Real Estate Finance & Investments, 16e (Brueggeman)
Chapter 8 Underwriting and Financing Residential Properties
1) For a loan with an LTV greater than 80 percent, the costs of mortgage insurance always
exceed the costs of second lien financing.
2) The Federal Housing Administration (FHA) provides mortgage insurance, but does not make
loans.
3) General industry standards for a conventional loan specify a maximum LTV of 60 percent.
4) Determining the APR for federal truth-in-lending purposes is more complicated for an
adjustable rate mortgage loan than it is for a fixed rate mortgage loan.
5) The APR for an adjustable rate mortgage loan is an accurate measure of the actual cost of
funds to the borrower.
6) A residential real estate closing involves two actual closings: the loan closing and the sales
transaction closing.
7) Financing costs are usually paid by the lender to either the borrower/buyer or the seller.
8) Proration involves a professional who rates the quality of the property.
9) To protect themselves from loss due to default, most lenders require borrowers to acquire
hazard insurance policies.
10) Title insurance protects the buyer from title claims against the property.
11) One of the objectives of RESPA was to disclose kickbacks and unearned fees on the
settlement sheet.
12) RESPA requires a lender to disclose good faith estimates of closing costs within three days
of loan application.
13) The FTL Act and RESPA essentially say the same things.
14) The FTL act requires that the lender provide a financing statement of the exact closing costs
within three days of loan application.
15) The calculated APR usually represents the true costs of financing.
16) A conforming mortgage is one for which the US Treasury will provide credit backing
through the GSEs.
17) Someone with a credit score of 900 is likely to only qualify for a subprime loan.
18) A borrower who was required to purchase private mortgage insurance as a condition of their
mortgage should be able to eliminate that requirement if the loan-to-value ratio of a home is
proven to have dropped to less than 85%.
19) In order to avoid the requirement to purchase private mortgage insurance when the loan-to–
value is greater than 80%, a buyer may be able to take out a first mortgage for 80% or less and
couple it with a second mortgage to account for the remainder of the necessary funds.
20) In some cases, lenders require that borrowers obtain default insurance. The purpose of such
insurance is to:
A) Decrease the effective interest rate on the loan
B) Increase the value of the underlying property
C) Protect the borrower from defaulting on the loan
D) Protect the lender from losses associated with borrower default on the loan
21) Which of the following is NOT typically included in housing costs used to calculate a
borrower’s payment-to-income ratio?
A) Principal and interest on the mortgage applied for
B) Mortgage insurance
C) Property taxes
D) Utilities
E) All of the above are included in the housing costs
22) A conforming loan:
A) Exceeds the loan limits of loans that Fannie Mae and Freddie Mac can buy
B) Meets loan limits of loans that Fannie Mae and Freddie Mac can buy
C) Cannot be purchased by GSEs such as Fannie Mae and Freddie Mac
D) Is another term for a fixed-rate mortgage loan
23) A jumbo loan:
A) Is another term for an adjustable-rate mortgage loan
B) Meets loan limits of loans that Fannie Mae and Freddie Mac can buy
C) Tends to have a higher interest rate than conforming loans
D) Has lower LTV requirements than conforming loans
24) Payment to income ratio is BEST described as:
A) The factor used to determine if interest on mortgage loans is tax deductible
B) The only measure of a borrower’s ability to fulfill his or her loan obligations
C) The ratio of the estimated rental income to the expected payments on a rental property
D) The ratio of the expected payments on a property to the income of the borrower
25) An escrow account:
A) Ensures that a default insurance policy does not lapse if a borrower is in danger of default
B) Ensures that sufficient funds are collected to make annual hazard insurance and property tax
payments
C) Is a non-interest-bearing account into which a borrower prepays certain fees and taxes
D) All of the above
26) Which of the following groups customarily does NOT attend real estate closing?
A) The buyer and seller
B) The buyer’s and seller’s immediate families
C) Real estate broker(s)
D) Settlement agent(s)
27) What document usually summarizes the sources, disbursements, charges and credits
associated with a real estate closing?
A) The purchase contract
B) The deed of trust
C) The listing agreement
D) The settlement statement
28) Which of the following is typically NOT one of the financing costs associated with the
financing of real estate?
A) Mortgage insurance fees
B) Loan application and credit report fees
C) Property inspection and appraisal fees
D) Loan discount and prepaid interest fees
29) Which of the following is typically NOT one of the settlement costs that are escrowed over
the life of the loan?
A) Property taxes
B) Mortgage insurance
C) Selling commissions
D) Hazard insurance
30) Which of the following is NOT one of the essential aspects of RESPA?
A) Advance disclosure of settlement costs
B) Limitations on the cost of mortgages
C) Prohibition of kickbacks and unearned fees
D) Limitations on escrow deposits
31) RESPA requires lenders to disclose to buyers a good faith estimate of certain closing costs
within:
A) One day before the real estate closing
B) Three days before the real estate closing
C) One day after loan application
D) Three days after loan application
32) The uniform settlement statement displays settlement summaries for which of the following
parties to the closing?
A) Borrower and seller
B) Borrower and broker
C) Borrower, seller, and broker
D) Borrower, seller, and lender
33) Which of the following is the main objective of the FTL legislation?
A) More effective advance disclosure of settlement costs
B) More informative disclosure of the cost of credit
C) Elimination of kickbacks and unearned fees
D) A reduction in the amount of escrow placed in accounts for homeowners
34) RESPA requires lenders to disclose to buyers a uniform settlement statement detailing all
closing costs within:
A) One day before the real estate closing
B) Three days before the real estate closing
C) One day after loan application
D) Three days after loan application
35) The APR estimate must be accurate to the nearest ________ percent.
A) 1/2
B) 1/4
C) 1/8
D) 1/16
36) A self-employed borrower who has documentable assets but is not able to provide adequate
documentation for his income may be eligible for this type of loan:
A) FNMA
B) FHLMC
C) Conforming
D) Alt-A
37) GSE is the abbreviation for:
A) Government-sponsored entity
B) Government-specific entity
C) Government-sponsored enterprise
D) Government-specific enterprise
38) Which of the following organizations provides lenders with complete protection against
default losses:
A) FHA
B) FNMA
C) FHLMC
D) VA