CHAPTER 9

What is used to lower the interest rate on the loan while increasing the yield to the Lender

Discount points

Veteran borrowers (pay, do not pay) Insurance premiums

Do Not pay

The loan guarantee amount which the veteran is eligible to receive on a VA loan is referred to as he is

Entitlement

In Borrowers Right of Redemption, there are 2 ways

Equitable Redemption Statutory Rights of Redemption

This type of redemption occurs after the borrower goes into default before the actual foreclosure sale. The borrower or other lienholder can redeem the property by paying the current debt

Equitable redemption

Additional time within which to pay a debt it's called

Equitable right of redemption

This clause gives the right of the lender to raise the interest during the length of the mortgage

Escalation clause

What to words protect a borrower for being responsible for deficiency judgment

"subject to"

What is permitted to ensure a qualified loan for single-family residence from FHA

1. 97% for first 25,000 of appraisal or purchase price whichever is less, 95% up to $125,000, And 90% over $125,000 including closing cost 2. 97.25% of the sales price or appraised value (whichever is less) *there is no prepayment penalty or lock-clause and FHA only ensures first time mortgages, and can be assumed without an interest increase, they can be sold in the secondary mortgage market To qualify for FHA financing the property must meet minimum standards and the buyer must qualify as well

Before characteristics of lien theory

1. Borrowers and Lenders rights are described in a promissory note and mortgage agreement 2. Borrower holds legal title with the Lender having a lien or security interest 3. They defaulted borrower is allowed to retain possession title and rights in the property until the lien is in perfect foreclosure 4. Borrower, after default, "may" have equitable right redemption after foreclosure sale, the borrower may have statutory period of redemption

6 clauses in a mortgage

1. Date, place, and names both parties 2. Amount and schedule of payments 3. Granting Clause 4. Legal description and list any personal property involved 5. Warranty of Title clause 6. Defeasance clause Possibly 7. Escalation clause

6 elements of a Contract for Deed

1. Description of the property 2. Conditions of sale (price and terms) 3. Buyer is responsible for paying taxes and insurance 4. Signature of both parties dated and notarized 5. Escrow provisions and prepayment privilege 6. Protections of the seller

What are the two types of government backed loans

1. Federal housing administration loan program 2. Veterans administration guaranteed loan

In the secondary mortgage market there are five

1. Federal national mortgage Association (Fannie Mae) now privately owned 2. Government national mortgage Association (Ginnie Mae) 3. Federal home loan mortgage Corporation(Freddie Mac) 4. Mortgage guarantee mortgage Corporation (Maggie Mae) 5. Federal agricultural mortgage Corporation (Farmer Mac)

Three characteristics of Title Theory

1. Lenders rights or manifested by contract for deed 2. Lender remains the legal owner of the property until the debt is paid 3. Borrow or retains equitable rights in the property

In non-institutional lenders there are 7 different types

1. Mortgage brokers-they do not use their own funds . They make 2% 2. Mortgage bankers-they only set up lunch transactions using their own capital and servicing the loan, they make 5 or 6% 3. Pension funds 4. Trust funds 5. Private individuals 6. Foreign investors 7. University in hospital endowment funds, credit unions

9 types of loan payments

1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs

Five elements of a mortgage

1. The provisions of the agreement 2. Legal competent parties 3. Mutual consent 4. Exchange of consideration 5. Legal purpose

9 Covenants that protect a mortgage

1. To pay taxes and assessments 2.maintain Insurance PITT (principal, interest, taxes, insurance) 3. Good repair , against waste 4. Against removal 5. Property inspection 6. Alienation clause ( due on sale) makes the mortgage non assumable by giving up the lender 3 rights -right to demand payment in full -right to investigate credit -right allows lender to raise interest rate in alienated property above that of original loan 7. Receiver clause (assignment of rents) 8. Owners rent clause -applies to owner occupied residence in foreclosure 9. Subordination clause-gives lender permission for a Subsequent lender to assume first mortgage rights. Ex: with the mortgage goes into a foreclosure the second and June your mortgage can take first priority

4 mechanics of the trust deed

1. Trustor/owner transfers title to trustee, in exchange for loan. The

When evaluating the borrower in underwriting what is the ratio a lender may use

2 1/2 to 1

How much does the sheriff sale get into foreclosure

3%

What is the maximum in Louisiana for prepayment clause

5 years

VA loan is guaranteed for _____% of the Loans Face value or $__________, whichever is less

60%. $38,000

In dealing with the discount points, each percent is equal to how many points

8 points Example: The going rate for first mortgage loans is 11% and a discounted rate of 10% is available how many points must be charged 11-10=1 1 x 8= 8

