Mortgage Lending Terminology Quiz

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Questions and Answers

What does 'accrued interest' in mortgage loans refer to?

Interest that has been incurred but not yet paid. (correct)

Interest calculated on the total loan amount.

Interest due only at the beginning of the loan term.

Interest that has been paid in advance.

Which of the following describes an 'Alt-A' loan?

A loan that is characterized by lower credit quality.

A loan requiring full income verification.

A loan that meets all conventional lending guidelines.

A loan with good credit but limited documentation. (correct)

What is the main purpose of amortization in a mortgage?

To convert a loan into a grant.

To wait until the end of the term to pay off the loan.

To increase the debt owed over time.

To systematically reduce or pay off a debt. (correct)

The term 'Annual Percentage Rate (APR)' is defined under which act?

Truth in Lending Act (Reg Z). Signup and view all the answers

What characterizes a 'stated income' loan?

Loan qualification based only on the borrower's stated income. Signup and view all the answers

What does 'assigned loan' mean in the mortgage lending context?

A loan sold to a servicer who was not the originator. Signup and view all the answers

Which term describes payments made toward the principal of a debt?

Amortization. Signup and view all the answers

Which of the following statements about terms in the mortgage industry is true?

Some terms have specific meanings only known to industry insiders. Signup and view all the answers

What is the primary purpose of an assumable loan?

To enable the buyer to take over the seller's existing mortgage loan. Signup and view all the answers

Which automated underwriting system is associated with Freddie Mac?

Loan Prospector Signup and view all the answers

How is the Average Prime Offer Rate (APOR) primarily used?

To compare with the APR of a loan to identify higher-priced loans. Signup and view all the answers

What does a cash-out refinance provide to the borrower?

Equity in the home converted into cash for personal use. Signup and view all the answers

What is the definition of conveyance in real estate?

Transferring ownership of property from one party to another. Signup and view all the answers

What does a debt ratio assess?

A borrower's ability to repay a mortgage based on income and debts. Signup and view all the answers

What constitutes a delinquent loan?

A loan for which the borrower has not made required payments. Signup and view all the answers

What do discount points do for a mortgage loan?

They lower the interest rate in exchange for payment upfront. Signup and view all the answers

What is the purpose of an escrow account in a mortgage?

To hold funds for property taxes and insurance payments. Signup and view all the answers

What happens during an early payment default?

Payments are delinquent within the first four payments. Signup and view all the answers

How are conventional loans defined?

Loans that are not insured by FHA or guaranteed by VA or USDA. Signup and view all the answers

What does the daily simple interest formula typically influence?

The calculation of per diem interest owed at closing. Signup and view all the answers

What outcome occurs when a borrower defaults on their mortgage?

They may lose ownership of the property due to foreclosure. Signup and view all the answers

What are closing cost concessions?

A portion of the buyer's costs paid by the seller. Signup and view all the answers

Study Notes

Mortgage Lending Terminology

Accrued Interest: Interest earned but not yet paid; borrowers pay November interest with December payment.
Alt-A Loans: Loans with credit characteristics between conforming and subprime, now largely obsolete. Often involve "stated income" or "no income" verification, relying on credit score and assets instead of income.
Amortization: Reducing debt through regular principal payments.
Annual Percentage Rate (APR): Cost of credit, defined by the Truth in Lending Act.
Assigned Loan: Loan sold to a servicer other than the originator; a legal process to record the sale.
Assumable Loan: Purchaser can take over seller's mortgage loan.
Automated Underwriting System (AUS): Computer program analyzing loan applications; Fannie Mae's Desktop Underwriter and Freddie Mac's Loan Product Advisor common.
Average Prime Offer Rate (APOR): Lender survey estimate of APRs on prime mortgage loans; used for HMDA reporting and identifying higher-priced mortgages.
Cash-Out Refinance: Using a mortgage to pay off an existing mortgage and receive additional cash.
Closing Cost Concessions: Seller's payment of buyer's closing costs or prepaid expenses.
Conforming Loan: Loan adhering to Fannie Mae and Freddie Mac guidelines.
Conventional Loan: Loan not insured by FHA or guaranteed by VA/USDA.
Consumer Credit: Credit extended to individuals for goods/services.
Conveyance: Transferring property ownership; done using legal instruments like contracts, titles, or deeds.
Daily Simple Interest: Interest calculated daily; used to determine per diem interest from closing date to month end.
Debt Ratio: Assessment of a borrower's ability to repay a mortgage; debt-to-income ratio (DTI) is monthly debt payments over gross monthly income.
Deed: Legal document transferring property ownership; a mortgage deed gives lender a security interest, similar to a Deed of Trust with a neutral third party.
Default: Failure to meet mortgage contract terms, most often non-payment.
Delinquent Loan: Loan where borrower hasn't made required payment; usually considered delinquent if payment is 30 days late.
Discount Points: Percentage of loan amount paid at closing to lower the interest rate.
Early Payment Default: Loan terms stipulate if first four payments are 90+ days delinquent; seller often has to repurchase.
Escrow: Financial/legal agreement where a third party holds funds and gathers requirements until deal is finalized; used for down payments and/or required repairs.
Escrow Account: Account to hold funds for taxes, insurance, and mortgage insurance, managed by the loan servicer.

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Description

Test your knowledge on key mortgage lending terms with this quiz. Understand concepts like accrued interest, APR, and amortization through various questions. Perfect for aspiring mortgage professionals or anyone interested in the lending process.