9. A loan on a non-existent property is known as

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1 C h a p t e r 1 Q u i z 1. A yield spread premium represents the a. difference in the interest rates at competing financial institutions. b. difference in the PMI premium paid by the borrower. c. profit, often paid as a kickback to the mortgage broker, which occurs when the yield spread on the loan makes more profit for the lender. d. tranch of the loan. 2. CDO stands for a. Collaterized Debt Obligation. b. Collaterized Disclosure Option. c. Credit Debt Obligation. d. Credit Disclosure Obligation. 3. Property values began to fall nationwide in a. Q4 of b. Q2 of c. Q1 of d. Q1 of One of the most faulty underwriting decisions was made by Standard and Poor, when they rated loans as no more risky than a conventional loan with 20% down. a. 80/20 Piggyback b. FHA c. stated income d. VA 5. In order of lowest risk to highest risk, which is the correct order? a. Alt A, Sub-Prime, Prime b. Prime, Alt-A, Sub-Prime c. Prime, Sub-Prime, Alt-A d. Sub-Prime, Alt-A, Prime 6. A low doc or no doc loan is often given to a borrower who a. has an excellent credit rating. b. is highly salaried. c. is not a U.S. citizen. d. is self-employed. 7. What is the FBI s estimate of the dollar amount of mortgage fraud on an annual basis? a. $3 to $5 million b. $10 to $15 million c. $120 to $130 million d. $4 to $6 billion 8. In regard to tranches, which statement is TRUE? a. All tranches, or slices, from a CDO have identical risk and return. b. All tranches, or slices, from a CDO have the same amount of return. c. All tranches, or slices, from a CDO have the same amount of risk. d. Each tranch, or slice, has its own risk and return. 9. A loan on a non-existent property is known as a. an air loan. b. creative financing. c. a NINJA loan. d. a proposed loan. 10. One of the hallmarks of predatory lending practices is a. borrowers being given accurate estimates of closing costs. b. exploding ARMs. c. fixed-rate loans. d. honest mortgage brokers.

2 C h a p t e r 2 Q u i z 1. Buying a property at a bargain price, fixing it up, and reselling it at a profit is the definition of a. capitalism. b. entrepreneurship. c. flipping. d. fraud. 2. An agent advises Jane that the house she inherited has a market value of $125,000 - $130,000. Jane wishes to sell quickly and agrees to list the property at $100,000 as-is. An investor purchases the property and re-landscapes, paints the exterior and interior, modernizes the kitchen, replaces the roof and windows, and refinishes the floors. The investor then lists and sells it for $195,000. This is a description of a. fraud on the part of the agent. b. fraud on the part of the investor. c. an illegitimate flip. d. a legitimate flip. 3. A common error of an amateur flipper is a. estimating the costs of carrying and making repairs to the property. b. having enough cash reserves. c. planning on a downturn in the market. d. relying on friends and family to do the repairs. 4. Professional flippers are most likely to NOT a. have a plan B if the house does not sell. b. have sufficient resources to finish the job. c. put any profit into the business plan. d. spread themselves too thin by acquiring more properties than they can rehab. 5. One day, an investor knocks on Marge s door and tells her that her neighborhood is going downhill, and that she is lucky that he is willing to buy her house. Marge sells the house to the investor for $50,000. He paints the house, and two months later, resells it for $150,000 to a family relocating from a big city. This is a. good business sense on Marge s part. b. an illegitimate flip. c. a legitimate flip. d. a normal business transaction. 6. Which is NOT associated with the FHA Anti- Flipping Rule FR-4615? a. No real estate agent may be involved. b. The sales contract may not be assigned. c. The seller must be the owner of record. d. There must be a seasoning period between the last sale and the current sale. 7. Which of the following is an amendment to the FHA Anti-Flipping Rule FR-4615? a. The FHA allows flips of properties which have gone through foreclosure. b. The FHA allows flips within 30 days if the parties are not related by blood or marriage. c. The FHA allows flips without an explanation of the increase in value, providing the flip occurs within 90 days. d. There are no amendments to this rule. 8. Which is a challenge associated with a pre-foreclosure appraisal? a. ability to perform only an exterior-only inspection b. abundant comparables c. adequate MLS and courthouse data d. cooperative homeowners 9. Which is NOT a common misrepresentation in fraudulent appraisals, per Fannie Mae? a. inappropriate comparables b. misrepresentation of the property s occupancy c. misrepresentation of the property s physical condition d. misrepresentation of the property s zoning 10. Which acronym represents a government agency that insures mortgage loans? a. BPO b. CMA c. FHA d. USPAP

