Real Estate Salesperson Exam (National Portion) Financing and Settlement Summary

The borrower gives the mortgage, so the borrower is the mortgagor. The lender receives it and is the mortgagee. With a deed of trust, the borrower is the trustor, the lender is the beneficiary, and a third party is the trustee.

Wrong choices

• Mortgagee: The mortgagee is the lender.
• Trustee: A trustee holds title under a deed of trust.
• Beneficiary: The beneficiary is the lender under a deed of trust.

Private mortgage insurance (PMI) protects the lender. It is usually required on a conventional loan when the borrower puts down less than 20%, so the LTV is above 80%.

Wrong choices

• Less than 50%: Low LTV loans do not normally need PMI.
• Exactly 60%: 60% LTV does not normally need PMI.
• Less than 80%: PMI is required when the LTV is above 80%, not below.

Under TRID, the lender gives the Loan Estimate within 3 business days after application, and the borrower must receive the Closing Disclosure at least 3 business days before closing.

Wrong choices

• At least 10 days before applying for the loan: The Closing Disclosure is given near closing, not before applying.
• Within 3 business days after closing: It must be given before closing.
• On the day of closing only: Same-day delivery is too late.

In the primary market, lenders make loans to borrowers. In the secondary market, investors such as Fannie Mae and Freddie Mac buy those loans, giving lenders money to make more loans. Ginnie Mae guarantees securities backed by FHA and VA loans.

Wrong choices

• Primary mortgage market: The primary market is where lenders make loans to borrowers.
• Federal Reserve System: They are not part of the Federal Reserve.
• FHA insurance program: FHA is a government agency that insures loans.

ECOA bars credit discrimination based on race, color, religion, national origin, sex, marital status, age (if old enough to contract), and receipt of public assistance. Lenders may still judge creditworthiness, such as income and credit history.

Wrong choices

• The borrower's credit history: Lenders may consider credit history.
• The borrower's income: Lenders may consider income.
• The property's appraised value: Lenders may consider value.

The promissory note is the borrower's promise to repay the debt. The mortgage (or deed of trust) pledges the property as security for the note.

Wrong choices

• Deed: A deed transfers ownership of real property.
• Mortgage: The mortgage pledges the property as security.
• Closing Disclosure: The Closing Disclosure shows final loan costs.

An alienation (due-on-sale) clause lets the lender call the whole loan due when the property is sold or transferred, which prevents a buyer from assuming the loan without permission. An acceleration clause makes the debt due when the borrower defaults.

Wrong choices

• Acceleration clause: An acceleration clause makes the debt due on default, such as missed payments.
• Prepayment clause: A prepayment clause concerns paying the loan off early.
• Defeasance clause: A defeasance clause requires the lender to release the lien when the loan is paid.

VA loans are partly guaranteed by the Department of Veterans Affairs for eligible veterans and service members, and may require no down payment. FHA loans are insured and need a low down payment plus mortgage insurance premium (MIP).

Wrong choices

• FHA loan: FHA loans are insured by the Federal Housing Administration and require a down payment.
• Conventional loan: Conventional loans are not government guaranteed.
• Reverse mortgage: A reverse mortgage lets older owners borrow against equity.

Under Regulation Z, specific credit terms in an ad are trigger terms, such as the amount or percentage of the down payment, the number of payments, the payment amount, or the finance charge. Using one requires the ad to also state the down payment, the terms of repayment, and the APR. General phrases like "easy terms" do not trigger these disclosures.

Wrong choices

• Nothing else, because a percentage is not a trigger term: A specific down payment amount or percentage is a trigger term.
• The seller's name and address: The seller's identity is not a Regulation Z requirement.
• The broker's commission rate: Commission is not a credit term.

RESPA prohibits kickbacks, fees, or anything of value given for referring settlement services (title, lending, escrow) on federally related mortgage loans. Payment must be for services actually performed.

Wrong choices

• The Equal Credit Opportunity Act: ECOA concerns discrimination in lending.
• The Fair Housing Act: Fair housing concerns discrimination in housing.
• The Truth in Lending Act advertising rules: TILA advertising rules cover credit terms in ads.