Chapter 13—Sources of Financing
MULTIPLE CHOICE
1. A primary mortgage lender is one who
a.
lends to FNMA, FHLMC and GNMA.
b.
pools, insures, guarantees and sells first mortgage loans.
c.
lends to borrowers, services the loans and perhaps sells the instruments to another.
d.
lends only for first mortgages and deeds of trust.
2. From whom would a borrower obtain a VA or FHA loan?
a.
Approved mortgage lender
b.
VA or FHA
c.
Insurance companies
d.
Sale of bonds
3. Which of the following sources provides the most home mortgage money in the United States?
a.
Mutual savings banks
b.
Commercial banks
c.
Credit unions
d.
Mortgage companies
4. Which of the following are designed to prevent disintermediation?
a.
Adjustable rate mortgages
b.
Secondary mortgage markets
c.
Pass-through certificates
d.
Certificates of deposit
5. To whom can a borrower turn for a direct loan for the financing of a single-family dwelling?
a.
Federal Housing Administration
b.
Mortgage broker
c.
Insurance company
d.
Savings and loan institutions
6. Which of the following supplies money to finance home loans?
a.
Fannie Mae
b.
FHA
c.
VA
d.
Savings and loans
7. Commercial banks are most likely to deal heavily in
a.
house boat loans.
b.
mobile home purchase loans.
c.
construction loans.
d.
residential home loans.
8. Commercial banks are most likely to deal heavily in
a.
interim loans.
b.
40-year residential loans.
c.
home improvement loans.
d.
VA loans.
9. One of the primary reasons for the decline in loan demand at savings and loan institutions appears to
be
a.
deregulation of the lending industry.
b.
the poor location of many of the branch offices.
c.
the high interest rates being charged by commercial banks.
d.
poor supervision by regulating agencies.
10. With regard to real estate loans, life insurance companies tend to favor
a.
single family houses.
b.
interim construction loans.
c.
large commercial buildings.
d.
not being involved in real estate.
11. One may find financing for a single family dwelling at all of the following EXCEPT
a.
savings and loans.
b.
commercial banks.
c.
insurance companies.
d.
mortgage bankers.
12. Which of the following is most likely to specialize in large, commercial participation loans?
a.
Mortgage banks
b.
Savings and loans
c.
Farmers home loan association
d.
Life insurance companies
13. Lenders who could be described as investing a major portion of their assets in long-term real estate
loans, preferring not to service their own loans, and favoring large commercial properties would be
a.
commercial banks.
b.
savings and loans.
c.
mutual savings banks.
d.
life insurance companies.
14. Which of the following specializes in making loans and reselling them?
a.
FNMA
b.
Mortgage brokers
c.
Mortgage bankers
d.
VA
15. Which of the following specializes in bringing lenders and borrowers together without lending their
own money?
a.
Insurance companies
b.
Mortgage bankers
c.
Mortgage brokers
d.
Commercial banks
16. Most mortgage brokers generally
a.
lend their own funds.
b.
use money provided by other investors.
c.
service the loans they make.
d.
only make loans on large properties.
17. An investor can invest in mortgages by purchasing all EXCEPT
a.
Ginnie Mae pass-through certificates.
b.
Freddie Mac participation certificates.
c.
junior mortgages.
d.
municipal bonds.
18. A lender who continues to collect mortgage payments even after selling the loan is said to be
a.
originating loans.
b.
laundering money.
c.
servicing the loan.
d.
discounting the loan.
19. All of the following offer secondary mortgage market programs EXCEPT
a.
FNMA.
b.
FDIC.
c.
FHLMC.
d.
GNMA.
20. The secondary mortgage market is an area of activity in which
a.
a borrower may get loans if the primary market cannot accommodate them.
b.
second mortgages are made.
c.
existing mortgages are bought, sold and discounted.
d.
foreclosed properties are bought and sold.
21. Fannie Mae buys and sells all mortgages EXCEPT
a.
FHA loans.
b.
VA loans.
c.
conventional loans.
d.
chattel mortgages.
22. The entity that purchases the most loans in the secondary market is
a.
FNMA.
b.
FHLMC.
c.
HUD.
d.
GNMA.
23. A quasi-governmental agency, which was originally established to create a secondary mortgage market
for FHA loans, is
a.
FNMA.
b.
GNMA.
c.
FHLMC.
d.
HUD.
24. The basic role of the GNMA is to
a.
resupply capital to primary lenders by guaranteeing repayment of pools of mortgage loans.
b.
insure loans made by primary government lenders.
c.
sell mortgage pools to money market funds.
d.
facilitate the resale of mortgage loans by marketing participation certificates.
25. Freddie Mac was originally formed to provide a secondary mortgage market facility for the
a.
Federal National Mortgage Association.
b.
Government National Mortgage Association.
c.
Federal Home Loan Bank Board.
d.
Mortgage Guaranty Insurance Corporation.
26. The term “usury” in the field of real estate lending means charging an interest rate over and above
a.
the legal limit.
b.
the prime rate.
c.
10%.
d.
