REE3043 REVIEW TEST QUESTIONS
WITH ALL CORRECT SOLUTIONS
As part of their underwriting process, lenders may rely on debt ratios to ascertain
whether borrowers have the ability to make regular payments on their mortgages.
Utilizing the following information, calculate the total (back-end) debt ratio we learned in
class. Monthly principal and interest on mortgage loan: $1500; Monthly tax and
insurance payments into escrow: $200; Estimated monthly utility bills: $350; Monthly car
loan payment (2 years remaining on loan): $400; Gross monthly income: $6,044. -
Answer-34.7
Fannie Mae and Freddie Mac are government sponsored enterprises created by the
U.S. Congress in to provide liquidity in the home mortgage market. Which of the
following statements regarding Fannie Mae and Freddie Mac is false:
-They lend money directly to homebuyers
-They are authorized to buy conventional home loans that do not exceed conforming
loan limits
-They were once private companies with publicly traded stock that have now been
placed into conservatorship by the United States government following the mortgage
crisis of 2007-2008
-They fully guarantee timely payment of interest and principal to investors in mortgage
backed securities they issue - Answer-They lend money directly to homebuyers
For conforming conventional home loans, the traditional payment ratios for traditional
(manually) underwritten loans are: - Answer-28% and 36%
Gross monthly income is in the denominator of the standard housing expense (front-
end) ratio in home loan underwriting. What does the numerator include?
Monthly principal, interest, property taxes and home owner's insurance
Monthly principal, interest, and property taxes
Monthly principal and interest
All of these, plus monthly obligations extending 6 months or more - Answer-Monthly
principal, interest, property taxes and home owner's insurance
Traditional (manual) home mortgage underwriting is said to rest on three elements, the
"three C's." The underwriting characteristic most strongly associated with default is: -
Answer-Collateral
Two important advantages of automated underwriting are that it is and it
enables lenders to more safely make loans. - Answer-Two important
advantages of automated underwriting are that it is faster and it enables lenders to more
safely make affordable housing loans.
What two contracts are always involved in a mortgage loan? - Answer-A borrower
always conveys a mortgage and a note to the lender in the mortgage loan.
,The two most common types of caps in an adjustable rate mortgage are: - Answer-
periodic caps and overall caps
What happens to the balance of a loan with negative amortization? - Answer-A loan
balance with negative amortization will increase because the scheduled payment is
insufficient to cover the accumulated interest.
What is a balloon loan? - Answer-A balloon loan has a amortization term that
determines interest and principal payments as if it were a fully amortized loan and a
shorter term for maturity at which the remaining loan balance must be paid in full.
Of theses types of loans, which typically have prepayment restrictions or penalties? a.
standard home loan b. large home loan c. subprime loan d. commercial property
mortgage loan - Answer-Prepayment penalties occur mainly in large home loans,
subprime loans, and commercial mortgage loans.
Why does a mortgage lender want to be able to pay the property taxes on behalf of a
mortgage borrower? - Answer-The mortgage lender wants to be able to pay the
property taxes on behalf of the borrower because the property tax lien is superior to the
mortgage and can preempt it in default.
What types of standard home loans are assumable? - Answer-FHA and Va loans are
assumable, subject to the buyer's ability to qualify for the loan.
In practice, lenders commonly define default as occurring when a loan is
days overdue. - Answer-In practice, lenders commonly define default as occurring when
a loan is 90 days overdue.L
Give two reasons a lender might be ill-advised to accept a deed in lieu of foreclosure for
a distressed property. - Answer-Lenders may be ill-advised to accept a deed in lieu of
foreclosure because liens may remain with the property even after it is conveyed back
, to the lender. Also, if the borrower claims bankruptcy, the lender may ultimately lose its
priority claim to the property.
Depending on the state, the process of foreclosure sale is either or .
The method most favorable to a lender is . - Answer-Depending on the state,
the process of foreclosure is either judicial foreclosure or by power of sale. The method
most favorable to a lender is power of sale.
Which form of bankruptcy is least harmful to a lender's mortgage interest? - Answer-
Chapter 7 bankruptcy is the least harmful type of bankruptcy to a lender's mortgage
interest.
What law prohibits discrimination in lending by race, sex, religion, and national origin?
What types of income discrimination does it prohibit? - Answer-The Equal Credit
Opportunity Act prohibits discrimination in lending by race, sex, religion, and national
origin. It also prohibits discrimination because an applicant receives income from a
public assistance program.
Which of the following entities provides mortgage origination services and initial funding
within the "originate to distribute" framework? - Answer-Mortgage Banker
-Model: Fund and Hold
-Earn origination fees and interest income - Answer-Portfolio lender
-Model: Originate to Distribute
-earn origination fees and gain on sale
-common to retain servicing rights - Answer-Mortgage Banker
In securitization, mortgages are pooled together and certain cash flows are packaged
into mortgage back securities (MBS) to be sold to investors. An MBS entitles the
investor to a share of which cash flows generate by the underlying mortgages in the
pool? - Answer-principal and interest paid
Calculate the total debt ratio. Principal and interest on mortgage loan: $635; Tax and
insurance payments in escrow: $125; Car loan payment (2 years remaining on loan):
$350; Gross monthly income: $3,000 - Answer-37%
($635+$125+$350)/$3000 = 0.37 = 37%
Mortgage originators can either hold loans in their portfolios or sell them to investors.