A normal loan to value ratio is what percent

80%

What is the primary difference between the mortgage and the trust deed

A mortgage creates a lien A Trust Deed conveys title

1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs Which is also known as a variable rate mortgage in which the interest rate fluctuates according to some external index normally the rate is adjusted once a year and cannot change more than 2% into years. And there is an upper and lower limit on the rate

Adjustable Rate Mortgage

In underwriting when evaluating the property with two things are normally done

An appraisal and title report

When the trust deed is paid off, the trustee must give the Trustor ____________

Deed of reConveyance (transfer the title back to the original owner)

What is the most common type of foreclosure

Deed of trust for closure- The lender or beneficiary notifies the trustee in writing Of the late payments or no payments and instructs the trustee to start foreclosure proceedings then a 90 day notice is forwarded to the trustee and the sale is advertised in the paper. (They can get loan amount, delinquency fees, collection cost)

This clause removes the mortgage when the debt is paid

Defeasance Clause

Paying off the debt in a title theory is said to _______ The conveyance

Defeat

In foreclosure if the lender is unable to recover his full interest in the property he may in some states be permitted to seek

Deficiency judgment

In foreclosure this judgment allows the lender to attach and seize the borrowers unsecured personal and real property to make up the difference after the sheriffs sale

Deficiency judgment

blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which one covers several properties but each may be released from the mortgage separately

Blanket mortgage

blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which one has a partial release clause drafted into the mortgage at permits each parcel to be released from the mortgage as it sold normally this type of mortgage is used by a developer for constructing tracks of homes

Blanket mortgage

If The borrowers property is in foreclosure he may elect to redeem in one or two possible ways depending on the practice of his own state

Borrowers Right of Redemption

1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs A way of temporarily lowering the initial interest rate on a mortgage by preparing some of the interest to the lender on the borrowers behalf

Buydown

What two certificates or issued in a VA loan

Certificate of eligibility Certificate of reasonable value

To determine what portion of a mortgage loan the VA will guarantee a veteran must apply for a

Certificate of eligibility-this certificate establishes the maximum guarantee entitlement of the veteran

In the promissory note what is in the Clause 1-6

Clause 1 name of borrower and lender Clause 2 late pay clause Clause 3 contains acceleration clause(gives lender the right to demand full in the event of default). Without it the lender would have to go to court every month Clause 4 the interest escalation clause (the highest amount of interest rate will be allowed if it goes into default Clause 5 prepayment clause or penalty (absent in FHA and VA loans) Clause 6 joins the promissory note to the mortgage or trust deed. Without it, this clause would be a personal loan agreement

The pledge property is called

Collateral

blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which is used for building or repairing either residential or commercial property

Construction Loan

Blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which mortgage is a type of interim financing

Construction loan

blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which type of mortgage is committed for the total cost of the construction project but is paid out and draws at regular intervals after each stage of construction has been completed interest is paid only on the amount of disbursements and normally for three years or less

Construction loan

In this type of financing the buyer gives a 1. down payment 2. a promissory note 3. a mortgage or trust deed In exchange for rights to the sellers property

Contract for Deed

In this type of financing the sale and financial agreement or generally in one document

Contract for Deed

In this type of financing there is no third-party lender and the buyer does NOT receive full title until the terms of the contract have been met but the buyer does have all the privileges of ownership in the meantime

Contract for Deed

Non-government backed loans are called

Conventional loans

What are the two categories of loans

Conventional loans Government backed loans

Why was the Federal housing administration long program created

Created in 1934 as an alternative to conventional lending practices when it became apparent that conventional lender's were unable to cope with extreme fluctuations in the economy the FHA is entirely self supporting

5 different types of financing mortgages

blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing

The FHA are loans that are _________ The VA loans are loans that are _______

FHA- ensured VA-guaranteed

1. Federal National Mortgage Association 2. Government National Mortgage Assoc 3. Federal Home Loan Mortgage Corp 4. Mortgage Guarantee Mortgage Corp 5. Federal Agricultural Mortgage Corp Was founded in 1972 to allow savings and loans equity for their mortgage assets and they buy loans with cash to assist the banks to originate new loans. Funds its operations by selling securities

Federal Home Loan Mortgage Association (Freddie Mac)

All government backed loans (fed'l Housing Adm and Veterans Admin Guarantee loan) are exempt from which law

Federal Usury law

What loan program ensures loans

Federal housing administration loan program

In underwriting when evaluating the location what is economic obsolescence

Forces outside the property itself which causes a decline in its value. The federal government prohibits the lender from refusing for this reason

The lender is required to refund to the borrower any profit realized on the sale of the foreclosed property Example Lender owed $120000 House sold at Sheriff Sale $100000 Lender is responsible for $20000

