The practice of charging an interest rate on a loan that exceeds the legally permitted maximum.
Why Usury matters on the exam
This term belongs to Financing. The questions below are real items from Freehold's bank that use it - each one cites its source.
Exam questions using Usury
Every Freehold question shows why the right answer is right — and cites its source.
Fannie Mae's role in the secondary mortgage market is to:
Originate new residential loans directly with borrowers through its own retail branches
Set the maximum usury interest rate that lenders may legally charge on residential mortgages within each individual state
Purchase mortgages from lenders, pooling them into securities and replenishing lender funds for new loans
Insure lenders against losses arising from undiscovered title defects on the property, much like a title insurance underwriter would
Show answer & explanation
Purchase mortgages from lenders, pooling them into securities and replenishing lender funds for new loans — Fannie Mae, a federally chartered secondary-market corporation, buys mortgages from originating lenders and pools them into mortgage-backed securities, which replenishes lender capital so more loans can be made to new borrowers.
Source: PSI National Real Estate Exam Content Outline §4 Financing
Usury laws are designed to:
Set a maximum legal interest rate that may be charged on certain loans
Prohibit any interest from being charged on loans
Require lenders to charge the same rate to every borrower
Eliminate discount points
Show answer & explanation
Set a maximum legal interest rate that may be charged on certain loans — Usury laws establish the maximum interest rate lenders may legally charge on certain loans, protecting borrowers from excessive interest; rates above the cap are usurious and may be unenforceable or penalized.
Source: PSI National Real Estate Exam Content Outline §4 Financing
Many federally related residential mortgage loans are exempt from state usury limits because:
Usury laws have never applied to real estate lending
Federal law preempts state usury limits for many types of residential mortgage loans
Lenders making these particular loans are themselves federally chartered institutions
State law requires every FHA loan to charge the maximum rate that usury statutes permit
Show answer & explanation
Federal law preempts state usury limits for many types of residential mortgage loans — Federal preemption exempts many residential first mortgage loans from state usury ceilings, which is why usury limits more commonly affect private or seller-financed loans than institutional first mortgages.
Source: PSI National Real Estate Exam Content Outline §4 Financing
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