National Flood Insurance Act and Mortgage Market Supply and Demand Quiz
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Questions and Answers

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

  • Deed of trust
  • Mortgage provisions
  • Operation trust deed
  • Promissory note (correct)

    • Which account is established as a reserve account for periodic payments of taxes and insurance?

  • Insurance account
  • Tax account
  • Trustee account
  • Escrow account (correct)

    • What acronym encompasses the borrower's monthly payment beyond principal and interest?

  • PITI (correct)
  • PMI
  • RESPA
  • FHA

    • What clause allows lenders to inspect properties related to loan agreements at reasonable times?

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

    What happens if a borrower sells their interest without obtaining consent from relevant parties according to the text?

    <p>Immediate repayment could be demanded</p> Signup and view all the answers

    When do lenders have the right to take steps necessary to protect their rights in the property according to the text?

    <p>When borrowers default on obligations</p> Signup and view all the answers

    What type of mortgage requires a lump-sum payment at the end of the term?

    <p>Partially amortized mortgages with a balloon payment</p> Signup and view all the answers

    Which loan type finances personal property along with mortgage loans?

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

    What is the term used for the positive or negative amount of income an investment produces after expenses and debt service?

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

    What is the relationship between the yield rate of an investment and the interest rate on borrowed funds called?

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

    Which loan type involves pledging equity to a lender in exchange for periodic payments?

    <p>Reverse annuity mortgage</p> Signup and view all the answers

    What is the term for an investment producing depreciation or non-cash losses that can be deducted from other income to reduce tax liability?

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

    What are redemption clauses designed to help borrowers avoid?

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

    When do release clauses come into effect for debtors?

    <p>Upon full payment completion</p> Signup and view all the answers

    What is the purpose of defeasance clauses?

    <p>To require satisfaction of mortgage releases after repayments</p> Signup and view all the answers

    How does the Equal Credit Opportunity Act (ECOA) aim to prevent discrimination in lending?

    <p>Based on protected classes like race or religion</p> Signup and view all the answers

    What does the Loan-to-Value Ratio (LTV) express?

    <p>The loan amount as a percentage of property value</p> Signup and view all the answers

    What is the main purpose of Private Mortgage Insurance (PMI)?

    <p>To insure portions of the purchase price as LTVs become risky</p> Signup and view all the answers

    What is a promissory note in a mortgage transaction?

    <p>A written promise to repay the loan</p> Signup and view all the answers

    What is hypothecation in a mortgage context?

    <p>Using real estate as security for a mortgage loan</p> Signup and view all the answers

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

    <p>The loan’s share of the total property value</p> Signup and view all the answers

    What is defined as equity in a mortgage transaction?

    <p>At closing, borrower’s cash invested in the property; thereafter, it is defined as the difference between market value and loan balance</p> Signup and view all the answers

    What does the term 'Principal amount' refer to in a mortgage transaction?

    <p>The initial capital borrowed on which interest payments are calculated</p> Signup and view all the answers

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

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

    What action does the Federal Reserve take to reduce money supply and increase interest rates?

    <p>Sell T-bills</p> Signup and view all the answers

    What is the function of the Federal Deposit Insurance Corporation (FDIC)?

    <p>To insure deposits up to $250,000 per depositor per insured bank account ownership category</p> Signup and view all the answers

    What is the key characteristic of conventional mortgages?

    <p>They typically necessitate 20% down payments</p> Signup and view all the answers

    What is the primary function of a mortgage broker?

    <p>To act as an intermediary bringing together borrowers and lenders but not using their own funding source</p> Signup and view all the answers

    What is the difference between amortized fixed-rate and adjustable loans?

    <p>Fixed-rate loans have constant interest rates, while adjustable loans have fluctuating rates based on an index</p> Signup and view all the answers

    What type of investor buys and personally manages their investments?

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

    Which type of investment entity involves a group of investors pooling their funds to purchase, develop, and/or operate a property?

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

    What is the primary responsibility of limited partners in a Limited Partnership investment entity?

    <p>Only own the investment but not manage it</p> Signup and view all the answers

    How are returns shared among investors in a Real Estate Investment Trust (REIT)?

    <p>Based on ownership percentage</p> Signup and view all the answers

    Who is responsible for paying taxes on the capital gain from selling their primary residence?

    <p>Seller of the residence</p> Signup and view all the answers

    What is the term used to refer to the amount realized minus the adjusted basis when selling real estate?

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

    How is taxable income calculated for real estate investments generating income?

    <p>Deducting allowable expenses and deductions from gross income</p> Signup and view all the answers

    What does cost recovery, or depreciation, allow for in real estate investment taxation?

    <p>No deduction from gross income</p> Signup and view all the answers

    What does the table in the text represent?

    <p>Calculation of pre-tax cash flow in income property investment</p> Signup and view all the answers

    What is calculated using the formula 'Net Operating Income (NOI) plus reserves, minus interest and depreciation'?

