Texas Real Estate Finance

Income ratio - mortgage

(income ratio, or housing expense ratio) establishes borrowing capacity by limiting the percent of gross income a borrower may spend on housing costs. - Housing costs include principal, interest, taxes, and homeowner's insurance, and may include monthly assessments, mortgage insurance, and utilities

Fee Simple Estate

- Complete ownership - Can be inherited - Ha no restrictions on the bundle of rights

SPECIAL WARRANTY DEED

- similar to general warrant deed - grantor only warrants against what occurred during his ownership of title "I own and will defend only mine"

Assurance that title is good and marketable

1. Deeds: Provide a warranty as part of the deed 2. Abstract and Opinion: Search recorded documents for any problems that might affect title 3. Title Insurance: Purchase title insurance to cover any unexpected problems

CDBG grant programs - two programs:

1. Entitlement Communities - This CDBG entitlement program allocates annual grants to larger cities and urban counties to develop viable communities by providing decent housing, a suitable living environment, and opportunities to expand economic opportunities, principally for low- and moderate-income persons. 2. Colonias - Texas, Arizona, California, and New Mexico set aside up to 10 percent of their State CDBG funds for improving living conditions for colonias' residents. Note: For the purposes of this program, the definition of a colonia is any identifiable community in the U.S.-Mexico border regions of Arizona, California, New Mexico, and Texas that is determined to be a colonia on the basis of objective criteria, including lack of a potable water supply, inadequate sewage systems and a shortage of decent, safe, and sanitary housing.

Less common leasehold estates

1. Estate at Will : tenant stays in property without proper lease agreement or agreement of payment. Usually done with family 2. Estate at Sufferance: tenant wrongfully stays beyond expired lease without given notice and payment. If landowner knows and extends lease, tenant becomes estate period-period.

Common leasehold estates

1. Estate for Years : set with a specified timeframe, no renewal. Most common with commercial and some apartment leases 2. Estate period to period : set with expire date, but can be renewed, notice for termination must be given

WHY INTEREST RATES CHANGE

1. Excessive spending by government 2. Government spends money faster than it can collect it back in taxes 3. Amount of money available for loan increases and the demand for loans is not equal to the supply 4. Greater demand for loans than there is money available

FCA also examines and regulates the following members of the Farm Credit System

1. Federal Farm Credit Banks Funding Corporation 2. Farm Credit System Financial Assistance 3. Federal Agriculture Mortgage Corporation (Farmer Mac)

2 classifications of estate

1. Freehold 2. Leesehold

TSAHC offers two types of programs to first-time homebuyers

1. Home Loan Programs 2. Mortgage Credit Certificate (MCC) Program

The Finance Commission of Texas oversees and coordinates the activities of what other Texas agencies?

1. The Texas Department of Banking (TXDOB), 2. the Department of Savings and Mortgage Lending (SML), and 3. the Office of Consumer Credit Commissioner (OCCC)

Type of Freehold Estates

Fee Simple Estate Lif Estate

Banks are required to keep a certain amount of money in reserve. If their reserves are getting low, they may borrow money from:

The Federal Reserve

What is the program that licenses, regulates, and examines the trust- and insurance-funded prepaid funeral contract sellers to ensure compliance with the Finance and Administrative Codes

The Prepaid Funeral Contract program

Marketable Title

a title free from plausible or reasonable objections. - free of encumbrances - free from the risk of litigations over possible defects

Freehold Estate

indefinite ownership of estate with full bundle of rights

protected classes of the Federal Fair Housing Act

race, religion, color, national origin, sex, ancestry, handicap and familial status

TITLE-THEORY STATES

regard the mortgage document as a conveyance of ownership from the mortgagor to the mortgagee

Demolition/Disposition of Public Housing

regulates the conditions and the process by which housing authorities may receive permission to demolish or otherwise dispose of housing units that they have previously agreed to operate as public housing

FINANCING OF COLONIAS

- Colonias Fair Land Sales Act to protect those who must rely on contracts for deed to finance property. - Although the legislation sets a minimum standard for contract for deed land sales, other problems with this method of financing remain. Contracts for deed make it difficult for home owners to secure financing to build a house or make home improvement. Because title to the land often does not transfer to the buyer until it is fully paid for, an applicant cannot use the property as collateral when applying for a loan. Therefore, financial institutions are reluctant to lend money to improve the property.

