Q&A Hero

Q: Which of the following duties refers to a brokers obligation to keep the principal informed about financial aspects of their assignment? A. Disclosure B. Accounting C. Loyalty D. Skill and care

Q: In acting as an agent for another person, the broker carries several special responsibilities, which by law must be adhered here to throughout the transaction process. These responsibilities constitute what is commonly referred to as a: A. Subagency relationship B. Dual agency relationship C. Fiduciary relationship D. Open listing relationship

Q: Which of the following duties refers to a brokers obligation to never subordinate the best interest of their principal to the interests of others? A. Disclosure B. Confidentiality C. Loyalty D. Obedience

Q: Real estate brokers operate under the law of agency, which gives a broker the right to act for a principal in trying to buy or sell a property. In the basic principal-agent relationship of real estate brokerage, real estate brokers act in the capacity of a: A. Universal agent B. General agent C. Special agent D. Undercover agent

Q: There are a number of different types of listing contracts that can be used when marketing a property. Which of the following types of listings requires the broker to be paid a commission if anyone, other than the owner, sells the property during the contract period? A. Open listing B. FSBO listing C. Exclusive agency listing D. Exclusive right of sale listing

Q: The importance of brokers in the real estate market is often overlooked. In the absence of a real estate broker, one would expect all of the following to be true EXCEPT: A. The asking price would most likely be higher, on average, than in the case where a broker was involved because the seller is in total control of the sale B. A seller would most likely rely on a thinner market (i.e. the seller has access to fewer prospective buyers) C. It would be more difficult for an individual to buy a property D. Buyers would be more inclined to negotiate prices downward by at least the value of a typical commission.

Q: Real estate brokers serve as intermediaries by bringing buyers and sellers together in the real estate market. For this service, brokers are paid what is commonly referred to as a: A. commission B. licensing fee C. recovery fee D. listing fee

Q: In determining the appropriate listing contract to be used, it is important to know whether a multiple listing service (MLS) will be employed. The MLS only accepts which of the following types of listing contracts? A. Open listing B. FSBO listing C. Exclusive agency listing D. Exclusive right of sale listing

Q: According to the law of agency, real estate brokers are required to observe several duties as they act as an agent for an individual trying to buy or sell a property. Which of the following duties refers to a brokers obligation to be completely open and honest with the principal? A. Disclosure B. Confidentiality C. Loyalty D. Obedience

Q: Federal and state laws prohibit discrimination in housing. However, exemptions do exist depending on the particular type of property that is being considered. All of the following activities could be considered exempt in specific scenarios EXCEPT: A. Refusing to sell or rent to a person because of race. B. Refusing to sell or rent based on familial status (i.e. having children). C. Refusing to sell or rent to persons based on age. D. Refusing to sell or rent a single-family home based on religion provided the owners do not employ the services of a broker or agent.

Q: The recent emergence of discount brokerage services has had a modest effect on the price of brokerage services. The average commission that a broker could expect to receive today would most likely range between: A. 1-2% B. 3-4% C. 5-6% D. 7-10%

Q: Suppose an institution has purchased a $250,000 mortgage loan from the loan originator and wishes to create a mortgage pass-through security. In doing so, this institution will generate revenue by charging a servicing fee of 35 basis points. If the monthly mortgage payment on the loan is $1,250, how much income is passed through to the investor in the mortgage pass through each month (rounded to the nearest dollar)? A. $73 B. $375 C. $875 D. $1177

Q: In ascertaining whether a borrower has the ability to pay off his loan over time, a mortgage bank may rely on calculating a total debt ratio as part of its underwriting process. Utilizing the following information, calculate the total debt ratio. Monthly principal and interest on mortgage loan: $635, Monthly Tax and insurance payments into escrow: $125, Monthly Car lease payment (lease term is 3 years): $350, Gross monthly income: $2,500 A. 25.4% B. 30.4% C. 44.4% D. 53.2%

