Unit 10 Exam

Question 1

Match:

Primary mortgage market

Federal Reserve System

Secondary mortgage market

A)
Maintains sound credit conditions

B)
Helps lenders raise capital to continue making mortgage loans

C)
Regulates interest rates

D)
Loans are originated

E)
Lender derives income from servicing loans

F)
Mortgage loans are purchased and assembled into packages

Answer 1

Primary mortgage market = D, E

Federal Reserve System = A, C

Secondary mortgage market = B, F

Question 2

The Federal Reserve System regulates the flow of money and interest rates in the marketplace through its member banks by controlling their reserve requirements and discount rates.

Answer 2

T

Question 3

The primary mortgage market helps lenders raise capital to making mortgage loans.

Answer 3

F

Question 4

Match:

FSA
VA
Farm Credit
FHA

A)
Helps borrowers purchase homes in rural areas

B)
Offers loans with LTV up to 96.5%Provides loans to farmers and ranchers

C)
No down payment required with no maximum loan amount restriction

D)
Operating under HUD, it protects lenders from loss from borrower’s default

Answer 4

FSA = A
VA = D
Farm Credit = C
FHA = B, E

Question 5

Federal law requires that private mortgage insurance (PMI) must automatically terminate if a borrower has accumulated at least 20% equity in the home and is current on mortgage payments.

Answer 5

F

It is the monthly premium that is terminated automatically

Question 6

The lender of an FHA-insured loan may not charge discount points in addition to a loan origination fee.

Answer 6

F

Question 7

Match:

Sale-and-leaseback

Package loan

Buydown

Home equity loan

A)
Real and personal property are financed together.

B)
A lump sum is paid in cash to the lender to reduce the borrower’s interest rate and monthly payments during the first few years of the loan.

C)
The original mortgage loan remains in place while a second (junior) loan is obtained.

D)
A business owner sells real estate to an investor but remains on the property as a tenant.

Answer 7

Sale-and-leaseback = D

Package loan = A

Buydown = B

Home equity loan = C

Question 8

When a loan application is rejected, the applicant must be provided with the reasons for the rejection within 10 business days.

Answer 8

F

Question 9

A loan created when the seller agrees to finance all or part of the purchase price and receives a first or junior lien, depending on whether prior mortgage liens exist, is called a package loan.

Answer 9

F

Question 10

Match:

CRA

RESPA

Truth in Lending Act

A)
Disclosure must include loan fees, finder’s fees, service charges, and points as well as interest

B)
Requires full disclosure of all finance charges and the true interest rate before completing the transaction

C)
Both buyer and seller must be fully informed of all settlement costs

D)
Helps banks meet communities’ needs for low-and-moderate-income housing

E)
Requires the deposit and credit needs of local residents to be met

Answer 10

CRA = D,E

RESPA = C

Truth in Lending Act = A,B

Question 11

For purposes of Regulation Z, a creditor is any person who extends consumer credit more than 25 times each year or more than 5 times each year if the transactions involve dwellings as security.

Answer 11

T

Question 12

Regulation Z was enacted pursuant to the Truth in Lending Act by the Federal Reserve Board.

Answer 12

T

Question 13

Match:

conventional loan

discount rate

purchase-money mortgage

Office of the comptroller of the currency (OCC)

mortgage brokers

primary mortgage market

secondary mortgage market

fiduciary lenders

loan-to-value ratio (LTV)Farmer Mac

certificate of eligibility

A)
Fiduciary lenders are subject to the standards and regulations established by this office

B)
Investors who buy and sell loans after the loan is funded

C)
The type of loan viewed as most secure because of its low loan-to-value ratio

D)
Intermediaries who bring borrowers and lenders together

E)
The document that determines the maximum VA loan guarantee to which a veteran is entitled

F)
Thrifts, savings associations, and commercial banks

G)
Lenders who originate loans by making money available to borrow

H)
The ratio of debt to the value of the property

I)
The rate charged for loans the Fed makes to banks

J)
A form of seller financing whereby the buyer gives the seller a note and mortgage

K)
Creates a secondary market for agricultural mortgage loans

Answer 13

conventional loan = C

discount rate = I

purchase-money mortgage = J

Office of the comptroller of the currency (OCC) = A

mortgage brokers = D

primary mortgage market = G

secondary mortgage market = B

fiduciary lenders = F

loan-to-value ratio (LTV)Farmer Mac = H

certificate of eligibility = E

Question 14

Fannie Mae

A)
makes FHA-insured loans.
B)
services FHA-insured loans.
C)
buys FHA-insured loans.
D)
insures FHA loans.