3 C h a p t e r 3 Q u i z 1. The FBI reported a increase in SARS reports during fiscal year a. 18% b. 25% c. 36% d. 40% 2. A settlement statement that details all costs associated with closing a loan, showing how much was paid, to what companies or parties, and for what purpose is called a(n) a. HUD. b. HUD-1. c. RESPA. d. USPAP. 3. Which is a predatory lending scheme? a. approving an ARM for a client b. charging a disclosed fee c. misrepresenting terms and conditions of the loan d. providing a HUD-1 statement before closing 4. Which statement regarding a silent second is TRUE? a. The agent is always aware of the arrangement. b. Appraisers do not need to take such financing into account when forming a value opinion. c. It appears on the HUD-1. d. It does not appear on the HUD Which is a RESPA regulation? a. The HUD-1 can be given to agents and consumers only after the lender receives the necessary fee. b. The HUD-1 should be given to agents and consumers before closing, only if requested. c. The lender must require a client to use its preferred title agency. d. A person cannot give or accept any thing of value for referrals or business related to a federal mortgage loan. 6. SARs reports are a. generated by the FDIC. b. generated by USPAP. c. reports of suspicious activity. d. statements of accounting reserves. 7. When a lender encourages a borrower to refinance often, usually at no benefit to the homeowner, it is called a. equity allocation. b. equity stripping. c. fraud. d. refinancing. 8. Who would most likely be involved in preparing a false HUD-1 Settlement Statement? a. borrowers b. real estate agents c. real estate appraisers d. title company agents 9. A lender gets a customer to take a mortgage loan by telling them it is a fixed rate loan, when in reality it is an ARM. This practice is known as a. bait and switch. b. equity stripping. c. a silent second. d. stacking the price. 10. A characteristic of massive mortgage fraud is a. it can involve several individuals. b. it is always one person acting alone. c. the perpetrators make very little money. d. the perpetrators never get caught.

4 C h a p t e r 4 Q u i z 1. Which statement regarding friendly foreclosure is TRUE? a. It is also known as a deed in lieu of foreclosure. b. It is also known as a quick sale. c. It is what happens in non-recourse states. d. No foreclosure is friendly. 2. For a lender, REO is a. best sold as repaired. b. a pre-foreclosure listing. c. real estate owned, and an asset on the balance sheet. d. real estate owned, and a liability on the balance sheet. 3. A lender instructs an agent to go to an occupied house and offer the occupants (who are behind on payments and will soon be facing foreclosure) a set amount if they will vacate the property. This is known as a. cash for keys. b. eviction. c. foreclosure. d. a trash out. 4. Which is NOT a duty of a real estate agent handling an REO listing? a. arranging for lawn mowing and snow shoveling b. arranging for re-keying and securing the property c. checking the property periodically to make certain no one has broken in d. completing an appraisal 5. The as-is value of a property reflects the value of the property a. after minor repairs. b. in its current condition. c. in the future. d. in the past. 6. A typical characteristic of many owners of REO listings is that they prefer a. as-is, cash sales. b. sales that require financing on the part of the buyer. c. selling the property as repaired. d. to hold on to the property as long as possible. 7. An investor generally determines the offering price for an REO listing by a. computing the cost per square foot of new construction. b. having an appraisal done. c. performing a discount cash flow analysis. d. starting at the end (e.g., what he thinks the property would be worth fixed up, and from there deducting costs, profit, etc.). 8. If sufficient market data is available, a good measurement for an appraiser to develop is the a. average net return to investors in REO properties. b. average percent by which buyers discount foreclosures and REOs in the market. c. average price per square foot for remodeling costs. d. internal rate of return to investors. 9. Which would likely NOT be included in as repaired value? a. refurbishing of mechanical systems b. treatment for an insect infestation c. total kitchen remodeling d. trimming of shrubbery, grass, and plants to create curb appeal 10. The Fannie Mae 1004MC Form requires the appraiser to consider only homes a. in foreclosure or that are REO. b. in the pool of listings the typical purchaser would consider. c. in the subject s immediate neighborhood. d. the lender suggests

