Unit 13

Question 1

Federal Reserve System

Answer 1

Consists of 12 reserve district banks. The Fed regulates the flow of money and interest rates

Question 2

Primary Mortgage Market

Answer 2

Loans are bought and sold after being funded

Question 3

Fannie Mae

Answer 3

Has shareholders but is under the conservatorship of the Federal Housing Finance Agency (FHFA). Creates mortgage-backed securities using pool of mortgages as collateral. Deals in conventional, FHA, and VA loans

Question 4

Freddie Mac

Answer 4

Has shareholders and is under the conservatorship of FHFA and had authority to purchase mortgages, pool them, and use them as a security for bonds sold on the open market

Question 5

Ginnie Mae (Government National Mortgage Association)

Answer 5

Entirely a government agency, a division of the Department of Housing and Urban Development (HUD), organized as a corporation but without corporate stock, that administers special- assistance programs, and guarantees mortgage- backed securities using FHA and VA loans as collateral

Question 6

Conventional loans

Answer 6

Most secure loans. Lowest LTV, usually 80% but can be 100%

Question 7

Non conforming loans

Answer 7

Must be retained in lender’s investment portfolio

Question 8

Private Mortgage Insurance (PMI)

Answer 8

May be required for LTV higher than 80%. Automatically terminate if borrower accumulated 22% equity (based on purchase price or original appraised value, which ever is less) and is current on mortgage payment

Question 9

FHA loans

Answer 9

Backed by Federal Housing Administration, part of HUD. Does not make loans but insures loans made by an FHA approved lending institution

Question 10

FHA Mortgage Insurance Premium (MIP)

Answer 10

Has an upfront fee along with monthly installments

Question 11

VA-guaranteed loans

Answer 11

Backed by the US Department of Veterans Affairs and are available to eligible veterans and spouses

Question 12

Farm Service Agency (FSA)

Answer 12

(formerly Farmers Housing Administration FmHA) Part of the Department of Agriculture and has programs to help families purchase or operate family farms, including the Rural Housing and Community Development Service (RHCDS) and the Farm Credit System

Question 13

Package loan

Answer 13

Includes all personal property and appliances as well as real estate

Question 14

Blanket Loan

Answer 14

Covers more than one parcel, and a Partial Release Clause allows a borrower to pay off part of a loan to remove the liens from one parcel at a time

Question 15

Open-end loan

Answer 15

Secures the current loan to the borrower and future advances made by the lender to the borrower

Question 16

Construction Loans

Answer 16

used to finance construction of property improvements

Question 17

Sale-and-Leaseback

Answer 17

Arrangement can be used to finance large commercial or industrial properties

Question 18

Buydown

Answer 18

a payment made at closing to reduce the interest rate on the loan

Question 19

Home Equity Line of Credit loan (HELOC)

Answer 19

junior to the original lien

Question 20

Truth in Lending Act

Answer 20

implemented by Regulation Z, enforced by the Consumer Financial Protection Bureau, requires that when a loan is secured by a residence, lender must inform the borrower of the true cost of obtaining credit. Borrower has a 3-business-day right of rescission.

Question 21

Equal Credit Opportunity Act (ECOA)

Answer 21

Prohibits discrimination in granting or arranging credit based on basis on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance

Question 22

Fair Credit Reporting Act (FCRA)

Answer 22

Requires that reasons for a loan application rejection be provided to applicant within 30 days and be given the right to a free copy of any credit report that was considered in the loan application process

Question 23

Community Reinvestment Act (CRA)

Answer 23

Requires financial institutions to help meet the need for affordable housing in their communities