Answer 14

Explanation
The answer is buys FHA-insured loans. Fannie Mae buys a block or pool of mortgages that includes FHA-insured loans from a lender and that may then be used as collateral for mortgage-backed securities, which are sold on the global market.

Question 15

The buyers of a residence in Happy Hollow have a mortgage that allows them to borrow additional funds that will be secured by the home at any time. They have

A)
an open-end loan.
B)
a fully adjustable loan.
C)
a provisional loan.
D)
a closed-end loan.

Answer 15

Explanation
The answer is an open-end loan. An open-end loan provides a security interest when a note is executed by the borrower to the lender, but also secures any future advances of funds made by the lender to the borrower.

Question 16

Some lenders derive added income from

A)
foreclosing on loans.
B)
related loans.
C)
assuming loans.
D)
servicing loans.

Answer 16

Explanation
The answer is servicing loans. In addition to the income directly received from originating loans, some lenders derive income from servicing loans for other mortgage lenders or investors who have purchased the loans.

Question 17

Conventional loans are viewed as the most secure loans because their loan-to-value ratios are often lowest. Traditionally, the ratio is

A)
70% of the value of the property.
B)
80% of the value of the property.
C)
50% of the value of the property.
D)
60% of the value of the property.

Answer 17

Explanation
The answer is 80% of the value of the property. Conventional loans are viewed as the most secure loans because their loan-to-value ratios are often lowest. Traditionally, the ratio is 80% of the value of the property.

Question 18

According to Regulation Z, all of the following are to be disclosed to a residential buyer EXCEPT

A)
discount points.
B)
lender's financial statement.
C)
a loan origination fee.
D)
the loan interest rate.

Answer 18

Explanation
The answer is lender’s financial statement. Regulation Z has to do with disclosing details of the proposed loan. It does not deal with the financial condition of the lender.

Question 19

According to Regulation Z, all of the following are to be disclosed to a residential buyer EXCEPT

A)
discount points.
B)
lender's financial statement.
C)
a loan origination fee.
D)
the loan interest rate.

Answer 19

Explanation
The answer is lender’s financial statement. Regulation Z has to do with disclosing details of the proposed loan. It does not deal with the financial condition of the lender.

Question 20

Which federal law requires that finance charges be stated as an annual percentage rate (APR)?

A)
Truth in Lending Act
B)
Real Estate Settlement Procedures Act (RESPA)
C)
Federal Fair Housing Act
D)
Equal Credit Opportunity Act (ECOA)

Answer 20

Explanation
The answer is Truth in Lending Act. The annual percentage rate (APR) is required by Regulation Z of the Truth in Lending Act.

Question 21

In 1967, a lieutenant in the Air Force served for six months on active duty in Vietnam. In 1998, the veteran was killed in a skiing accident. The veteran’s surviving spouse wishes to use the veteran’s life insurance proceeds to make a down payment on a condominium and finance the remainder of the purchase with a VA-guaranteed loan. Is the surviving spouse entitled to a VA-guaranteed loan?

A)
No, the veteran did not meet the time-in-service criteria for qualified veterans.
B)
No, the veteran’s death was not service-related.
C)
Yes, the unremarried spouse of a qualified veteran is entitled to a VA-guaranteed loan.
D)
Yes, whether or not a surviving spouse remarries, the surviving spouse is entitled to the same VA benefits as the veteran was during the veteran’s lifetime.

Answer 21

Explanation
The answer is no, the veteran’s death was not service-related. The surviving spouse of a veteran whose death is service-related may use the veteran’s entitlements. In this situation, the surviving spouse does not qualify.

Question 22

The provisions of Regulation Z require all of the following to be disclosed to a residential buyer EXCEPT

A)
discount points.
B)
a loan origination fee.
C)
the loan interest rate.
D)
brokerage commissions.

Answer 22

Explanation
The answer is brokerage commissions. Regulation Z has to do with disclosing details of the proposed loan. It does not deal with brokerage commissions.

