guaranteed by the Government National Mortgage Association.

not FHA-insured or VA-guaranteed.

A

not FHA-insured or VA-guaranteed.

56
Q

The assumability of an FHA-insured loan is

unrestricted.

limited by when the loan was originated and by the type of property.

limited to owner-occupied properties.

prohibited on all existing loans under current regulations.

A

limited by when the loan was originated and by the type of property.

57
Q

A VA certificate of eligibility determines

whether an individual is a veteran.

the maximum loan amount an approved lender can give to veterans.

how much of a loan the VA will guarantee.

whether a lender is approved to issue VA-guaranteed loans.

A

how much of a loan the VA will guarantee.

58
Q

A borrower obtains a 30-year, fully amortizing mortgage loan of $30,000 at 8%. What is the principal balance at the end of the loan term?
$1,000.
$30,000.
$220.
Zero.

A

Zero.

59
Q

Which of the following describes a purchase money mortgage financing arrangement?

A bank gives a buyer a senior mortgage loan that fully covers the cost of purchasing the property.

The buyer gives the seller a mortgage and note as part of the purchase price of the property.

A land trust holds title to the property while the buyer makes periodic installment payments to the seller.

The seller uses the purchase money obtained from the buyer’s mortgage loan to repay the seller’s outstanding loan balance.

A

The buyer gives the seller a mortgage and note as part of the purchase price of the property.

60
Q

Which of the following is true of a loan with negative amortization?

The loan is an interest-only loan.

Payments are not sufficient to retire the loan

The loan balance is diminishing, or going negative.

Additional interest is being added to the monthly payment.

A

Payments are not sufficient to retire the loan

61
Q

A builder is required to secure a loan with mortgages on three properties. This is an example of

a participation mortgage loan.

a blanket mortgage loan.

a permanent mortgage loan.

a bridge loan.

A

a blanket mortgage loan.

62
Q

One feature of a wraparound mortgage loan is that

the loan is a senior loan.

the seller offering the buyer a wraparound can profit from a difference in interest rates.

the underlying loan must be retired.

the second mortgage borrower may make payments directly to the first mortgage lender.

A

the seller offering the buyer a wraparound can profit from a difference in interest rates.

63
Q

The key feature of an adjustable mortgage loan is that

the interest rate may vary.

the monthly payment increases over the life of the loan.

the principal balance does not amortize.

the loan term can be shortened or lengthened.

A

the interest rate may vary.

64
Q

A buydown is a financing arrangement where

the lender lowers the interest rate on a loan in exchange for a prepayment of principal.

the borrower pays additional interest at the onset in order to obtain a lower interest rate.

the lender requires the borrower to buy down the price of the property by increasing the down payment.

the borrower pays the lender additional funds to buy down the term of the loan.

A

the borrower pays additional interest at the onset in order to obtain a lower interest rate.

65
Q

A graduated payment loan is a mortgage loan where

loan funds are disbursed to the borrower on a graduated basis.

the interest rate periodically increases in graduated phases.

the loan payments gradually increase.

the loan payments gradually increase and the loan term gradually decreases.

A

the loan payments gradually increase.

66
Q

The principal role of the Veteran’s Administration in the mortgage lending market is to

guarantee loans made by approved lenders.

insure loans made by approved lenders.

purchase loans made by approved lenders.

originate loans made by approved lenders.

A

guarantee loans made by approved lenders.

real estate (27 decks)

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