Real Estate Finance

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Effective Income

'Effective Gross Income - EGI' The amount of income produced by a piece of property, plus miscellaneous income, less vacancy costs and collection losses. Effective gross income is a metric commonly used to evaluate the value of a piece of investment property.

Commercial Banks provide 3 Basic Functions

1. Credit: Biggest share. Credit (Lending is generally the biggest share of the bank's business and is the pony of our discussion. Banks receive approximately80% of their revenue from making loans. 2. Deposit 3. Payment

3 Instruments of Monetary Policy

1. Discount Rate: the interest rate charged by federal reserve banks to depository institutions on short-term loans 2. Reserve Requirements: the amount of funds that a depository institution must hold in reserve against specified deposit liabilities, in the form of vault cash or deposits with federal reserve banks. 3. Open Market Operation: Purchases and sale of US Treasury and Federal Agency Securities are the Federal reserve's principal tool for implementing monetary policy.

Credit Scores

720 - 850 Excellent 680 - 720 Very Good 640 - 680 Generally Acceptable 620 - 640 Marginal Below 620 Caution

Advanced Finance Finance Contract Clauses Alienation Clause

A clause in a mortgage contract that requires full payment of the balance of a mortgage at the lender's discretion if the property is sold or the title to the property changes to another person. Nearly all mortgages have an alienation clause.

Power of Sale

A clause written into a mortgage authorizing the mortgagee (lender) to sell the property in the event of default, in order to repay the mortgage debt. As a mortgage term, power of sale is equivalent to the term foreclosure.

Advanced Finance Finance Contract Clauses Acceleration

A contract provision that allows a lender to require a borrower to repay all or part of an outstanding loan if certain requirements are not met. An acceleration clause outlines the reasons that the lender can demand loan repayment. Also known as "acceleration covenant".

Actual Mortgage Amount

A debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase up front. Over a period of many years, the borrower repays the loan, plus interest, until he/she eventually owns the property free and clear. Mortgages are also known as "liens against property" or "claims on property." If the borrower stops paying the mortgage, the bank can foreclose.

Certificate of Eligibility

A document issued by the U.S. Department of Veterans Affairs (VA) certifying a veteran's eligibility for a VA-guaranteed mortgage loan.

Warranty Deeds or General Warranty Deeds

A document that may be used to legally transfer property. A warranty deed states that the owner can legally transfer the property and that no other entity has a claim or lien on it. These deeds are typically used in property sales and make warranties about the property's title.

Deficiency Judgement

A judgment made by a court against a debtor indicating that the sale on a foreclosed piece of property did not cover the outstanding mortgage in full. It is a lien placed on the debtor for further money. A deficiency judgment is not considered by the court unless the lender makes a motion for it to be granted. If the lender does not make the motion, then the court considers the money gained from the foreclosed property to be sufficient.

Eviction

A landlord's legal removal of a tenant from his rental property. Eviction may occur when rent has not been paid, when the terms of the rental agreement have been breached or in certain other situations, such as the conversion of the rental unit to a condo.

Home Owners Protection Act

A law designed to reduce the unnecessary payment of private mortgage insurance (PMI) by homeowners who are no longer required to pay it. The Homeowners Protection Act mandates that lenders disclose certain information about PMI. The law also stipulates that PMI must be automatically terminated for homeowners who accumulate the required amount of equity in their homes.

Homeowners Protection Act (HPA)

Term Loan

A loan for equipment, real estate and working capital that's paid off like a mortgage for between one year and ten years . Term loans are your basic vanilla commercial loan. They typically carry fixed interest rates, and monthly or quarterly repayment schedules and include a set maturity date.

Loan Concepts Unsecured Loan

A loan that is issued and supported only by the borrower's creditworthiness, rather than by a type of collateral. An unsecured loan is one that is obtained without the use of property as collateral for the loan.

Unsecured Loan

Loan Concepts Option ARM

A monthly adjusting adjustable-rate mortgage (ARM) which allows the borrower to choose between several monthly payment options: a 30 or 40-year fully amortizing payment, a 15-year fully amortizing payment, an interest-only payment, a minimum payment or any amount greater than the minimum payment.

Loan Concepts Purchase Money Mortgage

A mortgage issued to the borrower by the seller of the home as part of the purchase transaction. This is usually done in situations where the buyer cannot qualify for a mortgage through traditional lending channels. This is also known as seller or owner financing.

Purchase Money Mortgage

Advanced Finance Finance Contract Clauses 'Defeasance Clause'

A mortgage provision indicating that the borrower will be given the title to the property once all mortgage terms are met. The defeasance clause is not required in states using property liens as collateral for a mortgage.

Deed in Lieu of Foreclosure

A potential option taken by a mortgagor (a borrower) to avoid foreclosure under which the mortgagor deeds the collateral property (the home) back to the mortgagee (the lender) in exchange for the release of all obligations under the mortgage. "A Friendly Foreclosure"

Gross-Up

A practice usually in reference to an employer reimbursing a worker for the taxes paid on some portion of their income, usually from a one-time payment such as relocation expenses.

Title Theory State

A property-law doctrine that a mortgage transfers title to a property to the mortgagee, who holds it until the mortgage has been paid off, at which time title passes to the mortgagor. If default the deposits and paid portion does not go back to the person in default but to the bank. (the lender holds title)

Special Warranty Deeds

A special warranty deed is a deed in which the seller warrants or guarantees the title only against defects arising during the period of his or her tenure or ownership of the property. The grantor makes no warranty against defects existing before the time of his or her ownership.

Loan Concepts Adjustable Rate Mortgage (ARM's)

A type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every month. • The initial interest rate is low • Might be fixed for 3 year and then the adjusting period is at least 1 a year change. The adjusted rate: √the index represent the banks cost for the •One-Year Treasury Index •London Interbank Offered Rate (LIBOR) •Eleventh District Cost of Finds Index (COFI) •Treasury Bill Index (T-Bill) √The Margin (loan to value/dept to income value) √Caps •Periodic Cap •Lifetime cap highest is 6%

Loan Concepts Open-end Mortgage

A type of mortgage that allows the borrower to increase the amount of the mortgage at a later time. Open-end mortgages permit the borrower to go back to the lender and borrow more money if certain conditions have been met. There is usually a set dollar limit on the additional amount that can be borrowed.

Open-End Mortgage

ADJUSTABLE RATE MORTGAGE (ARM)

A variable-rate mortgage, adjustable-rate mortgage (ARM), or tracker mortgage is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets.

Exchange, Tax Deferred

A. 1031 tax deferred exchanges allow real estate investors to defer capital gain taxes on the sale of a property held for productive use in trade or business or for investment.

Qualifying Residential Mortgage Underwriting

Applicant compared to Guidelines Using the four C's to determine Loan Risk When the loan is submitted to the underwriter needs to make sure that the lender gets a loan that is able to be sold in the open market; Underwriter makes sure it fits in the Credit Risk √ Credit Score Capacity or Income Risk √DTI (Debt to Income ratio) Capital √ Acceptable Funds Collateral √ Loan to Value

Employer Assisted Housing

Because the cost of purchasing a single family home has risen in relation to incomes (see Chart 1), particularly in larger metropolitan areas in faster growing regions of the country, some employers have recognized the need to provide their employees with financial assistance to help purchase and finance their primary residences.

Federal Reserve Structure

Board of Governors (7 members) Federal Open Market Committee Federal reserve Banks Member Banks Other Depository Institutions

Federal Reserve Structure

Board of Governors are 7 Members nominated by the President and confirmed by the Senate for a term of 14 years Chairman and vice chairman are named by the President and confirmed by the senate for term of 4 years Federal Open Market Committee (FOMC) consists of the members of the Board of Governors of the federal reserve System of Governors of the Federal reserve System and five Reserve Bank presidents. Federal Reserve Bank operate under the general supervision of the Board of Governors in Washington D.C. Each bank has a Board of Directors with 9 members,that oversees it's operations.

FHA Insured Loans Guidelines Mortgage Insurance Program

Capacity - Debt to income √Front End/Housing Ratio (31%) √Back End/Total Ratio (43%) of your income to pay your total amount of debt √Compensating Factors: • 12-24 months' history of paying a housing expense equal or greater than proposed amount •Down payment of 10% or more •Significant Savings history •Credit history indicates borrower can manage funds well

FHA Insured Loans Guidelines Mortgage Insurance Program

Capacity - Income Documented Income is stable √ Well Explained employment gaps ONLY √No instability of wages or income Documented continuous √2 year past history √3 predictable future √Capital Gains: 3 yrs past history √child Support/Ages of children

FHA Insured Loans Guidelines Mortgage Insurance Program

Capital - Acceptable Funds √Minimum required down payment is 3.5% √Seasoned (3 months in the bank account) • Checking/Savings Accounts •Retirement Accounts/401K •Stocks/Bonds

Conforming Conventional Loan Guidelines Fannie May or Freddie Mac

Collateral √LTV's up to: •95% is allowed on owner-occupied properties •90% is allowed with second home •Up to 80% is allowed on investment properties √Investors are eligible for loans on investment properties, but are limited to structures of no more than 4 residential units.

Conforming Conventional Loan Guidelines Fannie May or Freddie Mac

Conventional Loan Features √Maximum single family home limits is $417,000. √Eligible borrowers: •Natural persons only inter-vivos revocable trust •No companies or corporations •Must be 18 or married •US citizen or legal non US citizens •Co-signers whose income is used to qualify must occupy the subject property if LTV is greater than 90% √Multiple mortgages: •No limit if secured by personal residence •2nd home or investment properties are limited to 4 including personal residence √Not assumable √Maximum points and fees; Will not purchase HOEPA loans.

FHA Insured Loans Guidelines Mortgage Insurance Program

Credit √FHA Insured loans considered more flexible for those with deficient credit history √Many factors have significant impaction credit approval √Ineligible if delinquent on any federal debs Bankruptcy or Foreclosures √ Chapter 7 Bankruptcy: 2 years √Chapter 13 Bankruptcy 2 years (paid off debt) √Foreclosure: 3 years (short sales)

Conforming Conventional Loan Guidelines Fannie May or Freddie Mac

Credit √No collections or judgements within 2 years √No bankruptcy or foreclosure within 2 years √No mortgage delinquent within 1 yr √No 30 day delinquent within 1 year √Credit scores are a major qualifying factor

Maximum Loan Amount

Describes the maximum amount that a borrower can borrow. The maximum loan amount is based on a combination of different factors involving the specific loan program, the value of the property that secures the loan and the borrower's qualifying ratios and credit history. Lenders typically offer various loan programs with maximum loan amounts tailored for different classes of borrowers.

Capacity to Pay Income that is stable and continuous

Documentation: Salary or Wages √ W-2 √ Pay stubs √ Verification of Employment (VOE) Form 2106 √ Unreimbursed expenses Benefit Award Letters √ people who are on social security or retirement

Federal Reserve System

Duties • Maximize employment, stable prices, and moderate long-term interest rates. • Regulating baking institutions to ensure safer and soundness. • Maintain stability and containing systemic risk • Financial services to banks, US Government & Foreign institutions • Playing a major role in operating the Nation's payments system

FHA Insured Loans Guidelines Mortgage Insurance Program

FHA Loan Amount Calculation √Base Loan Amount •Sale Price - Down Payment √Actual Loan Amount •Base loan amount + UFMIP

A former owner has 30 days to vacate the property True or False

False

A pre qualifying letter and a pre approval letter is the same?

False

If a borrower has a non-recourse loan, and the home is foreclosed on, the lender can file a deficiency judgement if the hem is not sold for enough to cover the loan amount.

False

John bought his home to live in for 2 years, then his plan is to rent the home out. As soon as he had a signed contract with a renter, the renter would automatically become protected from being evicted because of "Non Disturbance" clause in the mortgage contract. True or False

False

Re-establishing credit is only achieved if you purchase a brand-new car and open a minimum of $5,000 in additional credit lines. Whether or not you pay them on time is irrelevant. True or False

False

Up to three (3) loans can close on the same day without the other involved lender's knowledge. True or False

False

FHA requires not more than 2 established credit accounts after a bankruptcy. True or False

False 4 accounts

Capital

Financial assets or the financial value of assets, such as cash

Trust Deed Foreclosure

First thing that happens is just recording a document not a judicial process: 1. Notice of default is recorded 2. Notice posted in 3 public places 3. Equitable period of redemption 4. The Sale • 3 weeks of Advertising •10 day moratorium • 3 months period of redemption (sale) • Auction by Trustee on courthouse steps •Buyer pays cash •Trustee's Deed (make sure do a title search) • Deficiency judgement possible if... • Actual value is less than what is owed on it Forbearance: what if the owner/ borrower lost job, they can talk to lender. They are forbearing a foreclosure.

Private Mortgage Insurance

For privately owned Corporations such as FNMA or FHLMC √ Insures foreclosure loss √ Non-government prime loans √ Insures low,down lament risk √ Required by Lender for LTV 80% Removable by request 80% Required removal 78% High risk loans are exempt

Lender Guidelines

Guidelines established to ensure that safe and secure loans are issued and maintained. The underwriting standards in place help to set benchmarks for how much debt may be issued to a person, the terms of the loans, how much debt a specific company is willing to issue, and what interest rates will be charged. The four C's Credit score requirement Collateral, Capital requirements Capacity to repay

Equitable Title

I have a right to own it and no can stop me! In real estate law, "equitable title" refers to a person's right to obtain full ownership of a property or property interest. This is often contrasted with or used in conjunction with the term "legal title." Legal title is the actual ownership of the land. If I have equitable title on the property, I am able to negotiable and assignable. Can be sold, given, used as collateral. It is inheritable. Examples: •REPC in the time between acceptance and closing •Land sales contract

Loan Concepts Compound Interest

Image result for Compound Interest definition Compound interest is interest added to the principal of a deposit or loan so that the added interest also earns interest from then on. This addition of interest to the principal is called compounding.

Loan Concepts Refinancing a Loan

Image result for Refinancing a Loan definition Getting a new mortgage to replace the original is called refinancing. Refinancing is done to allow a borrower to obtain a better interest term and rate. The first loan is paid off, allowing the second loan to be created, instead of simply making a new mortgage and throwing out the original mortgage.