Question 23

The grantor becomes the lessee (tenant) and the grantee becomes the lessor (landlord) under which of the following financing arrangements?

A)
Wraparound mortgage
B)
Sale and leaseback
C)
Partial sale
D)
Assumption of mortgage

Answer 23

Explanation
The answer is sale and leaseback. A seller sells the land and the building to an investor and leases it back from the investor as a tenant.

Question 24

The lower the ratio of debt to value,

A)
the higher the interest rate charged the borrower.
B)
the lower the down payment made by the borrower.
C)
the greater the chances that mortgage insurance is required.
D)
the higher the down payment made by the borrower.

Answer 24

Explanation
The answer is the higher the down payment made by the borrower. The lower the ratio of debt to value, the higher the down payment made by the borrower.

Question 25

The Federal Deposit Insurance Corporation (FDIC) does which of these?

A)
Administers Freddie Mac only
B)
Administers Freddie Mac and Ginnie Mae
C)
Services loans
D)
Insures deposits in insured institutions up to $250,000 per depositor, per account

Answer 25

Explanation
The answer is insures deposits in insured institutions up to $250,000 per depositor, per account. Deposits in insured institutions are covered up to the specified limit, which is currently $250,000 per depositor, per account. The FDIC does not service loans and does not administer Freddie Mac or Ginnie Mae.

Question 26

The lowest down payment requirements typically are those of

A)
Fannie Mae.
B)
VA.
C)
conventional lenders.
D)
FHA.

Answer 26

Explanation
The answer is VA. The loans guaranteed by the Department of Veterans Affairs (VA) require little or no down payment. The veteran (or un-remarried spouse of a veteran whose death was service-related) must meet VA rules and regulations regarding loan qualification, limitations, and conditions under which the loan will be guaranteed.

Question 27

The Office of the Comptroller of the Currency (OCC) establishes regulations and standards for

A)
fidelity lenders.
B)
private-money lenders.
C)
fiscal lenders.
D)
fiduciary lenders.

Answer 27

Explanation
The answer is fiduciary lenders. The Office of the Comptroller of the Currency (OCC) establishes regulations and standards for fiduciar y lenders.

Question 28

The Equal Credit Opportunity Act provides that credit applications can be considered on the basis of all of the following EXCEPT

A)
borrower’s credit rating.
B)
borrower’s net worth.
C)
stability of the source of the borrower’s income.
D)
age of the borrower, provided the applicant is of legal age.

Answer 28

Explanation
The answer is age of the borrower, provided the applicant is of legal age. ECOA prohibits discrimination in the lending process based on the credit applicant’s race, color, religion, national origin, sex, marital status, age (provided the applicant is of legal age), or receipt of public assistance.

Question 29

Regulation Z defines a creditor as any person who

A)
extends consumer credit any number of times.
B)
extends consumer credit more than 25 times each year (or more than 5 times when dwellings are used as security).
C)
extends consumer credit only when dwellings are used as security.
D)
extends consumer credit more than 10 times each year (or more than 2 times when dwellings are used as security).

Answer 29

Explanation
The answer is extends consumer credit more than 25 times each year (or more than 5 times when dwellings are used as security.) A creditor, for purposes of Regulation Z, is any person who extends consumer credit more than 25 times each year or more than 5 times each year if the transactions involve dwellings as security. The credit must be subject to a finance charge or payable in more than four installments by written agreement.

Question 30

The Homeowner’s Protection Act of 1998 (HPA) requires that the lender automatically

A)
lower the interest rate on a mortgage.
B)
provide for a home equity line of credit.
C)
allow for refinancing terms if requested by the borrower.
D)
terminate the private mortgage insurance payment if the borrower has accrued at least 22% equity in the home.

Answer 30

Explanation
The answer is terminate the private mortgage insurance payment if the borrower has accrued at least 22% equity in the home. The borrower must also be current on mortgage payments.

Question 31

VA and FHA loans require all of the following EXCEPT

A)
borrower must occupy.
B)
no prepayment penalty.
C)
private mortgage insurance.
D)
purchase agreement must have escape clause.

