FINANCES

FHA Serves Lenders and Borrowers Alike

To accomplish these goals, mortgage loan insurance is used. Private lenders supply the money for the loans. The FHA provides the insurance that protects the private lender. In doing so, the lender has less risk if the borrower defaults on the loan. Not only does the lender benefit in this system, but the borrower does as well. Since the mortgage insurance is funded by mortgage insurance premiums, the FHA can be an option for first-time homebuyers, borrowers who need lower payments, or borrowers who may have credit issues and trouble qualifying for a conventional loan.

Supply and Demand

To be specific, demand tells us how many consumers are able to afford a home, which in turn is affected by many factors, such as employment rates, wages, interest rates, and more. Characteristics of the population, the social attitudes prevalent at the time, and the legal and tax structure of the economy also shape the demand for real estate. Supply is determined by looking at the number of properties that are vacant or are available for sale or rent.

Voluntary Liens

To begin, let's talk about voluntary liens. As you could have probably guessed, voluntary liens are consensual. Both parties agree to the terms of the lien. A mortgage is the best example of a voluntary lien. And there are two subcategories within voluntary liens: Purchase-money security interest liens Non-purchase-money security interest liens

Commercial Banks: Primary Functions

To boil it way down, banks accept deposits and provide loans. Commercial banks accept deposits (including demand deposits, as in checking accounts, and time deposits, as in savings accounts) from their customers and the public. These deposits are returned when the customer requests it or after a certain time period has passed. Commercial banks also provide secured and unsecured loans and advances to customers. They also give demand and term loans to all types of clients against proper security.

Finding the Seller's Total

To determine how much money a seller will receive from a transaction, we subtract the seller's total debits (such as the balance of a mortgage loan) from the seller's total credits (such as the purchase price). The remaining total is the amount that the seller will receive. Seller's total credits - Seller's total debits = What the seller receives

Secondary Entitlement Amount

To make up the gap between that amount and the basic entitlement amount of $36,000, we need to find the secondary entitlement amount. We can find this by subtracting the basic entitlement amount ($36,000) from the maximum guaranty amount ($127,600). $127,600 - $36,000 = $91,600 This means that we can have a secondary entitlement amount of up to $91,600. In some of the more expensive areas of the country, the conforming loan amounts have been raised beyond $510,400. In places where this is the case, the VA guaranty limits have raised as well. The bottom line is this: the VA guaranty limits will be the lesser of: 25% of the mortgage loan amount, or 25% of the VA loan limit (the FHA conforming loan limit) for that county

Residential Mortgage Credit Report (RMCR)

To meet the specific needs of residential mortgage lenders, credit reporting agencies have developed the residential mortgage credit report, or RMCR, which contains all of the information needed to underwrite a loan to sell on the secondary market. These reports not only contain information about a loan applicant's employment history and residence, but they also include the requisite verifications for underwriting.

S&Ls: Today's Market

Today, S&Ls are much like commercial banks and offer a wide variety of financial services. However, S&Ls are chartered by the government and must meet the qualified thrift lender (QTL) test to retain that charter and receive benefits from the Federal Home Loan Bank System. At least 70% of an S&L's assets must be housing-related (e.g., home mortgages, home equity loans, and mortgage-backed securities) for it to meet the QTL test. The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) is responsible for regulating, supervising, and insuring savings and loans.

A Matter of Size

Today, the only significant difference between Fannie Mae and Freddie Mac is the size of the financial institutions from which they purchase their mortgage loan bundles. Fannie Mae deals with larger commercial banks whereas Freddie Mac works with the smaller "thrift" banks.

Now

Today, there are approximately 7,200 FHLBank System members. The FHLBank System plays a vital role in the continuous flow of funds to the residential mortgage market. These funds begin with the sale of debt securities (consolidated obligations) in the capital markets. The proceeds from these sales are then loaned to member financial institutions, which then provide mortgage credit to homebuyers.

Interest rates are manipulated by either giving or restricting money flow to commercial banks.

True.

The Federal Reserve was ultimately successful as it aimed to provide services to the government, financial institutions, and the public.

True. The Federal Reserve was meant to offer services to all participants in the US economy. Previous attempts at a government banking were unsuccessful as they were mostly in a position to serve and protect themselves.

