Chapter 10 FRL 306

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  1. Private mortgage insurance (PMI) is usually required on _____ loans with LTV rations greater than _____ %.
    Home / 80 %
  2. The preferred loan type originated and kept by most depository institutions is the:
  3. Which of the following mortgage types has the most default risk, assuming the initial LTV ratio, contract interest rate, and all other loan terms identical?
    I/O loans
  4. A mortgage that is intended to enable older households to "liquify" the equity in thier home is the:
    Revers annuity mortgage (RAM)
  5. A jumbo loan is:
    A conventional loan that is too large to be purchased by Fannie or Freddie
  6. The max LTV ratio for FHA is:
  7. The max LTV ratio for VA-guaranteed loan is:
  8. Conforming conventional loans are loans that:
    Are eligible for purchase by Fannie or Freddie
  9. Home equity loans typically:
    Have tax-deductible interest charges.
  10. A simple but durable method of determining whether to refinance is to use:
    Net benefit analysis (NBA)
  11. Probably the greatest contribution of FHA to home mortgage lending was to:
    Establish the use of the level-payment home mortgage.
  12. 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. Describe the loans that Fannie Mae
    and Freddie Mac are eligible to purchase.
    • These are “conforming loans;” they meet all
    • conforming loan requirements such as: <417,000 (unless in a specially
    • designated MSA, eg the limit is currently 625,000 in LA); the appraisal report
    • follows specific guidelines (at a min USPAP); a standard note; etc
  13. Mortgage rates vary with the perceived riskiness of the loan. Describe 4 borrower / mortgage product scenarios that would increase mortgage rates.
    Higher LTV (higher default probability); b. lower FICO score; c. longer reset time on ARM; d. smaller periodic/lifetime caps; etc
  14. Under what  conditions would a mortgage applicant be considered for a subprime mortgage? An ALT-A mortgage?
    • Subprime: low FICO/creditworthiness,
    • high debt-to-income, low down-payment, (low/no documentation); ALT-A: low/no documentation but other aspects are generally OK.
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Chapter 10 FRL 306
Test Problems Chapter 10
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