Law of Finance (Part 3/3)

Forbearance

"forgiveness" When the lender may legally foreclose due to default but chooses not to,

Amortization

'killing off"

debt-to-income ratio (DTI) Back-end ratio

(PITI + long-term liabilities) ÷ gross monthly income

Debt ratio

(monthly housing expense+long term)/monthly income

APR Calculation

- Application fee - Discount points - Document preparation fees (when paid for the lender's document preparation) - Origination fee - Private mortgage -insurance (PMI) premiums - Processing fee - Underwriting fee

FHA Debt to income ratio

- expense-to-income should not exceed 29% - Debt not exceed 41%

First month's payment

- original loan X annual interest/12 = The amount of interest paid on FIRST MONTH - Monthly payment - (answer above/intereest) = total principal paid - Total loan balance - principal paid = left over loan

HOA Foreclosures

-HOA foreclosures are the most common use of judicial foreclosure. -OA needs to talk to the lien holder (bank) to let them know about the situation -the lien holder will pay the HOA and put the payments on the loan balance

deficiency judgment

-if a foreclosure sale does not generate enough money to pay off the loan and cover the costs of the foreclosure. -requires the defaulted borrower to pay any remaining balance owed to the lender. -within two years of the foreclosure sale.

Texas Right of Redemption

1. HOA foreclosure of an assessment lien (mentioned in the previous slides) 2. Sales for unpaid ad valorem taxes. In this case, the former owner of the homestead or agricultural property gets the right of redemption for two years (compared to 180 days for commercial property).

A "banker's year" has how many days in it? 368 364 360 365

360

How is the VA loan program funded?

A funding fee

Jumbo Loans

A loan that is above the conventional loan limit since they exceed the Fannie Mae and Freddie Mac loan limits, jumbo loans are non-conforming.

When a borrower cannot keep the property and voluntarily transfers title to the lender, it's called _____.

Deed in Lieu of Foreclosure

What are the four characteristics of value?

Demand, Utility, Scarcity, and Transferability

Index

Each ARM loan selects an external economic indicator, such as the Treasury bond yield rate, as the index for the loan.

Which of the following is NOT used by Desktop Underwriter for risk analysis? Net worth Source of funds Proof of income FICO® Credit Scores

FICO® Credit Scores

Does Freddie Mac's Loan Prospector ever reject a loan?

Freddie Mac's Loan Prospector (LP) is its equivalent of Fannie Mae's Desktop Underwriter. Lenders enter the same borrower information, and the system determines whether the loan is an "accept," "A-minus caution" or "manual underwrite loan."

If an applicant does not meet the criteria for a loan, the Loan Prospector software can reject that loan.

Freddie Mac's Loan Prospector does not reject loans. Instead, it refers them for manual underwriting. Continue

ARMs tend to have prepayment penalties. What does this mean?

If someone wanted to pay off the loan early, they would have to pay extra.

When a third party purchases a property at the foreclosure auction, it is _____ the debt. encumbered by not encumbered by responsible for title insured for

If the debtor does not redeem a property during the statutory redemption period, or if the state does not permit a statutory redemption period, the purchaser at the foreclosure sale receives a deed to the property that is NOT encumbered by the debt.

Compared to short-term capital gains, the tax rate for long-term capital gains is _____________.

If the homeowner has owned the property for more than a year, this is called a long-term capital gain and it will be taxed at a lower rate than short-term capital gains (the investor/owner has owned the property for less than a year).

negative amortization (deferred interest)

If the payment being made is not sufficient to cover the interest due for any payment period (let alone the principal), the unpaid interest is added to the principal balance.

The Underwriter Five

Income Credit Assets Debts Net worth

FHA ____________ loans for qualified U.S citizens and naturalized residents.

Insures

fully indexed rate.

Margin + index rate

Discount Points

Prepaying interest to lower your interest rate for the lifetime of the loan one discount point is equal to 1% of the loan.

Who supplies the money to fund an FHA loan?

Primary lenders

When the interest rate is adjusted on an ARM, what is also adjusted to keep the term of the loan the same?

Principal and interest payment

, all debt forgiveness may be taxable

REMEBER

ARM'S Adjustment Period

Set periods of time in which the ARM loan's interest rate can be adjusted.

In Texas, prorations are calculated through the closing date.

TRUE

In the cost approach, property value is found by subtracting the depreciated value from the cost of reproduction and then adding that to the value of the land. TRUE FALSE

TRUE

TRUE or FALSE: The Schedule of Real Estate Owned subsection is for borrowers who own multiple properties.

TRUE

TRUE

The Federal Housing Finance Agency (FHFA) sets maximum limits on conforming loans. For the year 2018, the loan limit for single-family residences in most of the country is $453,100.

Mortgage Insurance Premium (MIP)

The MIP fee can be calculated by multiplying the required percentage of down payment for the MIP, which is 1.75%, by the loan amount ($144,740).

ARM's Lookback period

The date when the index rate for the upcoming adjustment period is selected.

