Mortgage Finance
Mock Exam
Course Introduction
Mortgage Finance explores the core principles and practices related to the origination, underwriting, valuation, and management of residential and commercial mortgage loans. The course examines the structure and functioning of mortgage markets, analyzing the roles played by lenders, borrowers, intermediaries, and regulators. Key topics include types of mortgage products, interest rate risk, prepayment risk, securitization, secondary mortgage markets, and the impact of macroeconomic trends. Through case studies and practical examples, students will gain a comprehensive understanding of risk assessment, loan structuring, and contemporary issues affecting mortgage finance, preparing them for careers in real estate, banking, and financial services.
Recommended Textbook
Real Estate Finance 9th Edition by John P. Wiedemer
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16 Chapters
189 Verified Questions
189 Flashcards
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Chapter 1: History and Background
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14 Verified Questions
14 Flashcards
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Sample Questions
Q1) As used in mortgage lending, the term "collateral" means
A) Something of value pledged as security for a loan
B) The purpose for which a mortgage loan is made
C) A valuable asset
D) Associated with but of secondary importance.
Answer: A
Q2) Which of the following is most descriptive of the primary market?
A) The loan origination market
B) Trading in second mortgages
C) The buying and selling of mortgage loans
D) The market created by Fannie Mae and Freddie Mac
Answer: A
Q3) The need to have a borrower sign both a mortgage and a promissory note is necessary as these two documents are:
A) Both collateral instruments
B) Considered interlinked documents
C) Must both be recorded to have a perfected interest
D) None of the above
Answer: B
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Page 3
Chapter 2: Money and Interest Rates
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11 Flashcards
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Sample Questions
Q1) The major source of money funding residential mortgage loans today is
A) Money market funds
B) Commercial bank time deposits
C) The federal government
D) The sale of mortgage backed securities
Answer: A
Q2) Monetary policies in this country are under the control of the
A) Office of Thrift Supervision
B) Secretary of the Treasury
C) Federal Reserve Bank Board
D) Federal Deposit Insurance Corporation
Answer: C
Q3) One of the tools used by the Federal Reserve to influence the economy is
A) Changing the discount rate of interest
B) Limiting a bank's authority to accept deposits
C) Changing the prime rate of interest
D) Encouraging competition with non-bank banks
Answer: A
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4
Chapter 3: Mortgage Money: Regulated Lenders
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12 Verified Questions
12 Flashcards
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Sample Questions
Q1) Which of the following is most descriptive of the primary market?
A) The loan origination market
B) Trading in second mortgages
C) The buying and selling of mortgage loans
D) The market created by Fannie Mae and Freddie Mac
Answer: A
Q2) All life insurance companies are chartered and regulated by
A) The federal Life Insurance Commission
B) Various state and federal authorities
C) State commissions only
D) Are not regulated
Answer: C
Q3) The secondary market for mortgage loans can best be described as the -
A) Operations of Fannie Mae/Freddie Mac
B) Market for trading second mortgages
C) Purchase and /or sale of mortgage loans after origination
D) Market for trading in Ginnie Mae contracts
Answer: C
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5
Chapter 4: Other Primary Market Lenders
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Sample Questions
Q1) While the distinction between mortgage bankers and brokers is diminishing, a full service mortgage banker means being capable of all the of the following EXCEPT
A) originating or negotiating a loan.
B) funding a loan at closing.
C) servicing a loan until pay off.
D) holding a loan in portfolio.
Q2) The slow recovery in the Mortgage Backed Securities markets since the beginning of the financial crisis in 2008 and continuing into 2011 has caused most mortgages to be directly or indirectly guaranteed by:
A) FHA
B) VA
C) U.S. Government
D) Federal Reserve Bank
Q3) A basic difference between mortgage companies and regulated lenders is that mortgage companies
A) are subject to no regulations
B) hold no deposit assets with which to fund loans
C) are higher cost operators and unable to be competitive
D) handle only FHA and VA loans
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Page 6
Chapter 5: Mortgage Money: the Secondary Market
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12 Flashcards
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Sample Questions
Q1) If a discount is taken off the face value of a note, the result is
A) a decrease in the return to the note holder
B) no change in the return since the interest rate is unchanged
C) a higher market value for the note
D) an increase in the return to the note holder
Q2) The secondary market for mortgages can be described as the
A) Operations of Fannie Mae/Freddie Mac.
B) Market for trading second mortgages.
C) Purchase and/or sale of mortgage loans after origination.
