STUDY THIS Real Estate Principles & Practice Ch. 9-12

nonveteran, paid it off

A VA loan may be assumed by a _____________ buyer, upon approval by the VA. If a veteran sells his or her property and allows the buyer to assume the existing VA loan, he or she cannot get another VA loan until the buyer who assumed the loan has _______________.

exceed

A VA loan may not ________________ the value established by the Certificate of Reasonable Value.

lock-in clause

A _____________ prohibits borrowers from paying off a loan in advance. It is not allowed on residential units of less than 4 units.

deficiency, borrower

A ______________ judgment is a personal judgment against a ________________ for the balance of a debt owed when the security for the loan (amount earned in a trustee's sale) is not sufficient to pay the debt.

fixed, adjustable

A ________________ interest rate is one in which the interest rate and term do not change over the life of the loan. On the other hand, a __________________ rate loan is one that has a fluctuating interest rate or other changes in the payment over the life of the loan.

subject-to, original borrower, go against their credit

A __________________ clause allows a buyer to take over a loan, making the payments without the knowledge or approval of the lender. In this case the ___________ remains responsible for the loan, even though the buyer takes title and makes payments. If default occurs, there is no recourse for the original buyer, and foreclosure will ________________.

Junior Mortgage, Senior Mortgage

A __________________ is a mortgage that is subordinate to a first or prior (senior) mortgage. It often refers to a second mortgage, but it could also be a third or fourth mortgage. In the case of foreclosure, the _____________ mortgage will be paid down first.

conventional loan, conforming, non conforming

A ___________________ is a loan made by lenders without any governmental guarantees. Conventional loans may be ________________ or ___________________.

real estate investment trust

A company with a minimum of 100 shareholders than owns and operates income-producing real estate or engages in financing real estate.

seller, vender, vendee

A contract of sale is a financing instrument in which the ____________ becomes the lender to the buyer. The two parties may also be known as the ____________ (seller) and ____________ (buyer).

fictitious trust deed

A deed of trust recorded by a trustee that discloses all the terms of the trust deed but does not relate to a specific transaction and is used for reference only.

fixed, level, common

A fully amortized fixed-rate note describes a loan with an interest rate that is _____________ and payments that are _________ for the life of the loan. This type of note is the most ___________ type with institutional lenders. It has regular, periodic payments of fixed amounts, which pay off the debt completely by the end of the term.

Promissory note

A note a borrower signs which states that a certain amount of money has been borrowed. It is the evidence of a debt.

prepayment clause

A statement in the promissory note allowing a borrower to pay off a loan early or make higher payments without paying a prepayment penalty.

Credit Scoring

A statistical method lenders use to assess a borrower's credit risk.

home equity line of credit, however you want, minimum amount

A___________________, is a kind of revolving credit that allows you to borrow money as you need it with your home as collateral. Lenders approve applicants for a specific amount of credit based on taking a percentage of their home's appraised value and subtracting the balance owed on the existing mortgage. They may also consider your income, other debts and credit history. If you're approved, you can usually spend the funds __________________ (up to the credit limit) using special checks or a credit card. However, some plans have restrictions or guidelines that require you to borrow a ____________________ each time, keep a minimum amount outstanding or withdraw an initial advance when the line of credit is established.

one year, court costs, interest, 3 months

After a court foreclosure sale on a mortgage, the borrower gets to keep possession of the property and has _________ to redeem the property by satisfying the loan in full including __________ and ____________ unless the proceeds of the sale are sufficient to satisfy the secured indebtedness, then the redemption period is only _________.

effective, nominal, named

An APR may also be known as an _____________ interest rate. This is in contrast to the ______________, or ____________ rate, which is the base rate stated in the note.

adjustable-rate mortgage, larger, investment return

An ____________ is a mortgage whose interest rate is tied to a movable economic index. The interest rate in the note varies upward or downward over the term of the loan, depending upon the agreed upon index. This allows borrowers to qualify for ____________ loans and at the same time help maintain the lender's _______________.

interest only loan, higher, principal, lower

An ______________ is also known as a straight loan or term loan. The interest rate is ___________ on this type of loan than on a traditional fixed rate loan, and the _____________ does not decrease. This is a type of loan that works for people who only want to stay in a home for a few years because it offers a __________ payment with almost the same principal balance at the end of 3-5 years of a conventional loan.

