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Real Estate
Q:
Financing costs are usually paid by the lender to either the borrower/buyer or the seller.
Q:
A residential real estate closing involves two actual closings: the loan closing and the sales transaction closing.
Q:
The APR for an adjustable rate mortgage loan is an accurate measure of the actual cost of funds to the borrower.
Q:
Determining the APR for federal truth-in-lending purposes is more complicated for a adjustable rate mortgage loan is more difficult than for a fixed rate mortgage loan.
Q:
General industry standards for a conventional loan specify a maximum LTV of 60 percent.
Q:
The Federal Housing Administration (FHA) provides mortgage insurance, but does not make loans.
Q:
For a loan with an LTV greater than 80 percent, the costs of mortgage insurance always exceed the costs of second lien financing.
Q:
Federal income tax policy has generally been thought to:
(A) Discourage homeownership
(B) Encourage renting
(C) Increase interest rates
(D) Encourage homeownership
Q:
When a homeowner improves some aspect of his property far in excess of comparable properties in the neighborhood, he is said to have:
(A) Under-improved the property
(B) Over-improved the property
(C) Reached the point of increasing returns
(D) Exceeded the breakeven point
Q:
The influence on property values brought about by a net benefit related to the value of public goods less their cost is referred to as:
(A) A capital gain
(B) A capital loss
(C) The capitalization effect
(D) The depreciation effect
Q:
Which of the following would NOT result in an increase in housing demand?
(A) Population growth
(B) Employment growth
(C) Higher interest rates
(D) Higher household income
Q:
When calculating taxes, the difference between the acquisition cost and selling price of a house is called:
(A) Ordinary income
(B) Amortization
(C) Capital gain
(D) Deferred income
Q:
When considering the federal income tax treatment for housing, which of the following is tax deductible?
(A) Loan amortization
(B) Interest on mortgage loans
(C) Insurance
(D) None of the above
Q:
The appraised value of a property usually represents the:
(A) Actual value of the property
(B) Actual selling price of the property
(C) Actual opinion of an appraiser
(D) Actual replacement value of the property
Q:
The subject of an appraisal has only two bedrooms, but one of the comparables used in the appraisal has three. If the adjustment for a third bedroom is $5,000, the adjustment would be:
(A) A $5,000 increase to the comparable's selling price
(B) A $5,000 decrease to the comparable's selling price
(C) A $5,000 increase to the subject's selling price
(D) A $5,000 decrease to the subject's selling price.
Q:
An appraisal usually contains three approaches to valuation. Which of the following is NOT one of those approaches?
(A) The Market Approach
(B) The Ratio Approach
(C) The Cost Approach
(D) The Income Approach
Q:
The objective of appraisal is to:
(a) Establish the highest possible price that a property can sell for
(b) Establish the most probable price that would be paid for property under competitive market conditions
(c) Establish the market value for a property's land without any structures (such as a house)
(d) Establish the market value for a property if the property is put to its highest and best use
Q:
The capitalization effect:
(a) Is one of the major factors leading to housing bubbles
(b) Has no impact on housing prices
(c) Relates the quality of public services that individuals receive relative to the taxes that are paid for the services
(d) Relates the interest rate on mortgage loans to the value of residential real estate
Q:
A region has a location quotient of 0.5 for manufacturing. This means that:
(a) The region's share of employment in manufacturing is twice as big as the share of manufacturing employment in the U.S
(b) The region's share of employment in manufacturing is half as big as the share of manufacturing employment in the U.S
(c) Manufacturing is a "base" or "driver" industry for the region
(d) Both A and C
(e) Both B and C
Q:
A property is purchased for $200,000 with an 80percent LTV. After five years, the owner's equity is $80,000. What would be the approximate annual expected appreciation rate on home equity (annual EAHE)?
(a) 13.9%
(b) 14.9%
(c) 20.0%
(d) 80.0%
(e) 100%
Q:
Which of the following statements best describes the "wealth effect," as described in the textbook?
(a) Households with equity in their houses are wealthier than households that rent their housing
(b) Expected appreciation in assets, such as home equity, may increase spending on other goods and services in the economy
(c) Economists believe that wealthier households have a positive effect on the housing market, while low-income households have negative effect
(d) A 10 percent increase in homeownership is associated with a 12 percent increase in economic growth
Q:
Assume that houses in an area appreciate at the rate of 4percent a year. A borrower expects to have a loan-to-value ratio of 90percent. What would be the approximate expected appreciation rate on home equity (EAHE)?
