REE 3043 Exam 3 UPDATED ACTUAL
Exam Questions and CORRECT Answers
Chapter 10:
The most compelling alternative home mortgage that lenders use to combat the maturity
imbalance problem associated with long-term LPMs is by making _____________ loans.
A) ARM
B) RAM
C) PMI
D) PMM - CORRECT ANSWER - A) ARM Loans
FHA loans require that MIP payments be made
A) until the loan-to-original value reaches 78 percent.
B) for at least 5 years.
C) either a or b
D) both a and b - CORRECT ANSWER - D) both a and b
Gina is purchasing her first home and would like to include the cost of furnishing her home in
the mortgage loan. The type of mortgage that would accommodate this is
A) an option mortgage.
B) a wrap-around mortgage.
C) a package mortgage.
D) a jumbo loan. - CORRECT ANSWER - C) a package mortgage.
A potential drawback to a reverse mortgage is the homeowner outliving the payout period of the
mortgage. This type of uncertainty associated with RAMs is known as
A) payback risk.
B) mortality risk.
,C) longevity risk.
D) holding cost risk. - CORRECT ANSWER - B) mortality risk.
Which is NOT a characteristic of an interest-only balloon mortgage?
A) open-end credit line
B) lower monthly payments
C) they are useful for short-term financing
D) they are non-amortizing - CORRECT ANSWER - A) open-end credit line
The FHA does NOT engage in which activity?
A) provide insurance for reverse mortgages
B) provide an opportunity for qualified first-time home buyers to obtain an affordable home loan
C) provide affordable small business loans to qualified borrowers
D) a and c only - CORRECT ANSWER - C) provide affordable small business loans to
qualified borrowers
All are characteristics of VA loans except
A) the VA guarantees loans made by private lenders to qualified veteran borrowers.
B) the VA can make direct home loans to veteran borrowers.
C) the VA protects the lender against default by providing an assurance of up to 75% of the loan
amount.
D) eligible veterans are not required to make a down payment on VA loans. - CORRECT
ANSWER - C) the VA protects the lender against default by providing an assurance of up
to 75% of the loan amount.
A single-family home loan that exceeds ______________ is called a jumbo loan.
A) $325,000
B) $417,000
C) $500,000
,D) $640,000 - CORRECT ANSWER - B) $417,000
Mike purchased his home five years ago for $250,000. Its current market value is $275,000 and
has a mortgage balance of $195,000. He wants to put in a pool and pay for it with a HELOC. If
the lender requires a maximum LTV of 80%, what is the most Mike will receive from the
proceeds of the HELOC?
A) $25,000
B) $44,000
C) $55,000
D) $64,000 - CORRECT ANSWER - A) $25,000
All are reasons why homeowners might be interested in a home equity loan rather than a
consumer loan except
A) longer term of repayment.
B) lower interest rate.
C) easy availability.
D) tax deductable principle payments. - CORRECT ANSWER - D) tax deductable
principle payments.
Private mortgage insurance (PMI) is usually required on _____ loans with loan-
to-value ratios greater than _____ percent. - CORRECT ANSWER - d. Home, 80 percent.
The dominant loan type originated and kept by most depository institutions is the: - CORRECT
ANSWER - b. Adjustable rate mortgage.
Which of the following mortgage types has the most default risk, assuming the initial loan-to-
value ratio, contract interest rate, and all other loan terms are
identical? - CORRECT ANSWER - a. Interest only loans.
A mortgage that is intended to enable older households to "liquify" the equity in
, their home is the: - CORRECT ANSWER - d. Reverse annuity mortgage.
A jumbo loan is: - CORRECT ANSWER - b. A conventional loan that is too large to be
purchased by Fannie Mae or Freddie Mac.
The maximum loan-to-value ratio for an FHA loan over $50,000 is
approximately: - CORRECT ANSWER - b. 97 percent.
The maximum loan-to-value ratio on a VA guaranteed loan is: - CORRECT ANSWER - d.
100 percent.
Conforming conventional loans are loans that: - CORRECT ANSWER - c. Are eligible for
purchase by Fannie Mae and Freddie Mac.
Home equity loans typically: - CORRECT ANSWER - d. Have tax-deductible interest
charges.
The best method of determining whether to refinance is to use: - CORRECT ANSWER - a.
Net benefit analysis.
Probably the greatest contribution of FHA to home mortgage lending was to: - CORRECT
ANSWER - a. Establish the use of the level-payment home mortgage.
Five years ago you borrowed $100,000 to finance the purchase of a $120,000 house. The interest
rate on the old mortgage is 10%. Payment terms are being made monthly to amortize the loan
over 30 years. You have found another lender who will refinance the current outstanding loan
balance at 8% with monthly payments for 30 years. The new lender will charge two discount
points on the loan. Other refinancing costs will equal $3,000. There are no prepayment penalties
associated with either loan. You feel the appropriate opportunity cost to
apply to this refinancing decision is 8%.
