Florida Real Estate Sales Associate — All Questions

In a typical mortgage, the borrower who pledges the property as security for the loan is the:

• a.Mortgagor✓
• b.Trustee
• c.Mortgagee
• d.Grantee only

The mortgagor is the borrower who pledges the property as collateral, while the mortgagee is the lender. Remembering that the borrower 'gives' the mortgage helps: the party ending in '-or' gives it. This terminology is reversed from what many people initially assume.

A loan feature that requires a large final payment at the end of the term, larger than the regular payments, is called a:

• a.Balloon payment✓
• b.Prepayment penalty
• c.Negative amortization credit
• d.Fully amortized payment

A balloon payment is a large lump-sum payment due at the end of a loan whose regular payments do not fully pay off the balance. Balloon loans carry the risk that the borrower must refinance or pay the balance when due. They contrast with fully amortized loans that pay off completely.

In an amortized loan, each monthly payment is applied to:

• a.Property taxes only
• b.Both interest and principal, with interest typically higher early on✓
• c.Principal only for the entire term
• d.Interest only for the entire term

In a fully amortized loan, each payment covers accrued interest and reduces principal, gradually paying off the balance over the term. Early payments are mostly interest, and later payments are mostly principal. By the final payment, the balance reaches zero.

Which government-related program insures loans made by approved lenders to help borrowers with lower down payments?

• a.FHA (Federal Housing Administration) insurance✓
• b.The MLS
• c.The county property appraiser
• d.The Federal Reserve open market desk

The FHA insures mortgage loans made by approved lenders, which reduces lender risk and allows lower down payments for qualified borrowers. FHA does not make loans directly; it insures them. VA loans, by contrast, are guaranteed for eligible veterans.

A VA loan is designed primarily to benefit:

• a.Foreign investors
• b.First-time commercial developers
• c.Eligible veterans and certain service members✓
• d.Local governments

VA loans are guaranteed by the Department of Veterans Affairs for eligible veterans, active service members, and certain surviving spouses. The guarantee allows favorable terms, often including no down payment. The VA guarantees rather than directly makes most of these loans.

Private mortgage insurance (PMI) is typically required when a conventional borrower makes a down payment of:

• a.Any amount, regardless of down payment
• b.Exactly 100 percent
• c.More than 50 percent
• d.Less than 20 percent✓

Lenders typically require PMI on conventional loans when the down payment is less than 20 percent, protecting the lender against default. PMI can often be canceled once the borrower reaches sufficient equity. It differs from FHA mortgage insurance premiums, which have their own rules.

The clause in a mortgage that allows the lender to demand full repayment if the borrower defaults is the:

• a.Acceleration clause✓
• b.Habendum clause
• c.Subordination clause
• d.Defeasance clause

An acceleration clause lets the lender declare the entire remaining balance due upon default, such as missed payments. It is a necessary step before foreclosure. A defeasance clause, by contrast, requires the lender to release the lien once the loan is paid in full.

A 'due-on-sale' (alienation) clause in a mortgage generally:

• a.Reduces the interest rate upon sale
• b.Allows unlimited free assumption by any buyer
• c.Forgives the loan when the property is sold
• d.Requires the loan to be paid off when the property is sold or transferred✓

A due-on-sale, or alienation, clause allows the lender to require full repayment if the property is sold or transferred, preventing an unauthorized loan assumption. This lets lenders adjust to current rates on transfer. Some government-backed loans may allow qualified assumptions.

When a buyer takes over the seller's existing mortgage and becomes personally responsible for it, the buyer has:

• a.Subordinated the loan
• b.Assumed the loan✓
• c.Refinanced with a new lender
• d.Defeased the loan

Assuming a loan means the buyer takes over the seller's existing mortgage and agrees to be personally liable for the debt. Lender approval is often required, especially with a due-on-sale clause. This differs from buying 'subject to' the mortgage, where the buyer does not assume personal liability.

