Reference no: EM13859821
1) Consider two possible loan modifications for an "underwater"first mortgage, principal reduction and interest rate reduction. The house is now worth $60,000. The remaining principal is $75,765, the interest rate is 5%, the monthly payment is $500, and the remaining term of the mortgage is 20 years. Reducing the interest rate to zero results in a monthly payment of $315.69. Alternatively, reducing the principal to $47,836.51 also results in a monthly payment of $315.69.
A) The interest rate reduction will be better for the bank
B) The principal reduction will be better for the bank
C) The bank should be indifferent between the two
2) When making first mortgage loan decisions, lenders should place greater emphasis on _________ and less emphasis on ________ in non-recourse states than in recourse states.
A) LTV, borrower's income
B) Borrower's income, LTV
3) Suppose the homeowner is 90 days delinquent. All else equal, a first mortgage lender is more likely to allow a short sale to occur in a _____ state than in a ______ state.
A) Judicial, non-judicial
B) Non-judicial, judicial
4) Suppose that there is only one mortgage on a property in a non-recourse state with a balance of $180,000. There is no mortgage insurance on the loan and no right of redemption in the state. The loan is delinquent and the foreclosure sale is tomorrow. The bank has obtained an appraisal and believes the house could be sold for $150,000 in 3 months. Realtor commissions would be $8,000 and upkeep costs, insurance, and property taxes for 3 months would total $2,000. The bank should open the bidding at a price of
A) $180,000
B) $170,000
C) $160,000
D) $150,000
E) $140,000
5) Suppose that there are two mortgages on a property. The first mortgage bank is owed $200,000 and the second mortgage bank is owed $50,000. The first mortgage is delinquent and the foreclosure sale is tomorrow. The first mortgage bank has obtained an appraisal and believes the house could be sold for $225,000 in 3 months. Realtor commissions would be $10,000 and upkeep costs, insurance, and property taxes for 3 months would total $2,000. The first mortgage bank should open the bidding at a price of
A) $188,000
B) $225,000
C) $200,000
D) $213,000
6) Banksmust delay legal foreclosure action until a residential first mortgage loan is delinquent by more than ____ days.
A) 30
B) 45
C) 120
D) 180
7) A $150,000, 30-year interest-only mortgage, with a 5-year interest-only period, has an 8% interest rate, compounded monthly. During the 3rd year of the mortgage, assuming no prepayments, the required monthly payment is $_______.
A) 1,075
B) 1,000
C) 968
D) 1,333
E) 1,139
8) A $150,000, 30-year interest-only mortgage, with a 5-year interest-only period, has an 8% interest rate, compounded monthly. During the 10th year of the mortgage, assuming no prepayments, the required monthly payment is $_______.
A) 1,468
B) 1,390
C) 1,255
D) 1,158
E) 1,027
9) With a ________ transaction, the lender receives the property in exchange for cancelling the mortgage debt.
A) Deed in lieu
B) Redemption
C) Recourse
10) The down payment is $200,000 on a house with an agreed-upon price (and appraisal) of $900,000. Jumbo mortgage rates are 5.5% and conforming rates are 5%. If the conforming loan limit is $417,000 in the area, then the breakeven rate on a second mortgage arrangement as discussed in class is ________.
A) 6.49%
B) 7.38%
C) 7.15%
D) 6.91%
E) 6.24%
11) In today's interest rate environment, 30-year 5/1 ARMs are better than 30-year fixed-rate mortgages for homebuyers expecting to stay in the house for a relatively _____ time.
A) Long
B) Short
12) The initial rate on a 5/1 ARM is 4%. The loan has a margin of 2.5% and a 5% lifetime cap. At origination, the index is 2%. The maximum interest rate that can be charged over the life of the loan is
A) 7%
B) 7.5%
C) 9%
D) 8.5%
E) 5%
13) The initial rate on a 3/1 ARM is 4%. The loan has a margin of 2.5%, a 2% per year cap, and a 6% lifetime cap. At origination, the index is 2%. If the index is 4% at the end of year three, then the rate in year four will be
A) 6.5%
B) 6%
C) 4%
D) 4.5%
14) Comparing a 4% 15-year mortgage with no points and a 3.875% 15-year mortgage with one point, if the buyer expects to remain in the house for 6-7 years, then
A) The no points mortgage is clearly better
B) The one point mortgage is clearly better
C) It is a close call, requiring present value calculations
15) Borrowers should simply choose the lowest APR from various 30-year fixed-rate mortgage offers if they
A) Expect to remain in the house for 30 years before selling
B) Expect to remain in the house for 3 years before selling
16) For the 5/1 no-points ARM now offered by PenFed, the APR on the loan is probably _______ than the true expected annual cost of the loan over the next 30 years.