Foreclosure by sale

1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs Also known as direct reduction loan features a schedule of equal payments consisting of both principal and interest and is normally a long term loan up to 30 years

Fully Amortized Loan

1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs Payments start small and become larger as the loan goes on. Normally used for commercial loans that expect to increase income

Graduated Payment Mortgage

There is no VA limit on the amount of the loan a veteran can obtain, the VA limits the amount of long it will

Guarantee

In states which apply the lien theory to real property pledged as collateral the borrower is said to _________ title to the lender

Hypothecate "pledge"

This means that the Lenders given a lien against the borrowers collateral property and if the default occurs the lender can file foreclosure proceedings to recover his interest in the property

Hypothecation

Contract for Deed is also known as

Installment Land Contract Conditional Sales Contract Agreement to Convey And in Louisiana-Bond for Deed

Two types of sources of financing

Institutional lenders and non-institutional lenders

If the borrower defaults by falling behind on his payments or breaking some conveyance of the mortgage agreement the lender as under _______ theory must go through foreclosure to recover for interest of the collateral property

Lien

In mixed theories, the mortgage is considered to be a _______. But if the borrower defaults, title is conveyed to the lender

Lien

The lender holds the lien

Lien Theory

In Louisiana we are a ________Theory state

Lien Theory. The title is in the borrowers name in the lender has the lien

What is the formula for the loan to value ratio

Loan Amount ----------------- Sales Price

If a mortgagor defaults on a VA loan, these are the amounts AFTER foreclosure

Loan amount up to $45,000 ----50% $45,001-$144,000-----$22,500 minimum $144,000 -$203,000-less of 36K or 40% -less of $50750 or 25%

This fee is charged by most lenders for generating alone and or not prepaid interest, they are paid to the lender and are usually 1% of the loan amount

Loan origination fee

How do you calculate an interest rate for a given month

Loan x interest rate Divide by 12

The term used to describe the relationship between the amount of the down payment and the amount of the loan

Loan-to-value ratio

The dollar amount of interest paid is calculated as a percentage of the

Loans principal

If the borrower is NOT allowed to prepay or pay off any amount early

Lock in clause

A contract between the borrower and the lender

Mortgage

A security instrument that creates a lien and is documented that makes property security for the repayment of the debt

Mortgage

In Granting clause with Title Theory, the clause states

Mortgage and Grant

In Granting clause with Lien Theory, the clause will state

Mortgage and Pledge

What are the name of the two security instruments when obtaining a loan

Mortgage and trust deed

Loan origination fee is also called

Mortgage broker fee

Which type of foreclosure upon default the property is sold at the sheriff sale and proceeds ONLY up to the amount of the debt goes to the lender

Mortgage foreclosure

What is the name of the insurance program for FHA

Mutual Mortgage Insurance-MMI. When the borrower takes out an FHA insured loan he pays one half of a percent (.005) of the loans principal balance as an insurance premium known as MIP(mortgage insurance premium)

The unconditional promise in the promissory note makes the note a ______

Negotiable instrument

Do VA loans require a down payment

No, they are 💯 %financed

What is foreclosure by power of sale referred to as

Non-judicial foreclosure-when the borrower is allowed only a period of reinstatement extending only to the time the property is sold

Does the FHA provide funding for financing property

Not itself, The FHA's function is only to ENSURE loans against the borrowers default

Can a veteran receive an additional VA loan

Only until the first loan is paid off

Two processes that foreclosure may take place

Ordinary Process Executory Process-done quicker bc you do not go thru the judicial system. It already includes a waiver of notice(the legal delay of foreclosure have been waived

blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which type of mortgage is normally use to finance new homes along with major household appliances which covers Real and personal property

Package mortgage

1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs Payments are typically calculated over a 20 or 30 year amateur is a shin. With the long term of five years. this loan is repaid in regular installments a principal and interest but one or more payment is a balloon payment(A payment larger than the loans regular amounts which is to reduce the amount of the regular payments) , this loan is also known as limited reduction loan or renegotiable rate mortgage

Partially Amortized Loan

In a trust deed which clause protects the seller from going into foreclosure action

Power of sale

The trust deed contains 6 clauses

Power of sale clause Warranty to title clause Reconveyance clause Acceleration clause Receiver clause Owners rent clause

Discount points can be thought of as what type of interest because they are paid in a lump sum at the time of closing

Prepaid interest

Promise to repay specific conditions and stipulations are contained in the central instrument of a loan agreement. it is also proof of the debt

Promissory Note

Discount points or also known as

Rate equalization factors

The VA will issue a certificate of__________for the property being purchased stating the current market value based on a VA approved appraisal

Reasonable value

In the Louisiana we only have equitable right of ________ this right is extended from the notice of foreclosure until the property is sold at the sheriff sale

