AZ - Sources of Financing

Loan Types For these next few questions, we'll be using a new resource that briefly highlights the criteria used for underwriting. First, we'll focus on loan types. Click on the loan types that may be eligible for purchase by Fannie Mae.

* Adjustable-rate mortgages * Fixed-rate mortgages * Renovation loans * Refinancing loans

Credit Unions and Real Estate Loans Which of these statements are correct about credit unions in regard to real estate loans?

* Credit unions do a lot of business making personal property loans. * Credit unions lend money for traditional mortgages.

Mortgage-Backed Securities In what three ways does the original bank that issued the loan make money from a MBS?

* Originating the loan * Servicing the loan * Charging other associated fees These are the ways that the original loan holder can benefit from the sale of a group of mortgages.

Alienation and Property Transfer In which four of these property transfers does federal law prohibit a lender from enforcing an alienation clause? Select all that apply.

* Parent to child * Spouse to spouse * Between parties in a divorce settlement * When a borrower dies and a relative inherits Most conventional finance agreements include an alienation clause, so it's good to be aware of these exceptions to the buyer's ability to assume the loan.

What Is Estoppel In a loan assumption, what does the estoppel certificate verify?

* The assumable loan balance Estoppel basically means that someone is certifying something to be true so they can't later go back and claim something contrary to that first statement. The estoppel certificate certifies the current loan balance to the buyer in a loan assumption agreement.

Land Contract or Purchase Money Mortgage? Land contracts and purchase money mortgages are two types of seller financing, but they have some differences. Read these items and determine if they apply to land contracts or purchase money mortgages. 1) The seller retains title. 2) The buyer retains title. 3) The seller retains ownership while the buyer has possession. 4) The buyer places a security interest in the property on behalf of the seller.

1) Land Contract 2) Purchase Money 3) Land Contract 4) Purchase Money

Loan Assumption Terms Before we go into more detail, let's take a look at the basic terminology used when talking about assuming a loan. Match each definition to the appropriate term. 1) A new contract that replaces the old one and removes original borrower's liability 2) Prevents future buyers from assuming the loan 3) The entire debt must be repaid at the time of sale

1) Novation 2) Alienation clause 3) Due-on-sale clause

Removing Liability There are two ways that a seller can be released from liability for a loan when allowing a buyer to assume that loan. Match the name of the method to its description. 1) A signed agreement between the lender and the original borrower 2) A substitution of the maker of the note

1) Release of liability 2) Novation When an FHA loan is assumed, a release of liability is a required part of the assumption package that the lender completes.

Who Is Responsible? Ultimate responsibility for repayment of a loan varies, depending on whether a loan is assumed or is "subject to." Match the following items. 1) Robert assumes Terry's mortgage loan. Who makes payments to the lender? 2) Robert assumes Terry's mortgage loan but stops making payments to the lender. Who is responsible for the loan? 3) Robert assumes Terry's loan; the bank signs a novation. Robert stops making payments. Who is responsible for the payments? 4) Robert takes over Terry's loan on a "subject to" basis. To whom will the bank turn if Robert stops making payments?

1) Robert 2) It depends 3) Robert 4) Terry In a subject-to arrangement, the seller remains responsible for payments if the buyer defaults. In an assumption, the buyer makes payments to the lender, but the original borrower remains responsible for the loan unless the lender signs a novation or release of liability.

Is This an Assumption? Which of these statements about the assumption process are true and which are false? 1) If the existing finance instrument contains an alienation clause, an assumption is not possible. 2) A buyer who assumes an existing loan may have to meet the lender's qualification standards and/or pay lender fees. 3) If a buyer can assume an existing loan, it's always better do so rather than applying for a new loan. 4) When a buyer assumes an existing loan, the original borrower is no longer liable if that buyer defaults on the loan.