(a) 4.0%
(b) 4.4%
(c) 10%
(d) 20%
(e) 40%
Q:
A location quotient is the ratio of total employment to base employment.
Q:
Housing futures contracts allow investors to speculate on changes in home prices without actually owning a home.
Q:
Residential appraisers use only the sales comparison approach to determine value of the homes they appraise.
Q:
The appraisal function is purely objective; an appraiser's judgment is not part of the decision process.
Q:
When using the cost approach to valuation, current market data for land values must be obtained.
Q:
Estimating the land value for an improved property cannot be accomplished using the sales comparison method of valuation.
Q:
It is possible for two identical houses located in different school districts to sell for different prices.
Q:
Population increases are usually associated with increases in demand and house price appreciation.
Q:
When the value of public goods exceeds their cost, the effect on house prices is called the "capitalization effect."
Q:
Mortgage interest and property taxes are deductible for federal income tax purposes for homeowners.
Q:
Use of construction costs is very important in the sales comparison approach to valuation.
Q:
A housing bubble occurs when there is a big increase in the supply of homes.
Q:
One concern of appraisers when using the sales comparison approach is that financing benefits paid for by a seller of a property may result in a selling price for the comparable property that is lower than the market value.
Q:
Cluster analysis using location quotients and/or employment multipliers provide a snapshot of employment at a point in time but do not provide a forecast of future employment in a specific industry.
Q:
If mortgage interest rates increase, demand for purchased housing tends to increase.
Q:
If the cost of rental housing increases relative to house prices, demand for purchased housing tends to increase.
Q:
Which of the following is NOT tax deductible for homeowners?
(A) Points in mortgage loans
(B) Mortgage interest
(C) Property taxes
(D) Maintenance expenses
Q:
The market value of a loan is:
(A) The loan balance times one minus the market rate
(B) The loan balance times one minus the original rate
(C) The future value of the remaining payments
(D) The present value of the remaining payments
Q:
Which of the following is TRUE regarding the incremental cost of borrowing?
(A) It should be less than the rate for a first mortgage
(B) It should be compared to the cost of obtaining a second mortgage
(C) It is used to calculate the APR for the loan
(D) It is independent of loan-to-value ratio
Q:
Which of the following is FALSE concerning buydown loans?
(A) They are often used during periods of high inflation
(B) They always lower the rate on the loan for the borrower for the entire loan term
(C) Help borrowers qualify for a loan
(D) They can be offered by home builders
Q:
Which of the following is TRUE concerning Wraparound Loans?
(A) The borrower makes payments on existing loan
(B) The lender makes payments on existing loan
(C) The lender only makes payments on the second mortgage
(D) The borrower only makes payments on the second mortgage
Q:
When calculating the cash equivalent value of an assumable loan, you find the present value of the payments using the:
(A) Contract interest rate
(B) Incremental borrowing cost
(C) Market interest rate
(D) Discount rate
Q:
Mr. Fisher has built several houses and is offering buyers mortgage rates of 10% with 15 year term. Current rates are 10.75%. Fourth National Bank will provide the loans, if Mr. Fisher pays an equivalent amount up front to buy down the interest rate. If a house is sold for $290,000 with a 90% loan, how much would Mr. Fisher have to pay to buy down the loan?
(A) $1,957.50
(B) $11,989.34
(C) $11,250.25
(D) $10,790.41
Q:
Ms. Madison has an existing loan with payments of $782.34. The interest rate on the loan is 10.5% and the remaining loan term is 10 years. The current balance of the loan is $57,978.99. The home is now worth $120,000 and Ms. Madison would like to borrow an additional $30,000 through a wraparound loan which would increase the debt to 487,978.99. Terms of the wraparound loan are 12.25% interest with monthly payments for 10 years. What is the incremental cost of borrowing the extra $30,000 through a wraparound loan?
(A) 15.47%
(B) 11.38%
(C) 12.96%
(D) 13.41%
Q:
A house is sold with an assumable $156,000 below-market loan at 8.5% for a remaining term of 15 years. Current rates are 9.75% for 15 year mortgages. If the house sold for $240,000, what is the cash-equivalent value of the house.
(A) $250,834.82
(B) $229,165.18
(C) $260,660.40
(D) $219,339.60
Q:
Bud is offering a house for sale for $180,000 with an assumable loan which was made 5 years ago for $140,000 at 8.75% over 30 years. Kelsey is interested in buying the property and can make a $20,000 down payment. A second mortgage can be obtained for the balance at 12.5% for 25 years. What is the effective cost of the combined loans, if Kelsey would like to compare this financing alternative to obtaining a first mortgage for the full amount?