alienation, due on sale, unqualified

An ______________ or _______________ clause is a type of acceleration clause. A lender or noteholder may call the entire note due (accelerate it), if the original borrower transfers (alienates) ownership of the property to someone else. This type of clause protects the lender from an ________________ buyer taking over a loan. The lender fears default with no control over who is making the payments.

assumption clause, primary liability, secondarily liable

An _________________ allows a buyer to assume responsibility for the full payment of the loan with the lender's knowledge and consent. Usually the buyer will take over _____________ for the loan with the original buyer __________________ if there is a default.

acceleration clause

An ____________________ allows a noteholder to call the entire note due, on occurrence of a specific event, such as default in payment, taxes or insurance, or sale of the property.

APR

An interest rate refers to the interest charged on a loan, and it does not take any other expenses into account. In contrast, ____________ is the combination of fees and the interest rate.

purchase-money loan, are not allowed

Any loan made at the time of a sale, as part of that sale, is known as a _____________. Deficiency judgments _______________ on this type of loan.

power-of-sale

Any trust deed or mortgage with a _______________ clause may be foreclosed non-judicially by trustee's sale. Without this clause, the only remedy a lender has is a judicial foreclosure by a court proceeding.

number of parties, 3, 2

Besides the lack of court action when a borrower fails to repay the loan, the other major difference between a mortgage and a trust deed is the _______________. In a trust deed there are ________, in a mortgage there are _______.

security, collateral

Beyond the borrower's written assurance that they will pay back the loan, the lender wants some concrete assurance of getting the money back. This is known as ______________ or ________________.

Fannie Mae, Freddie Mac, prime, refinance

Conforming loans have terms and conditions that follow the guidelines set forth by __________ and _____________. These loans are called ______________ loans and can be made to purchase or ____________________ homes of 1-4 residential units.

Fannie Mae, guaranteeing, otherwise qualify

Congress created _____________ to provide liquidity, stability and affordability to the mortgage market by purchasing and _____________ mortgages that meet its funding criteria. By doing so, it increases the amount of loans available to homeowners who might not _________________.

Truth in Lending Act

Consumer-protection law passed to promote the informed use of consumer credit by requiring disclosures about its terms and costs.

interest, principal, lower

During the early amortization period, a large percentage of the monthly payment is used to pay the ___________. As the loan is paid down, more of the monthly payment is applied to the _____________. Typically the longer the term of the loan, the ____________ the monthly payment.

loan amount, borrower credit, income requirements, loan limits

Fannie Mae and Freddie Mac guidelines establish the maximum ________________, _________________, and ______________, down payment, and suitable properties. They announce new ___________ every year.

bankers, extra cash, higher interest rates

Generally, adjustable rate financing benefits __________ because it allows for an inflow of _____________ during the times of ______________.

actual possession

Hypothecation differs from a pledge, because ___________ of pledged property is given to the lender. For example, jewelry being delivered to a pawnbroker and held there until a loan is repaid.

treated like a mortgage, keep possession, deficiency judgment

If a trust deed is foreclosed in court, it is _____________, and the borrower may _______________ during the redemption period. A foreclosure ma be the only way the beneficiary can obtain a _____________ against the borrower.

note

If there are conflicts in the terms of the promissory note and the trust deed or mortgage, generally the terms of the ___________ are controlling.

Trust deed

In California, the most common security instrument for the promissory note is a ______________.

Home equity loan

In a ____________________, the borrower gets the entire loan balance at one time. It is a fixed-rate second mortgage, with principal and interest payments ____________________ over the life of the loan.

fixed, principal, decline

In a balloon payment, a borrower makes ______________, amortized payments against the principal balance, with interest, for a set term. At the end of the term, the remainder of the _______________ is due. The reason for balloon loans is to make the loan less risky for the bank by making the full amount due sooner. It protects against a ________________ in interest rates or default by the borrower over the long term. A benefit to the borrower (in the case of a 10 year term) could be that they get a lower interest rate because of the extra protection to the banker. Another possibility is that they are expecting to be making more money at the end of the 10 year term, or to sell their home after 10 years.