Texas Real Estate Commission (TREC)

- Enforces the real estate law to ensure the protection of the public in real estate transactions. - Provides licensing and regulation of licensees. - Investigates complaints filed against licensees.

Texas Department of Banking (TXDOB)

- Ensures the safety of depositors', beneficiaries', and shareholders' money in the banking and trust system. This is done through examinations of the regulated entities to determine their condition and verify compliance with certain state laws. - Examines and supervise banks and trust companies chartered in the State of Texas. - Examines and supervises Foreign Bank Agencies (FBAs), Foreign Bank Representative Offices and Information Systems (IS) providers.

The OCCC regulates:

- Home Equity Loans - Secondary Mortgages - Home Improvement Loans - Motor Vehicle Sales Financing - Pawnshop Transactions - Signature Loans - Payday Loans - Consumer Installment Loans - Retail Credit Accounts

Texas Department of Insurance (TDI)

- Issues rules and regulations for the state's insurance industry, enforces Texas insurance laws, investigates misconduct, and takes enforcement action against companies and agents. - Looks at companies' financial conditions and enforces solvency standards to ensure that insurance companies have money to pay claims and expenses, - Investigates insurance fraud. - Reviews insurance advertising and marketing materials to ensure that they're compliant with laws and rules, to detect possible fraud, and to guard against misrepresentation. - Regulates the state's system to compensate employees for work-related injuries and illnesses.

TREC regulated the following persons

- Real Estate Brokers and Salespersons - Real Estate Inspectors - Education Providers for Real Estate and Inspection Courses - Residential Service Companies - Timeshare Developers - Easement Or Right-of-Way (ERW) agents

What kinds of programs does USDA Rural Development support

- Supports essential public facilities and services, such as water and sewer systems, housing, health clinics, emergency service facilities and electric and telephone service. - Promotes economic development by supporting loans to businesses through banks and community-managed lending pools. - Offers technical assistance and information to help agricultural and other cooperatives get started and improve the effectiveness of their member services

Mortgage Loan - RISK

- The principal risks are that the borrower will default on repayment of the loan, and that the borrower will damage the value of the property as security. - In the event of a foreclosure, the sales proceeds from the property will be insufficient to cover the lender's loss.

To qualify for a mortgage loan

- a borrower must meet the lender's qualifications in terms of income, debt, cash, and net worth. - a borrower must demonstrate sufficient creditworthiness to be an acceptable risk.

Mortgage Loan - QUALIFICATION

- assesses risks by examining, or qualifying, both borrower and property. - In qualifying a borrower, an underwriter weighs the ability of the borrower to repay the loan. - analysis of whether the borrower's income, cash resources, creditworthiness, net worth, and employment stability meet the lender's standards.

Interstate Land Sales Full Disclosure Act

- authorizes a nationwide program of registration of subdivisions marketed in interstate commerce. - The program is intended to protect consumers by making relevant information available to them when they are considering purchasing land. - Applies by law and administrative regulation, to subdivisions of undeveloped land sold or offered for sale or lease through interstate commerce.

QUITCLAIM DEED

- deed only conveys the rights, interest and title that the grantor - Offers no or any warranty about the quality of the title. "i own and will not defend"

Life Estate

- dependent on the life span of owner - Upon death of owner, property reverts to the original transferor or other designee - Can be mortgaged, leased or sold during holder's lifetime

HOPE VI

- has been the engine driving the revitalization of the nation's most distressed public housing developments by providing grants and unprecedented flexibility to address the housing and social service needs of their residents. - permits expenditures for the capital costs of demolition, construction, rehabilitation and other physical improvements, development of replacement housing, and community and supportive services.