The interest rate on an adjustable-rate mortgage (ARM) is typically calculated as:

• a.The seller's asking price divided by twelve
• b.The property tax rate
• c.A fixed rate that never changes
• d.An index plus a margin✓

An ARM's interest rate equals a benchmark index plus a fixed margin set by the lender. As the index moves, the rate adjusts at set intervals, often within caps. This contrasts with a fixed-rate mortgage, whose rate stays constant for the loan's life.

The secondary mortgage market, including entities like Fannie Mae and Freddie Mac, primarily functions to:

• a.Set property tax rates
• b.Directly originate loans to individual borrowers at retail
• c.License real estate agents
• d.Buy loans from lenders, providing liquidity so lenders can make more loans✓

The secondary mortgage market buys existing loans from primary lenders, giving those lenders fresh capital to make new loans and improving liquidity. Fannie Mae and Freddie Mac are major participants. This market helps standardize lending and keep funds flowing.

A prepayment penalty in a loan is a charge for:

• a.Requesting a payoff statement
• b.Paying off the loan earlier than scheduled✓
• c.Making a payment late
• d.Insuring the property

A prepayment penalty is a fee some loans impose if the borrower pays off the balance early, compensating the lender for lost interest. Not all loans have them, and some loan types restrict or prohibit them. Borrowers should review loan terms for such clauses.

The federal Truth in Lending Act (TILA) primarily requires lenders to:

• a.Guarantee approval to all applicants
• b.Set a maximum home price
• c.Disclose credit terms and costs, including the annual percentage rate (APR)✓
• d.Provide free appraisals

TILA requires lenders to disclose key credit terms so borrowers can compare offers, including the finance charge and APR. The APR reflects the total yearly cost of credit as a percentage. TILA also governs certain advertising of credit terms.

A discount point paid on a mortgage loan generally equals what percentage of the loan amount, and serves to:

• a.Five percent of the down payment, paid to the county
• b.One percent of the loan amount, paid to lower the interest rate✓
• c.Ten percent of the loan amount, paid to increase the rate
• d.One percent of the sale price, paid to the seller

One discount point equals one percent of the loan amount and is prepaid interest a borrower pays to buy down (lower) the interest rate. Points can reduce long-term interest costs in exchange for higher upfront cost. Whether points are worthwhile depends on how long the borrower keeps the loan.

A mortgage is best described as which type of instrument in the financing process?

• a.A lease of the property to the lender
• b.The promise to repay the debt itself
• c.A security instrument that pledges property as collateral for a debt✓
• d.A deed transferring full ownership to the lender

A mortgage is the security instrument that pledges real property as collateral for a loan, creating a lien. The promissory note is the separate document that contains the borrower's promise to repay. Together, the note and mortgage document the loan obligation and its security.

Which document contains the borrower's actual promise to repay the loan and the repayment terms?

• a.The deed of reconveyance
• b.The estoppel certificate
• c.The title commitment
• d.The promissory note✓

The promissory note is the borrower's written promise to repay the loan and sets out the amount, interest rate, and payment terms. The mortgage or deed of trust secures that note with the property. The note is the primary evidence of the debt.

'Equity' in a property is best defined as:

• a.The annual property tax bill
• b.The total amount originally borrowed
• c.The broker's commission
• d.The market value of the property minus the debts secured against it✓

Equity is the owner's financial interest in a property, calculated as market value minus any outstanding liens or mortgage balances. Equity grows as the loan is paid down and as the property appreciates. It represents the portion of value the owner truly owns.

The Real Estate Settlement Procedures Act (RESPA) is primarily intended to:

• a.Guarantee mortgage approval
• b.Set national property tax rates
• c.Provide consumers disclosures about settlement costs and prohibit kickbacks✓
• d.License appraisers

RESPA is a federal law requiring disclosures about closing (settlement) costs and prohibiting kickbacks and referral fees that increase costs to consumers. It applies to most federally related mortgage loans on residential property. It works alongside TILA to protect borrowers.

Florida is which type of state for enforcing a defaulted mortgage?

