Real Estate Exam 2- Questions from Practice Exam

Since conforming loans can be much more readily bought and sold in the secondary mortgage market, they carry a(n) _________ interest rate than comparable nonconforming loans.

lower

In a mortgage loan agreement, the financial rights and obligations of borrower and lender are detailed in the:

note

In a mortgage agreement, the borrower conveys to the lender a security interest in the mortgage property. The lender, i.e. the individual who receives the mortgage claim, is known as the:

mortgagee

Second mortgage loans in which borrowers borrow against the accumulated equity in their home are more commonly referred to as:

home equity loan

In acting as an agent for another person, the broker carries several special responsibilities, which by law must be adhered here to throughout the transaction process. These responsibilities constitute what is commonly referred to as a:

fiduciary relationship

The ability of homeowners to prepay the principal on their outstanding mortgage balance creates cash flow uncertainty for the lender. As a result, the lender may wish to prohibit prepayment on a mortgage loan for a specified period of time after its origination. This is accomplished through which of the following?

lockout provision

Certain mortgage loans contain a due-on-sale clause, which gives the lender the right to terminate the loan at sale of the property. Which of the following types of loans is the most likely to contain a due-on-sale clause?

conventional home loan

Mortgage originators can either hold loans in their portfolios or sell them to investors. When a mortgage originator decides to sell mortgages to another institution, the transaction occurs in what is commonly referred to as the:

secondary mortgage market

Standard mortgage loans require monthly payments typically composed of two components: interest and principal repayments. When a scheduled mortgage payments are insufficient to pay all the accumulating interest, causing some interest to be added to the outstanding balance after each payment shortfall, the loan is said to be

negatively amortizing

In recent years, home equity loans have become a popular form of second mortgage. Their popularity has been a result of all of the following EXCEPT:

shorter terms than consumer debt

Which of the following types of institutions has historically been the largest purchaser of residential mortgages?

government sponsored enterprises

A common criticism of the annual percentage rate (APR) is that it usually understates the true cost of borrowing. The APR may understate the cost of borrowing because it assumes:

the loan always goes to maturity

Considered the most common type of home loan, which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S. government?

conventional home loan

To be considered a qualified mortgage, the loan must have specific features and meet designated underwriting requirements. Based on your understanding of what constitutes a qualified mortgage, all of the following features describe a qualified mortgage EXCEPT:

the loan does not require verification of underwriting information from third party records

Foreclosure is considered the ultimate recourse of the lender because it allows the lender to bring about sale of the property to recover the outstanding indebtedness. All of the following statements regarding foreclosure are true EXCEPT:

when a lender forecloses on a property, it extinguishes all superior liens, bringing about a free and clear sale of the property

Critical to any listing contract is the question of when the broker becomes entitled to a commission. Traditionally, the broker is still entitled to a commission in all of the following scenarios EXCEPT:

if a contract is contingent upon the buyer obtaining financing and the buyer is unable to do so

Mortgage originators often offer many types and forms of available residential loans as part of their mortgage menu. However, the predominant form of prime conventional mortgage remains the:

(fixed-rate) level payment mortgage (LPM)

Throughout the process of originating and selling mortgages, mortgage companies face a number of risks. Therefore, it is important for a lending institution to evaluate the risks of mortgage loan default through a process commonly referred to as:

loan underwriting

Recently, mortgage banking has become the natural method for doing mortgage lending. Within the mortgage lending process, which of the following roles serves as the primary revenue source for mortgage banks?

loan servicing

In a mortgage loan, the borrower always creates two documents: a note and a mortgage. Which of the following pieces of information is provided in the mortgage?

an unambiguous description of the property that is being pledged as collateral for the loan

As an agent for the buyer or seller, a broker has 6 basic fiduciary responsibilities. Which of the following definitions best describes the responsibility of "Obedience"?

Broker must follow the instructions of the principal to the limits of what is legal and ethical

A significant number of mortgage loans use adjustable interest rates, in which the interest rate of the loan is tied to an index rate that fluctuates over time. For income-inducing property, the most common index rate is the:

London Interbank Offered Rate (LIBOR)

When the contract rate at closing is less that the current market rate (i.e. interest rates have increased since the time of the loan commitment), the mortgage banker will have to sell the newly originated loan at a discount. The scenario best depicts the mortgage banker's exposure to which of the following risks?

interest rate risk

when a borrower defaults on the payment requirements of a loan, there are several options that the lender has at its disposal. When the lender allows the borrower simply to convey the property to the lender rather than pursue a court supervised process of terminating all of the borrower's claims of ownership of the property, this is commonly referred to as:

deed in lieu of foreclosure

A lender is considering whether to approve a mortgage loan on a home recently appraised at a value of $500,000. If the borrower is willing to make a down payment of $100,000, determine the loan-to-value ratio associated with this property.

80%

Real Estate brokers serve as intermediaries by bringing buyers and sellers together in the real estate market. For this service, brokers are paid what is commonly referred to as a:

commission

Lenders generally require private mortgage insurance (PMI) for conventional loans over 80% of the value of the security property. PMI protects a lender against which of the following?

losses due to default on the loan

Under the law of agency, a real estate broker is given the right to act of behalf of another individual or entity who is trying to buy or sell a property. The individual or entity that grants authority to the broker to act on their behalf is more commonly referred to as the:

principal

Despite many innovations in the lending process that made mortgage loans more accessible an affordable to the general public, many potential borrowers faced considerable barriers in qualifying for a loan and making a down payment. Which of the following types of loans was designed for a borrower with weak credit, those who seek 100 percent financing, or who cannot document their income?

subprime mortgage loan

In an open-listing contract, an individual broker is entitled to a commission if:

she procures the buyer of the property

When a buyer acquires a property having an existing mortgage loan, a decision must be made as to whether or not the subsequent owner of the property can preserve the loan. If the buyer does not add his or her signature to the note, the buyer does not take on any personal liability. In this case, the buyer is said to:

purchase the property subject to the existing loan

Traditional home mortgage underwriting is said to rest on three elements, the "three C's." Recent research (e.g., Archer and Smith, 2011) has confirmed that the underwriting characteristic most strongly associated with default is:

collateral

The importance of brokers in the real estate market is often overlooked. In the absence of a real estate broker, one would expect all of the following to be true EXCEPT:

the asking price would most likely be higher, on average, than in the case where a broker was involved because the seller is in total control of the sale

Since mortgages typically have multiple costs associated with them, a borrower may attempt to reduce these costs into a single measure to compare two or more mortgages. Which of the following measures is a popular tool for comparing the cost of several mortgages?

annual percentage rate