Unit 12
Mortgagor
A borrower in a mortgage loan transaction.
Prepayment Penalty
A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost.
Interest
A charge made by a lender for the use of money.
Defeasance Clause
A clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan.
Mortgage
A conditional transfer or pledge of real estate as security for the payment of a debt; also, the document creating a mortgage lien.
Promissory Note
A financing instrument that confirms the debt is signed by its maker and is negotiable (transferable to a third party).
Example of Amortized Principal and Interest Payments
A lender applies a portion of each amortized payment to interest and the remainder of the payment to principal. The amount that is applied to interest for any one installment payment is calculated by computing the total yearly interest on the unpaid principal balance and then dividing that figure by the number of payments made each year. For example, if the current outstanding loan balance is $70,000, the interest rate is 7.5% per annum, and the constant monthly payment is $489.30, the principal and interest on the next payment would be computed as shown: $70,000.00 × 0.075 $5,250.00 annual interest month's interest $489.30 monthly payment - 437.50 month's interest $51.80 month's principal $70,000.00 principal - 51.80 month's principal $69,948.20 new principal balance
Mortgagee
A lender in a mortgage loan transaction.
straight loan
A loan in which only interest is paid during the term of the loan, with the entire principal amount due with the final interest payment; also called a term loan
Amortized loan
A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan.
Usury
Charging interest at a higher rate than the maximum rate established by state law.
Example of Discount Points
For borrowers, one discount point equals 1% of the loan amount and is charged as prepaid interest at the closing. For instance, three discount points charged on a $100,000 loan would be $3,000 ($100,000 × 3%, or 0.03). If a house sells for $100,000 and the borrower seeks an $80,000 loan, each point would be $800, not $1,000. In some cases, however, the points in a new acquisition may be paid in cash at closing by the buyer (or, of course, by the seller on the buyer's behalf) rather than financed as part of the total loan amount. To calculate how many points are charged on a loan, divide the total dollar amount of the points by the amount of the loan. For example, if the loan amount is $350,000 and the charge for points is $9,275, how many points are being charged? $9,275 ÷ $350,000 = 0.0265 or 2.65% or 2.65 points
In Pennsylvania
Pennsylvania law does not permit prepayment penalties on residential mortgage loans when the principal amount is $50,000 or less.
Ginnie Mae (Government National Mortgage Association)
Special assistance loans
When the property was sold after foreclosure, it did not sell for as much as was owed on the loan. What recourse does the lender have? A) Deficiency judgment B) No recourse C) Mechanic's lien D) Alienation lien
The answer is deficiency judgment. A deficiency judgment is a personal judgment levied against a borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.
After a borrower makes the final payment on a home mortgage, there will still be a lien on the property until the lender records A) an alienation of mortgage. B) a satisfaction of mortgage. C) a reconveyance of mortgage. D) a reversion of mortgage.
The answer is satisfaction of mortgage. When all loan payments have been made and the note has been paid in full, the lender must execute a satisfaction of mortgage in the public record to show that the debt has been satisfied and that the lender is divested of all rights conveyed under the mortgage.
What document is recorded by the mortgagee to show that the mortgage debt is completely repaid? A) Satisfaction B) Deed of trust C) Defeasance certificate D) Mortgage estoppel
The answer is satisfaction. When a mortgage is recorded, this creates a lien on the title. To release the lien, the mortgage holder (mortgagee) must record a satisfaction or release of liens.
Acceleration Clause
The clause in a mortgage or trust deed that can be enforced to make the entire debt due immediately if the mortgagor defaults on an installment payment or other covenant.
Hypothecation
The pledge of property as security for a loan.
Equitable Right Of Redemption
The right of a defaulted property owner to recover the property prior to its sale by paying the appropriate fees and charges.
Some major lenders in the primary market include the following:
Thrifts, savings institutions, and commercial banks. Insurance companies. Credit unions. Pension funds Endowment funds. Investment group financing. Mortgage banking companies Mortgage brokers.
Discount Points
Units of measurement used for various loan charges; one point equals 1% of the amount of the loan.
