Deck 33: Mortgages

Question 1

Most creditors require a borrower to purchase mortgage insurance if the borrower makes a down payment of at least 20 percent of the purchase price.

Answer 1

False

Question 2

Predatory lending typically occurs during the loan origination process .

Answer 2

True

Question 3

A fixed-rate mortgage is a mortgage with an interest rate that is fixed for six months and then changes every six months after that.

Answer 3

False

Question 4

Because a mortgage involves a transfer of real property, it need not be in writing.

Question 5

With respect to real estate transactions, the Truth-in-Lending Act applies only to loans to purchase commercial property.

Question 6

Mortgage insurance compensates a debtor for losses due to a default on a mortgage loan.

Question 7

Refinancing soon after obtaining a mortgage rarely benefits the homeowner and may, in fact, result in prepayment penalties.

Question 8

A lender can require a borrower to maintain the property in such a way that the lender's investment is protected.

Question 9

The Truth-in-Lending Act requires that disclosures of a loan's major terms be made on standard forms, using uniform formulas of calculation.

Question 10

A mortgage is a security interest in a debtor's real property.

Question 11

A prepayment penalty clause helps to protect the borrower should the lender sell the loan within a short time after issuing a mortgage.

Question 12

A lender that fails to record a mortgage could find itself in the position of an unsecured creditor.

Question 13

Steering and targeting occurs when a lender convinces a homeowner to refinance soon after obtaining a mortgage.

Question 14

An individual who borrows funds from a financial institution to purchase real property by taking out a mortgage is a mortgagee .

Question 15

The borrower is typically required to pay all property taxes, assessments, and other claims against the property.

Question 16

Homeowners' insurance does not protect the lender's interest in the event of a loss due to certain hazards, such as fire or storm damage.

Question 17

Recording a mortgage ensures that the creditor is officially on record as holding an interest in the property.

Question 18

Most adjustable-rate mortgages have interest rate caps that limit how much the rate can rise over the duration of the loan.

Question 19

Mortgage loans are contracts.

Question 20

The rate of interest paid by the borrower stays fixed with an adjustable-rate mortgage .

Question 21

Equitable redemption allows a lender to gain title and regain possession of a property.

Question 22

To initiate a foreclosure, a lender must record a notice of default with the appropriate county office.

Question 23

A notice of sale is a formal notice to a borrower who is in default that the mortgaged property has been sold in a foreclosure proceeding.

Question 24

With an adjustable-rate mortgage, the interest rate will

A) not change.
B) change periodically.
C) increase over time.
D) decrease over time.

Question 25

Foreclosure is a process that allows a lender to legally repossess and auction off the property that is securing a loan.

Question 26

To purchase a house, Leo borrows funds from Metro Bank. The terms of the loan give the lender a security interest in the property being acquired by the borrower as security for payment of the debt. This is

A) a mortgage.
B) a down payment.
C) a short sale.
D) predatory lending.

Question 27

In a power of sale foreclosure, the lender is allowed to foreclose on and sell the property without judicial supervision.

Question 28

Under a deed in lieu of foreclosure, a lender agrees to surrender the deed to mortgaged property to the mortgagor and to forego payments on the loan.

Question 29

Once a borrower has received the required Truth-in-Lending Act disclosures, the borrower has no right to cancel the mortgage.

Question 30

The borrower need not obtain the lender's permission for a short sale.

Question 31

No state allows a defaulting borrower to repurchase the property after a judicial foreclosure sale.

Question 32

With a fixed-rate mortgage, the interest rate will

A) not change.
B) change periodically.
C) increase over time.
D) decrease over time.

Question 33

The Truth-in-Lending Act disclosure requirements apply to written materials and to oral representations.

Question 34

A deficiency judgment will amount to the difference between the borrower's outstanding debt and lender's asking price at the foreclosure sale.

