Finance: Ch 3 Institutional Lenders for Real Estate Finance
Refinancing (What are 3 things that refinancing can do?)
- Reduce the interest rate - Lower monthly payments - Change from an adjustable-rate loan to a fixed rate loan
What are characteristics for life insurance companies? -What are they concerned with rather than? -What do they participate in & why? -Where are they most active in? -What do they make loans on?
-Concerned with safety than liquidity -Participate in participation funding -Most active in multi-family loan market -Make loans on large RE projects
What do commercial banks do?
-execute -conserve -guardians -trustees -escrow agents
What is the process for a loan?
1. Buyer meets with a lender and fills out a 10-03 application 2. A credit report is ordered 3. The property in question is appraised 4. The underwriter is given the application to assess the risk 5. The loan is accepted (approved) or declined 6. After loan conditions are met, funds are sent to escrow for closing
Purchase Money Loan
A loan that is used to purchase property. It is used strictly for financing the purchase of real property.
Lender
A person or company that makes mortgage loans such as a mortgage banker, credit union, or savings and loans. They underwrite and fund the loan.
Which of the following institutional lenders is increasing its participation in real estate finance? A- credit unions B- thrifts C- commercial banks D- life insurance companies
A- credit unions
Which type of property has the highest total of mortgage loans outstanding against it? A- one-to-four family B- multifamily C- commercial D- farm
A- one-to-four family
Life insurance companies become partners with project developers through the use of commercial loans called: A- participation loans B- home purchase loans C- bridge loans D- home equity loans
A- participation loans
Savings institutions, major providers of home mortgage loans, are also referred to as: A- thrifts B- co-ops C- credit unions D- trusts
A- thrifts
Which of the following statements is true regarding life insurance companies? A- Their lending policies are subject to federal control B- They are more concerned with safety than with liquidity C- They prefer small loans for diversity D- Their costs of funds are higher than other fiduciaries
B- They are more concerned with safety than with liquidity
Which of the following institutional lenders are the leading lender for one-to-four family loans? A- commercial banks B- thrift institutions C- life insurance companies D- pension funds
B- Thrift Institutions
California state-chartered savings banks are permitted all of the following activities EXCEPT: A- making loans up to 100% of appraised value B- investing in speculative real estate C- making non-residential loans to 40% of their total assets D- issuing checking accounts
B- investing in speculative real estate
MOST commercial banks create long-term, fixed-rate real estate loans for: A- their own portfolio B- sale in the secondary market C- the FHA D- the DVA
B- sale in the secondary market
The department in a commercial bank that manages relatively large quantities of money and property for their beneficiaries is the: A- escrow department B- trust department C- mortgage-lending department D- treasury department
B- trust department
Commercial bank trust departments act as all of the following EXCEPT: A- executors B- conservators C- lenders D- guardians
C- Lenders
The pension funds tend to invest in which of the following types of real estate investments? A- Farm loans B- Home loans C- Mortgage-backed securities D- Personal property loans
C- Mortgage-backed securities
Of the following categories, which is the MOST active in the multi-family loan market? A- savings associations B- commercial banks C- life insurance companies D- federally supported agencies
C- life insurance companies
State-chartered savings and loan associations regulated by the California Department of Savings and Loans are authorized to lend up to what percent of the appraised value of the collateral for a real estate mortgage loan? A- 70% B- 80% C- 90% D- 100%
D- 100%
When making non-amortized real estate loans, state-chartered banks in California are limited to which maximum percentage of the property's appraised value? A- 60% B- 75% C- 80% D- 100%
D- 100%
Life insurance companies: A- make loans on large real estate projects B- are concerned with safety and long-term salability C- make participation loans D- all of the above
D- all of the above
Commercial banks tend to make loans for: A- the purchase of land B- subdivision improvements C- single-family homes D- construction activities
D- construction activities
Which of the following is NOT an institutional lender? A- Savings Bank B- Credit Union C- Pension Fund D- Mortgage Broker
D- mortgage broker
Commercial banks participate in real estate finance through all of the following EXCEPT: A- trust departments B- interim loans C- secondary markets D- mutual companies
D- mutual companies
All of the following sources of funds for real estate finance are considered financial intermediaries except: A- commercial banks B- savings institutions C- life insurance companies D- sellers as lenders
D- sellers as lenders
Which institutional lender has the most flexibility in mortgage lending activities? A- commercial banks B- credit unions C- life insurance companies D- thrifts
D- thrifts
Fixed Rate vs. ARM
The only thing that can change with the fixed rate is the taxes (property taxes depend on the value of your home) ARM: adjustable rate mortgage the interest rate adjusts
Commercial Banks
They are all-purpose & for-profit lenders. They make a wide range of loans, including loans for buying real estate, home equity loans, business loans, etc.
Third Party Originator (TPO) / Mortgage Broker
They do NOT underwrite or fund the loan (mortgage broker). They package loans for lenders and are paid commission when the loan is funded. They are BROKERS. (tip: think they are broke, so they don't give the $ out, they just find someone)
What do thrift institutions do/specialize in?
Thrifts are essentially savings and loan associations that help members' savings grow at a higher interest rate, they also are the leading lender for 1-4 family loans, they also are the most flexible in mortgage lending activities
What is included in loan payments?
Tip: think that it is a pity to pay the loan P- principal I- interest T- taxes I- insurance
Participation Financing -What is it? -What is the benefit of it? -Which financial intermediary is it common with?
a home loan that allows multiple people to team up and share in the real estate investment profits. By splitting the proceeds, they're also reducing their risk exposure. This is common with life insurance companies
Promissory Note / a note
a written promise from the buyer to pay back a fixed sum of money at specified terms and at a mutually decided time
Financial Intermediaries
financial institutions such as: life insurance companies, commercial banks, thrifts/savings associations, credit unions, pension funds
Pension
money collected routinely, usually from payroll deductions, and are held in trust until needed at retirement
Equity Loan
money loaned to borrowers based on a percentage of the equity held in the collateral property
Credit Union
organization formed by a homogeneous group for banking purposes
Underwrite
process of evaluating borrower credit, collateral value, and risks involved in making a loan
Amortization
the process of gradually reducing a debt (loan/mortgage) with installment payments
Fully Amortized Loan
this is fully repaid at maturity by periodic reduction of the principle
Interim Financing / Construction Loans
typically accessed through a private lender, for short- term development such as the acquisition and renovation of single-family properties