Q: Loan servicing includes a number of responsibilities such as collecting monthly mortgage payments from the borrower, remitting principal and interest payments to investors, ensuring sufficient escrow payments are being made by the borrower, and managing default if it should arise. In exchange for these services, mortgage bankers receive a fee. If the outstanding loan balance is $250,000 and the annual servicing fee is 0.35%, what is the monthly fee for servicing the loan? A. $72.92 B. $729.17 C. $875.00 D. $8,750.00

Q: The Dodd-Frank Act ushered in a new standard for home mortgage underwriting. Which of the following standards is now required of any lender when underwriting a home loan? A. Ability-to-repay standard B. Ability-to-prepay standard C. Ability-to-securitize standard D. Ability-to-lend standard

Q: When the mortgage banker originates a home loan, she actually creates two assets: the loan and the servicing rights. When the mortgage bank sells the servicing right to the loan, it historically has had a value of: A.0.25-0.50 percent of the loan. B.0.75-1.25 percent of the loan. C.1.50-2.25 percent of the loan. D.2.75-3.25 percent of the loan.

Q: When the contract rate at closing is less than the current market rate (i.e., interest rates have increased since the time of the loan commitment), the mortgage banker will have to sell the newly originated loan at a discount. This scenario best depicts the mortgage bankers exposure to which of the following risks? A. Interest rate risk. B. Fallout risk. C. Default risk. D. Liquidity risk.

Q: In the process of deciding whether to extend a mortgage loan to a prospective borrower, lenders typically examine three elements, more commonly referred to as the 3 Cs. Which of the following metrics does a bank use to evaluate the collateral piece of the loan agreement? A. Loan-to-value ratio B. Payment-to-income ratio C. Credit score D. Housing expense ratio

Q: The traditional approach to loan underwriting has virtually been replaced by an automated underwriting process that involves a statistically derived equation to determine the level of default risk associated with a loan application. All of the following statements regarding the automated underwriting process are true EXCEPT: A. The marginal cost per loan underwritten using the automated process is greater than the case of traditional underwriting. B. The time taken to approve a loan using the automated process is considerably shorter than the case of traditional underwriting C. The success in identifying risky loans is higher using the automated process than is the case with traditional underwriting D. Automated underwriting has made home ownership available to households for whom it previously was inaccessible.

Q: In analyzing a borrowers credit worthiness, the lender will typically examine the borrowers FICO score (a product developed by the Fair Isaac Corporation). High quality (prime) borrowers are those with a credit score above: A. 350 B. 620 C. 660 D. 850

Q: Traditional home mortgage underwriting is said to rest on three elements, the three Cs. Recent research (e.g., Archer and Smith, 2011) has confirmed that the underwriting characteristic most strongly associated with default is: A. Collateral B. Creditworthiness C. Capacity D. Capability

Q: Despite many innovations in the lending process that made mortgage loans more accessible and affordable to the general public, many potential borrowers faced considerable barriers in qualifying for a loan and making a down payment. Which of the following types of loans was designed for a borrower with weak credit, those who seek 100 percent financing, or who cannot document their income? A. Conventional prime home loan B. Affordable housing loan C. Subprime mortgage loan D. Bridge loan

Q: The development of Fannie Mae and Freddie Mac established the framework for a liquid secondary market for residential mortgages. In 2015, the share of all residential mortgage loans owned or securitized by Fannie Mae and Freddie Mac approached approximately: A. 5% B. 16% C. 46% D. 76%

Q: Suppose that a mortgage bank locked in an interest rate for a prospective borrower at 8.5%. However, prior to the loan closing, the market mortgage rate falls to 7.5 %. In this scenario, the mortgage banker would be most concerned with which of the following risks? A. Prepayment risk. B. Fallout risk. C. Default risk. D. Liquidity risk.

