Mortgage General Mortgage Knowledge 5

Question 1

What is a 'cash-out refinance'?

Accepted Answer

Replacing an existing mortgage with a larger loan and receiving the difference in cash

Answer

Refinancing to eliminate PMI without taking extra funds

Answer

Paying closing costs in cash instead of rolling them into the loan

Answer

Refinancing a home equity loan back into the primary mortgage

Question 2

What does 'negative amortization' mean?

Accepted Answer

When monthly payments are insufficient to cover interest, causing the loan balance to increase

Answer

Paying more than the minimum payment each month

Answer

A loan balance that decreases faster than scheduled

Answer

Refinancing at a higher interest rate

Question 3

Which entity sets the conforming loan limits that determine whether a mortgage qualifies for purchase by Fannie Mae or Freddie Mac?

Accepted Answer

The Federal Housing Finance Agency (FHFA)

Answer

The Federal Reserve

Answer

The Consumer Financial Protection Bureau (CFPB)

Answer

The Department of Housing and Urban Development (HUD)

Question 4

In a mortgage context, what is 'seasoning'?

Accepted Answer

The length of time funds or a loan have been in place, often required before a refinance or sale

Answer

The time a borrower must wait between applying for two different loans

Answer

Adjustments made to the interest rate based on the season

Answer

The period during which a rate lock is valid

Question 5

What is the primary risk to a lender of an interest-only mortgage?

Accepted Answer

The borrower builds no equity during the interest-only period, increasing default risk if values fall

Answer

The borrower may pay off the loan too quickly

Answer

Interest-only payments are difficult to calculate

Answer

The lender cannot sell the loan on the secondary market

Question 6

What is a 'due-on-sale' clause in a mortgage?

Accepted Answer

A clause that requires the full loan balance to be repaid when the property is sold or transferred

Answer

A provision requiring the lender to lower the rate if the property is sold

Answer

A penalty assessed when the home sells for less than appraised value

Answer

A requirement for the buyer to purchase title insurance

Question 7

Which government-sponsored enterprise (GSE) primarily focuses on securitizing mortgages originated by savings institutions rather than commercial banks?

Accepted Answer

Freddie Mac (FHLMC)

Answer

Fannie Mae (FNMA)

Answer

Ginnie Mae (GNMA)

Answer

The Federal Home Loan Bank