Truth in Lending Act

- implemented by Regulation Z. - requires lenders to disclose to buyers the true cost of obtaining credit, so that borrowers can compare the costs of various lenders.

Community Development Block Grant Program - CDBG

- is a flexible program that provides communities with resources to address a wide range of unique community development needs. - program works to ensure decent affordable housing, to provide services to the most vulnerable in our communities, and to create jobs through the expansion and retention of businesses.

Income qualification - mortgage

- lenders use two ratios to estimate an applicant's ability to fulfill a loan obligation: an income ratio, or housing ratio, and a debt ratio, or housing plus debt ratio. - also consider the stability of an applicant's income.

Good Neighbor Next Door

- offers a substantial incentive in the form of a discount of 50% from the list price of the home. In return the buyer must commit to live in the property for 36 months as his or her sole residence. - Law enforcement officers, pre-Kindergarten through 12th grade teachers and firefighters/emergency medical technicians can contribute to community revitalization

GENERAL WARRANTY DEED

- offers complete warrant about the quality of the property - owner claims title is free and clear of all encumbrances (except what is listed) - if title fails, grantor will compensate grantee for any losses "I own and will defend"

Community Reinvestment Act

- passed by Congress in 1977 to prevent redlining and to encourage banks and thrifts to help meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods. - requires federal financial institution regulators to assess the record of each bank and thrift in helping to fulfill their obligations to the community and to consider that record in evaluating applications for charters or for approval of bank mergers, acquisitions, and branch openings.

WHAT IS MONEY AND THE FEDERAL RESERVE SYSTEM?

- was created in 1913. - Each of the 12 Federal Reserve District Banks supervise all nationally-chartered and some state-chartered banks within their district. - to maintain a sound banking system and a strong economy for the nation. - is responsible for controlling the flow of money into and out of the economy. There are three primary ways this is accomplished: 1. Manipulating interest rates. 2. Changing reserve requirements. 3. Selling securities.

TITLE INSURANCE POLICIES

1. Owner's Policy : is for the benefit of the owner, insures the owner for the entire time that he/she owns the property 2. Lender's Policy : is issued for the benefit of the mortgage lender and any future holder of the loan. protects the lender against the same defects that the owner is protected from. - liability is limited to the loan balance

TSAHC offers three home loan programs:

1. Professional Educators Program - Designed for a person defined as a full time Classroom Teacher, Teacher Aide, School Librarian, School Nurse or School Counselor employed by a public school district in the state of Texas; or a full time faculty member of either an undergraduate or graduate professional nursing or allied health program in the State of Texas 2. Homes for Texas Heroes Program - Designed for a person defined as a full time, paid Firefighter, Emergency Medical Services Personnel, Peace Officer, Corrections Officer, Juvenile Corrections Officer, County Jailer, or a Public Security Officer working in the State of Texas 3. Home Sweet Texas Home Loan Program - Designed for an individual at or below 80% of the Area Median Family Income (AMFI)

Truth in Lending Act Advertising

Any advertising is subject to Regulation Z disclosure if it contains any of the following items: - Amount or percentage of down payment - Installment payment or amount - Specific finance charge - Number of installments - Period of repayment - Indication that there is no charge for credit If an ad includes any of the above items, all of the following items must be disclosed: - The amount or percentage of down payment - Terms of repayment - Annual percentage rate and if increase is possible - Total finance charge - Total # of payments and due dates - Regulation Z applies to advertising in ALL media, including websites, billboards, radio, TV and direct mailings.

Liquidity provision

Businesses and households need to have protection against unexpected needs for cash. Banks are the main direct providers of liquidity, both through offering lines of credit that can be withdrawn any time

TITLE INSURANCE

Completes same tasks as "abstract and opinion" but also provides warranty "make good" to any loss arising from a defects (hidden or discovered) in the title (any liens or encumbrances) - title company will defect title in court

Credit Provision

Credit is the backbone of the economic activity. It allows businesses and consumers to invest beyond their cash on hand, households now can purchase homes without saving the entire cost in advance, and governments can smooth out their spending by leveling out the problem of receiving most of their revenues during one period of the year.