seller, equitable title

In a contract of sale, the buyer has possession and use of the property even though legal title is held by the ___________. The vendee or buyer holds what is known as ________________. When all the terms of the contract are met the vendor will pass title to the vendee.

maximum credit limit, borrowing, repeatedly

In a revolving line of credit, the lending institution grants you a _______________, which you can use to make purchases at any time and on any goods. When payments are made on the revolving credit account, those funds become available for ____________ again. The credit limit may be used again ________________ as long as you do not exceed the maximum.

notice of default, notified, 3

In a trustee's sale, first the lender notifies the borrower of default and requests the trustee to record a _____________. Anyone who has recorded a request for notice must be _____________ of the default. The trustee must wait at least _____________ months after recording the notice before advertising the trustee sale.

trustee's deed

In a trustee's sale, the trustee issues a ____________ to the highest bider.

margin, chosen index

In an adjustable rate mortgage, the _________ is maintained for the life of the loan and does not change. The interest rate may change, however, as the _____________ changes, depending on the economic conditions that lead it.

1-2, 5-6

In an adjustable rate mortgage, the annual maximum increase is usually __________ percent, while the lifetime cap is usually not allowed to go beyond ________ points above the starting rate.

mortgage companies

Lender whose principal business is the origination, closing, funding, selling and servicing of loans secured by real property.

10-15

Lenders may not impose a late charge on a payment until after the payment is _________ days late depending on the terms of the note.

80, monthly payment

Lenders usually require private mortgage insurance when the loan exceeds _________% of the value of the property. Usually borrowers pay for this insurance as part of the ____________.

primary mortgage market

Market in which lenders make mortgage loans directly to borrowers.

county, income

Maximum FHA loan amounts vary from one ____________ to another. There are no _______________ limits of FHA loans.

credit limit, variety of purposes, replenish

Non-revolving lines of credit have the same features as revolving credit. A _______________ is established, funds can be used for a _____________________, interest is charged normally and payments may be made at any time. There is one major exception: the pool of available credit does not __________________ after payments are made

single payment of principal and interest

Some loans have no regular payments of interest and/or principal. Instead the loan is paid off all at once, at a specified future date. This payment includes the entire principal amount and the accrued interest. This is known as ____________________.

deficiency judgment

Sometimes the proceeds of the trustee's sale are not sufficient to satisfy the debt being foreclosed. If that happens, the noteholder may sue on the promissory note to obtain a ________________ against the borrower.

insures, guidelines, established limit, mutual mortgage insurance

The FHA does not make loans, rather, it ____________ lenders against loss. As long as FHA ____________ are used in funding the loan, the FHA, upon default by the borrower, insures the lender against loss. If the borrower does default, the lender may foreclose and the FHA will pay cash up to the _______________ of the insurance. The lender is protected by charging the borrower a fee for an insurance policy called _________________.

gift, closing costs

The FHA guidelines encourage homeownership by allowing 100% of the down payment to be a __________ from family or friends, and by allowing ______________ to be financed to reduce the up-front cost of buying a home.

construction, financing, promote

The FHA program was established to improve the ________________ and ______________________ of housing, and to _________________ homeownership.

simple interest

The interest charged on most real estate loans is _______________—interest paid only on the principal owed.

purchasing, lenders, traded, 50%

The mission of Fannie and Freddie is virtually the same -- "to provide liquidity and stability to the U.S. housing and mortgage markets," according to the Fannie Mae web site, and "to provide liquidity, stability and affordability to the housing market," according to the Freddie Mac web site. They both pursue this mission buy ___________ residential mortgages that conform to certain standards from __________. They then either hold these mortgages or use them to issue mortgage-backed securities to be _______________ in the capital markets. Currently, Fannie and Freddie hold or guarantee about _________ of the nation's outstanding home mortgages.

d. sell government bonds and raise the discount rate.

The most effective method for the Federal Reserve to create a "tight" money market is to: a. buy government bonds and increase the reserve requirement. b. sell government bonds and decrease the reserve requirement. c. buy government bonds and raise the discount rate. d. sell government bonds and raise the discount rate.

Hypothecation

The process of executing a trust deed, giving legal title to a third party to hold as security for the loan is known as ______________.

