Unit 8 Terms

Quiz: Which of the following contributed to the current subprime lending crisis?

(a)Loans that required little or no down payment. (b)No-doc loans in which the borrower's stated income was not verified. (c)Low "teaser" interest rate loans with much higher payments when the initial rate period ended.

Quiz: A holder in due course is someone who takes a negotiable instrument

(a)for value. (b)in good faith. (c)without notice of any defense against its enforcement.

When the Federal Reserve Board wants to tighten the money supply, it would

(a)raise the amount of reserves required for member banks. (b)raise the discount rate for member banks. (c)sell government bonds or treasury bills on the open market. The Federal Reserve Board ("Fed") would take all of the above actions to curb inflation. For example, in a tight money market where the supply of money is limited and the demand for money is high, interest rates typically go up.

Quiz: A mortgage broker arranges a 3-year, $15,000 second loan secured by a deed of trust. The maximum commission that may be charged is

15%

Loan term may be adjusted only to reflect changes in interest rate, payment, or loan balance and can never exceed

40 years

An agreement to sell a homeowner's equity in the home describes a

A home equity mortgage is an agreement to sell a homeowner's equity in the home. It is regulated by the California Civil Code, which requires specific notice, including right of cancellation, to the homeowner.

Interest rate

A rate which is charged or paid for the use of money. An interest rate is often expressed as an annual percentage of the principal. Interest rates often change as a result of inflation and Federal Reserve policies.

Discount Points

An added loan fee charged by a lender to make the yield on a lower-than-market-interest VA or FHA loan competitive with higher-interest conventional loans. The price of one discount point is equal to 1 percent of the loan amount, or 100 basis points.

Quiz: Which of the following types of lenders makes the greatest number of different types of loans?

Commercial banks make the broadest range of loans, including those for real estate purchase, construction, and interim financing, and even consumer loans for home improvement.

Which of the following is a commonly used method of analyzing a borrower

FICO score

Truth in Lending Act (TILA)

Federal law effective July 1969 as part of the Consumer Credit Protection Act and amended in 1982 by the Truth-in-Lending Simplification and Reform Act and later amendments. The main purpose of this law is to ensure that borrowers and customers in need of consumer credit are given meaningful information with respect to the cost of credit.

Unruh Civil Rights Act

Forbids discrimination as to sex, race, color, religion, ancestry or national origin in accommodations and business establishments. Under this law there can be no arbitrary eviction, rent increase or withholding of services by any landlord, including the owner of a non-owner-occupied single-family dwelling that is sold or leased for income or gain.

Quiz: A loan where lower monthly payments rise gradually over five to ten years, then level off for remainder of term is called a

Graduated Payment Mortgage (GPM).

institutional lenders

Institutional lenders are those lenders who lend their own money. Savings and loan associations, banks, life insurance companies and mutual savings banks. (See noninstitutional lenders, savings and loan associations)

Quiz: A broker negotiated a loan for a buyer. He will need to prepare a

Mortgage Loan Disclosure Statement.

Quiz: When comparing mortgage bankers and mortgage brokers, which of the following is true?

Mortgage bankers usually lend their own funds, while mortgage brokers arrange loans.

Mortgage companies/bankers

Mortgage companies, or mortgage bankers, make real estate loans, then sell those loans to investors. The mortgage company will service the loans it has sold on a contractual basis. Servicing a loan includes receiving payments on behalf of the investor and otherwise handling the day-to-day supervision of the investment.

Which of the following would NOT be illustrative of an institutional lender?

Mortgage company

Mortgage broker

Mortgage loan brokers are licensed as real estate brokers by the California Department of Real Estate and are governed by the California Real Estate Law. They bring borrower and lender together but typically do not invest their own funds, and they do not service loans.

There are no restrictions on loan-to-value ratios or amortization schedules or limitations on the amount of funds that can be loaned on real estate by

National banks. This is one reason why this form of institution is becoming increasingly popular.

Quiz: A deficiency judgment against a mortgagor is possible

Never since anitdeficiency laws protect homeowners in California. A deficiency judgment is a judgment against a borrower for the balance of a debt owed when the security for a loan is insufficient to satisfy the debt. A deficiency occurs when the foreclosure sale of a property produces less than the amount due on the loan. In California, a mortgagee cannot recover a deficiency judgment on a purchase-money loan. In those states where mortgages generally carry a "power of sale," creditors must bring a separate action to obtain a deficiency judgment.