A) Higher
B) Lower
17) The issue of resubordination of a second mortgage could arise in a _______ transaction.
A) Refinancing
B) Deed in lieu
C) Short sale
D) Both B and C
18) Which of the following is correct about qualified mortgages (QM)?
A) If a mortgage is not a QM, then the borrower does not have a reasonable ability to repay
B) If a mortgage is a QM, then the borrower has a reasonable ability to repay
C) Both statements are correct
19) Suppose a borrower is offered a 3/1 ARM at 3% with a 2% per year cap and a 6% lifetime cap. The 1-year T-bill index is now 0.5% and the margin is 2.5%. Then to be a "qualified mortgage"under the Dodd-Frank law, the lender must calculate the borrower's debt-to-income ratiousing an interest rate of_______ on the loan.
A) 3%
B) 9%
C) 5%
D) 5.5%
E) 7%
20) In New York City, ______.
A) Balloon mortgages cannot be qualified mortgages
B) Interest-only mortgages cannot be qualified mortgages
C) Both balloon and interest-only mortgages can be qualified mortgages
D) Neither balloon nor interest-only mortgages can be qualified mortgages
21) Which expense is tax deductible (within limits) for individuals?
A) Mortgage interest
B) Mortgage discount points
C) Both A and B
D) Neither A nor B
22) Under the Dodd-Frank law, prepayment penalties on residential first mortgages
A) Are allowed in certain circumstances for qualified mortgages
B) Are allowed in certain circumstances for non-qualified mortgages
C) Are banned for all mortgages
D) Are permitted for all mortgages
23) An existing $200,000 mortgage has a 5% rate and 15 years remaining. A new 15-year no-points mortgage is offered with a 4.4% rate. There are $4000 in non-deductible closing costs on the new loan. The homeowner's tax rate is 33.33%. For refinancing, what is the crude breakeven point for house tenure for the borrower?
A) 5 years
B) 4 1/3 years
C) 3 1/3 years
D) 2 1/3 years
24) The true breakeven point for refinancing is_________ than the years calculated in the previous question.
A) Longer
B) Shorter
25) All else equal, banks charge _____ interest rates on cash-out refinancing mortgages than on purchase mortgages.
A) Higher
B) Lower
26) Suppose an appraisal indicates a house is worth $400,000 and there is an outstanding first mortgage with $300,000 principal remaining. If a HELOC lender uses a 75% rule, the credit limit offered is
A) $75,000
B) $25,000
C) No credit will be offered
27) Interest rates on HELOC loans typically adjust _____ and have ____ caps.
A) Monthly, lifetime
B) Monthly, periodic
C) Annually, lifetime
D) Annually, periodic
28) The adverse selection problem with reverse mortgages refers to what?
A) Reverse mortgages discourage "underwater" borrowers from properly maintaining their home
B) Reverse mortgages attract borrowers that expect to live a long, healthy life
29) Joe is 65 years old and just entered a reverse mortgage line of credit, which allows him to borrow up to $80,000 in principal. His property is now worth $200,000. The FHA insurance fund is more likely to suffer a loss if Joe
A) Must move to anursing home when he is 70 years old
B) Must move to a nursing home when he is 90 years old
30) Which of the following card companies operates in a four-party system?
A) Bank of America
B) American Express
31) Credit card interchange fees are paid from
A) The issuer to the acquirer
B) The acquirer to the issuer
32) If a credit card customer pays their balance in full each month and never incurs late fees, then
A) The issuer will definitely lose money on the account
B) The issuer might lose or might make money on the account
33) Joe has had his MSUFCU credit card for two years. By law,with 45 days notice,
A) Interest rates can be increased on both the existing balance and additions to the balance
B) Interest rates cannot be increased on additions to the balance, but can be increased on the existing balance
C) Interest rates cannot be increased on the existing balance, but can be increased on additions to the balance
34) In general, for Card Present transactions, the ______ is now liable for card fraud.