APR

The relative cost of credit expressed as a yearly percentage rate.

statutory redemption

The right granted by legislation to a mortgagor (borrower) one who pledges property as security for a debt, as well as to certain others, to recover the mortgaged property after a foreclosure sale.

borrower, lender, trustee

The three parties to a trust deed are the ____________, or Trustor, the ________________, or beneficiary, and a neutral third party called a _____________.

sell

The trust deed allows the lender, in the case of a loan default, to order the third party to __________ the property described in the deed.

foreclose, borrower

The trustee, who has bare legal title, acts as an agent for the lender and has only two obligations. 1. _____________ on the property if there is a default on the loan, and 2. reconvey the title to the _____________ when the debt is repaid in full.

Federal Housing Administration, Veterans Administration, Californian Farm and Home Purchase Program, CalVet loan

The two federal agencies that participate in real estate financing are the _________________, and the ______________. The ___________________, or _____________ is a state program that helps eligible veterans.

fixed, variable, lump sum, revolving, as you need it

The two major differences between a Home Equity Loan and a Home Equity Line Of Credit are the interest rates and repayment policies. A home equity loan typically has a __________________ interest rate while a home equity line of credit typically has a _________________ rate. In a home Equity Loan, you receive your money in one ____________, whereas a Line of Credit is _______________ credit that allows you to borrow money ________________.

trustee's sale, judicial process

There are two ways to foreclose, by ___________ and by ______________.

go through the courts, costly, non-judicial foreclosure

This is the major and important difference between a mortgage and a deed of trust. In a mortgage, if the borrower can't pay, the foreclosure process and the selling of property must _______________. This is known as judicial foreclosure and the process involves the lender filing a lawsuit. This can be a _________ process for both the borrower and the lender. If a deed of trust is used, however, courts can be bypassed. This is known as ______________ and it's almost always faster and less costly. How this process happens is based on both state laws and the terms and procedures laid out in the deed of trust

Rehabilitation Loan

This loan provides the funds to purchase your home and the funds to complete any home improvement needed when you move in, with one application, one set of fees, one closing, and one monthly payment.

hard money loan, is permitted

This type of loan is not taken in order to purchase a home, but rather after an initial purchase money loan. It may include the following types of loans: a home equity line of credit, a home equity loan, or a refinance mortgage. Deficiency judgment __________ on this type of loan.

True

True or false: most trust deeds & mortgages in California include the power-of-sale clause, so the lender may choose either type of foreclosure method.

not allowed, the property itself, personal assets

Under a trust deed ( or a mortgage with a power of sale clause), deficiency judgment is ___________. Since trust deeds are used almost exclusively in California to secure loans, the only security for a lender (beneficiary) is _____________. Any other ___________ of the borrower in default are protected from judgment.

Certification of sale

When a mortgage is defaulted on, the lender goes to court to start the foreclosure. After publication and posting of the sale notice, the court-appointed commissioner sells the property to the highest bidder and gives the buyer a _______________.

VA-approved, certificate of reasonable value

When a veteran finds a house he or she wants to purchase a ________________ conventional lender will take the loan application and the veteran's Certificate of Eligibility and process the loan according to VA guidelines. The lender will request the VA to assign a licensed appraiser to determine the reasonable value for the property. A _______________ will be issued.

negative amortization

When the borrower makes lower payments than what should be made on a fully amortized loan. The difference between what should be paid and what is actually paid is added to the principal balance of the loan.

request for full reconveyance, deed of reconveyance, lien

When the debt is repaid in full, the lender signs a ______________ and sends it to the trustee requesting them to reconvey title to the borrower. The trustee then signs and records a _______________ to show the debt has been repaid and to clear the ____________ from the property.

principal, accrues, compound

When you make a payment on a simple interest loan, the payment first goes toward that month's interest, and the remainder goes toward the __________. Each month's interest is paid in full so it never ____________. This is in contrast to ____________ interest, which adds some of the monthly interest back onto the loan; in each succeeding month, you pay new interest on old interest.

jumbo, higher

_____________ loans exceed the maximum loan limit set by Fannie Mae and Freddie Mac. Because they're not funded by the government sponsored entities, they usually carry a _______________ interest rate.

private mortgage insurance, conventional

_____________ protects the lender against financial loss if a homeowner stops making mortgage payments. It is required on most ______________ loans.