5 C h a p t e r 5 Case Study with Instructor Notes Note: Instructors: There is no quiz at the end of this chapter; the entire chapter serves as a Case Study. However, the instructor should ask the questions which appear within the PowerPoint and listen to the answers, possibly writing them down on a flip chart or chalk/white-erase board. This works best when you divide the students into groups. Insist that they give you a range for asking price and estimated sale price. Write the answers down on a flip chart so that everyone can see. Usually, there are several answers that are quite close; I often have one or two groups that either really come in low or are optimistically high. Of course, in this scenario, we can t possibly know the right answer because we only know that we got it right when the house sells for the suggested value opinion. Also, the variance in the classroom provides a great opportunity to have the students defend their positions. Often, the students opinions are very close to each other. At that point, the instructors may offer their opinions. Students were asked the following questions: Analyze the data you have. What information do you consider to be most reliable? Why? What information do you consider to be least reliable? Why? What data may you decide not to use? Why? Can you obtain additional information? If so, how and why? Based on the information gathered from the market, what range of value would you place on the subject property? What are the market trends? What is the absorption rate? What correlation are you seeing between time frame and sale price? What correlation are you seeing between time frame and days on market? What is the Listing Price/Sale Price ratio? Note: Extra notes for the instructor appear in italics. These notes are not included in the students textbook. First, analyze the information you have: Start by sorting the properties into a manageable grid, going from earliest listed to most currently listed. Understand while you are doing this, that when the properties were listed, the agent had (or possibly did not have) an understanding of market conditions at that time.

6 DOM Address OLP Current LP Comments/Notes Oak St. $202,500 $195,900 None Elm St. $194,900 $185,000 Relocation; Agent incentives Pine St. $199,000 $191,900 Bonus commission Maple St. $192,900 $192,900 None Willow Ln. $149,900 $144, Ash St. $189,900 $189,900 None Dogwood Ave. $170,000 $170,000 Rough Poor condition; REO Bring offers Elm St. $210,000 $210,000 Won t last Locust St. $165,000 $165,000 As-Is? 350 Beech St. Unknown Unknown Sheriff s sale sign posted? 742 Maple St. Unknown Unknown Auctioneer s sign posted OLP stands for original list price; LP stands for list price; and DOM stands for days on market. Now that the listings are in order, you can begin to make sense of this market. In this case study, the homes are all fairly homogeneous (very similar to each other), so the market data is more important than individual property data. First of all, there are currently at least 11 available listings in this neighborhood for sale. There are seven sales from the entire previous year, so you have an excess supply of one and one half years: 7 12 = houses per month (just over a half) = months supply This fact alone is more important than how the house looks inside! Note: Students obsess when doing this case study over not knowing every detail about the house with this much supply in the market, price is going to be most important point out that they need to read the market first.

7 Now, review the listings and sort them by price, from highest to lowest: Address Current Price Comments/Notes 622 Elm St.* $210,000 New listing; High LP 621 Oak St. $195, DOM; No incentives 748 Maple St. $192, DOM; No concessions offered 456 Pine St. $191, DOM; Bonus commission offered 923 Ash St. $189, DOM; No concessions offered 860 Elm St. $185, DOM; relocation company; Agent incentives 303 Dogwood Ave. $170,000 Rough 729 Locust St. $165,000 As-Is 414 Willow Ln. $144,900 Poor condition, REO, Bring offers * Point out with this listing, the agent appears to have not read the market. Note: Since we don t know the asking price of the property with the sheriff s sale posted or the property to be auctioned, we will assume that our investors in this market will check them both out (e.g., contact the real estate agent, tour the property, attend the sheriff s sale/auction). Investors will typically be on the lookout for opportunities in all forms, including auctions, estates, sheriff s sales, and listed properties. Emphasize that relocation companies typically: have at least two appraisals for a property (this is the industry standard; if the two appraisals are not within 5% of each other, a third appraisal is ordered). treat property as a commodity to be sold. do pre-sale home inspections, cure deficiencies, and (if they have to) neutralize the house after the sellers move (e.g., remove the lime green shag and replace it with new beige-colored carpet). The three bottom-priced properties are: Address Current LP Comments/Notes 303 Dogwood Ave. $170,000 Rough 729 Locust St. $165,000 As-Is 414 Willow Ln. $144,900 Poor condition, REO, bring offers Our subject is going into foreclosure. We ll assume the lender will be motivated, which groups it with the bottom four comparables. We ll also assume that the lender wants to sell As-Is.