1) false 2) true 3) false 4) false

Where Do You Find a Private Loan Company? Which of the statements are true about where private loan companies operate? 1) Private loan companies are divisions of commercial banks. 2) There are nationwide private loan companies. 3) They're not really companies, but individuals with a lot of money to lend. 4) There are nationwide, regional, and local loan companies. 5) Some loan companies are individual entrepreneurs.

1) false 2) true 3) false 4) true 5) true

Who or what entity directs the activities of credit unions?

A board of directors

If Freddie Mac didn't exist, which of the following would be a likely effect?

A decrease in the amount of credit available to loan originators

Charles is selling his property to Seth. Charles is financing part of the transaction for Seth, who will make payments to Charles while Charles retains the property title. What is this an example of?

A land contract

Mortgage broker

A service professional who acts as a liaison between borrowers and lenders for a fee

In which of the following situations is a lender prohibited from enforcing an alienation clause?

A transfer between parent and child

Construction loan

A type of interim financing, specifically for new construction, with a terms between three months and three years.

Which of the following is an example of a loan that originated in the primary mortgage market?

ABC Bank loan

Land contract

Aka a contract for deed; allows the seller to provide financing by providing credit to the buyer; buyer makes payments directly to seller

When a buyer takes over the seller's original loan with the lender's permission, this is called ______.

An assumption

Mortgage banker

An entity that makes and services mortgage loans

Mary is assuming Tom's loan. She wants to be sure she has an accurate loan payoff amount. What document will the lender prepare for her?

An estoppel certificate

Georgette and Elise are buying a home together, and have taken out a loan with a private loan company. They'll pay a bit more interest, and larger fees, but they feel it's worth it to have the home they've always dreamed of. What else might the private loan company require?

Collateral

Private loan companies may charge higher interest, larger fees, and could require ______ to secure a loan.

Collateral

Synergy National Bank issued a conventional loan that is eligible for purchase by Fannie Mae. When Fannie Mae purchases the loan, what will Synergy National Bank receive in return?

Collection fee

Which of the following is a guideline used by Freddie Mac when determining if a loan is conforming?

Down payment

Credit Union Membership Access Act

Enacted in 1998, this act allows credit unions to solicit members using a much wider set of criteria.

The secondary mortgage market buys loans from the primary market. How does this aid the lending market?

Ensure funds are available to borrowers

Fannie Mae

FNMA, the Federal National Mortgage Association; a private, for profit corporation that operates under a congressional charter that buys loans in the secondary mortgage market from lenders in the primary mortgage market

Freddie Mac

Federal Home Loan Mortgage Corporation (FHLMC); increases the availability of financing for conventional mortgages insured by the federal government by purchasing them from lenders in the primary market

How is a mortgage banker paid?

Fees from originating and servicing loans

In terms of function and purpose, which of the following is most similar to Fannie Mae?

Freddie Mac

Commercial banks fall into which of the following category of lenders?

Institutional lenders

Private loan companies may place a ______ on the property for which the loan is being taken.

Lien

Freddie Mac's mission is to provide ______, stability, and affordability in the U.S. housing market.

Liquidity

Maggie has a neighbor, Jim, who is facing foreclosure. She likes Jim and wants to help him out, so they agree to do a "subject to" purchase. What does this mean?

Maggie will take over Jim's loan payments without telling his lender she's doing so.

Private loan companies may be found in many places. There are ______, regional, and local lenders, and even individual entrepreneurs who loan money.

National

The primary mortgage market operates to _____.

Originate loans

Which of the following is one of the desired outcomes of Freddie Mac's activities?

Provide stability in the U.S. housing market

The Hendersons don't have enough money to make the full 20% down payment their institutional lender requires. To close the sale, the seller is willing to finance a loan for the amount between the home's list price and what the institutional lender is willing to loan. What's this type of financing called?

Purchase money mortgage

What type of arrangement allows the buyer to retain title to the property, but places a security interest in the property on behalf of the seller?