Chapter 7

In Chapter 7 bankruptcy, you can keep secured property by redeeming it - paying the creditor the replacement value of the property. Redemption is often a good option if you owe substantially more on the loan than the property is worth.

Simple Interest

In English law, a fee simple or fee simple absolute is an estate in land, a form of freehold ownership. It is the way that real estate is owned in common law countries, and is the highest ownership interest possible that can be had in real property.

Trustee

In real estate in the United States, a deed of trust or trust deed is a deed wherein legal title in real property is transferred to a trustee, which holds it as security for a loan (debt) between a borrower and lender.

Trustee's Sale

Trust Deed (Deed of Trust)

Trust Deeds

Trustee's Deed

Equitable Title

In real estate law, "equitable title" refers to a person's right to obtain full ownership of a property or property interest. This is often contrasted with or used in conjunction with the term "legal title." Legal title is the actual ownership of the land

What two factors are used to figure an Adjustable Rate?

Index Margin

Seller Contributions

Instead of opting to reduce the price, seller contribution involves the home seller financially helping with the borrower's settlement costs or down payment.

A "Straight Note" or "Straight Loan" is also known as what?

Interest Only Loan

Borrower has a fist mortgage of $115,000 and wants a second mortgage of $38,000. What would be the LTVR of the second mortgage if the appraised value of the home was 4160,00?

L ÷ V = Ratio $38,000 ÷ $160,000 = 23.75%

London Interbank Offered Rate (LIBOR)

LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate that some of the world's leading banks charge each other for short-term loans. It stands for IntercontinentalExchange London Interbank Offered Rate and serves as the first step to calculating interest rates on various loans throughout the world.

Mortgage Insurance protects the:

Lender in case of borrower default

Loan to Value Ratio (LTVR)

Leverage Formula L x V =R loan ÷ value = Ratio (%)

Qualifying Assemble, Verify & Evaluate

Loan officer uses the help of a loan processor √ Purpose of the evaluation process is to measure & verify the four C's: * Credit * Capacity * Capital * Collateral

Domestic Partner

Many people know that domestic partnerships are similar to marriage and can apply to unmarried couples who are living together. Most registered domestic partners tended to be in same-sex relationships prior to the Supreme Court's 2015 Obergefell v. Hodges decision, especially if they lived in a state that banned same-sex marriage. But it remains an option in a few states for partners (same- or opposite-sex) who live together and share a common domestic life. However, some states and cities that offer the arrangement require one of the individuals to be at least 62-years-old.

Which of the following represents the Lenders Profit in the calculation of an adjustable rate loan, and is the fixed portion?

Margin

FHA Insured Loans Guidelines Mortgage Insurance Program

Maximum Loan Amounts Maximum loan amounts are set on a county by county basis and subject to change √ www.hud.go √Loan Amount Calculations are baed on the lesser of Sales Price or Appraised Value √ Sales price = value

Federal Reserve

Monetary Policy is referred to as either being Expansionary or Contractionary. Expansionary Policy: Increases the total supply of Money, used to combat unemployment in recession by lowering interest rates. Contractionary Policy: Decreases the goal money supply, involves raising interest rates to combat inflation.

Qualifying Loan Processor

Mortgage Loan Processor √ Not a required position √ Verifies that all information given is true and correct √ I usually not licensed and is restricted to what they do √ Can follow up on requested information but may not directly request it

Which of the following is the correct term for the borrower under a mortgage?

Mortgagor

Does a trust deed (or deed of trust) covey ownership?

NO! Then what does it convey? the power of sale in the case of default ONLY.

Non-Recourse Loan

Non-recourse debt or a non-recourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable.

Mortgage Law Trust Deed (given to the lender) or Deed in Trust Lien Theory

Note (promissoryNote) •amount •interest rate •Term •payment Trust Deed •Collateral •Security •Hypothecation

Deed-in-Lieu

Of Foreclosure' A potential option taken by a mortgagor (a borrower) to avoid foreclosure under which the mortgagor deeds the collateral property (the home) back to the mortgagee (the lender) in exchange for the release of all obligations under the mortgage.

Trans Union

One of the three major credit reporting bureaus. The other two are Experian and Equifax.The TransUnion Web site is at www.transunion.com.See also Fair Credit Reporting Act.

If the defaulting borrower being foreclosed on under a mortgage was able to save (redeem) the property, what would he/she have done?

Paid everyone off in full with interest.

Trustee has

Power of Sale = Bare Title Naked Title (only if default happen)

A Mortgage Loan Originator is considered to be working in the _____________________ Mortgage Market.

Primary

Collateral or Security

Property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup its losses.

Front End Ratio

Proposed PITI Payment $1,300 per month Gross Income ÷ $5,00 per month _______________________ 0.26 or 26%

Federal Reserve's Mission is

Provide a: •safe •flexible •stable .... financial system

FederalOpen Market Committee FOMC

Purpose of the FOMC is to determine the Nations Monetary Policy At each meetings, the FOMC decides it target for the federal funds rate. The FOMC also issues a statement after each meeting expelling its decision. The interest rate charged is called the Federal Funds Rate. The economy will be evaluated.

Sourced

Real estate that generates income or is otherwise intended for investment purposes rather than as a primary residence. It is common for investors to own multiple pieces of real estate, one of which serves as a primary residence, while the others are used to generate rental income and profits through price appreciation. The tax implications for investment real estate are often different than those for residential real estate.

Legal Information on Foreclosure and Credit Issues

Renters are allowed to stay in the property for the duration of their contract plus 90 days If no contract exists or if they were on a month-to-month contract, they only get 90 days.

Seasoned Loan

Seasoning in real estate usually refers to the length of time that a homeowner has owned a particular home, known as title seasoning. Seasoning can also refer to the length of time a borrower has held a particular loan. Mortgage lenders usually have title seasoning requirements before they issue a home loan. A lender may require that a home is owned for at least 90 days before making a new purchase loan on it. This is meant to avoid fraudulent property flipping schemes. Lenders may also have restrictions on refinance loans that require the original loan to be held for a certain amount of time prior to refinancing.

Foreclosure and Credit Issues Re-Establishing Credit

Several means are available to you to immediately begin re-establishing credit: √Continue to pay according to the terms set forth on accounts with remaining balances √Maintain at least 4 credit references/accounts •One should be house-related (cane rental payments). •If you would like to apply for mortgage and rental payments were made, be prepared to show proof with: -Bank Statements -Money orders -Canceled/cleared checks √Pre-paid credit cards are available -higher limits are better √Maintain a good mix of open account types -Revolving -Installment -Mortgage -Charge/Retail card

VA Loan Guidelines

Similar to FHA √Capacity Residual income analysis (Only with a VA loan only) computing the income one ration (41/41) √Captital •Sourced •Seasoned •Seller allowed 4% contribution √Credit •Individual history not score (individual history) •Compensating factors

Interest on loans that is never added to the loan balance is what type of interest?

Simple Interest

Acceptable Funds

Source √ Sale of real or personal property √ Gift funds under certain circumstances (such as parents) √ Acceptable Grants (such as first time home buyers) √ Secured Loans √ Seasoned √ Bank Account Statements √ Verification of Deposit (VOD) or Bank Statement

Qualifying Application Process

Standard application: √ Uniform Residential Loan Application (URLA) may be called by: • 1003 (Fannie Mae) • Form 65 (Freddie Mac) √ Uniform Underwriting & Transmittal Summary (the 1008 form) * 1008 form for Fannie Mae Summarizes the loan for the underwriting Along with the standard application, it provides an overview of the borrower.

Loan Form Standardization

Standardized forms used by: Fannie Mae Freddie Mac FHA VA For any kind of loans you have.

Subject to Loan

Taking over a property "Subject To" an existing loan is not as hard as it may seem as long as you know what it is. If you know what it is and how to explain it to the seller, and what steps to use to protect the loan from being called, you can buy many more properties faster than you can if you have to go get new loans on each purchase.

Upfront Funding Fee

The Department of Veteran's Affairs (VA) charges a Funding Fee to most veterans who obtain a VA mortgage loan to help sustain the VA home loan program. Only veterans receiving VA disability are exempt from paying this fee. The VA Funding Fee is a percentage of the principal loan amount and is due at closing.

Mortgage Rates Economic Impact & Influence

The Fed influences short-term interest rates in the economy to achieve its goals of stable prices, maximum sustainable employment, and steady economic growth.

Interest Rates

The Federal Funds Rate influences other rates such as: • housing •autos •Investment

Cost Recovery (Depreciation)

The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions.

Federal Reserve Monetary Policy

The Monetary Policy refers to what the Federal reserve does to influence the amount of menu and credit available in the U.S. economy. The object of Monetary Policy is to influence the performance of the economy in such factors as inflation, economic output and employment. Monetary Policy Influences the availability and cost of money and credit to help promote the national economic goals.

Warranty Deed

The banks/lending institutions are typically foreclosing on a property where a warranty deed was put in place. There is no title insurance with a foreclosure. It can be obtained after through a title company.

Loan Concepts Jumbo/Non-Conforming Loans

The best-known type of non-conforming loan is the jumbo loan. Jumbo Mortgage. A mortgage loan on a home where the loan value exceeds the standard limits for conforming loans set by Fannie Mae and Freddie Mac.

Debt Service

The cash that is required for a particular time period to cover the repayment of interest and principal on a debt. Debt service is often calculated on a yearly basis. Debt service for an individual often includes such financial obligations as a mortgage and student loans. √Payments that are made in accordance with the loan agreement for the payment of principal and interest.

Intermediate Theory

The concept that a mortgage is a lien on property until default, at which time title passes to the lender.

APY Annual Percentage Yield

The effective interest rate based on the frequency of interest payments. The interest will build up (compound) more rapidly thus increasing the rate.

Federal Reserve How Interest Rates are Established

The market ultimately sets interest rates, NOT the Government. The Fed changes the money supply through the open market operation. Changes i the money supply affects interest rates -- the willingness of banks to lend more or less.

Cost Basis

The original value of an asset for tax purposes (usually the purchase price), adjusted for stock splits, dividends and return of capital distributions. This value is used to determine the capital gain, which is equal to the difference between the asset's cost basis and the current market value.

Federal Funds Rate

The rate which depository institutions lend balances at the federal reserve to other depository institutions overnight.

Equitable Period or Redemption

The right of a mortgagor, that is, a borrower who obtains a loan secured by a pledge of his or her real property, to prevent foreclosure proceedings by paying the amount due on the loan, a mortgage, plus interest and other expenses after having failed to pay within the time and according to the terms specified therein. This right is based upon the equitable principle that it is only fair that a borrower have a final opportunity to keep his or her property even if he or she has failed to make payments on the mortgage, since the property is to be sold in foreclosure proceedings. The equity of redemption must be exercised by a mortgagor within a certain time after having defaulted on an obligation. It exists only from the time of default to the time that fore-closure proceedings are commenced.

How are Mortgage Rates set?

There are a slew of factors that affect interest rates, the 10 year treasury bond is said to be the best indicator to determine whether mortgage rates will rise or fall. Most Mortgages are 30 years, the average mortgage is paid off within 10 years, the 10 year bond is a great bellwether to measure interest rate change.

Partially Amortized Loan

These loans are made in payment installments for the majority of the term of the loan. The difference here is that at either the beginning or the end of the loan, generally the end, a balloon payment of some sort must be made before the loan can be paid off. These payments are calculated using a longer loan term than there really is, which is why making monthly payments on the loan for 60 months will not pay the entire balance.

A Balloon Loan is a type of a Partially Amortized Loan.

True

VA Loan Guidelines

VA Loans are a Guarantor for a loan Veterans and National Guard √Active and reserve duty √Honorably Discharged Veterans Lender/Broker must be VA approved No prepayment penalties Maximum loan is conforming limit $417,000. No minimum down payment 100% program only available No mortgage insurance is charged

A pre qualifying letter relies on:

Verified information from borrowers

Loan Concepts Simple Interest

What is 'Simple Interest' A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate by the principal by the number of periods. Where: P is the loan amount. ***interest is paid in full; and some balance****

What's the Difference? Mortgage Foreclosure: •Judicial •Statutory Redemption (after the sale) •Pay everything off •Certificate of Sale •Deficiency judgement

What's the Difference? Trust Deed Foreclosure: • Non-judicial •Equitable Redemption (before the sale) 3 months •Bring loan current (late payment penalties etc) •Trustee's Deed •Maybe a deficiency judgment

Refinancing

When a business or person revises a payment schedule for repaying debt.

When must borrowers submit business tax returns such as a partnership or corporation federal tax return in addition to individual tax returns.

When borrowers' ownership exceeds 25%

Federal Reserve System Central Banking System Expand your understanding:

Why be interested in the Federal Reserve Action affect me? √More informed decisions √Spending Habits √Cost of your purchases √Cost of housing, cars, credit √Availability of credit √Your wages √Inflation √Savings

Loan Concepts Package Mortgage

a mortgage covering major items of equipment (as kitchen appliances) in addition to the house and lot.

Package Mortgage

a mortgage covering major items of equipment (as kitchen appliances) in addition to the house and lot.

Balloon Mortgage

a mortgage in which a large portion of the borrowed principal is repaid in a single payment at the end of the loan period.

Chattel Mortgage

a mortgage on a movable item of property.

Straight Note

a promissory note evidencing a loan in which payments of interest only are made periodically during the term of the note, with the Principal payment due in one lump sum upon maturity. a straight note is usually a nonamortized note made for a short term, such as three to five years, and is renewable at the end of the term

Balloon Payment

a repayment of the outstanding principal sum made at the end of a loan period, interest only having been paid hitherto.

Lien

a right to keep possession of property belonging to another person until a debt owed by that person is discharged.

Pledge

a solemn promise or undertaking.

24. Income averaging must occur over what period of time for income other then W-2 salaried income? a. 2 years b. 36 months c. It is averaged if self-employed d. 12 months

a. 2 years

25. The qualifying ratios for a conforming conventional loans are: a. 28/38 b. 41/41 c. 29/41 d. 29/38

a. 28/38

3. A partial release clause would most likely be found in which of the following? a. Blanket Mortgage b. Negatively Amortized Mortgage c. Wrap Around Mortgage d. Chattel Mortgage

a. Blanket Mortgage

Upfront Mortgage Insurance Premium

anyone who takes out an FHA loan is required to pay the premium.

