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BUSI 422 Quiz 2 Adjustable-Rate Mortgages and Residential Housing solutions complete answers
BUSI 422 Quiz 2 Adjustable-Rate Mortgages and Residential Housing solutions complete answers
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Which loan in the above table is an FRM?
The FTL Act requires that the lender provide a financing statement of the exact closing costs within three days of loan application.
Which of the following statements concerning a 30-year, $150,000 loan at 7 percent with monthly payments is true if, 15 years later, an investor wants to purchase the loan and market interest rates are 5 percent?
Which of the following statements concerning a 30-year, $150,000 loan at 7 percent with monthly payments is true if, 15 years later, an investor wants to purchase the loan and market interest rates are 8 percent?
The default risk of a FRM is higher than the default risk of an ARM.
A major benefit of a PLAM is the mortgage payment increases closely follows borrower salary increases.
If one of the terms of an ARM read, interest is capped at 2%/5%, what would that mean?
An ARM may also be referred to as a floating payment loan.
A borrower with an interest-only loan may end up owing more at the end of the loan than the original loan amount.
If an ARM index increased 15%, the negative amortization on a loan with a 5% annual payment cap is calculated by:
Which is NOT a component of an ARM?
Which loan in the above table should have the lowest initial interest rate?
Which of the following is a disadvantage of PLAMs?
A borrower takes a 30-year, fully amortizing, 5/1 ARM for $225,000 with an initial interest rate of 4.375%. Assuming the index on which the loan rate is based rises by 1% in the fourth year of the loan and remains at that level, what will the payment be in the sixth year of loan?
A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments. The first two years of the loan have a “teaser” rate of 4%, after that, the rate can reset with a 5% annual payment cap. On the reset date, the composite rate is 6%. Assume that the loan allows for negative amortization. What would be the outstanding balance on the loan at the end of Year 3?
The cash equivalent value of a house that sold with favorable financing is usually less than its sale price.
When calculating the cash equivalent value of an assumable loan, you find the present value of the payments using the:
Which of the following is FALSE concerning buydown loans?
The incremental cost of borrowing may also be referred to as the marginal cost of borrowing.
Which of the following is an important aspect of the loan refinance decision process?
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.
The primary benefit of choosing biweekly mortgage payments versus monthly payments is the savings from lowering the average amount paid each month.
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 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?
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?
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?
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 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 repaid in 5 years, what is the incremental cost of borrowing the extra money?
Ms. Towne is buying a home for $250,000 and is putting down 20% cash on the purchase. She is financing the rest with a 30-yr, fixed rate mortgage with a rate of 4.625%, but is considering an option that would allow her to make biweekly payments. How much interest would the biweekly payment option allow her to save over the life of the loan and how long would it take to pay off the loan?
Comparable properties must be chosen from those homes that have been sold, or have been listed for sale, most recently and that are located in the same city as the subject property.
Potential investors, in analyzing the profit potential for a distressed property, generally consider a financial framework including the acquisition phase, the holding period phase and the disposition phase.
Residential appraisers use only the sales comparison approach to determine value of the homes they appraise.
Federal income tax policy has generally been thought to:
The appraised value of a property usually represents the:
A home sales transaction in which the seller was not under undue pressure to sell for a discounted price (e.g., foreclosure, selling to family member, etc.) is referred to as a(an):
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.
Cluster analysis using location quotients and/or employment multipliers provides a snapshot of employment at a point in time but does not provide a forecast of future employment in a specific industry.
The subject property 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 region has a location quotient of 0.5 for manufacturing. This means that:
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:
When calculating taxes, the difference between the acquisition cost and selling price of a house is called:
Which of the following is NOT a factor in causing a property to become distressed:
A property is purchased for $200,000 with an 80 percent 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)?
The Federal Housing Administration (FHA) provides mortgage insurance, but does not make loans.
An escrow account:
RESPA requires lenders to disclose to buyers a good faith estimate of certain closing costs within:
RESPA requires lenders to disclose to buyers a uniform settlement statement detailing all closing costs within:
GSE is the abbreviation for:
Financing costs are usually paid by the lender to either the borrower/buyer or the seller.
One of the objectives of RESPA was to disclose kickbacks and unearned fees on the settlement sheet.
A borrower who was required to purchase private mortgage insurance as a condition of their mortgage should be able to eliminate that requirement if the loan-to-value ratio of a home is proven to have dropped to less than 85%.
In order to avoid the requirement to purchase private mortgage insurance when the loan-to-value is greater than 80%, a buyer may be able to take out a first mortgage for 80% or less and couple it with a second mortgage to account for the remainder of the necessary funds.
Which of the following is NOT one of the essential aspects of RESPA?
Payment to income ratio is BEST described as:
Which of the following is NOT typically included in housing costs used to calculate a borrower’s payment-to-income ratio?
Which of the following is the main objective of the FTL legislation?
Which of the following organizations provides lenders with complete protection against default losses:
A self-employed borrower who has documentable assets but is not able to provide adequate documentation for his income may be eligible for this type of loan:
An ARM may also be referred to as a floating payment loan.
ARMs were developed because lenders were tired of offering a limited selection of loan alternatives to borrowers.
A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments. The first two years of the loan have a “teaser” rate of 4%, after that, the rate can reset with a 5% annual payment cap. On the reset date, the composite rate is 6%. Assume that the loan allows for negative amortization. What would be the outstanding balance on the loan at the end of Year 3?
The default risk of a FRM is higher than the default risk of an ARM.
The expected cost of borrowing depends on which of the following provisions?
If an ARM index increased 15%, the negative amortization on a loan with a 5% annual payment cap is calculated by:
If one of the terms of an ARM read, interest is capped at 2%/5%, what would that mean?
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 major benefit of a PLAM is the mortgage payment increases closely follows borrower salary increases.
Which is NOT a component of an ARM?
ARMs eliminate all the lender’s interest rate risk.
ARMs help lenders combat unanticipated inflation changes, interest rate changes, and a maturity gap
A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments. The first two years of the loan have a “teaser” rate of 4%, after that, the rate can reset with a 2% annual rate cap. On the reset date, the composite rate is 5%. What would the Year 3 monthly payment be?