Payments made at the end of a period
are known as payments in arrears.
lien theory
he mortgagor retains both legal and equitable title. The mortgagee simply has a lien on the property as security for the mortgage debt.
Payments made at the beginning each period are known as
payment in advance
Freddie Mac (Federal Home Loan Mortgage Corporation)
similar to Fannie Mae, Mostly conventional loans
Mortgage loans have two parts:
the debt itself and the security for the debt.
title theory
the mortgagor actually gives legal title to the mortgagee (or some other designated individual) and retains equitable title. Legal title is returned to the mortgagor only when the debt is paid in full (or some other obligation is performed)
Deed In Lieu Of Foreclosure
A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This is a way for the mortgagor to avoid foreclosure.
Satisfaction Of Mortgage
A document acknowledging the payment of a mortgage debt.
Loan Origination Fee
A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.
Foreclosure
A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage
Deficiency Judgment
A personal judgment levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.
Fannie Mae (Federal National Mortgage Association)
Conventional, Department of Veterans Affairs (VA), Federal Housing Administration (FHA) loans
A mortgage broker is
Defined as any person or company, who for a fee, arranges or negotiates a first mortgage loan. Failure to obtain a license is a felony offense of the third degree.
For a lender, a loan must generate enough income to be an attractive investment. Income on the loan is realized from two sources:
Finance charges collected at closing, such as loan origination fees and discount points Recurring income, the interest collected during the term of the loan
Strict foreclosure
First, appropriate notice must be given to the delinquent borrower. Once the proper papers have been prepared and recorded, the court establishes a deadline by which time the balance of the defaulted debt must be paid in full. If the borrower does not pay off the loan by that date, the court simply awards full legal title to the lender. No sale takes place.
The real estate financing market has the following three basic components:
Governmental influences, primarily the Federal Reserve System The primary mortgage market The secondary mortgage market
In Pennsylvania
The Mortgage Bankers and Brokers and Consumer Equity Protection Act is administered by the Pennsylvania Department of Banking.
A borrower obtains a $100,000 mortgage loan for 30 years at 6% interest. If the monthly payments of $575 are credited first to interest and then to principal, what will be the balance of the principal after the borrower makes the first payment? A) $99,425 B) $100,000 C) $99,500 D) $99,925
The answer is $99,925. $100,000 × .06 ÷ 12 = $500 first month's interest payment. $575 - $500 = $75; the $75 reduces the principal. After the first payment, the borrower owes $99,925.
What is a division of the U.S. Department of Housing and Urban Development (HUD) that administers special-assistance programs and guarantees mortgage-backed securities using FHA and VA loans as security? A) Fannie Mae B) Freddie Mac C) Ginnie Mae D) Federal Reserve System
The answer is Ginnie Mae. Ginnie Mae, organized as a corporation without stock, has always been a division of the U.S. Department of Housing and Urban Development (HUD); its function is to administer special-assistance programs and guarantees mortgage-backed securities using FHA and VA loans as security.
Before a lender can foreclose in an intermediary state, the lender must first provide A) a notice of intention to foreclose. B) at least five opportunities to borrower to make up delinquent payments. C) a notice that the borrower may make restitution after the foreclosure sale. D) a counseling session and opportunity to restructure the loan.
The answer is a notice of intention to foreclose. In an intermediary state, the property owner does not automatically forfeit the real estate on default of the debt. The lender must first provide a notice of intention to foreclose before filing suit and proceeding with the foreclosure.
What clause in a mortgage permits the lender to declare the entire unpaid balance due immediately upon default? A) Escalator clause B) Forfeiture clause C) Acceleration clause D) Judgment clause
The answer is acceleration clause. An acceleration clause permits the lender to declare the entire debt due and payable immediately. Without the acceleration clause, the lender would have to sue the borrower every time a payment was overdue.
The clause in a note that gives the lender the right to have all future installments become due upon default is the A) alienation clause. B) defeasance clause. C) acceleration clause. D) escalation clause.
The answer is acceleration clause. When a borrower is delinquent in making payments or breaches other conditions of the mortgage, the lender may declare the entire debt due and payable immediately. This right is provided in the acceleration clause.
