Q&A Hero

Q: Regulation Z requires creditors to state the maximum interest rate that an ARM loan may adjust to.

Q: A payment cap leaves open the amount the borrower's monthly payment can increase in any one year.

Q: By law lenders are required to disclose an interest rate cap.

Q: By far the most common adjustment period in an ARM is six months.

Q: The index stays constant over the life of the loan but the margin will vary.

Q: The margin is for the lender's cost of doing business, risk of loss on the loan, and profit.

Q: The most popular index is the local bank prime rate.

Q: For the borrower there are no disadvantages to an ARM loan.

Q: The benefit of an ARM is that ARMs carry an initial interest rate that is lower than the interest rate on a fixed-rate mortgage of similar maturity.

Q: The first step toward mortgage loans with adjustable interest rates came in the late 1800s.

Q: ARM loans with teaser rates are avoided by a. mortgage insurers. b. secondary market buyers. c. both a and b. d. neither a nor b.

Q: An overencumbered property would be one with a market value of a. $125,000 with a first mortgage of $75,000 and a second mortgage of $26,000. b. $375,000 with a first mortgage of $25,000 and a second mortgage of $200,000. c. $120,000 with a first mortgage of $110,000 and a second mortgage of $15,000. d. $49,500 with a first mortgage of $20,000 and a second mortgage of $1,000 and a third mortgage of$2,000.

Q: A company wishing to raise capital by selling its real estate but still remaining as the occupant of the property would enter into a. a sale and lease-back. b. an option agreement. c. an equity mortgage. d. a contract for deed.

Q: A contract for deed on residential property a. allows transfer of title to the purchaser at the inception of the mortgage. b. transfers title to the purchasers at the fulfillment of the conditions of the mortgage. c. does not provide for transfer of title. d. requires the owner to occupy the property.

Q: Under the terms of a shared appreciation mortgage a. the loan is made at a below-market interest rate. b. the lender received a portion of the property's appreciation. c. both a and b. d. neither a nor b.

Q: For a successful wraparound, it is necessary to have an existing mortgage with a. a below-market interest rate. b. a due-on-sale clause. c. an above market interest rate. d. an alienation clause.

Q: When should a purchase money mortgage properly be recorded? a. Before the deed b. After the deed c. At the same moment as the deed d. Upon full payment

Q: One of the main differences between a land sales contract and a purchase money mortgage is a. the passing of title. b. interest charged. c. time between payments. d. the term of the loan.

Q: An individual who is contemplating the purchase of a mortgage as an investment should have a. the property appraised. b. a credit check made on the borrower. c. the title searched. d. all of the above.

Q: A mortgage taken by a seller from the buyer in part payment of the purchase price of real estate is known as a. seller financing. b. a conflict of interest. c. usury. d. a second trust deed.

Q: The phrase "taking back paper" applies to a. a cash sale. b. conventional loans. c. VA loans. d. seller financing.

Q: A loan arrangement whereby a lender extends a line of credit is a. a buy-down mortgage. b. an open-end mortgage. c. a wraparound mortgage. d. a purchase money mortgage.

Q: When an existing loan at a low interest rate is refinanced by a new loan at an interest rate between the current market rate and the rate of the old loan, the result is a a. combined rate. b. blended loan. c. wraparound loan. d. merged loan.

Q: Each of the following statements about open-end mortgage clauses is true EXCEPT a. using an open-end clause, the new amount borrowed is added to the mortgage balance. b. they are used in government loans like DVA and FHA. c. they are used in conventional mortgages. d. funds borrowed using an open-end clause are reamortized over the remaining like of the mortgage.

Q: A blended-rate loan arrangement is designed to a. raise the rate of interest to the buyer. b. lower the sales price of the property. c. attract buyers who are discouraged by high interest rates. d. pay off a loan sooner.

Q: Equity sharing is based on the concept of someone who has assets sharing those assets in exchange for a. a share of the ownership. b. tax benefits. c. both a and b. d. neither a nor b.

Q: Construction loans are a. long term, low risk. b. long term, high risk. c. short term, high risk. d. short term, low risk.

Q: Which of the following involves the greatest risk to a lender? a. First mortgage b. FHA loan c. Construction loan d. VA loan

Q: An elderly couple is "house rich, money poor". To obtain money now while still living in their magnificent home, they should look for a a. negative amortization. b. an adjustable rate mortgage. c. a reverse annuity mortgage. d. a graduated payment mortgage.

Q: When considering a ARM loan, the lender must explain to the borrower, in writing, the a. worst-case scenario. b. best-case scenario. c. average-case scenario. d. respective credit report.

Q: A builder bought all 20 lots in a subdivision from the developer, who carried most of the purchase price on one loan. To sell the lots, he must include a a. reverse loan clause. b. sale-lease back clause. c. package mortgage clause. d. partial release clause.

Q: When two or more properties serve as collateral for the same loan, it is called a a. blanket mortgage. b. tandem mortgage. c. security mortgage. d. blended rate mortgage.

Q: A new home developer who is including appliances with the sale of each house most probably would assist the buyer in obtaining a a. blanket mortgage. b. shared appreciation mortgage. c. equity sharing mortgage. d. package mortgage.

Q: Prior to the introduction of adjustable rate mortgages, the FHLBB approved the use of a. variable rate mortgages. b. renegotiable rate mortgages. c. both a and b. d. neither a or b.

