CHAPTER 9
What is used to lower the interest rate on the loan while increasing the yield to the Lender
Discount points
Veteran borrowers (pay, do not pay) Insurance premiums
Do Not pay
The loan guarantee amount which the veteran is eligible to receive on a VA loan is referred to as he is
Entitlement
In Borrowers Right of Redemption, there are 2 ways
Equitable Redemption Statutory Rights of Redemption
This type of redemption occurs after the borrower goes into default before the actual foreclosure sale. The borrower or other lienholder can redeem the property by paying the current debt
Equitable redemption
Additional time within which to pay a debt it's called
Equitable right of redemption
This clause gives the right of the lender to raise the interest during the length of the mortgage
Escalation clause
What to words protect a borrower for being responsible for deficiency judgment
"subject to"
What is permitted to ensure a qualified loan for single-family residence from FHA
1. 97% for first 25,000 of appraisal or purchase price whichever is less, 95% up to $125,000, And 90% over $125,000 including closing cost 2. 97.25% of the sales price or appraised value (whichever is less) *there is no prepayment penalty or lock-clause and FHA only ensures first time mortgages, and can be assumed without an interest increase, they can be sold in the secondary mortgage market To qualify for FHA financing the property must meet minimum standards and the buyer must qualify as well
Before characteristics of lien theory
1. Borrowers and Lenders rights are described in a promissory note and mortgage agreement 2. Borrower holds legal title with the Lender having a lien or security interest 3. They defaulted borrower is allowed to retain possession title and rights in the property until the lien is in perfect foreclosure 4. Borrower, after default, "may" have equitable right redemption after foreclosure sale, the borrower may have statutory period of redemption
6 clauses in a mortgage
1. Date, place, and names both parties 2. Amount and schedule of payments 3. Granting Clause 4. Legal description and list any personal property involved 5. Warranty of Title clause 6. Defeasance clause Possibly 7. Escalation clause
6 elements of a Contract for Deed
1. Description of the property 2. Conditions of sale (price and terms) 3. Buyer is responsible for paying taxes and insurance 4. Signature of both parties dated and notarized 5. Escrow provisions and prepayment privilege 6. Protections of the seller
What are the two types of government backed loans
1. Federal housing administration loan program 2. Veterans administration guaranteed loan
In the secondary mortgage market there are five
1. Federal national mortgage Association (Fannie Mae) now privately owned 2. Government national mortgage Association (Ginnie Mae) 3. Federal home loan mortgage Corporation(Freddie Mac) 4. Mortgage guarantee mortgage Corporation (Maggie Mae) 5. Federal agricultural mortgage Corporation (Farmer Mac)
Three characteristics of Title Theory
1. Lenders rights or manifested by contract for deed 2. Lender remains the legal owner of the property until the debt is paid 3. Borrow or retains equitable rights in the property
In non-institutional lenders there are 7 different types
1. Mortgage brokers-they do not use their own funds . They make 2% 2. Mortgage bankers-they only set up lunch transactions using their own capital and servicing the loan, they make 5 or 6% 3. Pension funds 4. Trust funds 5. Private individuals 6. Foreign investors 7. University in hospital endowment funds, credit unions
9 types of loan payments
1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs
Five elements of a mortgage
1. The provisions of the agreement 2. Legal competent parties 3. Mutual consent 4. Exchange of consideration 5. Legal purpose
9 Covenants that protect a mortgage
1. To pay taxes and assessments 2.maintain Insurance PITT (principal, interest, taxes, insurance) 3. Good repair , against waste 4. Against removal 5. Property inspection 6. Alienation clause ( due on sale) makes the mortgage non assumable by giving up the lender 3 rights -right to demand payment in full -right to investigate credit -right allows lender to raise interest rate in alienated property above that of original loan 7. Receiver clause (assignment of rents) 8. Owners rent clause -applies to owner occupied residence in foreclosure 9. Subordination clause-gives lender permission for a Subsequent lender to assume first mortgage rights. Ex: with the mortgage goes into a foreclosure the second and June your mortgage can take first priority
4 mechanics of the trust deed
1. Trustor/owner transfers title to trustee, in exchange for loan. The
When evaluating the borrower in underwriting what is the ratio a lender may use
2 1/2 to 1
How much does the sheriff sale get into foreclosure
3%
What is the maximum in Louisiana for prepayment clause
5 years
VA loan is guaranteed for _____% of the Loans Face value or $__________, whichever is less
60%. $38,000
In dealing with the discount points, each percent is equal to how many points
8 points Example: The going rate for first mortgage loans is 11% and a discounted rate of 10% is available how many points must be charged 11-10=1 1 x 8= 8
A normal loan to value ratio is what percent
80%
What is the primary difference between the mortgage and the trust deed
A mortgage creates a lien A Trust Deed conveys title
1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs Which is also known as a variable rate mortgage in which the interest rate fluctuates according to some external index normally the rate is adjusted once a year and cannot change more than 2% into years. And there is an upper and lower limit on the rate
Adjustable Rate Mortgage
In underwriting when evaluating the property with two things are normally done
An appraisal and title report
When the trust deed is paid off, the trustee must give the Trustor ____________