Exam Questions and CORRECT Answers
Chapter 10:
The most compelling alternative home mortgage that lenders use to combat the maturity
imbalance problem associated with long-term LPMs is by making _____________ loans.
A) ARM
B) RAM
C) PMI
D) PMM - CORRECT ANSWER - A) ARM Loans
FHA loans require that MIP payments be made
A) until the loan-to-original value reaches 78 percent.
B) for at least 5 years.
C) either a or b
D) both a and b - CORRECT ANSWER - D) both a and b
Gina is purchasing her first home and would like to include the cost of furnishing her home in
the mortgage loan. The type of mortgage that would accommodate this is
A) an option mortgage.
B) a wrap-around mortgage.
C) a package mortgage.
D) a jumbo loan. - CORRECT ANSWER - C) a package mortgage.
A potential drawback to a reverse mortgage is the homeowner outliving the payout period of the
mortgage. This type of uncertainty associated with RAMs is known as
A) payback risk.
B) mortality risk.
,C) longevity risk.
D) holding cost risk. - CORRECT ANSWER - B) mortality risk.
Which is NOT a characteristic of an interest-only balloon mortgage?
A) open-end credit line
B) lower monthly payments
C) they are useful for short-term financing
D) they are non-amortizing - CORRECT ANSWER - A) open-end credit line
The FHA does NOT engage in which activity?
A) provide insurance for reverse mortgages
B) provide an opportunity for qualified first-time home buyers to obtain an affordable home loan
C) provide affordable small business loans to qualified borrowers
D) a and c only - CORRECT ANSWER - C) provide affordable small business loans to
qualified borrowers
All are characteristics of VA loans except
A) the VA guarantees loans made by private lenders to qualified veteran borrowers.
B) the VA can make direct home loans to veteran borrowers.
C) the VA protects the lender against default by providing an assurance of up to 75% of the loan
amount.
D) eligible veterans are not required to make a down payment on VA loans. - CORRECT
ANSWER - C) the VA protects the lender against default by providing an assurance of up
to 75% of the loan amount.
A single-family home loan that exceeds ______________ is called a jumbo loan.
A) $325,000
B) $417,000
C) $500,000
,D) $640,000 - CORRECT ANSWER - B) $417,000
Mike purchased his home five years ago for $250,000. Its current market value is $275,000 and
has a mortgage balance of $195,000. He wants to put in a pool and pay for it with a HELOC. If
the lender requires a maximum LTV of 80%, what is the most Mike will receive from the
proceeds of the HELOC?
A) $25,000
B) $44,000
C) $55,000
D) $64,000 - CORRECT ANSWER - A) $25,000
All are reasons why homeowners might be interested in a home equity loan rather than a
consumer loan except
A) longer term of repayment.
B) lower interest rate.
C) easy availability.
D) tax deductable principle payments. - CORRECT ANSWER - D) tax deductable
principle payments.
Private mortgage insurance (PMI) is usually required on _____ loans with loan-
to-value ratios greater than _____ percent. - CORRECT ANSWER - d. Home, 80 percent.
The dominant loan type originated and kept by most depository institutions is the: - CORRECT
ANSWER - b. Adjustable rate mortgage.
Which of the following mortgage types has the most default risk, assuming the initial loan-to-
value ratio, contract interest rate, and all other loan terms are
identical? - CORRECT ANSWER - a. Interest only loans.
A mortgage that is intended to enable older households to "liquify" the equity in
, their home is the: - CORRECT ANSWER - d. Reverse annuity mortgage.
A jumbo loan is: - CORRECT ANSWER - b. A conventional loan that is too large to be
purchased by Fannie Mae or Freddie Mac.
The maximum loan-to-value ratio for an FHA loan over $50,000 is
approximately: - CORRECT ANSWER - b. 97 percent.
The maximum loan-to-value ratio on a VA guaranteed loan is: - CORRECT ANSWER - d.
100 percent.
Conforming conventional loans are loans that: - CORRECT ANSWER - c. Are eligible for
purchase by Fannie Mae and Freddie Mac.
Home equity loans typically: - CORRECT ANSWER - d. Have tax-deductible interest
charges.
The best method of determining whether to refinance is to use: - CORRECT ANSWER - a.
Net benefit analysis.
Probably the greatest contribution of FHA to home mortgage lending was to: - CORRECT
ANSWER - a. Establish the use of the level-payment home mortgage.
Five years ago you borrowed $100,000 to finance the purchase of a $120,000 house. The interest
rate on the old mortgage is 10%. Payment terms are being made monthly to amortize the loan
over 30 years. You have found another lender who will refinance the current outstanding loan
balance at 8% with monthly payments for 30 years. The new lender will charge two discount
points on the loan. Other refinancing costs will equal $3,000. There are no prepayment penalties
associated with either loan. You feel the appropriate opportunity cost to
apply to this refinancing decision is 8%.