• a.A strict-foreclosure state where title passes to the lender automatically on default in all cases
• b.A state that prohibits foreclosure entirely on homestead property
• c.A nonjudicial state where the lender may sell without any court action
• d.A judicial foreclosure state, where the lender must file suit and obtain a court judgment✓

Florida requires judicial foreclosure: the lender files a lawsuit and the court orders a sale. This process protects the borrower and produces a clerk's sale of the property.

Florida follows the 'lien theory' of mortgages, which means that:

• a.The borrower keeps legal title and the mortgage is only a lien securing the debt✓
• b.The borrower has no ownership interest during the loan in all cases under Florida law
• c.The lender holds legal title until the loan is repaid
• d.Title is held by a neutral trustee for the lender

In a lien-theory state such as Florida, the borrower retains title and the lender's mortgage is merely a lien. This is one reason Florida uses judicial rather than power-of-sale foreclosure.

When a Florida lender begins a foreclosure, it records a document that gives public notice a suit affecting title is pending. This is a:

• a.Deed of reconveyance
• b.Lis pendens✓
• c.Estoppel certificate
• d.Satisfaction of mortgage

A lis pendens is a recorded notice that litigation affecting the property is pending. It provides constructive notice so later buyers or lienholders take subject to the outcome.

In a Florida judicial foreclosure, the borrower's equitable right of redemption generally lasts until:

• a.Ten years after the foreclosure sale
• b.The clerk of court files the certificate of sale✓
• c.The property is resold by the new owner
• d.The moment the borrower misses a single payment in all cases

Florida's equity of redemption allows the borrower to pay the full debt and stop the sale up to the time the clerk files the certificate of sale. After that point, the right to redeem is cut off.

If a foreclosure sale brings less than the total mortgage debt, the lender may pursue the borrower for the shortfall through a:

• a.Lis pendens
• b.Satisfaction piece
• c.Subordination agreement
• d.Deficiency judgment✓

A deficiency judgment lets the lender recover the difference between the debt and the foreclosure sale proceeds. Florida courts may grant deficiency judgments subject to statutory limits.

In residential financing, the document that is the borrower's actual promise to repay, separate from the security instrument, is the:

• a.Estoppel letter
• b.Promissory note✓
• c.Mortgage
• d.Deed of trust

The promissory note evidences the debt and the borrower's promise to repay with stated terms. The mortgage is the separate instrument that pledges the property as security for that note.

A borrower who pledges real property as security for a loan while keeping possession and use of it is engaging in:

• a.Hypothecation✓
• b.Escheat
• c.Subrogation
• d.Novation

Hypothecation is pledging property as collateral without giving up possession. It is exactly what a borrower does when granting a mortgage on a home they continue to occupy.

Unlike some states, Florida generally does not permit a lender to foreclose a residential mortgage through a private 'power of sale' because Florida:

• a.Requires the courts to oversee the foreclosure✓
• b.Bans all residential mortgages
• c.Automatically forgives defaulted loans in all cases
• d.Allows only cash purchases of homes

Because Florida is a judicial-foreclosure state, a lender must obtain a court judgment rather than sell privately under a power-of-sale clause. Court oversight is a defining feature of Florida foreclosures.

When a Florida mortgage loan is paid in full, the lender records a document releasing the lien known as a:

• a.Lis pendens
• b.Satisfaction of mortgage✓
• c.Purchase money mortgage
• d.Acceleration notice

A satisfaction of mortgage is recorded to clear the paid-off lien from the public record. Failing to record it can leave a cloud on the owner's title.

The mortgage clause that requires the lender to release its lien once the debt is fully paid is the:

• a.Defeasance clause✓
• b.Acceleration clause
• c.Escalation clause
• d.Alienation clause

A defeasance clause obligates the lender to defeat, or cancel, its lien and issue a satisfaction when the loan is repaid. It is the counterpart to the acceleration clause that speeds up repayment on default.