Deed of Trust: Three Parties

Trustor: The person who takes a loan out from a bank (the borrower) Trustee: A third party holding the right to the property. Usually a trust, escrow, or title company, but under Texas law, a trustee can be anyone who has the legal right to hold and transfer property. It could be a single person or a corporation — as long as they are licensed in the state of Texas to act as a trustee. Beneficiary: The organization or person who lends money (the lender)

VA Loan Qualification

Two methods are used to determine a veteran's ability to qualify for a loan: Debt-to-income ratio and residual income.

Basic FHA Loan Requirements

Two years of steady employment, preferably with same employer Last two years' income should be the same or increasing Credit report should typically have less than two 30-day late payments in last two years, with a minimum credit score of 580 or higher (or in some cases, no credit score is required at all) Bankruptcies must be at least two years old, with good credit since discharge Foreclosures must be at least three years old, with no 30-day late payments since The new mortgage payment should be approximately 30% of the borrower's gross (before taxes) income

Buydown Fund

Under a buydown plan, the subsidizing party — the borrower, seller, builder, or other party — establishes a buydown fund, which is collected in cash at closing. The required portion of the payment is paid from the buydown fund on a set schedule. The borrower then makes payments at the bought-down effective rate, which is lower than the actual lending rate. When the temporary buydown period is over, the lending rate returns to normal. The lender is collecting a level payment for the entire term of the loan, and any amortization schedule should be calculated as such. To the lender, this is a level payment fixed-rate loan. To the borrower, however, this is a stair step or graduated payment loan. The advantages of a temporary buydown include low initial payments and the borrower is most often qualified on the basis of the lower initial payments, meaning the buyer qualifications are more relaxed than other loan options.

Administrative Actions

Under certain circumstances, the TILA requires federal regulatory agencies to order financial institutions to reimburse consumers when understatement of the APR or finance charge involves: Patterns or practices of violations (e.g., errors that occurred, often with a common cause, consistently or frequently, reflecting a pattern with a specific type or types of consumer credit) Gross negligence Willful noncompliance intended to mislead the person to whom the credit was extended Any proceeding that may be brought by a regulatory agency against a creditor may be maintained against any assignee of the creditor if the violation is apparent on the face of the disclosure statement or other documents assigned, except where the assignment was involuntary.

Money in the United States

United States money is a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services.

Qualifications

VA loans, unlike FHA loans, are available only to a select few. The loans are principally for discharged military personnel with wartime service of a specified duration or certain peacetime service, active-duty personnel, and reservists with six years in the reserves or National Guard. A veteran and their spouse (including a common-law spouse) may co-sign a guaranteed loan together. However, an unmarried partner who is a co-borrower with a veteran may not have their portion of the loan amount guaranteed by the VA. Several borrowers who are all veterans, whether or not they are related, may purchase a one- to four-family home they intend to occupy as owners, but they are limited by the maximum guarantee amounts. In addition, VA loans may not be used to purchase an investment property.

Employment/Income Verification

VA underwriting guidelines require that the lender adhere to the Equal Credit Opportunity Act (ECOA). In addition, they recommend that the lender verify a two-year employment history, either with the current employer, or as a continuous two-year history with two or more employers. If a two-year history cannot be verified, the lender should obtain a reasonable explanation why. If the lender submits a loan to the VA for an applicant who has less than a 12-month work history, the lender must include an explanation with the loan submission.

Remaining Entitlement

Veterans who had a VA loan before may still have "remaining entitlement" to use for another VA loan. Most lenders require that a combination of the guaranty entitlement and any cash down payment must equal at least 25 percent of the reasonable value or sales price of the property, whichever is less. For example, a $23,500 remaining entitlement would probably meet a lender's minimum guaranty requirement for a no-down payment loan to buy a property valued at and selling for $94,000. You could also combine a down payment with the remaining entitlement for a larger loan amount.

Bye-bye TIL and GFE!

Well, in the old system of doing things, lenders were required to disclose closing costs to buyers through two forms, the Good Faith Estimate (GFE) and the Truth-in-Lending (TIL) disclosure.

Texas, uses deeds of trust

Well, maybe it's not that fun of a fact. Anyways, a title theory state, like Texas, uses deeds of trust. The deed of trust has a "defeasance clause" that explains that the title will be transferred to the borrower after all payments are made.