Q: Recently, mortgage banking has become the natural method for doing mortgage lending. Within the mortgage lending process, which of the following roles serves as the primary revenue source for mortgage banks? A. Loan commitment B. Loan funding C. Loan servicing D. Loan sales

Q: Traditional home mortgage underwriting is said to rest on three elements, the three Cs. The housing expense ratio is one tool that lenders will use to address concerns associated with which of the three Cs? A. Collateral B. Creditworthiness C. Capacity D. Capability

Q: In the modern framework of home mortgage lending, there are four channels by which first mortgage home loans are created. Within which of the following channels would you typically find a Wall Street investment bank obtaining loans, pooling loans, and creating a senior-subordinate security structure? A. Traditional direct (portfolio) lending B. FHA/VA loan securitization C. Conforming conventional loan securitization D. Nonconforming Conventional loan securitization

Q: The Federal National Mortgage Association (Fannie Mae) was originally established to provide a secondary market for FHA-insured and VA-guaranteed loans. All of the following statements regarding Fannie Mae are true EXCEPT: A. Fannie Mae lends money directly to homebuyers B. Fannie Mae was once a private, self-supporting company with publicly traded stock that has now been placed into conservatorship by the United States government following the mortgage crisis of 2007-2008. C. Fannie Mae fully guarantees timely payment of interest and principal to investors. D. Fannie Mae is authorized to buy both conventional home loans and government-sponsored residential mortgages.

Q: In the securitization process, mortgages are pooled together and cash flows are packaged into securities to be sold in the secondary market. Agencies and private companies that pool mortgages and sell mortgage-backed securities (MBS) are often referred to as: A. thrifts B. credit unions C. conduits D. automated underwriters

Q: In the late 1960s, Congress created a number of agencies designed to address a struggling secondary market for residential mortgages. Which of the following organizations was developed primarily to guarantee mortgage-backed securities based on pools of FHA, VA and Rural Housing Service loans, rather than issue, buy or sell mortgages? A. Federal National Mortgage Association (Fannie Mae) B. Government National Mortgage Association (Ginnie Mae) C. Federal Home Loan Mortgage Corporation (Freddie Mac) D. Federal Agricultural Mortgage Corporation (Farmer Mac)

Q: When a mortgage is used as collateral for the issuance of a mortgage-backed security (MBS), the underlying mortgage is said to be securitized. Approximately what percentage of conventional conforming and FHA or VA loans in the U.S. are being sold into the secondary market and being used as collateral for the issuance of MBS? A. 25% B. 50% C. 90% D. 100%

Q: Throughout the process of originating and selling mortgages, mortgage companies face a number of risks. Therefore, it is important for a lending institution to evaluate the risks of mortgage loan default through a process commonly referred to as: A. mortgage fallout B. loan servicing C. warehousing D. loan underwriting

Q: Mortgage banks typically will attempt to sell loans as quickly as possible after they are originated by either issuing mortgage securities or selling the loan to an intermediary that will subsequently sell the loan in the secondary market. The period between loan commitment and loan sale is referred to as the: A. mortgage pipeline B. mortgage note C. mortgage fallout D. mortgage term

Q: The emergence of mortgage securities propelled the development of mortgage companies, an entity significantly different from the thrifts and banks that previously dominated the mortgage landscape. Which of the following parties is responsible for providing mortgage origination services and initial funding within this new framework? A. Mortgage banker B. Mortgage broker C. Portfolio lender D. Security analyst

Q: In addition to providing home mortgages, large commercial banks have specialized in providing short-term funds to mortgage banking companies in order to enable them to originate mortgage loans and hold the loans until the mortgage banking company can sell them in the secondary market. This type of financing is commonly referred to as: A. Mortgage pipeline B. Loan servicing C. Warehousing D. Loan underwriting

Q: In 1989, Congress took major steps to establish depository institution accountability by requiring these institutions to hold more capital as they take on riskier assets. Which of the following Congressional acts imposed these capital standards on depository institutions? A. Depository Institutions Deregulation and Monetary Control Act B. Financial Institutions Reform, Recovery, and Enforcement Act C. Secure and Fair Enforcement for Mortgage Licensing Act D. Riegle Community Development and Regulatory Improvement Act

