REE3043 EXAM QUESTIONS WITH
COMPLETE SOLUTIONS
The lender that takes out a insurance policy against the mortgage in case the borrower
defaults. - Answer-PMI - Private Mortgage Insurance
It was created to restore confidence in the mortgage market. It had a great impact in the
housing finance system. The FHA helped establish rigorous borrowing and lending
standards that reduced lenders' risk and promoted the use of long term, fully amortizing
loans that were more consistent with the household budgets than the interest-only loans
that were prevalent at the time. - Answer-Federal housing administration ( FHA )
It allowed veterans to obtain mortgage loans for home purchases with little or no down
payment and low interest rates. The VA loan program guarantees the payment of a
mortgage loan made by a private lender to a qualified veteran should the borrower
default. - Answer-VA- guaranteed loans
When existing loans are sold by originators to investors or from one investor to another,
these transactions are the secondary mortgage market. - Answer-Secondary mortgage
market
The value of money changes over time - Answer-Time value of money
Earning may not be there, could lose your principle, liquidity risk ( it is not easily
converted into cash ) - Answer-Financial risks
Present value of your cash inflows minus the present value of your cash outflows Or
difference between cost and value, must know your required rate of return when using
the NPV analysis - Answer-NPV ( Net Present Value )
That discount rate that equates the value of the cash outflows and cash inflows to $0.00
- Answer-IRR ( Internal Rate of Return )
Document that has the positive and negatives of investing in a property. Used for
regulations ( Reg. ) D Underwritings - Answer-PPM ( Private Placement Memorandum )
Periodic payments are sufficient to pay off the full amount of the loan plus all of the
interest by the end of the term.
- was a common type of mortgage until a few years ago. Starting to come back now. -
Answer-Fully amortizing loan
You pay only the interest on the loan for the entire loan and then pay the principle at the
end of the loan. - Answer-Interest only loan
, Used in commercial loans when a loan amortizes over 25 years but the loan matures at
year 10. ( otherwise the loan payments would be so large that you couldn't make the
payments ) - Answer-Ballon loan
- If you want to continue owning the
property, you can refinance with the same or another lender or sell the property
Sometimes banks won't refinance loans because they have made too many loans on
the same type of property ( residential, commercial, etc ) in the area and they need to
decrease their exposure to this type of property. - Answer-Ballon loan
( unspoken policy of some banks: they will extend their loans and they will pretend that
the value will be there in the future. - Answer-Extend and pretend
- they do this because they don't want to have to deal with having to foreclose on a
large number of commercial loans. - Answer-Extend and pretend
When someone pays back their loan early, they have to pay a penalty. - Answer-
Prepayment penalty
- Since the bank expects you to pay back the loan over the stated term and have that
constant stream of payments.
- banks don't want revenue streams interrupted.
- if you pay loan off in a year 1 you have 5% penalty ( on whatever the principle is )
- year 2 - 4 % etc. until year 6 where there is no prepayment penalty. - Answer-
Prepayment penalty
Must be 62 years old or older. Home owners need more money to live on so they use
the remaining equity in the house ( a reverse mortgage will typically use 50% of the
equity based on age, health, and life expectancy) and they will send you payments ( ex.
$1,000 a month ). If you have a mortgage then you can use the money to pay it off. You
will get a check for $1,000 and there will be interest on it ( which you do not have to pay
) - once you die or sell the home, your estate will take the house, sell it, and then they
will pay back the bank plus interest that has accrued. Whatever funds are left over once
the bank is paid, goes to the estate.
- recorded document
- you continue to own the house
- paid off when the house is sold or when occupants move out or pass away.
- interest is paid back after you die. - Answer-Reverse mortgage
Can be done at any age. No cost to take it out if you have the loan open for two or more
years. - Answer-Equity line
___________ bring buyers and sellers together and earn a percentage of the contract
price - Answer-brokers
COMPLETE SOLUTIONS
The lender that takes out a insurance policy against the mortgage in case the borrower
defaults. - Answer-PMI - Private Mortgage Insurance
It was created to restore confidence in the mortgage market. It had a great impact in the
housing finance system. The FHA helped establish rigorous borrowing and lending
standards that reduced lenders' risk and promoted the use of long term, fully amortizing
loans that were more consistent with the household budgets than the interest-only loans
that were prevalent at the time. - Answer-Federal housing administration ( FHA )
It allowed veterans to obtain mortgage loans for home purchases with little or no down
payment and low interest rates. The VA loan program guarantees the payment of a
mortgage loan made by a private lender to a qualified veteran should the borrower
default. - Answer-VA- guaranteed loans
When existing loans are sold by originators to investors or from one investor to another,
these transactions are the secondary mortgage market. - Answer-Secondary mortgage
market
The value of money changes over time - Answer-Time value of money
Earning may not be there, could lose your principle, liquidity risk ( it is not easily
converted into cash ) - Answer-Financial risks
Present value of your cash inflows minus the present value of your cash outflows Or
difference between cost and value, must know your required rate of return when using
the NPV analysis - Answer-NPV ( Net Present Value )
That discount rate that equates the value of the cash outflows and cash inflows to $0.00
- Answer-IRR ( Internal Rate of Return )
Document that has the positive and negatives of investing in a property. Used for
regulations ( Reg. ) D Underwritings - Answer-PPM ( Private Placement Memorandum )
Periodic payments are sufficient to pay off the full amount of the loan plus all of the
interest by the end of the term.
- was a common type of mortgage until a few years ago. Starting to come back now. -
Answer-Fully amortizing loan
You pay only the interest on the loan for the entire loan and then pay the principle at the
end of the loan. - Answer-Interest only loan
, Used in commercial loans when a loan amortizes over 25 years but the loan matures at
year 10. ( otherwise the loan payments would be so large that you couldn't make the
payments ) - Answer-Ballon loan
- If you want to continue owning the
property, you can refinance with the same or another lender or sell the property
Sometimes banks won't refinance loans because they have made too many loans on
the same type of property ( residential, commercial, etc ) in the area and they need to
decrease their exposure to this type of property. - Answer-Ballon loan
( unspoken policy of some banks: they will extend their loans and they will pretend that
the value will be there in the future. - Answer-Extend and pretend
- they do this because they don't want to have to deal with having to foreclose on a
large number of commercial loans. - Answer-Extend and pretend
When someone pays back their loan early, they have to pay a penalty. - Answer-
Prepayment penalty
- Since the bank expects you to pay back the loan over the stated term and have that
constant stream of payments.
- banks don't want revenue streams interrupted.
- if you pay loan off in a year 1 you have 5% penalty ( on whatever the principle is )
- year 2 - 4 % etc. until year 6 where there is no prepayment penalty. - Answer-
Prepayment penalty
Must be 62 years old or older. Home owners need more money to live on so they use
the remaining equity in the house ( a reverse mortgage will typically use 50% of the
equity based on age, health, and life expectancy) and they will send you payments ( ex.
$1,000 a month ). If you have a mortgage then you can use the money to pay it off. You
will get a check for $1,000 and there will be interest on it ( which you do not have to pay
) - once you die or sell the home, your estate will take the house, sell it, and then they
will pay back the bank plus interest that has accrued. Whatever funds are left over once
the bank is paid, goes to the estate.
- recorded document
- you continue to own the house
- paid off when the house is sold or when occupants move out or pass away.
- interest is paid back after you die. - Answer-Reverse mortgage
Can be done at any age. No cost to take it out if you have the loan open for two or more
years. - Answer-Equity line
___________ bring buyers and sellers together and earn a percentage of the contract
price - Answer-brokers