HUD

What does HUD stand for? Aside from being a cute way to ask someone, "How U doing?" HUD, or the Department of Housing and Urban Development is a Cabinet department in the Executive branch of the United States Federal Government. (How executive!) HUD was created in 1937 through the U.S. Housing Act, and in 1965 was founded as a Cabinet department as part of the "Great Society" program of President Lyndon Johnson to help develop and carry out policies on housing and metropolises. HUD's mission was "to increase homeownership, support community development, and increase access to affordable housing free from discrimination."

Texas State Affordable Housing Corporation

What does that mean, exactly? TSAHC believes every Texan deserves the opportunity to live in safe, decent and affordable housing, so their programs target housing needs of low-income families and other underserved populations in Texas who don't have acceptable housing options through conventional financial channels. All of their programs are offered statewide, and special attention is given to rural areas and other select target areas.

Undiscovered Claims

What if there is a defect in the title that doesn't show up in the public records? This can happen. These are called hidden risks, the undiscovered claims which may arise long after someone has purchased a home. Protection against loss from claims on real estate which cannot be discovered by examination of the public records is the other benefit title insurance provides.

Step 7: Reconcile the Final Value Estimate

When an appraiser uses more than one method, they have to then combine the data from each of the approaches. This is called a reconciliation. You see, an appraiser does not simply average their various facts. Instead, the appraiser places the most weight on the data and approach that are most relevant to the subject property.

How It Works

When an appraiser uses the sales comparison approach, they collect data from the previous sales of similar properties in the area with similar features: amenities, square footage, number of rooms, and location. The appraiser analyzes how much these comparable properties have sold for and accounts for the differences in the properties. Then, from this study, the appraiser estimates the subject property's market value.

Title Search

When an individual performs a title search, they examine available public records to ensure that no clouds on the title exist. This way, the property owner can legally transfer ownership of the property. 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. Lawyers, qualified title searchers, or insurance companies usually perform title searches for prospective buyers or mortgagees.

Calculating Prorated Expenses

When calculating prorated expenses, the first step is determining an annual charge for the item being prorated. This amount is then divided by 12 to calculate the monthly charge for the item.

Falling unemployment causes:

When people are able to find jobs and unemployment goes down, it means the economy is growing. A lack of available jobs causes the unemployment rate to increase and causes the economy to fall.

Borrower

When processing a loan, both the buyer and the home go through underwriting — the buyer when they are qualified for the loan and the home when an offer is accepted. In the Third Party Financing Addendum, the agent has a space to fill in to determine the number of days the buyer has to get loan approval. The number of days differs based on the transaction and it's important for the client to talk to their lender about this. On average, the range for loan approval is between 15 and 21 days. If it's a hot market, as a real estate agent, you might want to help your buyer get thoroughly approved (pre-approved, not pre-qualified) before you take them to look at homes.

Interest

When someone borrows money from a lender, they must pay the borrowed amount back, plus interest. Interest is a fee charged by the lender, generally stated as a percentage of the borrowed amount. Interest rates are determined by the market (the individual lenders) but are influenced by the Federal Reserve System's open market activities, reserve requirements, and its primary lending discount rate. The primary lending discount rate is the interest rate the Fed charges to other banks. Rates are also limited by usury laws, which prohibit lenders from charging excessive interest on a loan.

Statutory Redemption

When states allow debtors to redeem a property after a foreclosure sale, debtors are said to have a statutory redemption period in which debtors have a specified length of time to recover their property. The court may appoint someone to take control of the property during the statutory redemption period. The purchaser at the foreclosure sale usually has the right to collect rents until the property is redeemed. There is no statutory redemption for lender foreclosures in Texas.

Forbearance

When the lender may legally foreclose due to default but chooses not to, it is called forbearance. It may help to remember the word "forbearance" as similar to "forgiveness." The borrower can work with a lender to develop a payment plan to make up for the missed moratorium payments.

Seller Financing vs. Contract for Deed

When the seller finances all or part of the loan, the buyer will get title to the property. The seller will hold a lien on the property. This is in contrast to a transaction with a contract for deed or lease option. In those scenarios, the seller will actually retain title until the buyer has fully paid off the loan.

Loan Approval

When the underwriting process is finished and everything is good, the loan is approved! Hooray! 🎉 The time for full loan approval could be up to 21 days.

Unemployment

When the unemployment rate is high, the economy declines 📉 When the unemployment rate is low, the economy grows 📈

Exceptions and Reservations

When there are no limitations on title, we say that the title is clear. Any type of limitation, such as an encumbrance or reservation that affects the title, must be stated.

