REE 3043 Exam 3 ACTUAL Exam
Questions and CORRECT Answers
Created by Congress to promote an active secondary market for home mortgages, Fannie Mae
and Freddie Mac purchase loans that meet specific underwriting standards such as loan size,
documentation, and payment-to-income ratio. The loans that Fannie Mae and Freddie Mac are
eligible to purchase are commonly referred to as - CORRECT ANSWER - conforming
conventional loans.
Mortgage originators often offer many types and forms of available residential loans as part of
their mortgage menu. However, the predominant form of prime conventional mortgage remains
the - CORRECT ANSWER - (fixed-rate) level-payment mortgage (LPM).
With the arrival of subprime mortgages in recent years, a new kind of trigger event became
apparent in leading households to default. Which of the following trigger events is primarily
associated with most defaults that have occurred during the most recent subprime mortgage
crisis? - CORRECT ANSWER - mortgage payment spikes
Suppose a buyer agrees to purchase a tract of land for $40,000. The buyer is only able to obtain a
mortgage for $32,000. Rather than let the deal fall through, the seller agrees to accept $4,000 in
cash and a note from the buyer for the remaining $4,000. This type of transaction is commonly
referred to as a - CORRECT ANSWER - purchase money mortgage.
It would be hard to overstate the importance of the Federal Housing Administration (FHA) in the
history of housing finance. Which of the following instruments created by the FHA is considered
the single most important financial instrument in modern housing finance? - CORRECT
ANSWER - level-payment, fully amortizing loan
Lenders generally require private mortgage insurance (PMI) for conventional loans over 80% of
the value of the security property. PMI protects a lender against which of the following? -
CORRECT ANSWER - losses due to default on the loan
Since mortgages typically have multiple costs associated with them, a borrower may attempt to
reduce these costs into a single measure in order to compare two or more mortgages. Which of
, the following measures is a popular tool for comparing the cost of several mortgages? -
CORRECT ANSWER - annual percentage rate
Considered the most common type of home loan, which of the following refers to any standard
home loan that is not insured or guaranteed by an agency of the U.S. government? - CORRECT
ANSWER - conventional home loan
Which of the following types of institutions has historically been the largest purchaser of
residential mortgages? - CORRECT ANSWER - government-sponsored enterprises
In recent years, home equity loans have become a popular form of second mortgage. Their
popularity has been a result of all of the following except - CORRECT ANSWER - shorter
terms than other consumer debt.
The hybrid ARM attempts to balance the fixed payment desire of a borrower with the lender's
desire to increase interest rates if market rates rise in the future. In its most common form,
known as a 2-28, the hybrid ARM will have a fixed-interest rate for - CORRECT
ANSWER - two years.
A conventional mortgage loan is one that is not insured or guaranteed by an agency of the U.S.
government. The lender, however, can still pursue a private mortgage insurance (PMI) policy to
provide a guarantee for the fulfillment of the borrower's obligations. Typically PMI is required
for all loans that have a loan to value (LTV) ratio greater than - CORRECT ANSWER -
80%.
In recent years, mortgage lenders responded to the demand from home buyers who were unable
to put 20% down on their purchase and were looking to avoid the private mortgage insurance
(PMI) requirement that would typically accompany such a loan by developing a second
mortgage that is created simultaneously with the first mortgage in an amount of 10% of the value
of the home. This enabled the borrower to obtain 90% financing while avoiding the additional
cost of PMI. These loans are more commonly referred to as - CORRECT ANSWER -
piggyback mortgage loans.
Questions and CORRECT Answers
Created by Congress to promote an active secondary market for home mortgages, Fannie Mae
and Freddie Mac purchase loans that meet specific underwriting standards such as loan size,
documentation, and payment-to-income ratio. The loans that Fannie Mae and Freddie Mac are
eligible to purchase are commonly referred to as - CORRECT ANSWER - conforming
conventional loans.
Mortgage originators often offer many types and forms of available residential loans as part of
their mortgage menu. However, the predominant form of prime conventional mortgage remains
the - CORRECT ANSWER - (fixed-rate) level-payment mortgage (LPM).
With the arrival of subprime mortgages in recent years, a new kind of trigger event became
apparent in leading households to default. Which of the following trigger events is primarily
associated with most defaults that have occurred during the most recent subprime mortgage
crisis? - CORRECT ANSWER - mortgage payment spikes
Suppose a buyer agrees to purchase a tract of land for $40,000. The buyer is only able to obtain a
mortgage for $32,000. Rather than let the deal fall through, the seller agrees to accept $4,000 in
cash and a note from the buyer for the remaining $4,000. This type of transaction is commonly
referred to as a - CORRECT ANSWER - purchase money mortgage.
It would be hard to overstate the importance of the Federal Housing Administration (FHA) in the
history of housing finance. Which of the following instruments created by the FHA is considered
the single most important financial instrument in modern housing finance? - CORRECT
ANSWER - level-payment, fully amortizing loan
Lenders generally require private mortgage insurance (PMI) for conventional loans over 80% of
the value of the security property. PMI protects a lender against which of the following? -
CORRECT ANSWER - losses due to default on the loan
Since mortgages typically have multiple costs associated with them, a borrower may attempt to
reduce these costs into a single measure in order to compare two or more mortgages. Which of
, the following measures is a popular tool for comparing the cost of several mortgages? -
CORRECT ANSWER - annual percentage rate
Considered the most common type of home loan, which of the following refers to any standard
home loan that is not insured or guaranteed by an agency of the U.S. government? - CORRECT
ANSWER - conventional home loan
Which of the following types of institutions has historically been the largest purchaser of
residential mortgages? - CORRECT ANSWER - government-sponsored enterprises
In recent years, home equity loans have become a popular form of second mortgage. Their
popularity has been a result of all of the following except - CORRECT ANSWER - shorter
terms than other consumer debt.
The hybrid ARM attempts to balance the fixed payment desire of a borrower with the lender's
desire to increase interest rates if market rates rise in the future. In its most common form,
known as a 2-28, the hybrid ARM will have a fixed-interest rate for - CORRECT
ANSWER - two years.
A conventional mortgage loan is one that is not insured or guaranteed by an agency of the U.S.
government. The lender, however, can still pursue a private mortgage insurance (PMI) policy to
provide a guarantee for the fulfillment of the borrower's obligations. Typically PMI is required
for all loans that have a loan to value (LTV) ratio greater than - CORRECT ANSWER -
80%.
In recent years, mortgage lenders responded to the demand from home buyers who were unable
to put 20% down on their purchase and were looking to avoid the private mortgage insurance
(PMI) requirement that would typically accompany such a loan by developing a second
mortgage that is created simultaneously with the first mortgage in an amount of 10% of the value
of the home. This enabled the borrower to obtain 90% financing while avoiding the additional
cost of PMI. These loans are more commonly referred to as - CORRECT ANSWER -
piggyback mortgage loans.
