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

Which loan type finances personal property along with mortgage loans?

<p>Package mortgage (D)</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 (C)</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 (A)</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 (A)</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 (D)</p> Signup and view all the answers

What are redemption clauses designed to help borrowers avoid?

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

When do release clauses come into effect for debtors?

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

What is the purpose of defeasance clauses?

<p>To require satisfaction of mortgage releases after repayments (B)</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 (B)</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 (D)</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 (C)</p> Signup and view all the answers

What is a promissory note in a mortgage transaction?

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

What is hypothecation in a mortgage context?

<p>Using real estate as security for a mortgage loan (B)</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 (B)</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 (B)</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 (B)</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 (C)</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 (B)</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 (D)</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 (A)</p> Signup and view all the answers

What is the key characteristic of conventional mortgages?

<p>They typically necessitate 20% down payments (A)</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 (D)</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 (C)</p> Signup and view all the answers

What type of investor buys and personally manages their investments?

<p>Direct Investor (A)</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 (B)</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 (B)</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 (D)</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 (B)</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 (D)</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 (A)</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 (D)</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 (A)</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 (A)</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 (D)</p> Signup and view all the answers

What may result in penalties according to the text?

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

What does the Condemnation Clause address in real estate agreements?

<p>Eminent domain proceedings (D)</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 (B)</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 (B)</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 (B)</p> Signup and view all the answers

What is the primary function of mortgage loan originators?

<p>Solicit/negotiate mortgage loans (B)</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 (B)</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 (C)</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 (C)</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 (C)</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 (C)</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 (C)</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 (C)</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 (D)</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 (C)</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 (C)</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 (D)</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 (B)</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 (C)</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 (D)</p> Signup and view all the answers

How does a release clause benefit debtors?

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

How do lenders evaluate a borrower's payment behavior?

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

How are housing expense maximums determined for borrowers?

<p>By applying the debt ratio to gross income (C)</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 (A)</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 (B)</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 (B)</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 (C)</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 (C)</p> Signup and view all the answers

What is the key characteristic of conventional mortgages?

<p>High down payment requirements (C)</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. (A)</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. (B)</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. (C)</p> Signup and view all the answers

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