8. All of the following are examined by the underwriter EXCEPT: a. Credit b. Capital to close and capacity to repay c. Blood type d. Cash in reserve

c. Blood type

1. The loan qualifying process involves all of the following EXCEPT: a. Credit b. Capacity to repay c. Commissions d. Cash to close

c. Commissions

Advanced Finance Finance Contract Clauses Subordination:

completed by the lender who holds the second mortgage means that the lender agrees to have their loan remain in second position while the loan in first position is refinanced.

Subordination

getting a subordination completed by the lender who holds the second mortgage means that the lender agrees to have their loan remain in second position while the loan in first position is

Loan Concepts Closed-Ended Mortgage

home equity loan, or second mortgage, is a loan for a fixed amount of money that must be repaid over a fixed term, just like your original mortgage. Borrowers typically use closed-end home equity loans to pay for a single large expense, such as a major home improvement or college tuition.

General Warranty Deed

is a deed that contains all five covenants and covers the period of time from the date of transfer back to the date of the patent.

Notice of Default

is a notification given to a borrower stating that he or she has not made their payments by the predetermined deadline, or is otherwise in default on the mortgage contract.

FEMA

is an agency of the United States Department of Homeland Security, initially created by Presidential Reorganization Plan No. 3 of 1978 and implemented by two Executive Orders on April 1, 1979.

Advanced Finance Finance Contract Clauses Partial Release Clause

is an agreement between the commercial lender and the borrower whereby a mortgage that blankets two or more parcels will be released from a particular parcel upon the payment to the commercial lender of a previously-agreed amount of money

Boot

is an old English term meaning "Something given in addition to." "Boot received" is the money or fair market value of "Other Property" received by the taxpayer in an exchange.

Compound Interest

is interest added to the principal of a deposit or loan so that the added interest also earns interest from then on. This addition of interest to the principal is called compounding.

Trustee's Deed

is the document that is given to the individual who successfully bids at a foreclosure sale and purchases the foreclosed property. It conveys fee simple title immediately after the sale.

Title Theory

n. A property-law doctrine that a mortgage transfers title to a property to the mortgagee, who holds it until the mortgage has been paid off, at which time title passes to the mortgagor. Only a few American states have adopted this theory, and they are known as title states or title theory jurisdictions.

Margin

of 'Net Interest Margin' A performance metric that examines how successful a firm's investment decisions are compared to its debt situations. A negative value denotes that the firm did not make an optimal decision, because interest expenses were greater than the amount of returns generated by investments.

Foreclosure and Credit Issues Credit Bureau FICO

refers to the mathematical scores developed by the Fair Isaac & Company and used by credit bureaus and lenders to evaluate the risk associated in lending money; scores range from 450 to 850; the lower the score, the higher the risk. FICO Score is used by lenders to gauge the credit risk of borrowers: There are three credit bureaus: √Equifax √Experian (formerly TRW) √Trans Union

Open Market Operation

refers to the purchases and sales of US treasury and federal agency securities.

Equifax

s a consumer credit reporting agency in the United States, considered one of the three largest American credit agencies along with Experian and TransUnion.

Hazard Insurance

that protects a property owner against damage caused by fires, severe storms, earthquakes or other natural events. As long as the specific event is covered within the policy, the property owner will receive compensation to cover the cost of any damage incurred.

Mortgagor

the borrower in a mortgage, typically a homeowner.

Mortgage

the charging of real (or personal) property by a debtor to a creditor as security for a debt (especially one incurred by the purchase of the property), on the condition that it shall be returned on payment of the debt within a certain period.

Mortgagee

the lender in a mortgage, typically a bank.

After a bankruptcy or even a foreclosure, there are possible ways to immediately re-establish credit. true or false

true

If you own your home, the title you have in incorporeal.

true

VA Loan Guidelines

√Collateral • Owner-occupied •1-4 Units (must live in one of the units) •VA Approved Condominiums PUD √Certificate of Eligibility •Required for each loan

Types of Fraud include:

√Fraudulent Deeds √Duplication of Deeds √Multiple Closings √Straw Buyers √Money Paid outside closing & not disclosed √Private Lenders selling position

Services Provided by the Federal Reserve

√Hold Bank Cash Reserves √Loan to Banks (short-term loans) √Currency/coin in circulation √Collects and processes checks √Provide Checking Accounts for the Treasury √Bank Regulator (State charter member & Bank Holding Co.)

Department of Housing and Urban Development (HUD)

A U.S. government agency created in 1965 to support community development and increase home ownership. HUD does this by improving affordable home-ownership opportunities, increasing safe and affordable rental options, reducing chronic homelessness, fighting housing discrimination by ensuring equal opportunity in both the rental and purchase markets, and supporting vulnerable populations.

Total Debt Ratio

A financial ratio that measures the extent of a company's or consumer's leverage. The debt ratio is defined as the ratio of total - long-term and short-term - debt to total assets, expressed as a decimal or percentage. It can be interpreted as the proportion of a company's assets that are financed by debt. Total Debt Debt ratio _____________________ Total Asset

Rate Lock

A lender's promise to guarantee a borrower a certain interest rate and loan terms for a specified period of time. This is an important step in the process of getting a mortgage. It's best to lock-in at the lowest rate possible. A borrower needs to inform his lender when he wants the lender to lock-in a rate once the loan is approved. Once a borrower locks a rate, the lender may offer a float down option if rates continue to decrease before the loan is approved. This means the borrower could lock-in at an even lower rate, but the lender may require him to pay more up-front in discount point fees.

Cash on Hand

A rate of return often used in real estate transactions. The calculation determines the cash income on the cash invested. Calculated as: Annual Dollar Amount Cash on hand return __________________________ Total Dollar Investment

Housing Ratio

A ratio comparing housing expenses to before-tax income that is used by lenders to qualify borrowers for a mortgage. The housing expense measure includes mortgage principal, interest payments, property taxes, hazard insurance, mortgage insurance and association fees.

Back End Ratio

Front End Ratio

A ratio that indicates what portion of an individual's income is used to make mortgage payments. It is calculated as an individual's monthly housing expenses divided by his or her monthly gross income and is expressed as a percentage. Housing to Income ratio (PITI) √PITI √Pricipal √Interest √Taxes √Inurance (Hazard and Mortgage ins. (MI) √Home owners association dues (HOA) Compares the housing payment to gross income

Private Mortgage Insurance (PMI)

A risk-management product that protects lenders against loss if a borrower defaults. Most lenders require private mortgage insurance (PMI) for loans with loan-to-value (LTV) percentages in excess of 80% (the buyer put down less than 20% of the home's value upon purchase).

Junior Lien

A second mortgage or junior-lien is a loan you take out using your house as collateral while you still have another loan secured by your house. Home equity loans and home equity lines of credit (HELOCs) are common examples of second mortgages.

Discounted Loan or Note

A short-term debt obligation issued at a discount to par. Discount notes are similar to zero-coupon bonds and Treasury bills and are typically issued by government-sponsored agencies or highly rated corporate borrowers. Discount notes do not make interest payments; instead the bond is matured at a par value above the purchase price, and the price appreciation is used to calculate the investment's yield. √Loans that are sold to a secondary market for less than the remaining balance.

Credit Score

A statistically derived numeric expression of a person's creditworthiness that is used by lenders to access the likelihood that a person will repay his or her debts. A credit score is based on, among other things, a person's past credit history. It is a number between 300 and 850 - the higher the number, the more creditworthy the person is deemed to be.

Federal Home Loan Mortgage Corporation (FHLMC)

A stockholder-owned, government-sponsored enterprise (GSE) chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing for middle income Americans. The FHLMC purchases, guarantees and securitizes mortgages to form mortgage-backed securities. The mortgage-backed securities that it issues tend to be very liquid and carry a credit rating close to that of U.S. Treasuries.

FICO Score

A type of credit score that makes up a substantial portion of the credit report that lenders use to assess an applicant's credit risk and whether to extend a loan. FICO Calculation √ Payment history 35% √ Amounts owed 30% √ Length of history 15% √New credit recently 10% √ Types of credit use 10%

Reserves

An account set aside by an individual or business to meet any unexpected costs that may arise in the future as well as the future costs of upkeep. In most cases, the fund is simply a savings account or another highly liquid asset, as it is impossible to predict when an unexpected cost may arise. However, if the fund is set up to meet the costs of scheduled upgrades, less liquid assets may be used.

Rate Lock

An agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage over a specified time period at the prevailing market interest rate. The lender may charge a lock fee, which the borrower must pay if he or she does not lock the interest rate. Alternatively, the lender may charge a marginally higher interest rate to begin with, just in case the borrower chooses not to lock the interest rate. √Borrowers face the risk of rates changing during the loan underwriting period. √Borrowers agree to the rate of today, even the if the rates go down.

Impound (also see Escrow Account or Impound Account)

An escrow account (sometimes called an impound account depending on where you live) is set up by your mortgage lender to pay certain property-related expenses on your behalf like property taxes and homeowner's insurance. Because bills for taxes and insurance can be large and infrequent (typically once or twice per year), many homeowners prefer to pay them in monthly installments along with their mortgage payment. Many lenders require that you pay your taxes and insurance using escrow, so they can make sure that the bill gets paid and the property is not at risk. Your mortgage servicer will manage the escrow account and pay these bills on your behalf. Sometimes, escrow accounts may also be required by law.

Mortgage Broker

An intermediary who brings mortgage borrowers and mortgage lenders together, but does not use its own funds to originate mortgages. A mortgage broker gathers paperwork from a borrower, and passes that paperwork along to a mortgage lender for underwriting and approval. The mortgage funds are then lent in the name of the mortgage lender. A mortgage broker collects an origination fee and/or a yield spread premium from the lender as compensation for its services.

Department of Veterans Affairs (VA)

As part of our mission to serve you, we provide a home loan guaranty benefit and other housing-related programs to help you buy, build, repair, retain, or adapt a home for your own personal occupancy. VA Home Loans are provided by private lenders, such as banks and mortgage companies. VA guarantees a portion of the loan, enabling the lender to provide you with more favorable terms.

Discount Points

By contrast, discount points are fees specifically used to buy-down your rate. On a settlement statement, discount points are sometimes labeled "Discount Fee" or "Mortgage Rate Buydown" and one discount point carries a cost equal to one percent of your loan size. √ Point = 1% of the loan amount √Fee paid at closing to permanently lower the interest rate below par. (Prepay a small portion some of the interest in advance) √ Makes the loan attractive and more stable to the investor. √ Don't sale early because you can loose money.

Capital Mortgage Market

Capital markets are markets for buying and selling equity and debt instruments. Capital markets channel savings and investment between suppliers of capital such as retail investors and institutional investors, and users of capital like businesses, government and individuals. Capital markets are vital to the functioning of an economy, since capital is a critical component for generating economic output. Capital markets include primary markets, where new stock and bond issues are sold to investors, and secondary markets, which trade existing securities. √Source of funds in the Secondary Mortgage Market for private investors from international level to buy big pools of loans from the primary mortgage market

Leverage

Consider the common real estate purchase requirement of a 20% down payment - or $100,000 on a $500,000 asset. The buyer is essentially using a relatively small percentage of his or her own money to make the purchase, and the majority of the money is being provided by the lender. Real estate investors often refer to the remainder of the purchase price as "other people's money," since persons other than the borrower provided the money needed to make the purchase. Other people's money (loan) and your own money = Leverage Loan to value ratio

Replacement Value

DEFINITION of 'Replacement Cost' The cost to replace the assets of a company or a property of the same or equal value. The replacement cost asset of a company could be a building, stocks, accounts receivable or liens.

Principal Interest Taxes & Insurance (PITI)

Definition of Principal, Interest, Taxes, Insurance (PITI) Principal, Interest, Taxes, Insurance (PITI) These four items make up a total monthly mortgage payment. Principal is the amount borrowed from a lender not including interest or additional fees.

Mortgage Insurance Premium (MIP)

Mortgage insurance is required for most home loans that don't have at least a 20% down payment. It's bought and paid for by the homeowner, but it offers them no coverage. In a nutshell, it's there to protect the investor (who buys the loan on a secondary market) if the loan goes into default. There are a couple of different types of mortgage insurance depending on your loan.

Secondary Financing

Secondary financing refers to a second-mortgage loan on an asset or property that already has one mortgage. In secondary financing, priority in settlement of claims is given to the earlier mortgage.

Interest Rate

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR). The assets borrowed could include, cash, consumer goods, large assets, such as a vehicle or building. Interest is essentially a rental, or leasing charge to the borrower, for the asset's use. In the case of a large asset, like a vehicle or building, the interest rate is sometimes known as the "lease rate". When the borrower is a low-risk party, they will usually be charged a low interest rate; if the borrower is considered high risk, the interest rate that they are charged will be higher.

Federal Reserve

The central bank of the United States. The Fed, as it is commonly called, regulates the U.S. monetary and financial system. The Federal Reserve System is composed of a central governmental agency in Washington, D.C. (the Board of Governors) and twelve regional Federal Reserve Banks in major cities throughout the United States. Discount Rate Cash on Hand

Equity

The difference between the value of a home and the sum total of liens/encumbrances against it equals the equity. Value $180,000 (-) 1st Trust Deed of $118,000 (-) 2nd mortgage $12,000 (-) home equity loan balance $8,000 ___________________________________________________ the equity would be $42,000 This example, the combined debt equals $138,00 or 77% of value (LTVR)

Prime Rate

The interest rate that commercial banks charge their most credit-worthy customers. Generally a bank's best customers consist of large corporations. The prime interest rate, or prime lending rate, is largely determined by the federal funds rate, which is the overnight rate which banks lend to one another. The prime rate is also important for retail customers, as the prime rate directly affects the lending rates which are available for mortgage, small business and personal loans.