A) Issuer
B) Merchant
C) Network
35) For $100 VISA credit card transactionsusing a standard card,the merchant discount will be _____ at a large supermarket than at an online retailer.
A) Smaller
B) Larger
36) Which of the following are legal for credit cards?
A) The late payment fee is $20 and the minimum payment is $15
B) The minimum payment is $50 and the late payment fee is $40
C) Both are legal
D) Both are illegal
37) According to Experian, which category of auto lender makes the safest loans (lowest delinquency rates)?
A) Banks
B) Credit unions
C) Captive finance companies
D) Finance companies
38) With indirect auto lending using a maximum 80% LTV, if a dishonest dealer wants to reduce the amount of cash that the customer needs to buy aused car, the dealer should
A) Increase the car price and the trade-in allowance by the same amount
B) Decrease the car price and the trade-in allowance by the same amount
39) In general, in a Chapter 7 bankruptcy,private student loans
A) Will be discharged
B) Will not be discharged
Beginning Inventory = 50
Beginning Accounts Receivable = 30
Beginning Accounts Payable = 40
Net Income = 60
Depreciation = 30
Capital Expenditures = 70
Ending Inventory = 60
Ending Accounts Receivable = 30
Ending Accounts Payable = 30
40) Free Cash Flow is:
A) 80
B) 70
C) 40
D) 20
E) 0
41) Which of the following typically has the lowest advance rate?
A) Finished goods inventory
B) Goods in process inventory
C) Raw material inventory
42) According to the latest Federal Reserve survey, the average maturity of C&I loans from small domestic banks is about
A) 3 years
B) 5 years
C) 7 years
D) 9 years
43) The practice of curtailment is often used in ______ lending.
A) Unsecured C&I
B) Commercial real estate
C) Floor plan
D) Commercial construction
E) Credit card
44) According to the latest Federal Reserve survey, the average interest rate on C&I loans made by large domestic banks is _______ than the average interest rate on C&I loans made by small domestic banks.
A) lower
B) higher
45) The regulatory maximum LTV is _____ for land development loans than for commercial real estate loans.
A) Lower
B) Higher
46) Compute NOI given the following annual information:
Gross Scheduled Rent 50000
Expected 4% vacancy & collection loss 2000
Real estate taxes 2000
Utilities 5000
Depreciation 4000
Property Insurance 1000
Repairs & maintenance 6000
Income tax 8000
Management 3000
Replacement reserves 4000
A) 25000
B) 27000
C) 29000
D) 17000
E) 21000
47) Using the information from the previous question, assume the proposed loan is for $300,000 with monthly payments, implying a LTV of 80%. The interest rate is 7% compounded monthly and the amortization period is 25 years. What is the DSCR?
A) 1.14
B) 1.09
C) 1.06
D) 0.96
E) 0.69
48) Using the information from the previous question, should the bank make the loan using the typically required DSCR cutoff?
A) Yes
B) No
49) On a commercial mortgage with a 5-year maturity and 30-year amortization period, if the interest rate is 4% compounded monthly and the principal is $300,000, the balloon payment is
A) $250,000
B) $259,802
C) $263,079
D) $271,341
E) $275,374
50) Using the information from the previous question, two years have passed since the mortgage was originated, so the remaining principal is $289,215. The three-year Treasury interest rate is now 3% and the 27-year Treasury rate is now 4%. With the usual yield maintenance prepayment penalty, how much cash is required to prepay the loan?
A) $289,215
B) $304,341
C) $297,270
D) $292,836
E) $301,227
51) Holdback is
A) The reduction in a progress payment on a construction loan
B) The dealer fee on an indirect auto loan
C) The vacancy allowance on a commercial real estate loan
52) ________ havea highpercentage of their loans in commercial real estate and construction loans.
A) Small/medium banks
B) Large banks
53) Which of the following is a realistic lending covenant?
A) The borrower must maintain a Debt/EBITDA ratio of no more than 3.00 to 1.00
B) The borrower must maintain a EBITDA/Interest expense ratio of at least 2.00 to 1.00
C) Both are realistic covenants
D) Neither are realistic covenants
54) Which of the following is a realistic lending covenant?
A) The borrower is prevented from issuing new stock
B) The borrower is prevented from buying another company
C) Both are realistic covenants
D) Neither are realistic covenants