Real Estate Fundamentals - Chapter 9

The 3 principles in the secondary mortgage market.

1. Fannie Mae 2. Freddie Mac 3. Ginnie Mae

What are the 2 main differences between a mortgage and a deed of trust?

1. There are 3 parties involved in a deed of trust and only 2 parties involved in a mortgage. 2. Lenders take different actions if a borrower defaults. Deeds of trusts are non-judicial foreclosures and mortgages are judicial.

Who is involved in a deed of trust?

1. Trustor 2. Beneficiary 3. Trustee

What are the 2 factors that influence a title theory state and a lien theory state.

1. Who owns the title of the home while a home loan is in place. 2. What happens during foreclosure.

Failure to fulfill a duty or promise or to discharge an obligation.

Default

Is a term used to describe the process of taking possession of a home with a mortgage when the mortgagor fails to maintain his or her payments on their home loan.

Foreclosure

When the amount of interest paid by the borrower is spread out over the entire term of the loan. Every monthly payment, the homebuyer pays towards the interest and the principle.

Full Amortization

A way to figure out a buyers anticipated origination fees. Is given to the borrower by the lender as accurately as possible in order to get an idea of what they might be paying.

Good Faith Estimate

To pledge a thing as security without the necessity of giving up possession of it.

Hypothecate

One of the 2 most common forms of foreclosure. This specific type of foreclosure goes through the court system. This is required by many states.

Judicial Foreclosure

The term that is given to any additional secondary loan on the property. This is a subsequent lien on the property. Any type of loan in which the property is used for collateral. Ex: HELOC

Junior Liens

A type of theory state where the borrower continues to hold onto the title throughout the loan term, and the foreclosure process is much more difficult for the lender. Mortgage states!

Lien Theory State

The day in which a loan is due to be paid in full.

Maturity Date

This is the lender. The lender is the provider of the loan. They do not hold the title of the home, but can utilize the mortgage to obtain ownership should a default occur.

Mortgagee

This is the borrower or home buyer. They allow for the property to be used as collateral.

Mortgagor

When the court is not used directly, and is bypassed in foreclosure. Takes place in states that use Deeds of Trusts.

Non- judicial Foreclosure

What is the acronym used to describe the components of a borrower's loan?

PITI

When the interest is paid during the loan term and the principle is paid at the end.

Partial Amortization

Designed to help Pennsylvanians who are unable to meet their mortgage payments. Created in 1983 by Act 1, and protects families who are in danger of foreclosure. Any money that is provided, must be paid back.

Pennsylvania's Homeowner's Emergency Mortgage Assistance Program (HEMAP)

Following a loan commitment from the lender, the borrower signs this, promising to repay the loan under stipulated terms. This establishes personal liability for its payment. The evidence of the debt. These do not get recorded.

Promissory Note

The discharge of a mortgage from the records upon payment of the debt. This is outlined in the Defeasance Clause.

Satisfaction of Mortgage (Release of Mortgage)

Loans that are backed by collateral. Most home loans.

Secured Loans

A law that gives the homeowner the ability to have more time to redeem the property after the sale of the home. The homeowner will have a specific amount of time to redeem.

Statutory Right of Redemption

A main marketplace that is impacted by the feds where loans are bought and sold. It is the main market where loans originated. This is where your home buyer will turn to a bank to secure a loan and a financial institution underwrites the loan.

The Primary Mortgage Market

Is the third party under a deed of trust that owns the actual legal title to the property.

Trustee

The 3 most commonly used types of foreclosure.

1. Judicial Foreclosure 2. Non-Judicial Foreclosure 3. Deed in Lieu of Foreclosure

How does the redemption process work?

1. The homeowner pays off the debt in full. 2. The homeowner can pay off the purchase price, and any additional cost after the foreclosure.

When the mortgagee (lender) can trade the loan with other commercial lenders in a secondary mortgage market. This means that all the interest that the mortgagee had in the loan is then transferred to another bank. When banks can "sell" mortgages to

Assignment

A provision in a mortgage or deed of trust under which the lender may, upon default by the trustor, take possession of the property, collect income from the property and apply it to the loan balance and the costs incurred by the lender.

Assignment of Rents

A provision that gives the lender the right to allow someone else, a third party, the ability to assume the home on the loan. Usually used when a buyer wants to purchase a home and sell it within a short period of time. Or if the seller would like a child or friend, buy to own the property.

