Which of these aspects of a mortgage loan will be addressed in the note rather than in the mortgage


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Why is this a vital element of an efficient real estate finance system


1i. Mortgage law is as clear, consistent, and enforceable in the United States as in any place in the world, and far more so than in many countries. Why is this a vital element of an efficient real estate finance system?


1ii.The element of an adjustable interest rate that is the “mov­ing part ” is the:

a.Teaser rate.



d.Adjustment period.

e.None of these.


2i.The Congress has adopted changes in bankruptcy law that make Chapter 7 bankruptcy more difficult for households, requiring greater use of Chapter 13, thus providing greater protection to unsecured credit card companies. As a mortgage lender, do you care about this? If so, what would be your position?


2ii.Which of these aspects of a mortgage loan will be addressed in the note rather than in the mortgage?

a.Prepayment penalty.

b.Escrow requirement.



e.Maintenance of property.


3i.Residential mortgage terms (mortgage notes) have become increasingly uniform as the mortgage market has become more national and efficient. Is there any downside to this for the homeowner?


3ii. A lender may reserve the right to require prepayment of a loan at any time they see fit through a(n):

a.Taking clause.

b.Acceleration clause.

c.Demand clause.

d.Due-on-sale clause.

e.Escrow clause.


4i.Most lenders making adjustable rate mortgage (ARM) loans offer a “teaser rate.” Is this a good policy or is it misrepresentation?


4ii.When a buyer of a property with an existing mortgage loan acquires the property without signing the note for the exist­ing loan, the buyer is acquiring the property:

a.By assumption.

b.By contract for deed.

c.By deed of trust.

d.By default.

e.Subject to the mortgage.


5i.Home mortgage lending is heavily regulated by federal laws. Is this a result of congressional pandering to consumer groups, or are there good reasons why home mortgage lending should be regulated more than, say, automobile financing?


5ii.Which of these points in a mortgage loan would be addressed in the mortgage (possibly in the note as well)?

a.Loan amount.

b.Interest rate.

c.Late fees.


e.Loan term.


6i. For your own state, determine whether:

a.It is a judicial or no judicial foreclosure state.

b.The standard home loan is based on a deed of trust or a mortgage.

c.There is a statutory right of redemption and, if so, how long.

d.Deficiency judgments are allowed against defaulted homeowners.

Based on this information, can you judge whether your state is relatively lender friendly or borrower friendly? For this exercise use the websites noted in the text: fore- closureassistance.com and foreclosures.com.


6ii.To finance property where either the borrower, the property, or both fail to qualify for standard mortgage financing, a common nonmortgage solution is through the:

a.Subprime loan.

b.Deed of trust.

c.Unsecured loan.

d.Contract for deed.

e.Balloon loan.


7i.Download one mortgage and one deed of trust from the Freddie Mac website (see Explore the Web). Compare them to see what differences you can find in their clauses.


7ii.Ways that a lender may respond to a defaulted loan without resorting to foreclosure include all of the following except:

a.Offer credit counseling.

b.Arrange sale to a third party.

c.Defer or forgive some of the past-due payments.

d.Accelerate the debt.

e.Accept a deed in lieu of foreclosure.


8.If the lender in a standard first mortgage wishes to foreclose cost effectively, it is crucial to have which clause in the mortgage?

a.Acceleration clause.

b.Exculpatory clause.

c.Demand clause.

d.Defeasance clause.

e.Taking clause.


9.A common risk that frequently interferes with a lender’s efforts to work out a defaulted loan through either nonfore- closure means or foreclosure is:

a.Equity of redemption.

b.Statutory right of redemption.

c.Exculpatory clauses.


e.Deficiency judgment.


10.The characteristics of a borrower that can be considered by a lender in a mortgage loan application are limited by the:

a.Truth-in-Lending Act.

b.Real Estate Settlement Procedures Act.

c.Equal Credit Opportunity Act.

d.Home Ownership and Equity Protection Act.

e.Community Reinvestment Act.


11.The Real Estate Settlement Procedures Act does which of these:

a.Requires the use of a standard settlement statement for a mortgage loan closing.

b.Prohibits kickbacks between vendors of closing-related services and lenders.

c.Requires that a borrower receives a good-faith estimate of closing costs shortly after a loan application.

d.Requires that the borrower be able to inspect the closing statement a day before the actual closing.

e.All of the above.


12.Foreclosure tends to be quickest in states that:

a.Are title theory states.

b.Are lien theory states.

c.Have judicial for closure.

d.Have power of sale.

e.Have statutory redemption.


13.From a home mortgage lender’s perspective, which statement is true about the effect of bankruptcy upon foreclosure?

a.Chapter 7 bankruptcy is the most “lender friendly” form.

b.Chapter 11 bankruptcy is the most “lender friendly” form.

c.Chapter 13 bankruptcy is the most “lender friendly” form.

d.All forms of bankruptcy are equally devastating to a lender’s efforts to foreclose.

e.No form of bankruptcy causes serious problems for a lender seeking to foreclose a mortgage.


14.The most internationally oriented index rate for adjustable rate mortgages is:

a.Federal Home Loan Bank cost of funds index.

b.Treasury constant maturity rate.

c.A LIBOR rate.

d.A home mortgage loan interest rate index.

e.The Wall Street Journal prime rate.


15.A type of loan that has grown in volume in recent years, which has raised concerns about predatory lending prac­tices, is the:

a.Adjustable rate mortgage.

b.Contract for deed.

c.Purchase money mortgage.

d.Subprime mortgage.

e.Power of sale mortgage.


16.A partially amortizing loan always will have:


b.Only one stated term.

c.A balloon payment.

d.A prepayment penalty.



17.Which of these statements is true about mortgage loans for income producing real estate?

a.They usually are partially amortizing loans.

b.They often have a prepayment penalty.

c.They often are nonrecourse loans.

d.They can be interest only loans.

e.All of the above.


18.With what type of loan security arrangement is the deed held by a neutral third party and returned upon payment of the mortgage in full?

a.Contract for deed.


c.Deed of trust.

d.Nonrecourse loan.

e.Recourse loan.


19.The Truth-in-Lending Act gives some mortgage borrowers how long to rescind a mortgage loan?

a.24 hours.

b.Two days.

c.Three days.

d.A week.

e.A month.


20.Which statement is correct about the right of prepayment of a home mortgage loan?

a.All home mortgage loans have the right of prepayment without charge.

b.Most home mortgage loans have the right of prepayment without charge, but not all, and the borrower should check the loan carefully.

c.Home mortgage loans give the right of prepayment with­out charge only in some states.

d.Home mortgage loans never have the right of prepayment without charge unless it is explicitly stated

e.Home mortgage loans never have the right of prepayment without charge.

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