Answer 31

Explanation
The answer is private mortgage insurance. A requirement of both loan programs is that the loan can be repaid without penalty. Owners must occupy the property and the purchase agreement must contain an escape clause. If the property does not appraise for the loan amount, the borrower will have the earnest money refunded. Private mortgage insurance (PMI) is required for conventional loans, not government loans.

Question 32

The Equal Credit Opportunity Act prohibits discrimination in the lending process based on

A)
religion.
B)
all of these.
C)
marital status.
D)
race.

Answer 32

Explanation
The answer is all of these. The ECOA prohibits discrimination in granting credit based on race, color, religion, national origin, sex, marital status, age, and receipt of public assistance.

Question 33

Programs to help families purchase or operate family farms are provided by

A)
the Farm Service Agency.
B)
the Federal Housing Finance Agency.
C)
Fannie Mae
D)
Ginnie Mae

Answer 33

Explanation
The answer is the Farm Service Agency. The Farm Service Agency (FSA) is a federal agency of the Department of Agriculture. The FSA offers programs to help families purchase or operate family farms and has taken over the functions of the former Farmers Home Administration (FmHA).

Question 34

If a mortgage lender discriminates against a loan applicant on the basis of marital status, what law is violated?

A)
Civil Rights Act of 1866
B)
Americans with Disabilities Act (ADA)
C)
Fair Housing Act
D)
Equal Credit Opportunity Act (ECOA)

Answer 34

Explanation
The answer is Equal Credit Opportunity Act (ECOA). Marital status is a protected category only under the Equal Credit Opportunity Act.

Question 35

A creditor, for purposes of Regulation Z, is any person who extends consumer credit in transactions involving dwellings as security more than

A)
10 times each year.
B)
20 times each year.
C)
25 times each year.
D)
5 times each year.

Answer 35

Explanation
The answer is 5 times each year. A creditor, for purposes of Regulation Z, is any person who extends consumer credit in transactions involving dwellings as security more than 5 times a year.

Question 36

The primary activity of Freddie Mac is to

A)
guarantee mortgages with the full faith and credit of the federal government.
B)
buy and pool blocks of conventional mortgages.
C)
buy and sell VA and FHA mortgages.
D)
act in tandem with Ginnie Mae to provide special assistance in times of tight money.

Answer 36

Explanation
The answer is buy and pool blocks of conventional mortgages. Freddie Mac—the Federal Home Loan Mortgage Corporation (FHLMC)—buys and gathers into bundles (pools) existing conventional mortgages. Freddie Mac raises money to do this by selling bonds backed by these pools of mortgages.

Question 37

The Federal Reserve System regulates the flow of money and interest rates in the marketplace by

A)
controlling the reserve requirements of the member banks.
B)
setting the value of the member banks stocks.
C)
controlling the reserve requirements of member banks and setting the discount rate.
D)
controlling the prime rate charged by member banks.

Answer 37

Explanation
The answer is controlling the reserve requirements of member banks and setting the discount rate. The Federal Reserve System regulates the flow of money and interest rates in the marketplace by controlling the reserve requirements of the member banks and setting the discount rate it charges for loans it makes to those banks.

Question 38

A developer received a loan that covers five parcels of real estate and provides for the release of the mortgage lien on each parcel when certain payments are made on the loan. This type of loan arrangement is called

A)
the wraparound loan.
B)
the purchase money loan.
C)
the blanket loan.
D)
the package loan.

Answer 38

Explanation
The answer is the blanket loan. This is a blanket loan with a provision for partial release as properties are sold. In a blanket loan, a borrower puts up several parcels of real estate to be used as security for the debt.

Question 39

The buyers purchased a residence for $395,000, making a down payment of $79,000 and obtaining a loan for the balance. The loan is

A)
a balloon note.
B)
a purchase money mortgage.
C)
a package mortgage.
D)
a nonconforming loan.

Answer 39

Explanation
The answer is a purchase money mortgage. The term purchase money mortgage can mean either owner financing or any mortgage used as acquisition debt in the purchase of a property. Here the owner-seller took back a mortgage for $47,000. An owner takeback is a purchase-money mortgage.

Question 40

A buyer purchased a new residence for $175,000. The buyer made a down payment of $15,000 and obtained a $160,000 mortgage loan. The builder of the house paid the lender 3% of the loan balance for the first year and 2% for the second year. This represented a total savings for the buyer of $8,000. What type of mortgage arrangement is this?