Purchase money mortgage

Violet purchased a house from Nick, and assumed the existing loan. Nick wants to make sure he isn't liable if Violet ever defaults. What can he do to remove his name from the loan agreement?

Request a novation

Secure and Fair Enforcement Act (SAFE)

Requires every mortgage loan originator to be fully licensed and carry a mortgage surety bond

Alienation clause

Requires that, if the borrower sells to another party, the new party would have to negotiate a new contract with the lender

With a land contract, who retains the title to the property?

Seller

How is a loan assumption documented?

The buyer and seller both sign an assumption agreement.

Which of the following are ways a private loan company insulates themselves from the risk of lending funds to a borrower who has had problems securing them elsewhere?

They may charge higher interest, higher fees, and require the borrower provide collateral to secure the loan.

Victor bought a property from Yolanda for $200,000. Under the terms of a land contract, Victor agreed to pay Yolanda in monthly installments of $4,000 over the course of 50 months. Until Victor pays Yolanda the $200,000, who retains the title?

Yolanda

Bank Revenue Sources Match each revenue source with the correct word to indicate whether it's a demand deposit or another type of commercial bank revenue. 1) Savings account 2) IRA 3) Checking account 4) Trust account 5) Bond

1) Demand Deposit 2) Other Revenue 3) Demand Deposit 4) Other Revenue 5) Other Revenue Checking and standard savings accounts are typically considered demand deposits.

Property Types Freddie Mac only purchases loans used to finance or refinance the purchase of certain types of properties. Which of these property types are eligible? 1) Single-family primary residence 2) Duplex 3) Single-unit secondary home 4) Three-unit investment property 5) Single-unit commercial space 6) Manufactured home

1) Eligible 2) Eligible 3) Eligible 4) Not Eligible 5) Not Eligible 6) Eligible

Secondary Market Steps Consumers approach lending institutions in the primary market when they need a loan. After that institution issues the loan, it approaches the secondary market. Order the steps showing the process a loan goes through to get from the primary to the secondary mortgage market. 1) Investors purchase shares of the MBS. 2) Lending institutions market their loan to the secondary market. 3) Money received from investors is used to purchase additional loans. 4) A secondary mortgage market institution purchases the loan. 5) Loans are packaged into a mortgage-backed security (MBS).

1) Fourth 2) First 3) Fifth 4) Second 5) Third

Making Money in the Primary Mortgage Market There are several ways that lenders make money in the primary mortgage market. Select the method of producing income for each description. 1) Collects origination fees, discount points, and monthly interest payments from borrowers 2) Collects mortgage payments, processes tax and insurance payments, and prepares records for other lenders 3) Sells the flow of principal and interest to investors

1) Loan origination 2) Loan servicing 3) Packaging and selling loans

Ginnie Mae MBS Process Let's see how the Ginnie Mae mortgage process plays out. Match the steps. 1) Ginnie Mae guarantees the MBS. 2) Mortgage payments from borrowers flow through loan servicer to MBS to investors. 3) Investors purchase shares of the MBS. 4) Lending institution issues an MBS. 5) Lending institution packages mortgages.

1) Third Step 2) Fifth Step 3) Fourth Step 4) Second Step 5) First Step

Assumption

A buyer agrees, in writing, to take over the sellers' loan payments

Estoppel certificate

A document verifying the amount still owed on a debt; once the certificate has been issued, the lender may not claim that more money is owed on that debt

Purchase money mortgage

A form of seller financing in which a mortgage is given by the buyer to the seller toward the purchase price; buyers use this as down payment financing.

Freddie Mac is ______.

A government-sponsored enterprise

Home equity loan

A loan in which the borrower's home equity is used as collateral

Credit union

A membership-based non-profit cooperative with checking, savings, and lending services

Real estate mortgage investment conduit (REMIC)

An investment vehicle similar to a collateralized mortgage obligation in which an entity is used to pool mortgage loans and issue mortgage-backed securities

Home equity line of credit (HELOC)

An open line of credit based on the available equity in the borrower's home.