Deed of reConveyance (transfer the title back to the original owner)
What is the most common type of foreclosure
Deed of trust for closure- The lender or beneficiary notifies the trustee in writing Of the late payments or no payments and instructs the trustee to start foreclosure proceedings then a 90 day notice is forwarded to the trustee and the sale is advertised in the paper. (They can get loan amount, delinquency fees, collection cost)
This clause removes the mortgage when the debt is paid
Defeasance Clause
Paying off the debt in a title theory is said to _______ The conveyance
Defeat
In foreclosure if the lender is unable to recover his full interest in the property he may in some states be permitted to seek
Deficiency judgment
In foreclosure this judgment allows the lender to attach and seize the borrowers unsecured personal and real property to make up the difference after the sheriffs sale
Deficiency judgment
blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which one covers several properties but each may be released from the mortgage separately
Blanket mortgage
blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which one has a partial release clause drafted into the mortgage at permits each parcel to be released from the mortgage as it sold normally this type of mortgage is used by a developer for constructing tracks of homes
Blanket mortgage
If The borrowers property is in foreclosure he may elect to redeem in one or two possible ways depending on the practice of his own state
Borrowers Right of Redemption
1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs A way of temporarily lowering the initial interest rate on a mortgage by preparing some of the interest to the lender on the borrowers behalf
Buydown
What two certificates or issued in a VA loan
Certificate of eligibility Certificate of reasonable value
To determine what portion of a mortgage loan the VA will guarantee a veteran must apply for a
Certificate of eligibility-this certificate establishes the maximum guarantee entitlement of the veteran
In the promissory note what is in the Clause 1-6
Clause 1 name of borrower and lender Clause 2 late pay clause Clause 3 contains acceleration clause(gives lender the right to demand full in the event of default). Without it the lender would have to go to court every month Clause 4 the interest escalation clause (the highest amount of interest rate will be allowed if it goes into default Clause 5 prepayment clause or penalty (absent in FHA and VA loans) Clause 6 joins the promissory note to the mortgage or trust deed. Without it, this clause would be a personal loan agreement
The pledge property is called
Collateral
blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which is used for building or repairing either residential or commercial property
Construction Loan
Blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which mortgage is a type of interim financing
Construction loan
blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which type of mortgage is committed for the total cost of the construction project but is paid out and draws at regular intervals after each stage of construction has been completed interest is paid only on the amount of disbursements and normally for three years or less
Construction loan
In this type of financing the buyer gives a 1. down payment 2. a promissory note 3. a mortgage or trust deed In exchange for rights to the sellers property
Contract for Deed
In this type of financing the sale and financial agreement or generally in one document
Contract for Deed
In this type of financing there is no third-party lender and the buyer does NOT receive full title until the terms of the contract have been met but the buyer does have all the privileges of ownership in the meantime
Contract for Deed
Non-government backed loans are called
Conventional loans
What are the two categories of loans
Conventional loans Government backed loans
Why was the Federal housing administration long program created
Created in 1934 as an alternative to conventional lending practices when it became apparent that conventional lender's were unable to cope with extreme fluctuations in the economy the FHA is entirely self supporting
5 different types of financing mortgages
blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing
The FHA are loans that are _________ The VA loans are loans that are _______
FHA- ensured VA-guaranteed
1. Federal National Mortgage Association 2. Government National Mortgage Assoc 3. Federal Home Loan Mortgage Corp 4. Mortgage Guarantee Mortgage Corp 5. Federal Agricultural Mortgage Corp Was founded in 1972 to allow savings and loans equity for their mortgage assets and they buy loans with cash to assist the banks to originate new loans. Funds its operations by selling securities
Federal Home Loan Mortgage Association (Freddie Mac)
All government backed loans (fed'l Housing Adm and Veterans Admin Guarantee loan) are exempt from which law
Federal Usury law
What loan program ensures loans
Federal housing administration loan program
In underwriting when evaluating the location what is economic obsolescence
Forces outside the property itself which causes a decline in its value. The federal government prohibits the lender from refusing for this reason
The lender is required to refund to the borrower any profit realized on the sale of the foreclosed property Example Lender owed $120000 House sold at Sheriff Sale $100000 Lender is responsible for $20000
Foreclosure by sale
1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs Also known as direct reduction loan features a schedule of equal payments consisting of both principal and interest and is normally a long term loan up to 30 years
Fully Amortized Loan
1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs Payments start small and become larger as the loan goes on. Normally used for commercial loans that expect to increase income
Graduated Payment Mortgage