A)
Buydown
B)
Blanket
C)
Package
D)
FHA

Answer 40

Explanation
The answer is buydown. The builder brought down the purchaser’s interest rate for two years by paying the lender advance interest. This is a buydown arrangement.

Question 41

A buydown loan enables a borrower

A)
to lower the interest rate on a mortgage or deed of trust loan.
B)
to make interest-only payments for the life of the loan.
C)
to pay off a mortgage loan earlier.
D)
with poor credit to postpone payment of part of the interest charged until later in the loan term.

Answer 41

Explanation
The answer is to lower the interest rate on a mortgage or deed of trust loan. By paying part of the interest upfront to offset monthly mortgage payments at the beginning of the loan term, the borrower can qualify for a loan with the expectation that the borrower’s income will increase, making future, higher payments possible.

Question 42

What law requires disclosure of the annual percentage rate (APR) to a borrower?

A)
Truth in Lending Act
B)
Real Estate Settlement Procedures Act
C)
Fair Credit Reporting Act
D)
Equal Credit Opportunity Act

Answer 42

Explanation
The answer is Truth in Lending Act. APR is the true cost of borrowing and is required to be disclosed by the federal Truth in Lending Act.

Question 43

A house had a sale price of $240,000. The buyer obtained a loan for $220,000. If the lender charges three points, how much will the buyer pay in points?

A)
$6,950
B)
$5,335
C)
$7,540
D)
$6,600

Answer 43

Explanation
The answer is $6,600. The buyer will pay $6,600:

$220,000 × 3% = $6,600.

Points are charged on the loan amount, not the sale price.

OR

.01 x 220,000 = 2,200

2,200 x 3 = 6,600

Question 44

When the FHA insures a home loan, what does it require?

A)
The highest possible down payment from the borrower
B)
The use of only a fixed-rate, fully amortized loan
C)
Private mortgage insurance on all loans
D)
An appraisal of the real estate by an FHA-approved appraiser

Answer 44

Explanation
The answer is an appraisal of the real estate by an FHA-approved appraiser. An important feature of an FHA-insured loan is its low down payment, although the borrower must still meet standard FHA credit qualifications.

Question 45

Funds for FHA-insured loans are usually provided by

A)
the Federal Reserve.
B)
the seller.
C)
approved lenders.
D)
the FHA.

Answer 45

Explanation
The answer is approved lenders. An FHA-insured loan is insured by the agency, and funds must be made available by FHA-approved lenders.

Question 46

On which type of loan can the borrower prepay without penalty?

A)
All of these
B)
Loans sold to Fannie Mae and Freddie Mac
C)
FHA loans
D)
VA loans

Answer 46

Explanation

The answer is all of these. Prepayment penalties are fairly unusual in today’s market.

Question 47

A homeowner’s child will start college soon. What financing option is available for the homeowner to obtain funds to pay for the child’s education?

A)
Wraparound loan
B)
Participation financing
C)
Home equity loan
D)
Open-end loan

Answer 47

Explanation
The answer is home equity loan. A homeowner can use the equity buildup in a home to finance such things as education; it is an alternative to refinancing.

Question 48

A package loan includes

A)
private mortgage insurance.
B)
cash for the construction of improvement on real estate.
C)
real and personal property.
D)
multiple parcels or lots.

Answer 48

Explanation
The answer is real and personal property. Package loans usually include items such as drapes, refrigerator, dishwasher, and other appliances as part of the sales price of the home. A blanket loan covers more than one parcel or lot. A construction loan finances the construction of improvements on real estate.

Question 49

When the Fed increases the reserve requirements of member banks

A)
banks have more money to lend.
B)
funding is easier to obtain.
C)
there is no effect on the ability of borrowers to obtain a loan.
D)
funding is more difficult to obtain.

Answer 49

Explanation
The answer is funding is more difficult to obtain. The Fed’s reserve requirements (the amount member banks must retain) place funds out of circulation. When reserve requirements are increased, lender solvency is improved because the banks have more funds on hand but prospective borrowers find that funding is more difficult to obtain because funds cannot be loaned out.

