97 Questions
What is a Real Estate Investment Trust (REIT)?
Investors purchase trust certificates to invest in real estate assets
Which type of investment entity involves all members both owning and managing it together?
General Partnership
What does capital gain refer to when selling a residence?
Amount realized from the sale minus adjusted basis
What is the purpose of Cost Recovery (Depreciation) in real estate investments?
To reduce taxable income by deducting a portion of the property's value each year
How is Net Operating Income (NOI) calculated in real estate investments?
Gross Operating Income minus Operating Expenses & Reserves
What is the formula for calculating Taxable Earnings in real estate investments?
Net Operating Income (NOI) plus reserves, minus interest and depreciation
What is the main purpose of a promissory note in a mortgage transaction?
To provide a written promise to repay the loan
Which financial element represents the initial capital borrowed on which interest payments are calculated?
Principal amount
What does the loan origination fee represent in a mortgage transaction?
One percent of the loan amount
How is equity defined in a mortgage transaction?
Difference between market value and loan balance
What is hypothecation in relation to a mortgage loan?
Using real estate as security for the loan
In a trust deed transaction, what is the purpose of the promissory note?
To provide a written promise to repay the loan
What type of mortgage requires a lump-sum payment at the end of the term?
Partially amortized mortgages with a balloon payment
Which loan type has payments that are interest-only, with the principal balance retired in full at maturity using a balloon payment?
Interest-only loans
What does leverage refer to in real estate investing?
Relationship between yield rate and borrowed funds interest rate
Which type of mortgage allows financing personal property along with mortgage loans?
Package mortgage
What is the purpose of a reverse annuity mortgage?
To provide periodic payments in exchange for equity liquidation
What defines liquidity in investments?
The degree to which an investment is readily marketable
'Asset' is defined as:
'A tangible or intangible item of value'
'Basis' in real estate refers to:
'A measurement of how much is invested in the property for tax purposes'
'Cash flow' in real estate investments is:
'The remaining positive or negative income an investment produces'
What is the primary purpose of the National Flood Insurance Act?
To provide insurance for homeowners in designated flood-hazard areas
Which entity sets the reserve requirement for member banks in the US?
Federal Reserve
What is the function of the Federal Home Loan Bank System (FHLBS) in relation to savings & loan associations?
Acts as a counterpart to the Federal Reserve
Which entity guarantees payment on certain types of loans in the US financial system?
Ginnie Mae
What is the role of a mortgage loan originator in the lending process?
Soliciting and negotiating mortgage loans
Which type of mortgage typically requires a 20% down payment?
Conventional mortgages
What happens in negative amortization with regards to mortgage payments?
Unpaid monthly amounts are added to the principal balance
What is the distinguishing feature of an adjustable rate mortgage?
Interest rates fluctuate based on an index
What is the function of rate and payment caps in adjustable mortgages?
Protecting borrowers from unaffordable increases
How do index and margin function in adjustable rate mortgages?
They result in adjustments to payments.
What is the purpose of redemption clauses in loan agreements?
To allow borrowers to satisfy demands without facing adverse consequences
When do release clauses come into effect in loan agreements?
Upon full payment completion by debtors
What do defeasance clauses require after successful repayments?
Mortgage releases executed by lending institutions
Under the Equal Credit Opportunity Act, what is prohibited as a basis for rejecting credit?
Reduced earnings from part-time employment
How is a borrower's income qualified when applying for a loan?
Income ratio and debt ratio are taken into account
What is the purpose of Private Mortgage Insurance (PMI) when LTVs become too risky for lenders?
To insure portions of the purchase price
Which law prohibits discrimination in lending based on factors like race or religion?
Equal Credit Opportunity Act (ECOA)
'Loan-to-Value Ratio (LTV)' expresses the loan amount as a percentage relationship to which value?
0.8
What does the trust deed do in a deed of trust arrangement?
Transfers ownership of the borrower's property to a trustee
What does the Real Estate Settlement Procedures Act (RESPA) regulate?
Amount of funds lenders can require for taxes and insurance
What is the purpose of private mortgage insurance (PMI)?
To protect lenders from losses due to borrower defaults
What does the Condemnation Clause specify in a mortgage agreement?
Procedure if property is condemned or taken through eminent domain
What is the purpose of an escrow account in a mortgage agreement?
To hold funds for taxes and insurance payments
What happens if a borrower sells their interest in a property without consent in a Due-on-Sale Clause situation?
Immediate repayment of the loan can be demanded
What is the meaning of PITI in relation to mortgage payments?
Principal, Interest, Taxes, and Insurance
What obligation does the borrower have regarding property insurance?
Insure the property according to the lender's requirements
What action can lenders take if borrowers jeopardize a property’s value?
Take steps necessary to protect their rights in the property
Under what condition can reinstatement occur for borrowers who defaulted on loan obligations?
Conditions like paying overdue balances and expenses must be met
Which financial element refers to the charge for borrowing money, with a fixed or variable rate?
Interest
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 main purpose of a trust deed in a deed of trust arrangement?
Recording a lien against the borrower's property
What does hypothecation refer to in relation to a mortgage loan?