D) Market for trading in Ginnie Mae contracts.
Q3) The primary purpose of federal agency underwriting of securities backed by mortgage loan pools is to
A) earn greater fees for the government.
B) enhance the credit-worthiness of an investment in mortgage-back securities.
C) exercise more control over the mortgage business.
D) direct more funds into low-income housing.
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Chapter 6: The Mortgage Documents
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Sample Questions
Q1) Laws that determine how land is owned and rights are conveyed are made by:
A) The Federal Land Office
B) State Law
C) Local customs
D) The Federal Housing and Urban Development
Q2) The primary purpose for recording a mortgage instrument is to
A) establish its validity
B) comply with tax laws
C) give public notice of its existence
D) safeguard the document
Q3) The key difference between a contract for deed and a mortgage instrument is
A) the manner in which payments are made
B) in a contract for deed, title does not pass until part or all of the payments are made
C) state laws differ on contract meaning
D) mortgage instruments are not permitted in all states
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Chapter 7: Mortgage Repayment Plans
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Sample Questions
Q1) Which of the following is the most important distinguishing feature of an adjustable rate mortgage?
A) The payment amount is fixed for the life of the loan.
B) The lender has the right to change the interest rate during the term of the loan.
C) The term of the loan may be extended.
D) The borrower has the right to reject a change in the payment amount.
Q2) A major advantage for the borrower in a home equity revolving type loan is that
A) the home does not serve as collateral
B) the interest expense has been used as a qualifying tax deduction applicable to a home loan
C) the interest rate charged is limited by law to the same as a first mortgage
D) all lenders freely offer this type of credit
Q3) Negative amortization, or an increase in the principal amount due each month, is most likely to be found in which of the following?
A) Adjustable Rate Mortgage
B) Growing Equity Mortgage
C) Pledged Account Mortgage
D) Graduated Payment Mortgage
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9
Chapter 8: Federal Government Underwriting Programs
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Sample Questions
Q1) Under FHA procedures, all of the following are considered prepaid items EXCEPT: A) down payment
B) property taxes
C) hazard insurance
D) mortgage default insurance
Q2) Loan Limits Based on Geographic Location for FHA loans are now established under two laws, which of the following has generally had the lower loan limits?
A) Housing and Economic Recovery Act of 2008
B) American Recovery and Reinvestment Act of 2009
C) Economic Stimulus Act of 2008
D) Housing Recovery Act of 2010
Q3) Which FHA Program Section has been phased out and is now covered by FHA's Section 203(b) program with higher restrictions on collateral approval?
A) Section 354
B) Section 203(k)
C) Section 234(d)
D) Section 1492
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Chapter 9: Borrower Quali cation
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Sample Questions
Q1) The source of repayment of a home loan is expected to come from:
A) income derived from the property itself
B) additional borrowing
C) the personal income of the borrower
D) other rental income
Q2) Which of the following best describes the purpose of a loan agreement as part of a corporate business loan?
A) It details the terms of loan repayment
B) Lender approval is needed for the company to undertake an expenditure that might jeopardized loan repayment
C) To limit all corporate expenditures during term of the loan
D) To provide additional collateral to secure the loan
Q3) The percentage ratios used as guidelines in the qualification of an applicant's income by HUD/FHA are based on the applicant's
A) effective income not reduced by taxes
B) net effective income after deduction of both income and social security taxes
C) net effective income reduced only by withholding tax
D) net effective income reduced only by social security taxes
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Chapter 10: Property Analysis
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Sample Questions
Q1) The kind of depreciation most closely associated with inadequate building design is
A) Design inadequacy
B) Physical deterioration
C) Functional obsolescence
D) External obsolescence
Q2) The underlying theories that support evaluation of a property are called:
A) Approaches to value
B) Qualification for designations
C) Principles of appraisal
D) Whatever local practices prevail
Q3) What is that the maximum time that an approved FHA Appraisers appraisal report is valid on construction loans
A) 90 Days
B) 120 Days
C) 180 Days
D) 1 year
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12
Chapter 11: Commercial Loans: Construction and Land Loans
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12 Flashcards
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Sample Questions
Q1) An application for a commercial loan would include all of the following items EXCEPT:
A) information on the applicant company and the individuals involved
B) complete financial statements and property evaluation
C) a statement of compliance with RESPA requirements
D) projection of income to show source of loan repayment
Q2) Unlike the permanent loan, a construction loan usually requires the endorsement of the:
A) Owner/builder
B) Future tenants
C) Landowner
D) Mortgagee
Q3) Which of the following is not one of the more common risks of investing in commercial real estate contemplated by the mortgagee and mortgagor?
