Deck 12: Controlling Default Risk Through Borrower Qualification Loan Underwriting and Contractual Relationships

Question 1

12-19.The theories that explain default risk include:

A) resolution equity theory
B) equity theory
C) ability to pay theory
D) both b and c

Answer 1

both b and c

Question 2

For 95% loan-to-value loans FNMA requires that,as a percent of gross income,the payment not exceed:

A) 10%
B) 15%
C) 25%
D) 18%

Answer 2

25%

Question 3

When a loan is originated the lender will make certain that the appraised value of the house is:

A) equal to the amount of the loan
B) greater than the amount of the loan
C) less than the amount of the loan
D) a or b

Answer 3

greater than the amount of the loan

Question 4

Default occurs when the borrower fails to:

A) make timely payments on the loan
B) repay the principal of the loan
C) neither a nor b
D) both a and b

Question 5

12-17.If the value of the property is insufficient to cover the amount of indebtedness in a foreclosure action the lender,in many states,has a right to a:

A) deficiency judgment
B) non-recourse note
C) stay of bankruptcy
D) hearing of deficiency

Question 6

A homeowner with negative equity in his or her house will:

A) always default
B) never default
C) sometimes default
D) default is not related to negative equity

Question 7

A lengthy foreclosure process can lead a loss as a percent of the balance of:

A) 1% to 3%
B) 4% to 7%
C) 40% to 50%
D) over 100%

Question 8

12-16.A borrower is considered self employed if he or she has ownership in a company greater than:

A) ten percent
B) twenty-five percent
C) thirty percent
D) fifty percent

Question 9

12-12.An appraiser will not generally deal with:

A) property location
B) physical characteristics of the [property]
C) borrower income
D) past selling prices of the property

Question 10

12-10.The following lien takes first place on a property.

A) property taxes
B) lender's lien
C) note holder
D) subordinated interest liens

Question 11

12-13.The provisions of a deed of trust outline the rights and obligations of the:

A) lender
B) borrower
C) trustor
D) all of the above

Question 12

A promissory note is:

A) a recourse note
B) a non-recourse note
C) either a or b
D) both a and b

Question 13

12-20.A theory that states that no borrower with substantial positive equity would default,even if unable to make the monthly payments,is:

A) equity theory
B) bird-in-hand theory
C) resolution equity theory
D) equity binding theory

Question 14

Deficiency judgments are often hard to obtain because:

A) of the cost of pursuing a legal action
B) of the ability of borrowers to declare personal bankruptcy
C) most states prohibit deficiency judgments
D) all of the above

Question 15

12-15.The following statement(s)is true:

A) the ability-to-pay theory of default states that a borrower may default when he or she is financially unable to meet the monthly payment
B) the equity theory of default states that borrowers default when there is no positive equity in the property
C) the ability-to-pay theory of default and the equity theory of default are in conflict with each other.
D) a and b

Question 16

12-11.According to Jackson and Kaserman:

A) the ability-to-pay theory of default is superior
B) the equity theory of default is superior
C) both theories are equally valid
D) neither theory could be demonstrated empirically

Question 17

A promissory note should be:

A) sold without the mortgage transferred with it
B) sold with the mortgage transferred with it
C) not sold
D) insured against default

Question 18

Borrower qualification considers all of the following except:

A) type of income
B) stability of income
C) living expenses
D) location of the borrower

Question 19

12-18.The process of determining and controlling the risk of loss on a residential loan includes:

A) contractual agreements
B) borrower qualification and loan underwriting
C) real property loan stipulations
D) both a and b

Question 20

12-14.Borrower qualifications are mostly the concern of the:

A) lender
B) mortgage insurer
C) borrower
D) both a and b

Question 21

12-26.The following is NOT included in borrower qualification for conventional,FFIA,and VA loans:

A) stability of income
B) union membership dues
C) credit card debt obligations
D) living expenses

Question 22

12-32.Any failure on the part of the borrower to meet the terms of a promissory note is defined as a:

A) deficiency
B) default
C) deferment
D) deformation

Question 23

12-22.A kind of judgment that a lender can seek in court after a default which results in a loss is:

A) appropriation judgment
B) property judgment
C) standing judgment
D) deficiency judgment

Question 24

12-31.A Federal agency that requires a 10 percent down payment in order to purchase adjustable rate mortgages (ARMs)with negative amortization is:

A) FNMA
B) FHLMC
C) HUD
D) both a and b

Question 25

12-34.The number of states that require that first mortgages be non-recourse through anti-deficiency judgment legislation are:

A) all,at present
B) six,at present
C) twelve,at present
D) all states except Hawaii

Question 26

12-24.The following influence a homeowner with negative equity to prefer to make the monthly payments:

A) fear of bad credit rating
B) sense of personal value
C) sense of obligation
D) all of the above

Question 27

12-28.Under VA guidelines,if a borrower fails the income ratio method he or she may qualify if his or her excess residual income is:

A) at least 20%
B) at least 30%
C) between 10 and 15%
D) about 35%

Question 28

12-37.An individual other than the borrower that assures the payment of a note is a:

A) dispensator
B) executor
C) vindicator
D) guarantor

Question 29

12-30.Due to efficiencies of the secondary mortgage market,conforming loans often carry interest rates below that of non-conforming loans by:

A) 2 basis points
B) an average of 7 basis points
C) 200 basis points
D) 10-50 basis points

Question 30

12-38.Which one of these conditions involves the transfer of residential properties from one party to another?

A) voluntary (parents to children)
B) divorce
C) death
D) all of the above

Question 31

12-36.Which term indicates that in the event of default,the lender can require that the entire amount of the debt become due?

A) due-on-sale clause
B) due process clause
C) due payment clause
D) acceleration clause

Question 32

12-33.Which type of note limits the lender's remedy to the value of the residence that serves as collateral?

A) non-recourse note
B) recourse note
C) obligatory note
D) none of the above

Question 33

12-40.A provision that is typical for large residential real estate developments where land is used as collateral for a development loan is a:

A) release clause
B) conveyance clause
C) distribution clause
D) clause of dispatch

Question 34

12-25.The following are NOT of prime importance to an appraiser of property:

A) uniform building code standards
B) square footage and number of bedrooms
C) condition of electrical,plumbing,heating,etc.
D) both a and c

Question 35

12-23.The most significant job classification relating to defaults conducted in a study by T.Gregory Morton was:

A) government employee
B) salesman
C) peace officer
D) teacher

Question 36

12-35.To promote competition between lenders,state legislation,case law,and the regulations of Federal agencies that insure loans (FHA,VA)have virtually eliminated this feature:

A) lock-in clause
B) anti-trust clause
C) divestment clause
D) acceleration clause

Question 37

12-29."Significant compensating factors," after dual qualifying ratios have been computed in respect to gross income,include:

A) conservative attitude toward credit
B) at least 10% investment in the property
C) renting out use of the property
D) both a and b

Question 38

12-39.If a fire completely destroys a residence,the lender has the right to require that the proceeds from insurance be applied to paying off the note rather than rebuilding the property.The event is termed:

A) substitionary conversion
B) declaration conversion
C) involuntary conversion
D) voluntary conversion

Question 39

12-21.A study conducted by George Von Furstenberg found that shorter maturity loans (20-year versus 30-year)and loans on new houses were:

A) very likely to default
B) much less likely to default
C) likely to default within 20 years
D) likely to default within 10 years

Question 40

12-27.The Anderson family has three children,$750 in monthly expenses,and a monthly income of $3,600.Their PITI payment will be $800.They would qualify under a:

A) FHA loan
B) VA loan
C) both a and b
D) neither a nor b

Question 41

12-41.In which action,should the property be expropriated by a government authority,can the lender claim the proceeds from the action to satisfy the debt?

A) award from injunction
B) award from eminent domain
C) award of equity
D) covenants and restrictions