Practice: Chapter 11 • Real Estate Financing

Front 1

Since the 1980s, appraisers must be __ by the government.

Back 1

licensed

Front 2

Money for loans comes from 1) people who saved their money, 2) money deposited into __.

Back 2

escrow

Front 3

The first lien to record is the first to get repaid in a __.

Back 3

foreclosure

Front 4

Fannie Mae, formerly the Federal __ Mortgage Association
(__), was established to stimulate the secondary mortgage market
by buying Veterans Affairs (VA)-guaranteed loans and Federal
Housing Administration (FHA)-insured loans made by private lenders.
Fannie Mae evolved into a private, profit-oriented corporation
thatmarkets its own securities

Back 4

National
FNMA

Front 5

Ginnie Mae, The Government __ Mortgage Association (__) deals in higher-risk, but important programs such as low-income housing.

Back 5

National
GNMA

Front 6

Freddie Mac, formerly the Federal Home Loan Mortgage __ (FHLMC), was founded by the savings and
loan (S&L) associations. Today, they buy loans that have been closed within __ year at specified discount rates.

Back 6

Corporation
one

Front 7

Loans that are kept by the
lender (not sold) are called __ loans.

Back 7

portfolio

Front 8

Conforming loans are conventional loans that
meet the underwriting standards for purchase by Fannie Mae or
Freddie Mac. These are either fifteen-year or thirty-year loans and are not assumable. They have strict __regarding down payments and maximum loan amounts.

Back 8

guidelines

Front 9

Because of the strict underwriting requirements
they must meet, the interest rates for conforming loans are
generally less than rates charged for __ loans.

Back 9

nonconforming

Front 10

Another reason jumbo loans usually carry a higher interest rate is that they must be held or warehoused until the lender has accumulated a __ dollar portfolio of them.

Back 10

multimillion

Front 11

Institutional lenders are commercial banks, savings __, life insurance companies, or any lending institution whose activities are regulated by law.

Back 11

associations

Front 12

The homeowner may request to cancel the PMI when she
can produce an appraisal showing that the loan balance is less than
75–80 percent of the property’s value, there has not been a late payment
in the prior year, and PMI is past a minimum of __ months.

Back 12

24

Front 13

Commercial banks have a strong preference to make loans to their own customers, and __ off their real estate loans.

Back 13

sell

Front 14

Savings banks were regulated on a national level by the Office of Thrift Supervision (OTS) and remain a principle source of __ funds in California.

Back 14

mortgage

Front 15

Insurance companies supply most of the large loans that are
necessary for commercial properties, industrial properties, hotels,
and shopping centers...up to 75% __.

Back 15

LTV

Front 16

Although insurance company loans are often assumable (do not contain a due-on-sale clause) and often have a lower interest rate than the commercial banks or savings associations would charge,
the insurance companies often require an equity position as a limited __ as a condition of making the loan.

Back 16

partner

Front 17

Noninstitutional lenders who make real estate loans include pension
funds, credit __ , and real estate investment trusts (REITs).

Back 17

unions

Front 18

Mortgage bankers are currently the largest single source of new residential loans made in __. They rely primarily on loan origination fees and loan servicing fees as their main sources of __. They only make a nonconforming loan when
they have a ready __ for such a loan.

Back 18

California
income
buyer

Front 19

To qualify as a REIT, the trust must have a minimum
of 100 investors and __ percent of the trust’s income must be
distributed to its investors annually.

Back 19

95

Front 20

Pension funds are a major purchaser of home loans originated by __ bankers.

Back 20

mortgage

Front 21

seller carryback financing: amortized over 30 years, but due in 5-7. Always recommend in writing that the sellers
seek legal __ before committing to a seller carryback.

Back 21

counsel

Front 22

Mortgage Broker Fees:

First trust deeds of less than $30,000—5 percent of the principal
if less than three years; 10 percent if three or more years

• Second trust deeds of less than $20,000—5 percent of the principal
if less than two years; 10 percent if at least two years but less than three years; 15 percent if three or more years

Various fees: $390 - 5%

None of this applies to loans __ than the above limits.

Back 22

larger

Front 23

Most hard money loans are equity loans
rather than purchase loans, and therefore the borrowers are
not protected under the anti-deficiency ordinance (if there's a deficiency, they can come after your other __).

Back 23

assets

Front 24

Third-party originators deal with purchase money loans for out of __ banks.

Back 24

state

Front 25

California has two state agencies,
the Department of Corporations and the Department of Real
Estate, regulating the same type of activity: __ banking.

Back 25

mortgage

Front 26

A conventional loan is any loan not backed by the government. Most __ loans are this type.

Back 26

residential

Front 27

Conventional loans (non-FHA & VA):
- not govt backed
- shorter process time
- more loan products available
- higher loan __

Back 27

amounts

Front 28

Down payments: GI (VA): none, Cal Vet: 2%, FHA: __%

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3

Front 29

The only govt program with prepayment penalty is Cal Vet: 6 months’ interest on original loan amount during first __ years

Back 29

5

Front 30

To qualify for a VA-guaranteed loan, an individual must have
had at least 181 consecutive days of active duty service in the military.
A VA-approved __ evaluates the property.