When There's a Gap in the Chain

When there is a gap in the chain, a suit to quiet title must be called to establish ownership. This occurs when ownership cannot be established through an unbroken chain. A suit to quiet title refers to a lawsuit brought to establish a party's title to real property against anyone and everyone, and thus "quiet" any challenges or claims to the title.

The FHA Protects the Lender

When you compare the terms and conditions of some conventional mortgages to those offered under FHA 203(b), you will see the differences and why some borrowers, especially first-time homebuyers, choose to go with this option. The 203(b) is often easier to qualify for thanks to more lenient credit requirements. So why would lenders choose to originate loans with more lenient credit requirements? Like I said, the Federal Housing Administration provides insurance or a guarantee on mortgages, not the mortgages themselves (you'll notice this is similar to VA loans as well). This is a type of insurance for the lender, not the borrower, meaning that if the borrower forecloses or defaults on the loan, the lender has protection. Hence, lenders feel much better granting loans that have a guarantee behind them.

Ownership Rights

Whenever someone buys property, the owner selling said property has rights, as do their family and heirs. There may also be others in addition to the owner who have rights in the property. These may include governmental bodies or contractors or individuals who have proper unpaid claims against the property. Some examples of these sorts of rights include: Mineral rights Air rights Crop rights Easements

National Credit Union Administration

Whether a person's deposit is made at a credit union or a bank, it will be backed by the full faith and credit of the United States government. Nobody would want to send their hard-earned paychecks to a financial institution that didn't offer this type of security. The entity that does the insuring can vary, though. Deposits at credit unions are insured by the National Credit Union Administration (NCUA). Deposits at banks are insured by the Federal Deposit Insurance Corporation (FDIC).

When the borrower passes away, the title to the property passes to the heir(s) with the borrower's estate

. If there is any equity (the difference between what the property will sell for and the mortgage on the property) left in the property, it belongs to the heirs.

One discount point is equal to:

1% of the loan amount

A "banker's year" has how many days in it?

A "banker's year" has 360 days in it.

Troubled Asset Relief Program (TARP)

A 2008 Federal government program that authorized the U.S. Treasury to loan up to $700 billion to critical financial institutions and other U.S. firms that were in extreme financial trouble and therefore at high risk of failure

Daily Prorations

A 365-day year: The 365-day year is sometimes also called the "conventional calendar year," because its divisions reflect the actual months of the calendar that most of us use. To calculate the daily charge for an item using the conventional calendar year, divide the yearly charge by 365 (366 in a leap year). The actual number of days for which you are calculating the prorated expense is then multiplied by the daily charge to determine the accrued amount or prepaid amount for the item.

Returns and Type of REITs

A REIT that principally holds apartment complexes or mortgages might receive higher returns during a period of gradually increasing interest rates. A REIT that principally holds malls and shopping centers might receive higher returns during a period of gradual inflation when a lot of money is being spent on retail goods. Hybrid REITs might be more versatile investments, but they often have less opportunity of seeing large returns. An investor should always be careful to take into consideration their expectations for the market before making any particular investment.

Uniform Residential Appraisal Report (URAR)

A Uniform Residential Appraisal Report, also known as URAR, is a common form used in real estate appraisal, created to allow for standard reporting and analysis of single-family homes or single-family homes with an "accessory unit." (A URAR is also okay to use for a building in a planned unit development, but not meant to be used for appraisals of manufactured homes or condos.) Who's interested in learning more about the Uniform Residential Appraisal Report? URAR? Me too!

Borrower's Certification and Authorization Form

A Verification of Deposit for a refinance or a new mortgage MUST be accompanied by both a Borrower's Certification and an Authorization Form signed by the borrower.

What's in a VOD

A Verification of Deposit typically includes information such as the current balance, the average balance for the previous two months, and the date the account was opened.

Deed in Lieu of Foreclosure

A borrower who cannot make the monthly payments for a loan may voluntarily transfer title to the lender to avoid foreclosure. This arrangement, called a deed in lieu of foreclosure, has several advantages: The borrower's credit is not as damaged, as in the case of a foreclosure. The borrower need not worry about a deficiency judgment as long as it is written into the arrangement that the deed in lieu of foreclosure is "in full satisfaction of" the debt. The lender does not have to incur the expense of a foreclosure.