Quiz: When must the settlement agent provide the seller its copy of the Closing Disclosure?

No later than the day of consummation

Quiz: Which of following is a benefit of real estate ownership?

Often the greatest financial benefit of real estate ownership is that it can be used as security for a loan. By borrowing money against the value of the property, home purchasers benefit from present use, future appreciation (increase in value), and forced saving by paying down the amount owed.

Real Property Loan Law

Part of the California Real Estate Law that covers loans solicited or negotiated by a real estate broker.

Real estate loan interest payments can be computed in two steps:

Principal x Rate = Annual interest Interest on a loan ordinarily is calculated monthly. To find interest per month, divide the annual interest by 12.

Quiz: Some lending activities are conducted under the rules of the California Residential Mortgage Lending Act. Which of the following are exempt under this Act?

Real estate brokers licensed in CaliforniaInstitutional and noninstitutional lenders already licensed by the state or federal government, such as banks, savings and loan associations, trust companies, and insurance companies: An individual or company making residential mortgage loans with his, her, or its own money Government and pension plan employees Court-appointed estate or other representatives A trustee under a deed of trust The law also exempts a California finance lender licensed under the California Finance Lenders Law. A finance lender is someone who is in the business of making consumer loans or commercial loans in which personal property may be used as collateral.

Quiz: The purpose of an impound account is to

The lender may require that an impound account be established for the benefit of the borrower, to accumulate reserves for future recurring costs, such as property taxes and hazard insurance.

Federal Reserve Bank System (The Fed)

The nation's central bank created by the Federal Reserve Act of 1913. Its purpose is to help stabilize the economy through the judicious handling of the money supply and credit available in this country. The system functions through a seven-member Board of Governors and 12 Federal Reserve District Banks, each with its own president.

PROMISSORY NOTE

The promissory note is a promise to pay money according to specified terms.

Leverage

Using someone else's money to purchase a property. Refers to the ability to use the investment as collateral for a loan.

Usury

Usury is basically "Loan-sharkery". Charging interest at a higher rate than the maximum rate established by state law.

Quiz: The clause in a mortgage note which permits the lender to declare the unpaid balance due and payable upon default by the borrower is called a(n)

acceleration clause

A request for notice of default would be of most help to the

beneficiary of a second trust deed. Since foreclosure wipes out all junior liens, the holder of a junior lien should request the recording of a request for notice of default announcing that a default has occurred.

To pledge a thing as security for an obligation without surrendering possession of it refers to

hypothecation

The rate is the percentage rate of

interest paid.

A deed of trust (or trust deed)

is an instrument by which real property is hypothecated to secure payment of a debt or an obligation.

Noninstitutional lenders include:

mortgage companies, private individuals, and organizations that are not financial institutions.

The security instrument is what is commonly referred to as a

mortgage, the legal document that serves as the security instrument can take the form of either a mortgage or a deed of trust, with very different results.

Quiz: California's Covered Loan Law applies to loans that do not exceed the maximum conforming limit established by Fannie Mae for

owner-occupied one-to four-unit properties

Nonfinancial institutions — Real estate loans make up some of the most important assets of nonfinancial institutions. These include:

pension funds, colleges and universities, trusts, estates, mortgage investment companies, and other groups.

Quiz: In addition to prohibiting discriminatory language in real property instruments, the Unruh Act also

requires more explicit notice be given to a trustor or mortgagor in default.

The instrument used to secure a loan on personal property is called a

security instrument. A security agreement (instrument) is a document that creates a lien on personal property. To perfect a security interest, a form called a financing statement should be recorded.

The maximum commission that a broker can charge for negotiating or making a loan depends on:

the amount of the loan, the length of the loan term, and whether the loan is secured by a first or second deed of trust.

The principal is the unpaid balance of

the loan

Quiz: When borrowing money to purchase real estate, the "cost of credit" refers to

the rate of interest charged to the purchaser.

Identify the security instrument described in each of the following situations: Mel and Millie Mendez have purchased Greenacre and are living there, even though they have conveyed title to someone else.

trust deed