Unit 13 Quiz Questions

Question 1

By controlling interest rates and the amount that lenders must keep in reserve, the Federal Reserve System

a. insures loans made to consumers.
b. affects the job market.
c. maintains sound credit conditions.
d. makes direct loans to buyers.

Answer 1

Maintains sound credit conditions.

The Federal Reserve maintains sound credit conditions, but it does not make direct loans to consumers and does not insure loans made to consumers.

Question 2

A lender who collects payments, processes them, and follows up on loan delinquencies is said to

a. increase the yield to the lender.
b. service the loan.
c. insure loan payments.
d. underwrite the loans.

Answer 2

Service the loan.

In addition to the income directly related to making loans, some lenders derive income from servicing loans for other mortgage lenders or investors who have purchased the loans.

Question 3

The primary mortgage market lenders that have most recently branched out into making mortgage loans are

a. credit unions.
b. endowment funds.
c. insurance companies.
d. savings associations.

Answer 3

Credit unions.

Credit unions were known for short-term consumer loans but have more recently branched out into originating mortgage loans

Question 4

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

a. Administers Freddie Mac and Ginnie Mae
b. Administers Freddie Mac only
c. Insures deposits in participating institutions up to $250,000 per depositor, per account
d. Services loans

Answer 4

Insures deposits in participating institutions up to $250,000 per depositor, per account

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

Question 5

One way a borrower can obtain a conventional mortgage loan with a lower down payment than 20% of the purchase price is by

a. obtaining a package loan.
b. obtaining a blanket loan.
c. obtaining private mortgage insurance.
d. obtaining permission from the FDIC

Answer 5

Obtaining private mortgage insurance.

Private mortgage insurance provides the lender with funds in the event that the borrower defaults on the loan. This allows the lender to assume more risk so that the LTV can be higher than for other conventional loans.

Question 6

A package loan includes

a. real and personal property.
b. private mortgage insurance.
c. multiple parcels or lots.
d. cash for the construction of improvement on real estate.

Answer 6

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 7

To qualify for most conventional loans, the borrower’s monthly housing expenses and total other monthly obligations cannot exceed what percent of the total gross monthly income?

a. 28%
b. 36%
c. 41%
d. 45%

Answer 7

36%

To be considered a conforming loan that can be sold in the secondary market, the borrower’s monthly housing expenses and total other monthly obligations must not exceed 36% of total monthly gross income.

Question 8

What does private mortgage insurance cover?

a. Pays the lender if the borrower dies
b. Reimburses the cosigner if the borrower defaults
c. Protects the top 20% to 30% of the loan against borrower default
d. Pays the borrower if the borrower loses the house to a title claim

Answer 8

Protects the top 20% to 30% of the loan against borrower default.

Private mortgage insurance, usually required for loans more than 80% of value, provides security to the lender if the borrower defaults.

Question 9

Regulation Z generally applies to

a. a credit transaction secured by a residence.
b. business loans.
c. commercial loans.
d. agricultural loans of more than $25,000

Answer 9

A credit transaction secured by a residence.

The truth-in-lending law, implemented by Regulation Z, generally applies to a credit transaction secured by a residence, but it does not apply to commercial loans, business loans, or agricultural loans of more than $25,000.

Question 10

The amount of the loan a veteran can obtain under the VA’s loan guarantee program is determined by

a. the VA, which set a dollar limit on the loan.
b. the lender and the qualification of the buyer.
c. the appraised value of the property purchased.
d. loan qualification criteria established by the VA.

Answer 10

The lender and the qualification of the buyer.

There is no VA dollar limit on the amount of the loan a veteran can obtain; the limit is determined by the lender and the qualification of the buyer. The VA does limit the amount of the loan it will guarantee.

Question 11

The VA-approved property appraisal is stated in the

a. certificate of reasonable value.
b. broker’s price opinion.
c. certificate of eligibility.
d. guarantee certificate.

Answer 11

Certificate of reasonable value.

The certificate of reasonable value (CRV) states the property’s current market value based on a VHA-approved appraisal. The certificate of eligibility establishes the veteran’s right to obtain a VA-guaranteed loan.

Question 12

Intermediaries who bring borrowers and lenders together are

a. endowment funds.
b. mortgage brokers.
c. insurance companies.
d. credit unions.

Answer 12

Mortgage brokers

Mortgage brokers do not loan their own money; they are intermediaries who bring borrowers and lenders together.

Question 13

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

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

Answer 13

Terminate the private mortgage insurance payment if the borrower has accrues at least 22% equity in the home.

The borrower must also be current on mortgage payments.

Question 14

A house sold for $240,000 and the buyer obtained a loan for $220,000. If the lender charges three points, how much will the buyer pay in points?

a. $5,335
b. $6,600
c. $6,950
d. $7,540

Answer 14

$6600

The buyer will pay $6,600: $220,000 × 3% = $6,600. Points are charged on the loan amount, not the sale price.

Question 15

On which type of loan can the borrower prepay provided a penalty also is paid?

a. Loans sold to Fannie Mae and Freddie Mac
b. FHA loans
c. VA loans
d. None of these

Answer 15

None of these.