(A) 10.63%
(B) 9.39%
(C) 9.04%
(D) 11.27%
Q:
A loan was made 10 years ago for $140,000 at 10.5% for a 30 year term. Rates are currently 9.25%. What is the market value of the loan?
(A) $128,271
(B) $147,600
(C) $139,828
(D) $151,395
Q:
Mr. Tramp made a mortgage 5 years ago for $85,000 at 8.25% interest and a 15 year term. Rates have now risen to 10% for an equivalent loan. Mr. Tramp's lender is willing to discount the loan by $2,000 if he will prepay the loan. What rate of return would Mr. Tramp receive by prepaying the loan?
(A) 10.24%
(B) 8.95%
(C) 14.32%
(D) 9.14%
Q:
A borrower made a mortgage loan 7 years ago for $160,000 at 10.25% interest for 30 years. The loan balance is now $151,806.62 and rates for this amount are currently 9.0% for 23 years. Origination fees and closing costs are $4,500 and closing costs are not financed by the lender. What is the effective cost of refinancing?
(A) 9.00%
(B) 10.85%
(C) 15.32%
(D) 9.39%
Q:
When purchasing a $210,000 house, a borrower is comparing two loan alternatives. The first loan is a 90% loan at 10.5% for 25 years. The second loan is an 85% loan for 9.75% over 15 years. Both have monthly payments and the property is expected to be held over the life of the loan. What is the incremental cost of borrowing the extra money?
(A) 20.25%
(B) 16.17%
(C) 11.36%
(D) 12.42%
Q:
Use the information in problem 1, except assume that the loan will be repaid in 5 years. What is the incremental cost of borrowing the extra money?
(A) 13.95%
(B) 13.67%
(C) 14.42%
(D) 12.39%
Q:
A borrower is purchasing a property for $180,000 and can choose between two possible loan alternatives. The first is a 90% loan for 25 years at 9% interest and 1 point and the second is a 95% loan for 25 years at 9.25% interest and 1 point. Assuming the loan will be held to maturity, what is the incremental cost of borrowing the extra money?
(A) 13.66%
(B) 13.50%
(C) 14.34%
(D) 12.01%
Q:
Which of the following statements about the loan in the question above are TRUE?
(a) The market value of the loan is higher than the book value of the loan because the market rate of interest is lower than the interest rate on the loan
(b) The market value of the loan is lower than the book value of the loan because the market rate of interest is lower than the interest rate on the loan
(c) The market value of the loan is higher than the book value of the loan because the market rate of interest is higher than the interest rate on the loan
(d) The market value of the loan is lower than the book value of the loan because the market rate of interest is higher than the interest rate on the loan
Q:
A borrower has secured a 30 year, $150,000 loan at 7% with monthly payments. Fifteen years later, an investor wants to purchase the loan from the lender. If market interest rates are 5%, what would the investor be willing to pay for the loan?
(a) $75,000
(b) $111,028
(c) $118,478
(d) $168,646
Q:
A house is for sale for $250,000. You have a choice of two 20-year mortgage loans with monthly payments: (1) if you make a down payment of $25,000, you can obtain a loan with a 6% rate of interest or (2) if you make a down payment of $50,000, you can obtain a loan with a 5% rate of interest. What is the effective annual rate of interest on the additional $25,000 borrowed on the first loan?
(a) 1.00%
(b) 6.00%
(c) 12.95%
(d) 18.67%
(e) 20.10%
Q:
Home equity loans do not require a mortgage lien on the property.
Q:
A loan with biweekly payments will have more interest than a monthly loan with the same interest rate and loan term.
Q:
Buydown loans have initial payments that are lower than they would be without the buydown provision.
Q:
A potential buyer is interested in purchasing a home that has an assumable below-market loan. The buyer determines that the financing premium associated with the below-market loan is worth $4,300. If similar houses sell for $100,000, the buyer should be willing to pay $104,300 or more for the property.
Q:
A house that is financed with a below-market loan is available for sale. The value of the house will be higher than similar properties regardless of the other terms of the loan.
Q:
If interest rates decrease, the market value of a loan previously make will increase.
Q:
Homeowners should not borrow refinancing costs because the effective rate of refinancing will be higher.
Q:
A borrower is considering refinancing and finds that the return, considering refinancing charges and lower payments, is 10%. The borrower can earn 12% on alternative investments so the property should be refinanced.
Q:
The effective cost of a wraparound loan should be comparable to the cost of a second mortgage with the same loan-to-value ratio.