Using real estate as security for a mortgage loan
What is the difference between principal amount and loan balance in a mortgage transaction?
Principal amount is the initial capital borrowed, while loan balance is the remaining unpaid principal.
What is the purpose of an annual percentage rate (APR) in a mortgage transaction?
Calculating interest and other finance charges
What characterizes a Real Estate Investment Trust (REIT) investment?
Returns are shared among investors based on ownership percentage.
In real estate investments, what does 'negative leverage' refer to?
Fluctuations in prices cause financial losses.
What obligation does the seller of a primary residence have concerning taxes when it is sold?
The seller is responsible for paying taxes on capital gains from the sale.
Which type of investment entity involves investors purchasing trust certificates to invest in real estate assets?
Real Estate Investment Trust (REIT)
What is the purpose of the calculation formula for 'Net cash flow after taxes'?
To determine the tax liability on the property.
What does 'Cost recovery, or depreciation' allow real estate investors to do?
Deduct a portion of property's value annually from gross income as defined by tax laws.
What do redemption clauses in loan agreements allow borrowers to do?
Avoid adverse consequences by satisfying demands placed by creditors
When do release clauses come into effect in loan agreements?
Upon successful repayments
What is the purpose of defeasance clauses?
Require mortgage releases after successful repayments
Under what Act must lenders assess an applicant's income and credit information on their own merit?
Equal Credit Opportunity Act
What is the range for income ratios used in qualifying borrowers for loans?
25-28%
What does Private Mortgage Insurance (PMI) help decrease when LTVs become too risky for conventional lenders?
High-risk situations
What does Truth-in-Lending and Regulation Z enforce before closing on a loan?
Disclosure of finance charges and APR
What is the function of the Equal Credit Opportunity Act?
Prohibits discrimination in lending based on various factors
What does Real Estate Settlement Procedures Act (RESPA) standardize?
Buyers' comprehension of settlement costs
What is the purpose of Capital Recovery (Depreciation) in real estate investments?
To reduce PMI insurance costs
What type of mortgage involves pledging equity to a lender in exchange for periodic payments?
Reverse annuity mortgage
Which loan type has payments that are interest-only, with the principal balance retired in full at maturity using a balloon payment?
Reverse annuity mortgage
What is the primary purpose of a purchase money mortgage?
Covering portions of the purchase price using property as collateral
What does the term 'equity' represent in real estate?
The portion of a property's value owned by the legal owner
What is the distinguishing feature of an adjustable rate mortgage?
Low initial interest rates that increase over time
What financial arrangement involves receiving periodic receipt of equity liquidation in exchange for an increase in debt owed on the property?
Reverse annuity mortgage
'Package mortgage' deals with financing articles of personal property as part of which transaction?
Home purchase
'Partially amortized mortgages with a balloon payment' require a lump-sum payment because payments do not retire what over the life of the loan?
'Principal balance'
'Loan-to-Value Ratio (LTV)' expresses the relationship between which two elements?
'Loan amount' and 'home purchase price'
In real estate, what does 'capital gain (or loss)' represent?
The difference between net sales proceeds and adjusted basis.
What does a deed of trust do in a real estate transaction?
Transfers ownership of the borrower's property to a trustee
What is the purpose of private mortgage insurance (PMI) in real estate transactions?
Protects lenders from losses due to borrower defaults
What is the significance of the Real Estate Settlement Procedures Act (RESPA) in mortgage agreements?
Limits the amount lenders can require for taxes and insurance
What must a borrower ensure regarding property insurance in a mortgage agreement?
Meeting lender's insurance requirements
Under what circumstances can lenders demand immediate repayment from borrowers according to the Transfer of Property/Beneficial Interest clause?
If borrowers sell their interest without consent
What action can lenders take if borrowers misuse a property for illegal purposes?
Bill borrowers for any costs associated with protecting their rights in the property
What does PITI stand for in relation to mortgage payments?
Principal, interest, taxes, insurance
'Acceleration' in mortgage agreements refers to what?
Requirement calling for settlement prior scheduled dates
What is the main responsibility of borrowers of 'federally-related loans' in designated flood-hazard areas?
To obtain homeowners insurance
How does the Federal Reserve control money supply among banks?
By selling government bonds to decrease money supply
What is the function of the Federal Deposit Insurance Corporation (FDIC) in the financial system?
Insures deposits up to $250,000 per depositor per insured bank account ownership category
What is one of the functions of the Federal Home Loan Bank System (FHLBS) in relation to savings & loan associations?
Stimulates and expands agricultural credit availability
What distinguishes mortgage loan originators from brokers and bankers in the lending process?
They require an MLO license and solicit/negotiate mortgage loans
Which entity is responsible for setting the reserve requirement for member banks in the US?
Federal Reserve
What role do FNMA and FHLMC play in the mortgage market?
Buy conventional loans and pooled mortgages
What is a distinguishing feature of adjustable rate mortgages (ARMs) compared to fixed-rate mortgages?
Interest rates fluctuate based on an index
Test your knowledge on the National Flood Insurance Act and its implications for borrowers in flood-hazard areas, as well as the impact of supply and demand for money on mortgage rates and availability. Understand the significance of flood-zone maps and Federal Reserve regulations.
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