A clause by which an existing lender agrees to let its lien become inferior to a new loan is a:

• a.Habendum clause
• b.Subordination clause✓
• c.Acceleration clause
• d.Defeasance clause

A subordination clause lets an existing lienholder voluntarily give a later loan higher priority. It is common in construction and development financing where a new lender demands first position.

A written statement from a lender showing the exact remaining balance and terms of a loan is commonly called a(n):

• a.Warranty deed
• b.Promissory note
• c.Estoppel (payoff) letter✓
• d.Lis pendens

An estoppel or payoff letter states the current unpaid balance and prevents the lender from later claiming a different amount. It is often requested before a sale or loan assumption.

When a seller finances part of the purchase price by taking back a mortgage from the buyer, that instrument is a:

• a.Blanket mortgage
• b.Wraparound deed
• c.Purchase money mortgage✓
• d.Reverse mortgage

A purchase money mortgage is created when the seller extends credit to the buyer and takes back a mortgage as security. It allows financing directly between the parties without an institutional lender.

A financing arrangement in which a new, larger mortgage is placed over an existing loan that the seller keeps paying is a:

• a.Package mortgage
• b.Blanket mortgage
• c.Open-end mortgage
• d.Wraparound mortgage✓

In a wraparound, the seller keeps the underlying first mortgage and the buyer makes payments on the larger wrap, from which the seller pays the original loan. It is a form of seller financing that requires care with due-on-sale clauses.

Under a contract for deed (installment land contract), during the payment period the:

• a.Buyer takes possession while the seller keeps legal title until the balance is paid✓
• b.Lender holds title in trust for both parties
• c.Buyer receives full legal title immediately at signing in all cases under Florida law
• d.Seller must move out and give up all interest

In a contract for deed, the seller retains legal title as security and the buyer holds equitable title with possession. Legal title transfers only after the buyer completes the agreed payments.

A single mortgage that covers several parcels of land and includes a clause allowing individual lots to be freed as they are sold is a:

• a.Reverse mortgage
• b.Open-end mortgage
• c.Blanket mortgage with a partial release clause✓
• d.Package mortgage

A blanket mortgage secures more than one parcel, which is common for subdivisions. A partial release clause lets the developer release individual lots from the lien as each one is sold and paid down.

A mortgage that secures both real property and specified personal property, such as appliances, is a:

• a.Blanket mortgage
• b.Bridge loan
• c.Wraparound mortgage
• d.Package mortgage✓

A package mortgage finances real estate together with certain personal property like a refrigerator or range. It is common in new-home and furnished-condominium sales.

A mortgage that lets the borrower re-borrow funds already repaid, up to the original amount, is an:

• a.Blanket mortgage
• b.Amortized mortgage
• c.Open-end mortgage✓
• d.Package mortgage

An open-end mortgage works like a line of credit against the property, allowing additional advances up to a set limit. It saves the cost of writing a brand-new loan for later borrowing.

A short-term loan that funds a builder in stages as work is completed is best described as a:

• a.Purchase money mortgage
• b.Construction loan disbursed in draws✓
• c.Fully amortized 30-year loan in all cases
• d.Reverse mortgage

A construction loan advances money in draws tied to completed phases of the project. It is short term and is usually replaced by permanent financing once the building is finished.

A reverse mortgage (HECM) is generally available to homeowners who are:

• a.First-time buyers under 30 seeking low down payments in all cases
• b.At least 62 years old and converting home equity into payments✓
• c.Any borrower who wants to skip a down payment
• d.Investors buying commercial buildings

A HECM reverse mortgage lets owners aged 62 or older draw on their equity, with repayment deferred until they sell, move, or die. It is designed to help older homeowners access equity without monthly loan payments.

Section 8 of the Real Estate Settlement Procedures Act (RESPA) specifically prohibits:

• a.Charging any closing costs to the buyer in all cases under Florida law in every transaction
• b.Selling a loan on the secondary market
• c.Kickbacks and unearned referral fees among settlement service providers✓
• d.Requiring title insurance on a purchase

RESPA Section 8 bans kickbacks, fee-splitting, and unearned referral fees that raise the cost of settlement services. Its goal is to keep closing costs fair and transparent for consumers.