Prepayment penalties are fairly unusual in today’s market.

Question 16

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

a. race.
b. religion.
c. marital status.
d. all of these

Answer 16

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 17

The asking price for a home was $585,000; the buyer offered $565,000 and the seller accepted. The appraised value of the home is $560,000. The buyer plans to pay $94,600 in cash and take out a mortgage for the remainder. What is the LTV for this property?

a. 82%
b. 83%
c. 84%
d. 85%

Answer 17

84%

The LTV on the loan amount is 84%. LTV = loan amount ÷ appraised value or sale price (whichever is lower), thus: $565,000 – $94,600 = $470,400; $470,400 ÷ $560,000 = 84%.

Question 18

A buyer is purchasing property from a seller who bought the property on December 20, 2012, with an FHA loan and who 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. Yes, but the buyer will have to undergo the complete buyer qualification process.
c. Yes, but the buyer will have to undergo a creditworthiness review only.
d. No, this FHA loan is not assumable

Answer 18

Yes, but the buyer will have to undergo the complete buyer qualification process.

Because the loan was made after December 15, 1989, an assumption is not permitted without complete buyer qualification.

Question 19

A veteran served for six months on active duty in Vietnam in 1967. In 1998, the veteran was killed in a skiing accident. The veteran’s surviving spouse wishes to make a down payment on
a condominium and wants to obtain aVA-guaranteed loan. Is the surviving spouse entitled to a VA-guaranteed loan?

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

Answer 19

No, the veteran’s death was not service-related.

Only the surviving spouse of a veteran whose death is service-related may use the veteran’s entitlements.

Question 20

Which of these makes direct loans to qualified borrowers?

a. VA
b. FSA
c. Fannie Mae
d. FHA

Answer 20

FSA

The Farm Service Agency will guarantee loans made and serviced by private lenders and guaranteed for a specific percentage. The FSA will also make loans directly to the borrower.

Question 21

A buyer is purchasing a fully furnished condominium unit. In this situation, the buyer would be MOST likely to use a

a. package loan.
b. blanket loan.
c. wraparound loan.
d. buydown.

Answer 21

Package loan.

A loan secured by a fully furnished condominium unit is secured by both real and personal property. A blanket loan is secured by several properties.

Question 22

Foreclosure sales of FHA-insured homes are conducted by:

a. FHA.
b. HUD.
c. VA.
d. the lender.

Answer 22

HUD.

HUD is responsible for conducting foreclosures of FHA-insured homes..

Question 23

The Equal Credit Opportunity Act allows lenders to consider which of the following factors in evaluating an applicant’s credit worthiness?

a. Religion
b. Past credit history
c. Income from public assistance
d. Marital status

Answer 23

Past credit history.

Lenders may deny a loan request because of the borrower’s previous credit history. Lenders may not discriminate on the basis of race, color, religion, national origin, sex, receipt of
public assistance, age, or marital status.

Question 24

Lenders that make conventional loans to sell in the secondary mortgage market follow the standardized forms and guidelines issued by Fannie Mae and

a. the FSA.
b. the FHA.
c. Ginnie Mae.
d. Freddie Mac.

Answer 24

Freddie Mac.

Freddie Mac and Fannie Mae are the dominant participants in the secondary mortgage market.

Question 25

Which of these may lawfully be used as part of a loan application evaluation process?

a. The applicant’s religious beliefs
b. The fact that the borrower is over 40 years old
c. A credit score
d. None of these

Answer 25

A credit score.

A credit score is one factor that can be lawfully considered in evaluating a loan application. The Equal Credit Opportunity Act prohibits consideration of age or religion

Question 26

The real estate financing market is comprised of

a. the primary and secondary mortgage markets.
b. Fannie Mae and Ginnie Mae.
c. the primary and secondary mortgage markets, plus government influences such as the Federal
Reserve system.
d. none of these.

Answer 26

The primary and secondary mortgage markets, plus government influences such as the Federal Reserve system.

These are the three basic components of the real estate financing market

Question 27

A 16-year-old female applied for a conventional loan in order to purchase a condominium. The lender denied the application, citing the applicant’s age as the reason for the denial. Which of these is TRUE?

a. The lender violated the ECOA because the applicant is female and sex cannot be a lending consideration.
b. The lender violated the ECOA because lending decisions cannot be based on age.
c. The lender lawfully denied the application because the applicant was under 18 and therefore was too young to legally sign a contract.
d. None of these.

Answer 27

The lender lawfully denied the application because the applicant was under 18 and therefore was too young to legally sign a contract.

A lender may not consider age unless the applicant is too young to legally sign a contract.

Question 28

What helps lenders reduce the risk on a conventional mortgage loan with a high LTV?

a. Private mortgage insurance
b. Flood insurance
c. Sale-and-leaseback arrangement
d. Home equity

Answer 28

Private Mortgage Insurance.

Private mortgage insurance provides lenders with funds in case of borrower default and encourages lenders to make higher LTV loans

Question 29

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

Answer 29

A purchase money mortgage

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.