Primary Mortgage Market

The market where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transaction. Mortgage brokers, mortgage bankers, credit unions and banks are all part of the primary mortgage market. √Originates loans with the borrower √Meets and interacts with the public

Single Family Residence (SFR)

The most common type of home listed in the MLS. Also known as single family detached, this means the home is a stand alone structure with its own lot. Single family residences differ from condominiums, townhomes, cooperatives, or multi-family homes, which are all attached residences. Learn more about the pros and cons of single-family homes.

Up Front Mortgage Insurance Premium (UFMIP)

UFMIP stands for Up Front Mortgage Insurance Premium and anyone who takes out an FHA loan is required to pay the premium. This lump sum is allowed to be financed into the loan, so you don't have to actually write a check for it at closing - but make no mistake, you are still paying it. MI stands for Mortgage Insurance (in the case of FHA loans, this is the amount of money that you pay each month) and MI is diffferent than UFMIP. With FHA loans, you are required to pay both UFMIP and MI.

Capacity

Your ability to make your mortgage payments on time. This depends on your income and income stability (job history and security), your assets and savings, and the amount of your income each month that is left over after you've paid for your housing costs, debts and other obligations.

Origination Fee

a fee charged by a lender on entering into a loan agreement to cover the cost of processing the loan. 1% is charged. Paid up front to the originating lender.

13. Debt Service is a term referring to the duties of the: a. Borrower b. Primary Lender c. Servicing Agent d. Secondary Market Lender

a. Borrower

15. If borrowers do not keep a hazard insurance policy in place, what can the lender do? a. Charge the borrower for a forced insurance policy b. Raise the reserve requirement c. Notify the borrows they have to get insurance d. Nothing

a. Charge the borrower for a forced insurance policy

14. The borrower risk model used by each of the credit bureaus to assess quantitative risk value is called a: a. Credit Score b. Good Faith Estimate c. Credit Report d. Derogatory report

a. Credit Score

1. The difference between the total value of a property and the liens against the property is called: a. Equity b. Loan to value ratio c. Leverage d. Participation

a. Equity

3. The higher the LTVR, the greater the ______________. a. Leverage b. Equity c. Discount Rate d. Usury

a. Leverage

7. Which of the following properties would likely have the lowest loan to value ratio requirement? a. Personal residence b. Investment property c. Vacant land d. Rental property

a. Personal residence

4. Mr. Boles goes to Last Chance Mortgage Company and obtains a loan. We would say that this loan originated in the: a. Primary Money or Mortgage Market b. Secondary Money or Mortgage Market c. Federal Reserve d. FNMA or Federal National Mortgage Association.

a. Primary Money or Mortgage Market

5. Which of the following most nearly describes the data used to compute the front end ratio? a. Principal, Interest, taxes, insurance, PMI b. Principle, PMI c. Principle, interest, MIP d. Principal, interest, repairs.

a. Principal, Interest, taxes, insurance, PMI

9. The lender will be most interested in which of the following conditions to determine if a self employed borrower all qualify for a loan? a. Stable income b. High gross Sales c. Low business expenses d. Monthly payments the bushiness is obligated to pay.

a. Stable income

12. What is the discount fee for a 7.75%, 30 year, $100,000 loan, charging one discount point? a. 00775% b. $1000 c. $2000 d. $775

b. $1000

8. The back end ratio includes all of the following EXCEPT: a. PITI b. Any one time medical bills c. Mortgage insurance is required d. Long term debt payments

b. Any one time medical bills

11. One of the most critical items in the loan underwriting process that shows a borrower's payment behavior is: a. Marital status of the borrower b. Credit status of the borrower c. Location and form of collateral d. Amount of money in the retirement account

b. Credit status of the borrower

7. L&M Mortgages originated in loan between Centrum Lending and the borrowers. L&M Mortgages originated a loan between Centrum Lending and the borrower. L&M mortgage is an example of a: a. Secondary Market lender b. Mortgage Broker c. Savings and Loan d. Primate individual

b. Mortgage Broker

4. Private mortgage insurance will probably be required by the lender in which of the following situations? a. Two loans equaling 75% and 25% LTV b. One loan that is 85% LTV c. Two loans equaling 60% and 30% LTV respectively d. Two loans equaling 80% and 10% LTV respectively

b. One loan that is 85% LTV

2. Which of the following is a junior lien? a. Secondary Money Market b. Second Mortgage c. Participating Mortgages d. Prime Rate Mortgages

b. Second Mortgage

6. K would most likely sell a discounted mortgage in which of the following markets: a. Primary Money Market b. Secondary Money Market c. Federal Reserve Market d. Private Mortgage Market

b. Secondary Money Market

3. A clause that allows two lenders to switch priority positions, such as a fist mortgage becoming the second, and the second mortgage becoming the first mortgage is called a: a. Recoordation b. Subordination c. Release d. Junior lien agreement

b. Subordination

2. If the purchase price was $75,000 and the loan was $48,000, what would be the LTVR be? a. 156% LTVR b. 75% LTVR c. 64% LTVR d. 48% LTVR

c. 64% LTVR The difference between the value of a home and the sum total of liens/encumbrances against it equals the equity. Value $75,000 (-) mortgage $48,00 ___________________________________________________ the equity would be $27,000 This example, the combined debt equals $138,00 or 77% of value (LTVR)

16. If a property is in a FEMA flood zone, what will the lender required the borrower to do? a. Build a retaining wall or other protective barrier b. Pay for an additional endorsement to the title insurance c. Buy flood insurance for the life of loan d. Include that stipulation in their hazard insurance.

c. Buy flood insurance for the life of loan

11. Which of the following actions would protect the applicant against rising market rates? a. Buyers pays discount points b. Federal Reserve lowers the Discount Rate c. Buyers pays a premium rate to lock the rate d. Broker imposes a Prime Rate

c. Buyers pays a premium rate to lock the rate

10. The loan qualifying process involves all of the following EXCEPT: a. Credit b. Capacity to repay c. Commissions d. Capital

c. Commissions

9. Wilson investments paid 80% of face value when it bought a loan. This is an example of a: a. Par rate b. Discount rate c. Discounted loan d. Loan Buydown

c. Discounted loan

13. The three major credit bureaus include all of the following EXCEPT: a. Equifax b. Experian c. ETC d. Trans Union

c. ETC Experian (Formerly TRW) is the strongest in Utah

15. WT Investments is considering a proposal it received to buy mortgage note. The discount points listed in the proposal will have which of the following effects on this potential investment if they accept the proposal? a. Raise the Par rate b. Become the discount rate c. Increase the yield d. Decrease the yield

c. Increase the yield

1. Which of the following options would permanently lower the interest on a long term loan? a. 201 buy down b. Mortgage insurance c. discount points d. subordinating loan

c. discount points

Federal National Mortgage Association (FNMA)

commonly known as Fannie Mae, was founded in 1938 during the Great Depression as part of the New Deal. It is a government-sponsored enterprise (GSE) and has been a publicly traded company since 1968.[2] The corporation's purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities (MBS),[3] allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on locally based savings and loan associations (aka "thrifts").[4] Its brother organization is the Federal Home Loan Mortgage Corporation (FHLMC), better known as Freddie Mac.

5. This organization does not set interest rates, but because of the discount rate and the amount of money their equipped lenders to keep on reserve for depositors, they heavily influence the interest rate. The organization is the: a. FNMA (Federal National Mortgage Association b. GNMA (Government National Mortgage Association) c. FDIC (Federal Deposit Insurance Corporation) d. Federal Reserve

d. Federal Reserve

10. The loan origination fee is compensation paid to which of the following: a. Federal Reserve b. Fannie Mae c. Secondary Market d. Mortgage Broker

d. Mortgage Broker

12. A mortgage qualifying ratio measures all of the following EXCEPT: a. front or housing ratio of PITTI b. back or debt ratio of PITI + debt c. maximum PITI allowable based on the lesser of front and back ratios d. loan to value ratio

d. loan to value ratio

Federal Housing Administration (FHA)

is a United States government agency created as part of the National Housing Act of 1934. It sets standards for construction and underwriting and insures loans made by banks and other private lenders for home building. Overseen my HUD.

Underwriter

is a company or other entity that administers the public issuance and distribution of securities from a corporation or other issuing body. Underwriter reviews the loan application and determines if the loan o norms to the lenders guidelines, to be able to sell on the secondary market.

Loan Buydown

is a mortgage financing technique where the buyer attempts to obtain a lower interest rate for at least the first few years of the mortgage. √ Paying a fee to reduce the monthly payment for the early months of the loan √Great for students who will be graduating in 2 or 3 years and then the rates will go up.

Planned Unit Development (PUD)

is a project or subdivision that consists of common property and improvements that are owned and maintained by an owner's association for the benefit and use of the individual units within the project.

Federal Trade Commission (FTC)

is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act. Its principal mission is the promotion of consumer protection and the elimination and prevention of anticompetitive business practices, such as coercive monopoly.

Debt to Income Ratio (DTI)

is one way lenders (including mortgage lenders) measure an individual's ability to manage monthly payment and repay debts. DTI is calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage.

Mortgagee Clause

is simply how the lender wants their name and address to appear on legal documents. I shouldn't say simply, because lenders are very picky to make sure everything is perfect, and some have several different mortgagee clauses for insurance, title work, and a CPL. Typically the insurance company and title or escrow company will need the mortgagee clause information to record who has the lien. It is not anything a consumer need to be worried about, but if they are asked, then just contact your Broker or lender and tell them who needs it.

Primary Financing

is the mortgage note with liquidation preference in the event of default.

Secondary Mortgage Market

is where home loans and servicing rights are bought and sold between lenders and investors. Most home loans in the US are eventually sold to the secondary mortgage market. When a consumer obtains a home loan, that loan is underwritten, funded and serviced by a bank or lending institution. √Purchases recently originated loans √Provides standardization of forms and some loan guidelines √Has a standardized loan application for all lenders and brokers. Who is involved: √FNMA (Fannie Mae) Federal National Mortgage Association √FHLMC (Freddie Mac) Federal Home Loan Mortgage Corporation (they are privately owned are quasimoto regulations, not government but regulated by the government. These are government agencies √GNMA (Ginnie Mae) Government National Mortgage Association √FAMC (Farmer Mac) Federal Agricultural Mortgage Corporation Other Investors for replenishing in money (deal with jumbo and commercial loans): √Insurance companies √Pension Plans √Private Investors

Government National Mortgage Association (GNMA)

or Ginnie Mae, was established in the United States in 1968 to promote home ownership. As a wholly owned government corporation within the Department of Housing and Urban Development (HUD), Ginnie Mae's mission is to expand affordable housing finance in America by linking domestic and global capital to the nation's housing finance markets, providing liquidity to federally sponsored mortgage lending programs. The Ginnie Mae guarantee allows mortgage lenders to obtain a better price for their loans in the capital markets. Lenders then can use the proceeds to make new mortgage loans available to consumers. This also helps to lower financing costs and create opportunities for sustainable, affordable housing for families seeking home ownership.

Experian

plc is a global information services group with operations in 40 countries, with corporate headquarters in Dublin, Republic of Ireland and operational headquarters in Nottingham, United Kingdom;

Collateral

something pledged as security for repayment of a loan, to be forfeited in the event of a default.

Credit

the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future. √Most critical aspect of the loan approval process √Credit report is usually ordered electronically √Statistical score is used by lenders to gauge the credit risk of borrowers. FICO score √

Senior Lien

the first security interest (lien or claim) placed upon property at a time before other liens, which are called "junior" liens.

United States Department of Agriculture (USDA)

used to determine eligibility for certain USDA home loan programs and the USDA Satellite Grant Program. In order to be eligible for many USDA loans, household income must meet certain guidelines. Also, the home to be purchased or served must be located in an eligible rural area as defined by USDA.

Seasoned

usually refers to the length of time that a homeowner has owned a particular home, known as title seasoning. Seasoning can also refer to the length of time a borrower has held a particular loan. Mortgage lenders usually have title seasoning requirements before they issue a home loan.

The purchase price is $187,000 and the down payment is $26,180. What is the LTVR

$160,820 ÷ $187,000 =86% Loan ÷ Value = Ratio

In a title theory state, who owns the property if the loan hasn't yet been paid off? a The neural third party b. The lender c. The purchaser/borrower

b. The lender

Property Flipping

'Flipping' A type of real estate investment strategy in which an investor purchases properties with the goal of reselling them for a profit. Profit is generated either through the price appreciation that occurs as a result of a hot housing market and/or from renovations and capital improvements.

Negative or Reverse Amortization

'Negative Amortization' An increase in the principal balance of a loan caused by making payments that fail to cover the interest due. The remaining amount of interest owed is added to the loan's principal, which ultimately causes the borrower to owe more money.

Loan Concepts Non-Recourse Loan

'Non-Recourse Debt' A type of loan that is secured by collateral, which is usually property. If the borrower defaults, the issuer can seize the collateral, but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount.

Non-Recourse Loan

Loan Concepts Home Equity Line of Credit (HELOC)

(often called HELOC and pronounced Hee-lock) is a loan in which the lender agrees to lend a maximum amount within an agreed period (called a term), where the collateral is the borrower's equity in his/her house (akin to a second mortgage).

The Federal Reserve has __________ district location

Notice of the foreclosure must be posted in how many public places?

31. How much time must have elapsed after a bankruptcy to qualify for an FHLMC loan? a. 1 year b. 2 years c. 5 years d. 7 years

d. 7 years

Promissory Note

A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.

Sheriff's Deed

A Sheriff's deed is a deed that gives ownership rights in property bought at a sheriff's sale. A sheriff's sale is a sale conducted by a sheriff upon order of a court after a failure to pay a judgment. Often, property that is involved in a mortgage foreclosure is subject to being sold at a sheriff's sale. In such cases a sheriff's deed refers to the deed given in foreclosure of a mortgage. Generally, the debtor has the right of redemption of the property until confirmation of sale is signed by the judge and filed by the court. The giving of the deed begins a statutory redemption period.

Promissory Note

A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on demand or at a specified future date. The Promise to Pay Note stipulates: √payment, interest rate √The terms of the money lent √When default occurs i.e. 15 day late pay not pay in default.