Q: In the early 1970s, home mortgage lenders were predominantly depository institutions. By the end of the decade, the growth of deposits at these institutions became negative due to the emergence of more attractive investment opportunities such as money market funds. This change in the distribution chain of funds is more commonly referred to as: A. Deregulation B. Disintermediation C. Warehousing D. Underwriting

Q: To put into perspective the amount of residential mortgage debt outstanding, it is useful to compare this market to other prominent sources of available debt. Listing the issuer with the largest amount of debt outstanding first, which of the following choices best depicts the relative rank ordering amongst the major sources of outstanding debt in the U.S. as of the end of 2015? A. Residential mortgage debt, marketable U.S. government bonds, corporate bonds, consumer credit B. Marketable U.S. government bonds, residential mortgage debt, corporate bonds, consumer credit C. Corporate bonds, marketable U.S. government bonds, residential mortgage debt, consumer credit D. Consumer credit, residential mortgage debt, marketable U.S. government bonds, corporate bonds

Q: Total mortgage debt outstanding as of the third quarter of 2015 approached $13.7 trillion. Which of the following types of mortgage loans accounts for the greatest percentage of mortgage debt outstanding? A. Residential (1-4 family) B. Apartment (multifamily) C. Commercial D. Farm

Q: Lets suppose that a lender has established a 90 percent loan-to-value ratio cutoff as one of its primary underwriting criteria. If a borrower is willing to make a down payment of $125,000 on a home recently appraised at $550,000, which of the following best describes the lenders decision on whether or not to approve the loan along this dimension? A. The lender approves the loan because the LTV ratio is less than 90 percent B. The lender denies the loan because the LTV ratio is less than 90 percent C. The lender approves the loan because the LTV ratio is greater than 90 percent D. The lender denies the loan because the LTV ratio is greater than 90 percent

Q: A lender is considering whether to approve a mortgage loan on a home recently appraised at a value of $500,000. If the borrower is willing to make a down payment of $100,000, determine the loan-to-value ratio associated with this property. A. 20% B. 40% C. 60% D. 80%

Q: Utilizing the following information, calculate the housing expense ratio. Monthly Principal and interest on mortgage loan: $635; Monthly Tax and insurance payments into escrow: $125; Gross monthly income: $2,500 A. 25.4% B. 30.4% C. 44.4% D. 53.2%

Q: Suppose you are thinking about purchasing a small office building for $1,500,000. The 30 year fixed rate mortgage that you have arranged covers 80% of the purchase price and has an interest rate of 8%. Assume you were to default and go into foreclosure in year 10 of this loan. If the lender was able to sell this property for $700,000, how much does the lender stand to lose in the absence of PMI? A. $0 B. $92,696 C. $260,000 D. $352,696

Q: In a fixed-term, level-payment reverse mortgage, sometimes called a reverse annuity mortgage, or RAM, a lender agrees to pay the homeowner a monthly payment, or annuity, and expects to be repaid from the homeowners equity when he or she sells the home or obtains other financing to pay off the RAM. Consider a household that owns a $150,000 home free and clear of mortgage debt. The RAM lender agrees to a $100,000 RAM for 10 years at 6 percent. Assume payments are made annually, at the beginning of each year to the homeowner. Calculate the annual payment on the RAM. A. $7,157.35 B. $7,586.80 C. $12,817.73 D. $13,586.80

Q: Suppose you have obtained a 6%, 30 year fully-amortizing FHA mortgage loan of $152,625 to finance the purchase of your primary residence. In so doing, you must pay an additional mortgage insurance premium (MIP) of 1.10%. If the first-year average loan balance is $151,775.25, determine the first-year monthly insurance premium payment. A. $139.13 B. $1,025.69 C. $1,669.53 D. $1,678.88