Q: In a graduated payment mortgage, the graduated part is the a. interest rate. b. monthly payment. c. maturity date. d. entire loan is graduated.

Q: The interest rate of an adjustable rate mortgage may rise or fall based on the a. interest rate cap. b. adjustment period. c. index. d. margin.

Q: What feature in an adjustable rate mortgage protects the borrower against very large monthly payment increases? a. Index rate b. Adjustment period c. Interest rate cap d. Margin

Q: In order to make adjustable rate mortgage loans more attractive to borrowers, lenders offer a. lower initial interest rates. b. gifts such as appliances, trips, etc. c. lower insurance rates. d. lower down payments.

Q: All of the following may be used for setting ARM interest rates EXCEPT a. one-year U.S. Treasury securities. b. six-month Treasury bills. c. cost of funds to thrift institutions. d. Gross National Product is not used to set ARM interest rates.

Q: The interest rate of a loan from a local savings and loan may be increased or decreased during the life of the loan. This is an example of a. a variable interest rate. b. escalated interest. c. graduated interest. d. percentage interest.

Q: Freddie Mac's Loan ____________________ program made available on the Internet overhauled the entire loan underwriting system.

Q: Loan contracts sometimes call for a ____________________ penalty in return for giving the borrower the right to repay the loan early.

Q: Both fiat money and real savings represent ____________________ labor and materials.

Q: ____________________ certificates allow a mortgage originator to deliver to Freddie Mac either whole mortgages or part interest in a pool of whole mortgages.

Q: Most loans contain a due-on-sale clause which is also called a call clause or a(n) ____________________ clause.

Q: ____________________ are sometimes a source of cash loans for real estate, with the bulk of these loans between relatives or friends.

Q: _________________________ loans provide a "piece of the action" for insurance companies as well as more inflation protection than a fixed rate of interest.

Q: _________________________ results when depositors take money out of their savings accounts and invest directly in government securities, corporate bonds, and money market funds.

Q: Mortgage ____________________ do not lend their own money but simply put lender and borrower together.

Q: The ____________________ market is where lenders originate loans by making funds available to borrowers.

Q: GNMA will guarantee all loan types.

Q: Usury laws are established by the federal statutes.

Q: The cost of mortgage loan borrowing is dependent on the cost of money to the lender, reserves for default, loan servicing costs, and available investment alternatives.

Q: Both fiat money and real savings represent unconsumed labor and materials.

Q: Automated underwriting systems have dramatically overhauled the mortgage loan underwriting process.

Q: There is no limit to the cost of a home under the Farmer Mac program.

Q: Farmer Mac was created to provide a secondary market for farm loans.

Q: Freddie Mac buys loans only from savings and loan institutions.

Q: GNMA buys loans from primary market loan originators.

Q: FNMA was organized by the federal government to buy FHA mortgage loans from lenders.

Q: The money used by the secondary market to purchase loans comes from deposits in institutions.

Q: Pension funds and trust funds offer money for real estate loans.

Q: Municipal bonds that provide a source of mortgage money for home buyers pay interest that is tax-free from federal income taxes.

Q: Computerized Loan Origination is limited to regulated lenders.

Q: Mortgage brokers do not lend their own money but simply put lender and borrower together.

Q: Mortgage companies tend to lend their own money and retain the loans in their portfolio.

Q: Life insurance companies do no get involved in real estate loans.

Q: Commercial banks tend to favor long term residential lending.

Q: Deregulation of the lending industry had little or no effect on savings and loan institutions.

Q: The primary market is typically divided into two markets: those markets regulated by the federal government and those not regulated by the federal government.

Q: Other lenders providing mortgage money might include a. pension and trust funds. b. credit unions. c. commercial finance companies. d. all of the above.

Q: FHLMC was formed primarily to provide a secondary market for a. savings and loans. b. commercial banks. c. mortgage companies. d. insurance companies.

Q: Participation Certificates (PCs) are instruments used by a. GNMA. b. FNMA. c. FHLMC. d. Farmer Mac.

Q: Computerized Loan Origination (CLO) programs are available to a. mortgage brokers. b. real estate brokers. c. attorneys. d. all of the above.

Q: The term "usury" in the field of real estate lending means charging an interest rate over and above a. the legal limit. b. the prime rate. c. 10%. d. 20%.

Q: Freddie Mac was originally formed to provide a secondary mortgage market facility for the a. Federal National Mortgage Association. b. Government National Mortgage Association. c. Federal Home Loan Bank Board. d. Mortgage Guaranty Insurance Corporation.

Q: The basic role of the GNMA is to a. resupply capital to primary lenders by guaranteeing repayment of pools of mortgage loans. b. insure loans made by primary government lenders. c. sell mortgage pools to money market funds. d. facilitate the resale of mortgage loans by marketing participation certificates.

Q: A quasi-governmental agency, which was originally established to create a secondary mortgage market for FHA loans, is a. FNMA. b. GNMA. c. FHLMC. d. HUD.

Q: The entity that purchases the most loans in the secondary market is a. FNMA. b. FHLMC. c. HUD. d. GNMA.

Q: Fannie Mae buys and sells all mortgages EXCEPT a. FHA loans. b. VA loans. c. conventional loans. d. chattel mortgages.