A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments. The first two years of the loan have a “teaser” rate of 4%, after that, the rate can reset with a 5% annual payment cap. On the reset date, the composite rate is 6%. What would the Year 3 monthly payment be?
Characteristics of a PLAM include an increasing mortgage payment and an adjusting loan balance tied to an index
The expected cost of borrowing does NOT depend on which of the following provisions?
The floor of an ARM is the maximum reduction of payments or interest rates allowed
Given that every other factor is equal, which of the following ARMs will have the lowest expected cost?
In order to calculate the APR for an ARM, you must,
Lender’s can partially avoid estimating interest rates by tying an ARM to an interest rate index.
A major benefit of a PLAM is the mortgage payment increases closely following borrower salary increases.
Negative amortization reduces the principal balance of a loan.
PLAMs have been very popular with lenders.
Under which scenario is negative amortization likely to occur?
Which loan in the above table should have the lowest initial interest rate?
Which of the following clauses leads to higher risk for an ARMs lender?
Which of the following descriptions most accurately reflects the risk position of an ARM lender in comparison to that of a FRM lender?
Which of the following is a disadvantage of PLAMs?
Which of the following statements regarding negative amortization in the previous question is true?
With which loan in the above table does the lender have the lowest interest rate risk?
What components determine the expected yield of an ARM?
a 5/1 hybrid has how many years of a fixed rate
an adjustable rate mortgage is used to finance
an ARM may change the ability of a __________ to make mortgage payments
borrowers have an incentive to default on a PLAM loan when the CPI increases ___________ house prices
a borrower with an interest-only loan may end up owing more at the end of the loan than the original loan amount
floating rate loans are typically used to finance which type of property
the floor of an ARM is
Lender’s can partially avoid estimating interest rates by tying an ARM to an interest rate index
a loss incurred by lenders results in
negative amortization reduces the principle balance of a loan
payment cap
a price adjusted mortgage shifts the risk of changes in ______________ from lenders to borrowers
the time it takes for payments to be adjusted under PLAM is called
what do maximum caps do
which mortgage provides for a more timely adjustment for lenders
With a fixed rate mortgage the _____ bears the interest rate risk and with an ARM the ______ bears the interest rate risk.
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.
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%.
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
A borrower has secured a 30 year, $150,000 loan at 7% with monthly payments. Fifteen years later, the borrower has the opportunity to refinance with a fifteen year mortgage at 6%. However, the up front fees, which will be paid in cash, are $2,500. What is the return on investment if the borrower expects to remain in the home for the next fifteen years?
(A) 6.00%
(B) 7.00%
(C) 13.00%
(D) 22.62%
(E) 28.89%
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%
The cash equivalent value of a house that sold with favorable financing is usually less than its sale price.
Homeowners should not borrow refinancing costs because the effective rate of refinancing will be higher.
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%
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
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.
If interest rates decrease, the market value of a loan previously make will increase.
A loan with biweekly payments will have more interest than a monthly loan with the same interest rate and loan term.
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
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%
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
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
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
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 borrowing a smaller amount on the original loan and borrowing $10,000 with a second loan.
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.
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 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 repaid in 5 years, what is the incremental cost of borrowing the extra money?
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?
Buydown loans have initial payments that are lower than they would be without the buydown provision.
The effective cost of a wraparound loan should be comparable to the cost of a second mortgage with the same loan-to-value ratio.
Home equity loans do not require a mortgage lien on the property.
The incremental cost of borrowing may also be referred to as the marginal cost of borrowing.
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?
The market value of a loan is:
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?
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 $87,978.99. 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?
Ms. Towne is buying a home for $250,000 and is putting down 20% cash on the purchase. She is financing the rest with a 30-yr, fixed rate mortgage with a rate of 4.625%, but is considering an option that would allow her to make biweekly payments. How much interest would the biweekly payment option allow her to save over the life of the loan and how long would it take to pay off the loan?
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.
The primary benefit of choosing biweekly mortgage payments versus monthly payments is the savings from lowering the average amount paid each month.
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?
Which of the following is an important aspect of the loan refinance decision process?
Which of the following is FALSE concerning buydown loans?
Which of the following is TRUE concerning wraparound Loans?
The appraisal function is purely objective; an appraiser’s judgment is not part of the decision process
Assume that houses in an area appreciate at the rate of 4 percent a year. A borrower expects to have a loan-to-value ratio of 90 percent. What is the approximate expected appreciation rate on home equity (EAHE)?
The capitalization effect:
Comparable properties must be chosen from those homes that have been sold, or have been listed for sale, most recently and that are located in the same city as the subject property.
Estimating the land value for an improved property cannot be accomplished using the sales comparison method of valuation.
A home sales transaction in which the seller was not under undue pressure to sell for a discounted price (e.g., foreclosure, selling to family member, etc.) is referred to as a(an):
Housing futures contracts allow investors to speculate on changes in home prices without actually owning a home.
If the cost of rental housing increases relative to house prices, demand for purchased housing tends to increase.
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 location quotient is the ratio of total employment to base employment.
The objective of appraisal is to:
A property is purchased for $200,000 with an 80 percent 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)?
The subject property 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:
Use of construction costs is very important in the sales comparison approach to valuation.
When a homeowner improves some aspect of his property far in excess of comparable properties in the neighborhood, he is said to have:
Which of the following is NOT tax deductible for homeowners?
Which of the following statements best describes the “wealth effect”?
Which of the following would NOT result in an increase in housing demand?
An appraisal usually contains three approaches to valuation. Which of the following is NOT one of those approaches?
The appraised value of a property usually represents the:
Assume that houses in an area appreciate at the rate of 3.5 percent a year. A borrower expects to have a loan-to-value ratio of 80.0 percent. What is the approximate expected appreciation rate on home equity (EAHE)? Express your answer as a percentage and round to 2 decimal places.
Assume that houses in an area appreciate at the rate of 4.0 percent a year. A borrower expects to have a loan-to-value ratio of 75.0 percent. What is the approximate expected appreciation rate on home equity (EAHE)? Express your answer as a percentage and round to 2 decimal places.
Cluster analysis using location quotients and/or employment multipliers provides a snapshot of employment at a point in time but does not provide a forecast of future employment in a specific industry.