A buyer wants to assume the current mortgage because the interest rate is lower than the buyer can currently obtain. However, the buyer is prevented from assuming the old loan by the existence of the A) power of sale clause. B) alienation clause. C) defeasance clause. D) certificate of sale clause.
The answer is alienation clause. An alienation clause, also known as a due-on-sale clause, provides that when a property is sold, the lender may either declare the balance of the seller's debt due immediately (the buyer must obtain new financing) or permit the buyer to assume the loan at an interest rate acceptable to the lender.
What clause in many loans prevents the loan from being assumed by a future borrower? A) Acceleration clause B) Alienation clause C) Foreclosure clause D) Defeasance clause
The answer is alienation clause. An alienation clause, also known as a due-on-sale or resale clause, permits the lender to declare the entire loan balance due immediately upon the sale of the property. Lenders include this clause to prevent a second borrower from assuming a loan that has a current lower interest rate.
Which of the following situations would be considered for a short sale? A) Borrower has declared bankruptcy B) Amount owed is more than market value C) Lender has agreed to take the deed in lieu of foreclosing D) Market value is greater than the loan amount
The answer is amount owed is more than market value. A short sale enables the property owner to get out from under an unaffordable loan the lender to recapture capital (and write off the loss) without the cost associated with foreclosure.
A real estate loan payable in periodic installments sufficient to pay the principal in full during the term of the loan is called A) a straight loan. B) an amortized loan. C) a participation loan. D) a term loan.
The answer is an amortized loan. Unlike a straight loan payment, the payment in an amortized loan partially pays off both principal and interest so that by the end of the term, the full amount of the principal and all interest due is reduced to zero.
The original lender may sell the mortgage note to a third party, such as an investor or another mortgage company, by A) assignment of mortgage. B) acceleration. C) implementing lien theories. D) acceleration of payments.
The answer is assignment of mortgage. Without changing the provisions of a contract, the original mortgagee can sell the mortgage note by endorsing the note to the third party and executing an assignment of mortgage.
A friendly foreclosure enables a mortgagor to prevent the mortgagee from taking the property by statutory means. This can be accomplished by A) an escrow deed. B) a deed in lieu of foreclosure. C) assumption. D) a reconveyance deed.
The answer is deed in lieu of foreclosure. As an alternative to foreclosure, the lender may accept a deed in lieu of foreclosure from the borrower by mutual agreement rather than by lawsuit. The lender loses rights pertaining to mortgage insurance claims and junior liens are not eliminated.
What is the process known as friendly foreclosure, whereby a delinquent borrower can avoid foreclosure? A) Assignment of the mortgage B) Voluntary alienation C) Deed in lieu of foreclosure D) Nonjudicial alienation
The answer is deed in lieu of foreclosure. As an alternative to foreclosure, the lender may accept a deed in lieu of foreclosure from the borrower. This is sometimes known as a friendly foreclosure because it is carried out by mutual agreement rather than by lawsuit.
A borrower is charged 4.5% interest rate, one discount point, and one point for loan origination. Which one increases the lender's yield (rate of return) on its investment? A) Loan origination fee B) All of these C) Discount point D) Interest rate
The answer is discount point. Discount points are used to increase the lender's yield (rate of return) on its investment, especially when the interest rate that a lender charges for a loan might be less than the yield an investor demands. To make up the difference, the lender charges the borrower discount points.
A home is purchased using a fixed-rate fully amortized mortgage loan. Which statement regarding this mortgage is TRUE? A) Each mortgage payment reduces the principal by the same amount. B) The principal amount in each payment is greater than the interest amount. C) Each mortgage payment amount is the same. D) A balloon payment will be made at the end of the loan.
The answer is each mortgage payment amount is the same. Each month's mortgage payment is the same under an amortized loan. As principal is reduced each month, the interest portion of the payment decreases and the amount applied to the principal increases.
Before a foreclosure sale, the borrower who has defaulted on the loan may seek to pay off the debt plus any accrued interest and costs under the right of A) equitable redemption. B) usury. C) statutory redemption. D) defeasance.