There is no VA limit on the amount of the loan a veteran can obtain, the VA limits the amount of long it will
Guarantee
In states which apply the lien theory to real property pledged as collateral the borrower is said to _________ title to the lender
Hypothecate "pledge"
This means that the Lenders given a lien against the borrowers collateral property and if the default occurs the lender can file foreclosure proceedings to recover his interest in the property
Hypothecation
Contract for Deed is also known as
Installment Land Contract Conditional Sales Contract Agreement to Convey And in Louisiana-Bond for Deed
Two types of sources of financing
Institutional lenders and non-institutional lenders
If the borrower defaults by falling behind on his payments or breaking some conveyance of the mortgage agreement the lender as under _______ theory must go through foreclosure to recover for interest of the collateral property
Lien
In mixed theories, the mortgage is considered to be a _______. But if the borrower defaults, title is conveyed to the lender
Lien
The lender holds the lien
Lien Theory
In Louisiana we are a ________Theory state
Lien Theory. The title is in the borrowers name in the lender has the lien
What is the formula for the loan to value ratio
Loan Amount ----------------- Sales Price
If a mortgagor defaults on a VA loan, these are the amounts AFTER foreclosure
Loan amount up to $45,000 ----50% $45,001-$144,000-----$22,500 minimum $144,000 -$203,000-less of 36K or 40% -less of $50750 or 25%
This fee is charged by most lenders for generating alone and or not prepaid interest, they are paid to the lender and are usually 1% of the loan amount
Loan origination fee
How do you calculate an interest rate for a given month
Loan x interest rate Divide by 12
The term used to describe the relationship between the amount of the down payment and the amount of the loan
Loan-to-value ratio
The dollar amount of interest paid is calculated as a percentage of the
Loans principal
If the borrower is NOT allowed to prepay or pay off any amount early
Lock in clause
A contract between the borrower and the lender
Mortgage
A security instrument that creates a lien and is documented that makes property security for the repayment of the debt
Mortgage
In Granting clause with Title Theory, the clause states
Mortgage and Grant
In Granting clause with Lien Theory, the clause will state
Mortgage and Pledge
What are the name of the two security instruments when obtaining a loan
Mortgage and trust deed
Loan origination fee is also called
Mortgage broker fee
Which type of foreclosure upon default the property is sold at the sheriff sale and proceeds ONLY up to the amount of the debt goes to the lender
Mortgage foreclosure
What is the name of the insurance program for FHA
Mutual Mortgage Insurance-MMI. When the borrower takes out an FHA insured loan he pays one half of a percent (.005) of the loans principal balance as an insurance premium known as MIP(mortgage insurance premium)
The unconditional promise in the promissory note makes the note a ______
Negotiable instrument
Do VA loans require a down payment
No, they are 💯 %financed
What is foreclosure by power of sale referred to as
Non-judicial foreclosure-when the borrower is allowed only a period of reinstatement extending only to the time the property is sold
Does the FHA provide funding for financing property
Not itself, The FHA's function is only to ENSURE loans against the borrowers default
Can a veteran receive an additional VA loan
Only until the first loan is paid off
Two processes that foreclosure may take place
Ordinary Process Executory Process-done quicker bc you do not go thru the judicial system. It already includes a waiver of notice(the legal delay of foreclosure have been waived
blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which type of mortgage is normally use to finance new homes along with major household appliances which covers Real and personal property
Package mortgage
1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs Payments are typically calculated over a 20 or 30 year amateur is a shin. With the long term of five years. this loan is repaid in regular installments a principal and interest but one or more payment is a balloon payment(A payment larger than the loans regular amounts which is to reduce the amount of the regular payments) , this loan is also known as limited reduction loan or renegotiable rate mortgage
Partially Amortized Loan
In a trust deed which clause protects the seller from going into foreclosure action
Power of sale
The trust deed contains 6 clauses
Power of sale clause Warranty to title clause Reconveyance clause Acceleration clause Receiver clause Owners rent clause
Discount points can be thought of as what type of interest because they are paid in a lump sum at the time of closing
Prepaid interest
Promise to repay specific conditions and stipulations are contained in the central instrument of a loan agreement. it is also proof of the debt
Promissory Note
Discount points or also known as
Rate equalization factors
The VA will issue a certificate of__________for the property being purchased stating the current market value based on a VA approved appraisal
Reasonable value
In the Louisiana we only have equitable right of ________ this right is extended from the notice of foreclosure until the property is sold at the sheriff sale
Redemption
1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs Which is taylored to older homeowners, who own a home and wish to use some equity. Payments are made to the borrower
Reverse Mortgage
1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs Used to finance large commercial or industrial properties the land and building usually used by the seller for business purposes, are sold to an investor such as an insurance company then the real estate is lease back by the buyer to the seller, Who continues to conduct business on the property as a tenant. this enables a business invested in the real estate to free that money so we can be used as working capital
