Practice Exam 4

A: The veteran agrees to live there. Illumination: Although the rules and terms can fluctuate, the low down payment and below market interest features of VA loans come with the condition that the borrower live in the property.

A: The property is sold on the condition that the new owner lease it back to the seller at the time title passes. Illumination: A sale-leaseback is usually used for the purpose of creating cash flow from a commercial property. As the name implies, the owner transfers title to the buyer in exchange for cash, then leases the property back at a monthly rate while continuing to run his business from that location or otherwise use the property.

A: APR Illumination: APR stands for "Annual Percentage Rate" and expresses the true cost of the loan by factoring fees such as points, recording fees, appraisal fees and such into the interest rate. For example, a mortgage that showed an interest rate of 4.85% on the promissory note might have an APR of 5% when associated costs are factored in.

A: paying of kickbacks Illumination: RESPA concerns itself only with educating consumers about the true costs of borrowing and standardizing lending practices. As such, referral "fees" are prohibited.

A: statutory right of redemption Illumination: This right of redemption is called "statutory" because it is legally mandated by law, as opposed to a custom lenders could follow or not at their option.

A: the buyer. Illumination: The "good faith" part of this requirement is the key element to consumers. By standardizing the forms and disclosures used by lenders, borrowers are no longer surprised by substantial and hidden costs at the time of closing.

A: secondary market Illumination: Many homeowners are surprised the first time they receive a letter from a lender they've never heard of informing them that they now hold the mortgage on their home and that future payments should be sent to them. This secondary market is where lenders buy and sell mortgages to balance their portfolios according to market conditions and their internal needs and objectives. It should be noted that the terms of mortgages bought and sold cannot be changed by the new note holders.

A: commercial bank's ARM loan Illumination: Once considered a form of creative financing, ARMs are now standard, conventional loans. Options A and B are part of various government programs to help low and moderate income families as well as veterans find affordable home financing.

A: monthly payments Illumination: Graduated payment mortgages are aimed particularly at young families who expect to see their earnings rise over the next five to ten years. As such, payments for interest and principal are less than the actual costs in the early years and gradually rise to make up the difference.

A: based on sale price or appraised value, whichever is lower. Illumination: Although various banks, mortgage companies and programs have different LTVs, the lower, more conservative number is used.

A: The requirements to qualify are uniformly fixed by state law. Illumination: Not only are guidelines not uniform, qualification standards can vary enormously from lender to lender. There are no state-mandated qualifying requirements for conventional loans.

A: any approved lending institution such as a bank or savings and loan association. Illumination: Lenders must be approved by the Federal Housing Authority before they can offer FHA loans. Part of the approval process includes waiving fees customarily charged on conventional mortgages.

A: No. Owners are not covered by Reg. Z. Illumination: Regulation Z requires disclosure of all financing terms and conditions if a low interest rate, downpayment or other enticement is featured in an ad. This does not apply in this case, however, because Regulation Z applies only to institutions, not individuals selling their own property.

A: warehousing. Illumination: Warehousing refers to the process whereby banks and other lenders make mortgage loans to consumers for the purpose of quickly selling those loans on the secondary market. The "warehousing" occurs when individual loans are bundled, often with a common element such as the size of the mortgage or credit worthiness of the borrowers, and sold as a single unit.

A: Disclose the true costs of obtaining credit. Illumination: Truth in Lending, otherwise known as Regulation Z, is intended to do away with deceptive financing tactics, especially those involving hidden costs--for example, advertising a $250 car lease as zero-down and then tacking a $1,200 upfront payment at the time of contract disguised as an "incidental" acquisition fee.

A: to check for mathematical errors Illumination: This is not a step that should be dismissed. With the increased volume in home mortgages, the fact is a significant amount of closing statements do contain errors and it's easer and better to correct them before closing than after.

A: If the parent was relying on the income for repayment of the loan Illumination: Income of any type--whether alimony, child support, freelance work or a second job--only needs to be disclosed if the applicant is relying on it to qualify for the loan.

