Mortgage Products and Programs 4 — Questions and Answers
Question 1: Which index is most commonly used as the basis for adjustable-rate mortgage adjustments in the United States?
- Prime Rate
- LIBOR
- SOFR (Correct answer)
- Federal Funds Rate
Correct answer: SOFR
The Secured Overnight Financing Rate (SOFR) replaced LIBOR as the primary benchmark index for new U.S. ARM products.
Question 2: A reverse mortgage allows eligible homeowners aged 62 or older to:
- Borrow against future equity with monthly payments to the lender
- Convert home equity into loan proceeds without a required monthly payment (Correct answer)
- Refinance at a lower rate without income verification
- Purchase a new home with no down payment using existing equity
Correct answer: Convert home equity into loan proceeds without a required monthly payment
A reverse mortgage (typically a HECM) lets seniors access home equity as cash, a line of credit, or monthly advances with no required monthly repayment.
Question 3: Which conventional loan program is specifically designed for manufactured housing and allows a 3% down payment?
- HomeReady MH Advantage
- Home Possible Advantage
- CHOICEHome
- Both A and C (Correct answer)
Correct answer: Both A and C
Both Fannie Mae's MH Advantage and Freddie Mac's CHOICEHome allow 3% down payment for qualifying manufactured homes with site-built features.
Question 4: The 'Good Neighbor Next Door' program offers a 50% discount on the list price of HUD homes for eligible buyers who are:
- First-time homebuyers with low income
- Teachers, law enforcement officers, firefighters, and EMTs (Correct answer)
- Veterans purchasing in rural areas
- Borrowers using FHA 203(k) rehabilitation loans
Correct answer: Teachers, law enforcement officers, firefighters, and EMTs
The HUD Good Neighbor Next Door program offers a 50% listing price discount to teachers, law enforcement officers, firefighters, and emergency medical technicians in revitalization areas.
Question 5: A lender who holds originated loans in their own portfolio rather than selling them on the secondary market is called a:
- Correspondent lender
- Portfolio lender (Correct answer)
- Wholesale lender
- Conduit lender
Correct answer: Portfolio lender
Portfolio lenders retain loans on their own balance sheet, allowing more flexible underwriting outside agency guidelines.
Question 6: An Energy Efficient Mortgage (EEM) allows borrowers to finance energy improvements by:
- Reducing the purchase price by the cost of upgrades
- Stretching the loan amount beyond the appraised value to include efficiency upgrades (Correct answer)
- Requiring the seller to fund all green improvements
- Eliminating mortgage insurance if LEED certification is obtained
Correct answer: Stretching the loan amount beyond the appraised value to include efficiency upgrades
EEMs allow the cost of qualifying energy improvements to be added to the loan amount, above the home's appraised value, under FHA, VA, and conventional programs.
Question 7: Which mortgage product is best suited for a borrower who needs short-term financing to purchase a new home before selling their current one?
- Reverse mortgage
- Bridge loan (Correct answer)
- HELOC
- Construction loan
Correct answer: Bridge loan
A bridge loan provides short-term financing, often secured by the current home's equity, to cover the gap between buying and selling.
Mortgage Products and Programs 4
Which index is most commonly used as the basis for adjustable-rate mortgage adjustments in the United States?