Question 35

To buy a house, Berry applies to Countryside Bank for a fifteen-year mortgage under which the payments remain the same for the duration of the loan. This is

A) a fixed-rate mortgage.
B) an adjustable-rate mortgage.
C) a prepayment arrangement.
D) a foreclosure.

Question 36

Seaside Bank agrees to lend Toby the funds to buy a house. In this deal, the lender is

A) none of the choices.
B) a mortgage.
C) a mortgagor.
D) a mortgagee.

Question 37

A lender who successfully bids on property at a foreclosure sale is considered to have received repayment of the loan in the amount of the bid.

Question 38

If a lender provides the required Truth-in-Lending Act disclosures, a borrower who fails to read the documents cannot claim fraud.

Question 39

Every state allows a defaulting borrower to redeem the property before the foreclosure sale.

Question 40

A short sale is a sale of property for less than the balance due on a mortgage loan.

Question 41

To purchase a house for $600,000, Grant applies for a mortgage loan at Home Bank. The bank requires a 20-percent down payment. Grant agrees to pay $60,000 and obtain insurance to cover the remaining 10 percent. Later, Grant defaults on the loan. The insurer must reimburse

A) Grant.
B) Home Bank.
C) Grant and Home Bank in equal measure.
D) neither Grant nor Home Bank.

Question 42

In the context of mortgage loans, an appraiser

A) reviews mortgage documents for compliance with applicable laws.
B) evaluates applicants for their ability to pay a loan.
C) specializes in estimating property values.
D) matches appropriate applicants and lenders.

Question 43

Lenders are required to disclose the terms of a loan in clear, readily understandable language under

A) the Loan Flipping Statute.
B) the Truth-in-Lending Act.
C) the Steering and Targeting Rule.
D) the Proper Lending Practices Law.

Question 44

Louis applies for a mortgage loan at Market Lending LLC. The lender does not disclose all terms of the loan. This is

A) a proper lending practice
B) steering and targeting.
C) loan flipping.
D) predatory lending.

Question 45

To protect the lender's investment, a mortgage typically requires the borrower to

A) maintain the property.
B) ensure that the mortgage complies with applicable statutes.
C) refinance within a short time after obtaining the mortgage.
D) record the loan.

Question 46

Kelly applies for a mortgage loan at Lakeside Bank. Kelly qualifies for a fixed-rate mortgage, but the bank convinces her to take an ARM. This is

A) a proper lending practice
B) steering and targeting.
C) loan flipping.
D) a truth-in-lending act.

Question 47

Kevin applies for a mortgage loan from Liberty Bank. The bank provides all of the required disclosures, but orally misrepresents the terms of the loan. Kevin does not read the documents. Later, Kevin can

A) claim fraud.
B) change the terms of the loan to protect his interest in the property.
C) cancel the mortgage within three years of receiving the disclosures.
D) cancel the mortgage within three days of receiving the disclosures.

Question 48

Fact Pattern 33-1 To buy a house, Mary obtains a thirty-year mortgage with an interest rate that is fixed for three years and then adjusts annually.
Refer to Fact Pattern 33-1. Mary's mortgage can be described best as

A) a standard mortgage with a fixed-rate of interest.
B) a 30/3 ARM.
C) a 3/1 ARM.
D) none of the choices.

Question 49

To purchase a house, Dan obtains a mortgage loan from Equity Bank. Dan loses his job. He is likely to find a new job soon but meanwhile defaults on the payments on the loan. The bank agrees to postpone the payments for a limited time. This is

A) forbearance.
B) a short sale.
C) a workout agreement.
D) a deed in lieu of foreclosure.

Question 50

To purchase a house, Ed obtains a mortgage loan from Farmland Loans Inc. Farmland does not record the mortgage. The most likely consequence is that the lender will

A) not be able to prove its interest in the property.
B) find itself in the position of an unsecured creditor.
C) not have a copy of the loan in a separate location.
D) not obtain reimbursement for any of the loan if the debtor defaults.