Question 50

A loan that includes both real and personal property is

A)
an open-end loan.
B)
a blanket loan.
C)
a package loan.
D)
a FHA loan.

Answer 50

Explanation
The answer is a package loan. A package loan usually includes furniture, window coverings, kitchen appliances, and washer/dryer as part of the sales price of the home.

Question 51

The maximum loan limits for loans sold to Fannie Mae and Freddie Mac are established by

A)
the Department of Veterans Affairs.
B)
the Federal Housing Finance Agency.
C)
the Fed.
D)
the Department of Housing and Urban Development.

Answer 51

Explanation
The answer is the Federal Housing Finance Agency. FHFA publishes the maximum loan limits for loans sold to Fannie Mae and Freddie Mac. The limits are subject to annual adjustment and can vary from region to region.

Question 52

Fannie Mae

A)
buys FHA-insured loans.
B)
makes FHA-insured loans.
C)
insures FHA loans.
D)
services FHA-insured loans.

Answer 52

Explanation
The answer is buys FHA-insured loans. Fannie Mae buys a block or pool of mortgages that includes FHA-insured loans from a lender and that may then be used as collateral for mortgage-backed securities, which are sold on the global market.

Question 53

The provisions of the Truth in Lending Act (Regulation Z) require all of the following to be disclosed to a residential buyer EXCEPT

A)
the real estate brokerage commission.
B)
discount points.
C)
a loan origination fee.
D)
the loan interest rate.

Answer 53

Explanation
The answer is the real estate brokerage commission. Regulation Z has to do with disclosing details of the proposed loan. It does not deal with brokerage commissions.

Question 54

The primary activity of Freddie Mac is to

A)
buy and pool blocks of conventional mortgages.
B)
buy and sell VA and FHA mortgages.
C)
guarantee mortgages with the full faith and credit of the federal government.
D)
act in tandem with Ginnie Mae to provide special assistance in times of tight money.

Answer 54

Explanation
The answer is buy and pool blocks of conventional mortgages. Freddie Mac—the Federal Home Loan Mortgage Corporation (FHLMC)—buys and gathers into bundles (pools) existing conventional mortgages. Freddie Mac raises money to do this by selling bonds backed by these pools of mortgages.

Question 55

The basic components of the real estate financing market are

A)
primary mortgage market and government influences, primarily the Federal Reserve System.
B)
primary mortgage market and secondary mortgage market.
C)
principal mortgage market and secondary mortgage market.
D)
primary mortgage market, secondary mortgage market, and government influences, primarily the Federal Reserve System.

Answer 55

Explanation
The answer is primary mortgage market, secondary mortgage market, and government influences, primarily the Federal Reserve System. The real estate financing market has the following basic components: primary mortgage market, secondary mortgage market, and government influences, primarily the Federal Reserve System.

Question 56

What is the position of home equity line of credit (HELOC) in relation to the original lien?

A)
First in priority
B)
No relationship
C)
Equal
D)
Junior

Answer 56

Explanation

The answer is junior. A HELOC is junior to the original lien. The original lien takes priority over the HELOC.

Question 57

One way a borrower can obtain a conventional loan and avoid paying for mortgage insurance is with

A)
a subsidized down payment.
B)
a larger down payment.
C)
a lower down payment.
D)
no down payment.

Answer 57

Explanation
The answer is a larger down payment. The borrower can obtain a conventional loan with a larger down payment and thus avoid having to obtain private mortgage insurance (PMI). PMI provides the lender with funds in the event of default.

Question 58

After a borrower’s default on home mortgage loan payments, the lender obtained a court order to foreclose on the property. At the foreclosure sale, the property sold for $164,000; the unpaid balance on the loan, at the time of foreclosure, was $178,000. What must the lender do to recover the $14,000 that the borrower still owes?

A)
Sue for specific performance
B)
Seek a deficiency judgment
C)
Sue for damages
D)
Seek a default judgment

Answer 58

Explanation
The answer is seek a deficiency judgment. To recover the deficiency of $14,000, the lender would seek a deficiency judgment. If permitted by state law and granted by the court, the judgment would become a general lien on all the remaining assets of the delinquent borrower.

Question 59

Fannie Mae was placed under the conservatorship of the federal government in

A)
December 1970.
B)
October 1968.
C)
September 1938.
D)
September 2008.

