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</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</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</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</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</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</p> Signup and view all the answers

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

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

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

    <p>Interest rate variability</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</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.</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</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</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</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</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</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</p> Signup and view all the answers

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

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

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

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

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

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

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

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

    What is the main characteristic of interest-only loans?

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

    What is a possible risk associated with real estate investments?

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

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

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

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