The answer is equitable redemption. Certain states, though not Pennsylvania, allow defaulted borrowers a period during which they can redeem their real estate after the foreclosure sale. This period is known as a statutory redemption period.
Which of the following is income from a loan? A) Service fees B) Processing monthly payments C) Finance charges D) Building insurance and tax reserves
The answer is finance charges. Income on the loan is realized from two sources: finance charges collected at closing and recurring income, the interest collected during the term of the loan. The original lender may sell the loan and not gain any income from service fees.
The Fed's reserve requirements and discount rates helps to regulate A) number of mortgage brokers. B) the sale of housing. C) number of people who may apply for a federally related loan. D) flow of money and interest rates.
The answer is flow of money and interest rates. By changing the amount of reserves that member banks must carry, the Federal Reserve Bank (the Fed) helps to counteract inflationary and deflationary trends regulating the flow of money and thus interest rates.
Which situation allows the lender to file for a deficiency judgment? A) Deed in lieu of foreclosure B) Foreclosure sale does not bring as much money as is owed C) Equitable right of redemption D) Lender agreed to a short sale
The answer is foreclosure sale does not bring as much money as is owed. The lender may be entitled to a personal judgment against the delinquent borrower when the foreclosure sale does not bring as much as is owed. The lender cannot do this if the lender has already agreed to a short sale or accepted a deed in lieu of foreclosure.
The pledging of property as security for payment of a loan without giving up possession is called A) subordination. B) equity. C) hypothecation. D) disintermediation.
The answer is hypothecation. When a borrower is required to pledge specific real property as security (collateral) for the loan, and the debtor retains the right of possession and control, the creditor receives an underlying equitable right in the pledged property. This type of pledging is termed hypothecation.
A property loan is underwater. What does this mean? A) Loan amount is more than the market value B) Property is located in a flood hazard zone C) Property has been flooded D) Market value is more than the loan
The answer is loan amount is more than the market value. When the debt is more than the market value of the property, the loan is considered underwater.
The finance fee charged by the lender to make the loan is A) a prepayment of mortgage insurance. B) a loan origination fee. C) an advance interest payment. D) a prepayment penalty.
The answer is loan origination fee. Most lenders charge a loan origination fee to cover the expenses involved in generating the loan; such expenses include the loan officer's salary, paperwork, and the lender's other costs of doing business.
Which of the following is NOT a participant in the secondary market? A) Local credit union B) Fannie Mae C) Freddie Mac D) Ginnie Mae
The answer is local credit union. A local credit union participates in the primary market. The secondary market consists of Fannie Mae, Freddie Mac, and Ginnie Mae.
Who arranges loans using someone else's money? A) Insurance companies B) Mortgage brokers C) Commercial banks D) Credit unions
The answer is mortgage brokers. Mortgage brokers are not lenders; they are intermediaries who bring borrowers and lenders together. They do not service loans.
What is a voluntary, specific lien against the property? A) Property lien B) Mortgage C) Mechanic's lien D) Hypothecation
The answer is mortgage. A mortgage is a lien or encumbrance on the property of the borrower, who has pledged the property as security for a loan. The borrower voluntarily offers it to the lender.
What gives the creditor the right to sue for foreclosure? A) Promissory note B) Alienation clause C) Mortgage D) Acceleration clause
The answer is mortgage. The acceleration and alienation clauses are included in the mortgage, the recorded security instrument that creates the lien on the property that allows the lender to sue for foreclosure.
What is a lien on the real property of a debtor? A) Hypothecation B) Mortgagor C) Mortgagee D) Mortgage
The answer is mortgage. The borrower (mortgagor) provides the lender (mortgagor) with a document called the mortgage, which pledges the property as collateral for the loan.
The person who obtains a real estate loan by executing a note and a mortgage is called the A) mortgagor. B) beneficiary. C) mortgagee. D) vendor.
The answer is mortgagor. When a borrower pledges real estate to a lender as security for a debt, the borrower "gives" a mortgage to the lender. The borrower is the mortgagor; the lender is the mortgagee.