Evaluating the Opportunity

A borrower who takes out a loan must determine the opportunity cost for the discount and compare it with the interest savings over time. This involves estimating how many years the borrower plans to keep the loan. For example, suppose a borrower can reduce his monthly payment by $11 by paying one discount point of $1,200. In order to see any savings, the borrower would have to keep the loan for 109 months — just over nine years. How do we know this? We take the cost of the discount point and divide it by the amount by which the monthly payment is reduced. $1,200 ÷ $11 = 109 months A borrower should buy a discount only if they plan to keep the loan (stay in the house) long enough to save money.

Sale-Leaseback

A business like Starbucks, for example, may purchase land and fund construction of a new site, and then turn around and sell to an investor with a 10-year triple net lease. This way, Starbucks makes a small profit on the real estate, doesn't have the overhead, and gets to keep using the location. The sale-leaseback is beneficial to the purchasing party because the party receives a steady stream of rental income, more or less guaranteed, and the party profits by reselling the property to its original owner at its new market price. If the sellback price were set at the beginning of the lease, the purchase price would be considered a loan for tax purposes, and the selling party would lose many of the tax benefits of the arrangement.

Survey Fees

A buyer usually pays property survey fees, especially if they obtain a new mortgage. If all parties agree, then a previous survey may be used as long as the seller can produce the old survey and signs a statement that, to the best of their knowledge, nothing has changed since the survey was done. The buyer's lender and the title company issuing the title policy must accept the old survey.

Capital Gains Tax

A capital gain or loss happens when an individual or a corporation sells a property and either gains or loses capital because of the sale. This is easily calculated by finding the difference between the purchase price and the sale price. If the sale price is more than the purchase price, that's a capital gain. This gain counts as income for the person selling the property.

The Price-to-Earnings Ratio

A common method of predicting the price of a stock is the price-to-earnings ratio (P/E). The P/E tells an investor the expected return per dollar of stock purchased. However, this method is less widely used as a predictor of the price of real estate investment trusts. For example, if a REIT is selling at $144 a share and its expected dividend for the next fiscal year is $12 per share, then the P/E is $144/$12 = 12. As of this writing, P/Es at or below 16 are generally considered to be low ratios. (Those above 16 are high.) Low ratios tend to indicate consistent earnings in the near future, but usually belong to companies that are more established. As a general rule, a more established company will have consistent, but relatively lower returns. High P/E stocks are usually found in rapidly expanding sectors and may be indicative of fast growth and higher potential future yields. The latter are considered riskier in general.

Which of the following is the BEST description of a contract for deed?

A contract for deed is an executory contract where the seller keeps the title upon completion of sale. The buyer gets the title after a certain amount of payments over a period of years.

Debits

A debit is a negative balance or a negative amount. For the purposes of our discussion, a debit is an amount due from or owed by a particular individual when determining the overall costs associated with a transaction. On closing statements, debits reflect charges made to the parties involved in the transaction.

Limitations

A deed should specifically state any limitations to ownership. However, it is common for deeds to state the absence of any such limitation as well. For example, if a grantor conveys a fee simple estate, then the deed may include a phrase similar to this: "To Ms. X and to her heirs and assigns forever." To convey a life estate, one type of limited title, a grantor may use the following phrase: "To Ms. X for the duration of her natural life."

Defining Default

A default is any breach of a valid contract. Default of the sales contract is addressed in Paragraph 15 of the TREC One to Four Family Residential Contract. It states the following regarding default: DEFAULT: If Buyer fails to comply with this contract, Buyer will be in default, and Seller may (a) enforce specific performance, seek such other relief as may be provided by law, or both, or (b) terminate this contract and receive the earnest money as liquidated damages, thereby releasing both parties from this contract. If Seller fails to comply with this contract, Seller will be in default and Buyer may (a) enforce specific performance, seek such other relief as may be provided by law, or both, or (b) terminate this contract and receive the earnest money, thereby releasing both parties from this contract.

Deed in Lieu of Foreclosure

A disadvantage of a deed in lieu of foreclosure is that it does not eliminate junior lien holders the way that foreclosure does. That can create a problem for both the lender and the borrower. If a lender is going to accept a deed in lieu of foreclosure, they will probably run a title check to determine if there are any junior liens. They will also put some verbiage in the documents that if anything shows up later, the borrower, not them, will be responsible for the other lien. A borrower does not, however, just deed the property to the lender when they cannot make the monthly payments. Both the borrower and the lender must agree to an arrangement whereby the lender receives title and the borrower receives consideration, such as a release from repayment of the loan. Lenders may be willing to enter into such an agreement to avoid the expense and legal difficulty associated with foreclosure. However, borrowers seeking to declare bankruptcy may be prevented from a deed in lieu of foreclosure if they would otherwise have to include the collateral property in the bankruptcy.

