Chapter 11—Lending Practices
MULTIPLE CHOICE
1. The type of loan whereby the borrower makes interest only payments during the life of the loan with
the entire principal due for the final payment is called
a.
a discounted loan.
b.
an amortized loan.
c.
a term loan.
d.
a partially amortized loan.
2. As payments are made, the amount of interest taken from a mortgage loan payment decreases and the
amount applied to the principal increases. This is because of
a.
appreciation.
b.
variable interest rate.
c.
amortization.
d.
depreciation.
3. What is the annual interest on $50,000 calculated at a rate of 8.125% per annum?
a.
$331.00
b.
$406.25
c.
$3,310.00
d.
$4,062.50
4. If a monthly principal and interest payment for a 30-year, 12% loan of $1,000 would be $10.29 what
would the monthly payment be for a home purchased at $75,500 with an 80% loan on those terms?
a.
$10.29
b.
$621.52
c.
$755.90
d.
$776.90
5. A house sells for $102,000 and is appraised at $100,000 by a lender who is willing to make a 75%
loan-to-value loan. How much down payment will this house require?
a.
$25,500
b.
$27,000
c.
$75,000
d.
$76,500
6. A borrower signs a loan agreement for $50,000. Out of this, the lender charges a $500.00 loan
origination fee and two discount points. How much cash does the borrower get?
a.
$46,600
b.
$47,000
c.
$48,500
d.
$49,000
7. A home buyer wants to borrow $100,000. The lender quotes a loan origination fee of one point and a
loan discount of one point. What size loan must be obtained to pay the two points and still leave
$100,000?
a.
$96,000
b.
$98,039
c.
$102,000
d.
$102,041
8. A purchaser took out a $50,000 new discount mortgage when he bought his home. The lender charged
2 discount points. On which amount will the mortgagor be paying interest the first month?
a.
$49,000
b.
$50,000
c.
$51,000
d.
$56,000
9. Money for tax and insurance payments that accompanies principal and interest could be placed in any
of the following accounts EXCEPT
a.
a trust account.
b.
an escrow account.
c.
a remaining balance account.
d.
a reserve account.
10. A final loan payment that is larger than previous payments is called a
a.
balloon payment.
b.
budget payment.
c.
terminal payment.
d.
graduated payment.
11. A loan progress chart is used in connection with
a.
partially amortized loans.
b.
term loans.
c.
index loans.
d.
straight loans.
12. A mortgage lender will lend based on a proportion of the appraisal or sale price, whichever is less.
This is called the
a.
loan–to–value ratio.
b.
owner’s equity.
c.
percent return.
d.
CRV.
13. The value of the property above the total liens or mortgages is called
a.
the equity.
b.
due on sale.
c.
the assessment.
d.
the loan-to-value ratio.
14. The homeowner has made regular mortgage payments over ten years and the housing values in the
neighborhood have steadily risen. The equity has
a.
stayed the same.
b.
steadily declined.
c.
steadily increased.
d.
fluctuated and now is less than it was when the house was purchased.
15. The expenses, which a lender incurs while processing a mortgage loan application, are recovered from
the borrower as
a.
discount points.
b.
origination fees.
c.
mortgage insurance premium.
d.
private mortgage insurance.
16. Using the rule of thumb used by lenders (each point charged raises the yield by 1/8 of 1%), 4 discount
points raise the effective yield of a typical home loan by
a.
1/32 of 1%.
b.
2/8 of 1%.
c.
1/4of 1%.
d.
1/2 of 1%.
17. Who normally pays the discount points when a conventional loan is taken out to purchase a residence?
a.
Broker
b.
Seller
c.
Lender
d.
Buyer
18. The buyer agrees to pay $90,000 for a home, contingent upon obtaining an 80% loan. The lender
charges $3,600 for points. How many points were charged?
a.
2 points
b.
4 points
c.
5 points
d.
6 points
19. If a borrower paid $3,550 in points on a loan of $95,000 how many points were charged?
a.
.003 points
b.
.3 points
c.
3 points
d.
3.7 points
20. Discount points are more likely to be used during periods of
a.
tight money.
b.
available money.
c.
cash sales.
d.
seller financed sales.
21. The role of the FHA in residential mortgage lending is
a.
guaranteeing the loan.
b.
insuring the loan.
c.
loaning the money.
d.
as a secondary lender.
22. Who must pay the discount points on a FHA loan?
a.
Anyone who agrees to
b.
Seller
c.
Buyer
d.
There are no points on a FHA loan
23. Under section 203(b), the FHA
a.
insures lenders against loan default.
b.
lends to the secondary market.
c.
guarantees loans.
d.
makes loans directly.
24. A borrower can expect to pay a mortgage insurance premium for
a.
an FHA insured loan.
b.
an 80% conventional loan.
c.
a graduated payment loan.
d.
an accelerated payment loan.
25. A single woman applied for a FHA loan to buy a property she intends to use as a rental. Which if
anything might cause her application to be denied?
a.
There is no basis for denial for the application
b.
She is single
c.
She is a woman
d.
She plans to use the property as a rental
26. Usually, the borrower of a FHA loan is also responsible for the
a.
mortgage insurance premium.
b.
funding fees.
c.
private mortgage insurance.
d.
estoppel certificate.
27. On a $64,000 home, which of the following would require the largest cash down payment?
a.
FHA-insured loan
b.