One requirement of the Mortgage Bankers and Brokers and Consumer Equity Protection Act is that mortgage brokers A) are not required to undergo a criminal background history check. B) must post a $500,000 bond. C) must be licensed. D) are required to take continuing education every three years.
The answer is must be licensed. The Mortgage Bankers and Brokers and Consumer Equity Protection Act requires that mortgage brokers be licensed, pass a criminal background history check, and to take continuing education annually. Failure to obtain a license is a felony offense of the third degree.
Which is the borrower's personal promise to repay a debt according to agreed terms? A) Note B) Deed of trust C) Deed D) Mortgage
The answer is note. The promissory note (the note) is the borrower's unconditional promise to repay the loan. The note exposes all of the borrower's assets to claims by secured creditors.
To avoid lost interest when a loan is repaid before the end of the term, some mortgage notes include a A) punitive payment. B) deficiency payment. C) default judgment. D) prepayment penalty.
The answer is prepayment penalty. A mortgage may include a clause requiring that the borrower pay a prepayment penalty against the unearned portion of the interest for any payments made ahead of schedule.
Service fees may be collected on A) loan origination fees. B) the interest charged on the loan. C) processing payments of taxes and insurance. D) discount points.
The answer is processing payments of taxes and insurance. The original lender may immediately sell the loan to a company that will service the loan. Servicing involves collecting payments, accounting and bookkeeping, preparing insurance and tax records, process payments of taxes and insurance and following up on loan payment and delinquencies.
What must an owner sign when a property is to be mortgaged? A) Deed of trust B) Only a promissory note C) Only a mortgage D) Promissory note and mortgage
The answer is promissory note and mortgage. When a property is to be mortgaged, the owner must execute (sign) two separate instruments: the promissory note, a personal promise to repay the loan and the mortgage, the security instrument that allows the lender to sue for foreclosure.
The mortgagee foreclosed on a building lot after the borrower defaulted on the loan payments. At the foreclosure sale, however, the lot sold for only $29,000. The unpaid balance of the loan at the time of the sale was $40,000. What must the lender do to recover the $11,000 the borrower still owes? A) Sue for damages B) Sue for specific performance C) Seek a judgment by default D) Seek a deficiency judgment
The answer is seek a deficiency judgment. When the foreclosure sale does not produce enough cash to pay the loan balance in full after deducting expenses and accrued unpaid interest, the mortgagee may be entitled to a personal judgment, known as a deficiency judgment, against the borrower for the unpaid balance.
What is one way to avoid foreclosure? A) Underwater loan B) Recapture capital clause C) Nonjudicial foreclosure D) Short sale
The answer is short sale. A short sale avoids foreclosure and can occur when the lender agrees to accept less than what is owed. The property owner gets out from under an unaffordable loan and the lenders recaptures capital (and writes off the loss) without the costs associated with foreclosure.
A borrower obtained a $7,000 home equity loan for five years at 4% interest per annum. Monthly payments were $50. The final payment included the remaining outstanding principal balance. What type of loan is this? A) Straight loan B) Partially amortized loan C) Fully amortized loan D) Accelerated loan
The answer is straight loan. In a straight loan, the borrower makes periodic payments of interest only, followed by the payment of the principal in full at the end of the term. Straight loans were once the only form of mortgage available, but they are now used for home improvement loans and second mortgages.
In which type of loan is the loan amount divided into two parts, to be paid off separately by periodic interest payments followed by payment of the principal in full at the end of the term? A) Balloon B) ARM C) Amortized D) Straight
The answer is straight. Under a straight, or term, loan, the borrower makes interest-only payments for the term and then pays the principal in one payment at the end of the term.
In one state, the lender has immediate right to possession upon default. To what theory does this state subscribe? A) Title theory B) Intermediary theory C) Combo theory D) Lien theory
The answer is title theory. In title theory states, the mortgagor actually gives legal title to the mortgagee and retains equitable title. Because the lender holds the title, the lender has the right to immediate possession of the real estate and rents from a mortgage property if the mortgagor defaults.
