Question 1

A reverse annuity mortgage is intended to&#10;A) provide a source of income for an elderly person&#10;B) make monthly payments in reverse order of date due and amount&#10;C) reduce the principal due&#10;D) allow interest to be escrowed and remitted at a later date

Accepted Answer

A reverse annuity mortgage is a loan made to an elderly homeowner in which the mortgage holder pays the homeowner a certain amount of money each month based on the equity in the home. The loan is repaid when the homeowner dies, sells the house, or moves out permanently. The purpose of a reverse annuity mortgage is to provide a source of income for elderly persons who may not have other sources of income or may have limited income. The other choices do not accurately describe the purpose or function of a reverse annuity mortgage.

Question 2

One reasons for the Option ARM's decline in use is&#10;A) better rate adjustment options on new innovative mortgage products.&#10;B) product was used for mortgagors that it was inappropriate for their risk profile.&#10;C) the 15 year option for amortization ceased to exist.&#10;D) the low interest rate environment.

Accepted Answer

The Option ARM was often used for mortgagors who did not have the necessary income or credit history to afford the payments once the interest rate increased. This led to high levels of default and foreclosure, making the product less popular with lenders and borrowers.

Question 3

Negative amortization, or an increase in the principal amount due each month, is most likely to be found in which of the following?&#10;A) Adjustable Rate Mortgage&#10;B) Growing Equity Mortgage&#10;C) Pledged Account Mortgage&#10;D) Graduated Payment Mortgage

Accepted Answer

Graduated Payment Mortgage often involves negative amortization in the early years of the loan. This is because the initial payments are set lower than the interest due, causing the unpaid interest to be added to the principal balance.

Question 4

A buy-down mortgage is distinguished by which of the following?&#10;A) Any mortgage with lower initial monthly payments&#10;B) A mortgage with less-than-market interest rate&#10;C) Payment by seller of a portion of the interest cost at closing to reduce monthly payments in the early years of repayment&#10;D) A second mortgage that reduces, or &#34;buys down, the first mortgage.

Accepted Answer

A buy-down mortgage involves the seller paying a portion of the interest cost at closing to reduce the monthly payments in the early years of repayment. This is different from simply having lower initial monthly payments or a less-than-market interest rate. It also does not involve a second mortgage.

Question 5

An index as used in an adjustable rate mortgage must be&#10;A) one approved by the lender's regulatory authority.&#10;B) the lender's current cost of funds.&#10;C) current market yields on mortgage loans.&#10;D) any mortgage index.

Accepted Answer

The answer of An index as used in an adjustable...

Question 6

A note allowing monthly repayment amounts less than are necessary to fully amortize a loan during its term is called a&#10;A) Growing Equity Mortgage&#10;B) Graduated payment note&#10;C) Balloon payment note&#10;D) Buy-down note

Accepted Answer

A balloon payment note is a type of loan that does not fully amortize over its term. As a result, at the end of the term, a lump sum payment (the "balloon" payment) is required to settle the remaining principal balance.

Question 7

A major advantage for the borrower in a home equity revolving type loan is that&#10;A) the home does not serve as collateral&#10;B) the interest expense has been used as a qualifying tax deduction applicable to a home loan&#10;C) the interest rate charged is limited by law to the same as a first mortgage&#10;D) all lenders freely offer this type of credit

Accepted Answer

The interest expense on a home equity revolving type loan may be used as a qualifying tax deduction applicable to a home loan, which is a significant advantage for the borrower. A home equity revolving type loan does use the home as collateral, and there is no law limiting the interest rate charged by lenders. Additionally, not all lenders may freely offer this type of credit.

Question 8

A buy-down mortgage is distinguished by which of the following?&#10;A) Any mortgage with lower initial monthly payments.&#10;B) A mortgage with less-than-market interest rate.&#10;C) Payment by the seller of a portion of the interest cost at closing to reduce monthly payments in the early years of repayment.&#10;D) A second mortgage that reduces, or &#34;buys down, the first mortgage&#34;.

Accepted Answer

A buy-down mortgage is characterized by the payment made by the seller of a part of the interest cost at closing to reduce monthly payments in the early years of repayment. This payment by the seller is known as a "buy-down," and it usually lasts for a specific period, after which the borrower is responsible for the full payment amount. This type of mortgage is often desirable for borrowers who cannot afford high monthly payments in the initial years of repayment.

Question 9

What was the primary early selling point of a borrower being offered a piggyback mortgage from a financial advantage perspective?&#10;A) Not buying private mortgage insurance which was not tax deductible for many years.&#10;B) The interest rate on the piggyback mortgage was always lower than a home equity line of credit.&#10;C) Fannie Mae would buy both the first and second when made together making the closing and funding go faster.&#10;D) When a first and second mortgage were made together it made Loan modification or settlement problems easier to deal with if they occurred.

Accepted Answer

The primary advantage of a piggyback mortgage was avoiding the cost of private mortgage insurance (PMI) which was not tax-deductible for many years. By taking out a second mortgage instead of paying PMI, borrowers could potentially save money in the long run.

Question 10

A shared equity mortgage allows&#10;A) the lender to share in any appreciation made by the property pledged&#10;B) two or more parties to share property ownership and the mortgage obligation&#10;C) one party to undertake the mortgage obligation and another to take or share ownership&#10;D) a partial obligation on the mortgage commensurate with their ownership interest\

Accepted Answer

The answer of A shared equity mortgage allows&#10;A) the lender...

Question 11

Which of the following is the most important distinguishing feature of an adjustable rate mortgage?&#10;A) The payment amount is fixed for the life of the loan.&#10;B) The lender has the right to change the interest rate during the term of the loan.&#10;C) The term of the loan may be extended.&#10;D) The borrower has the right to reject a change in the payment amount.

Accepted Answer

The answer of Which of the following is the most...

Question 12

In mortgage lending, the term &#34;amortization&#34; means&#10;A) making monthly payments&#10;B) the pay-off of a loan at maturity&#10;C) periodic reduction of the principle balance&#10;D) periodic payment of interest

Accepted Answer

The answer of In mortgage lending, the term &#34;amortization&#34; means&#10;A)...

Deck 7: Mortgage Repayment Plans