Q:
The cash equivalent value of a house that sold with favorable financing is usually less than its sale price.
Q:
A borrower finds that the incremental cost of borrowing an extra $10,000 is 14%. A second loan can be obtained at 15% so the borrower would be better off by borrowing with the smaller loan and a second mortgage.
Q:
A borrower finds that the incremental cost of borrowing an extra $10,000 is 14%. The borrower can earn 12% on alternative investments of comparable risk so he would be better off by not borrowing the extra 14%.
Q:
Given that every other factor is equal, which of the following ARMs will have the lowest expected cost?
(A) An ARM with payment caps and negative amortization
(B) An ARM with interest rate caps
(C) An ARM with longer Adjustment interval
(D) An ARM with no caps or limitations
Q:
The expected cost of borrowing does NOT depend on which of the following provisions?
(A) The frequency of payment adjustments
(B) The inclusions of caps and floors on the interest rate, payment or loan balances
(C) The spread over the index chosen for a given ARM
(D) None of the above
Q:
Which of the following clauses leads to higher risk for an ARMs lender?
(A) Negative amortization is not allowed when interest is not covered by the payment due to a payment cap
(B) There is floor for payments
(C) Adjustment interval is longer than one year
(D) All of the above
Q:
Which of the following is a disadvantage of PLAMs?
(A) Lenders face high levels of interest rate risk under PLAMs.
(B) Fewer homebuyers are likely to qualify for financing using PLAMs in comparison to CPMs.
(C) The price level used to index PLAMs is measured on an ex post basis and historic prices may not be an accurate reflection of future price.
(D) All of the above.
Q:
If one of the terms of an ARM read, interest is capped at 2%/5%, what would that mean?
(A) The borrower can choose the cap he wants by simply circling the appropriate choice
(B) The interest rate has a 2% annual cap rate and a 5% lifetime cap rate
(C) The interest rate has a 5% annual cap rate and a 2% lifetime cap rate
(D) The interest rate has a 2% annual cap rate and a 5% floor cap rate
Q:
If an ARM index increased 15%, the negative amortization on a loan with a 5% annual payment cap is calculated by:
(A) Using the same payment as last year and deducting 5% from the principal balance
(B) Increasing the payment by 5%
(C) Totaling the difference between the payment as if no cap existed and the 5% capped payment
(D) Compounding the difference between the payment as if no cap existed and the 5% capped payments
Q:
In order to calculate the APR for an ARM, you must,
(A) Only use the first year's given interest rate
(B) Estimate interest rates over the life of the loan
(C) Assume the worst case scenario and use interest rates at their highest possible point over the life of the loan
(D) Use only the first five year's interest rates because they can easily be estimated and most people only own a property for five years
Q:
Under which scenario is negative amortization likely to occur? (C) Payment Cap Interest Rates(A) None Increasing(B) None Decreasing(C) 7.5% Increasing(D) 7.5% Decreasing
Q:
LOAN 1 LOAN 2 LOAN 3 LOAN 4 Initial Interest Rate
?
?
?
? Loan Maturity (years)
20
20
20
20 % Margin Above Index
3%
---
3%
3% Adjustment Interval
1 yr.
---
1 yr.
1 yr. Points
1%
1%
1%
1% Interest Rate Cap
NONE
----
1%/yr.
3%/yr. With which loan in the above table does the lender have the lowest interest rate risk?
(A) Loan 1
(B) Loan 2
(C) Loan 3
(D) Loan 4
Q:
LOAN 1 LOAN 2 LOAN 3 LOAN 4 Initial Interest Rate
?
?
?
? Loan Maturity (years)
20
20
20
20 % Margin Above Index
3%
---
3%
3% Adjustment Interval
1 yr.
---
1 yr.
1 yr. Points
1%
1%
1%
1% Interest Rate Cap
NONE
----
1%/yr.
3%/yr. Which loan in the above table is a FRM?
(A) Loan 1
(B) Loan 2
(C) Loan 3
(D) Loan 4
Q:
LOAN 1 LOAN 2 LOAN 3 LOAN 4 Initial Interest Rate
?
?
?
? Loan Maturity (years)
20
20
20
20 % Margin Above Index
3%
---
3%
3% Adjustment Interval
1 yr.
---
1 yr.
1 yr. Points
1%
1%
1%
1% Interest Rate Cap
NONE
----
1%/yr.
3%/yr. Which loan in the above table should have the lowest initial interest rate?
(A) Loan 1
(B) Loan 2
(C) Loan 3
(D) Loan 4