FICO

Developed software to create credit scores

LTV

Percentage of a homebuyer’s income used to repay debt

PITI

Homeowner’s expenses

DTI

Percentage of the property’s value that the lender is willing to lend

FHA

Government-sponsored loan program

The costs of owning a home include principal, interest, taxes, and insurance.

true

The payments on all debts—normally including long-term debt such as car payments, student loans, or other mortgages—should not exceed 36% of monthly income.

true

Loan origination fee

A charge by the lender to cover the expenses involved in generating the loan

Promissory note

A borrower’s written commitment to pay a debt

Usury

Charging interest in excess of the maximum rate allowed by law

Discount point

A charge to increase the lender’s yield (rate of return) on its investment

Prepayment Penalty

A fee assessed against the unearned portion of the interest for any payments made ahead of schedule

Lenders may charge prepayment penalties on mortgage loans insured or guaranteed by the federal government.

False

The promissory note is called the note or financing instrument.

True

Mortgage

If the borrower defaults, the lender must go through a formal foreclosure proceeding to obtain legal title.

The borrower retains both legal and equitable title.

Deed of trust

The lender has the right to immediate possession of and rents from the property if the borrower defaults

The borrower gives legal title to a designated individual and retains equitable title.

Beneficiary

Lender under a deed of trust

Acceleration clause

Statement that allows lender to declare the entire debt due and payable immediately

Trustor

Borrower under a deed of trust

Assignment of Mortgage

Clause that allows the note to be sold to a third party

Defeasance clause

Provision that requires lender to execute a satisfaction (release or discharge) when the note has been fully paid

Under a deed of trust, the trustor retains equitable title.

True

In a lien theory state, a mortgagor actually gives legal title to the mortgagee (or some other designated individual) and retains equitable title.

False

Which mortgage loan appears to offer the best option for Molly?

Fixed-rate

What factor could make the adjustable-rate mortgage (ARM) the better option?

If the interest rate went down, the payment on the ARM would go down as well.

Reverse mortgage

For homeowners 62 or older to borrow against home equity

ARM

Begins at one rate of interest and adjusts during loan term

Amortized

Mortgagor pays the same amount each month with some going to principal and some to interest

Straight

Interest-only loan

Balloon

Final payment is larger than others

GEM

Rapid-payoff mortgage

A straight loan is also called a fully amortized loan.

False

A balloon payment will be required in a partially amortized loan.

True

Strict

A court-ordered deadline for payment of the defaulted debt passes with the debt unpaid, allowing the title to be awarded to the lender; no sale is required.

Nonjudicial

The security instrument contains a power-of-sale clause.

Judicial

The property may be ordered sold to the highest bidder following a court hearing

Nonjudicial foreclosure procedures may be used when the security instrument contains a power-of-sale clause.

True

Judicial foreclosure allows property to be sold without a court order after the mortgagee has given sufficient public notice.

False

Broad Form

Collapse of the building

Falling objects

Damage to plumbing

Basic Form

Damage from smoke

Damage by aircraft

Fire and lightning

Vandalism and theft

Federal Emergency Management Agency

Administers the flood program

Congress

Prepared maps identifying flood-prone areas

Army Corps of Engineers

Established the National Flood Insurance Program

The MOST common homeowners insurance policy is called a broad form.

False

The Federal Emergency Management Agency (FEMA) administers the National Flood Insurance Program.

True

What type of foreclosure is sometimes called friendly foreclosure?

Deed in lieu of foreclosure

Parties to lending agreements are referred to by different terms. Which of these refers to the same party?

Borrower = mortgagor

A promissory note used as a debt instrument without any related collateral is called

an unsecured note.

When a borrower defaults, a mortgage lender acquires full legal title to the property using

strict foreclosure.

After a foreclosure sale, the borrower who has defaulted on the loan may seek to pay off the mortgage debt plus any accrued interest and costs under what right?

Statutory redemption

A $2,400 term loan has a 10% annual interest rate. What is the monthly payment?

$20

A home is purchased using a fixed-rate, fully amortized mortgage loan. Which statement regarding this mortgage is TRUE?

Each mortgage payment amount is the same.

In a mortgage or lien theory state, the mortgagor retains

both legal and equitable title.

At closing, the buyer paid discount points totaling $6,187.50 on a loan of $225,000. How many points did the buyer pay?

2.75

A type of foreclosure that allows the property to be sold by court order is

judicial foreclosure.

A prospective buyer needs to borrow money to buy a house. The buyer applies for and obtains a real estate loan from a mortgage company. Then the buyer signs a note and a mortgage. In this example, the mortgage company is

the mortgagee.

The clause that appears in both the promissory note and the mortgage, and allows the lender to call the balance due and payable in full upon default, is known as

the acceleration clause.

A promissory note

makes the borrower personally liable for the debt.

The borrower of the note is called

payor.

In one state, a mortgagee holds legal title to real property offered as collateral for a loan, and the mortgagor retains the rights of possession and use. If the borrower defaults, the lender is entitled to immediate possession and rents. This state can be BEST characterized as what kind of state?

Title theory

Which characteristic of a fixed-rate home loan that is amortized according to the original payment schedule is TRUE?

The amount of interest to be paid is predetermined.

Which of the following is TRUE about a note?

It is a negotiable instrument.

A mortgagor is the one who

gives a promissory note and mortgage to the lender in exchange for a loan.

The mortgage disclosure rules issued by the Consumer Financial Protection Bureau, which took effect in 2014, require a mortgage lender to do all of the following EXCEPT

require maximum insurance coverage by the borrower.

A homeowner's equity in the property is

the difference between the property’s market value and the amount still owed on it.

A borrower wants to obtain a loan that will allow regular payments of principal and interest for five years and then a final balloon payment to pay off the remaining principal balance. This type of loan is known as

a partially amortized loan.

The amount of the loan as a percentage of the purchase price of a property is known as

loan-to-value ratio.

Most adjustable-rate mortgages (ARMs) have two types of rate caps called

periodic and life of the loan.

Which of the following allows a mortgagee to proceed to a foreclosure sale without going to court first?

Power of sale

Lenders usually look at a loan applicant's percentage of

debt to income.

As directed by the Dodd-Frank Act, new mortgage disclosure rules were issued in 2014 by

the Consumer Financial Protection Bureau.

A lender uses which of the following to make a lending decision for a mortgage loan?

Borrower's debt-to-income ratio

Borrower's credit score

Borrower's credit report

The database of consumer claims history available to insurance companies is the

Comprehensive Loss Underwriting Exchange.

What is the term that refers to a lender charging an interest rate that is higher than that permitted by law?

Usury

If the lender wants to call the entire note due and payable if the borrower stops making payments, the security instrument must include

an acceleration clause.