40 Questions
What is a promissory note in the context of a mortgage transaction?
A written promise to repay the loan
What does the term 'Hypothecation' refer to in the mortgage context?
Using real estate as collateral for a mortgage loan
What does the Loan-to-value ratio (LTV) represent in a mortgage transaction?
The loan's share of the total property value
What is the Equity defined as in a mortgage transaction?
The difference between market value and loan balance
What is the Annual Percentage Rate (APR) in a mortgage context?
Includes interest and all other finance charges; lenders must disclose this information on residential properties
What does the term 'Trust Deed' consist of in a mortgage transaction?
A written promise made by the trustor to repay a loan
What is the primary reason for borrowers of 'federally-related loans' to obtain flood insurance?
To protect against property damage from floods
How does the Federal Reserve influence interest rates and money supply?
By selling T-bills to decrease money supply and increase rates
What is the role of the Federal Home Loan Bank System (FHLBS) in relation to savings & loan associations?
It acts as a counterpart to the Federal Reserve for savings & loan associations
Who guarantees payment on certain types of loans in the mortgage market?
Ginnie Mae
What is the primary characteristic that distinguishes adjustable loans from fixed-rate loans?
Interest rate variability
What is the role of a mortgage broker in the lending process?
Acts as an intermediary without using their own funding source
What is the purpose of redemption clauses in loan agreements?
To provide timeframes for borrowers to satisfy creditors' demands without facing negative outcomes.
Which clause allows for lien obligation releases once a borrower has completely satisfied their contractual obligations?
Release clause
What does the Equal Credit Opportunity Act require lenders to assess when considering a loan application?
Applicant's credit information and income
How is a borrower's income qualified when applying for a loan?
By calculating income ratio and debt ratio
What does Private Mortgage Insurance (PMI) do in mortgage lending?
Insures portions of the purchase price when loans are considered risky
What does Regulation Z enforce in mortgage lending?
Requires lenders to disclose finance charges and APR before closing
What document outlines details such as debt amount, loan term, method of repayment, and interest rate?
Promissory Note
What establishes a reserve account for periodic payments of taxes and insurance?
Escrow account
Which clause allows lenders to inspect properties related to loan agreements?
Inspection Clause
What is a protective measure against losses for lenders if borrowers default on payments and have less than a 20% down payment?
Mortgage Insurance
What clause enables immediate repayment demand if a borrower sells their interest without consent?
Acceleration Clause
What does PITI stand for in the context of loan agreements?
Principal, Interest, Taxes, and Insurance
What is the main characteristic of adjustable loans to attract borrowers?
Low initial interest rates that increase over time
Which type of mortgage requires a lump-sum 'balloon' payment at the end of the term?
Partially amortized mortgages
What is the main characteristic of interest-only loans?
Payments are only for interest
What is the purpose of purchase money mortgages?
To cover portions of the purchase price using property as collateral
What is leverage in real estate investments?
The relationship between the yield rate of an investment and the loan rate used to finance it
What does liquidity refer to in investments?
The degree to which an investment is readily marketable or convertible to another asset form
What is the purpose of a Real Estate Investment Trust (REIT)?
To pool funds from investors to purchase real estate assets
What is the responsibility of the general partner in a Limited Partnership investment entity?
Manage the investment entity
What is a possible risk associated with real estate investments?
Negative leverage and price stability
How is gain on sale calculated for a real estate property?
Amount realized minus adjusted basis
What is cost recovery, or depreciation, related to real estate investments?
A deduction of value from gross income annually over the depreciable life
What is the purpose of calculating pre-tax cash flow in real estate investment analysis?
To understand cash flow before considering tax liability
What should an investor deduct from gross income to calculate taxable income in real estate investments?
Allowable expenses and deductions
What is the purpose of a syndicate in real estate investment?
To pool funds for purchasing and operating properties collectively
What is general partnership in terms of real estate investment entities?
All members own and manage the investment entity together
What does tax gain exclusion allow for when selling a primary residence?
Exclusion of $250,000 for single sellers and $500,000 for married couples every two years
Test your knowledge on the National Flood Insurance Act and its requirements for homeowners in designated flood-hazard areas. Explore the correlation between supply and demand for money in the Mortgage Market, and its impact on interest rates and consumer prices.
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