    <p>Taxable earnings calculation</p> Signup and view all the answers

    What document transfers ownership of the borrower/trustor's property to a third-party trustee?

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

    What may result in penalties according to the text?

    <p>Creating hazardous waste on-site</p> Signup and view all the answers

    What does the acronym PITI stand for in real estate financing terms?

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

    What is required if loans aren't backed by FHA or VA and have down payments less than 20% of the property's value?

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

    What happens if a borrower sells their interest without obtaining consent from relevant parties?

    <p>Immediate loan repayment could be demanded</p> Signup and view all the answers

    What does the Condemnation Clause address in real estate agreements?

    <p>Eminent domain proceedings</p> Signup and view all the answers

    What impact does an increase in reserve requirements for member banks have on the money supply and interest rates?

    <p>Decreases money supply and raises interest rates</p> Signup and view all the answers

    Which entity serves as a counterpart to the Federal Reserve for savings and loan associations?

    <p>Farmer Mac/FAMC</p> Signup and view all the answers

    What is the role of Federal National Mortgage Association (FNMA) in the mortgage market?

    <p>Buying conventional FHA-VA backed loans</p> Signup and view all the answers

    What is the primary function of mortgage loan originators?

    <p>Solicit/negotiate mortgage loans</p> Signup and view all the answers

    In the context of adjustable loans, what do rate and payment caps aim to protect borrowers from?

    <p>Unaffordable increases in interest rates and payments</p> Signup and view all the answers

    What distinguishes amortized fixed-rate loans from adjustable loans in terms of interest rates?

    <p>Interest rates remain constant throughout the loan term</p> Signup and view all the answers

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

    <p>To outline details such as debt amount, loan term, and interest rate</p> Signup and view all the answers

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

    <p>The loan's share of the total property value</p> Signup and view all the answers

    What is the main function of a Trust Deed in a real estate transaction?

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

    What is the significance of Equity in a mortgage transaction?

    <p>Representing the difference between market value and loan balance</p> Signup and view all the answers

    What does Hypothecation refer to in the context of real estate financing?

    <p>Using real estate as security for a mortgage loan</p> Signup and view all the answers

    What is meant by the Loan origination fee in a mortgage process?

    <p>Charged by lenders at origination to obtain required return</p> Signup and view all the answers

    What type of mortgage involves payments that are interest-only with the principal balance retired using a balloon payment at maturity?

    <p>Interest-only loans</p> Signup and view all the answers

    What is the key characteristic of a purchase money mortgage?

    <p>It covers portions of the purchase price</p> Signup and view all the answers

    In a reverse annuity mortgage, what do borrowers receive in exchange for pledging equity to the lender?

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

    Which type of loan requires a lump-sum 'balloon' payment at the end of the term because payments do not reduce the principal balance?

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

    What is the relationship between yield rate and loan rate when there is positive leverage in an investment?

    <p>Yield rate is higher than loan rate</p> Signup and view all the answers

    What type of loan finances articles of personal property along with mortgage loans in a single transaction?

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

    How does a release clause benefit debtors?

    <p>By releasing lien obligations upon full payment completion</p> Signup and view all the answers

    What is the primary purpose of escalation clauses in loans?

    <p>To tailor pricing structures for individual cases</p> Signup and view all the answers

    How do lenders evaluate a borrower's payment behavior?

    <p>By obtaining credit reports of the borrower</p> Signup and view all the answers

    What does the Equal Credit Opportunity Act (ECOA) prohibit discrimination based on?

    <p>Race, color, marital status, and public assistance dependency among others</p> Signup and view all the answers

    What is the purpose of Private Mortgage Insurance (PMI)?

    <p>To safeguard lenders in case of borrower default</p> Signup and view all the answers

    How are housing expense maximums determined for borrowers?

    <p>By applying the debt ratio to gross income</p> Signup and view all the answers

    What is the primary responsibility of limited partners in a Limited Partnership investment entity?

    <p>Owning but not managing the investment entity</p> Signup and view all the answers

    What is the term for an investment producing depreciation or non-cash losses that can be deducted from other income to reduce tax liability?

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

    How are returns shared among investors in a Real Estate Investment Trust (REIT)?

    <p>Proportional to ownership percentage</p> Signup and view all the answers

    What is the purpose of defeasance clauses in real estate transactions?

    <p>To protect lenders by substituting collateral for debt repayment</p> Signup and view all the answers

    What does the Loan-to-Value Ratio (LTV) express in a mortgage transaction?

    <p>The percentage of the property's value financed by the loan</p> Signup and view all the answers

    What is the key characteristic of conventional mortgages?

    <p>High down payment requirements</p> Signup and view all the answers

    What does the term 'Principal amount' refer to in a mortgage transaction?

    <p>The amount borrowed from the lender.</p> Signup and view all the answers

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

    <p>Providing liquidity and support through advances.</p> Signup and view all the answers

    What is calculated using the formula 'Net Operating Income (NOI) plus reserves, minus interest and depreciation'?

    <p>Pre-tax cash flow.</p> Signup and view all the answers

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