Estimating the land value for an improved property cannot be accomplished using the sales comparison method of valuation.
Federal income tax policy has generally been thought to:
A housing bubble occurs when there is a big increase in the supply of homes.
If mortgage interest rates increase, demand for purchased housing tends to increase.
It is likely that two identical houses located in different school districts will sell for different prices.
Mortgage interest and property taxes are deductible for federal income tax purposes for homeowners.
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.
Population increases are usually associated with increases in demand and house price appreciation.
A property is purchased for $200,000 with an 75.0 percent LTV. After 6 years, the owner’s equity is $77500. What would be the annual expected appreciation rate on home equity (annual EAHE)? Express your answer as a percentage and round to 2 decimal places.
A property is purchased for $200,000 with an 80.0 percent LTV. After 6 years, the owner’s equity is $75000. What would be the annual expected appreciation rate on home equity (annual EAHE)? Express your answer as a percentage and round to 2 decimal places.
When calculating taxes, the difference between the acquisition cost and selling price of a house is called:
When considering the federal income tax treatment for housing, which of the following is tax deductible?
When the value of public goods exceeds their cost, the effect on house prices is called the “capitalization effect.”
When using the cost approach to valuation, current market data for land values must be obtained.
Which of the following is NOT a factor in causing a property to become distressed:
You purchased a home 3 years ago for $100,000. The home gained 3% in value after the 1st year, another 2% in the 2nd year, and another 4% in the 3rd year. What is the AVERAGE expected appreciation in home equity (EAHE)?
You purchased a home for $205000 with a 77.5% LTV loan. It has been 5 years and the home has gained in value to $255000. What is the expected appreciation rate on home equity (EAHE)? Express your answer as a percentage and round to 2 decimal places.
The APR estimate must be accurate only to the nearest ___ percent. (A) 1/2
(B) 1/4
(C) 1/8
(D) 1/16
The APR for an adjustable rate mortgage loan is an accurate measure of the actual cost of funds to the borrower
The calculated APR usually represents the true costs of financing
A conforming loan: (A) Exceeds the loan limits of loans that Fannie Mae and Freddie Mac can buy
(B) Meets loan limits of loans that Fannie Mae and Freddie Mac can buy
(C) Cannot be purchased by GSEs such as Fannie Mae and Freddie Mac
(D) Is another term for fixed-rate mortgage loan
A conforming mortgage is one for which the US Treasury will provide credit backing
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.
An escrow account: (A) Ensures that a default insurance policy does not lapse if a borrower is in danger of default
(B) Ensures that sufficient funds are collected to make annual hazard insurance and property tax payments
(C) Is a non-interest-bearing account into which a borrower prepays certain fees and taxes
(D) All of the above
(E) None of the above
The Federal Housing Administration (FHA) provides mortgage insurance, but does not make loans.
Financing costs are usually paid by the lender to either the borrower/buyer or the seller.
For a loan with an LTV greater than 80 percent, the costs of mortgage insurance always exceed the costs of second lien financing
FTL and RESPA essentially say the same things
FTL requires that the lender disclose an estimated cost of financing within three days of loan application
General industry standards for a conventional loan specify a maximum LTV of 60 percent.
In some cases, lenders require that borrowers obtain default insurance. The purpose of such insurance is to: (A) Decrease the effective interest rate on the loan
(B) Increase the value of the underlying property
(C) Protect the borrower from defaulting on the loan
(D) Protect the lender from losses associated with borrower default on the loan
A jumbo loan: (A) Is another term for an adjustable-rate mortgage loan
(B) Meets loan limits of loans that Fannie Mae and Freddie Mac can buy
(C) Tends to have a higher interest rate than conforming loans
(D) Has lower LTV requirements than conforming loans
One of the objectives of RESPA was to disclose kickbacks and unearned fees on the settlement sheet.
Payment to income ratio is BEST described as: (A) The factor used to determine if interest on mortgage loans is tax deductible
(B) The only measure of a borrowers ability to fulfill his or her loan obligations
(C) The ratio of the estimated rental income to the expected payments on a rental property
(D) The ratio of the expected payments on a property to the income of the borrower
Pro-ration involves a professional who rates the quality of the property.
A residential real estate closing involves two actual closings: the loan closing and the sales transaction closing.
RESPA has three specific objectives. Which of the following is NOT one of those objectives? (A) More effective advance disclosure of settlement costs
(B) More informative of the cost of credit
(C) Elimination of kickbacks and unearned fees
(D) A reduction in the amount of escrow placed in accounts for homeowners
RESPA requires a lender to disclose good faith estimates of closing costs within three days of loan application
RESPA requires lenders to disclose to buyers a good faith estimate of certain closing costs within: (A) One day before the real estate closing
(B) Three days before the real estate closing
(C) One day after loan application
(D) Three days after loan application
RESPA requires lenders to disclosure to buyers a uniform settlement statement detailing all closing costs within: (A) One day before the real estate closing
(B) Three days before the real estate closing
(C) One day after loan application
(D) Three days after loan application
Someone with a credit score of 900 is likely to only qualify for a subprime loan
Title insurance protects the buyer from title claims against the property.
To protect themselves from loss due to default, most lenders require borrowers to acquire hazard insurance policies.
A typical RESPA closing statement contains which of the following characteristics?
(A) 2 columns - summary of borrower's and seller's transactions
(B) 2 columns - summary of borrower's and broker's transactions
(C) 3 columns - summary of borrower's, seller's, and broker's transactions
(D) 3 columns - summary of borrowers, seller's, and lender's transactions
What document usually summarizes the sources, disbursements, charges and credits associated with a real estate closing? (A) The purchase contract
(B) The deed of trust
(C) The listing agreement
(D) The settlement statement
Which of the following groups customarily does NOT attend real estate closing? (A) The buyer and seller
(B) The buyer's and seller's immediate families
(C) Real estate broker(s)
(D) Settlement agent(s)
Which of the following is NOT typically included in housing costs used to calculate a borrowers payment-to-income ratio? (A) Principal and interest on the mortgage applied for
(B) Mortgage insurance
(C) Property taxes
(D) Utilities
(E) All of the above are included in the housing costs
Which of the following is the main objective of FTL legislation? (A) More effective advance disclosure of settlement costs
(B) More informative disclosure of the cost of credit
(C) Elimination of kickbacks and unearned fees
(D) A reduction in the amount of escrow placed in accounts for homeowners
Which of the following is typically NOT one of the financing costs associated with the financing of real estate? (A) Closing fees
(B) Loan application and credit report fees
(C) Property inspection and appraisal fees
(D) Loan discount and prepaid interest fees
Which of the following is typically NOT one of the settlement costs that are escrowed over the life of the loan? (A) Property taxes
(B) Mortgage insurance
(C) Selling commissions
(D) Hazard insurance
18) A borrower has a 30-year mortgage loan for $200,000 with an interest rate of 6% and monthly payments. If she wants to pay off the loan after 8 years, what would be the outstanding balance on the loan?