Prequalification Letter

A mortgage pre-qualification" is basically an estimate of your borrowing power. It is, in effect, a statement from the lender putting forth that based upon your current financial circumstances, i.e. income, debt and credit levels, you will likely be qualified for a mortgage for a certain amount. Receiving "pre-qualification" can be accomplished fairly simply by just a phone call to the lender. The lender may or may not run your credit report to confirm the details of your finances and get a clearer picture of the amount and terms you'll qualify for. " Mortgage pre-qualification" is basically a determination about whether or not the prospective applicant will most likely qualify for a loan within the lender's current programs and standards. It is also a determination about the likely amount of the loan for which the prospective applicant will qualify. " Mortgage pre-approval" is a much more formal process. With pre-approval, you'll have actually completed an application with the lender, supplied them with income data, your W2's, bank statements, etc. The lender has gathered information about your employment and will also run your credit report; the lender will have run the application through an automated underwriting process. A pre-approval is a far more complete and comprehensive process than what is utilized for pre-qualification status.

Periodic Cap

A part of an interest rate cap structure on loans and mortgages. The periodic interest rate cap limits the amount by which the interest rate on an adjustable rate loan can adjust at specified adjustment dates. For example, an adjustable rate mortgage with a starting interest of 6%, an initial interest rate cap of 2% and a periodic interest rate cap of 2% could adjust upward no higher than 10%, or no lower than 2% at its second adjustment date. (This example assumes that the mortgage adjusted by 2%, upward or downward as the case may be, at its first adjustment date.)

Fully Amortized Loan

A periodic loan payment, part of which is principal and part of which is interest, where if the borrower makes payment according to the loan's amortization schedule, the loan will be paid-off by the end of its set term.

Loan Concepts Fully Amortized Loan

Loan Concepts Partially Amortized (balloon mortgage)

Deed in Lieu of Foreclosure

Lien Theory State

A property-law doctrine that a mortgage transfers title to a property to the mortgagee, who holds it until the mortgage has been paid off, at which time title passes to the mortgagor. When the money is returned back to the borrower if the house sales for enough in default. (The borrower owns the ownership) (most states are lien theory)

Notice of Default (NOD)

A public notice filed with a court stating that a mortgage borrower is behind in payments. This is one of the first steps toward foreclosure, and if the borrower does not pay, the next step is for the lender to file a notice of sale for the property. However, if the borrower catches up on his or her payments, the foreclosure process can be halted. Default occurs: √upon nonpayment; Title is transferred from borrower to lien holder, as outlined in the mortgage instrument or the Deed of Trust. The mortgage instrument requires a judicial foreclosure process. In UTAH, A deed of Trust does not require a formal court proceeding to foreclose.

Combined Loan to Value Ratio

A ratio used by lenders to determine the risk of default by prospective homebuyers when more than one loan is used. In general, lenders are willing to lend at CLTV ratios of 80% and above to borrowers with a high credit rating. Value of loan 1 + Value of loan 2 = _________________________________ Total Value of Property

Private Mortgage Insurance

Treasury Bill (t-bill)

A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks).

Tax Credit

An amount of money that a taxpayer is able to subtract from the amount of tax that they owe to the government. The value of a tax credit depends on what the credit is being provided for, and certain types of tax credits are granted to individuals or businesses in specific locations, classifications or industries.

Foreclosure

A situation in which a homeowner is unable to make full principal and interest payments on his/her mortgage , which allows the lender to seize the property, evict the homeowner and sell the home, as stipulated in the mortgage contract. One month after the homeowner misses a mortgage payment, he/she is in default and will be notified by the lender. Three to six months after the homeowner misses a mortgage payment , assuming the mortgage is still delinquent and the homeowner has not made up the missed payments within a specified grace period, the lender will begin to foreclose. The farther behind the borrower falls, the more difficult it becomes to catch up, since lenders add fees for payments that are 10 to 15 days late.

Index

A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus, the percentage change is more important than the actual numeric value.

Loan Concepts Chattel Loan (personal property)

A term used to describe a loan arrangement in which an item of movable personal property is used as security for the loan. A chattel mortgage is a loan that is secured by chattel rather than by real property.

Sheriff Sales

A term used to refer to distressed public property auctions. Sheriff's sales is generally the last step in the foreclosure process after the homeowner has exhausted all his/her options to avoid defaulting on a mortgage. Once the borrower has defaulted, the lender will file suit in court to recover its loan loss, and if the court awards a judgement, the property will be scehduled to be sold at a public auction.

Sheriff's Sale

Capital

A type of asset that is not easily sold in the regular course of a business's operations for cash and is generally owned for its role in contributing to the business's ability to generate profit. Furthermore, it is expected that the benefits gained from the asset will extend beyond a time span of one year. On a business's balance sheet, capital assets are represented by the property, plant and equipment figure.

Advanced Finance Finance Contract Clauses Non-disturbance Clause (for a tenant on the investment property)

A type of clause in a mortgage contract. The nondisturbance clause ensures that the rental agreement between the tenant and the landlord will continue under any circumstances.

Fair, Isaac and Company (FICO)

A type of credit score that makes up a substantial portion of the credit report that lenders use to assess an applicant's credit risk and whether to extend a loan.

Take Out Loan

A type of long-term financing (usually) on a piece of real property. Long-term take-out loans replace interim financing, such as a short-term construction loan. They are usually mortgages with fixed payments that are amortizing.

Loan Concepts Reverse Annuity Mortgage

Reverse annuity Mortgage

A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold. After accounting for the initial mortgage amount, the rate at which interest accrues, the length of the loan and rate of home price appreciation, the transaction is structured so that the loan amount will not exceed the value of the home over the life of the loan.

Loan Concepts Wraparound Mortgage

A wrap-around mortgage is a loan transaction in which the lender assumes responsibility for an existing mortgage. For example, S, who has a $70,000 mortgage on his home, sells his home to B for $100,000. B pays $5,000 down and borrows $95,000 on a new mortgage. This mortgage "wraps around" the existing $70,000 mortgage because the new lender will make the payments on the old mortgage. A wrap-around is attractive to lenders because they can leverage a lower interest rate on the existing mortgage into a higher yield for themselves. For example, suppose the $70,000 mortgage in the example has a rate of 6% and the new mortgage for $95,000 has a rate of 8%. The lender earns 8% on $25,000, plus the difference between 8% and 6% on $70,000. His total return on the $25,000 is about 13.5%. To do as well with a second mortgage, he would have to charge 13.5%.

8. An example of a quasi government lender is: A. Fannie Mae B. Commercial Bank C. Federal Reserve D. Ginnie Mae

A. Fannie Mae

Mortgage Lending Interest Rate Equals

All of the following is taken in for setting interest rates √Risk-Free Rate (90 day T-Bill √Inflation Premium √Default Risk Premium √National disaster; company pulling out of area √liquidity Premium (selling in the secondary market √Maturity Premium (sell in 10 years) √Profit

Conforming Conventional Loan Guidelines

Also known as Fannie May or Freddie Mac •1-4 units (not over 4 units, consider a commercial loan) •Owner occupied •Non-owner occupied (NOO) •Investment properties •Typically not assumable (as allowed in note)

Back End / Total

Also known as Total Debt Ratio √ PITI √ All Credit Report Debt √Car Loans √ Credit Cards √ ETC. √ Court-ordered Debt √Alimony √Child Support √ Restitution

Uniform Real Estate Contract (Utah)

Also known as: •Land Contract •Contract for Deed •Installment Land Sales Contract If an existing loan is going to stay in place, an (All-Inclusive Trust Deed can be used with less potential problems.) Characteristics: •Only one document •Written as title theory (the lender is the owner) Two types of title •Equitable title held by borrower •Legal title held by lender (seller) name on deed Remedies for default: •Uniform Real Estate Contract •Treat all money as rent and evict (forfeiture/repossession of property) •Hire an attorney for collection •Foreclosure (mortgage or trust deed) Do an ***All inclusive trust deed**

All Inclusive Trust Deed (AITD)

An All Inclusive Trust Deed (AITD) is a new deed of trust that includes the balance due on the existing note plus new funds advanced; also known as a wrap-around mortgage.

Land Contract

An agreement between a buyer and seller of property in which the buyer makes payments toward full ownership (as with a mortgage), but in a land contract, the title or deed is held by the owner until the full payment is made.

Loan Concepts Amortization Schedule

An amortization schedule is a table detailing each periodic payment on an amortizing loan (typically a mortgage), as generated by an amortization calculator. Amortization refers to the process of paying off a debt (often from a loan or mortgage) over time through regular payments.

Pledge

An asset that is transferred to a lender for the purpose of securing debt. The lender of the debt maintains possession of the pledged asset, but does not have ownership unless default occurs.

Loan Concepts Negative Amortized (reverse mortgage)

An increase in the principal balance of a loan caused by making payments that fail to cover the interest due. The remaining amount of interest owed is added to the loan's principal, which ultimately causes the borrower to owe more money. *** Interest Only Paid; but increase*** Compound Interest •retirement (using equity in the home)

Appreciation

An increase in the value of an asset over time. The increase can occur for a number of reasons including increased demand or weakening supply, or as a result of changes in inflation or interest rates.

Trustor

An individual or organization that gifts funds or assets to others by transferring fiduciary duty to a third party trustee that will maintain the assets for the benefit of the beneficiaries.

Beneficiary

Anybody who gains an advantage and/or profits from something. In the financial world, a beneficiary typically refers to someone who is eligible to receive distributions from a trust, will or life insurance policy.

If a property is in a FEMA flood zone, what will the lender require the borrower to do?

Buy flood insurance for the life of loan

Zone A

By including buffer zones like parks, gardens and riding trails in their proposal, the urban developers were able to quickly dispel concerns about the effects of their industrial park on the lifestyle of the village inhabitants.

Conforming Conventional Loan Guidelines Fannie May or Freddie Mac

Capital - Acceptable Funds √Sourced - Documented •Secured Loans •Grants •70% of retirement accounts •Gifts (Blood Marriage, Adoption, Legal Guardian √3% Seller Contributions •Closing costs only √Seasoned - Time in bank (3 years)

FHA Insured Loans Guidelines Mortgage Insurance Program

Collateral- eligible Properties √Owner Occupied ONLY; must live in it for at least 1 yr. •1-4 Units •SFR Duplexes are great idea to do a loan with this. •HUD approved Condos and PUD's •Manufactured housing •HUD Red Tag attached

1. D secured a loan with a fourplex and a second mortgage on the equity in his home. This would be: a. Package mortgage b. Wrap Around mortgage c. Chattel mortgage d. Blanket mortgage

d. Blanket mortgage

Examination Evaluation Factors

CAMELS Capital Adequacy Asset Quality: Loans on the bank assets Management: board of directors etc meeting obligation Earnings: bank is earning quarterly and financial Liquidity: meet its daily expenses etc. Sensitivity to market risk: interest rate change

Seasoned

Capital Acceptable Funds √ Sourced •6% Seller Contribution - Closing Costs ONLY •Grant Funds (First time home buyers) •Gifts (family member) •Sale of Assets •Secured Loans •Domestic Partner •Co-Habitant (for at least 1 year) •Employer-assisted Housing (EAH) gift from employer and no repayment is expected. Capital - Compensating Factors for income √10% or more down payment √Significant savings history √12-24 months Exceptional credit history √Documented compensation • Not included in effective income •Public benefits (social security)

Foreclosure and Credit Issues Lending Guidelines FHA guidelines to consider a loan:

Chapter 7 Bankruptcy √4 year must have elapsed since discharge date Chapter 13 Bankruptcy √2 year must have elapsed since discharge date- MUST have DATE. √Must have bankruptcy papers *Consideration may be given for those that have 1 year of satisfactorily making payments as stipulated in the discharge *the bankruptcy court trustee's written approval will be needed *A full explanation should be included •Good credit must have been re-established

Foreclosure and Credit Issues Lending Guidelines Fannie Mae Guidlelines to consider a loan:

Chapter 7 Bankruptcy √4 years must have elapsed since discharge date Chapter 13 Bankruptcy √2 years must have elapsed since discharge date √Extenuating circumstance must be proven √Investment properties are not eligible under this timeframe FORECLOSURE √Five years from the date of foreclosure √Applicant must re-establish good credit CHAPTER 7, 13 OR FORECLOSURE √Typically 7 years must have passed in order for Freddie to consider approval.

FHA Insured Loans Guidelines Mortgage Insurance Program

Collateral FHA Seller's Guidelines √Seller must be owner of record. √Cannot involve assignment of sales contract. √Owned of the property for 90 days for FHA to approve buyer's loan. √If owned less than 180 days, buyer will need 1st appraisal and separate second appraisal. √If owned less than 1 year, will have to document details of sellers purchase of property.

Qualifying Underwriting

Commonly computer automated system to send the information on the application. The computer will approve, condition approve or deny loan (caution). Software used to assets the eligibility of the loan: √Feddie Mac: Loan Prospector (LP) √ Fannie Mae: Desktop Underwriter (DU) Both assess borrowers' eligibility and streamline the process for their loan products.

Interest on loans that allow interest to be added to the principal balance, is what kind of interest?

Compound Interest

5. The underwriting qualifying ratio of 28/36 is applied with what loan program? a. Jumbo conventional b. VA c. FHA d. Conforming conventional

d. Conforming conventional

Foreclosure and Credit Issues Credit Bureau

Credit bureaus assemble credit data on borrowers creating a risk model, called a credit score. Each credit bureau has a unique number based on their own model so each score will vary. Underwriter typically use the middle score. The higher the score the better the credit. The credit score is a quantitative risk value based on many companies about the borrower including: √Level of delinquencies √Time since last delinquency The credit score is a quantitative risk value based on many components about the borrower including (Continued): √Proportion of revolving balances to credit limit. √Bankruptcy √Foreclosure or deed-in-lieu of foreclosure √Debt write offs √recent inquiries (getting loans at the same time)

Foreclosure and Credit Issues Credit Reports

Credit reports generally have a section detailing a borrowers credit history. These sections are: √Creditor name and account number √Date Reported/Last activity √High Credit √Current Balance Credit reports generally have a section detailing a borrowers credit history. These sections are: √Past due amount √Months reviewed √Times past due √Payment/Term √Present Status

One of the most critical items in the loan underwriting process that shows a borrower's payment behavior is:

Credit status of the borrower

12. FHA loan limits are established based on: a. HUD b. The legislative body of each state c. The U.S. senate, Finance Committee d. County

d. County

Down Payment

DEFINITION of 'Down Payment' A type of payment made in cash during the onset of the purchase of an expensive good/service. The payment typically represents only a percentage of the full purchase price; in some cases it is not refundable if the deal falls through. Financing arrangements are made by the purchaser to cover the remaining amount owed to the seller. Making a down payment and then paying the rest of the price through installments is a method that makes expensive assets more affordable for the typical person.