Q: Suppose you are interested in obtaining a mortgage loan for $250,000 in order to purchase your principal residence. Your lender has suggested that you might be interested in taking an FHA loan. In order to do so, you must pay an additional up-front mortgage insurance premium (UFMIP) of 1.0% of the mortgage balance. If the interest rate on the fully-amortizing mortgage loan is 5% and the term is 30 years, what is your monthly mortgage payment assuming the UFMIP is financed? A. $1,342.05 B. $1,355.47 C. $1,498.88 D. $2,500

Q: Suppose you have just purchased your first home for $300,000. At the time of purchase you could only afford to commit to a down-payment of $15,000. In order to make the loan, the lender requires you to obtain private mortgage insurance (PMI) on their behalf. Suppose over time you paid down the principal of the loan to $280,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $228,000, what would the lenders loss of principal be taking into consideration the protection of mortgage insurance? (Lets assume that the PMI in this case covers the top 30% of the loan) A. $0 B. $52,000 C. $57,000 D. $72,000

Q: Suppose you have just purchased your first home for $300,000. At the time of purchase you could afford to commit 20% of the purchase price to a down-payment. Suppose over time you paid down the principal of the loan to $220,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $190,000, determine the amount of the loans principal that the lender was unable to recover due to the default. A. $30,000 B. $50,000 C. $240,000 D. $300,000

Q: Suppose that you are in the process of deciding whether or not to refinance your fixed rate mortgage at a lower rate and you are interested in using the payback period rule of thumb to help you in your decision. Your lender has informed you that the cost of refinancing would be $4,300. If your original monthly mortgage payment was $1,250 and your new monthly mortgage payment would be $1,150 after refinancing, determine the payback period. A. 3 months B. 4 months C. 43 months D. 158 months

Q: Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 3 years, Current loan balance: $100,000; Current loan interest: 7%; Current loan mortgage payment: $898.33; Remaining term on current mortgage: 15 years; New loan interest: 5.5%; New loan mortgage payment: $817.08; New loan term: 15 years; Cost of refinancing: $5,000. Assume that the opportunity cost is the interest rate on the new loan (5.5%). A. -$5,000.00 B. -$1,155.27 C. $3,844.73 D. $8,844.73

Q: Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 15 years, Current loan balance: $100,000; Current loan interest: 7%; Current loan mortgage payment: $898.33; Remaining term on current mortgage: 15 years; New loan interest: 5.5%; New loan mortgage payment: $817.08; New loan term: 15 years; Cost of refinancing: $$5000. Assume that the opportunity cost is the interest rate on the new loan (5.5%). A. -$5,000.00 B. -$56.52 C. $4,943.48 D. $9,943.48

Q: Assume that a veteran decides to purchase a house for $150,000 using a VA loan that amounts to $44,000. If the buyer were to defaults on the loan, what is the maximum amount that the VA guarantees the lender? A. $11,000 B. $22,000 C. $33,000 D. $44,000

Q: Based on your understanding of the risks associated with different mortgage loan types, which of the following mortgage loans would be considered the safest with respect to default risk?: A. subprime mortgage loans B. qualified mortgage loans C. option ARM loans D. alt-A mortgage loans

Q: To be considered a qualified mortgage, the loan must have specific features and meet designated underwriting requirements. Based on your understanding of what constitutes a qualified mortgage, all of the following features describe a qualified mortgage EXCEPT: A. The loan cannot exceed 30 years in maturity B. The loan cannot have fees in excess of three percent (if the loan is greater than $100,000) C. The loan cannot have a debt-to-income ratio greater than 43 percent D. The loan does not require verification of underwriting information from third party records

Q: The Dodd-Frank Wall Street Reform and Consumer Protection Act created an important new class of home mortgages that is aimed at helping mortgage lenders implement an ability to repay standard imposed by the law. These mortgages are more commonly referred to as: A. subprime mortgage loans B. qualified mortgage loans C. hybrid mortgage loans D. alt-A mortgage loans

