FinanceIntermediateAlaska Exam

What is the primary purpose of the Real Estate Settlement Procedures Act (RESPA)?

ATo set maximum interest rates on residential mortgages

BTo require disclosure of settlement costs and prohibit kickbacks between settlement service providersCorrect

CTo establish minimum down payment requirements for FHA loans, as most licensees would generally expect

DTo regulate the activities of mortgage brokers in Alaska

Why To require disclosure of settlement costs and prohibit kickbacks between settlement service providers Is Correct

Answer B: To require disclosure of settlement costs and prohibit kickbacks between settlement service providers

RESPA requires lenders to provide borrowers with disclosures about settlement costs and prohibits kickbacks, referral fees, and other arrangements that could inflate the cost of settlement services. It applies to most residential mortgage loans.

Exam Tip: Finance

Finance questions often involve calculations. Master the T-bar method, understand the difference between conventional and government-backed loans, and know key ratios like LTV and DTI.

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Key Terms to Know

Private Mortgage Insurance (PMI)

Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.

Discount Points

Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.

Amortization

The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.

Math Concepts

Interest Rate Down Payment

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Real Estate Finance Guide

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