A: the trustor Illumination: "Trustor" is another name for the borrower and "trustee" is a "supposedly" neutral third party who holds naked legal title, the right to foreclose at the instructions of the beneficiary for non-payment of a promissory note. The beneficiary is the lender in a Deed of Trust. Even though it's the lender who requires the insurance to protect his/her position, it's the borrower who pays for it.

A: $1,404 Illumination: A loan for 90% of the $78,000 purchase price results in a $70,200 mortgage. Since the origination fee is based on the amount of the mortgage, not the price of the home, the fee is 2% of $70,200 or $1,404.

A: ECOA Illumination: Passed in 1992, the Equal Credit Opportunity Act prohibits a broad spectrum of discriminatory lending practices, including the granting or denial of credit or the costs associated with borrowing based on race, gender, marital status, source of income (e.g., public assistance) and other factors.

A: novation Illumination: Essentially, novation means to substitute a new contract for an old one; thus the holder of the original is relieved of his or her responsibilities.

A: 13% over 15 years Illumination: The shorter the term of a loan, the more quickly principal is paid down and the faster equity builds. A 15-year loan at 13% interest rate would provide the LARGEST and FASTEST reduction in the principal. Interestingly, the payments on a 15-year loan are often not that much higher than the same loan with a 30-year payback. However, there are other considerations and options borrowers should understand.

A: Fannie Mae Illumination: Fannie Mae stands for the Federal National Mortgage Association (FNMA). It was established by the National Housing Act specifically to start the secondary mortgage market, thus attracting more investors and funds to help support home ownership.

A: selling shares in Fannie Mae Illumination: Even though Fannie Mae is a mortgage-based business, its shares sell just like any other stock and only people with a securities license may offer them for sale.

A: FHA Illumination: The FHA encourages lenders to make these low-interest, low-down payment loans by insuring them against default. It does not actually lend money itself.

A: Yes. This is acceptable as long as the seller agrees. Illumination: This is a form of owner financing and is perfectly acceptable, so long as both parties agree to the terms and conditions.

A: "No down payment required." Illumination: "No down payment required" triggers the Truth in Lending disclosures because it is a specific statement about only one aspect of the financing. "Easy terms" does not trigger the regulation because it's non-specific.

A: to assure the property value is sufficient to cover the loan Illumination: Appraisals are third-party valuations of a property based on a wide range of variables. Lenders generally insist on this independent assessment to make sure the value of the property is at least sufficient to pay off the loan amount in case of default.

A: simple Illumination: Compound interest is associated with savings accounts and reflects the fact that money left on deposit earns interest on the interest it has already earned. "Floating" and "discount" are terms associated with the bank-to-bank transactions and financial markets.

A: Yes, because it was his own home. Illumination: Broadly speaking, an individual homeowner is free to sell his/her own home as he/she chooses and is not subject to Truth in Lending or real estate practice restrictions.

A: They are placed by private parties in a deed. Illumination: Restrictive covenants are most commonly associated with subdivisions and community management associations and are intended to maintain consistency within the neighborhood. While viewed as a benefit by most, they do limit the owner's use of the property and are binding on future owners.

A: neighborhood analysis Illumination: This involves more than just driving around. It is a formal process of identifying, measuring and analyzing the influences that help determine a neighborhood's vitality and desirability.

A: Buyers buy after they compare the house with others. Illumination: While emotion and impulse are certainly strong motivators, a home is also a considered purchase. What most people seek, within their affordability range, is value more than price. The only way to determine which home combines the elements of price, features, quality, condition, location and other factors that give a particular buyer the best value for his or her needs is to compare as many properties as possible.

A: $360 Illumination: At a scale of 4' to the inch, the room measures 12' x 18' or 216 square feet. Since there are nine square feet to one square yard, the room will require twenty-four square yards of carpet at $15 per yard.