Notice of Interest

DEFINITION of 'IRS Notice 433 - Interest and Penalty Information' A document published by the Internal Revenue Service that outlines the interest rate applied to overpaid or underpaid taxes, as well as the interest rate applied to the underpayment of estimated taxes. The interest rate can vary from time period to time period, but typically ranges from 4-10%. Federal law requires the IRS to determine the interest rate on a quarterly basis, and interest is typically compounded daily (except on late or underpaid estimated taxes).

Residual Income Analysis

DEFINITION of 'Residual Income' The amount of income that an individual has after all personal debts, including the mortgage, have been paid. This calculation is usually made on a monthly basis, after the monthly bills and debts are paid. Also, when a mortgage has been paid off in its entirety, the income that individual had been putting toward the mortgage becomes residual income.

FHA Insured Loans Guidelines Mortgage Insurance Program Government Owned They don't give loans but insure them.

Eligible Borrowers Individuals and couples Co-signers cannot be √Seller √Builder √Sales agent √Any financial interest √Under legal age √ill-legal resident Benefits √No prepayment penalties √Assumable loans; assume the responsibility of the loan upon approve. √It has a case number at the time of appraisal; requires a cancel of a case number √Lender has to be FHA approved or sponsored

Advanced Finance Finance Contract Clauses Escalation Clause

Escalation clauses allow people to enter large or long-term contracts, while accounting for changes in the market or economy. For example, let's examine a possible arrangement for someone to rent an apartment. If housing prices are increasing rapidly, a landlord may be hesitant to sign a longer term rental agreement or lease, since he or she could lose out on the property's appreciation. By including an escalator clause, where rent can increase by a specified amount each period, the landlord can still benefit from current market conditions, while the renter can secure a long-term living arrangement

FHA Insured Loans Guidelines Mortgage Insurance Program

FHA MIP Removal Does not benefit the borrower but allowing them to get a loan. May want to get another loan with lower fees. √ Upon request only •80% of current value or √Automatically removed •78% of original loan balance √Minimum of 5 yrs after origination of the loan √Not allowable on high-risk loans

Flood Insurance

Flood Insurance Required: √ If any improvements are inside a Flood Zone "A" identified by the FEMA √ For life of loan

Chapter 13

For some debtors, Chapter 13 bankruptcy is a better option than Chapter 7 bankruptcy. And sometimes Chapter 13 is the only option because a debtor is not eligible for Chapter 7 bankruptcy. It's important to sort out the issues and decide which form of bankruptcy is best for you. Many debtors assume that Chapter 7 bankruptcy is better than Chapter 13 bankruptcy because Chapter 13 requires debtors to repay a portion of debt, whereas Chapter 7 wipes out most debts. But this is not always the case. Here are some good reasons to file for Chapter 13 bankruptcy.

Foreclosure and Credit Issues Lending Guidelines

For those that have negatively reported accounts on their credit report, there is still hope. Guidelines are different with each lender. √FHA, Fannie Mae, and Freddie Mac will lend to borrowers that have been through a previous foreclosure or even bankruptcy.

Foreclosure and Credit Issues Lending Guidelines FHA guidelines to consider a loan:

Foreclosure √three years nut pass from the date of the foreclosure before the FHA will consider ganging loan approval √an exception would be if the foreclosure was the borrower's main residence and an extenuating circumstance can be proven √Good credit must have been re-established

Seasoned Funds

Funds that are 'seasoned' have been in the borrower's bank account for a certain period of time. The general rule is 60 days, but it can vary from one lender to the next. Some require at least 90 days of seasoning. This is why people who save money at home often face more obstacles when applying for a mortgage — their savings haven't been seasoned.

APR Annual percentage Rate

Includes, as a precent of the principal, not only the interest that has to be paid on a own, but also some other costs, particularly "Points" on a Mortgage Loan

compensating Factors

HA's written guidelines outline specific examples of what compensating factors may be taken into consideration: The borrower has successfully demonstrated the ability to pay housing expenses equal to or greater than the proposed monthly housing expense for the new mortgage over the past 12-24 months. The borrower makes a large down payment (ten percent or more) toward the purchase of the property. The borrower has demonstrated an ability to accumulate savings and a conservative attitude toward the use of credit. Previous credit history shows that the borrower has the ability to devote a greater portion of income to housing expenses. The borrower receives documented compensation or income not reflected in effective income, but directly affecting the ability to pay the mortgage, including food stamps and similar public benefits. There is only a minimal increase in the borrower's housing expense. The borrower has substantial documented cash reserves (at least three months' worth) after closing. In determining if an asset can be included as cash reserves or cash to close, the lender must judge whether or not the asset is liquid or readily convertible to cash and can be done so absent retirement or job termination. Funds borrowed against these accounts may be used for loan closing, but are not to be considered as cash reserves. "Assets" such as equity in other properties and the proceeds from a cash-out refinance are not to be considered as cash reserves. Similarly, funds from gifts from any source are not to be included as cash reserves. The borrower has substantial non-taxable income (if no adjustment was made previously in the debt to income ratio computations). The borrower has a potential for increased earnings, as indicated by job training or education in the borrower's profession.

Hazard or Home Owner's Insurance

Homeowner's insurance and hazard insurance aren't the same--exactly. Hazard insurance, which protects you financially from the effects of damage and theft, is usually bought as part of your homeowner's insurance policy. Homeowner's insurance also contains liability insurance, which pays medical bills if someone is injured on your property, and legal costs if he decides to sue you because of the accident.

Conforming Conventional Loan Guidelines Fannie May or Freddie Mac

Income √stable 2 year past and 3 year future √Continuous √Rental income equal to 75% of gross rent √Typical debt-to-income ratios •Front End/Housing 29% •Back End/Total 36%

Amortized Loan

In banking and finance, an amortizing loan is a loan where the principal of the loan is paid down over the life of the loan (that is, amortized) according to an amortization schedule, typically through equal payments.

Loan Concepts Amortized Loan

Legal Title

In property law, a title is a bundle of rights in a piece of property in which a party may own either a legal interest or equitable interest. The rights in the bundle may be separated and held by different parties. It may also refer to a formal document, such as a deed, that serves as evidence of ownership. "I own it!"

Adjusted Cost Basis

In tax accounting, adjusted basis is the net cost of an asset after adjusting for various tax-related items. Adjusted Basis or Adjusted Tax Basis refers to the original cost or other basis of property, reduced by depreciation deductions and increased by capital expenditures.

Foreclosure

Is the moment that ownership is transferred. The bank or a 3rd party will then own the property. It is the legal process a lender uses to recover the investment from a defaulting borrower where the loan was secured by the property.

Mortgage Foreclosure

It is a judicial Process, it has to go through the courts and the time will be stretched. √Lender files a complaint with the court √File a Lis Pendens upon the property. Giving notice to the public that there is a court action "pending" upon the courts. √Notice posted in 3 public places (county recorders office, on the home, & mortgagor is notified. √Court date is set √Borrowers' equity of redemption; before property is sold before the foreclosure sale. (NOT in UTAH) √Sheriff's sale √3 week advertising period √10 day moratorium where property can not be sold √country Courthouse √Buyer must pay cash in 24 hours √Gets a Certificate of Sale √Statutory period of redemption √6 months √Mortgagor has possession √Must REDEEM the property √Sheriff's deed (after 6 months) √Lender can obtain a deficiency judgement (unless non-recourse loan) (judgement lean: take claim of any other property and can seek to collect at a later time) √Non-recourse loan: there is 1 recourse is the foreclosure and whatever the bank can get out of the sale.

Loan Concepts Subject to Loan

It means the seller is not paying off the existing mortgage and the buyer is taking over the payments. The unpaid balance of the existing mortgage is then calculated as part of the buyer's purchase price.

In foreclosing under a mortgage, why will it likely be along process, and fairly expensive?

It's a judicial process.

Exclusion from Debt to Income Ration

Never included in DTI √ Utilities √ Insurance Premiums √ Installment Debts with less than 10 months to pay √

Advanced Finance Finance Contract Clauses

Prepayment Clauses Two forms: √Prepayment Penalty Hard and soft penalties √Prepayment Privilege (pay off loan any time; no penalty)

Qualification Letters

Prequalification letter √ Basic unverified information √ An estimate of borrowing capacity Pre-approval letter √ Relies on verified borrower information √ Normally approved by lender

A Graduated Payment Mortgage will have Negative Amortization

True

Deductions

State and local property taxes that are generally deductible from United States federal income taxes. These include real estate taxes, which include any state, local or foreign taxes that are imposed for the welfare of the general public. Deductible real estate taxes generally do not include taxes charged for home renovations or for services like trash collection.

Trust Deed and Note

The Players: Their titles: •Borrower • Trustor (giving the trust deed) •Lender • Beneficiary •Third Party • Trustee (holding right to foreclose

Lien Priority is set by what? a. Recording Date b. Closing Date c. Loan Amount d. Application Date

a. Recording Date

Debt Ratio

The gross debt ratio is defined as the ratio of monthly housing costs (including mortgage payments, home insurance and property costs) to monthly income, while the total debt service ratio is the ratio of monthly housing costs plus other debt such as car payments and credit card borrowings to monthly income.

Lien theory

an individual who takes out a mortgage to buy a property holds the title to the property. In a lien theory state, it may be more difficult for a bank to foreclose on a property because the bank does not hold the title. In a title theory state, on the other hand, the bank holds the title to the property until the mortgage is paid off.

Interest Rates will vary Factors Impacting Rates

The interest rate that you pay on a car loan typically is higher than the interest rate that you receive on savings account The interest rate on credit card balance is higher than the rate on a new car loan. √ Availability of funds to the bank √Percieved Risk of the borrower √Risk √Duration (Term) the longer the loan the higher the interest rate. √Tax Considerations to the bank. Impact cost of borrowing √Other Characteristic of a loan (collateral, loan purpose) √Loan purpose of the loan in relation to the ability to perceive risk.

Forfeiture

The loss of any property without compensation as a result of defaulting on contractual obligations, or as a penalty for an illegal conduct. Forfeiture, under the terms of a contract, refers to the requirement by the defaulting party to give up ownership of an asset, or cash flows from an asset, as compensation for the resulting losses to the other party. When mandated by law, as a punishment for criminal activity or prohibited activities, forfeiture proceedings may be either criminal or civil. The process of forfeiture often involves legal proceedings in a court of law.

Lifetime Cap

The maximum interest rate on an adjustable-rate mortgage (ARM) that may be charged at any point over the life of the mortgage. The lifetime cap is usually expressed as a percentage increase from an initial interest rate. For example, if a fixed period ARM has an initial fixed interest rate of 5% and a lifetime cap of 5%, the maximum interest rate that may be charged is 10%. Lifetime caps are usually part of a mortgage's interest rate cap structure which consists of initial, periodic and life caps.

Capacity

The maximum level of output of goods and/or services that a given system can potentially produce over a set period of time. In most cases, it is unlikely that any system will operate at full capacity for prolonged periods, because natural inefficiencies and other factors decrease potential output.

Statutory Minimum Down Payment

The minimum cash contribution that must be made by a borrower toward the purchase of a home in order to qualify for a mortgage. The minimum down payment requirements vary by loan program and from lender to lender. Typically, a minimum down payment of 20% of the total loan balance is required to qualify for a loan without having to pay private mortgage insurance.

3 Theories of Mortgage Law Different between states

Title Theory Lien Theory Intermediate Theory (title & lien)

Why are Banks Supervised?

To protect consumers. √Maintain More Public Confidence √Adherence to Laws/Regulations √Integrity of the deposit Insurance Fund √Cause of Bank's Problems √Establish Corrective Measures

Capacity to pay

Total Debt to income ratio Ratios √Front ratio housing ratio PITI Homeowner's association dues √Back Ratio housing debt credit report debt court ordered debt

Collateral Type

Type √ Single family dwelling (SFD) √ Planned unit development (PUD) √ Condominium (owned by inside unit, outside HUD) √ Cooperative (people own in a cooperation) √ Leasehold dwellings (home own, but not land) √

Refinance

Typically, a refinanced loan will have a lower interest rate. This lower rate, combined with the new, longer term remaining on the loan will lower payments. A borrower should calculate the total cost of a new loan compared to the existing loan.

Conforming Conventional Loan Guidelines Fannie May or Freddie Mac

Unacceptable Funds √Unsecured loans NOT Allowed! •Credit cards NOT Allowed! √Undocumented cash NOT Allowed! √Gifts or advances from employer NOT Allowed! But will allow bonuses or commissions.

Tax Deferred Exchange

United States portal. Under Section 1031 of the United States Internal Revenue Code (26 U.S.C. § 1031), the exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due.

FHA Insured Loans Guidelines Mortgage Insurance Program

Up Front Premium (UFMIP) - a percentage of the loan amount is added to the base loan amount √1.75% Purchases √1.5% Streamline Refinances Monthly premium - a percentage of the loan balance is added to the monthly payment √0.55%

Loan Concepts Bridge Loan Swing or gap loan

a sum of money lent by a bank to cover an interval between two transactions, typically the buying of one house and the selling of another. Use to obtain the equity from current home to purchase a new home. Short term loan.

