REE 3043 Exam 3 And 4 UCF Test
Questions and Answers.
Mortgage types - Answer Conventional mortgages
FHA mortgages
VA mortgages
Home equity Loans
Other
Mortgage Decisions - Answer Mortgage choice
Amount of leverage (loan size)
Refinancing
Default
Primary Mortgage Market - Answer Where loans are created (originated)
Retail or street market
Primary Mortgage Market Players - Answer Mortgage bankers
Mortgage brokers
Banks
Thrifts
On-line lenders (Quicken, Lendingtree, etc.)
Secondary Mortgage Market - Answer Where existing home loans are resold
Wholesale market among lenders
Government Sponsored Enterprises (GSEs) - Answer Fannie Mae and Freddie Mac
Government National Mortgage Association - Answer (GNMA or "Ginnie Mae")
Conventional Mortgage Loans - Answer Oldest form
Any standard home mortgage loan not insured by FHA or guaranteed by Department of
Veterans Affairs
Revolutionized in 1940s by private mortgage insurance
,Conforming conventional home loan - Answer Meets the requirements for purchase by
Freddie Mac or Fannie Mae
nonconforming loan - Answer Does not meet GSE requirements in some respect
Private Mortgage Insurance (PMI) - Answer Protects lender against losses due to default
Generally required for loans over 80% of value
Protects lender for losses up to 25% - 35% of loan
Insurer MAY allow termination of PMI if: - Answer Loan falls below 80% of current value
And borrower is in good standing
Insurer MUST ALLOW termination of PMI if: - Answer loan falls to 80% of original value
(Homeowner's Insurance Act of 1999)
And borrower is in good standing
Insurer MUST TERMINATE PMI if: - Answer loan falls to 78% of original value
And borrower is in good standing
Goals of the National Housing Act of 1949 - Answer Decent home and suitable living
environment
Implemented mainly through mortgage markets
FHA - Answer strictly a loan insurance program
FHA Insurance - Answer Insures 100% of loan
After foreclosure, title is transferred to Housing and Urban Development (HUD)
Importance of FHA - Answer Created the level payment mortgage
Influenced housing and subdivision standards
Continues to innovate: HECM program
Veterans Affairs Guarantees - Answer Limited to qualified veterans of military service.
Maximum guarantee: One-fourth of the GSE loan limit.
Loan can be up to 100% of value
Fee is based on loan-to-value ratio and service status: 1.5 percent to 2.4 percent.
, Loan covers funding fee, but not closing costs
Purchase Money Mortgage - Answer Mortgage given by a property buyer simultaneous with
receipt of title
Piggyback loan - Answer A second mortgage paired with an underlying 1st mortgage to keep
the 1st below 80 percent LTV, thus avoiding required mortgage insurance.
Home Equity Loans - Answer Some are closed-end, fixed-term loans
Mostly open-end or line-of-credit loans (HELOC)
Tax deductible interest
Strength of the house as security provides favorable rate and longer term
Usually limited to total mortgage debt (sum of all mortgage loans) of 75% to 80% of value
Reverse Mortgage - Answer Converts home equity to income without requiring borrower to
move
Requires no payment
Traditional Mortgage - Answer Building equity through amortization
Principal payments reduce loan balance
Interest-only with balloon - Answer has interest-only payments for five to seven years, ending
with a full repayment of principal
Interest-only amortizing - Answer has interest-only payments for up to fifteen years, then
converts to a fully amortizing payment for the remainder of the term.
Options ARM Example - Answer Borrower could select among three types of payments: fully
amortizing, interest-only, and minimum
Minimum payment based on a very low rate: say, 1.5 percent
Minimum payment increases 7.5 percent per year
Interest rate charged was adjustable, usually deeply reduced for the first few months
With minimum payment, the loan balance grew due to "negative amortization"
Hybrid ARM - Answer Interest rate is fixed for some years, then becomes adjustable
Payment is set to be fully amortizing
Fixed rate period ranges from two to ten years
Questions and Answers.