Changing Reserve Requirements

Each bank must retain a certain percentage of its assets in reserve. These reserves must be kept at the regional Federal Reserve Bank. The Fed sets the reserve requirements and can control the amount of money in circulation by adjusting the reserve rate up or down.

Risk management services

Finance allows businesses and households to pool their risks from exposures to financial market. Much of this is provided by banks through derivatives transactions. - Derivatives can be used for a number of purposes - including insuring against price movements (hedging), increasing exposure to price movements for speculation or getting access to otherwise hard to trade assets or markets.

Home Mortgage Disclosure Act

Financial institutions are required to fairly and impartially make credit available to all credit-worthy applicants. - requires that lenders report statistical information each year to insure that lenders are not restricting loans to certain individuals or neighborhoods to exclude them from obtaining a mortgage (called "redlining")

Hurricane Discount Home Sales

HUD homes are purchased at a discount to evacuees displaced by Hurricanes Katrina, Rita or Wilma. HUD homes located anywhere in the 50 States are offered for sale to FEMA qualified hurricane evacuees who will bid on them during an initial offering period lasting ten days. During the initial 10-day offering period, these HUD homes can be purchased by evacuees at a 10% discount from the appraised value of the home. In addition, HUD will pay up to 5% of the purchaser's reasonable and customary closing costs in connection with the sale. The purchaser must make a minimum earnest money deposit of $500 on the property. In order to bid on a HUD home, the evacuee must have a FEMA registration number and a copy of FEMA's letter stating the bidder's eligibility as a hurricane disaster evacuee. A real estate broker can assist the purchaser in bidding on the home. The home must be purchased with an FHA loan or with all cash. The purchaser must occupy the home for at least one year from the closing of the sale.

What determines how healthy the real estate market is at any given point in time?

How healthy the real estate market is at any given point in time relates directly to the cost of money or interest rates.

What is the most viable way the Federal Reserve System (the Fed) influences real estate finance

Manipulating interest rates

Why are the savings of individuals important to the economy?

Savings become the eventual source of funds for borrowing.

ABSTARCT AND OPINION

TWO STEPS 1. Abstractor conducts search of public records to find any defects on title. - then summarize all the documents and place them in chronological order of recording 2. Abstractor/Lawyer will study documents and information collected and formulate an OPINION - will give judgement about title and determine if title is marketable and good. - if title is deemed clouded, defect and encumbrances will be listed and a cure will be advised to fix defects. NOTE: only defects and encumbrances listed in public records are surveyed.

Intermediation - Finance

The act of pooling and investing money of many people by banks.

Manipulating Interest Rates

The most visible way the Fed influences real estate finance is through manipulating interest rates. Interest rates are increased or decreased based on flow of economy.

Disintermediation - Fiance

When depositors (ppl) invest their own funds directly

When does supply and demand usually improve for a buyer?

When the economy is in a recession.

The Office of Thrift Supervision (OTS)

a bureau within the U.S. Treasury Department. OTS is now the chief regulator of all savings banks that have federally-insured deposits.

TALCB - Texas Appraisal License and Certification Board

a nine-member Board composed of four certified real estate appraisers and four public members appointed by the Governor to serve staggered two-year terms

Major Reconstruction of Obsolete Projects (MROP)

a vehicle for grants to Public Housing Authorities (PHAs) to finance the capital cost of rehabilitation of old public housing to maintain or expand the supply of decent, safe, and sanitary housing for low-income families.

MORTGAGE CREDIT CERTIFICATE PROGRAM

allows qualified homebuyers to take a portion of the annual interest paid on the mortgage as a tax credit, up to $2,000, each year they occupy the home as their principal residence.

Farm Credit Administration (FCA)

an independent federal agency responsible for regulating and examining the banks, associations, and related entities of the Farm Credit System (FCS).