Financial Distress

A financially distressed property may have low returns or even be running at a loss. It may have several years of taxes in arrears and be completely unmarketable. The owner of such a property is faced with the difficult task of making the property a financially viable asset, either to increase their own cash flow or to liquidate it.

Fixed-Rate Mortgages

A fixed-rate mortgage is exactly what it sounds like. The amount of interest stays the same, or is fixed, for the entire life of the loan. This type of loan is usually pretty popular for prospective homeowners when interest rates are low. If the borrower can get the interest rate locked in at a low rate, they won't have to worry about a change in payment when the rate adjusts in a few years. Or if the rate is low enough, they won't need to worry about refinancing for a better rate.

Floating Easement

A floating easement just means that there is no exact, fixed location that the easement grants access to. So, instead of a clearly marked path, the dominant estate has access to cross the land wherever they need. If the servient estate was to build a clearly marked path, then the easement might stop being considered a floating easement.

A General Warranty Deed

A general warranty deed, aka full covenant and warranty deed, promises that the grantor is conveying the property and warrants to forever defend the property being conveyed to the grantee. The grantor promises to defend against any person making a claim against the property or any part of the property since the beginning of time. This warranty guarantees that neither the grantor nor any of their heirs or assigns have not previously conveyed an interest in the property to any other person and that it was free from encumbrances at the time it was signed.

In graduated payment mortgages, what increases during the term of the loan?

A graduated payment mortgage (GPM) is characterized by low initial payments that increase (or "graduate") at set intervals and by set amounts during the term of the loan.

What Makes It a Security

A group of townhouses in a rental pool, for example, can be sold as a security. The sale of a house, a high-rise, or an unimproved lot is not the same as the sale of a security. Selling a security means that what you're selling is backed by a pool of mortgages.

Home Equity Loans

A home equity loan is a loan in which funds are borrowed using the homeowner's equity for collateral. It's notable that these funds can be used for any purpose, such as remodeling the kitchen or paying for college tuition. In Texas, equity loans are limited to 80% of the value of the property. For example, if a home is worth $215,000, the maximum amount the owner can take out in loans is $172,000. If there is already a mortgage on the house that will take $50,000 to pay off, the owner will be able to get $122,000 in a cash-out equity loan. The new lender offering the home equity loan will probably want to pay off the $50,000 (old loan) so that they have a first lien mortgage on the property. Otherwise, they will require the old lender to sign a subordination agreement giving their new loan a priority lien position.

What Is a Participation Agreement?

A lender creates a loan in the amount of $50 million. A participant buys a $20 million participation interest, which equates to a 40% participation in the loan. The participation certificate, which documents the participation, documents the full amount of the loan, the amount of the loan being purchased by the participant, the date of the participation, and other relevant information.

Lien

A lien is a right to possession of a property by someone other than the owner until a legal duty is satisfied by the owner. In addition, liens fall under the category of security interests. What's a security interest

Subject to Clause

A limitation or restriction is sometimes called a subject to clause. This is because a deed without a clear title may convey ownership to a grantee with the phrase "subject to." For example, a deed for a property with an outstanding first mortgage may convey title "subject to an existing first mortgage loan, which the grantee assumes and agrees to pay."

Investment Income

A loan applicant may also receive income from investment properties that they hold. These real estate investments can come in many different forms, including malls, strip malls, offices, apartments, hotels, golf courses, ski lodges, residential rental property, and warehouses.

Jumbo Loans

A loan that is above the conventional loan limit is known as a jumbo loan, and faces a somewhat higher interest rate because larger loans imply more lender risk. Jumbo loans still belong in the category of conventional loans (they're not insured or guaranteed by the government), but since they exceed the Fannie Mae and Freddie Mac loan limits, jumbo loans are non-conforming.

Lock-in Clause

A lock-in clause prohibits prepayment by the borrower. So, even if a borrower wanted to pay off the mortgage early, prepayment would not be allowed for a specified period of time after the loan is taken out. Once the lock-in clause expires, then proportionate amounts of the loan become available for prepayment according to the agreed-upon schedule.

