Question 1

Which of the following best describes the two fundamental elements of a mortgage loan?

Accepted Answer

The note, which specifies the exact terms of the financial obligation, and the mortgage (deed of trust), which pledges the property as security for the note.

Question 2

A homeowner has a fixed-rate mortgage with an annual interest rate of 6%. What is the monthly interest rate charged on the loan?

Accepted Answer

$$ \frac{6\%}{12} = 0.5\% $$ per month

Question 3

Which clause in a mortgage allows the lender to require immediate repayment of the entire loan balance if the borrower defaults?

Accepted Answer

Acceleration clause

Question 4

A borrower has an adjustable-rate mortgage (ARM) with a margin of 275 basis points and an index rate of 3.25%. What is the new interest rate after the change date?

Accepted Answer

$$ 3.25\% + 2.75\% = 6.00\% $$

Question 5

Which of the following is a potential consequence of payment caps on adjustable-rate mortgages?

Accepted Answer

Negative amortization, where unpaid interest is added to the loan balance.

Question 6

If a property is acquired 'subject to' an existing mortgage, what is the buyer's liability for the mortgage loan?

Accepted Answer

The buyer has no personal liability for the mortgage loan.

Question 7

Which law requires lenders to provide a statement of the Annual Percentage Rate (APR) and gives borrowers the right of rescission for certain home loans?

Accepted Answer

Federal Truth-in-Lending Act (TILA)

Question 8

A homeowner defaults on their first mortgage ($$100,000 balance) and second mortgage (20$$,000 balance). The foreclosure sale yields $100,000. How much does the second mortgagee receive?

Accepted Answer

$0

Question 9

Which of the following is NOT prohibited by the Equal Credit Opportunity Act?

Accepted Answer

Discrimination based on credit score

Question 10

A lender prefers a foreclosure process that is faster and less costly. Which method is typically preferred?

Accepted Answer

Power of sale

Question 11

Which of the following is a nonrecourse loan?

Accepted Answer

A loan where the borrower has no personal liability for repayment.

Question 12

Which clause in a mortgage prevents the property from being sold without the lender's approval?

Accepted Answer

Due-on-sale clause

Question 13

A borrower misses three consecutive monthly payments on their mortgage. What type of default is this?

Accepted Answer

Substantive default

Question 14

Which federal law prohibits kickbacks from closing service vendors and requires a standard format closing statement for home loans?

Accepted Answer

Real Estate Settlement Procedures Act (RESPA)

Question 15

A borrower pays off a mortgage early and is charged a fee based on the difference between the payoff and the current market rate. What is this fee called?

Accepted Answer

Yield maintenance penalty

Question 16

Which of the following is a key feature of a level payment loan?

Accepted Answer

The total payment remains constant, but the proportion of interest and principal changes over time.

Question 17

Under the Home Ownership and Equity Protection Act (HOEPA), which of the following is NOT allowed for subprime loans?

Accepted Answer

Negative amortization

Question 18

If a foreclosure auction yields $$100,000 and the remaining loan balance is 120$$,000, what is the deficiency judgment amount?

Accepted Answer

$$120,000 - 100$$,000 = $$20,000$$

Question 19

Which act created the Consumer Financial Protection Bureau and centralized oversight of home mortgage lending?

Accepted Answer

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

Question 20

Which of the following is a possible non-foreclosure response to mortgage default that may leave other liens on the property?

Accepted Answer

Deed in lieu of foreclosure

Real Estate Finance: The Laws and Contracts (Finance 351, Chapter 9) – Study Notes

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