Chapter 11- Book Quiz (Plus)

Which of the following is NOT a participant in a secondary market?

• Fannie Mae

• Freddie Mac

• local credit union

• Ginnie Mae

Answer explanation

The answer is local credit union. A local credit union participates in the primary market. The secondary market consists of the Fannie Mae, Freddie Mac, and Ginnie Mae. (p. 164)

The person who obtains a real estate loan by executing a note and a mortgage is called the

• mortgagee

• vendor

• mortgagor

• beneficiary

Answer explanation

The answer is mortgagor. When a borrower pledges real estate to a lender as security for a debt, the borrower “gives” a mortgage to the lender. The borrower is the mortgagor; the lender is the mortgagee. (p.165)

What is a lien on the real property of a debtor?

• mortgagee

• mortgagor

• mortgage

• hypothecation

Answer explanation

The answer is mortgage. The borrower (mortgagor) provide the lender (mortgagee) with a document called the mortgage, which pledges the property as collateral for the loan. (p. 165)

Before a foreclosure sale, the borrower who has defaulted on the loan may seek to pay off the debt plus any occurred interest and cost under the right of

• usury

• statutory redemption

• equitable redemption

• hypothecation

Answer explanation

The answer is equitable redemption. Certain states, though not Pennsylvania, allow defaulted borrowers a period during which they can redeem their real estate after the foreclosure sale. This. Is known as a statutory redemption. (p. 176)

The clause in a note that gives the lender the right to have all future installments become due upon default is the

• escalation clause

• defeasance clause

• acceleration clause

• alienation clause

Answer explanation

The answer is acceleration clause. When a borrower is delinquent in making payments or breaches other conditions of the mortgage, the lender may declare the entire debt due and payable immediately. This right is provided in the acceleration clause. (p. 173)

What document is recorded by the mortgagee to show that the mortgage debt is completely repaid?

• Defeasance certificate

• Satisfaction

• Deed of trust

• Mortgage estoppel

Answer explanation

The answer is satisfaction. When a mortgage is recorded, this creates a lien on the title. To release the lien, the mortgage holder (mortgagee) must record a satisfaction or release of liens. (p. 165)

Which of the following BEST describe the secondary market?

• Lenders who deal exclusively in second mortgages

• Where loans are bought and sold after they have been originated

• The major lender of residential mortgage loans

• The major lender of government-sponsored loans

Answer explanation

The answer is where loans are bought and sold after they have been originated. Primary mortgage lenders conduct business directly with consumers/borrowers. The lenders, in turn, package and sell the mortgage loans to secondary-market investors. (p. 164)

What is the primary function of Freddie Mac?

• To buy and pull primarily conventional mortgages, selling bonds with such mortgages as security

• To buy mortgages guaranteed by the full faith and credit of the federal government

• To buy and sell only VA and FHA mortgages

• To work in tandem with Ginnie Mae to provide special assistance in times of tight money

Answer explanation

The answer is to buy and pull primarily conventional mortgages, selling bonds with such mortgages as security. The federal National Mortgage corporation (Freddie Mac) was created to provide a secondary market for conventional loans. Freddie Mac pulls the loans and sells bonds to investors with the mortgage loans as security. (p. 165)

What is the process known as friendly foreclosure, whereby a delinquent borrower can avoid foreclosure?

• nonjudicial alienation

• deed in lieu of foreclosure

• voluntary alienation

• assignment of the mortgage

Answer explanation

The answer is deed in lieu of foreclosure. As an alternative to foreclosure, the lender may accept a deed in lieu of foreclosure from the borrower. This is sometimes known as a friendly foreclosure because it is carried out by mutual agreement rather than by lawsuit. (p. 176)

A home is purchased using a fixed-rate fully amortized mortgage loan. Which statement regarding this mortgage is TRUE?

• A balloon payment will be made at the end of the loan.

• Each mortgage payment reduces the principal by the same amount.

• Each mortgage payment amount is the same.

• The principal amount in each payment is greater than the interest amount.

Answer explanation

The answer is each mortgage payment amount is the same. Each month's mortgage payment is the same under an amortized loan. As principle is reduced each month, the interest portion of the payment decreases and the amount applied to the principal increases. (p. 169)