Assumption of Mortgage

A payment sum that is made on the principle at the end of the loan term.

Balloon Payment

The lender in a deed of trust.

Beneficiary

The clause in a mortgage that gives the mortgagor the right to redeem the mortgagor's property upon the payment of the mortgagor's obligations to the mortgagee.

Defeasance Clause

It is not a mortgage, but refers to the financial product used to make the purchase.

Home Loan

Commonly found when when a home buyer purchases the property with a down payment that is under 20 percent of the home's sale price. Then an escrow account will be a requirement by the lender.

Reserve

One who borrows money from a trust deed lender, then deeds the real property securing the loan to a trustee to be held as security until the he/she has performed the obligation to the lender under terms of a deed of trust.

Trustor

A type of regulation that governs the amount that a bank can charge on a loan. Each state sets their own.

Usury Laws

What is the 4 steps of theforeclosure process in a non-judicial state who use Deeds of Trusts' instead of mortgages?

1. Borrower missed a payment and the trustee sends a letter to the borrower about the missed payment. 2. If the borrower fails to make the payment is time, the trustee puts the property up for auction. 3. Property is put up for auction, and if isnt sold, property reverts back to the lender. 4. Some states allow the borrower to redeem property if all fees are paid in full in a specific time after the sale.

The two types of lenders in a primary mortgage market.

1. Commercial Banks 2. Savings and Loans Associations

The two types of Pennsylvania's Homeowner's Emergency Mortgage Assistance Programs.

1. Continuing Mortgage Assistance Loans 2. Non-Continuing Mortgage Assistance Loans

The 5 duties of a mortgagor.

1. Must pay the debt as listed in the promissory note. 2. Must pay all real estate taxes on the property. 3. Must contain home insurance on the property. 4. Must maintain the property and the value of the property. 5. Must obtain permission from lender before significant changes are done.

What are the 3 things loan origination fees pay for?

1. Paperwork 2. Calculations that are done to determine the loan rate and terms. 3. Verifications

What are the components of a borrower's loan?

1. Principle 2. Interest 3. Taxes 4. Insurance

List of higher priority to lowest priority.

1. Tax Lien 2. Mortgage Lien 3. Mechanic's Lien 4. Judgement Lien

What are the 5 things a promissory note will contain?

1. The principle amount 2. The interest rate 3. Maturity date 4. The date and place of insurance 5. Signatures of all parties

The 3 rights of a mortgagee (lender).

1. The right to foreclose on a property if there is a cause. 2. The right to take possession of property after foreclosure. 3. The right to assign the mortgage in secondary mortgage market.

A condition in a real estate finance instrument giving the lender the power to declare all sums owing the lender immediately due and payable upon the happening of an event, such as sale of the property, or a delinquency in the repayment of the note.

Acceleration Clause

A clause in a contract giving the lender the right to demand full principle balance once a property is sold. Sometimes called the Due-on- Sale Clause. Provides protection to the lender.

Alienation Clause

A complex process that calculates the amount of interest on any home loan.

Amortization

One of the HEMAP programs that assist families that need continuing assistance.

Continuing Mortgage Assistance Loans

A deed to real property accepted by a lender from a defaulting borrower to avoid the necessity of foreclosure proceedings by the lender. Title is transferred to the lender, making the homeowner released from the loan obligation. Similar transaction to a short sale, but is processed differently.

Deed in Lieu of Foreclosure

Is the actual document that is signed by the buyer that holds the ability to reclaim the home if they fail to make payment on it. It is an IOU to the lender. It is a proof of security for the loan.

Deed of trust, or mortgage

A judgment given by a court when the value of security pledged for a loan is insufficient to pay off the debt of the defaulting borrower. Ex: If a homeowner's home sells for $200k in the foreclosure and he originally owed $250. He is still responsible to pay back the $50k.

Deficiency Judgment

A type of pre-paid interest. Buying one of them means the borrow is paying 1 percent of the loan amount. It is also offered as buying down the rate. Borrowers will pay this in order to get a mortgage at a stated interest rate.

Discount Points, or Points

The right reserved by the lender to increase the amount of the payments and/or interest upon the happening of a certain event.

Escalation, or Escalator Clause

An independent stock company which creates a secondary market in conventional residential loans and in FHA and VA loans by purchasing mortgages.

