Unit 9 Exam Flashcards
Funds in individual retirement accounts (IRAs) can never be used for a down payment on a home.
F
The payments on all debts—normally including long-term debt such as car payments, student loans, or other mortgages—should not exceed 36% of monthly income.
T
Match:
Loan origination fee
Prepayment penalty
Promissory note
Usury
Discount point
A)
A fee assessed against the unearned portion of the interest for any payments made ahead of schedule
B)
Charging interest in excess of the maximum rate allowed by law
C)
A charge by the lender to cover the expenses involved in generating the loan
D)
A borrower’s written commitment to pay a debt
E)
A charge to increase the lender’s yield (rate of return) on its investment
Loan origination fee = C
Prepayment penalty = A
Promissory note = D
Usury = B
Discount point = E
Lenders may charge prepayment penalties on mortgage loans insured or guaranteed by the federal government.
F
The promissory note is called the note or financing instrument.
T
Determine if Deed of Trust or Mortgage
A)
If the borrower defaults, the lender must go through a formal foreclosure proceeding to obtain legal title.
B)
The lender has the right to immediate possession of and rents from the property if the borrower defaults
C)
The borrower gives legal title to a designated individual and retains equitable title.
D)
The borrower retains both legal and equitable title.
Mortgage = A, D
Deed of Trust = B, C
Match:
Trustor
Acceleration clause
Beneficiary
Assignment of mortgage
Defeasance clause
A)
Statement that allows lender to declare the entire debt due and payable immediately
B)
Provision that requires lender to execute a satisfaction (release or discharge) when the note has been fully paid
C)
Clause that allows the note to be sold to a third party
D)
Lender under a deed of trust
E)
Borrower under a deed of trust
Trustor = E
Acceleration clause = A
Beneficiary = D
Assignment of mortgage = C
Defeasance clause = B
In a lien theory state, a mortgagor actually gives legal title to the mortgagee (or some other designated individual) and retains equitable title.
F
Lien Theory is when the Borrower/Trustor retains legal title through a mortgage.
Title Theory is when Trustor/Borrower retains equitable title and gives legal title to the Trustee on behalf of the Beneficiary/Lender/Mortgagee
Under a deed of trust, the trustor retains equitable title.
T
Molly is considering either ARM or Fixed-rate Mortgage. Which is best for Molly if the house is 250,000 with a 20% down and 200,000 loan:
A)
ARM is 30 year term at an interest rate of 3.875% and a monthly payment of $940.47. The rate is subject to adjust each year, and could go up to 8% over the life of the loan.
B)
The Fixed-rate Mortgage has an interest rate of 4.5% and a monthly payment will be $1,013.37
B
The fixed rate is the better option because the ARM has a longer adjustment period where the rate is more likely to increase during the life of the loan. A lower interest rate and shorter period would have allowed her to pay off the loan quicker.
Match:
Straight
Amortized
Balloon
ARM
GEM
Reverse mortgage
A)
Interest-only loan
B)
Rapid-payoff mortgage
C)
Begins at one rate of interest and adjusts during loan term
D)
Mortgagor pays the same amount each month with some going to principal and some to interest
E)
For homeowners 62 or older to borrow against home equity
F)
Final payment is larger than others
Straight = A
Amortized = D
Balloon = F
ARM = C
GEM = B
Reverse mortgage = E
Match:
Reverse Mortgage
Balloon
ARM
Straight
GEM
Amortized
A)
Payments of principal are increased, but interest rate remains constant
B)
Rapid-payoff mortgage
C)
Interest-only loan
D)
Provides income for homeowner while the homeowner can remain in the home
E)
Final payment is larger than others
F)
For homeowners 62 or older to borrow against home equity
G)
Each payment partially pays off both principal and interest
H
Mortgager pays a constant amount each month with some going to principal and some to interest
I)
Term loan
J)
Begins at one rate of interest and adjusts during loan term
K)
Index is used to adjust the rate of interest
Reverse Mortgage = D, F
Balloon = E
ARM = J, K
Straight = C, I
GEM = A, B
Amortized = G, H
A balloon payment will be required in a partially amortized loan.
T
A straight loan is also called a fully amortized loan.
F
Match:
Judicial
Nonjudicial
Strict
A)
A court-ordered deadline for payment of the defaulted debt passes with the debt unpaid, allowing the title to be awarded to the lender; no sale is required.
B)
The security instrument contains a power-of-sale clause.
C)
The property may be ordered sold to the highest bidder following a court hearing.
Judicial = C
Nonjudicial = B
Strict = A
Nonjudicial foreclosure procedures may be used when the security instrument contains a power-of-sale clause.