Sale and Leaseback
Louisiana permits this type of foreclosure if the property does not sell for the full amount owed, the creditors may obtain a deficiency judgment for the amount owed by the borrower above the proceeds of the sheriff sale. The debtor also has the right to bid for the property if the bed equals two thirds of the appraised value
Sale with appraisement
In mortgage foreclosures they can happen in three different ways
Sale with appraisement Sale without appraisement Died in Lieu of foreclosure
When the mortgage is paid in full, the lender issues a
Satisfaction in judgement -this cancels the debt
In institutional lenders there are four different types
Savings and loans Commercial banks Mutual savings banks Life insurance companies
blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which mortgage financing is associated with purchase money mortgage, installment land contract, bond for deed
Seller financing
This type of redemption occurs after the actual foreclosure sale. depending on the state the borrower may have up to two years to redeem his property by paying off the debt in full and he may be permitted to remain in possession of the property. during this. The court may appoint a receiver to pay operating costs collecting rents and looking after the property the time limit for statutory redemption varies from state to state. in the Louisiana there is no statutory redemption except for tax sales which is 3 to 5 years
Statutory Rights of Redemption
1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs This loan calls for payments of INTEREST ONLY. At the end of the term, the entire sum of principal is due in one balloon payment
Straight loan
In ______foreclosure the amount received from the sale exceeds the borrowers debt and the lender profits
Strict Foreclosure
The right of the title company to receive any damages available to be insured when the title company has made a payment to settle a claim covered by policy
Subrogation
1. Straight loan or term loan 2. Fully amortized loan 3. Partially amortized loan 4. Adjustable rate mortgage 5. Graduated payment mortgage 6. The open end loan 7. Reverse mortgage 8. Sale and lease back 9. Buy downs This loan increases the existing mortgage to an original amount in a way of borrowing against your own equity without taking out a second mortgage. normally the borrower will have a higher monthly note since the full amount must be repaid by the original expiration date
The Open End Loan
When underwriting alone the Linder concentrate on three areas
The borrower The property The location
1. Federal National Mortgage Association 2. Government National Mortgage Assoc 3. Federal Home Loan Mortgage Corp 4. Mortgage Guarantee Mortgage Corp 5. Federal Agricultural Mortgage Corp
The purpose of this program was to establish a market for the buying and selling of government insured mortgages. They buy all loans, and is privately owned so funds itself by selli
The buying and selling of mortgages that have been made by the primary mortgage market, anytime A lender takes over a loan that he himself did not originate he is engaging in this type of market activity
The secondary mortgage market
How many parties does the trust deed involve....questions
Three Borrower / Trustor beneficiary/lender The trustee - person holding the loan ( maybe an institution or a private person )
In _______ theory the borrower deeds his property to the lender and the mortgage and bass title to the borrower when the property is paid for
Title
______theory has been adopted by at least 17 states
Title
In this_______ theory the lender receives a limited form of legal title to the pledged property
Title Theory
The lender holds the title
Title Theory
The Trustor must sign A promise Siri note and a trust deed
True
A mortgage is also known as
Trust deed
An instrument of security that is employed to pledge an interest in real property in exchange for a loan or other consideration
Trust deed
The promissory note is construed to be an _________promise
Unconditional
Process of determining the risk a lender is incurring by lending a sum of money to a certain borrower to finance a particular property is called
Underwriting or loan qualification
In the title theory the bar is held to have conveyed or alienated limited legal title to the lender, this conveyance is valid as long as the mortgage debt is
Unpaid
A promissory note that can be debt instrument without a mortgage is called
Unsecured note ( A signature no with no mortgage and no collateral)
The practice of charging more than the legal amount
Usury
This government backed loan program was established in 1944 to a veterans or they're surviving spouses in obtaining financial assistance for the purchase or construction of owner occupied homes including mobile homes and condominiums and farms
Veterans Administration Guaranteed Loan
This clause affirms that mortgagor holds good and clear title
Warranty Clause
In a trust deed if the borrower or truster defaults the beneficiary to Conveys The trust deed to the trustee and instruct him to sell the property. because of the trust deeds power of sale clause the property can be sold( without, with) the necessity of going through court action of a foreclosure
Without
blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which mortgage a second lender agrees to assume payments on the borrowers original loan and to Lend the borrower The additional funds he requires which may come at a higher interest rate than the original loan
Wrap around mortgage
blanket mortgage package mortgage Wraparound mortgage Construction loan Seller financing Which is used for owner financing it is originated by a second wind are combining equity and money into a second mortgage
Wraparound mortgage
Interest is always calculated on a (monthly, yearly) basis
Yearly