Under the Truth in Lending Act and Regulation Z, the three-day right of rescission generally applies to:

• a.Every residential purchase-money loan
• b.Only loans that have no finance charge in all cases under Florida law in every transaction
• c.A refinance or home-equity loan on a borrower's principal residence, not a purchase loan✓
• d.Commercial loans on office buildings

Regulation Z gives borrowers three business days to rescind certain loans secured by their principal residence, such as refinances and home-equity loans. It does not apply to the loan used to purchase the home.

Under the TRID rule, the lender must deliver the Loan Estimate to the applicant no later than:

• a.Thirty days after closing
• b.The day the loan is paid off in all cases under Florida law
• c.One year after application
• d.Three business days after receiving the loan application✓

TRID requires the Loan Estimate within three business days of a completed application so the borrower can compare terms early. It combines earlier good-faith-estimate and TILA disclosures.

Under TRID, the borrower must receive the Closing Disclosure at least:

• a.Thirty days before application in all cases under Florida law
• b.Three business days before consummation of the loan✓
• c.Only after the loan funds
• d.On the morning of closing

The Closing Disclosure must reach the borrower at least three business days before consummation so they can review final terms. Certain significant changes restart the three-day period.

The Equal Credit Opportunity Act (ECOA) prohibits a lender from:

• a.Verifying an applicant's income in all cases under Florida law in every transaction without exception as a general rule regardless of the circumstances
• b.Charging interest on a loan
• c.Requiring a down payment
• d.Discriminating in credit decisions based on race, sex, religion, national origin, marital status, age, or public-assistance income✓

ECOA bars discrimination in any part of a credit transaction based on protected characteristics. Lenders may still evaluate legitimate creditworthiness factors such as income and credit history.

The Home Mortgage Disclosure Act (HMDA) primarily requires lenders to:

• a.Guarantee approval to every applicant
• b.Report data about mortgage applications and originations to help detect discriminatory patterns✓
• c.Insure loans against borrower default
• d.Set interest rates for the whole market in all cases under Florida law in every transaction without exception

HMDA requires covered lenders to collect and report mortgage application and loan data. Regulators use the data to identify possible discriminatory or redlining patterns.

Under the federal Homeowners Protection Act, a lender must automatically terminate borrower-paid private mortgage insurance when the loan balance reaches:

• a.20 percent of the current sale price
• b.50 percent of the original value in every case in all cases under Florida law
• c.78 percent of the original property value, if payments are current✓
• d.The full 100 percent of the loan

The Homeowners Protection Act requires automatic PMI termination at 78 percent LTV of the original value when the borrower is current. Borrowers may also request cancellation at 80 percent.

A key feature of an FHA-insured loan is that the borrower must pay:

• a.A guarantee fee only for veterans
• b.Nothing extra because FHA loans carry no insurance in all cases
• c.A mortgage insurance premium (both upfront and annual)✓
• d.Double the normal down payment

FHA loans require a mortgage insurance premium, typically an upfront premium plus an annual premium. The insurance protects the lender and lets borrowers qualify with smaller down payments.

A distinctive benefit of a VA-guaranteed loan for an eligible veteran is that it often allows:

• a.A guaranteed 2 percent interest rate for life
• b.Financing with no down payment✓
• c.Purchase of unlimited investment properties
• d.Waiver of all closing costs by law

VA loans are guaranteed for eligible veterans and frequently permit 100 percent financing with no down payment. Borrowers usually pay a VA funding fee unless exempt.

A conventional 'conforming' loan is one that:

• a.Meets Fannie Mae and Freddie Mac standards and loan limits and is not government-insured✓
• b.Exceeds the maximum limit set for the secondary market in all cases under Florida law in every transaction
• c.Is insured by the FHA
• d.Is guaranteed by the VA

Conforming loans satisfy the underwriting and size limits set by Fannie Mae and Freddie Mac so they can be sold to those agencies. They are conventional loans, meaning not FHA or VA backed.