A) Financial risk
B) Liquidity risk
C) Regulatory risk
D) Management risk
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Page 13
Chapter 12: Commercial Building and Farm Loans
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Sample Questions
Q1) The important reason that shopping center land loads encourage promotions of their tenant's sales is that:
A) it fosters better relations
B) shopping center leases are usually based on a percentage of the tenant's sales
C) it attracts better tenants
D) it encourages faster lease-up
Q2) Depreciation allowed for tax purposes is a percentage of the:
A) total value of the land and buildings
B) equity interest in the building
C) total value of the building
D) equity interest in the land
Q3) A "net lease" means which of the following?
A) The tenant pays a net rent after deducting certain listed operating expenses
B) The tenant pays rent based only on the net interior space under lease
C) The tenant pays for all of its own services
D) The tenant pays all maintenance and building operating expenses plus insurance and taxes on the building
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14
Chapter 13: Other Financing Practices
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Sample Questions
Q1) If a builder holds an unsubordinated leasehold interest in land, it means that a building constructed on the land
A) would pass to the landowner if the land rent is not paid
B) would pass to the mortgagee if the land rent is not paid
C) the builder would only forfeit ownership if the mortgage loan is not paid
D) would remain in possession of the builder as long as the land rent if paid
Q2) Which of the following is correct in regard to an owner's title insurance policy?
A) It is transferable to a new property owner
B) The policy terminates when the mortgage loan is paid off
C) The policy terminates when the property is transferred to a new owner
D) It protects the policy holder against adverse claims even beyond the term of property ownership
Q3) The loan to value ratio is a measure used by lenders for all the following purposes EXCEPT:
A) to determine acceptability of the property as loan collateral
B) as a basis for pricing the loan
C) to determine the need for private mortgage insurance
D) to protect against exceeding legal loan limits
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Page 15
Chapter 14: Technology Advances in Mortgage Lending
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11 Flashcards
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Sample Questions
Q1) The advantage of a web site offering mortgage loans is:
A) an individual can obtain a mortgage loan without paying for or dealing with an agent or loan officer
B) the availability of loans is very limited
C) the cost is generally higher than with regular channels
D) it is a time consuming procedure as careful analysis is needed.
Q2) Fannie Mae offers two automated underwriting programs, one called " Desktop Originator" that is for use:
A) by an agent taking information on a laptop computer for transmittal to a seller/servicer who verifies and transmits the information to Fannie Mae
B) to transmit information directly to Fannie Mae's Desktop Underwriter system
C) prohibited to a real estate broker
D) by any individual
Q3) Mortgage loan origination software must increasingly be compatible with:
A) Microsoft Excel
B) TurboTax
C) Third party originator web portals
D) Mortgagebot
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16
Chapter 15: Environmental Issues
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10 Flashcards
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Sample Questions
Q1) LEED stands for:
A) Land Environmental Enforcement Department
B) Local Energy Environment Disturbance Division
C) Leadership in Energy & Environmental Design
D) Lead Elements Encroachment Detection
Q2) Insofar as real estate transaction are concerned, all of the following are true about environmental issues EXCEPT
A) most commercial transactions require an environmental site assessment before an agreement can be reached
B) almost all commercial lenders require a site assessment before committing to a loan
C) it is illegal to convey property that harbors hazardous materials.
D) usage of the land may be restricted if certain environmental conditions are present
Q3) Regulation implementing the Endangered Species Act Define a "taking" as:
A) abusing land that harbors an endangered species
B) only if its habitat is destroyed
C) killing an endangered species and/or damaging or destroying its habitat
D) failure to report the presence of an endangered species
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Chapter 16: Settlement Procedures
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Sample Questions
Q1) The underlying purpose of RESPA requirements is to:
A) require disclosures that give a buyer/borrower sufficient information to make informed decisions
B) increase federal control over real estate deals
C) introduce complex questions that necessitate employing legal counsel
D) limit costs of closing a real estate transaction
Q2) All of the following charges involved with the settlement of a residential mortgage loan must be paid at time of closing EXCEPT:
A) Prepaid principal
B) Property taxes
C) Hazard insurance premium
D) Prepaid interest
Q3) A mortgagee's title policy protects which of the following against an adverse claim of title?
A) Borrower
B) Trustee
C) Real Estate agent
D) Lender
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