Unit 14 and 15 - Real Estate Financing Principles and Practices

Unit 14 and 15 - Real Estate Financing Principles and Practices Flashcards Which of the following statements regarding equity is correct?Equity increase when the property appreciates, the borrower makes additional principal payments or makes improvements that add to the value of the property. Equity is calculated by taking the fair market value of the property and subtracting the amount owed. Loan to value (LTV) is calculated by dividing the loan amount by the value of the property.Negative amortization is best described by which of the following?When a borrower's payment does not adequately cover the amount of interest due, negative amortization occurs. The principal balance of the loan increases. .A borrower with a large down payment, greater than 20%, and excellent credit score, over 800, would likely choose which of the following options to purchase a $350,000 residence?A well-qualified buyer with excellent credit and large down payment would typically choose an uninsured conventional loan. Private mortgage insurance is paid when a borrower does not have the required 20% down payment.Which of the following functions should a real estate agent NOT perform for a seller in a short sale?A broker cannot negotiate with a lender on behalf of a seller client. The seller would need to hire an attorney.A borrower recently borrowed $200,000 from a lender by way of a straight term loan. Which of the following is most accurate regarding the loan?A straight term loan is interest only for entire term of the loan. The borrower will have to pay the entire principal balance at the end, also known as a balloon payment, therefore the loan does not amortize. The loan may be at a variable or fixed rate. .All of the following are true regarding VA loans, EXCEPT:VA loans are made by the bank and the government guarantees a portion, based upon a sliding sale and the veterans entitlement. The entitlement does not mean that the borrower is credit worthy or has the ability to pay the loan. The VA sets the maximum amount to lend through the CRV - certificate of reasonable value. Qualifying veterans and non-veterans can assume a VA mortgage.The practice of secondary mortgage markets institutions FNMA and Freddie Mac purchasing a package of mortgage backed securities to spread risks across a multitude of

loans is referred to as:

Mortgage pooling or loan pooling occurs when large amounts of loans are bundled into a mortgaged backed security and sold.The primary purpose of the secondary mortgage market is best described as The secondary market purchases mortgages so that the primary market can continue to make loans. Lenders have a limited amount of money to lend and need to sell mortgage in order to refill their "bucket"..An underwriter may take into consideration all of the

following factors when evaluating a borrower, EXCEPT:

Under the Equal Credit Opportunity Act, a lender cannot discriminate based on Federal Fair Housing's protected classes and the additional protections for age, marital status and income from public assistance. The lender can

take into account the borrowers financial obligations such as student loan payments and child support as well as the borrowers credit score and repayment history.A lender cannot make a VA loan without which of the following?A veteran of qualifying widow or widower must have a certificate of eligibility for a loan to be originated which may

be obtained from the VA or a qualifying lender. The lender may require an appraisal, however will often accept the CRV - certificate of reasonable value.

A borrower recently received a loan, on his purchase of a personal residence, from a North Carolina Bank. All of the

following are true, EXCEPT:

FHA, VA and loans of $150,000 or less cannot contain prepayment penalties. FHA loans require the payment of an up from mortgage insurance premium as well as a monthly MIP payment. FHA and VA loans are assumable and therefore cannot contain a due on sale / alienation clause.In accordance with guidance contained in TILA-RESPA, which of the following costs would not be allowed to change on the final Closing Disclosure from the of the Loan Estimate?The amount charged for discount points and other lender related costs are not permitted to change unless the loan program is changed. Costs associated with service providers that are selected by the buyer are permitted to change without penalty to the bank. When the bank selects the service provider, the cost cannot change in aggregate by more than 10% or the lender would be required to refund the difference to the buyer.Which best describes the defeasance clause in a deed of trust?Think of the defeasance clause as the borrower defeating the mortgage. What do you get when you defeat the mortgage by paying it off, a cancellation of the lien against the property. Acceleration is the right of the lender to call the full note balance due when a borrower defaults on the mortgage. The power of sale clause allows the lender to instruct the trustee to sell the property at auction.Which of the following is TRUE regarding conventional and unconventional loans?When a borrower does not have 20% for his/her down payment on a conventional mortgage, the lender may require the borrower to obtain private mortgage insurance.FHA insures the loans, however does not set the interest rate or prevent the lender from charging fees. In certain circumstances the VA can waive the typical funding fee.Fannie Mae, Ginnie Mae and Freddie Mac purchase home loans on the secondary market. They do not make direct loans to buyers.All of the following would be examples of the primary mortgage market, EXCEPT FNMA or Fannie Mae purchases loans on the secondary market in order to provide liquidity to primary mortgage lenders (loan originators).Which statement regarding discount points is NOT true?Discount points typically reduce the borrower stated interest rate on the note by 1/8% or .125% and generally require the borrower to pay 1% of the loan amount up front.Discount points are an up front cost that are not refundable if the borrower refinances or sells the home. They are often paid when the borrower needs to lower the mortgage payment in order to qualify for the loan.A borrower conveys bare legal title to a third party in the deed of trust. Which of the following best describes the trustee's interest in the property?The trustee does not have power of possession unless they successfully foreclose and are the winning bidder at the foreclosure auction. Hypothecation is pledging an asset as security for debt while still maintaining possession. The trustee holds legal or actual title until the borrower pays off