80% loan-to-value conventional loan
c.
90% loan-to-value conventional
d.
100% DVA loan
28. Which government loan program will make direct loans if a qualified borrower cannot find a lender?
a.
FHA
b.
VA
c.
CRV
d.
HUD
29. In the event of default and subsequent foreclosure, which borrower is responsible for making good any
losses suffered?
a.
FHA
b.
VA
c.
HUD
d.
90% conventional
30. For a veteran to obtain a VA loan, it is necessary to have a
a.
certificate of optimal value.
b.
certificate of eligibility.
c.
history of property ownership.
d.
certificate of deferment.
TRUE/FALSE
1. Interest paid on a real estate mortgage loan is normally paid annually and in advance.
2. A mortgage, which is repaid in regularly scheduled equal installments, is called a balloon mortgage.
3. Money for tax and insurance payments that accompanies principal and interest could be placed in an
escrow account or trust account.
4. In order to ensure that the mortgagor has enough money to pay yearly property taxes and hazard
insurance, the lender may insist on a budget mortgage.
5. A mortgage lender will lend based on a proportion of the appraisal or sale price, whichever is less.
This is called the loan-to-value ratio.
6. The homeowner has made regular mortgage payments over ten years and the housing values in the
neighborhood have steadily risen. The equity has steadily increased.
7. The buyer normally pays the discount points when a conventional loan is taken out to purchase a
residence.
8. Loan points increase the yield to the lender.
9. The role of the FHA in residential mortgage lending is loaning the money.
10. Under section 203(b), the FHA lends to the secondary market.
11. A single woman applied for an FHA loan to buy a property she intends to use as a rental. Her
application will probably be denied.
12. Usually, the borrower of a FHA loan is also responsible for the mortgage insurance premium.
13. A conventional mortgage is neither insured nor guaranteed by the government.
14. In the event of default and subsequent foreclosure, a VA borrower is responsible for making good any
losses suffered.
15. A certificate of reasonable value is issued by a HUD appraiser.
16. A home sells for $150,000 but is appraised by a lender for $145,000. The lender will typically apply
the loan-to-value ratio to the larger of the two numbers.
17. Using the rule of thumb, which states that each discount point raises the yield by 1/8 of 1%, two
discount points raise the effective yield of a typical home loan by1/4 of 1%.
18. Loan discount points shorten the repayment time of the loan.
19. A certificate of reasonable value is issued by a VA staff appraiser.
20. Since the VA is guaranteeing the loan, a VA loan typically requires a large down payment.
COMPLETION
1. A loan that requires only interest payments until the last day of its life, at which time the full amount
borrowed is due, is called a(n) ____________________ loan.
2. A mortgage in which the lender collects additional money to pay hazard insurance and property taxes
on the mortgaged property is called a(n) ____________________ mortgage.
3. A(n) ____________________ loan is any loan that has a final payment that is larger than any of the
previous payments on the loan.
4. The relationship between the amount of money a lender is willing to loan and192 the lender’s estimate
of _________________________ of the property that will serve as security is called the loan-to-value
ratio.
5. The difference between the market value of a property and the debt owed against it is called the
owner’s ____________________.
6. The word point means 1% of the _________________________.
7. After December 1, 1986, the FHA would no longer allow a ____________________ assumption of an
FHA insured loan.
8. In addition to the up-front mortgage insurance premium the FHA now charges a(n)
____________________ premium of 1/2 of 1% of the loan balance.
9. To determine benefits, a veteran should make application to the Department of Veteran Affairs for a
certificate of ____________________.
10. Like FHA insurance, the object of private mortgage insurance (PMI) is to insure lenders against
____________________ losses.
MATCHING
Choose the most appropriate answer for each.
a.
Amortized loan
k.
Loan origination fee
b.
Amortization tables
l.
Loan-to-value ratio
c.
Balloon loan
m.
Maturity
d.
Budget mortgage
n.
Partially amortized loan
e.
Conventional loan
o.
PITI payment
f.
Discount point
p.
PMI
g.
Equity
q.
Point
h.
FHA
r.
Principal
i.
Impound account
s.
Term loan
j.
Loan balance table
t.
UFMIP
1. balance owing on a loan
2. a loan that requires the borrower to pay interest only until maturity, at which time the full amount of
the loan must be repaid
3. refers to a monthly loan payment that includes principal, interest, property taxes, and property
insurance
4. an escrow or reserve account into which the lender places the borrower’s monthly tax and insurance
payments
5. one hundredth of the total amount; 1% of a loan
6. a loan requiring periodic payments that include both interest and principal
7. a payment that is larger than any of the previous payments
8. the end of the life of a loan
9. a loan with a series of amortized payments followed by a balloon payment at maturity
10. shows the principal still owing during the life of a loan
11. a table showing the monthly payments required to completely pay off a loan
12. a one-time charge by the FHA for insuring a loan
13. a private mortgage insurance source to insure lenders against foreclosure loss
14. the expenses a lender incurs in processing a mortgage loan
15. a mortgage wherein the borrower pays principal, interest, taxes and insurance in the same payment
16. the market value of a property less the debt against it
17. Federal Housing Administration
18. a percentage reflecting what a lender will lend divided by the sale price or market value of the
property, whichever is less
19. real estate loans that are not insured by FHA or guaranteed by the VA
20. a charge by a lender that will allow them to sell the loan in the secondary market at a discount