21. A self-employed individual borrower must submit what federal tax form to verify income? a. K-1 b. Schedule C c. Form 2106 d. Schedule F

b. Schedule C

22. In determining if collateral is adequate, the VA utilizes a: a. Certificate of Reasonable Value (CRV) b. Short form appraisal c. Narrative form appraisal d. Letter from appraisal

a. Certificate of Reasonable Value (CRV)

6. An investor goes to a sheriff's sale, bids and wins the bid. That day when he pays for the property he will receive which of the following as evidence of his purchase: a. Certificate of Sale b. Trustee's Deed c. Sheriff's Deed d. Special Warranty Deed

a. Certificate of Sale

15. An open-end loan would best be used for which of the following? a. Construction loan b. Seller financing c. Non-recourse financing d. Un-secured financing

a. Construction loan

3. The purchase price that is paid for a property is referred to as its: a. Cost Basis b. Adjusted Cost Basis c. Capital Improvement d. Cost Recovery

a. Cost Basis

4. The underwriting qualifying ratio of 31/43 is applied with what loan program? a. FHA b. VA c. Conventional Jumbo d. Jumbo

a. FHA

11. Phylis has been making payments now for over 48 months. Reading her mortgage payment statement she realizes that her balance is larger than the original loan amount, yet her payments have been higher each erg. Phyllis must have what type of loan? a. Graduated payment mortgage b. Subject to loan c. Balloon mortgage d. Chattel Mortgage

a. Graduated payment mortgage

10. What is the function of FHA? a. Insure loans to protect lenders from loss due to borrower default. b. Provide 100% financing to enable more people to buy homes c. Be a profitable private company for investors in home mortgages d. Provide financing for investment properties, as well as residential.

a. Insure loans to protect lenders from loss due to borrower default.

2. If the borrower is required to sell his property when foreclosure takes place, he lives in what type of state? a. Lien theory b. Intermediate theory c. Title theory d. Deed theory

a. Lien theory

5. Mr. Alison obtain a loan and gave his home and boat as security for a loan. This would be an example of a(n): a. Package mortgage b. Blanket mortgage c. Chattel mortgage d. Wraparound mortgage

a. Package mortgage

Which of the following properties would likely have the lowest loan to value ratio requirement? a. Personal residence b. Vacant land c. Rental property d. Investment property

a. Personal residence

5. In a Trust Deed and Note, the truster conveys to the trustee: a. Power of Sale b. Power of lIen c. Power of Attorney d. Power of Foreclosure

a. Power of Sale

7. An underwriter performs all the following activities EXCEPT: a. Setting the interest rate for the loan b. Assessing borrowing capacity of borrowers c. Verifying that borrowers meet program guidelines d. Determining if compliance to federal requirements have been met

a. Setting the interest rate for the loan

3. The standard form provided to the underwriter along with the loan application, that provides the underwriter with a snapshot of the borrower is called: a. Uniform Underwriting and Transmittal Summary (1008) b. Uniform Residential Loan Application from c. Truth in Lending (TIL)

a. Uniform Underwriting and Transmittal Summary (1008)

18. According to HPA, at what level must mortgage insurance on conventional loans automatically be removed? a. When the LTV reaches 78% of original value b. When the buyer requests it and the LTV is 80% c. When the lender obtains an appraisal to justify the 78% LTV d. Only if loan contains a prepayment penalty

a. When the LTV reaches 78% of original value

28. According to federal mandate, at what level must mortgage insurance unconventional owns automatically be removed? a. When the LTV reaches 78% of original value b. When the buyer requests i rand the LTVis 80% c. When the lender obtains an appraisal to justify the 78% LTV. d. Only if loan contains a prepayment penalty

a. When the LTV reaches 78% of original value

Patriot Act Disclosure

atriot Act includes entities that are typically thought of as financial institutions and are already subject to federal regulation, such as banks, savings associations, and credit unions. It also includes several other entities, which are not normally considered financial institutions including some in the real estate industry, such as "persons engaged in real estate closings and settlements" and "loan or finance companies." Many of the more traditional financial institutions have been subjected to regulation under the provisions of the Patriot Act; however, most of the categories of non-traditional financial institutions, including those mentioned above, have been temporarily exempted from regulation. Regulations requiring compliance by all financial institutions were to have been issued by the Treasury Department by October 25, 2002; however, this deadline has been extended indefinitely to give the Treasury Department and other regulatory bodies more time to properly assess the risk associated with each type of financial institution and issue risk-appropriate regulations.

30. How much time must have elapsed after a bankruptcy to qualify for a FHA loan? a. 1 year b. 2 years c. 5 years d. 3 years

b. 2 years

13. The minimum down payment required on an FHA loan is: a. 3% b. 3.5 % c. 5% d. 20%

b. 3.5 %

14. What are the qualifying ratios on an FHA loan? a. 29/41 b. 31/43 c. 41/41 d. Residual income

b. 31/43

32. How much time must have elapsed after a chapter 7 bankruptcy to qualify for an FNMA loan? a. 1 year b. 4 years c. 5 years d. 3 years

b. 4 years

27. Conforming conventional guidelines stipulate that borrowers must contribute how much of their own funds to down payment and closing costs? a. 3% b. 5% c. 20% d. No requirement 42.

b. 5%

6. A borrower can use all of the following for a down payment on an FHA loan EXCEPT: a. Univerifiable cash with a proven history of cash only transactions b. A gift from a parent that requires repayment c. The sale of personal or real property d. A gift from an employer that doesn't need to be paid back

b. A gift from a parent that requires repayment

1. Which of the following would NOT get $500,000. exempt from income taxes upon selling a primary residence? a. A man and woman owning and living together in the home for four years b. A married couple filing jointly who lived there 20 years and then rented it out for four years. c. A married couple, both over 55, who owned and lived in it the last 3 years. d. Two spinster sisters who owned and lived in the home for many years after inheriting it form their parents

b. A married couple filing jointly who lived there 20 years and then rented it out for four years.

19. What is the document provided by the Department of Veteran Affairs showing what a veteran's loan entitlement is? a. Entitlement Certificate b. Certificate of Eligibility c. Proof of Service d. Loan commitment

b. Certificate of Eligibility

The loan qualifying process involves all of the following EXCEPT: a. Credit b. Commissions c. Capacity to repay d. Capital

b. Commissions

6. Depreciation, as viewed by the IRS is known as: a. Appreciation b. Cost Recovery c. Adjusted Cost Basis d. Boot

b. Cost Recovery

A key concept a real estate licensee should understand, and that is part of the laws dealing with mortgages, trust deeds, and other instruments of collateral, is how which of the following is handled: a. Recording b. Foreclosure c. Financing

b. Foreclosure

3. If a Sheriff's Sale is held, the document that dictated the foreclosure process was a: a. Uniform Real Estate contract b. Mortgage c. Trust Deed and Note d. Deed in Lieu of Foreclosure

b. Mortgage

6. A loan that requires payments which include both principal and interest, and a final payment that includes a balloon payment would be an example of a(n): a. Fully amortized mortgage b. Partially Amortized Mortgage c. Adjustable rate mortgage d. Negatively amortized mortgage

b. Partially Amortized Mortgage

4. If a lender was considering giving a loan for commercial project, and felt that its possibility for making a profit was so good he wanted homeownership in the project, he would offer the prospective borrower a(n): a. Wraparound mortgage or All Inclusive Trust Deed (AITD) b. Participation mortgage c. Purchase Money mortgage d. FHA loan

b. Participation mortgage

8. Jim is requesting that the seller carry back a portion of the purchase price. Jim is asking for what type of loan? a. Wraparound mortgage b. Purchase money mortgage c.Straight Mortgage d. Contract for deed

b. Purchase money mortgage

18. What is NOT a purpose of VA loans: a. To guarantee lones to lenders in the event of borrower default b. To provide affordable housing to low income areas c. Providing loans of 100% of the lower CRV or price d. Helping veterans finance homes

b. To provide affordable housing to low income areas

9. The buyer at a Trustee's sale receives which of the following? a. Sheriff's Deed b. Trustee's Deed c. Uniform Real Estate Contract d. Certificate of Sale

b. Trustee's Deed

2. The standard application for a mortgage loan is called: a. there is no standardized b. Uniform Residential Loan Application (1003) c. Uniform Underwriting and Transmittal Summary (1008) d. Good Faith Estimate (GFE)

b. Uniform Residential Loan Application (1003)

29. Dan purchased a home using a VA 90% LTV loan. Dan's lender is protected against Dan's default by which of the following? a. Mortgage Insurance Premium b. Veterans Administration guarantee c. Private mortgage insurance d. Only Dan's good faith promise to pay

b. Veterans Administration guarantee

20. For a salaried employee, what federal tax form reflects gross income of the borrower? a. Year-to-date pay stub b. W-2 c. K-1 d. Schedule C

b. W-2

Most lenders foreclose on which Deed? a. Special Warranty Deed b. Warranty Deed c. Quit claim Deed d. Trust Deed

b. Warranty Deed

14. Any one of the following contracts: All inclusive Trust Deed, the uniform Real Estate contract, the Land Contract or the Contract for Deed could be used to create what type of loan? a. Open end loan b. Wraparound loan c. Take out loan d. Shared appreciation loan

b. Wraparound loan

17. Do condominiums using an FHA loan have UFMIP? a. No, only monthly mortgage insurance of .5% b. Yes, UFMIP c. No, it is called a funding fee d. There is no mortgage insurance on condominiums

b. Yes, UFMIP

2. Taxable difference in the exchange of property is known as: a. Depreciation b. boot c. cost recovery d. capital gain

b. boot

9. For the ordinary taxpayer, which of the following d. tax creditwould be most beneficial to him/her when computing taxes? a. capital gain b. deduction c. depreciation d. tax credit

b. deduction

11. In the Uniform Real Estate Contract, the borrower holds: a. Legal title b. equitable Title c. no title d. full title

b. equitable Title

The word "title" is an abstract concept in real estate. Which of the following would be the best synonym for that word? a. deed b. ownership c. Purchase contract

b. ownership

10. Reginald makes monthly payments that include principal, interest, taxes and insurance. At some future date he will have to make a much larger payment to pay the loan off. Reginald must be making payments on what type of loan? a. straight loan b. partially amortized loan c. fully amortized loan d. graduated payment loan

b. partially amortized loan

24. The maximum loan amount for a conventional conforming loan is: a. $359,650 b. $333,700 c. $417,000 d. $369,550

c. $417,000

19. The federal tax form an individual borrower must fill out, reflecting taxable income of any kid, is called: a. 1003 b. 1008 c. 1040 d. 2106

c. 1040

4. The least number of years that can be used for computing cost recovery for residential investment property is: a. 31.5 b. 19 c. 27.5 d. 15

c. 27.5

23. In lieu of mortgage insurance, the VA utilizes what? a. Loan reduction fee b. A standard .5% added to the interest rate c. A first time funding fee of 2.15% d. A first time funding fee of 3.3%

c. A first time funding fee of 2.15%

6. Which of the following is an example of cash on hand? a. Equity b. Business interest in a partnessship c. Bank account d.Car that is paid off

c. Bank account

10. The advantage for the lender when a Uniform Real Estate Contract is used is that in the event of default by the buyer the lender has the possibility of a process called: a. Hypothecation b. Estoppel c. Forfeiture d. Cancellation

c. Forfeiture

7. When foreclosure proceedings under a mortgage are initiated against property, which of the following must also be recorded against the property? a. Mechanic's lien b. Sheriff's lien c. Lis pendens d. Complaint

c. Lis pendens

9. Which of the following is NOT an automated underwriting system, but is instead desktop origination software? a. Fannie Mae Desktop Underwriter (DU) b. Loan pro c. Point d. Freddie Mac Loan Prospector (LP)

c. Point

7. M has a loan on which he makes payments of interest only. At the end of the loan M must pay off the entire principal in simple payment. This loan is and sample of a: a. Reverse annuity mortgage b. Package mortgage c. Straight loan d. Partially amortized mortgage

c. Straight lo

11. The following are advantages of an FHA loan EXCEPT: a. Low down payment b. Flexible underwriting guidelines c. Upfront mortgage insurance d. Seller contribution of up to 6% of closing costs.

c. Upfront mortgage insurance

26. When will mortgage insurance be required for a conforming conventional loan? a. Anytime the combined loans exceed 80% of the purchase price b. Whenever there is more than one loan on the property c. When a loan exceeds 80% LTV d. Mortgage insurance is only used on FHA loans

c. When a loan exceeds 80% LTV

23. When must borrowers submit business tax returns such as a partnership or corporation federal tax return in addition to individual tax returns? a. When borrowers' owner ship exceeds 10% b. Only if needed for qualification c. When borrowers' ownership exceeds 25% d. When borrowers' ownership is at least 50%

c. When borrowers' ownership exceeds 25%

9. Jill will be making a single monthly payment to Dan, the seller. Dan will be using that payment to pay Dan's mortgage but Dan will also be keeping a significant amount of Jill's payment. This would probably be an example of which of the following types of loans? a. Non-recourse loan b. Cash out refinance c. Wraparound loan d. Partially amortized loan

c. Wraparound loan

5. Gain or loss is recognized as income: a. The year after it is realized b. The year after it is realized, except in the case of investment situations c. in the year it is realized d. in the year it is realized, except in the case of commercial properties.

c. in the year it is realized

21. Instead of the ratio in determining adequate income forlorn qualification, the VA uses a formula called: a. ratio qualification formula b. income is not used in qualification for loan c. residual income d. stated income formula

c. residual income

Investment Property

can be a long-term endeavor, such as an apartment building, or an intended short-term investment in the case of flipping (where a property is bought, remodeled or renovated, and sold at a profit).

Quit-Claim Deed

conveys all interest in a property which the grantor may or may not have, and gives no warranties as to the condition of title. Its primary use is to remove clouds from the title.