Index Rate:

The index value published on the ARM's lookback date

Why does every buyer need to conduct a title search?

The title search begins with the present owner and traces the lineage back to the original owner (or grantor), thereby examining each ownership to ensure that no encumbrances, forged documents, or gaps in ownership exist.

Reverse Annuity Mortgage

a financial arrangement where the homeowner pledges equity to a lender in exchange for periodic payments of the pledged equity.

Short Sales

a sale in which the lender will agree to accept less than what is actually due on the mortgage before the property goes into foreclosure.

Statutory redemption

allows debtors to redeem (regain possession of) their property after the auction. TEXAS DOES NOT ALLOW

Equitable Redemption

allows defaulting debtors to pay the defaulted portion of the debt (as well as costs the lender incurred) in order to reinstate the loan and prevent a foreclosure sale.

Participation Agreement?

allows the lender to sell to a participant a portion of an existing loan.

Conventional Loans

any loan that is neither insured by the government

Maximizing the lender's return on their portfolio of properties acquired by foreclosure is the task of the _____.

asset manager

HUD keeps a limited denial of participation list of individuals that are disqualified for an FHA loan. The list includes someone who has ______ or has defaulted on an FHA loan within 3 years.

been found guilty of fraud

The ____________ is the difference between comparisons of similarly styled portfolios.

benchmark

FHA interest rates are set and negotiated by the lender and the ____.

borrower

The average amount of closing costs are 4-6% of the sales price and can be paid for ___.

by the seller if the seller agrees to it

The purpose of disclosing the annual percentage rate (APR) is to assist consumers in _____.

comparing mortgage loans AND seeing one rate that includes both interest and fees

Conventional conforming loans

conform to the guidelines set by Fannie Mae and Freddie Mac and thus can be sold on the secondary market to those government-sponsored enterprises (GSEs).

One of the six categories FHA-approved lenders can check when they call the credit alert interactive voice response system (CAIVRS) is ____.

default

The finance charge and APR,

enable consumers to understand the cost of the credit and to comparison shop for credit.

The difference between the amount owed to the mortgage company and the amount the home is worth is called ______.

equity

Reverse Mortgage

for people over the age of 62. There are no monthly payments, which can allow them better cash flow, and gives them flexibility and access to more disposable income they might need in retirement. when the borrower passes away, the title to the property passes to the heir(s) with the borrower's estate.

Float-to-Fixed Rate Loans

have initial interest rates determined by a margin and an index. After the initial float rate period (one or two years, typically) the loan converts to a fixed-rate loan.

The benchmark for FHA loans is not necessarily a credit score, but a borrower's ____.

history of reliable payment activity

front-end/housing expense ratio

house expense/monthly income

When a mortgagee forgives the debt that remains after a foreclosure sale, it can have an effect on the borrowers' _____.

income tax owed

Income ratio

monthly housing expense (for the new house)/monthly income

Blanket Mortgage

more than one collateral property that acts as security for the loan.

The FHA program is funded solely by:

mortgage insurance premiums

The Margin = A Fixed Value

most often given in terms of basis points.

What is TRUE of a conventional loan?

neither insured by the government nor guaranteed by the government

Equitable redemption

occurs before the sale (auction) of a property.

The sales comparison approach should be used for appraising:

owner-occupied residential properties and vacant land

Interest rates are influenced by the Federal Reserve System's _____.

primary lending discount rate open market activities reserve requirements

Temporary Buydown Loans

provide the borrower with the temporary help they need without any chance of negative amortization and with a predictable payment structure.

ARM'S initial rate period.

rate is locked for a certain amount of time

Annual Percentage Rate (APR)

required to disclose by the Truth-in-Lending Disclosure Statement. it is the ratio of the total cost of financing to the loan amount.

moratorium

set-back (you can pay later)

When a property's market value is less than the balance of the mortgage loan on the property and the mortgagor has experienced a hardship and cannot keep the property, the lender may agree to a _____.

short sale

Which of the following is part of the very first part of the appraisal process?

stating the full legal description of the property

The sales comparison approach uses two value principles. They are respectively known as the principles of:

substitution and contribution

80-10-10 Piggyback Loans

the borrower receives two loans, one larger loan for 80% of the sale price at the market rate and a smaller loan for 10% of the sale price at a higher interest rate.

Lenders need to evaluate and qualify both:

the buyer and the property

primary lending discount rate

the interest rate the Fed charges to other banks.

Construction Mortgage

the lender pays funds to a borrower in installments, called draws, as the construction progresses. The sum total of these draws is typically 75 percent of the value of the property when it is completed.

closing costs

title fees, commissions, fees

FHA mortgages require a down payment as low as 3.5%,

true

Amortization

will be equal monthly payments that contribute to both principal and interest until the entire loan is paid.

Conventional non-conforming loans

will not be purchased by Fannie and Freddie on the secondary market (although other secondary market buyers may choose to purchase them).

adjustable rate mortgage (ARM)

with an interest rate that can increase and decrease periodically throughout the life of the loan.