8 The highest price listing was taken by an agent who appears to have not read the market. It looks like the next four listings (621 Oak St., 748 Maple St., 456 Pine St., and 923 Ash St.) are still hoping that the market will return to what it used to be. In terms of reliable data, the bottom four listings are the most competitive; the sheriff s sale and auction property are wild cards they will probably affect the market. 622 Elm St. is so overpriced it doesn t even matter, and is not truly a competing listing. The range for listing is $144,900 to $185,000. Note: This is a large range; I would give extra points to the groups that go to the lower end of the range. If the agent/appraiser is able to gain access to the interior, they can gravitate toward either end of the range, as needed. Now, let s look at the sold properties, sorted by most days on the market to least: DOM Address FLP FSP LP/SP Comments 8 months 632 Pine St. $195,000 $192,500 98% Conventional No assistance 7 months 807 Ash St. $164,900 $164, % Cash; As-Is 6 months 687 Willow Ln. $192,500 $192, % 3 months 668 Elm St. $190,000 $187,500 Effective: $185,000 3 months 614 Spruce St. Unknown $199,900 2 months 530 Locust St. $162,500 $154,900 95% 2 months 442 Pine St. Unknown $159,900 Conventional; No assistance 97% $2,500 in closing costs Non-brokered Out-of-town buyer Cash; As-Is ; Resale of foreclosure Estate sale; Investor buyer For the first four properties, notice the Listing Price/Sale Price ratio (LP/SP) column: DOM Address FLP FSP LP/SP Comments 8 months 632 Pine St. $195,000 $192,500 98% Conventional No assistance 7 months 807 Ash St. $164,900 $164, % Cash; As-Is 6 months 687 Willow Ln. $192,500 $192, % 3 months 668 Elm St. $190,000 $187,500 Effective: $185,000 97% Conventional; No assistance $2,500 in closing costs*

9 *Instructors should discuss Fannie Mae s position on adjusting for seller concessions (Fannie Mae says it is not always a dollar-for-dollar adjustment). You will probably also get feedback from experienced students who sell real estate that will assert (rightly so) that sellers care about the bottom line. In this case, the bottom line was reduced by $2,500. As the saying goes, That was then, this is now. What happened even just three months ago may very well not be the case today. Take a look at the Spruce St. house: DOM Address Original List Price Current List Price 3 months 614 Spruce St. Unknown $199,900 Comments/Notes Non-brokered Out-of-town buyer A non-brokered sale to an out-of-town buyer is a red flag. The reasonable assumption is that he was unfamiliar with the market and did not receive professional assistance. This was the only two-bedroom home, which tends to support this view even more. Note: Instructors should remind appraisers that they should confirm the details of any sale This is required by USPAP. Now, look at the Locust and Pine St. houses: DOM Address OLP SP LP/SP Comments 2 months 530 Locust St. $162,500 $154,900 95% Cash; As-Is ; Resale of foreclosure 2 months 442 Pine St. Unknown $159,900 Estate sale; Investor buyer* * The buyer is known as an investor because smart agents and smart appraisers in an area know who the investors are, usually by name because of their repeated buying and selling. What can be determined from the last three properties we looked at? Most recent sales are usually the most reliable. But, we can t develop an LP/SP ratio for two of the comparables, because we don t know their offering prices. We will assume the sale on 614 Spruce St did not involve an educated buyer because: The buyer was from out-of-town. It was non-brokered. This buyer paid more than anyone else in the neighborhood and only got a two bedroom house. The LP/SP ratio is lengthening houses are selling for less than the owners thought they would get. This is a sign of a declining market, because it shows the original asking prices are not being met by the market.