Question 51

Because a mortgage loan involves the transfer of real property, it

A) can be oral or written.
B) must be oral.
C) must be written.
D) must be witnessed by a disinterested third party.

Question 52

To buy a home, Lois pays part of the purchase price up front in cash and borrows the rest of the funds from Members Credit Union. The part of the purchase price paid up front is

A) a down payment.
B) a short sale.
C) a prepayment penalty.
D) a mortgage.

Question 53

Bev applies for a mortgage loan at Credit Bank. Shortly after obtaining her mortgage, the bank convinces Bev to refinance. This does not benefit Bev and results in prepayment penalties on the previous mortgage. This is

A) a proper lending practice
B) steering and targeting.
C) loan flipping.
D) a truth-in-lending act.

Question 54

Fact Pattern 33-1 To buy a house, Mary obtains a thirty-year mortgage with an interest rate that is fixed for three years and then adjusts annually.
Refer to Fact Pattern 33-1. Mary's mortgage is

A) a fixed-rate mortgage.
B) an adjustable-rate mortgage.
C) both a fixed-rate and an adjustable-rate mortgage.
D) none of the choices.

Question 55

Ridgeline Mortgage Company fails to provide Sam, a mortgage loan applicant, with the required disclosures. Under the applicable statute, Sam has the right to cancel the mortgage

A) at any time.
B) within the term of the loan.
C) within three years.
D) at no time.

Question 56

To purchase a house, Nora obtains a mortgage loan from Oak Tree Loans LLC. Later, Nora informs Oak Tree that she may default on the payments. The lender agrees to delay taking possession of the property and selling it. The parties negotiate a payment plan for the amount due on the loan. This is

A) forbearance.
B) a short sale.
C) a workout agreement.
D) a deed in lieu of foreclosure.

Question 57

Galen has a mortgage loan with Eagle Bank that includes a prepayment penalty clause. If Galen repays his mortgage in full within the period specified in the clause, he most likely will be

A) required to pay a penalty.
B) reimbursed by the bank for the amount of the down payment.
C) credited with the amount of the unpaid interest on the loan.
D) penalized by the county where the property is located.

Question 58

Art obtains a mortgage loan from Bayside Bank so that he can purchase a house. The house costs $200,000. Art makes a down payment of $20,000. Based on the amount of the price paid up front, Bayside will likely require Art to

A) purchase mortgage insurance.
B) record the mortgage loan.
C) agree to a prepayment penalty clause.
D) pay all claims against the property.

Question 59

To purchase a house, Clyde obtains a mortgage loan from Debit Bank. Clyde defaults on the payments on the loan. The bank has

A) the right to foreclose on the mortgaged property.
B) the obligation to forbear part or all of the payments for a limited time.
C) the obligation to refinance the loan.
D) the right to reimbursement from an insurer for the unpaid debt.

Question 60

To purchase a house, Becky obtains a mortgage loan from Countywide Bank. The lender should record the mortgage to

A) be officially on record as holding an interest in the property.
B) secure itself in the position of an unsecured creditor.
C) preserve a copy of the loan in a separate location.
D) obtain reimbursement for a portion of the loan if the debtor defaults.

Question 61

To purchase a house, Beth obtains a mortgage loan with Community Bank. Beth defaults on the payments on the loan. She agrees to convey the property to the bank in satisfaction of the mortgage. This is

A) forbearance.
B) a short sale.
C) a workout agreement.
D) a deed in lieu of foreclosure.

Question 62

To purchase a house, Denise obtains a mortgage loan with Employees Credit Union. Denise defaults on the payments on the loan. She agrees to submit to a court's jurisdiction, to waive any defenses as well as the right to appeal, and to cooperate with the lender. This is

A) forbearance.
B) a short sale.
C) a friendly foreclosure.
D) an improper lending practice.