Q: The loan origination market, in which borrowers and lenders come together to provide adequate financing for the purchase of a property, is more commonly referred to as the: A. primary mortgage market B. secondary mortgage market C. over-the-counter market D. government sponsored market

Q: Mortgage loans that allow the borrower to switch among a variety of payment arrangements throughout the life of the loan are more commonly referred to as: A. subprime loans B. option ARM loans C. hybrid ARM loans D. alt-A loans

Q: In addition to the UFMIP (up-front mortgage insurance premium), the owner-occupant borrower who decides to use an FHA mortgage loan will normally pay an additional annual mortgage insurance premium (MIP) that depends on the loan-to-value ratio and the term of the loan. For loans with maturity longer than 15 years and a loan to value ratio that is greater than 95 percent, the MIP will be what percentage of the average annual loan balance? A. 0.25% B. 0.50% C. 1.10% D. 1.15%

Q: FHA mortgage insurance covers any lender loss after conveyance of title of the property to the U.S. Department of Housing and Urban Development (HUD). FHA mortgage insurance requires two premiums to be paid: the UFMIP (up-mortgage insurance premium) and the MIP (monthly insurance premium). Currently, the UFMIP is what percentage of the loan for normal loans used to purchase a personal residence? A. 1.0% B. 1.5% C. 2.0% D. 4.0%

Q: A conventional mortgage loan is one that is not insured or guaranteed by an agency of the U.S. government. The lender, however, can still pursue a private mortgage insurance (PMI) policy to provide a guarantee for the fulfillment of the borrowers obligations. Typically PMI is required for all loans that have a loan to value (LTV) ratio greater than: A. 20% B. 40% C. 60% D. 80%

Q: When a borrower decides to stop making payments on an existing mortgage loan despite having the ability to make payments (typically when the home has lost value), this is more commonly referred to as a(n): A. Equity redemption B. Statutory redemption C. Strategic default D. Reverse mortgage

Q: In recent years, mortgage lenders responded to the demand from home buyers who were unable to put 20 percent down on their purchase and were looking to avoid the private mortgage insurance (PMI) requirement that would typically accompany such a loan by developing a second mortgage that is created simultaneously with the first mortgage in an amount of ten percent of the value of the home. This enabled the borrower to obtain 90 percent financing while avoiding the additional cost of PMI. These loans are more commonly referred to as: A. Reverse mortgages B. Home equity loans C. Piggyback mortgage loans D. Subprime mortgage loans

Q: Suppose a homeowner is reluctant to refinance until he is reasonably sure that interest rates are not going to fall appreciably from where they currently are. In this case, the homeowner appears to be concerned about which of the following costs associated with refinancing? A. Opportunity cost B. Tax consequences C. Default risk D. Upfront fees

Q: With the arrival of subprime mortgages in recent years, a new kind of trigger event became apparent in leading households to default. Which of the following trigger events is primarily associated with most defaults that have occurred during the most recent subprime mortgage crisis? A. Death in the family B. Divorce C. Unemployment D. Mortgage payment spikes

Q: The refinancing decision is sometimes oversimplified into a few rules of thumb that a borrower uses in order to gauge its potential benefits. Which of the following methodologies is criticized for its inability to account for a variation in refinancing benefits due to cost or holding period differences? A. Payback period approach B. Net benefit approach C. Interest rate spread D. Net present value approach

Q: A common criticism of the annual percentage rate (APR) is that it usually understates the true cost of borrowing. The APR may understate the cost of borrowing because it assumes: A. interest rates will always rise B. the loan always goes to maturity C. the actual life of the loan is shorter than maturity D. upfront fees should be ignored

Q: Since mortgages typically have multiple costs associated with them, a borrower may attempt to reduce these costs into a single measure in order to compare two or more mortgages. Which of the following measures is a popular tool for comparing the cost of several mortgages? A. Upfront fees B. Contracted interest rate C. Annual percentage rate D. Teaser rate

