Question 1

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

Accepted Answer

Union membership dues are not considered in borrower qualification for conventional, FHA, and VA loans. However, stability of income, credit card debt obligations, and living expenses are all factors that are taken into consideration.

Question 2

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

Accepted Answer

A failure on the part of the borrower to meet the terms of a promissory note is known as default. A deficiency refers to the shortfall between the current value of an asset and its debt, a deferment refers to a temporary postponement of payment, and deformation has no connection with financial terminology.

Question 3

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

Accepted Answer

A deficiency judgment is a type of judgment that a lender can seek in court after a borrower defaults on their loan and the property is sold in a foreclosure sale, but the proceeds from the sale are not enough to cover the outstanding balance on the loan. The deficiency judgment allows the lender to seek the remaining balance from the borrower, typically through wage garnishment or other legal means.

Question 4

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

Accepted Answer

The answer of 12-31.A Federal agency that requires a 10...

Question 5

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

Accepted Answer

Six states (Alaska, Arizona, California, North Dakota, Texas, and Washington) currently have anti-deficiency judgment legislation that require first mortgages to be non-recourse.

Question 6

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

Accepted Answer

Homeowners with negative equity may prefer to make the monthly payments to avoid a bad credit rating, maintain a sense of personal value in continuing to make payments on their home, and fulfill a sense of obligation to repay their loan. Therefore, all of the above options can influence a homeowner with negative equity to prefer making the monthly payments.

Question 7

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:

Accepted Answer

Under VA guidelines, if a borrower fails the income ratio method, they may still qualify if their excess residual income is at least 20% above the required residual income.

Question 8

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

Accepted Answer

A guarantor is an individual who promises to pay back a loan if the borrower is unable to do so. The guarantor is like a co-signer to the loan, but their responsibility is limited to only guaranteeing the payment of the loan.

Question 9

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

Accepted Answer

Conforming loans are those that meet the guidelines set by Fannie Mae and Freddie Mac, and can be sold in the secondary market. Due to the increased liquidity and decreased risk associated with selling these loans, lenders can offer lower interest rates to borrowers. According to recent data, the difference in interest rates between conforming and non-conforming loans is typically around 10-50 basis points.

Question 10

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

Accepted Answer

All of the given conditions - voluntary transfer of property from parents to children, divorce settlements, and transfer of property after death (inheritance) involve the transfer of residential properties from one party to another.

Question 11

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

Accepted Answer

The term that indicates that in the event of default, the lender can require that the entire amount of the debt become due is the acceleration clause. This clause allows the lender to accelerate the repayment schedule and demand immediate payment of the balance due.

Question 12

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

Accepted Answer

A non-recourse note is a type of loan agreement where the lender's remedy in case of default is limited to the value of the collateral (usually the borrower's home). This means that if the borrower defaults on the loan and the collateral is worth less than the amount owed, the lender cannot pursue the borrower for any additional funds. A recourse note, on the other hand, allows the lender to seek additional funds from the borrower if the collateral is not sufficient to cover the outstanding balance of the loan. An obligatory note is not a recognized term in the field of finance or lending.

Question 13

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:

Accepted Answer

A release clause is a provision that allows a developer to sell portions of a large residential real estate development to buyers while using the proceeds to pay down the development loan. The released parcels would be free and clear of the development loan, making them available for financing by the buyer, using the collateral of the individual parcels themselves. This allows the developer to pay down the loan, often with preferred terms.

Question 14

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

Accepted Answer

Uniform building code standards are not of prime importance to an appraiser, as they focus more on the property's specific characteristics and condition rather than general building codes.

Question 15

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

Accepted Answer

The answer of 12-23.The most significant job classification relating to...

Question 16

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:

Accepted Answer

Lock-in clauses were designed to protect lenders from the risks of interest rate fluctuations, but they also prevented borrowers from shopping for better rates or terms. To promote competition between lenders, state legislation, case law, and the regulations of Federal agencies that insure loans (FHA, VA) have virtually eliminated lock-in clauses. This allows borrowers to shop around and obtain the best possible loan terms.

Question 17

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

Accepted Answer

Significant compensating factors refer to factors that can offset any negative factors in a borrower's application. A conservative attitude toward credit and at least a 10% investment in the property are both considered significant compensating factors. Renting out the use of the property is not necessarily a significant compensating factor, as it is not directly related to the borrower's ability to repay the loan. Therefore, the best choice is D, as both options A and B are significant compensating factors.

Question 18

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:

Accepted Answer

The event described in the question is an involuntary conversion, which refers to the loss of property due to reasons beyond the control of the owner (such as fire or natural disaster). In such cases, the lender may require that the insurance proceeds be applied to the outstanding mortgage balance instead of being used for rebuilding the property. This is known as the lender's right of election. The other options listed (substitionary conversion, declaration conversion, and voluntary conversion) do not accurately describe this scenario.

Question 19

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:

Accepted Answer

According to the study, shorter maturity loans (20-year versus 30-year) and loans on new houses were much less likely to default.

Question 20

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:

Accepted Answer

The answer of 12-27.The Anderson family has three children,$750 in...

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