Question 63

Sierra borrows $175,000 from Regional Home Finance Corporation to buy a home. The loan is a twenty-year, 3/1 ARM, with an initial interest rate of 3.0 percent for three years and potential annual increases of up to 3.0 percent to a cap of 11.0 percent. Ten days before the loan is finalized, the lender discloses the amount of the loan principal, the initial interest rate, the initial annual percentage rate, and associated fees and costs. Before the first increase takes effect, Sierra decides that she wants to rescind the loan. What is a twenty-year, 3/1 ARM? Can Sierra rescind this loan? Why or why not?

Question 64

To purchase a house, Greg obtains a mortgage loan with Hillside Bank. Greg defaults on the payments on the loan. The bank proceeds to foreclosure, which Greg opposes. A court supervises the process. This is

A) forbearance.
B) judicial foreclosure.
C) a friendly foreclosure.
D) a power of sale foreclosure.

Question 65

To buy a house, Abby obtains a mortgage loan with Beneficial Bank. Later, Abby misses six payments on the loan. To initiate a foreclosure, the bank must

A) record a notice of default.
B) receive a notice of sale.
C) ask a court for a deficiency judgment.
D) redeem the property.

Question 66

Humberto and Tiara, who are married, borrow $110,000 from Sterling Credit Union to buy a home. The loan is a fixed-rate mortgage at 3.38 percent with a thirty-year term, subject to an acceleration clause, and secured by the home. When Humberto and Tiara have paid off $10,000 of the mortgage-still owing $100,000-they stop making payments. Meanwhile, the home's market value declines to $85,000.  Sterling Credit attempts to contact Humberto and Tiara but cannot get in touch with them and the couple will not return phone calls or e-mails to the bank. After six months, Sterling Credit decides to take steps to recover the unpaid amount of the loan. What are the lender's options? Which option seems most likely? Why? What steps are involved?

Question 67

To buy a house, Gina obtains a mortgage loan with Home Mortgage Corporation. Later, Gina defaults on the loan and the property is sold through foreclosure. The final sale price is not enough to cover the loan amount. Most likely, Home Mortgage will

A) record a notice of default.
B) receive a notice of sale.
C) ask a court for a deficiency judgment.
D) redeem the property.

Question 68

To buy a house, Kent obtains a mortgage loan with Loan Store Inc. Later, Kent misses six payments on the loan and is notified of a possible foreclosure. He continues to miss payments. Most likely, within a reasonable time, Kent will

A) record a notice of default.
B) receive a notice of sale.
C) ask a court for a deficiency judgment.
D) redeem the property.

Question 69

To buy a house, Terry obtains a mortgage loan with Urban Bank. Later, Terry misses a payment. The bank can foreclose on the entire amount of the loan if the loan documents include

A) a notice of default.
B) a notice of sale.
C) an acceleration clause.
D) a deficiency judgment.

Question 70

To purchase a house, Ethel obtains a mortgage loan from Fidelity Bank. Later, Ethel is unable to make payments on the loan. Meanwhile, the market value of the house has declined. Fidelity agrees to a sale of the property for less than the amount due on the loan. This is

A) forbearance.
B) a short sale.
C) a workout agreement.
D) a deed in lieu of foreclosure.

Question 71

To purchase a house, Rita obtains a mortgage loan with Suburban Mortgage Company. Rita defaults on the payments on the loan. The activities take place in a state that allows the lender to foreclose on and sell the property without judicial supervision. This is

A) a short sale.
B) an improper lending practice.
C) a friendly foreclosure.
D) a power of sale foreclosure.

Question 72

To buy a house, Tom obtains a mortgage loan with Universal Credit Union. Later, Tom defaults on the loan. Universal informs him that the property will be sold in a foreclosure proceeding. Before the sale, to gain title and regain possession, Tom can

A) record a notice of default.
B) cancel the notice of sale.
C) ask a court for a deficiency judgment.
D) redeem the property.