Federal Home Loan Mortgage Corporation (FHLMC) (Freddie Mac)

A New York stock exchange company. It is a public company that operates under a federal charter and is the nation's largest source of financing for home mortgages. It does not lend money directly to consumers, but instead works to ensure that mortgage funds are available and affordable, by purchasing mortgage loans from institutions that lend directly to consumers.

Federal National Mortgage Association (FNMA) (Fannie Mae)

A section of the fed that meets 8 times a year, or whenever there is an economic concern. They set the target lending rate which is the interest rate charged when banks lend their deposits to other banks over night. This helps keep the banks within their reserve requirements.

Federal Open Market Committee (FOMC)

The federal banking system of the United States under the control of central board of governors (Federal Reserve Board) involving a central bank in each of twelve geographical districts with broad powers in controlling credit and the amount of money in circulation.

Federal Reserve System (The Fed)

A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD) that guarantees securities backed by mortgages that are insured or guaranteed by other government agencies.

Government National Mortgage Association (GNMA) (Ginnie Mae)

A straight, non-amortizing loan in which the lender receives only interest during the term of the loan and principal is repaid in a lump sum at maturity.

Interest Only Loan

The cost that banks charge on their loans in order to pay for a home. Its often expressed in a percentage.

Interest Rate

When the borrower is given a notice of intention to foreclose. The notice warns the borrower and gives them a chance to resolve the situation before the lender forecloses on the property. Pennsylvania operates under this type of theory state.

Intermediate Theory State

A fee that is charged by the lender on a home loan, or the fee to obtain a loan. It is usually between .05 and 1 percent of the amount of the loan to purchase the home.

Loan Origination Fees

Is not a home loan, but refers to the process involved in securing that loan and tying its value to the home as collateral.

Mortgage

A person whose principle business is the originating, financing, closing, selling, and servicing of loans secured by real property for lenders on a contractual basis.

Mortgage Bankers

A broker who works in the primary mortgage market who arranges a loan between a lender and a borrower for a fee.

Mortgage Broker

One of the HEMAP programs that assist those that need immediate help but can resume their mortgages right away.

Non-Continuing Mortgage Assistance Loans

One of the 2 most common forms of foreclosure. this specific type of foreclosure is handled through a third party.

Non-Judicial Foreclosure

The charge payable to a lender by a borrower under the terms of the loan agreement if the borrower pays off the outstanding principal balance of the loan prior to its maturity. This cost is usually a percentage of the amount borrowed or a certain number of months' worth of interest payments.

Prepayment Penalty

What is the amount of money called in which home buyers agree to borrow to buy their home.

Principle

The order in which liens are given legal precedence or preference.

Priority of Lien

Buying back one's property after a judicial sale.

Redemption

Is an account that is controlled by the lender that is meant to collect funds, which each payment that the borrower makes, is held to pay home insurance or real estate taxes on the property. Needed when the buyer purchases the property with a down payment that is under 20 percent.

Reserve account, or escrow account

A main marketplace that is impacted by the feds where loans are bought and sold. It is the market where lenders can sell those loans to secondary agents. Ex: Fannie Mae, etc.

Secondary Mortgage Market

A seller's attempt to sell the real estate whereby the liens are greater than the value of the property. The homeowner usually sells the property to a third party but does so at a rate that is less than what the total debt remaining on the home loan is. They are selling the home short.

Short Sale

A type of loan where there is a period of time in which only the interest on the loan is paid and the principle is paid at the end. Also referred to as a term loan or an interest only loan.

Straight Loans

A note in which a borrower repays the principal in a lump sum at maturity while interest is paid in installments or at maturity.

Straight Note

The process in which the holder of a lien can change their priority through an agreement.

Subordinate

An agreement that simply means that a junior lienholder can move up the line to take a higher priority position in the repayment if foreclosure occurs.

Subordination Agreement

A type of theory state that uses a Deed of Trust which the buyer signs. This makes the lender the beneficiary in the agreement. There is a third party called the trustee, who holds legal title of the property. No courtroom which speeds up the foreclosure process.

Title Theory State

A loan that is not backed by collateral. For example a credit card, which is backed by a persons credit history and financial security.

Unsecured Loans

On a loan, claiming a rate of interest greater than that permitted by law.

Usury