Freddie Mac, mortgage-backed securities

______________ is a stockholder-owned, government-sponsored enterprise (GSE) chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing for middle income Americans. The FHLMC purchases, guarantees and securitizes mortgages to form _________________. The securities that it issues tend to be very liquid and carry a credit rating close to that of U.S. Treasuries.

Energy Efficient Mortgage, mortgage insurance

_______________ is a program that helps homebuyers or homeowners save money on utility bills by enabling them to finance the cost of adding energy efficiency features to new or existing housing. It provides ___________________ for the purchase or refinance of a principal residence that incorporates the cost of energy efficient improvements into the loan.

Usury, 10%, 10%, 5%

_______________ is the charging of interest that is unreasonably high or beyond the legal limit set by the state. The interest rate on a loan made primarily for personal, family, or household purposes cannot exceed _______ per year. However, a loan used for home improvement or home purchase and all other loans made by a nonexempt lender are limited to the higher of _______% or _______% plus the discount rate charged by the San Francisco Federal Reserve Bank.

Equitable title

_______________ is the interest held by the borrower under a trust deed and gives them the equitable right to obtain absolute ownership to the property when the terms of the trust deed are met.

Points, low

________________ are a percentage of the loan amount paid to the lender when negotiating the loan. The aim is to increase the lender's yield and compensate the lender for the difference between FHA interest rates, which tend to be ___________, and conventional interest rates.

subprime, qualify

________________ loans, or B and C paper loans, are offered to borrowers that may have recently filed for bankruptcy or foreclosure, or have had late payments on their credit reports. Their purpose is to offer temporary financing to these applicants until they can ____________ for conforming A financing.

Home Equity Conversion Mortgages

_________________ is a program for homeowners who are 62 and older who have paid off their mortgages or have only small mortgage balances remaining.

prepayment penalty, interest

__________________ allows a lender to collect a certain percentage of a loan as a penalty for early payoff. This is because if a loan is paid off early, the lender receives less ____________ than originally planned.

Graduated Payment Mortgage, principal balance, same

__________________ is a type of loan that has a monthly payment that starts out at the lowest level and increases at a specific rate. Payments for the initial years cover only part of the interest due, with the unpaid amount added to the _________________. After a specified time, the loan is recalculated, with the new payments staying the _________ from that point on.

APR, fees or additional costs, compounding,

__________________ is the annual rate charged for borrowing or earned through an investment, and is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan. This includes any _________________ associated with the transaction but does not take _______________ into account.

non-conforming, creditworthiness

__________________ loans include jumbo loans and subprime loans. These loans are so-called because the borrower's __________________ or the size of the loan do not meet conventional lending standards.

loan officers, underwriters

____________________ are representatives of banks, credit unions and other financial institutions that find and assist borrowers in acquiring loans. Some specialized officers, called loan ______________, analyze and assess the creditworthiness of potential borrowers to see if they qualify for a loan.

amortization, interest, principal

____________________ is the paying off of debt with a fixed repayment schedule in regular installments over a period of time. With this type of payment, both __________ and ______________ are paid off.

warehouse lending, points, origination fees

______________________ can most simply be understood as a means for a bank or similar institution to provide funds to a borrower without using its own capital. A bank handles the application and approval for a loan but obtains the funds to make the loan from a lender. When the bank then sells the mortgage to another creditor in the secondary market, it receives the funds that it then uses to pay back the lender. Jane Doe's bank profits through this process by earning _________________ and ______________________.

negotiable instrument

a transferable, signed document that promises to pay the bearer a sum of money at a future date or on demand. The most common type of this instrument is a bank check.

re-evaluates, index, payment

in an adjustable rate mortgage, the borrower's payment will stay the same for a specified time, which might be six months or a year, depending on the agreement with the lender. At the agreed upon time, the lender __________ the loan to determine if the _____________ has changed and calculates a new _____________ based on the changed interest rate plus the same margin.

qualifying rate, margin

in an adjustable rate mortgage, the initial interest rate is known as a ____________, and is determined by the current rate of the chosen index. Then, a __________, which might be anywhere from 1-3 percentage points, is added to the initial interest rate to determine the actual beginning rate the borrower will pay.

alienation, prepayment

no _______________ or _______________ clauses are allowed in FHA loans.