A) $84,886
B) $91,246
C) $146,667
D) $175,545
After a house is purchased, contractors cannot ask the new owner of the house to pay any bills that were outstanding before the house was sold.
A(n) ________ estate represents the most complete form of ownership of real estate. the owner is free to divide it up into lesser estates and sell, lease, or borrow against them as he or she wishes.
A) Fee simple
B) Freehold
C) Leasehold
D) Life
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
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
The APR estimate must be accurate to the nearest ________ percent.
A) 1/2
B) 1/4
C) 1/8
D) 1/16
APR stands for which of the following?
A) Annual percentage rate
B) Amortized percentage regulator
C) Accrued percentage rate
D) Annual percentage regulator
An ARM may also be referred to as a floating payment loan.
As compared to other types of deeds, a general warranty deed provides the most comprehensive warranties about the quality of the title to the property.
Assume that an investment, with a single initial cost of $1,000 and a yield of $50 monthly for 10 years, had a 7% IRR in the 60th month and a 7.2% IRR five months later. The IRR can be 6.8% in the 62nd month.
Assume that houses in an area appreciate at the rate of 4 percent a year. A borrower expects to have a loan-to-value ratio of 90 percent. What is the approximate expected appreciation rate on home equity (EAHE)?
A) 4.0%
B) 10%
C) 20%
D) 40%
Assuming all APRs equal, the effective interest rate on a loan is highest when:
A) The loan has no points and a 30-year maturity and is prepaid in five years
B) The loan has no points and is prepaid at maturity
C) Points are charged and the loan is paid off at maturity in 30 years
D) Points are charged and the loan has a 30-year maturity but is prepaid in five years
Assuming an interest rate of 6%, the present value of $1 that will be received a year from now is $0.75.
At the end of 8 years, your friend wants to have $50,000 saved for a down payment on a house. He expects to earn 8%—compounded monthly—on his investments over the next 8 years. How much would your friend have to put in his investment account each month to reach his goal?
A) $188
B) $374
C) $392
D) $521
At the end of five years, calculating the loan balance of a constant payment mortgage is simply the:
A) Present value of a single amount
B) Future value of a single amount
C) Present value of an ordinary annuity
D) Future value of an annuity due
Because its payment stream looks like a staircase, which loan is sometimes referred to as "stepped-up" financing due to prearranged payment increases?
A) CAM
B) CPM
C) GPM
D) ARM
Begin with a single sum of money at period 0. First, calculate a future value of that sum at 12.01%. Then discount that future value back to period 0 at 11.99%. In relation to the initial single sum, the discounted future value:
A) Is greater than the original amount
B) Is less than the original amount
C) Is the same as the original amount
D) Cannot be determined with the information given
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
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%
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 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%
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%
A borrower obtains a $150,000 reverse mortgage with monthly payments over 10 years. If the interest rate of the mortgage loan is 8%, what is the monthly payment received by the borrower?
A) $820
B) $863
C) $1,250
D) $1,820
A borrower takes a 30-year, fully amortizing, 5/1 ARM for $225,000 with an initial interest rate of 4.375%. Assuming the index on which the loan rate is based rises by 1% in the fourth year of the loan and remains at that level, what will the payment be in the sixth year of loan?
A) $1,123.39
B) $1,241.89
C) $1,259.94
D) $1,403.71
A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments. The first two years of the loan have a "teaser" rate of 4%, after that, the rate can reset with a 2% annual rate cap. On the reset date, the composite rate is 5%. What would the Year 3 monthly payment be?
A) $955
B) $1,067
C) $1,071
D) $1,186
A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments. The first two years of the loan have a "teaser" rate of 4%, after that, the rate can reset with a 5% annual payment cap. On the reset date, the composite rate is 6%. Assume that the loan allows for negative amortization. What would be the outstanding balance on the loan at the end of Year 3?
A) $190,074
B) $192,337
C) $192,812
D) $192,926
A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments. The first two years of the loan have a "teaser" rate of 4%, after that, the rate can reset with a 5% annual payment cap. On the reset date, the composite rate is 6%. What would the Year 3 monthly payment be?
A) $955
B) $1,067
C) $1,003
D) $1,186
A borrower takes out a 30-year mortgage loan for $100,000 with an interest rate of 6% plus 4 points. What is the effective annual interest rate on the loan if the loan is carried for all 30 years?
A) 5.6%
B) 6.0%
C) 6.4%
D) 6.6%
A borrower who was required to purchase private mortgage insurance as a condition of their mortgage should be able to eliminate that requirement if the loan-to-value ratio of a home is proven to have dropped to less than 85%.
A borrower with an interest-only loan may end up owing more at the end of the loan than the original loan amount.
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%
The calculated APR usually represents the true costs of financing.
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
Comparable properties must be chosen from those homes that have been sold, or have been listed for sale, most recently and that are located in the same city as the subject property.
A conforming loan:
A) Exceeds the loan limits of loans that Fannie Mae and Freddie Mac can buy
B) Meets loan limits of loans that Fannie Mae and Freddie Mac can buy
C) Cannot be purchased by GSEs such as Fannie Mae and Freddie Mac
D) Is another term for a fixed-rate mortgage loan
A conforming mortgage is one for which the US Treasury will provide credit backing through the GSEs.
The default risk of a FRM is higher than the default risk of an ARM.
Demand for a mortgage loan is considered:
A) Stable demand
B) Derived demand
C) Interest rate demand
D) Nominal demand
A deposit placed in an interest-earning account earning 8% a year will double in value in ________ years.