Redemption

1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs Which is taylored to older homeowners, who own a home and wish to use some equity. Payments are made to the borrower

Reverse Mortgage

1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs Used to finance large commercial or industrial properties the land and building usually used by the seller for business purposes, are sold to an investor such as an insurance company then the real estate is lease back by the buyer to the seller, Who continues to conduct business on the property as a tenant. this enables a business invested in the real estate to free that money so we can be used as working capital

Sale and Leaseback

Louisiana permits this type of foreclosure if the property does not sell for the full amount owed, the creditors may obtain a deficiency judgment for the amount owed by the borrower above the proceeds of the sheriff sale. The debtor also has the right to bid for the property if the bed equals two thirds of the appraised value

Sale with appraisement

In mortgage foreclosures they can happen in three different ways

Sale with appraisement Sale without appraisement Died in Lieu of foreclosure

When the mortgage is paid in full, the lender issues a

Satisfaction in judgement -this cancels the debt

In institutional lenders there are four different types

Savings and loans Commercial banks Mutual savings banks Life insurance companies

blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which mortgage financing is associated with purchase money mortgage, installment land contract, bond for deed

Seller financing

This type of redemption occurs after the actual foreclosure sale. depending on the state the borrower may have up to two years to redeem his property by paying off the debt in full and he may be permitted to remain in possession of the property. during this. The court may appoint a receiver to pay operating costs collecting rents and looking after the property the time limit for statutory redemption varies from state to state. in the Louisiana there is no statutory redemption except for tax sales which is 3 to 5 years

Statutory Rights of Redemption

1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs This loan calls for payments of INTEREST ONLY. At the end of the term, the entire sum of principal is due in one balloon payment

Straight loan

In ______foreclosure the amount received from the sale exceeds the borrowers debt and the lender profits

Strict Foreclosure

The right of the title company to receive any damages available to be insured when the title company has made a payment to settle a claim covered by policy

Subrogation

1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs This loan increases the existing mortgage to an original amount in a way of borrowing against your own equity without taking out a second mortgage. normally the borrower will have a higher monthly note since the full amount must be repaid by the original expiration date

The Open End Loan

When underwriting alone the Linder concentrate on three areas

The borrower The property The location

1. Federal National Mortgage Association 2. Government National Mortgage Assoc 3. Federal Home Loan Mortgage Corp 4. Mortgage Guarantee Mortgage Corp 5. Federal Agricultural Mortgage Corp

The purpose of this program was to establish a market for the buying and selling of government insured mortgages. They buy all loans, and is privately owned so funds itself by selli

The buying and selling of mortgages that have been made by the primary mortgage market, anytime A lender takes over a loan that he himself did not originate he is engaging in this type of market activity

The secondary mortgage market

How many parties does the trust deed involve....questions

Three Borrower / Trustor beneficiary/lender The trustee - person holding the loan ( maybe an institution or a private person )

In _______ theory the borrower deeds his property to the lender and the mortgage and bass title to the borrower when the property is paid for

Title

______theory has been adopted by at least 17 states

Title

In this_______ theory the lender receives a limited form of legal title to the pledged property

Title Theory

The lender holds the title

Title Theory

The Trustor must sign A promise Siri note and a trust deed

True

A mortgage is also known as

Trust deed

An instrument of security that is employed to pledge an interest in real property in exchange for a loan or other consideration

Trust deed

The promissory note is construed to be an _________promise

Unconditional

Process of determining the risk a lender is incurring by lending a sum of money to a certain borrower to finance a particular property is called

Underwriting or loan qualification

In the title theory the bar is held to have conveyed or alienated limited legal title to the lender, this conveyance is valid as long as the mortgage debt is

Unpaid

A promissory note that can be debt instrument without a mortgage is called

Unsecured note ( A signature no with no mortgage and no collateral)

The practice of charging more than the legal amount

Usury

This government backed loan program was established in 1944 to a veterans or they're surviving spouses in obtaining financial assistance for the purchase or construction of owner occupied homes including mobile homes and condominiums and farms

Veterans Administration Guaranteed Loan

This clause affirms that mortgagor holds good and clear title

Warranty Clause

In a trust deed if the borrower or truster defaults the beneficiary to Conveys The trust deed to the trustee and instruct him to sell the property. because of the trust deeds power of sale clause the property can be sold( without, with) the necessity of going through court action of a foreclosure

Without

blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which mortgage a second lender agrees to assume payments on the borrowers original loan and to Lend the borrower The additional funds he requires which may come at a higher interest rate than the original loan

Wrap around mortgage

blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which is used for owner financing it is originated by a second wind are combining equity and money into a second mortgage

Wraparound mortgage

Interest is always calculated on a (monthly, yearly) basis

Yearly