FiCEP Housing and Mortgage Counseling 2 — Questions and Answers
Question 1: What is a 'short sale' in real estate?
- A quick sale of a home completed in less than 30 days
- A sale where the proceeds are less than the outstanding mortgage balance, with lender approval (Correct answer)
- The sale of a foreclosed property at auction
- A sale of a home priced below market value to a family member
Correct answer: A sale where the proceeds are less than the outstanding mortgage balance, with lender approval
A short sale occurs when a lender agrees to accept less than the full mortgage balance owed as payment in full, allowing the homeowner to sell and avoid foreclosure.
Question 2: Which type of mortgage features an interest rate that can change periodically after an initial fixed-rate period, based on a market index?
- Fixed-rate mortgage
- Adjustable-rate mortgage (ARM) (Correct answer)
- Balloon mortgage
- Interest-only mortgage
Correct answer: Adjustable-rate mortgage (ARM)
An adjustable-rate mortgage (ARM) has an interest rate that adjusts periodically after the initial fixed period, typically tied to an index like SOFR or Treasury rates.
Question 3: What is the Home Affordable Modification Program (HAMP) designed to do?
- Help qualified homeowners refinance into lower-rate mortgages
- Provide down payment assistance to first-time buyers
- Modify existing mortgage terms to make payments more affordable for struggling homeowners (Correct answer)
- Fund the construction of affordable housing units
Correct answer: Modify existing mortgage terms to make payments more affordable for struggling homeowners
HAMP was a federal program designed to modify the terms of existing mortgages—through rate reductions, term extensions, or principal forbearance—to make payments affordable for at-risk homeowners.
Question 4: In a mortgage context, what is 'private mortgage insurance' (PMI)?
- Insurance that pays off a mortgage if the borrower dies
- Insurance required by lenders when the down payment is less than 20% to protect the lender against default (Correct answer)
- Homeowners insurance that covers property damage
- A government-backed insurance program for low-income borrowers
Correct answer: Insurance required by lenders when the down payment is less than 20% to protect the lender against default
PMI protects the lender (not the borrower) against loss if the borrower defaults, and is typically required when the loan-to-value ratio exceeds 80%.
Question 5: What is a 'deed in lieu of foreclosure'?
- A court order stopping a foreclosure proceeding
- A voluntary transfer of the property title from the borrower to the lender to avoid foreclosure (Correct answer)
- A government program that purchases distressed mortgages
- A legal document that reduces the principal balance of a mortgage
Correct answer: A voluntary transfer of the property title from the borrower to the lender to avoid foreclosure
In a deed in lieu of foreclosure, the borrower voluntarily transfers title to the lender, who agrees to release the borrower from mortgage obligations, avoiding the formal foreclosure process.
Question 6: The Real Estate Settlement Procedures Act (RESPA) prohibits which of the following practices?
- Lenders charging origination fees
- Requiring borrowers to use a specific title company
- Kickbacks and referral fees between settlement service providers (Correct answer)
- Lenders requiring escrow accounts
Correct answer: Kickbacks and referral fees between settlement service providers
RESPA Section 8 explicitly prohibits kickbacks, fee-splitting, and unearned fees among settlement service providers that increase the cost of real estate transactions.
FiCEP Housing and Mortgage Counseling 2
What is a 'short sale' in real estate?