A loan whose amount exceeds the conforming limits set for Fannie Mae and Freddie Mac is called a:

• a.Package loan
• b.Jumbo loan✓
• c.Bridge loan
• d.Conforming loan

A jumbo loan is larger than the conforming loan limit and therefore cannot be purchased by Fannie Mae or Freddie Mac. Jumbo loans often carry stricter qualifying standards.

Ginnie Mae (the Government National Mortgage Association) primarily:

• a.Guarantees mortgage-backed securities that pool government-backed FHA and VA loans✓
• b.Licenses real estate brokers
• c.Directly lends money to individual homebuyers in all cases under Florida law in every transaction
• d.Sets local property tax rates

Ginnie Mae guarantees timely payment on securities backed by government-insured or guaranteed loans. It supports liquidity for FHA and VA lending in the secondary market.

The primary mortgage market is where:

• a.The government sets national interest rates
• b.Appraisers are licensed and regulated
• c.Existing loans are pooled and sold to investors
• d.Lenders originate loans directly to borrowers✓

The primary market is where borrowers obtain loans directly from originating lenders. The secondary market is where those existing loans are bought and sold to provide lenders more capital.

A charge a lender collects for processing and originating a loan, typically about one percent of the loan and not used to lower the rate, is a(n):

• a.Prepayment penalty
• b.Loan origination fee✓
• c.Discount point
• d.Intangible tax

An origination fee compensates the lender for making the loan and is usually about one percent of the amount. Unlike discount points, it does not buy down the interest rate.

In a temporary '2-1 buydown,' the borrower or seller pays upfront so that the interest rate is:

• a.Eliminated entirely for the life of the loan
• b.Reduced in the first two years, then rises to the note rate✓
• c.Fixed below market for the entire 30-year term in all cases under Florida law
• d.Increased for the first two years only

A 2-1 buydown lowers the effective rate by two points the first year and one point the second, then it reaches the full note rate. The upfront cost funds the early payment reduction.

Charging interest at a rate higher than the maximum allowed by law is known as:

• a.Amortization
• b.Hypothecation
• c.Subordination
• d.Usury✓

Usury is charging an unlawfully high rate of interest. States, including Florida, set maximum permissible rates, and violations can carry penalties.

An adjustable-rate mortgage typically limits how much the rate can change with:

• a.A balloon payment in month one
• b.Periodic and lifetime interest rate caps✓
• c.A prohibition on any index
• d.A fixed rate that never changes in all cases

ARMs use periodic caps to limit each adjustment and a lifetime cap to limit the total increase over the loan's life. Caps protect borrowers from sudden large payment jumps.

The low starting rate on some adjustable-rate mortgages, set below the fully indexed rate, is commonly called the:

• a.Index
• b.Cap
• c.Margin
• d.Teaser (initial) rate✓

A teaser or introductory rate is a temporarily discounted initial rate on an ARM. When it expires, the rate resets to the index plus the margin, often increasing the payment.

Negative amortization occurs when:

• a.The loan is paid off ahead of schedule
• b.The monthly payment is less than the interest due, so the loan balance grows✓
• c.The interest rate drops to zero
• d.Each payment reduces principal faster than scheduled in all cases under Florida law

Negative amortization happens when a payment does not cover the accruing interest, and the unpaid interest is added to principal. The balance can rise even though the borrower is paying.

A lender that collects money each month toward the borrower's property taxes and hazard insurance is maintaining a(n):

• a.Trust account for commissions
• b.Intangible tax fund
• c.Discount point reserve
• d.Escrow (impound) account✓

An escrow or impound account holds monthly amounts the lender uses to pay taxes and insurance when they come due. It ensures these obligations are paid and protects the lender's collateral.