A: $375,000 Illumination: At $10 per square foot, the tenant's base rent is $30,000. Since the total rent was $60,000, that means the remaining $30,000 was due to the gross sales percentage. Since that figure is 8%, simply divide $30,000 by .08 to arrive at $375,000.

A: Yes, because of economic obsolescence Illumination: Economic obsolescence occurs when factors unrelated to the property itself and outside of the owner's control diminish its value. A quick way to judge whether or not a property has become economically obsolete is to analyze whether, under the new circumstances, the location would still be chosen as a home site and, if yes, at what value compared with the current property.

A: market data approach Illumination: Market data would be used because it is the most reliable indicator of a home's true value. Since it is a single family residence rather than a multi-unit investment property, the fact that it is rented, as well as the amount of rent, is irrelevant to the calculations.

A: steep, narrow stairway in a 1 3/4 story home Illumination: "Functional obsolescence" typically shows itself in one of two forms: first, in poor initial design, as in this case; second, when the features and design of the home have become outdated compared with competing properties.

A: a pending or recent zoning change Illumination: A zoning change is a "material fact"--something that can have a direct impact on the property's value or desirability. For example, if the zoning in a middle class neighborhood on the edge of a growing city was changed from residential to mixed use, it means that a number of homes could be turned into businesses, which will make the property less desirable to people seeking a quiet place to raise a family.

A: 10 acres. Illumination: One-eighth of a mile square is the same as 10 acres. Multiply 1/8 X 1/8 = 1/64 divided into 640 acres = 10 acres

A: Civil penalty for as much has $1,000 per violation and any other penalties provided by law Illumination: The law calls for a maximum penalty of $1,000 per violation plus any other penalties provided by law.

A: Sixteen hours Illumination: For renewal of an affiliate broker's license originally issued on or after July 1, 1980, the affiliate broker must satisfactorily complete sixteen classroom hours in real estate courses at any school, college, or university approved by the Commission.

A: Complete 16 hours of continuing education over the current two-year license period to renew for the next two-year period Illumination: Affiliate brokers who are renewing are required to take 16 hours of continuing education during the two-year license period.

A: 60 days Illumination: ''Any broker, affiliate broker, time-share salesperson or acquisition agent who fails timely to pay a renewal or retirement fee may be reinstated without examination upon payment of the appropriate fee, plus a penalty fee of twenty-five dollars ($25.00), within sixty (60) days after the deadline. Any person desiring reinstatement thereafter must reapply for licensure; provided, that the commission may, in its discretion:'', and substituted ''a penalty fee, in addition to the penalty fee provided in subsection (a), of not more than one hundred dollars ($100) per month, or portion thereof, from the time the license expired'' for ''an additional fee not to exceed twenty-five dollars ($25.00)''

A: A 30-hour course course for new affiliates. Illumination: Beginning January 1, 2005, an individual must complete a commission-approved 30-hour course for new affiliates prior to licensure.

A: Require the nonresident licensee to move to Tennessee Illumination: The commission cannot require a nonresident licensee to move to Tennessee, however it can refuse to issue, renew or reinstate a license.

A: 120 hours including 30 hours in brokerage management Illumination: Applicants for a broker's license must provide proof of satisfactory completion of one hundred twenty (120) classroom hours in real estate (before or after receipt of an affiliate broker's license) at a school, college, or university approved by the Commission, including thirty (30) classroom hours covering office or brokerage management.

A: Answering general questions about the price and location of a particular property Illumination: Usually, giving out published information like the price and location of a property is considered ministerial, which can be done by a nonlicensed person as limited by the broker.

A: ministerial acts. Illumination: Routine services are considered ministerial and do not require a real estate license. Transactional acts, routine brokerage and customer service activities require a license.

A: explain simple contract documents to potential buyers. Illumination: An individual must have a license to explain even simple contract documents. Preparing or distributing flyers, computing commission checks and assembling documents are more clerical tasks and can be done by an unlicensed person.