When a mortgage originator decides to sell mortgages to another institution, this
transaction occurs in what is commonly referred to as the: - Answer-Secondary
mortgage market
WITH ALL CORRECT SOLUTIONS
As part of their underwriting process, lenders may rely on debt ratios to ascertain
whether borrowers have the ability to make regular payments on their mortgages.
Utilizing the following information, calculate the total (back-end) debt ratio we learned in
class. Monthly principal and interest on mortgage loan: $1500; Monthly tax and
insurance payments into escrow: $200; Estimated monthly utility bills: $350; Monthly car
loan payment (2 years remaining on loan): $400; Gross monthly income: $6,044. -
Answer-34.7
Fannie Mae and Freddie Mac are government sponsored enterprises created by the
U.S. Congress in to provide liquidity in the home mortgage market. Which of the
following statements regarding Fannie Mae and Freddie Mac is false:
-They lend money directly to homebuyers
-They are authorized to buy conventional home loans that do not exceed conforming
loan limits
-They were once private companies with publicly traded stock that have now been
placed into conservatorship by the United States government following the mortgage
crisis of 2007-2008
-They fully guarantee timely payment of interest and principal to investors in mortgage
backed securities they issue - Answer-They lend money directly to homebuyers
For conforming conventional home loans, the traditional payment ratios for traditional
(manually) underwritten loans are: - Answer-28% and 36%
Gross monthly income is in the denominator of the standard housing expense (front-
end) ratio in home loan underwriting. What does the numerator include?
Monthly principal, interest, property taxes and home owner's insurance
Monthly principal, interest, and property taxes
Monthly principal and interest
All of these, plus monthly obligations extending 6 months or more - Answer-Monthly
principal, interest, property taxes and home owner's insurance
Traditional (manual) home mortgage underwriting is said to rest on three elements, the
"three C's." The underwriting characteristic most strongly associated with default is: -
Answer-Collateral
Two important advantages of automated underwriting are that it is and it
enables lenders to more safely make loans. - Answer-Two important
advantages of automated underwriting are that it is faster and it enables lenders to more
safely make affordable housing loans.
What two contracts are always involved in a mortgage loan? - Answer-A borrower
always conveys a mortgage and a note to the lender in the mortgage loan.
,The two most common types of caps in an adjustable rate mortgage are: - Answer-
periodic caps and overall caps
What happens to the balance of a loan with negative amortization? - Answer-A loan
balance with negative amortization will increase because the scheduled payment is
insufficient to cover the accumulated interest.
What is a balloon loan? - Answer-A balloon loan has a amortization term that
determines interest and principal payments as if it were a fully amortized loan and a
shorter term for maturity at which the remaining loan balance must be paid in full.
Of theses types of loans, which typically have prepayment restrictions or penalties? a.
standard home loan b. large home loan c. subprime loan d. commercial property
mortgage loan - Answer-Prepayment penalties occur mainly in large home loans,
subprime loans, and commercial mortgage loans.
Why does a mortgage lender want to be able to pay the property taxes on behalf of a
mortgage borrower? - Answer-The mortgage lender wants to be able to pay the
property taxes on behalf of the borrower because the property tax lien is superior to the
mortgage and can preempt it in default.
What types of standard home loans are assumable? - Answer-FHA and Va loans are
assumable, subject to the buyer's ability to qualify for the loan.
In practice, lenders commonly define default as occurring when a loan is
days overdue. - Answer-In practice, lenders commonly define default as occurring when
a loan is 90 days overdue.L
Give two reasons a lender might be ill-advised to accept a deed in lieu of foreclosure for
a distressed property. - Answer-Lenders may be ill-advised to accept a deed in lieu of
foreclosure because liens may remain with the property even after it is conveyed back
, to the lender. Also, if the borrower claims bankruptcy, the lender may ultimately lose its
priority claim to the property.
Depending on the state, the process of foreclosure sale is either or .
The method most favorable to a lender is . - Answer-Depending on the state,
the process of foreclosure is either judicial foreclosure or by power of sale. The method
most favorable to a lender is power of sale.
Which form of bankruptcy is least harmful to a lender's mortgage interest? - Answer-
Chapter 7 bankruptcy is the least harmful type of bankruptcy to a lender's mortgage
interest.
What law prohibits discrimination in lending by race, sex, religion, and national origin?
What types of income discrimination does it prohibit? - Answer-The Equal Credit
Opportunity Act prohibits discrimination in lending by race, sex, religion, and national
origin. It also prohibits discrimination because an applicant receives income from a
public assistance program.
Which of the following entities provides mortgage origination services and initial funding
within the "originate to distribute" framework? - Answer-Mortgage Banker
-Model: Fund and Hold
-Earn origination fees and interest income - Answer-Portfolio lender
-Model: Originate to Distribute
-earn origination fees and gain on sale
-common to retain servicing rights - Answer-Mortgage Banker
In securitization, mortgages are pooled together and certain cash flows are packaged
into mortgage back securities (MBS) to be sold to investors. An MBS entitles the
investor to a share of which cash flows generate by the underlying mortgages in the
pool? - Answer-principal and interest paid
Calculate the total debt ratio. Principal and interest on mortgage loan: $635; Tax and
insurance payments in escrow: $125; Car loan payment (2 years remaining on loan):
$350; Gross monthly income: $3,000 - Answer-37%
($635+$125+$350)/$3000 = 0.37 = 37%
Mortgage originators can either hold loans in their portfolios or sell them to investors.
When a mortgage originator decides to sell mortgages to another institution, this
transaction occurs in what is commonly referred to as the: - Answer-Secondary
mortgage market