SAFE Act (Secure and Fair Enforcement)

any individual "acting as or engaged in the business of a residential mortgage loan originator" must have a valid mortgage loan originator license.

Right to Rescind

borrower has a right to cancel the transaction by notifying the lender within three days. does not apply to residential first mortgage loans, but does apply to refinancing and home equity loans

Texas Appraiser Licensing and Certification Board (TALCB)

created by an act of the Texas Legislature in 1991 to license, certify, and regulate real estate appraisers in Texas under state and federal laws

Qualifying the borrower

eight types of information: 1. current income or assets (excluding the value of the mortgaged property) 2. current employment status 3. credit history 4. monthly payment for the mortgage 5. monthly payments being made on other loans on the same property 6. monthly payments for other mortgage-related expenses 7. other debts 8. monthly debt payments compared to monthly income (debt-to-income ratio)

Finance Commission of Texas

ensure that the banks, savings institutions, consumer credit grantors, and other regulated entities chartered or licensed under state law operate as sound and responsible institutions that enhance the financial well-being of the citizens of Texas -

Farm Credit System Insurance Corporation (FCSIC)

established by the Agricultural Credit Act of 1987 as an independent U.S. government-controlled corporation. The Corporation's primary purpose is to ensure the timely payment of principal and interest on insured notes, bonds, and other obligations issued on behalf of Farm Credit System banks.

Bank Insurance Fund (BIF)

established to insure deposits in commercial banks - created by FIRREA

Savings Association Insurance Fund (SAIF)

established to insure deposits in savings institutions, up to &100k per account - created by FIRREA

ESTATE

everything a person owns - all assets, whether real property or personal property and liabilities

Fair Housing Act

first began with the Civil Rights Act of 1866, which prohibited discrimination in housing based on race, color, religion or national origin - is administered by the Office of Fair Housing and Equal Opportunity under the direction of the secretary of Housing and Urban Development (HUD). - Any person who believes he or she has been discriminated against may file a complaint with HUD within one (1) year of the alleged act

Agricultural Credit Bank (ACB)

has the authority of an FCB and provides loan funds to ACAs. In addition, the ACB makes loans of all kinds to agricultural, aquatic, and public utility cooperatives and is authorized to finance U.S. agricultural exports and provide international banking services for farmer-owned cooperatives.

US Department of Agriculture Rural Development Program (USDA Rural Development)

helps rural individuals, communities and businesses obtain financial and technical assistance to address their diverse and unique needs. The agency promotes economic development by supporting loans to businesses through banks and community-managed lending pools. In addition, the agency offers technical assistance and information to help agricultural and other cooperatives get started and improve the effectiveness of their member services.

Farm Credit System (FCS)

inaugurated under the Federal Farm Loan Act. - It is designed to serve the unique financial needs of farmers, ranchers, producers and harvesters of agricultural products. - It also assists rural homeowners and owners of some types of farm-related businesses. - The banks in the FCS provide loans for real estate, operating costs and rural homes. They also offer credit-related life insurance and crop insurance. These banks do not take deposits. Lending funds are raised through the sale of bonds and notes in national capital markets.

Federal Farm Loan Act of 1916

is a United States federal law, signed by then President Woodrow Wilson, which established 12 regional Farm Loan Banks to serve members of Farm Loan Associations. Farmers could borrow up to 50% of the value of their land and 20% of the value of their improvements.

Texas State Affordable Housing Corporation (TSAHC)

is a self-supporting, not-for-profit organization which does not receive any state funding for its operations. TSAHC was created by statute in 1994 to be operated exclusively for the promotion of public health, safety and welfare through the provision of safe, decent and affordable housing for low-income Texans and other underserved populations.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD)

is the principal federal agency responsible for programs concerned with America's housing needs, fair housing opportunities, and improvement and development of our communities. Created to: - Administer the principal programs that provide assistance for housing and for the development of communities. - Encourage the solution of housing and community development problems through states and localities. - Encourage the maximum contributions that may be made by both primary and secondary homebuilding and mortgage lending industries to housing, community development and the national economy.