Answer 59

Explanation
The answer is September 2008. Fannie Mae was placed under the conservatorship of the Federal Housing Finance Agency (FHFA) in September 2008, in response to the housing market collapse.

Question 60

The law that requires lenders to find ways to help meet the housing needs of those of low and moderate incomes is

A)
the Equal Credit Opportunity Act.
B)
the Community Reinvestment Act.
C)
the Dodd-Frank Act.
D)
the Real Estate Settlement Procedures Act.

Answer 60

Explanation
The answer is the Community Reinvestment Act. Under the Community Reinvestment Act of 1977 (CRA), financial institutions are expected to meet the deposit and credit needs of their communities, participate and invest in local community development and rehabilitation projects, and participate in loan programs for housing, small businesses, and small farms.

Question 61

All of these are lenders in the primary mortgage market EXCEPT

A)
credit unions.
B)
mortgage brokers.
C)
endowment funds.
D)
insurance companies.

Answer 61

Explanation
The answer is mortgage brokers. Mortgage brokers do not loan their own money; they are intermediaries who bring borrowers and lenders together.

Question 62

The type of real estate loan that allows the lender to increase the outstanding balance of a loan up to the original sum in the note while advancing additional funds is

A)
the growing-equity mortgage.
B)
the open-end mortgage.
C)
the FHA mortgage.
D)
the graduated-payment mortgage.

Answer 62

Explanation
The answer is the open-end mortgage. The open-end mortgage allows the borrower to “open” the mortgage to increase the debt to its original amount after the debt has been reduced by payments over a period of time.

Question 63

A buyer is purchasing property. The seller bought the property on December 20, 1999, with an FHA loan and has lived there ever since. Because of its favorable terms, the buyer would like to assume the seller’s mortgage. Is this possible?

A)
Yes, there are no restrictions on the assumption of this mortgage.
B)
No, this FHA loan is not assumable.
C)
Yes, but the buyer will have to undergo a creditworthiness review only.
D)
Yes, but the buyer will have to undergo the complete buyer qualification process.

Answer 63

Explanation
The answer is yes, but the buyer will have to undergo the complete buyer qualification process. Because the loan was made after December 15, 1989, assumptions are not permitted without complete buyer qualification.

Question 64

If the purchase price of a property exceeds its FHA-appraised property value

A)
at least 50% of the purchase price is paid in cash at closing.
B)
the buyer will qualify for an FHA-insured loan if the buyer pays the difference between FHA-appraised value and the purchase price in cash as part of the down payment.
C)
the buyer pays the difference between FHA-appraised value and the purchase price into an escrow account to be held for the benefit of FHA in the event the buyer defaults on the FHA-insured loan.
D)
the buyer takes out a second mortgage loan for the difference.

Answer 64

Explanation
The answer is the buyer will qualify for an FHA-insured loan if the buyer pays the difference between FHA-appraised value and the purchase price in cash as part of the down payment. If the purchase price of a property exceeds its FHA-appraised property value, the buyer can still qualify for an FHA-insured loan by paying the difference between the FHA-appraised value and the purchase price in cash as part of the down payment.

Question 65

he maximum loan limits for loans sold to Fannie Mae are published by

A)
the Federal Reserve Board (FRB).
B)
the Federal Housing Finance Agency (FHFA).
C)
the Federal Deposit Insurance Corporation (FDIC).
D)
the Federal Housing Administration (FHA).

Answer 65

Explanation
The answer is the Federal Housing Finance Agency (FHFA). The maximum loan limits for loans sold to Fannie Mae are published by the Federal Housing Finance Agency (FHFA).

Question 66

One of the federal laws requiring disclosure to a loan applicant who is rejected for a loan on the basis of a credit report is

A)
the Community Reinvestment Act.
B)
the Fair Credit Reporting Act.
C)
the Real Estate Settlement Procedures Act.
D)
the Truth in Lending Act.

Answer 66

Explanation
The answer is the Fair Credit Reporting Act. If a loan application is rejected after consideration of a credit report, the federal Fair Credit Reporting Act (FCRA) specifies the information that the lender must provide to the loan applicant. The loan applicant has the right to a free copy of any credit report that was considered in the loan application process. Additional state protections may also apply.