Unit quiz 15

Question 1

If buyers seek a mortgage on a single-family house, they would be LEAST likely to obtain the mortgage from a

A) mutual savings bank.

B) credit union.

C) life insurance company.

D) commercial bank.

Answer 1

C) life insurance company.

Question 2

All of the following are examples of loans to individuals that are affected by the Truth in Lending Act under Regulation Z EXCEPT

A) household remodeling.

B) bedroom addition.

C) commercial use.

D) home landscaping.

Answer 2

C) commercial use.

Question 3

True or false: Regulation Z applies to business loans

Answer 3

False

Regulation Z applies when credit is extended to individuals for personal, familial, or household uses, but not for business or commercial use.

Question 4

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

A) Federal Housing Authority.

B) Office of the Comptroller of the Currency.

C) Federal Housing Finance Agency.

D) Federal Reserve System.

Answer 4

C) 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 5

The type of real estate loan that allows the lender to increase the outstanding balance of a loan up to the original sum in the note while advancing additional funds is the

A) graduated-payment mortgage.

B) wraparound mortgage.

C) growing-equity mortgage.

D) open-end mortgage.

Answer 5

D) open-end mortgage.

Question 6

The (?) allows the borrower to “open” the mortgage to increase the debt to its original amount after the debt has been reduced by payments over a period of time.

Answer 6

open-end mortgage

Question 7

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 $314,500 and the sales price is $316,900?

Answer 7

$251,600

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% of $314,500, which equals $251,600.

Question 8

The Federal Reserve System regulates the flow of money and interest rates in the marketplace by

A) controlling the prime rate charged by member banks.

B) setting the value of the member banks stocks.

C) controlling the reserve requirements of member banks and setting the discount rate.

D) controlling the reserve requirements of the member banks.

Answer 8

C) controlling the reserve requirements of member banks and setting the discount rate.

Question 9

Conventional loans are viewed as the most secure loans because their loan-to-value ratios are often lowest. Traditionally, the ratio is

Answer 9

80% of the value of the property.

Question 10

A creditor, for purposes of Regulation Z, is any person who extends consumer credit in transactions involving dwellings as security more than

A) 5 times each year.

B) 20 times each year.

C) 10 times each year.

D) 25 times each year.

Answer 10

A) 5 times each year.

Question 11

A buyer purchased a new residence for $175,000. The buyer made a down payment of $15,000 and obtained a $160,000 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 $8,000. What type of mortgage arrangement is this?

A) Blanket

B) Buydown

C) Wraparound

D) Package

Answer 11

B) 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 12

A buyer borrowed $85,000 to be repaid over 30 years in monthly installments of $456.30 at 5% annual interest. How much of the buyer’s first month’s payment was applied to reducing the principal amount of the loan?

Answer 12

$102.13

There are three steps: (1) First, find the amount of interest in the first monthly payment by multiplying the annual interest rate by the original amount of the loan: Principal × rate = interest ($85,000 × 5% = $4,250). (2) Then, divide the annual interest by 12 to find the first month’s interest: $4,250 ÷ 12 = $354.17. (3) Finally, subtract that interest from the amount of the regular monthly payment to find the amount available to apply to principal: $456.30 – $354.17 = $102.13.

Question 13

The basic components of the real estate financing market are

Answer 13

primary mortgage market, secondary mortgage market, and government influences, primarily the Federal Reserve System.

Question 14

Which of the following is NOT a participant in the secondary mortgage market?

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

Answer 14

B) Credit union

Question 15

True or false: The credit union is a participant in the secondary market

Answer 15

False The credit union is a participant in the primary market

Question 16

The maximum loan limits for loans sold to Fannie Mae are published by the

Answer 16

Federal Housing Finance Agency (FHFA).

Question 17

The Truth in Lending Act (TILA) provides penalties for noncompliance. A successful class action alleging that a creditor understated the APR and/or finance charge of the involved loans could make the creditor liable for punitive damages of

Answer 17

the lesser of $500,000 or 1% of the creditor’s net worth, plus attorney’s fees and court costs.

Question 18

TILA provides penalties for noncompliance. In addition to punitive damages, a willful violation is a misdemeanor punishable by

Answer 18

a fine of up to $5,000, one year’s imprisonment, or both.

Question 19

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

A) Community Reinvestment Act

B) Equal Credit Opportunity Act

C) Fair Housing Act

D) Truth in lending Act (Regulation Z)

Answer 19

D) Truth in lending Act (Regulation Z)

Question 20

Regulation Z of the Truth in Lending Act requires that trigger terms about mortgage financing in any kind of advertising must also include

Answer 20

additional disclosures in the advertisement.

Question 21

Loans that exceed the limits of loans eligible to be sold to Fannie Mae and Freddie Mac are called

Answer 21

nonconforming loans.

Question 22

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?

Answer 22

$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.