20%.
27. Computerized Loan Origination (CLO) programs are available to
a.
mortgage brokers.
b.
real estate brokers.
c.
attorneys.
d.
all of the above.
28. Participation Certificates (PCs) are instruments used by
a.
GNMA.
b.
FNMA.
c.
FHLMC.
d.
Farmer Mac.
29. FHLMC was formed primarily to provide a secondary market for
a.
savings and loans.
b.
commercial banks.
c.
mortgage companies.
d.
insurance companies.
30. Other lenders providing mortgage money might include
a.
pension and trust funds.
b.
credit unions.
c.
commercial finance companies.
d.
all of the above.
TRUE/FALSE
1. The primary market is typically divided into two markets: those markets regulated by the federal
government and those not regulated by the federal government.
2. Deregulation of the lending industry had little or no effect on savings and loan institutions.
3. Commercial banks tend to favor long term residential lending.
4. Life insurance companies do no get involved in real estate loans.
5. Mortgage companies tend to lend their own money and retain the loans in their portfolio.
6. Mortgage brokers do not lend their own money but simply put lender and borrower together.
7. Computerized Loan Origination is limited to regulated lenders.
8. Municipal bonds that provide a source of mortgage money for home buyers pay interest that is tax-free
from federal income taxes.
9. Pension funds and trust funds offer money for real estate loans.
10. The money used by the secondary market to purchase loans comes from deposits in institutions.
11. FNMA was organized by the federal government to buy FHA mortgage loans from lenders.
12. GNMA buys loans from primary market loan originators.
13. Freddie Mac buys loans only from savings and loan institutions.
14. Farmer Mac was created to provide a secondary market for farm loans.
15. There is no limit to the cost of a home under the Farmer Mac program.
16. Automated underwriting systems have dramatically overhauled the mortgage loan underwriting
process.
17. Both fiat money and real savings represent unconsumed labor and materials.
18. The cost of mortgage loan borrowing is dependent on the cost of money to the lender, reserves for
default, loan servicing costs, and available investment alternatives.
19. Usury laws are established by the federal statutes.
20. GNMA will guarantee all loan types.
COMPLETION
1. The ____________________ market is where lenders originate loans by making funds available to
borrowers.
2. Mortgage ____________________ do not lend their own money but simply put lender and borrower
together.
3. _________________________ results when depositors take money out of their savings accounts and
invest directly in government securities, corporate bonds, and money market funds.
4. _________________________ loans provide a “piece of the action” for insurance companies as well
as more inflation protection than a fixed rate of interest.
5. ____________________ are sometimes a source of cash loans for real estate, with the bulk of these
loans between relatives or friends.
6. Most loans contain a due-on-sale clause which is also called a call clause or a(n)
____________________ clause.
7. ____________________ certificates allow a mortgage originator to deliver to Freddie Mac either
whole mortgages or part interest in a pool of whole mortgages.
8. Both fiat money and real savings represent ____________________ labor and materials.
9. Loan contracts sometimes call for a ____________________ penalty in return for giving the borrower
the right to repay the loan early.
10. Freddie Mac’s Loan ____________________ program made available on the Internet overhauled the
entire loan underwriting system.
MATCHING
Choose the one most appropriate answer for each.
a.
alienation clause
k.
Ginnie Mae
b.
automated underwriting systems
l.
mortgage broker
c.
computerized loan origination
m.
mortgage company
d.
disintermediation
n.
mortgage-backed securities
e.
due-on-sale clause
o.
municipal bonds
f.
Fannie Mae
p.
participation certificates
g.
Farmer Mac
q.
prepayment penalty
h.
Fiat money
r.
primary market
i.
FIRREA
s.
secondary mortgage market
j.
Freddie Mac
t.
usury
1. securities issued, backed by the mortgages securing the loans and the full faith of the federal
government
2. requires immediate repayment of the loan if ownership transfers, also called an alienation clause
3. a market where mortgage loans can be sold to investors
4. a firm that makes mortgage loans and then sells them to investors
5. a lending industry nickname for the Federal National Mortgage Association
6. a certificate that represents an undivided interest in a Freddie Mac pool
7. charging a rate of interest higher than that permitted by law
8. penalty for paying a loan off prior to maturity
9. computerized communication systems for loan approval between a loan originator and an investor
10. originating loans through the use of a networked computer system
11. requires immediate repayment of a loan if ownership transfers; also called a due-on-sale clause
12. the result created when lenders are required to pay high rates of interest for deposits while receiving
long-term income from low-interest rate mortgage loans
13. a real estate industry nickname for the Federal Home Loan Mortgage Corporation
14. one who brings together borrowers and lenders
15. the market in which lenders originate loans and make funds available to borrowers
16. a real estate industry nickname for the Government National Mortgage Association
17. a law signed in 1989 which provided a sweeping revision of the regulatory authorities governing
savings and loans
18. instruments that pay interest that is tax-free from federal income taxes
19. a real estate industry nickname for the Federal Agricultural Mortgage Corporation
20. government created money; also called “printing press money”