Question 30

A buyer purchased a new residence from a builder for $350,000. The buyer made a down payment of $30,000 and obtained a $320,000 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 $16,000. What type of mortgage arrangement is this?

A. Open-end
B. Package
C. Blanket
D. Buydown

Answer 30

Buydown

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 31

Which of the following is a participant in the primary mortgage market?

A. Fannie Mae
B. Ginnie Mae
C. Credit union
D. Freddie Mac

Answer 31

Credit Union

The answer is credit union. The credit union is a participant in the primary market; the other three are major, active participants in buying and reselling existing mortgages—secondary market activity.

Question 32

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

Answer 32

the Fair Credit Reporting Act

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.

Question 33

States are required to license mortgage loan originators by

A. HUD.
B.the SAFE Act
C.FHA
D. the OCC

Answer 33

the SAFE Act

The answer is the SAFE Act. The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 requires states to license mortgage loan originators.

Question 34

The conservatorship of Fannie Mae and Freddie Mac is the responsibility of

A. the Federal Housing Finance Agency.
B. the Federal Housing Authority.
C. the Office of the Comptroller of the Currency.
D. the Federal Reserve System.

Answer 34

The Federal Housing Finance Agency

The answer is the Federal Housing Finance Agency. Fannie Mae has shareholders but is under the conservatorship of the Federal Housing Finance Agency (FHFA). It creates mortgage-backed securities using pool of mortgages as collateral and deals in conventional, FHA, and VA loans

Question 35

What is the source of the rules that govern the use of real estate advertisements in all media, if they include mortgage financing terms?

A. Equal Credit Opportunity Act
B. Fair Lending Act
C. Community Reinvestment Act
D. Regulation Z of the Truth in Lending Act

Answer 35

Regulation Z of the Truth in Lending Act

The answer is Regulation Z of the Truth in Lending Act. The Truth in Lending Act is enforced by Regulation Z, which was enacted by the Federal Reserve Board. Regulation Z provides strict rules for real estate advertisements in all media that refer to mortgage financing terms.

Question 36

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

Answer 36

The blanket loan.

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 37

Funds for FHA-insured loans are usually provided by

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

Answer 37

Approved lenders

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 38

Regulation Z generally applies when a credit transaction is secured by

A.a commercial property
B. a residence
C. a business
D. an agricultural property

Answer 38

A Residence

The answer is a residence. Regulation Z does not apply to business or commercial loans or to agricultural loans of any amount.

Question 39

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

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

Answer 39

Junior

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

Question 40

The buyers purchased a model home and all its furnishings and appliances by using

A. a package loan.
B. a blanket loan.
C. a FHA-insured loan.
D. a buydown.

Answer 40

A Package loan.

The answer is a package loan. A package loan is a real estate loan used to finance the purchase of both real property and personal property, such as in the purchase of a new home that includes window coverings and major appliances.

Question 41

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. act in tandem with Ginnie Mae to provide special assistance in times of tight money.
D. buy and sell VA and FHA mortgages.

Answer 41

Buy and pool blocks of conventional mortgages.

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 42

The federal Equal Credit Opportunity Act allows lenders to discriminate against potential borrowers on the basis of

A. preferred neighborhood.
B. marital status.
C. country of national origin.
D. amount of income.

Answer 42

Amount of income.

The answer is amount of income. Lenders may reject applicants who have insufficient income for the loans they are requesting, but lenders may not discriminate based on any of the other criteria listed

Question 43

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

Answer 43

an open-end loan.

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 44

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

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

Answer 44

the Farm Service Agency

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 45

If a lender agrees to make a loan based on an 80% LTV, what is the amount of the loan if the property appraises for $114,500 and the sales price is $116,900?

A. $83,200
B. $91,300
C. $91,600
D. $92,900

Answer 45

$91,600

The answer is $91,600. The loan-to-value ratio will be based on the relationship of the loan to either the appraisal or the purchase price, whichever is less. In this case, the appraisal is less. Therefore, the loan will be 80 percent of $114,500, which equals $91,600.

Question 46

The document that sets forth the maximum loan guarantee to which a veteran is entitled is

A. the funding statement.
B. the certificate of eligibility.
C. the certificate of reasonable value.
D. the certificate of discharge.

Answer 46

The certificate of eligibility

The answer is the certificate of eligibility. The veteran must apply for a certificate of eligibility. This certificate sets forth the maximum guarantee to which the veteran is entitled, but the veteran must still qualify for the loan with the lender.

Question 47

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

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

Answer 47

the Community Reinvestment Act.

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 48

Which of the following requires that all advertising that references mortgage financing terms contain certain disclosures?

A. Equal Credit Opportunity Act
B. Fair Housing Act
C. Community Reinvestment Act
D. Truth in Lending Act (Regulation Z)

Answer 48

Truth in Lending Act (Regulation Z)

The answer is Truth in Lending Act (Regulation Z). Regulation Z of the Truth in Lending Act requires that trigger terms about mortgage financing in any kind of advertising must also include additional disclosures in the advertisement