A) 6
B) 8
C) 9
D) 72
An escrow account:
A) Ensures that a default insurance policy does not lapse if a borrower is in danger of default
B) Ensures that sufficient funds are collected to make annual hazard insurance and property tax payments
C) Is a non-interest-bearing account into which a borrower prepays certain fees and taxes
D) All of the above
The expected cost of borrowing depends 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) All of the above
Federal income tax policy has generally been thought to:
A) Discourage homeownership
B) Encourage renting
C) Increase interest rates
D) Encourage homeownership
A fee simple estate is a type of freehold estate.
For situations calling for other than annual compounding, each of these factors (when present) must be adjusted for the number of compounding periods in a year:
A) PV & FV
B) N & i,
C) N, i, & PMT
D) N, i, PV, & PMT
The future value compound factor given for period (n) at 15%:
A) Would be less than the factor for period (n + 1) at 15%
B) Would be greater than the factor given for period (n + 1) at 15%
C) Would be the same as the factor given for period (n + 1) at 15%
D) Bears no relationship to the factor for period (n + 1) at 15%
The future value of $1,000 compounded annually for 8 years at 12% may be calculated with the following formula: FV = $1,000 * (1 + 12%)8
If the same $1,000 was compounded quarterly, what formula would you use to calculate the FV?
A) FV = $1,000 * (1 + 3%)8
B) FV = $1,000 * (1 + 12%)32
C) FV = $1,000 * (1 + 3%)32
D) FV = $1,000 * (1 + 12%)2
The future value of $800 deposited today would be greater if that deposit earned 8% rather than 7.75%.
The future value of a $1 annuity compounded at 5% annually is greater than the future value of a $1 annuity compounded at 5% semi-annually.
The future value of a single deposit of $1,000 will be greatest when this amount is compounded:
A) Annually
B) Semi-annually
C) Quarterly
D) Monthly
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 a longer adjustment interval
D) An ARM with no caps or limitations
The grantee typically conveys title to the grantor by means of a deed.
GSE is the abbreviation for:
A) Government-sponsored entity
B) Government-specific entity
C) Government-sponsored enterprise
D) Government-specific enterprise
A historical summary of the publicly-recorded documents that affect the ownership of a property is known as a(n):
A) Estate
B) Deed
C) Abstract of title
D) Lien
A home sales transaction in which the seller was not under undue pressure to sell for a discounted price (e.g., foreclosure, selling to family member, etc.) is referred to as a(an):
A) Aboveboard transaction
B) Arm's-length transaction
C) Parsed transaction
D) Tainted transaction
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%
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
Housing futures contracts allow investors to speculate on changes in home prices without actually owning a home.
How much money does Ted need to invest each month in order to accumulate $10,000 over a five-year period, if he expects to get a return of 5.625% per year?
A) $144.71
B) $1,787.30
C) $148.94
D) $146.36
If a lender is to repossess or bring about the sale of a property if the borrower defaults on the mortgage loan, the lender is said to have a ________ in the real estate.
A) Freehold interest
B) Lease interest
C) Secured interest
D) Quitclaim
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 payments with the 5% capped payment
D) Compounding the difference between the payments as if no cap existed and with the 5% capped payment
If an investment earns 12% annually:
A) An equivalent monthly investment would have to earn a higher equivalent nominal rate to yield the same return
B) An equivalent monthly investment would have to earn a lower equivalent nominal rate to yield the same return
C) An equivalent monthly investment would have to earn the same equivalent nominal rate to yield the same return
D) A relation cannot be determined between a monthly and annual investment
If Beth make an initial investment of $1,000, how much will it be worth after three years if her average return is 8.25% (use monthly compounding)?
A) $1,268.48
B) $17,354.20
C) $1,279.74
D) $1,020.77
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
If you deposit $1,000 in an account that earns 5% per year (compounded monthly), what will the balance in the account be at the end of 5 years?
A) $1,272
B) $1,276
C) $1,280
D) $1,283
If you saw a table containing the following factors, what kind of interest factor would you be looking at?
End of Year 6%
1 1.06000
2 1.12360
3 1.19101
4 1.26247
5 1.33822
A) Present value of a single amount
B) Future value of a single amount
C) Present value of an annuity
D) Future value of an annuity
In comparison to the first month's payment of a CAM, the first month's payment of a CPM:
A) Is higher
B) Is lower
C) Is the same
D) Cannot be determined with this information
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
In jurisdictions where a deed of trust is used to finance real estate, there are three parties to the loan secured by the deed of trust. Which of the following is NOT one of those three parties?
A) Borrower
B) Trustee
C) Holder of the note
D) Grantor
In order to avoid the requirement to purchase private mortgage insurance when the loan-to-value is greater than 80%, a buyer may be able to take out a first mortgage for 80% or less and couple it with a second mortgage to account for the remainder of the necessary funds.
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
In order to solve a compounding problem, you must know all four of the variables in order to solve for the fifth variable.
In some cases, lenders require that borrowers obtain default insurance. The purpose of such insurance is to:
A) Decrease the effective interest rate on the loan
B) Increase the value of the underlying property
C) Protect the borrower from defaulting on the loan
D) Protect the lender from losses associated with borrower default on the loan
The internal rate of return:
A) Is also known as the investment of investor's yield
B) Represents a return on investment expressed as a compound rate of interest
C) Is calculated by setting the price of an investment equal to the stream of cash flows it generates and solving for the interest rate
D) Can be defined by all of the above
The internal rate of return is the good feeling you get inside when you earn a return on your investment.
An investment may have more than one internal rate of return.
An investment that costs $105,000 today is expected to produce the following cash inflows over each of the next five years: $20,000; $25,000; $23,000; $22,000; $21,000. What is the IRR (compounded annually) for this investment?
A) 188.6%
B) 18.9%
C) 1.89%
D) −18.9%
It is illegal to give a quitclaim deed if the grantor has no claim in the property.
A jumbo loan:
A) Is another term for an adjustable-rate mortgage loan
B) Meets loan limits of loans that Fannie Mae and Freddie Mac can buy
C) Tends to have a higher interest rate than conforming loans
D) Has lower LTV requirements than conforming loans
A lessee is a person who holds the title to a piece of property.
