California Real Estate Practice Exam

Which of the following entities are the primary sources of funds for junior loans?

1. FHA

2. Institutional lenders

3. Noninstitutional lenders

4. Private lenders

The correct answer is: FHA

The primary sources of funds for junior loans are typically private lenders. These lenders can include individuals or small groups lending money, often with less formal qualifying criteria compared to institutional lenders. Junior loans involve borrowing that takes a subordinate position behind the primary loan, which means that in the event of a default, junior lenders are repaid only after the primary mortgage holders. FHA, or the Federal Housing Administration, primarily deals with insuring loans and is not a source of direct funding for junior loans. Institutional lenders, such as banks and credit unions, usually provide first mortgage loans or conventional financing, rather than junior loans. Noninstitutional lenders may participate in the market, but private lenders are more commonly associated with junior loans due to their flexibility and willingness to work with a variety of borrowers.