Mortgage loan underwriting

is the process of assessing the lender's risk in giving a loan. Mortgage underwriting includes: - evaluating the borrower's ability to repay the loan - appraising the value of the property offered as security - determining the terms of the loan

Disclosure - Truth Lending

lender must disclose all finance charges and the annual percentage rate (APR) of the loan. Finance charge disclosure includes loan fees, interest, service charges and points. For home mortgages, the lender must disclose the APR but is not obligated to disclose the total interest payable over the life of the loan.

Leasehold Estate

limited ownership of estate with limited rights, right to use.

Farm Credit Banks (FCBs)

make loans directly to Agricultural Credit Associations (ACAs) and Federal Land Credit Associations (FLCAs). ACAs make short-, intermediate-, and long-term loans, and FLCAs make long-term loans

Texas Department of Housing and Community Affairs (TDHCA)

offers mortgage loan funds and down payment assistance to eligible first-time homebuyers.

Qualified Mortgage

one that meets the "ability-to-repay" requirements, has certain required features and is not allowed to have others. Generally required: - monthly debt no more than 43 % of monthly pre-tax income - limits on points

Indian Home Loan Guarantee Program (Section 184)

program is designed to offer home ownership, property rehabilitation, and new construction opportunities for eligible tribes, Indian Housing Authorities and Native American individuals and families wanting to own a home on trust land or land located in an approved Indian or Alaska Native area.

Equal Credit Opportunity Act (ECOA)

prohibits lenders from discriminating against applicants on the basis of Race Color Religion National origin Sex Marital status Age Dependency on public assistance

Public Housing Development program

provides Federal grants to local public housing authorities (PHAs) to develop housing for low-income families that cannot afford housing in the private market

Regulation Z

requires lenders to make meaningful credit disclosures to individual borrowers for certain types of consumer loans. The regulation also applies to all advertising seeking to promote credit. applies only to actual extenders, real estate broker or salesperson who helps arrange creative financing to sell a house applies to all loans that are secured by a residence. It does not apply to: - Commercial loans - Agricultural loans over $25,000 The provisions of Regulation Z cover: - Disclosure of costs - Right to rescind the transaction - Advertising offers - Noncompliance penalties

Farm Credit Council

s the national trade association that represents the legislative and regulatory interests of the Farm Credit System. The Council also provides services to its members in the areas of training, insurance, risk management and a variety of discount programs.

REAL ESTATE

the land and everything permanently attached to it that is owned as part of a person's estate

LIEN-THEORY STATES

the mortgage regarded as a lien held by the mortgagee (lender) against the property owned by the mortgagor (borrower)

Redlining

the practice of denying services, either directly or through selectively raising prices, to residents of certain areas based on the racial or ethnic composition of those areas

MORTGAGE FINANCING

the process of borrowing money to purchase real estate

HYPOTHECATION

the process of securing a loan by pledging a property without giving up ownership of the property

Office of Consumer Credit Commissioner (OCCC)

to regulate the credit industry and educate consumers and creditors, thereby producing a fair, lawful, and healthy credit environment for social and economic prosperity in Texas.

Department of Savings and Mortgage Lending (SML)

two key areas of regulatory responsibility: a. Chartering, regulation and supervision of the state's thrift industry b. Licensing/registration and regulation of the state's mortgage industry These two areas of responsibility cover the vast majority of residential mortgage lending in Texas.

Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) in 1989

was passed due to widespread failures of thrift institutions 1. Required savings and loans to adopt new capital standards. 2. Transferred the regulatory powers of the Federal Home Loan Bank Board to a new agency, the Office of Thrift Supervision (OTS), 3. Placed the 12 district Federal Home Loan Banks under control of the Federal Housing Finance Board discussed on the previous screen. (The Federal Home Loan Bank Board had this function previous to the passing of this act.) 4. Abolished the defunct Federal Savings and Loan Insurance Corporation (FSLIC).