Unit 12

Question 1

PITI

Answer 1

Principal
Interest
Taxes
Insurance

Question 2

What will be considered by the lender?

Answer 2

Credit report, credit score, debt to income ratio

Question 3

Equity

Answer 3

The difference between the amount owed on a property and its current market value

Question 4

A mortgage loan requires 2 instuments

Answer 4

Financing instrument and security instrument

Question 5

Promissory note

Answer 5

as a fincancing instrument, is a contract with a lender that sets out the terms under which a borrower promises to repay a debt. Negotiable instrument that can be transferred to a third party

Question 6

Interest

Answer 6

A charge for the use of money

Question 7

Usury

Answer 7

An excessive rate of interest. Most home loans are exempt

Question 8

Discount points

Answer 8

Percentage of a loan amount and are charges by a lender to increase the lender’s yield on its investment.

Question 9

Prepayment Penalty

Question 10

Hypothecation

Answer 10

Process a mortgage is secured by the borrower’s real property. Borrower retains the right of possession and control of the property.

Question 11

Mortgage

Answer 11

The mortgagor (owner) borrows money from the mortgagee (lender) and the real estate purchased with the borrowed money is used as security for the debt

Question 12

Deed of trust

Answer 12

Transfers title from the trustor (owner) to a trustee, who holds it on behalf of a beneficiary (lender)

Question 13

Defeasance Clause

Answer 13

When loan is paid in full, requires the beneficiary to request the trustee to execute and deliver to the trustor a deed of reconveyance (release deed) to return legal title to the trustor

Question 14

Deed of trust with power of sale

Answer 14

If borrower continues to default, allows beneficiary (lender) to ask the trustee to conduct the trustee’s sale without court action

Question 15

Mortgage with power or sale

Answer 15

Enables a sale without court action

Answer 16

If borrower defaults, lender can accelerate the due date of the remaining principal balance and all overdue costs

Question 17

Impound (escrow) account

Answer 17

May be required to create a reserve fund to ensure that future tax, property insurance, and other payments made.

Question 18

National Flood Insurance Reform Act of 1994

Answer 18

Imposes obligations on lenders and loan servicers to set aside escrow funds for flood insurance on new loans for property in flood-prone areas

Question 19

When property with an outstanding mortgage/deed is conveyed, the new owner may take title in one of two ways

Answer 19

1) “subject to”- the new owner makes payments on existing loans but is not personally liable if the property is sold on default and proceeds of the sale do not satisfy debt
2) ASSUMING existing mortgage/deed and agreeing to pay the debt. New owner takes personal responsibility for existing loans and is subject to a deficiency judgement if the property is sold on default and proceeds of the sale do not satisfy the debt

Question 20

Alienation clause/ due-on-sale clause

Answer 20

in a loan document requires full payment on the sale of the property and can prevent future purchasers of the property from assuming the loan

Question 21

Priority of mortgages

Answer 21

Determined by order in which they were recorded. May be changed by subordination agreement

Question 22

Subordination agreement

Question 23

Amortization

Question 24

Straight loan

Answer 24

Interest only loan

Question 25

Adjustable Rate Mortgage (ARM)

Answer 25

Interest rate changes over the term of the loan according to an identified economic indicator- the index

Question 26

Margin

Answer 26

Added to the index to determine the rate the borrower will pay and a rate cap sets the highest interest rate that can be charged at any point over the life of the loan

Question 27

Rate adjustments

Answer 27

Made monthly, quarterly, or annually, as agreed between borrower and lender

Question 28

Conversion option

Answer 28

Allows it to be converted to a fixed-rate loan

Question 29

Growing equity mortgage

Answer 29

Payments of principal are increased each month to pay off the loan more quickly

Question 30

Balloon payment

Answer 30

A final loan payment that is at least twice as much as any other payment

Question 31

Reverse mortgage

Answer 31

used by someone 62 or older to receive one or more payments that result in a claim by the lender on the equity in the mortgaged property when the owner moves from the property, dies, defaults on one of the loan terms, or sells

Question 32

Judicial forclosure

Answer 32

is granted, the judge orders the property sold

Question 33

Public sale

Answer 33

Advertised and the real estate is sold to the highest bidder

Question 34

Equitable right of redemption

Question 35

Power of sale clause

Question 36

Deficiency judgement

Question 37

Deed in lieu of forclosure

Question 38

Short sale

Answer 38

Lender agrees to accept less than the amount of the remaining indebtness in order to allow the property to be sold

Question 39

Homeowner’s Insurance

Answer 39

Required by mortgage lender, will protect against loss due to natural disasters, accidents, theft, and fire

Question 40

Comprehensive Loss Underwriting Exchange (CLUE)

Answer 40

Database allows insurers to share info on a consumer’s claims history