At closing, a lender commonly collects prepaid 'per diem' interest to cover:

• a.The buyer's homeowner association dues in all cases under Florida law
• b.The interest from the closing date to the end of that month✓
• c.The seller's capital gains tax
• d.A full year of interest in advance

Because the first regular payment covers the prior month, lenders collect daily interest from closing through the end of the closing month. This aligns the loan's interest accrual with the payment cycle.

A higher loan-to-value ratio generally means:

• a.A smaller loan relative to value
• b.Lower risk and no need for insurance
• c.A larger down payment by the borrower in all cases under Florida law in every transaction
• d.Greater lender risk and a higher likelihood of required mortgage insurance✓

A high LTV means the borrower has less equity, which increases the lender's risk of loss on default. Lenders typically require private mortgage insurance when the LTV exceeds 80 percent.

Florida's documentary stamp tax on a promissory note secured by a mortgage is charged at:

• a.$1.00 per $100 of the note amount
• b.$0.35 per $100 of the note amount✓
• c.2 mills per $100 of the note amount
• d.$0.70 per $100 of the note amount

Florida imposes documentary stamp tax on notes at $0.35 per $100. This is separate from the $0.70 per $100 deed stamps and the intangible tax on the mortgage.

Florida's intangible tax on a new mortgage is imposed at:

• a.2 mills ($0.002 per $1) of the mortgage amount✓
• b.$0.70 per $100 of the mortgage amount in all cases
• c.6 percent of the mortgage amount
• d.$0.35 per $1 of the mortgage amount

Florida charges a nonrecurring intangible tax of 2 mills, or $0.002 per dollar, on new mortgages. It is paid once when the mortgage is recorded.

The Dodd-Frank Ability-to-Repay rule requires that a lender making a residential mortgage:

• a.Approve any applicant who requests a loan in all cases under Florida law in every transaction
• b.Guarantee the loan will never default
• c.Make a reasonable, good-faith determination that the borrower can repay the loan✓
• d.Ignore the borrower's income and debts

The Ability-to-Repay rule obligates lenders to verify income, assets, and obligations before making most home loans. A 'qualified mortgage' provides a safe harbor for compliance.

Steering borrowers into needlessly costly loans, inflating fees, or using deceptive terms is generally described as:

• a.Conforming lending
• b.Secondary marketing
• c.Subordination
• d.Predatory lending✓

Predatory lending involves abusive or deceptive loan practices that harm borrowers, such as hidden fees or unsuitable terms. Federal and state laws prohibit many of these practices.

When a buyer takes title 'subject to' an existing mortgage rather than assuming it, the buyer:

• a.Receives a brand-new loan from the lender
• b.Becomes personally liable and the seller is released in all cases
• c.Automatically pays off the loan at closing
• d.Makes the payments but is not personally liable for the debt✓

Buying 'subject to' means the buyer takes title and typically makes payments, but does not accept personal liability on the note. In an assumption, by contrast, the buyer becomes personally responsible.

A loan assumption in which the lender releases the original borrower from liability and substitutes the new buyer is accomplished through:

• a.Hypothecation
• b.Novation✓
• c.Reconveyance
• d.Subrogation

Novation substitutes a new borrower for the original and releases the original from liability, with the lender's consent. Without novation, the seller may remain secondarily liable after an assumption.

Compared with a fully amortized loan, an interest-only loan during its interest-only period:

• a.Does not reduce the principal balance✓
• b.Pays the loan off faster
• c.Increases the principal each month in all cases
• d.Charges no interest at all

During the interest-only period, payments cover only interest, so the principal balance stays the same. Once that period ends, payments rise to begin amortizing the balance.

Fannie Mae and Freddie Mac are best described as:

• a.Federal agencies that originate loans directly to buyers in all cases under Florida law
• b.Private title insurance companies
• c.State agencies that license appraisers
• d.Government-sponsored enterprises that buy loans on the secondary market✓

Fannie Mae and Freddie Mac are government-sponsored enterprises that purchase and securitize conforming loans. By buying loans, they give primary lenders fresh capital to keep lending.