A lien waiver provides certification that contractor's on newly constructed properties have been compensated.
A loan in which the borrower arranges in advance with a mortgagee for a total amount that will be advanced, in stages, under the mortgage to meet the part of the costs of construction as it progresses:
A) Assumption
B) Non-recourse
C) Open-end
D) Subordination
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
A location quotient is the ratio of total employment to base employment.
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
A mortgage agreement provides the lender with ________ interests.
A) Unsecured
B) Secured
C) Nonpossessory
D) Possessory
A mortgage is BEST defined as a legal document that:
A) Creates an obligation to repay a loan under specific terms
B) Names real estate as the security or collateral for the repayment of a loan
C) Defines a possessory interest in real estate
D) Conveys ownership of a property to its purchaser
Mr. Fisher has built several houses and is offering buyers mortgage rates of 10% with a 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
Mr. Smith has allowed Mrs. Jones to run a sewer line through Mr. Smith's backyard so that Mrs. Jones has access to the city sewer system. This is an example of a(n):
A) Easement
B) Encumbrance
C) Estate for years
D) Title assurance
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%
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 $87,978.99. 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%
Ms. Towne is buying a home for $250,000 and is putting down 20% cash on the purchase. She is financing the rest with a 30-yr, fixed rate mortgage with a rate of 4.625%, but is considering an option that would allow her to make biweekly payments. How much interest would the biweekly payment option allow her to save over the life of the loan and how long would it take to pay off the loan?
A) $29,528; 25.5 years
B) $33,234; 22.2 years
C) $29,528; 22.2 years
D) $33,234; 25.5 years
The name for a series of equal, annual cash flows that are received at the end of each period is?
A) Ordinary annuity
B) Annuity due
C) Regular annuity
D) Ordinary annuity due
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 a 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
One of the first amortizing mortgages was the constant amortization mortgage (CAM). Which of the following characterized the components of the CAM payment over the life of the loan?
Interest Amortization Payment
(A) Decreasing Decreasing Decreasing
(B) Constant Decreasing Decreasing
(C) Decreasing Constant Decreasing
(D) Constant Constant Constant
A) Option A
B) Option B
C) Option C
D) Option D
One of the most popular amortizing mortgages today is the constant payment mortgage. Which of the following characterizes the components of the CPM payment over the life of the loan?
Interest Amortization Payment
(A) Decreasing Decreasing Decreasing
(B) Increasing Decreasing Constant
(C) Decreasing Increasing Constant
(D) Constant Constant Constant
A) Option A
B) Option B
C) Option C
D) Option D
One way to calculate the present value of a single payment is with the following formula: PV = FV × (1 + i)n.
Over the life of the loan, which of the following loans would continually have a lower principal balance given each loan had the same term, principal amount, and average interest rate?
A) CAM
B) CPM
C) GPM
D) GAM
Payment to income ratio is BEST described as:
A) The factor used to determine if interest on mortgage loans is tax deductible
B) The only measure of a borrower's ability to fulfill his or her loan obligations
C) The ratio of the estimated rental income to the expected payments on a rental property
D) The ratio of the expected payments on a property to the income of the borrower
Points are also known as:
A) Third party charges
B) Reduction in payment amount
C) Loan discount fees
D) Reduction of mortgage yield
Potential investors, in analyzing the profit potential for a distressed property, generally consider a financial framework including the acquisition phase, the holding period phase and the disposition phase.
A property is encumbered as follows: Which of the following types of bankruptcy is filed with the end result of liquidating the debtor's assets?
A) Chapter 7
B) Chapter 11
C) Chapter 13
D) Chapter 17
A property is purchased for $200,000 with an 80 percent 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%
A quitclaim deed says that the grantor "quits" whatever claim he has in the property in favor of the grantee.
Real estate refers to the physical land and improvements constructed on the land.
Real property refers to the ownership rights associated with real estate.
A reciprocal easement agreement allows two or more parties to access each other's property.
RESPA requires lenders to disclose to buyers a good faith estimate of certain closing costs within:
A) One day before the real estate closing
B) Three days before the real estate closing
C) One day after loan application
D) Three days after loan application
RESPA requires lenders to disclose to buyers a uniform settlement statement detailing all closing costs within:
A) One day before the real estate closing
B) Three days before the real estate closing
C) One day after loan application
D) Three days after loan application
A reversion and a remainder are similar in that:
A) Both can be sold or mortgaged
B) Both cause the property to go back to the grantor after the sale
C) Neither is an actual interest in the property
D) Neither is considered a future estate
Risk is an important component of interest rates. Which of the following risks is NOT a determinant of interest rates?
A) Default risks
B) Interest rate risks
C) Institutional risks
D) Marketability risks
A self-employed borrower who has documentable assets but is not able to provide adequate documentation for his income may be eligible for this type of loan:
A) FNMA
B) FHLMC
C) Conforming
D) Alt-A
A senior mortgage holder is owed a mortgage balance of $140,000 and brings a foreclosure suit which includes all junior claimants in the suit. If the senior mortgage holder purchases the property for $140,000 at the foreclosure sale, what happens to the claim of the junior claimants?
A) The liens of the junior claimants are unaffected and the debt is due upon sale
B) The liens of the junior claimants are extinguished, but the debt owed to the junior claimants is unaffected
C) The liens of the junior claimants and the debt owed to them are extinguished
D) The liens of the junior claimants are unaffected, but the debt owed to them is extinguished
A short sale occurs when a buyer does not bring adequate funds to a mortgage closing.
A "short sale" of real estate is:
A) A sale that closes in less than 30 days
B) The sale of a house by someone who is not the owner. it is a way to profit from an anticipated decline in real estate prices
C) A sale in which the proceeds from the sale are less than the balance owed on the loan secured by the property sold
D) A sale in which the balance owed on the loan secured by the property sold is less than the proceeds from the sale
A situation in which a borrower agrees to a court's jurisdiction and cooperates with the lender during litigation to resolve the situation:
A) Prepackaged bankruptcy
B) Judicial foreclosure
C) Friendly foreclosure
D) Voluntary conveyance
Someone with a credit score of 900 is likely to only qualify for a subprime loan.
