(Practice Problems) Mortgage Options

Assuming the borrower is in no danger of default, under what conditions might a lender be willing to accept a lesser amount from a borrower than the outstanding balance of a loan and still consider the loan paid in full?

All of the following concepts with regard to the evolving title theory of mortgage lending are true EXCEPT a.​lender rights are superior to borrower rights. b.​the lender can dispossess the borrower without notice at first default. c.​no compensation is made for any monies already paid to the lender. d.​the lender has both legal and equitable rights.

Common predatory mortgage lending practices include: (select all that apply) Question 4 options:   prepayment penalties.   loan flipping.   loaning more than the borrower's ability to repay.   excessive points.

Ways that a lender may respond to a defaulted loan without resorting to foreclosure include all of the following except Multiple Choice defer or forgive some of the past-due payments. accept a deed in lieu of foreclosure. allow short sale to a third party. accelerate the debt. offer credit counselina.

A credit derivative allows creditors and debtors to _________ their exposure to credit risk. For example,______able to effectively transfer some or all of the risk of a__________defaulting to a third party in exchange for a __________.

Discuss the two theories of mortgage default. What are the most important factors that influence the likelihood of default? Discuss the alternatives to default from the lender’s perspective and the incentives lenders face to offer them.

What is MOST TRUE of DEFAULT RISK on a mortgage loan? Group of answer choices It is always lower with lower interest rates. It increases with greater leverage. It increases with a lock-out provision. It does not effect the borrower due to lack of recourse.

A lender whose mortgagor has defaulted may be offered a deed in lieu of foreclosure. If he accepts, which of the following will be TRUE?   a. Because it is voluntary, it will not be an adverse item on the buyer's credit.   b. The lender will take the title subject to any junior liens.   c. The lender will usually retain his rights under mortgage insurance or VA guarantee.   d. The loan will still be assumable.

What is MOST TRUE of DEFAULT RISK on a mortgage loan? It is always lower with lower interest rates. O It increases with greater leverage. O It increases with a lock-out provision. O It does not effect the borrower due to lack of recourse.

Why might a wraparound lender provide a wraparound loan at a lower rate than a new first mortgage?

Leasing is a popular form of financing because Group of answer choices A. the lessee may not be financially able to purchase. B. the lessor likely has experience with the equipment being leased. C. all of these options are true. D. lease provisions are generally less restrictive than a bond indenture.

Assume you are lending money to company X. A credit default swap (CDS) consists of an agreement by a third party to pay the lost principal and interest of a loan to you (the CDS buyer) if a borrower defaults on a loan. Which of the following is false? O A. A Swap completely solves the problem that company X might default OB. A Swap solves the default problem from Company X on the condition that the third party (CDS provider) will not default. O C. When financial crisis happens, the CDS seller may have to pay recovery to many CDS buyers, and then the CDS seller could default. O D. B and C are part of the reasons for 2008 Global financial crisis.

Which of the following is nota reason why some companies lease rather than buy? A. Leasing may allow you to borrow with little or no down payment. B. Leasing can improve the balance sheet by reducing long-term debt. C. Leasing can lower income taxes. D. Leasing transfers the title to the lessee at the beginning of the lease.

The definitions of default events are fairly standard, but what really constitutes a default? a. The second missed payment O b. Default only happens when you cannot pay the interest on the outstanding debt c. The first missed payment O d. Depends on what kind of grace period is granted and the agreement with the borrower

Which of the following security instruments, if any, does not allow the debtor the right of redemption upon default? a. Mortgage foreclosure by "action and sale" b. "Strict foreclosure" of mortgage c. Debtors have a right to redeem property under all of these security instruments. d. Deed of trust e. Mortgage foreclosure by "power of sale"

Which of the following is true of an unsecured loan?A. They are exclusively for cars, houses, and other large purchasesB. Collateral could be collected by the lender if the debt is not paidC. They never have any interest added onto themD. Items of value that the borrowers owns are not at risk of repossession

All option are Company B, Company A

A6)

Explain the reason why the wraparound lender should be willing to make the loan at a rate that is more attractive than a second mortgage?