10 That leaves the bottom two as definite comps 530 Locust St. and 442 Pine St. (although most appraisers would also pick 668 Elm St. because it is only three months old and it is next door to the subject). Therefore, our range of value for the sale price is $154,900 to $185,000. Look at the sale of 807 Ash St., which occurred seven months ago, and then look at the sale of 530 Locust St., which is 2 months old. Both were sold As-Is and there was a $10,000 difference in value. This strongly suggests a sale price at the lower end of the range. Market trends: Market is going downward There is an oversupply More concessions are seen LP/SP ratio is changing. Note: Again, the range is large. In this circumstance, as this market appears to be continuing to decline, the lower end of the range is suggested ($150,000s). Where do we end up with this? Our listing range goes from $144,900 to $185,000, but the market is declining, and our client is looking at a potential foreclosure. Most appraisers would gravitate toward the lower end of the range in order to get a quick sale so $144,000 to $150,000 as an asking price. Sales prices are ranging from $154,900 to $185,000. If we don t list over $150,000, chances are quite slim that, in this market, we will get competing offers over the asking price. We should be able to sell the property, quickly, for $148,000 to $150,000. Remember, we have over an 18-month supply of housing in order to sell in a reasonable amount of time, the property must be priced very competitively.

11 C h a p t e r 6 Q u i z 1. The value of a property that sits vacant for any length of time will generally a. decline. b. double. c. increase. d. stay the same. 2. Which is an example of functional obsolescence? a. broken stove b. no back patio c. no closet space d. old carpet 3. Which is an example of physical depreciation? a. bedroom accessible only through another bedroom b. no closet space c. old shingled roof d. second floor with two bedrooms but no bathroom 4. When purchasing a property, investors are more likely than owner/occupiers to a. get emotional. b. leave their emotions out of the process. c. not plan on reselling the property in the future. d. overestimate the cost of repairs. 5. A foreclosed property needs $60,000 in repairs to return it to a competitive, marketable condition. When complete, the market value will be $40,000 to $45,000. An appraiser would characterize this as a. curable functional obsolescence. b. curable physical deprecation. c. incurable external obsolescence d. incurable physical depreciation 6. A foreclosed property suffers from poor design and layout. It can be cured by rearranging the interior walls, building a new staircase, and relocating the plumbing; for a total cost of $50,000. When complete, the house will be worth $30,000 to $35,000. An appraiser would characterize this as a. curable external obsolescence b. curable physical depreciation c. incurable functional obsolescence d. incurable physical depreciation 7. When a lender is asked to accommodate the sale of a property involving an offer which is less than the amount owed against it, it is known as a. deficit spending. b. a friendly foreclosure. c. a functional obsolescence. d. a short sale. 8. The average cost of a foreclosure in the United States is said to be a. $5,000-$15,000. b. $20,000-$30,000. c. $50,000-$60,000. d. $150,000-$160, Which group will typically overestimate the cost to cure or repair items? a. investors b. lenders c. owner/occupiers d. real estate appraisers 10. Which is NOT a reliable source for real estate professionals to use when estimating the cost of rehab or repairs? a. home inspectors b. lenders c. local contractors d. published cost services