Back 30

appraiser

Front 31

VA loans: the amount of the loan is not regulated, the amount of the guarantee is. The loan cannot exceed the appraisal, which is commonly known as the certificate of reasonable value (__).

Back 31

CRV

Front 32

Discount points paid on a VA loan are rare, but must always be paid by the __.

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seller

Front 33

A veteran may reuse his loan for an additional 1 point. Injured vets are exempt from any __.

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fees

Front 34

Cal Vet: The state of California
actually lends the money rather than guaranteeing or insuring __.

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payments

Front 35

Cal Vet. The property is acquired by the state, which retains title to the property until the land contract
is __ in full.

Back 35

paid

Front 36

Cal Vet loans have an adjustable interest rate that cannot
exceed __ percent.

Back 36

7.5

Front 37

Mortgage brokers who originate and process Cal Vet loans receive
a 1 percent loan origination fee and a $__ processing fee.

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350

Front 38

FHA Title I loans for modernization, repairs, or alterations on existing
homes.

FHA Title II loans for new __.

FHA loans provide high LTV ratios based on appraisal, which
can go as high as __ percent.

FHA mortgage insurance premium (MIP) must be paid at
the time of loan __.

Back 38

homes
98.75
origination

Front 39

Lenders may be authorized to make the underwriting decision
that a particular loan qualifies for FHA insurance. This is known as a __ endorsement.

Back 39

direct

Front 40

With a __ trust deed the borrower uses more than one parcel
of property as security for the loan.

Back 40

blanket

Front 41

An open-end trust deed allows the borrower to receive additional
loan money up to a preapproved amount...usually for __.

Back 41

remodeling

Front 42

In a wraparound trust deed (AITD), the existing financing is left in place
and the seller continues to pay on the existing loans while giving the borrower a new, larger loan, usually at a higher __ rate.

Back 42

interest

Front 43

wrap arounds: If the existing loan or loans have an acceleration clause or due on-
sale clause, a wraparound loan would be risky. This is because
the underlying lender could demand immediate payment in full of
their loan if they learned that the property had been partially or
fully sold to another party without consent. As an agent, be __ using this type of financing.

Back 43

careful

Front 44

A bridge loan, or __ loan, is an interim loan acquired by a buyer
to have the funds necessary to close escrow on her new property
prior to closing escrow on the property she is selling. (Its when youre moving into your new place before you close escrow on the old one)

Back 44

gap

Front 45

Renegotiable-rate mortgages, also known as __ loans, usually
have payments based on a thirty-year amortization and a fixed
rate of interest for the first five or seven years, at which time they
become due and payable in full. Only part of the principal balance is
repaid during the life of the loan.

Back 45

rollover

Front 46

A standard loan charges simple interest. But reverse loans pay __ interest.

Back 46

compounded

Front 47

A piggyback loan is sometimes shared by two lenders, where one
takes the first position (greater security) and the second lender
takes the __ risk with the secondary position. It is really a first and second trust deed in one instrument.

Back 47

higher

Front 48

Lenders would much prefer making adjustable rate loans. Fixed rate loans can __ them.

Back 48

hurt

Front 49

Buyers can generally qualify for a larger loan with __ rate, versus fixed rate.

Back 49

adjustable

Front 50

Negative
amortization occurs when an ARM has a limit on the amount that the payment can increase in any given time period and the interest
rate increases to a point where the “capped” monthly payment does
not fully pay all of the interest due. The amount of “excess” interest
charged each month, over what the payment will allow, is added to
the principal balance and the loan can actually __.

Back 50

grow

Front 51

Some ARMs have only a rate change, whereas
others have both a rate and a payment change. If the rate changes,
but not the payment, the loan may become a negative amortized loan. The difference in rate and payment changes is the __ period.

Back 51

adjustment

Front 52

Many ARM loans include
prepayment fees which are often six-month’s interest on __ percent of the unpaid principal balance of the loan and can be costly.

Back 52

80

Front 53

The margin on an ARM is often referred to as the spread or __.

Back 53

differential

Front 54

In calculating an ARM payment, the initial period is calculated
the same as a fixed-rate loan payment. After the first-period adjustment, it is as if the borrower were starting a __ loan each time.

Back 54

new

Front 55

To make them attractive to borrowers,
lenders will offer ARM loans with initial interest rates that
are lower than the combined index and margin. Such rates are called teaser rates, discounted rates, tickler rates, or __ rates.

Back 55

introductory

Front 56

The end of the discounted ARM period can subject the borrower to payment __.

Back 56

shock

Front 57

The APR is outlined in the (RESPA) letter and lender’s good-faith estimate of settlement charges that is sent within __ days of application for a loan.