Mortgage types - Answer Conventional mortgages
FHA mortgages
VA mortgages
Home equity Loans
Other
Mortgage Decisions - Answer Mortgage choice
Amount of leverage (loan size)
Refinancing
Default
Primary Mortgage Market - Answer Where loans are created (originated)
Retail or street market
Primary Mortgage Market Players - Answer Mortgage bankers
Mortgage brokers
Banks
Thrifts
On-line lenders (Quicken, Lendingtree, etc.)
Secondary Mortgage Market - Answer Where existing home loans are resold
Wholesale market among lenders
Government Sponsored Enterprises (GSEs) - Answer Fannie Mae and Freddie Mac
Government National Mortgage Association - Answer (GNMA or "Ginnie Mae")
Conventional Mortgage Loans - Answer Oldest form
Any standard home mortgage loan not insured by FHA or guaranteed by Department of
Veterans Affairs
Revolutionized in 1940s by private mortgage insurance
,Conforming conventional home loan - Answer Meets the requirements for purchase by
Freddie Mac or Fannie Mae
nonconforming loan - Answer Does not meet GSE requirements in some respect
Private Mortgage Insurance (PMI) - Answer Protects lender against losses due to default
Generally required for loans over 80% of value
Protects lender for losses up to 25% - 35% of loan
Insurer MAY allow termination of PMI if: - Answer Loan falls below 80% of current value
And borrower is in good standing
Insurer MUST ALLOW termination of PMI if: - Answer loan falls to 80% of original value
(Homeowner's Insurance Act of 1999)
And borrower is in good standing
Insurer MUST TERMINATE PMI if: - Answer loan falls to 78% of original value
And borrower is in good standing
Goals of the National Housing Act of 1949 - Answer Decent home and suitable living
environment
Implemented mainly through mortgage markets
FHA - Answer strictly a loan insurance program
FHA Insurance - Answer Insures 100% of loan
After foreclosure, title is transferred to Housing and Urban Development (HUD)
Importance of FHA - Answer Created the level payment mortgage
Influenced housing and subdivision standards
Continues to innovate: HECM program
Veterans Affairs Guarantees - Answer Limited to qualified veterans of military service.
Maximum guarantee: One-fourth of the GSE loan limit.
Loan can be up to 100% of value
Fee is based on loan-to-value ratio and service status: 1.5 percent to 2.4 percent.
, Loan covers funding fee, but not closing costs
Purchase Money Mortgage - Answer Mortgage given by a property buyer simultaneous with
receipt of title
Piggyback loan - Answer A second mortgage paired with an underlying 1st mortgage to keep
the 1st below 80 percent LTV, thus avoiding required mortgage insurance.
Home Equity Loans - Answer Some are closed-end, fixed-term loans
Mostly open-end or line-of-credit loans (HELOC)
Tax deductible interest
Strength of the house as security provides favorable rate and longer term
Usually limited to total mortgage debt (sum of all mortgage loans) of 75% to 80% of value
Reverse Mortgage - Answer Converts home equity to income without requiring borrower to
move
Requires no payment
Traditional Mortgage - Answer Building equity through amortization
Principal payments reduce loan balance
Interest-only with balloon - Answer has interest-only payments for five to seven years, ending
with a full repayment of principal
Interest-only amortizing - Answer has interest-only payments for up to fifteen years, then
converts to a fully amortizing payment for the remainder of the term.
Options ARM Example - Answer Borrower could select among three types of payments: fully
amortizing, interest-only, and minimum
Minimum payment based on a very low rate: say, 1.5 percent
Minimum payment increases 7.5 percent per year
Interest rate charged was adjustable, usually deeply reduced for the first few months
With minimum payment, the loan balance grew due to "negative amortization"
Hybrid ARM - Answer Interest rate is fixed for some years, then becomes adjustable
Payment is set to be fully amortizing
Fixed rate period ranges from two to ten years