Q: Mortgage loans made to borrowers with normal credit quality, but who lack the necessary documentation of their financial circumstances typically needed to meet conforming mortgage standards would most likely be considered: A. subprime loans B. option ARM loans C. hybrid ARM loans D. alt-A loans

Q: The hybrid ARM attempts to balance the fixed payment desire of a borrower with the lenders desire to increase interest rates if market rates rise in the future. In its most common form, known as a 2-28, the hybrid ARM will have a fixed-interest rate for: A. 1 year B. 2 years C. 26 years D. 28 years

Q: In contrast to conventional home loans, the interest-only balloon loan requires the borrower to pay off the loan with a balloon payment equal to the original balance after: A. 1-5 years B. 5-7 years C. 7-15 years D. 15-30 years

Q: In recent years, home equity loans have become a popular form of second mortgage. Their popularity has been a result of all of the following EXCEPT: A. Lower interest rates than other consumer debt B. Shorter terms than other consumer debt C. Tax-favored status D. Aggressive marketing by lenders

Q: Many older, retired households are considered house poor. Which of the following forms of loans has been designed to help mitigate this problem by offering additional monthly income to these homeowners in exchange for a portion of their housing equity? A. Purchase-money mortgage (PMM) B. Piggyback Mortgage C. Home equity loan D. Reverse mortgage

Q: It would be hard to overstate the importance of the Federal Housing Administration (FHA) in the history of housing finance. Which of the following instruments created by the FHA is considered the single most important financial instrument in modern housing finance? A. Level-payment, fully amortizing loan B. Adjustable rate mortgage C. Partially-amortizing balloon loan D. Subprime mortgage loan

Q: Federal Housing Administration (FHA) loans differ from conventional loans in a number of ways. All of the following statements regarding FHA loans are true EXCEPT: A. FHA loans are targeted toward first-time homebuyers who are in slightly weaker financial circumstances than the typical prime conventional borrower. B. FHA loans are more tolerant in terms of qualifying debt-to-income ratios C. FHA loans require higher credit scores than are needed for prime conventional loans. D. FHA loans contain lower limits on their maximum size than are available through conforming conventional loans.

Q: The Federal Housing Administration (FHA) insures loans made by private lenders that meet FHAs property and credit-risk standards. Which of the following statements concerning FHA insurance is true? A. The insurance is paid by the lender and protects the lender against loss due to borrower default. B. The insurance is paid by the borrower and protects the lender against loss due to borrower default. C. The insurance is paid by the lender and protects the borrower against loss due to lender default. D. The insurance is paid by the borrower and protects the borrower against loss due to lender default.

Q: Mortgage insurance rates vary with the perceived riskiness of the loan. Which of the following scenarios would result in a higher mortgage insurance premium? A. Lower loan-to-value ratio B. Shorter loan term C. Stronger credit record of the borrower D. A cash-out refinancing loan

Q: Mortgage originators often offer many types and forms of available residential loans as part of their mortgage menu. However, the predominant form of prime conventional mortgage remains the: A. (fixed-rate) level payment mortgage (LPM) B. adjustable rate mortgage (ARM) C. subprime mortgage D. alt-A mortgage

Q: Since conforming loans can be much more readily bought and sold in the secondary mortgage market, they carry a(n) _______ interest rate than comparable nonconforming loans. A. higher B. equal C. lower D. more volatile

Q: Created by Congress to promote an active secondary market for home mortgages, Fannie Mae and Freddie Mac purchase loans that meet specific underwriting standards such as loan size, documentation, and payment to income ratio. The loans that Fannie Mae and Freddie Mac are eligible to purchase are commonly referred to as: A. government sponsored loans B. conforming conventional loans C. nonconforming conventional loans D. FHA loans

Q: Considered the most common type of home loan, which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S. government? A. Conventional home loan B. Federal Housing Administration loan C. Veterans Affairs loan D. Section 203 loan