12 C h a p t e r 7 Q u i z 1. What is the effective date for the use of the Fannie Mae 1004MC Form? a. November 30, 2008 b. January 1, 2009 c. April 1, 2009 d. May 1, The Fannie Mae 1004MC Form is NOT required for use in a. FHA loans. b. loans to be sold on the secondary market. c. private investor loans. d. VA loans. 3. The Fannie Mae 1004MC Form is NOT required for use with a. condominiums. b. single-family homes. c. small commercial properties. d. two- to four-family units 4. The Fannie Mae 1004MC form a. relates back to Jurisdictional Exception in USPAP. b. relates back to Supplemental Standards in USPAP. c. requires more analysis than required in the past by USPAP and Fannie Mae. d. requires the same analysis as required in the past by USPAP and Fannie Mae, with more reporting required. 5. The pool of comparable properties the appraiser must analyze for the 1004MC Form consists of a. all of the properties in the MLS. b. listings and sales which represent the pool of comparable properties the buyer would consider, as well as the subject property. c. only listings and sales identical to the subject property. d. only listings and sales in the subject property s immediate neighborhood. 6. Which is NOT a time frame used on the 1004MC Form? a. current-3 months b. prior 3-6 months c. prior 7-12 months d. prior months 7. The absorption rate indicated on the 1004MC Form is a. the absorption rate for the pool of comparable properties that represents listings which would compete with the subject. b. an absorption rate for the subject property s neighborhood only. c. a county-wide absorption rate. d. an overall absorption rate for the entire market. 8. If an increase in the number of sales and sale prices is observed; combined with a decrease in the number of listings available and days on market; and agents are reporting multiple offers above listing price, appraisers can reasonably conclude that the market is a. declining. b. increasing. c. stable. d. unable to be determined. 9. Under new Fannie Mae guidelines, what percentage of the units in a condo project must be sold or pre-sold (under contract)? a. 25% b. 51% c. 70% d. 100% 10. In order for the project to meet Fannie Mae guidelines, a homeowners association must have budgeted for reserves. a. 10% b. 15% c. 20% d. 25%

13 C h a p t e r 8 Q u i z 1. A computerized model used by mortgage originators and secondary market issuers to determine the collateral worth of a mortgage secured by a consumer s principle dwelling is a(n) A. AMC. B. AVM. C. BPO. D. CMA. 2. Vicki s job with an AMC requires her to work with appraisers on assignments. Vicki may ask appraisers to perform any of these tasks EXCEPT to A. consider additional property information. B. correct errors in an appraisal report. C. encourage a targeted value to facilitate the making of the transaction. D. provide further explanation for a value conclusion. 3. Which is NOT a task that an AMC would perform? A. contract with licensed and certified appraisers to perform appraisal assignments B. manage the process of having an appraisal performed C. process real estate loan transactions D. recruit, select, and retain appraisers 4. Which statement about the Appraiser Independence Requirements is FALSE? A. At a minimum, an appraiser must be licensed or certified by the state where the property to be appraised is located. B. The seller [lender] must ensure the borrower receives a copy of the appraisal report within five (5) days of closing. C. A seller [lender] must not secure a second or subsequent appraisal in connection with a mortgage transaction, except under certain conditions. D. The seller [lender] or the seller s designee is responsible for choosing and compensating the appraiser. 5. In an effort to protect appraisers fees, the Dodd-Frank Act requires that lenders and their agents compensate fee appraisers at a rate that is for appraisal services performed in the market area of the property being appraised. A. contracted and invoiced B. customary and reasonable C. fair and practical D. neither too low nor too high 6. Lenders often ask appraisers to review and comment on BPOs. A BPO is an acronym for A. bank pricing opinion. B. bank purchase option. C. broker price opinion. D. brokerage price option. 7. Third Federal Bank uses BPOs to determine the probable selling price of properties. Which statement regarding BPOs is TRUE? A. Appraisers often comment that BPOs are faulty when they prepare appraisals at the same time. B. Appraisers typically prepare BPOs for lenders. C. A BPO is a more accurate reflection of true property value than an appraisal. D. A BPO may be used as the primary basis to determine a property s value for a mortgage loan. 8. Which is NOT one of the reasons for development of the Uniform Mortgage Data Program (UMDP)? A. capture consistent data B. create preliminary appraisals C. drive improved loan quality D. manage risk effectively 9. At the direction of the Federal Housing Finance Agency, Fannie Mae and Freddie Mac developed the Uniform Appraisal Dataset (UAD).The purpose of the UAD is to A. create a method for mass appraising, most frequently at the county level to develop assessed values for real estate. B. determine the collateral worth of a mortgage secured by a consumer s principal dwelling. C. improve the quality and consistency of appraisal data on loans delivered to government sponsored enterprises. D. provide a varying level of detail about a property s condition, market, and neighborhood. 10. An appraisal report must be completed in compliance with the Uniform Appraisal Dataset (UAD) for conventional mortgage loans sold to Fannie Mae or Freddie Mac for appraisals with an effective date (date of inspection) on or after A. August 1, B. September 1, C. January 1, D. March 1, 2012.