Who needs to obtain a mortgage loan originator endorsement and register with the Nationwide Mortgage Licensing System and Registry?

Anyone who acts as a mortgage loan originator

Demand deposits

Bank deposits, such as those made to a checking account, which must be made available upon demand

Fannie Mae purchases loans most often from which type of financial institution?

Commercial banks

The Role of the Primary Mortgage Market The primary mortgage market is where lenders and borrowers come together to originate, negotiate the terms of, and fund a mortgage loan. A primary lender may be your hometown bank, a national chain bank, a private mortgage lender, or any one of several other lenders. Examples include:

Commercial banks Savings and loan associations Mortgage brokers and bankers Credit unions Pensions Sellers

The Primary Mortgage Market Players Which four of these are players in the primary mortgage market? Commercial banks Fannie Mae Savings and loans Mortgage brokers Credit unions Farmer Mac

Commercial banks Savings and loans Mortgage brokers Credit unions

A new apartment building is going up downtown. The owner secured interim financing for the job. Which of these loan types is interim financing?

Construction loan

Home improvement loan

Financing for home improvements (such as additions or modernization) with terms of up to five years.

Interim financing

Generally short-term and open-ended, this kind of financing is usually obtained to finance a construction project

Ginnie Mae

Government National Mortgage Association (GNMA); a federal agency located within the Department of Housing and Urban Development (HUD) that establishes requirements for loans that can be accepted into its mortgage pool

Ginnie Mae Activities What activity or activities does Ginnie Mae perform?

Guarantees MBSs with the full faith and credit of the U.S.

Which type of loan is meant specifically for improvements, such as additions or renovations?

Home improvement loan

Types of Funding Life Insurance Companies Provide Which four of these are areas in which life insurance companies would likely participate in real estate funding? Hospitals, Single-family homes, Shopping centers, High-rise buildings, Apartment complexes

Hospitals, Shopping centers, High-rise buildings, Apartment complexes

So, what does Fannie Mae do after purchasing the loans?

It packages them into mortgage-backed securities, which are then sold on the open market.

Underwriting Criteria Identify whether these items are criteria Fannie Mae uses in its underwriting process. * Location * Type of dwelling * Loan-to-value ratio (LTVR) * Property type * Debt-to-income ratio * Down payment

It's all apart of the criteria Other criteria are also considered, such as a home buyer's credit score and form of ownership.

Mortgage-backed security (MBS)

Mortgages that are pooled together and sold to investors on the secondary mortgage market

Life insurance companies sometimes like to insure their investment in commercial projects by insisting on an equity position. This is known as ______ financing.

Participation

What Do They Call That MBS? After a loan passes Freddie Mac's underwriting process, the institution may purchase the loan. It will then package it into a mortgage-backed security (MBS) to be sold to investors. What term does Freddie Mac use to describe its MBS product?

Participation certificate (PC) Freddie Mac calls its MBS products participation certificates. Investors purchase shares of PCs and receive payments of principal and interest from the investment.

Government-sponsored enterprises (GSEs)

Private companies such as Fannie Mae, Freddie Mac, and the Federal Home Loan Bank, created by the U.S. Congress to make borrowing easier and more cost effective

Pam is taking out a mortgage for her home purchase. Which of the following is a true statement?

She will be working with lenders in the primary mortgage market.

NCUA (National Credit Union Administration)

The National Credit Union Administration was established in 1970 as an independent federal agency to supervise and charter federal credit unions.

NCUSIF (National Credit Union Share Insurance Fund)

The National Credit Union Share Insurance Fund was established to insure credit union deposits.

Underwriting

The detailed analysis of a loan application, evaluating the borrower's ability to repay the loan and conformance to the lender's qualification standards The first computerized underwriting system was introduced in 1999, and other systems have been introduced since then.