The subject property 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
Ten years ago, you put $150,000 into an interest-earning account. Today it is worth $275,000. What is the effective annual interest earned on the account?
A) 47.99%
B) 6.00%
C) 6.25%
D) 8.33%
The term real estate refers to the ownership rights associated with the physical land and improvements.
The term to describe a piece of tangible personal property that is affixed to a property, such that it may be considered part of the property?
A) Cramdown
B) Workout
C) Redemption
D) Chattel
A transaction in which a borrower sells a property for less than the current balance of the loan and then provides all of the proceeds to the sale to the lender, typically in full satisfaction of the loan.
A) Prepackaged bankruptcy
B) Short sale
C) Judicial foreclosure
D) Friendly foreclosure
Under which scenario is negative amortization likely to occur?
Payment Cap Interest Rates
(A) None Increasing
(B) None Decreasing
(C) 7.5% Increasing
(D) 7.5% Decreasing
A) Option A
B) Option B
C) Option C
D) Option D
The uniform settlement statement displays settlement summaries for which of the following parties to the closing?
A) Borrower and seller
B) Borrower and broker
C) Borrower, seller, and broker
D) Borrower, seller, and lender
Unless stated otherwise, the borrower is personally liable for payment of all amounts due under the terms of the note.
Using only the information in the table below, approximately how much would you pay today for an investment that pays $0 annual interest, but earns 8% interest over the next four years and has a face value at maturity of $13,500?
Present Value Factor for Reversion of $1
Period 6% 7% 8% 9% 10%
1 .943396 .934579 .925926 .917431 .909091
2 .889996 .873439 .857339 .841680 .826446
3 .839619 .816298 .793832 .772183 .751315
4 .792094 .762895 .713503 .708425 .683013
5 .747258 .712986 .680583 .644931 .620921
6 .704961 .666643 .630170 .596267 .564474
A) $8,000
B) $9,000
C) $10,000
D) $11,000
Using only the information in the table below, what would the IRR be for an investment that cost $500 in period 0 and was sold for $750 in period 5?
Present Value Factor for Reversion of $1
Period 6% 7% 8% 9% 10%
1 .943396 .934579 .925926 .917431 .909091
2 .889996 .873439 .857339 .841680 .826446
3 .839619 .816298 .793832 .772183 .751315
4 .792094 .762895 .713503 .708425 .683013
5 .747258 .712986 .680583 .644931 .620921
6 .704961 .666643 .630170 .596267 .564474
A) Between 6% and 7%
B) Between 7% and 8%
C) Between 8% and 9%
D) Between 9% and 10%
What document usually summarizes the sources, disbursements, charges and credits associated with a real estate closing?
A) The purchase contract
B) The deed of trust
C) The listing agreement
D) The settlement statement
What is the annual interest rate of a fully amortizing, 20-year fixed rate $175,000 mortgage, with a monthly payment of $1,266.41?
A) 5.10%
B) 6.125%
C) 6.25%
D) 6.375%
What is the meaning of the following: Interest is capped at 2%/5%.
A) The loan has a 2% annual cap rate and a 5% lifetime cap rate.
B) The borrower can choose the cap he wants by simply circling the appropriate choice.
C) The loan has a 2% lifetime cap rate and a 5% annual cap rate.
D) The loan has a 2% annual cap rate and a 5% floor cap rate.
What is usually executed at the same time as a mortgage and creates the obligation to repay the loan in accordance with its terms?
A) Recording acts
B) Ownership interests
C) Method of payment
D) Promissory note
What legal document conveys title from one person to another?
A) Mortgage
B) Note
C) Deed
D) Title
What term BEST describes a person that owns a property and is conveying title to the property to another person?
A) Mortgagor
B) Grantor
C) Mortgagee
D) Grantee
What term BEST describes the borrower who is personally liable for a debt obligation related to the purchase of a home?
A) Mortgagor
B) Grantor
C) Mortgagee
D) Grantee
What type of estate lasts for an indefinite period of time?
A) Freehold estate
B) Estate from year-to-year
C) Leasehold estate
D) Estate for years
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
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
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
When considering the federal income tax treatment for housing, which of the following is tax deductible?
A) Mortgage principle and interest paid
B) Mortgage interest paid
C) Homeowner's insurance paid
D) Mortgage principal paid
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%
When would seller financing NOT be used?
A) The seller desires to take advantage of the installment method of reporting the gain from sale
B) The buyer does not qualify for long term mortgage credit because of low down payment or difficulty meeting monthly payments
C) Third-party mortgage financing is less expensive or easily available
D) The seller desires to artificially raise the price of the property by offering a lower-than-market interest rate on the mortgage
Which is NOT a component of an ARM?
A) A margin
B) An index
C) A chapter
D) Caps
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 a floor for payments.
C) Adjustment interval is longer than one year
D) All of the above
Which of the following closing costs DO NOT increase the lender's effective loan yield?
A) Discount points
B) Prepayment penalties
C) Title insurance charges
D) Origination fees
Which of the following descriptions most accurately reflects the risk position of an ARM lender in comparison to that of a FRM lender?
Interest Rate Risk Default Risk
(A) Higher Higher
(B) Lower Lower
(C) Higher Lower
(D) Lower Higher
A) Option A
B) Option B
C) Option C
D) Option D
Which of the following documents conveys title to a property at the time the purchaser completes the performance of the obligation called for in the document?
A) Junior mortgage
B) Package mortgage
C) Purchase-money mortgage
D) Land contract
Which of the following gives the lender the right or option to demand the loan balance owed if a default occurs.
A) Nonrecourse clause
B) Assignment clause
C) Acceleration clause
D) Default clause
Which of the following groups customarily does NOT attend real estate closing?
A) The buyer and seller
B) The buyer's and seller's immediate families
C) Real estate broker(s)
D) Settlement agent(s)
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.
Which of the following is an important aspect of the loan refinance decision process?
A) Terms associated with the existing loan
B) Terms of the new loan
C) Fees associated with paying off the old loan and/or acquiring the new loan
D) All of the above
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) They help borrowers qualify for a loan
D) They can be offered by home builders
Which of the following is FALSE regarding a tax sale?