8. If the cost of an income property was $150,00, the depreciation that had been taken during the period the property was owned was $21,800, and $6,300 worth of improvements had been made just prior to the sale, the adjusted cost basis would be: a. $150,000 b. $171,800 c. $165,500 d. $134,500

d. $134,500

4. If a truster wanted to give his property back to the lender in exchange for having the loan forgiven and cancelled, and if the lender would agree, this would be accomplished with a: a. Uniform Real Estate Contract b. Mortgage c. Trust Deed and Note d. Deed in Lieu of Foreclosure

d. Deed in Lieu of Foreclosure

14.A seller takes a note back as partial payment when selling his home. The buyer has made many payments on the note. Which of the following would allow the seller to raise some quick cash? a. Demand the buyer pay Par b. Taking the note to the primary market c. Charging a origination fee to the buyer d. Discounting the loan to a secondary market investor

d. Discounting the loan to a secondary market investor

13. Nancy's mortgage has scheduled payment increases for 1% per year for the life of the loan. She probably has what type of loan? a. Graduated payment loan b. Adjustable rate loan c. Participation loan d. Growing equity mortgage

d. Growing equity mortgage

1. The process of giving something as collateral for a loan without giving up possession is a. Pledge b. Title c. Deed d. Hypothecation

d. Hypothecation

17. Mortgage insurance protects the: a. Borrowers in case of death b. Borrowers in case of loan default c. Lender in case of natural disaster d. Lender in case of borrower default

d. Lender in case of borrower default

8. Utah is which of the following? a. Title theory state b. Intermediate theory state c. Uniform Real Estate Contract d. Lien Theory State

d. Lien Theory State

20. The following are all correct regarding a VA loan EXCEPT: a. Loans up to 100% loan to value b. Flexible underwriting guidelines c. Allows seller contribution to closing costs up to 4% d. Restricts the price on a home sold to a veteran.

d. Restricts the price on a home sold to a veteran

2. When the Beneficiary makes payments to the Trustor, the loan is: a. Wraparound Mortgage b.Negatively Amortized Mortgage c. Blanket Mortgage d. Reverse Annuity Mortgage

d. Reverse Annuity Mortgage

What kind of ownership does an entity have if it holds a trust deed signed by the borrowers? a. Legal title b. None c. Equitable title d. Tenant in common

d. Tenant in common

12. Sherri has an adjustable rate mortgage. She just received a notice that her payment next month will be higher. On what basis could her lender raise her payment? a. The payment cap has changed b. The margin has changed c. The lifetime cap has changed d. The index has changed

d. The index has changed

15. Do FHA loans have an upfront mortgage insurance charge? a. yes, called a funding fee b. No, just monthly mortgage insurance c. It depends on the loan to value ratio d. Yes, both upfront and monthly mortgage insurance

d. Yes, both upfront and monthly mortgage insurance

7. Which of the following cannot be depreciated, regardless of the circumstances? a. personal property b. investment property c. commercial property d. personal residence and land

d. personal residence and land

22. What federal tax form reflects income and ownership percentage of borrowers receiving income from a partnership or a corporation? a. Schedule C b. For 2106 c. W-2 d.K-1

d.K-1

Certificate of Sale

is a certificate issued to the winning bidder at a foreclosure sale. It is a document issued by the court at a judicial sale, entitling the purchaser to receive a deed once the court approves the purchase. Certificate of sale will be given by the sheriff or other officer conducting a sale under execution. It declares the making of a sale to a designated purchaser and the right of the purchaser to receive a deed from the sheriff or other officer upon presentation of the certificate after the expiration of the redemption period.

Underwriter

is a company or other entity that administers the public issuance and distribution of securities from a corporation or other issuing body.

Estoppel Certificate

is a document used in mortgage negotiations to establish facts and financial obligations, such as outstanding amounts due that can affect the settlement of a loan. It is required by a lender of a third party in a real estate transaction. Used for: √Current loan information √Seller Net Estimate (how much they owe to pay loan) √Investment properties √Information about leases

Government Sponsored enterprise (GSE)

is a financial services corporation created by the congress. Their function is to enhance the flow of credit to targeted sectors of the economy and to make those segments of the capital market more efficient and transparent. Four GSE's 1. The twelve Federal Home Loan Banks (1932) 2. Federal National Mortgage Association (Fannie Mae) 3. Federal Home Loan Mortgage Corporation (Freddie Mac) 4. Government National Mortgage Association (Ginnie Mae)

Quit-Claim Deeds

is a legal instrument which is used to transfer interest in real property. The entity transferring its interest is called the grantor, and when the quitclaim deed is properly completed and executed it transfers any interest the grantor has in the property to a recipient, called the grantee.

Loan Concepts Interest Only Loans or Straight Notes

is a loan in which, for a set term, the borrower pays only the interest on the principal balance, with the principal balance unchanged. *** paid only interest only*never get balance down***

Loan Concepts Graduated Payment Mortgage (GPM)

is a mortgage with low initial monthly payments which gradually increase over a specified time frame. ***First two years is a negative amortized*** i.e. grad student for 2 years, then get a job.

Wraparound Mortgage or All inclusive Trust Deed (AITD)

is a new deed of trust that includes the balance due on the existing note plus new funds advanced; also known as a wrap-around mortgage. A wrap-around mortgage, more-commonly known as a "wrap", is a form of secondary financing for the purchase of real property. The seller extends to the buyer a junior mortgage which wraps around and exists in addition to any superior mortgages already secured by the property. Under a wrap, a seller accepts a secured promissory note, an AITD, from the buyer for the amount due on the underlying mortgage plus an amount up to the remaining purchase money balance. The new purchaser makes monthly payments to the seller, who is then responsible for making the payments to the underlying mortgagee(s). Should the new purchaser default on those payments, the seller then has the right of foreclosure to recapture the subject property.

Capital Gain

is a profit that results from a sale of a capital asset, such as stock, bond or real estate, where the sale price exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price. Calculating capital gain of a primary residence: Sale price - Fix up expenses (incurred 90 days prior to accepting an offer) = Adjusted sales price - Selling Cost -cost Basis (purchase price + allowable costs) -Capital Improvements or repairs = Capital Gain 15% rate for capital gain

Amortization Schedule

is a table detailing each periodic payment on an amortizing loan (typically a mortgage), as generated by an amortization calculator. Amortization refers to the process of paying off a debt (often from a loan or mortgage) over time through regular payments.

Special Warranty Deed

is a type of deed that contains only two covenants: the covenant of seizing and the covenant against encumbrances. Furthermore, it only warrants the period of time that the grantor actually owned the property.

Bride, Gap, or Swing Loan

is a type of gap financing arrangement wherein the borrower can get access to short-term loans for meeting short-term liquidity requirements. Description: Bridge loans help in bridging the gap between short-term cash requirements and long-term loans.

Loan Concepts Blanket Mortgage

is a type of loan used to fund the purchase of more than one piece of real property. Blanket loans are popular with builders and developers who buy large tracts of land, then subdivide them to create many individual parcels to be gradually sold one at a time.

Participation Loan

is a type of mortgage that allows the lender to share in part of the income or resale proceeds. The lender participates in the income of the mortgaged property beyond a fixed return, or receives a yield on the loan in addition to the straight interest rate.

Loan Concepts Participation Mortgage

Potential Servicing Transfer Statement

is required if the loan servicer sells or assigns the servicing rights to a borrower's loan to another loan servicer. Generally, the loan servicer must notify the borrower 15 days before the effective date of the loan transfer. As long the borrower makes a timely payment to the old servicer within 60 days of the loan transfer, the borrower cannot be penalized. The notice must include the name and address of the

Trust Deed

is the document that provides for a non-judicial foreclosure process. It is used to secure a promissory note, by which a borer hypothecates property as collateral for a debt or loan.

Eviction

is the legal process of removing a tenant from the premises for some breach of the lease. The foreclosure eviction process is different than a rental type eviction. √ Rentals require a 3 day Pay or Vacate notice to start the procedure √Foreclosers require a 5 day Notice to Vacate √The entire process takes about 21-30 days √Typically the people occupying the property will leave prior to the end of this process √If not a Sheriff will serve them with a 3 day notice √After the 3 days you can call and have a constable or Sheriff conduct a lockout on the property √A lockout on a property: It is the new owner's responsibility to call a locksmith and have the property open √The sheriff will enter the property & escort them off the grounds. √The sheriff will also post notices on the property alerting the former owner of illegally trespassing.

Federal Reserve System

is the nation's central bank created by the Federal Reserve Act of 1913 to help stabilize the economy though the judicious handling of the money supply and credit available in this country, functioning through a seven-member Board of Governors and 12 Federal Reserve District Banks, by setting policies and working with privately owned commercial banks.

Hypothecation

is the practice where (usually through a letter of hypothecation) a debtor pledges collateral to secure a debt or as a condition precedent to the debt, or a third party pledges collateral for the debtor.

Statutory Period of Redemption

is the right of a mortgagor to regain ownership of property after foreclosure. A mortgagor is a person or party who borrows money from a mortgagee to purchase property. The arrangement between a mortgagor and mortgagee is called a mortgage. Foreclosure is the termination of rights to property bought with a mortgage. Most foreclosures occur when the mortgagor fails to make mortgage payments to the mortgagee. After foreclosing a mortgage, the mortgagee may sell the property at a foreclosure sale. Statutory redemption gives a mortgagor a certain period of time, usually one year, to pay the amount that the property was sold for at the foreclosure sale. If the mortgagor pays all of the foreclosure sale price before the end of one year after the foreclosure sale, or within the statutory redemption period, the mortgagor can keep the property.

Lien:

lender: I have a right to force the owner to sell the property to pay me.

Priority of Liens

lien priority determines the order in which creditors get paid following a foreclosure. Government gets paid first and mechanic leans. First in time first in line. If a lien has priority over another lien, it gets paid before the other lien. Read on to learn more about different types of liens, how lien priority is determined, and how priority affects what happens to liens in a foreclosure.

Judicial Foreclosure

occurs when a court allows a lender to seize and sell a borrower's collateral when the borrower has failed to repay the lender. The term is most often associated with real estate. √less advantageous for the lender √Not used often √Typically there is a dispute or conflict requiring a judge to determine outcome If the property is ordered to be sold: √An attorney or actual sheriff will hold the sale at the courthouse √Notice of the sale publicly posted in advance √Auction are typically called a "Sheriff Sale" Not good for judicial foreclosure √Judicial Foreclosures can have a 6 month redemption period √During this time,the original owner has the ability to purchase the property back from the bank investor.

Par (interest rate)

of 'Mortgage Par Rate' An interest rate used as the reference point for which a mortgage lender will neither pay a rebate (yield spread premium or negative points) or require discount points for a mortgage. √ Market interest rate for a mortgage loan √Commission or yield spread premium that way you can get a lower interest. √discount point you can get a lower rate of interest

Quai-Government

of 'Quasi-Public Corporation' A type of corporation in the private sector that is backed by a branch of government that has a public mandate to provide a given service. Most quasi-public corporations began as government agencies, but have since become separate entities. √FNMA (Fannie Mae) √FHLMC (Freddie Mac)

Qualifying Ratio

of debt to income and housing expense to income that is used by mortgage lenders to determine a borrower's credit-worthiness for certain loan amounts.

Graduated Payment Mortgage (GPM)

often referred to as GPM, is a mortgage with low initial monthly payments which gradually increase over a specified time frame. These plans are mostly geared towards young people who cannot afford large payments now, but can realistically expect to raise their incomes in the future.

Blanket Mortgage

or blanket mortgage, is a type of loan used to fund the purchase of more than one piece of real property. Blanket loans are popular with builders and developers who buy large tracts of land, then subdivide them to create many individual parcels to be gradually sold one at a time.

Foreclosure and Credit Types of Deeds

√Warranty Deeds √Special Warrant Deeds √Quit-Claim Deeds √Trust Deeds √Trustee's Deed

Complaint, Filing a

the first document filed with the court (actually with the County Clerk or Clerk of the Court) by a person or entity claiming legal rights against another. The party filing the complaint is usually called the plaintiff and the party against whom the complaint is filed is called the defendant or defendants.

Mortgage Law Foreclosure

title (incorporeal or not tangible) An abstract term that means (not a piece of paper) means: "Actual Ownership". Deed (Corporeal or tangible) From grantor........ to grantee shows ownership and evidence of ownership

Loan Concepts Niche Loans

who specializes in one market segment and has a product that is unique to them or that very few other have as well. One example would be a hard money lender, or a lender who only does FHA 203k loans; that is their niche or specialty.

Note (money part) "Promissory Note"

• Amount of money that is promised to pay back •Interest rate of the loan •Terms and agreements of the loan •Payment, how much will it increase, late payment etc.

Mortgage Collateral in case something happens

•Collateral •Security •hypothecation

Value - Appraisal

√ Appraisers Opinion of Value √ Approved Appraiser / as per Product √ VA has their own appraisals √ FHA can not pick their appraisers √the lender in a mortgage, typically a bank.the lender

Qualifying Process

√ Checking Credit √ Checking Capacity to repay loan √ Assessing Capital √ Evaluating Collateral √ 4 "C's" are used to verify compliance to program guidelines * Borrower needs to be qualify * Collateral is the property and that needs to qualify

Types of Self Employment Income

√ Commission 1099 verification of employment √ Sole Proprietor schedule C janitor √ Partnership & Corporations 25% or more needs to show business tax return otherwise they can file a K - 1 √ Two years worth of tax returns (all pieces of the tax returns. If own 25% or more ownership √ Needed Business Income Documentation: Corporation 1120 s - Corp 1120S Partnership 1065 Limited Liability 1065

Homeowner's Insurance

√ Policy package covers two types of peril Hazard insurance: Property damage Public Liability: protects against alleged claims √ Lesser of: Entire loan amount or replacement cost of home √ If hazard insurances lapses: lender will purchase a forced insurance policy to protect the lender's interest

Qualifying Loan Application

√ Uniform Residential Loan Application (URLA) may be called by: • 1003 (Fannie Mae) • Form 65 (Freddie Mac) √ Completed by the borrower (every box) √ Information must be as accurate as possible √ Borrower will certify the information to be true with signature √ There are legal penalties for false statements √ MUST BE COMPLETED BY APPLICATE SOME BY LOAN OFFICER √ Must be as accurate as possible √ TBD (To Be Determines) if you do not know; must be verified with a piece of paper.

Conforming Conventional Loan Guidelines Fannie May or Freddie Mac

√Automated decision •LP - Loan Prospector (FHLMC) •DU - Desktop Underwriter (FNMA) √Less Documentation √Less time √Consistent accuracy √Approve more mortgages in less time

Real Estate Finance

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