Loan origination

The making of a loan

Secondary mortgage market

The market for loans sold by the primary market; a secondary lender will service the loan for the consumer

What's the Secondary Market? The secondary mortgage market serves a very important role in real estate finance. Which of these statements best describes that role?

The secondary market purchases loans from primary lenders and helps keep credit available to loan originators.

Novation

The substitution of a new contract for a prior contract, or a new party for an old party

Loan servicing

The term for the lender processing payments, sending statements, and managing the escrow/impound account for a loan

Manufactured home loan

Used for purchasing manufactured homes, with terms starting at 10 years. Longer loan terms are available to finance for homes permanently attached to their foundations.

Which of the following is considered an ineligible property type for which a loan to purchase or refinance wouldn't be purchased by Fannie Mae?

Vacant lot

Primary mortgage market

Where loans are originated; they are then typically sold on the secondary mortgage market

Is It Guaranteed? Ginnie Mae only guarantees MBSs that hold certain types of loans. Identify whether a MBS holding the types of loans listed would be guaranteed. 1) Federal Housing Administration (FHA) insured loans 2) Loans from the Departmemt of Housing and Urban Development (HUD) Office of Public and Indian Housing 3) Loans originated by the Department of Agriculture's Rural Housing Service (RHS) 4) Loans guaranteed by the Department of Veterans Affairs (VA) 5) Loans issued by subprime mortgage lenders

1) Guaranteed 2) Guaranteed 3) Guaranteed 4) Guaranteed 5) Not Guaranteed The Ginnie Mae guarantee assures investors that they'll receive timely principal and interest payments from the MBS. This guarantee does not extend to the underlying loans in the MBS.

Banker or Broker? Which activities do mortgage bankers handle? How about mortgage brokers? Drag the loan-related activities into the box to indicate which mortgage professionals handle which task. 1) Originate their own loans 2) Work with many lenders 3) Stay with the loan for its entire lifecycle 4) Don't service the loan beyond placement 5) Paid a placement fee for matching borrower with lender 6) Paid through fees from originating and servicing loans

1) Mortgage bankers 2) Mortgage brokers 3) Mortgage bankers 4) Mortgage brokers 5) Mortgage brokers 6) Mortgage bankers

Underwriting Guidelines Here's a list of criteria. Sort through it to identify criteria used by Freddie Mac in its underwriting process. 1) Housing debt-to-income ratio 2) Total debt-to-income ratio 3) Loan-to-value ratio (LTVR) 4) Loan term 5) Purpose of loan 6) Amortization type

1) Not Freddie Mac criteria 2) Freddie Mac criteria 3) Freddie Mac criteria 4) Freddie Mac criteria 5) Freddie Mac criteria 6) Freddie Mac criteria

Primary vs. Secondary Primary and secondary market players interact in the marketplace. Where do each of these players generally play? 1) Thrifts 2) Fannie Mae 3) Commercial banks 4) Freddie Mac 5) Credit unions 6) Investors in MBSs

1) Primary Market 2) Secondary Market 3) Primary Market 4) Secondary Market 5) Primary Market 6) Secondary Market

Why Sell to Fannie Mae? What are some reasons a lender would originate a loan just to turn around and sell it on the secondary market? Select all that apply. 1) Access to additional mortgage credit 2) For the collection fees 3) Because primary lenders aren't licensed to hold and service their own loans.

1) Reason 2) Reason 3) Not a Reason

All About Mortgage Bankers Which three of the following statements are true about mortgage bankers?

1) They're mostly private enterprises. 2) They stay involved with a loan through its entire lifecycle. 3) They get paid through fees from originating and service loans.

Commercial Banks as a Source of Mortgage Funds Which of the following statements are true about commercial banks as a source of mortgage funds, and which are false? 1) Commercial banks only provide traditional mortgages. 2) Commercial banks rely mostly on demand deposits for their supply of funds. 3) Commercial banks don't provide manufactured home loans. 4) Construction loans are a type of interim financing provided by commercial banks. 5) Commercial banks provide home equity loans.

