Unit 15 - Real Estate Financing Practices

Question 1

The relationship of the total finance charges associated with a loan. This must be disclosed to borrowers by lenders under the Truth in Lending Act.

Answer 1

annual percentage rate (APR)

Question 2

A mortgage covering more than one parcel of real estate, providing for each parcel’s partial release from
the mortgage lien upon repayment of a definite portion of the debt.

Answer 2

blanket mortgage

Question 3

A short-term loan to cover period between termination of one loan and the beginning of another loan; between interim construction loan and a permanent takeout loan; residential financing arrangement where
homeowner borrows money under a second mortgage on
buyer’s unsold current home to fund acquisition of a new
home.

Answer 3

bridge loan

Question 4

A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in
the form of discount points are given to the lender to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time

Answer 4

buydown

Question 5

A form indicating the appraised value of a property being financed
with a VA loan

Answer 5

certificate of reasonable value (CRV)

Question 6

A standardized conventional loan that meets Fannie Mae’s or Freddie Mac’s purchase requirements.

Answer 6

conforming loan

Question 7

A short-term loan usually made during the construction phase of a building project

Answer 7

construction loan AKA

interim financing

Question 8

A federal agency created by the Dodd-Frank Act in 2010 to oversee consumer protection via financial regulations within seven federal agencies

Answer 8

Consumer Financial Protection Bureau (CFPB)

Question 9

A loan that is not backed (made, insured, or guaranteed) by any government agency. Lender bears all the risk of borrower default.

Answer 9

conventional loan

Question 10

A federal cabinet department active in national housing programs. Among its many programs are urban renewal, public housing, model cities, rehabilitation loans, FHA subsidies, fair housing enforcement, and water and sewer grants.

Answer 10

Department of Housing and Urban Development (HUD)

Question 11

The federal law that prohibits discrimination in the extension of credit
because of race, color, religion, national origin, sex, age, or marital status.

Answer 11

Equal Credit Opportunity Act (ECOA)

Question 12

Gives individuals the right to check their own credit reports and demand that mistakes be corrected.

Answer 12

Fair Credit Reporting Act

Question 13

A quasi-government agency

established to purchase any kind of mortgage loans in the secondary mortgage market from the primary lenders.

Answer 13

Fannie Mae (FNMA)

Question 14

The country’s central banking system, which controls the nation’s monetary policy by
regulating the supply of money and interest rates.

Answer 14

Federal Reserve System

Question 15

A loan insured by the Federal Housing Administration and made by an approved private lender in accordance with the FHA’s regulations

Answer 15

FHA-insured loan

Question 16

A corporation established to purchase primarily conventional mortgage loans in the secondary
mortgage market.

Answer 16

Freddie Mac

Question 17

A government agency under HUD that plays an important role in the secondary mortgage market. It sells mortgage-backed securities that are backed by pools of FHA and VA loans.

Answer 17

Ginnie Mae

Question 18

A loan under which a property owners use their residence as collateral and can then draw funds up to a prearranged amount against the property

Answer 18

home equity loans AKA

line of credit

Question 19

A residential mortgage loan in excess of acceptable loan amounts for purchase by Fannie Mae or Freddie Mac;

Answer 19

jumbo loan AKA

nonconforming loan

Question 20

A crime in which the purpose is to misrepresent or omit information on a mortgage
application in order to obtain a loan or a larger loan than
could have been obtained had the lender known the truth

Answer 20

loan fraud

Question 21

The relationship between
the amount of the mortgage loan and the value of the
real estate being pledged as collateral.

Answer 21

loan-to-value ratio (LTV)

Question 22

A mortgage loan that is expandable by increments up to a maximum dollar amount, the full loan
being secured by the same original mortgage

Answer 22

open-end mortgages AKA

equity line mortgage

Question 23

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

Answer 23

package loan

Question 24

Unscrupulous, sometimes fraudulent, lending practices usually intending to make repayment impossible; designed to take advantage of unwary borrowers that are frequently the low-income, uninformed, elderly, or non-English-speaking

Answer 24

Predatory Lending

Question 25

The mortgage market
in which loans are originated, consisting of lenders such as commercial banks, savings associations, and mortgage brokers.

Answer 25

primary mortgage market

Question 26

Insurance provided by a private carrier that protects a lender against a loss in the event of a foreclosure and deficiency.

Answer 26

private mortgage insurance (PMI)

Question 27

A note secured by a
mortgage or deed of trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price of the real
estate

Answer 27

purchase money mortgage

Question 28

A guarantee from mortgage lenders that they will give mortgage loan applicants a certain interest rate, at a certain price, for a specific time period

Answer 28

rate lock

Question 29

Federal law that ensures that residential buyers and sellers receive full disclosure of all settlement charges when a 1—4 family unit residence is financed by federally-related first mortgage loans. The Act mandates a HUD booklet
about closing costs, a loan estimate of closing costs, and a standardized closing statement. The Act, known as Regulation X, also prohibits kickbacks from lenders.

Answer 29

Real Estate Settlement Procedures (RESPA)

Question 30

Implements the Truth in Lending Act requiring credit institutions to inform borrowers of the true cost of obtaining credit.

Answer 30

Regulation Z AKA

Truth in Lending Act

Question 31

A loan under which the homeowner receives monthly payments based on the homeowner’s
accumulated equity rather than a lump sum. The loan
must be repaid at a prearranged date, upon the death of the owner, or the sale of the property

Answer 31

reverse mortgage

Question 32

A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages

Answer 32

secondary mortgage market AKA

secondary money market

Question 33

A written agreement
between holders of liens on a property that changes the
priority of mortgage, judgment, and other liens under certain circumstances

Answer 33

subordination agreement

Question 34

A loan made to a borrower with a credit rating below what is required for regular loans creating greater risk liability for the lender that is countered by higher interest rates and fees; called B, C, or D paper.

Answer 34

subprime mortgage

Question 35

If used, these specific terms make total financing disclosure mandatory. Include: downpayment, monthly payment, dollar amount of the finance charge and term of the loan

Answer 35

trigger terms

Question 36

A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans
Affairs to limit the lenders possible loss

Answer 36

VA-guaranteed loan

Question 37

• To impose restrictions and limitations on high-cost loans
• To revise the permissible fees and charges on certain loans
• To prohibit unfair or deceptive practices by mortgage brokers and lenders
• To provide for public education and counseling about predatory lenders

Answer 37

Predatory Lending Act