T
Judicial foreclosure allows property to be sold without a court order after the mortgagee has given sufficient public notice.
F
Match:
Basic Form Insurance
Broad From Insurance
A)
Collapse of the building
B)
Falling objects
C)
Damage from smoke
D)
Damage to plumbing
E)
Damage by aircraft
F)
Fire and lightning
G)
Vandalism and theft
Basic Form Insurance = C, E, F, G
Broad From Insurance = A, B, D
Match:
Army Corps of Engineers
Federal Emergency Management Agency
Congress
A)
Administers the flood program
B)
Established the National Flood Insurance Program
C)
Prepared maps identifying flood-prone areas
Army Corps of Engineers = C
Federal Emergency Management Agency = A
Congress = B
The MOST common homeowners insurance policy is called a broad form.
F
The Federal Emergency Management Agency (FEMA) administers the National Flood Insurance Program.
T
Match:
discount points
promissory note
mortgagor
acceleration clause
deed of trust
executing
interest
hypothecation
mortgagee
usury
A)
A charge imposed by lenders to adjust for the difference between a loan’s interest rate and yield an investor demands
B)
A financing instrument that conveys bare legal title on behalf of a beneficiary, but no right of possessions
C)
The borrower in a mortgage loan
D)
The act of signing a loan instrument
E)
A charge for the use of money
F)
The part of a financing agreement that gives the lender the right to declare the entire debt due and payable immediately on default
G)
The act of charging interest in excess of the maximum legal rate
H)
The lender in a mortgage loan
I)
The pledging of a property as security for payment of a loan without actually surrendering the property itself
J)
A borrower’s personal pledge to repay a debt according to agreed-upon terms
discount points = A
promissory note = J
mortgagor = C
acceleration clause = F
deed of trust = B
executing = D
interest = E
hypothecation = I
mortgagee = H
usury = G
Match:
title theory
lien theory
loan origination fee
short sale
prepayment penalty
subordination agreement
trustor
amortized loan
beneficiary
deed in lieu of foreclosure
foreclosure
A)
A sale in which the sales price is less than the remaining indebtedness
B)
Concept that the borrower actually gives legal title to the lender (or other party) and retains equitable title
C)
A legal procedure in which property pledged as security is taken from the borrower to satisfy the debt
D)
Fee that a borrower pays on any payment made ahead of schedule (if allowed)Idea that a mortgage is purely a lien on real property
E)
A device by which one lender agrees to change the priority of its loan relative to another lender
F)
A document by which property is transferred to the lender by mutual agreement rather than by lawsuit
G)
A type of loan where each payment partially pays off both principal and interest
H)
Percentage of the loan amount charged to a borrower for the costs of generating a loan
I)
The lender’s legal status on a deed of trust
J)
The borrower’s legal status on a deed of trust
title theory = B
lien theory = E
loan origination fee = I
short sale = A
prepayment penalty = D
subordination agreement = F
trustor = J
amortized loan = H
beneficiary = I
deed in lieu of foreclosure = G
foreclosure = C
A deed of trust involves all of these terms EXCEPT
A) trustee. B) lender. C) mortgagor. D) borrower.
Explanation
The answer is mortgagor. A mortgagor is the borrower in a mortgage. In a deed of trust, the borrower is the trustor, and the trustee holds legal title in trust for the beneficiary (lender).
One afternoon, a client calls a real estate broker. “My lender just told me that my note and mortgage is a negotiable instrument,” says the client. “What does that mean?” Which of these would be the broker’s BEST response?
A)
“Uh-oh! That means we have to go back to the sellers and ask them to pay the points.”
B)
“Oh no! That means the mortgage can’t be assumed by the next person you sell to.”
C)
“That’s great! It means the lender is willing to negotiate on the interest rate.”
D)
“Don’t worry. That means the mortgage can be sold by the lender, but you’re not affected.”
Explanation
The answer is “Don’t worry. That means the mortgage can be sold by the lender, but you’re not affected.” Negotiable instruments are transferable. A note and mortgage will often be sold on the secondary market.
In mortgage lending, a borrower is required to pledge specific real property as security (collateral) for the loan in a practice called
A) debt-collateralization. B) hypothecation. C) equitable collateralization. D) hypo-collateralization.
Explanation
The answer is hypothecation. In mortgage lending, a borrower is required to pledge specific real property as security (collateral) for the loan, a practice called hypothecation.
A promissory note used as a debt instrument without any related collateral is called
A) a secured note. B) a hypothecated note. C) an equitable note. D) an unsecured note.
Explanation
The answer is an unsecured note. A promissory note used as a debt instrument without any related collateral is called an unsecured note.