A) An accurate and complete description of the property is required to be posted for possible purchasers before the sale
B) The property owner may not have had a court appearance through due process, thus creating a cloud on the title
C) The line of authority for the sale may not be clear
D) The purchaser is usually expected to pay all delinquent taxes at the time of sale
Which of the following is not a basic component of any compounding problem?
A) An initial deposit
B) An interest rate
C) A period of time
D) A net present value
Which of the following is NOT a determinant of interest rates for single family residential mortgages?
A) The demand and supply of mortgage funds
B) Inflation expectations
C) Liquidity
D) The demand and supply of apartments
Which of the following is NOT a factor in causing a property to become distressed:
A) Borrower's personal debts
B) Delinquent property taxes
C) Delinquent homeowner's insurance bill
D) Borrower's inability to make mortgage payments
Which of the following is NOT a good method of title assurance?
A) Seller provides a warranty in the deed
B) An attorney searches recorded documents
C) Title insurance is purchased
D) Seller provides a quitclaim deed
Which of the following is NOT a minimum mortgage requirement?
A) Description of the property
B) Covenant of warranty
C) Prepayment clause
D) Covenant of seizin
Which of the following is NOT an alternative to foreclosure?
A) Restructuring the mortgage loan
B) Transfer of the mortgage to a new owner
C) Redemption
D) Prepackaged bankruptcy
Which of the following is NOT one of the essential aspects of RESPA?
A) Advance disclosure of settlement costs
B) Limitations on the cost of mortgages
C) Prohibition of kickbacks and unearned fees
D) Limitations on escrow deposits
Which of the following is NOT tax deductible for homeowners?
A) Points in mortgage loans
B) Mortgage interest
C) Property taxes
D) Maintenance expenses
Which of the following is NOT typically included in housing costs used to calculate a borrower's payment-to-income ratio?
A) Principal and interest on the mortgage applied for
B) Mortgage insurance
C) Property taxes
D) Utilities
E) All of the above are included in the housing costs
Which of the following is the main objective of the FTL legislation?
A) More effective advance disclosure of settlement costs
B) More informative disclosure of the cost of credit
C) Elimination of kickbacks and unearned fees
D) A reduction in the amount of escrow placed in accounts for homeowners
Which of the following is TRUE concerning wraparound Loans?
A) The borrower makes payments on an existing loan
B) The lender makes payments on an existing loan
C) The lender only makes payments on the second mortgage
D) The borrower only makes payments on the second mortgage
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 the loan-to-value ratio
Which of the following is typically NOT one of the financing costs associated with the financing of real estate?
A) Mortgage insurance fees
B) Loan application and credit report fees
C) Property inspection and appraisal fees
D) Loan discount and prepaid interest fees
Which of the following is typically NOT one of the settlement costs that are escrowed over the life of the loan?
A) Property taxes
B) Mortgage insurance
C) Selling commissions
D) Hazard insurance
Which of the following organizations provides lenders with complete protection against default losses:
A) FHA
B) FNMA
C) FHLMC
D) VA
Which of the following situations is NOT a common cause for the use of a purchase-money mortgage?
A) The buyer cannot come up with the down payment needed to qualify for a mortgage
B) The seller wants to receive the gain from the sale in installments
C) Third-party mortgage financing is too expensive or unavailable
D) The seller desires to artificially raise the price of the property by receiving a higher-than-market interest rate
Which of the following solutions is LEAST likely to be acceptable to a mortgagee when discussing alternatives to foreclosing a property?
A) Permanently extending the amortization period
B) Finding someone else to assume the mortgage
C) Providing a temporary grace period during which principal and interest are not paid
D) Permanently reducing the interest rate
Which of the following statements best describes the "wealth effect"?
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 a negative effect
D) A 10 percent increase in homeownership is associated with a 12 percent increase in economic growth
Which of the following statements concerning a 30 year, $150,000 loan at 7% with monthly payments is true, if 15 years later, an investor wants to purchase the loan and market interest rates are 5%?
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
Which of the following statements is FALSE regarding foreclosure?
A) In judicial foreclosure, property subject to attachment and execution is limited to the mortgaged property
B) If the sale of the mortgaged property realizes a price above the claims of the mortgage and expense of the sale, the balance goes to the mortgagor
C) Redemption can be accomplished by paying 95% of the debt, interest and costs due to mortgage
D) All of the above
Which of the following terms refers to an owner's right to redeem a property after foreclosure?
A) Equity of redemption
B) Statutory redemption
C) Attachment
D) Execution
Which of the following types of bankruptcy is available to a business to reorganize and rehabilitate the debtor?
A) Chapter 7
B) Chapter 11
C) Chapter 13
D) Chapter 17
Which of the following types of default LEAST often results in foreclosure?
A) Failure to fulfill financial obligation
B) Failure to pay taxes
C) Failure to pay insurance premiums when due
D) Failure to keep the security in repair
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
Which one of the following is TRUE about prepayment penalties?
A) They are never used with residential mortgages
B) They lower the effective cost if the loan is repaid before maturity
C) They are equivalent to charging additional points for the loan
D) They are not included in the APR calculation
Which type of deed offers the grantee the MOST protection?
A) Quitclaim deed
B) Special warranty deed
C) General warranty deed
D) Officer's deed
You always see an ordinary annuity used in business and never see an annuity due used in business.
Your friend has a trust fund that will pay him $100,000 at the end of 10 years. Your friend, however, wants his money today. He promises to sign his trust fund over to you if you give him some money today. You require a 20% interest rate on money you lend to friends. How much would you be willing to lend under these terms?
A) $16,151
B) $50,000
C) $80,000
D) $0—it would be impossible to earn 20% interest on the loan.
Your friend just won the lottery. He has a choice of receiving $50,000 a year for the next 20 years or a lump sum today. The lottery uses a 15% discount rate. What would be the lump sum amount your friend would receive?
A) $312,967
B) $316,426
C) $500,000
D) $1,000,000
A borrower has secured a 30 year, $150,000 loan at 7% with monthly payments. Fifteen years later, the borrower has the opportunity to refinance with a fifteen year mortgage at 6%. However, the up front fees, which will be paid in cash, are $2,500. What is the return on investment if the borrower expects to remain in the home for the next fifteen years?
A) 6.00%
B) 13.00%
C) 22.62%
D) 28.89%
