National Flood Insurance Act and Mortgage Market Quiz
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Questions and Answers

What is a promissory note in the context of a mortgage transaction?

  • A charge for borrowing money with a fixed or variable rate
  • The initial capital borrowed on which interest payments are calculated
  • One percent of the loan amount
  • A written promise to repay the loan (correct)

What does the term 'Hypothecation' refer to in the mortgage context?

  • Using real estate as collateral for a mortgage loan (correct)
  • Charged by lenders at origination to obtain required return
  • A periodic payment made towards interest and/or principal
  • The remaining unpaid principal at any point during the loan's life

What does the Loan-to-value ratio (LTV) represent in a mortgage transaction?

  • The borrower's cash invested in the property at closing
  • The charge for borrowing money with a fixed or variable rate
  • The difference between market value and loan balance
  • The loan's share of the total property value (correct)

What is the Equity defined as in a mortgage transaction?

<p>The difference between market value and loan balance (B)</p> Signup and view all the answers

What is the Annual Percentage Rate (APR) in a mortgage context?

<p>Includes interest and all other finance charges; lenders must disclose this information on residential properties (A)</p> Signup and view all the answers

What does the term 'Trust Deed' consist of in a mortgage transaction?

<p>A written promise made by the trustor to repay a loan (A)</p> Signup and view all the answers

What is the primary reason for borrowers of 'federally-related loans' to obtain flood insurance?

<p>To protect against property damage from floods (A)</p> Signup and view all the answers

How does the Federal Reserve influence interest rates and money supply?

<p>By selling T-bills to decrease money supply and increase rates (A)</p> Signup and view all the answers

What is the role of the Federal Home Loan Bank System (FHLBS) in relation to savings & loan associations?

<p>It acts as a counterpart to the Federal Reserve for savings &amp; loan associations (B)</p> Signup and view all the answers

Who guarantees payment on certain types of loans in the mortgage market?

<p>Ginnie Mae (C)</p> Signup and view all the answers

What is the primary characteristic that distinguishes adjustable loans from fixed-rate loans?

<p>Interest rate variability (C)</p> Signup and view all the answers

What is the role of a mortgage broker in the lending process?

<p>Acts as an intermediary without using their own funding source (A)</p> Signup and view all the answers

What is the purpose of redemption clauses in loan agreements?

<p>To provide timeframes for borrowers to satisfy creditors' demands without facing negative outcomes. (A)</p> Signup and view all the answers

Which clause allows for lien obligation releases once a borrower has completely satisfied their contractual obligations?

<p>Release clause (A)</p> Signup and view all the answers

What does the Equal Credit Opportunity Act require lenders to assess when considering a loan application?

<p>Applicant's credit information and income (D)</p> Signup and view all the answers

How is a borrower's income qualified when applying for a loan?

<p>By calculating income ratio and debt ratio (C)</p> Signup and view all the answers

What does Private Mortgage Insurance (PMI) do in mortgage lending?

<p>Insures portions of the purchase price when loans are considered risky (A)</p> Signup and view all the answers

What does Regulation Z enforce in mortgage lending?

<p>Requires lenders to disclose finance charges and APR before closing (A)</p> Signup and view all the answers

What document outlines details such as debt amount, loan term, method of repayment, and interest rate?

<p>Promissory Note (A)</p> Signup and view all the answers

What establishes a reserve account for periodic payments of taxes and insurance?

<p>Escrow account (C)</p> Signup and view all the answers

Which clause allows lenders to inspect properties related to loan agreements?

<p>Inspection Clause (A)</p> Signup and view all the answers

What is a protective measure against losses for lenders if borrowers default on payments and have less than a 20% down payment?

<p>Mortgage Insurance (C)</p> Signup and view all the answers

What clause enables immediate repayment demand if a borrower sells their interest without consent?

<p>Acceleration Clause (C)</p> Signup and view all the answers

What does PITI stand for in the context of loan agreements?

<p>Principal, Interest, Taxes, and Insurance (A)</p> Signup and view all the answers

What is the main characteristic of adjustable loans to attract borrowers?

<p>Low initial interest rates that increase over time (A)</p> Signup and view all the answers

Which type of mortgage requires a lump-sum 'balloon' payment at the end of the term?

<p>Partially amortized mortgages (D)</p> Signup and view all the answers

What is the main characteristic of interest-only loans?

<p>Payments are only for interest (A)</p> Signup and view all the answers

What is the purpose of purchase money mortgages?

<p>To cover portions of the purchase price using property as collateral (B)</p> Signup and view all the answers

What is leverage in real estate investments?

<p>The relationship between the yield rate of an investment and the loan rate used to finance it (B)</p> Signup and view all the answers

What does liquidity refer to in investments?

<p>The degree to which an investment is readily marketable or convertible to another asset form (C)</p> Signup and view all the answers

What is the purpose of a Real Estate Investment Trust (REIT)?

<p>To pool funds from investors to purchase real estate assets (D)</p> Signup and view all the answers

What is the responsibility of the general partner in a Limited Partnership investment entity?

<p>Manage the investment entity (A)</p> Signup and view all the answers

What is a possible risk associated with real estate investments?

<p>Negative leverage and price stability (B)</p> Signup and view all the answers

How is gain on sale calculated for a real estate property?

<p>Amount realized minus adjusted basis (C)</p> Signup and view all the answers

What is cost recovery, or depreciation, related to real estate investments?

<p>A deduction of value from gross income annually over the depreciable life (B)</p> Signup and view all the answers

What is the purpose of calculating pre-tax cash flow in real estate investment analysis?

<p>To understand cash flow before considering tax liability (D)</p> Signup and view all the answers

What should an investor deduct from gross income to calculate taxable income in real estate investments?

<p>Allowable expenses and deductions (C)</p> Signup and view all the answers

What is the purpose of a syndicate in real estate investment?

<p>To pool funds for purchasing and operating properties collectively (C)</p> Signup and view all the answers

What is general partnership in terms of real estate investment entities?

<p>All members own and manage the investment entity together (A)</p> Signup and view all the answers

What does tax gain exclusion allow for when selling a primary residence?

<p>Exclusion of $250,000 for single sellers and $500,000 for married couples every two years (C)</p> Signup and view all the answers

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