Deck 8: Mortgages

Question 1

A(n) ____________________ is a note, usually long-term, secured by real property.

Answer 1

mortgage

Question 2

The rate to which a lender's interest rate is tied is called the

A)formula.
B)index.
C) adjustment interval.
D) periodic cap.

Answer 2

B

Question 3

Which of the following components of a fixed rate mortgage do not change?

A)payments on the loan
B)interest rate
C) terms
D) all of the above

Answer 3

D

Question 4

The Gramm-Leach-Bliley Act requires that financial institutions protect the privacy of consumers.

Question 5

Lowered lending criteria for home mortgages benefited society as the lowered criteria allowed more consumers to achieve their goal of homeownership.

Question 6

The first step in the mortgage approval process is documentation.

Question 7

A reverse mortgage is repaid

A)over the term of the loan, typically 30 years.
B)in one single large payment at a specified point.
C) when the borrower dies.
D) by the bank to the borrower.

Question 8

A mortgage is the longest and largest debt most people will ever incur.

Question 9

Interest rates are usually lower for fixed rate mortgages than for other types.

Question 10

Which of the following statements about HOEPA loans is NOT true?

A)Lenders must make disclosures three days before closing.
B)Lenders are prohibited from charging an APR that is 10 points higher than a rate on a Treasury Bill.
C) Lenders may not require balloon payments in less than five years on most loans.
D) Lenders may not make loans that do not adequately consider the borrower's ability to repay.

Question 11

The Real Estate Settlement Procedures Act was enacted

A)to protect consumers from hidden costs at closing time.
B)to protect consumers against predatory lending.
C) to promote the informed use of consumer credit.
D) to require banks to document their lending decisions and demonstrate an effort to serve their local communities.

Question 12

A shared appreciation mortgage (SAM) is a mortgage loan tied to the appreciated value of a property.

Question 13

The final step of the mortgage approval process is

A)closing.
B)recording.
C) drawing documents.
D) underwriting.

Question 14

The ____________________ requires banks to record and report data on home lending in order to identify possible discriminatory patterns.

A)Equal Credit Opportunity Act
B)Community Reinvestment Act
C) Home Mortgage Disclosure Act
D) Home Ownership and Equity Protection Act

Question 15

Private mortgage insurance protects the lender against loan default; it typically is not required for borrowers whose down payment is 10 percent or more.

Question 16

Qualifying veterans may get government-backed mortgage loans with low down payments through the Department of Veteran's Affairs.

Question 17

A point is a value equal to ____________________ of a mortgage loan.

A)1 percent
B)2 percent
C) 5 percent
D) 10 percent

Question 18

The "drawing documents" step in the approval process for a mortgage loan involves signing the documents that transfer the property from the seller to the buyer.

Question 19

A larger down payment on a home lowers the amount of the monthly payment.

Question 20

Generally speaking, housing costs should not exceed ____________________ of gross monthly income.

A)10 to 15 percent
B)25 to 28 percent
C) 36 to 40 percent
D) 50 percent

Question 21

____________________ mortgage insurance (PMI) protects the lender against loan default.

Question 22

The refusal of banks to lend to residents of certain neighborhoods is called ____________________.

Question 23

The highest bond rating a security can receive is a(n) ____________________ rating.

Question 24

What is the loan-to-value relationship?

Question 25

The Federal Home Loan Mortgage Corporation is better known as ____________________.

Question 26

Calculate the monthly cost of private mortgage insurance (PMI), using the typical PMI rate of 1/2 of 1 percent, for a principal balance of $165,000.

Question 27

When Sylvia bought her house two years ago, it was worth $75,000. The value of the house has appreciated 4 percent in each of the past two years. What is Sylvia's house worth now?

Question 28

What are the four components of PITI?

Question 29

What is the value of 3 points on a mortgage loan of $150,000?

Question 30

The ____________________ cap is the specified overall maximum or minimum rate of an ARM, regardless of index.

Question 31

The difference between what an item is worth and what is owed on it is called ____________________.

Question 32

_________________________ occurs when the amount owed on a home is more than the current value of the home.

Question 33

In a(n) ____________________ mortgage, the borrower prepays part of the interest in order to get a lower rate.

Question 34

What is the adjustment interval on an ARM?

Question 35

Four years ago, Mavis and Lester purchased a $200,000 home with $25,000 down. The remaining principal on the home is $165,000. Suppose the home has appreciated in value during that time to $250,000. Find Mavis and Lester's equity in the home.

Question 36

A type of fixed rate mortgage in which the entire remaining balance of the loan is due in one single large payment is called a(n) ____________________ mortgage.

Question 37

A fixed rate mortgage is also known as a(n) ____________________ mortgage.

Question 38

Most lenders require an amount called ____________________ to be paid to them in advance; the lenders pay real estate taxes from this fund.

Question 39

What is a foreclosure?

Question 40

Guardian Bank will lend no more than 95 percent of the appraised value of a house to a prospective buyer. The house Yoko and Akira wish to purchase has been appraised at $110,000. What is the maximum amount that Guardian Bank would be willing to lend them?

Question 41

What are the requirements for lenders who wish to participate in the Fannie Mae program?

Question 42

What forms do home equity loans usually take? How is a home equity loan different from a typical consumer loan?

Question 43

Why have mortgages traditionally been considered an attractive investment for lenders?

Question 44

What constitutes a high-interest loan, as defined by HOEPA?

Question 45

What is the Federal National Mortgage Association?

Question 46

During the recent mortgage crisis, what kept struggling homeowners from using the help of credit counselors to renegotiate the interest rates on their homes?

Question 47

Name five types of loans that used lowered lending criteria and contributed to the mortgage crisis.

Question 48

Are interest rates for fixed rate mortgages usually higher or lower than for other types? Why?

Question 49

Why are lenders interested in the appraised value of a property before deciding whether or not to grant a mortgage loan?