Back 57

three

Front 58

A convertible ARM loan contains a conversion
clause that allows a borrower to convert her adjustable-rate
loan to a fixed-rate loan at predesignated times. The new fixed interest rate is generally set at the current market rate plus a __ percent servicing fee.

Back 58

0.375

Front 59

Most ARMs are assumable; however, most lenders place conditions (credit, fees) on the __ of the loan.

Back 59

assumption

Front 60

Some loans prohibit negative amortization, whereas others allow
it but cap the overall amount of negative amortization that can be
added to the loan’s principal balance. In these cases, any excess interest
over the cap is __ and not added to the loan amount.

Back 60

forgiven

Front 61

When the next ARM adjustment period comes along and the interest rate stays the same or declines, previous obligations are in arrears and must be paid; thus, the monthly payment will increase. This is referred to as a hidden __.

Back 61

ledger

Front 62

Interest only loans: largest loan amounts, become safer each month due to property appreciation, can cause a loss if market __.

Back 62

ledger

Front 63

One strange loan fee:
Loan escrow costs (if not a purchase-money __)

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loan

Front 64

A number of charges are developed by lenders, such as processing
fees, document preparation fees, and other fees, commonly
referred to as __ fees.

Back 64

garbage

Front 65

borrowers who believe they will be in a home for
only a short time are probably good prospects for an adjustable
rate loan with minimal or no __ fees.

Back 65

prepayment

Front 66

Borrowers who are financially challenged to meet standard
lender qualifying ratios will be interested in VA-guaranteed,
FHA-insured, interest-only, or __-rate loans.

Back 66

adjustable

Front 67

To be more competitive, a buyer should go beyond being prequalified and get “__.”

Back 67

preapproved

Front 68

Fannie Mae and Freddie Mac, the two main buyers of home loans,
have strict underwriting guidelines that each loan must meet or __ will not buy the loan.

Back 68

they

Front 69

When processing a new loan, most lenders use the “three Cs”—
character, __, and collateral—as their minimum standard.

Back 69

capacity

Front 70

The front-end ratio is the total payment (PITI) / Gross __. Conforming loans require
that the front-end ratio be approximately __ percent or less.

Back 70

Income
28

Front 71

The back-end ratio, or total obligation ratio, should be approximately __ percent or less to qualify for a __ loan.

Back 71

36
conforming

Front 72

An interest-only loan in a declining market may be a sure
formula for a future __ sale.

Back 72

short

Front 73

The document drawn by the escrow company
is the HUD-1 Settlement Statement. This form is a detailed accounting
of all charges and credits to the buyer, including any deposits
held by the escrow company, and shows the amount of
money the buyer must bring to the escrow company in certified
funds or by wire transfer prior to escrow __.

Back 73

closing

Front 74

the major drawback to obtaining online financing is
that the lenders universally do a poor job of communicating with the
borrower’s real estate licensee and often with the __ company.

Back 74

escrow

Front 75

Fair Credit __ Act: If a loan is rejected by a lender
because of information disclosed in a credit report, the borrower must be notified and told why not.

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Reporting

Front 76

As of Jan 2011, all mortgage originator Licensees must complete the __ and California State examination.

Back 76

National

Front 77

The Truth-in-Lending Act (TILA, Regulation Z) created the concept of __. Also, an individual has until the third day after signing a credit contract to cancel it without __.

Back 77

APR
penalty

Front 78

RESPA: within three days after the date of the loan application, a lender
must furnish the buyer with an itemized list of all closing costs that will be encountered in __.

Back 78

escrow

Front 79

A controlled business arrangement (CBA) is a situation in
which a broker offers “one-stop shopping” for a number of broker controlled services, such as home inspection, title insurance,mortgage
services, and escrowservices. __ permits such CBAs as long as the consumer is clearly informed in writing.

Back 79

RESPA

Front 80

1. A reverse mortgage refers to what
type of loan?
A. A loan that gets smaller with each
payment.
B. A mortgage that has simple
interest.
C. A loan that pays like an annuity
and has compound interest.
D. None of the above.

Back 80

C. A loan that pays like an annuity
and has compound interest.

Front 81

4. What kind of loan covers more than
one property?
A. Subordinated loan
B. Adjustable-rate loan
C. Blanket loan
D. Land loan

Back 81

C. Blanket loan

Front 82

Misread this one:
3. A lender who believes interest rates
will soon be rising significantly will
be most interested in what type of
loan?
A. Thirty-year fixed-rate loan
B. Adjustable-rate loan
C. Fifteen-year fixed-rate loan
D. Renegotiable-rate mortgage

Back 82

B. Adjustable-rate loan

Front 83

2. An adjustable-rate loan index is
5 percent at the time the loan is
made. The margin for the loan
is 2 percent. With a 5 percent lifetime
cap, what is the highest the
interest rate could go?
A. 6 percent
B. 7 percent
C. 7.5 percent
D. 12 percent

Back 83

D. 12 percent