The answer is where loans are bought and sold after they have been originated. Primary mortgage lenders conduct business directly with consumers/borrowers. The lenders, in turn, package and sell the mortgage loans to secondary-market investors.
The answer is to buy and pool primarily conventional mortgages, selling bonds with such mortgages as security. The Federal National Mortgage Corporation (Freddie Mac) was created to provide a secondary market for conventional loans. Freddie Mac pools the loans and sells bonds to investors with the mortgage loans as security.
What is the purpose of a mortgage? A) To convey title of the property to the lender B) To create a lien on the property C) To provide security for the loan D) To restrict the borrower's use of the property
The answer is to provide security for the loan. A mortgage is a lien on the real property of a debtor to provide security for the loan. If a borrower defaults on the payments or fails to fulfill any of the other obligations set forth in the mortgage or deed of trust, the lender's rights can be enforced through foreclosure.
The borrower under a deed of trust is known as the A) trustor. B) vendee. C) trustee. D) beneficiary.
The answer is trustor. In financing arrangements in which a deed of trust rather than a mortgage is used, the borrower transfers title to the property to a trustee, who then holds title for the lender as the beneficiary. The borrower is the trustor.
Laws that limit the amount of interest that can be charged to the borrower are A) established by the country's monetary policy. B) usury laws. C) illegal in Pennsylvania. D) established by the Federal Reserve.
The answer is usury laws. Many states, including Pennsylvania, have enacted laws limiting the interest rate that may be charged on most consumer loans. These are known as usury laws.
Which of the following BEST describes the secondary market? A) Where loans are bought and sold after they have been originated B) Lenders who deal exclusively in second mortgages C) The major lender of government-sponsored loans D) The major lender of residential mortgage loans
The answer is where loans are bought and sold after they have been originated. Primary mortgage lenders conduct business directly with consumers/borrowers. The lenders, in turn, package and sell the mortgage loans to secondary-market investors.
Alienation Clause
The clause in a mortgage that states that the balance of the secured debt becomes immediately due and payable at the mortgagee's option if the mortgagor sells the property. In effect, this clause prevents the mortgagor from assigning the debt without the mortgagee's approval.
The number of points charged depends on two factors:
The difference between the loan's stated interest rate and the yield required by the lender How long the lender expects it will take the borrower to pay off the loan
When a property is mortgaged, the owner must execute (sign) two separate instruments
The promissory note (or note) is the borrower's personal promise to repay a debt. The mortgagor executes one or more promissory notes to total the amount of the debt. The mortgage, or security instrument, is the document that creates the lien on the property. The mortgage exposes the real estate to claim by the mortgagee and is the document that gives the creditor the right to sue for foreclosure.
Short Sale
The sale of a property in the marketplace that is in some stage of foreclosure. The term arises when the proceeds from the sale are "short" the amount needed to fully satisfy the balance of the mortgage loan.
Pennsylvania historically has been a lien theory state in which foreclosure is not required to obtain legal title. True or False?
The statement is false. A number of states, including Pennsylvania, have adopted an intermediary theory. Pennsylvania historically has been a title theory state. But as an intermediary theory state, the property owner does not automatically forfeit the real estate on default of the debt. The borrower must first be given a notice of intention to foreclose before the lender can file suit and proceed with foreclosure.
The borrower is not obligated to pay any deficiency if the foreclosure sale does not produce the owed amount. True or False?
The statement is false. If the foreclosure sale does not produce enough cash to pay the loan balance, the mortgagee (lender) may be entitled to a personal judgment against the borrower for the unpaid balance.
In Pennsylvania, mortgage bankers and mortgage brokers must be licensed and conduct business in accordance with the Real Estate Licensing Act. True or false?
The statement is false. In Pennsylvania, mortgage bankers and mortgage brokers must be licensed and conduct business in accordance with the Mortgage Bankers and Brokers Act. The Department of Banking issues these licenses and governs the licensees' activities, with the State Real Estate Commission also having certain limited authority when these individuals are licensed real estate brokers and salespersons as well.
Hypothecation allows debtors to pledge their homes as security for a loan without giving up possession. True or False?