1) fales 2) true 3) false 4) true 5) true

What About Credit Unions? Which of these statements are true about credit unions? 1) Credit unions are regulated by the federal government, similar to commercial banks. 2) Your money isn't as secure in a credit union account as it is in a commercial bank. 3) Federal credit unions are supervised and chartered by the National Credit Union Administration (NCUA). 4) Credit unions are headed up by a board of directors, who are elected from the credit union membership.

1) false 2) false 3) true 4) true

The Role of Life Insurance Companies Which of the statements are true about the role life insurance companies play in real estate financing? 1) Life insurance companies provide loans for traditional, single-family dwellings. 2) It's not a good idea to seek financing from a life insurance company, because the market is unstable. 3) Life insurance companies prefer to finance large commercial projects such as shopping malls. 4) Participation financing is a way for life insurance companies to have partial ownership in large projects. 5) Life insurance companies don't participate in the secondary mortgage market.

1) false 2) false 3) true 4) true 5) false

Characteristics of the Primary Mortgage Market Which are true of the primary mortgage market? 1) It purchases loans from other lenders. 2) It works directly with borrowers. 3) It may keep and service its own loans or sell them on the secondary market. 4) It's prohibited from requiring loan underwriting.

1) false 2) ture 3) ture 4) false

SAFE Act Which of the following statements are true regarding the SAFE Act? 1) The SAFE Act was signed into law in 2008. 2) The SAFE Act requires all mortgage bankers and brokers to have a certified safe on site. 3) All mortgage bankers and brokers are required to be listed in the national registry under the SAFE Act. 4) The SAFE Act provides more consumer protection.

1) true 2) false - No safe is required under the SAFE Act. 3) false - Only those who originate loans are required to register. 4) true The SAFE Act was a small piece of legislation in a larger package, but one that was very important for borrowers since it provided greater consumer protection and reduction of opportunities for fraud.

Fannie Who? So what is Fannie Mae and what does it do? Let's review. 1) Fannie Mae was established as the Federal National Mortgage Association in 1938. 2) Fannie Mae's goal is to help ensure that all communities have access to mortgage credit. 3) Fannie Mae only purchases FHA-insured and VA-guaranteed loans. 4) Fannie Mae packages the loans they purchase into mortgage-backed securities (MBS).

1) true 2) true 3) false - Fannie Mae also purchases conventional loans. 4) true

Freddie Mac Facts How well do you know Freddie Mac? Determine whether these statements are true or false. 1) Freddie Mac was created as the Federal Home Loan Mortgage Corporation (FHLMC) in 1970. 2) Freddie Mac is a government-sponsored enterprise. 3) Freddie Mac issues conventional loans and mortgage-backed securities.

1) true 2) true 3) false - Freddie Mac issues mortgage-backed securities, but it doesn't issue loans.

No Secondary Market? We mentioned that the secondary mortgage market plays an important role in real estate finance. Let's imagine for a moment this market didn't exist. Which of these are possible outcomes? 1) Loan originators would have less funds available for lending. 2) It would be easier for consumers to obtain a loan. 3) Borrowing money would be cheaper.

1) yes 2) no 3) no Without the secondary mortgage market to keep credit flowing in the primary market, bad things would happen. Lending and the housing market would come to a halt, and the ripple effects of reduced homeownership would be felt throughout the economy.

Subject to

A buyer can purchase a property "subject to" the seller's loan; the buyer is supposed to continue payment of that loan, but the seller is still ultimately liable for it

Without Freddie Mac At the risk of hurting Fannie Mae's feelings, let's imagine a world without Freddie Mac for a moment. What would that world look like?

There'd be less funds available for real estate financing. Similar to other players in the secondary mortgage market, Freddie Mac purchases loans, which gives primary lenders additional money to continue making loans (which Freddie Mac can continue to purchase). This keeps credit flowing.