The statement is true. Hypothecation is the lending practice of pledging property as security for a loan while retaining the right of possession and control, while the creditor receives an underlying equitable right in the pledged property.
Lenders that discover a secured property in a flood hazard area are required to buy flood insurance if the borrower does not. True or False?
The statement is true. If a lender discovers that a secured property is in a flood hazard, he must notify the borrower who has 45 days to buy flood insurance. The lender must buy flood insurance if the buyer does not.
Lenders are NOT permitted to charge prepayment penalties on mortgage loans insured or guaranteed by the federal government. True or False?
The statement is true. Lenders are not permitted to charge prepayment penalties on mortgage loans insured or guaranteed by the federal government. In addition, Pennsylvania law does not permit prepayment penalties on residential mortgage loans when the principal amount is $50,000 or less. Pending legislation proposes that prepayment penalties for loans up to $200,000 would be eliminated.
Another term for the alienation clause is due-on-sale. True or False?
The statement is true. The alienation clause, also known as resale clause or due-on-sale clause, provides that when a property is sold, the lender may either declare the balance of the seller's debt due immediately or permit the buyer to assume the loan at an interest rate acceptable to the lender.
The note specifies the manner in which an amortized loan is repaid, and a fully amortized mortgage loan, or level-payment loan, is the MOST frequently used plan. True or False?
The statement is true. The note specifies the manner in which an amortized loan is repaid. A fully amortized mortgage loan, or level-payment loan, is the most frequently used plan. The borrower pays a constant amount, usually monthly. The lender credits each payment first to the interest due, then to the principal amount of the loan. As a result, while the payment remains the same, the portion applied to interest decreases, and the portion applied to principal increases. This is because less interest is due as the balance of the loan is reduced.
The Federal Reserve System regulates the flow of money and interest rates in the marketplace through its member banks by controlling their reserve requirements.
The statement is true. The role of the Federal Reserve System (also known as the Fed) is to maintain sound credit conditions, help counteract inflationary and deflationary trends, and create a favorable economic climate. It does so by regulating the flow of money and interest rates in the marketplace through its member banks by controlling their reserve requirements and discount rates.
A lender may agree to an arrangement called a friendly foreclosure as an alternative to foreclosure, because it is NOT carried out by lawsuit, but rather by mutual agreement. True or False?
This statement is true. As an alternative to foreclosure, the lender may accept a deed in lieu of foreclosure from the borrower. This is sometimes known as a friendly foreclosure because it is carried out by mutual agreement rather than by lawsuit. A deed in lieu of foreclosure is still considered an adverse element in the borrower's credit history.
Judicial foreclosure
allows the property to be sold by court order after the mortgagee has given sufficient public notice. After presentation of the facts in court, the property is ordered to be sold. A public sale is advertised and held, and the real estate is sold to the highest bidder. This is the prevalent type of mortgage foreclosure in Pennsylvania.
The secondary mortgage market
exists to help lenders raise capital to continue making mortgage loans, it does not interact directly with borrowers. Loans are bought and sold in the secondary market only after they have been funded.
Many lenders require borrowers to provide a reserve fund for future real estate taxes and insurance premiums.
impound, trust, or escrow account
Discount points are used to
increase the lender's yield (rate of return) on its investment.
There are three general types of foreclosure proceedings
judicial, nonjudicial, and strict foreclosure
The primary mortgage market consists of
lenders that originate the loans. They make money available directly to borrowers.
The role of the Federal Reserve System (the Fed) is to
maintain sound credit conditions, help counteract inflationary and deflationary trends, and create a favorable economic climate. It regulates the flow of money and interest rates in the marketplace through its member banks (and other depository institutions) by controlling their reserve requirements and discount rates.
Nonjudicial foreclosure
no court action is required,the mortgagee may be required to file a notice of default in the county recorder's office. The default must be recorded within a designated time to give adequate notice to the public of the intended auction. This official notice is generally accompanied by advertisements published in local newspapers that state the total amount due and the date of the public sale. After selling the property, the trustee or mortgagee may be required to file a copy of a notice of sale or an affidavit of foreclosure.