The Appeal of Real Estate Bonds

A lot of investors like real estate bonds because they are tied to a physical and valuable asset. They feel confident about investing in real estate bonds because the property securing the bond can be sold to compensate for a default if necessary. Relatively speaking, bonds are a low-effort, low-risk way to invest. And because many mortgages are pooled together to create these bonds, the effect of a few homeowners defaulting on payments is diluted. Safety is great, but it has its drawbacks in the investment world.

Prepayment Penalties

A lot of the time, these ARMs are described with sets of numbers like "2/28" or "3/27", so if you see those, they might be subprime. We'll talk more about this and what these numbers mean in a few chapters. These types of loans also tend to have prepayment penalties. This means that if someone wants to pay this thing off early, they're going to have to pay extra.

Reasons for Refinancing

A lower monthly payment Shortened loan terms ⏱ Changing from an ARM to a fixed rate Avoiding balloon payments 🎈 Getting rid of PMI Cashing out equity or consolidating debt 💸 Did you say "More details, please?" Regardless, I'm going to pretend you did. Read on.

Mechanic's Liens

A mechanic's lien is a type of statutory lien that can be imposed upon a property if the property owner fails to pay a contractor for any work on the property. With a mechanic's lien, it is the contractor who files the lien against the property. This lien could potentially prevent the property from being sold until the debt is satisfied. Many times, if the owner tries to sell the property, a portion of the sale would be forced to go to the contractor in order to satisfy the debt and erase the lien on the property. This lien is usually placed on homes, but can be placed on any type of personal property that is worked on by a contractor or mechanic.

Moratorium

A moratorium is the suspension of loan payments for a period of time. It comes from a Latin word meaning delay. If a borrower is delinquent because of a temporary setback (the loss of a job, illness, a death in the family, and so forth) the lender may consider a moratorium on payments, allowing the buyer to not make principal and/or interest payments for a certain period of time.

John works for a company that offers loans from different lenders. John gets paid a commission for bringing lenders and borrowers together. Who will fund the loans John gets approved?

A mortgage broker is a licensed professional who originates mortgage loans that are financed by one of several lenders the broker works with. Mortgage brokers simply bring lenders and borrowers together and are paid a commission for doing so.

Mortgage Brokers

A mortgage broker is someone who brings together a borrower and a lender in order to create a mortgage. Mortgage brokers generally package and sell loans to larger investors.

Different: Number of Parties

A mortgage is a two-party instrument; there is a mortgagor (borrower) and a mortgagee (lender). During the time of the loan, the mortgagor owns the property and retains both legal and equitable title to the property. The mortgagee has a lien on the property in order to secure the mortgagor's promise to repay the loan. A deed of trust is a three-party instrument: the trustor (borrower), the trustee (third party) who holds the property in trust, and the beneficiary (lender) who will claim the right to the property in case of default. During the time of the loan, the legal title is conveyed to a trustee who holds onto the legal title on behalf of the beneficiary until the loan is paid.

The Acceleration Clause

A note usually contains an acceleration clause to protect the lender in the event of default. This clause states that whenever there is a breach of contract on the part of the borrower, the lender may make the entire amount of the loan due immediately. This protects the lender from having to sue for every late payment as it becomes due. Default occurs when a borrower is delinquent on payments or fails to properly maintain the collateral.

Package Mortgage

A package mortgage bundles the mortgage with another loan that finances one or more articles of personal property. The home and the item(s) are purchased together as part of the same transaction. Examples of the kind of items that may be included in a package mortgage are furniture and major appliances.

What does a lender sell in a participation agreement?

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

Grantee

A person who receives a transfer of real property from a grantor.

Net worth is found by:

A person's net worth is all of their assets minus all of their liabilities.

Physical Distress

A physically distressed property may be in poor repair. It may be dilapidated, infested with termites, have a mold problem, or it may have environmental liabilities, such as lead-based paint, asbestos, radon, or other toxic hazards. Physical distress can be built up over a long period of time due to poor maintenance of the home, or the damage could have been caused by a major event, such as a hurricane or flood.

Prepayment Privilege

A prepayment privilege means that the borrower can pay off that big old loan early if they want. Some loans include a provision permitting certain portions of the balance to be paid in specific years. For instance, a note might include a prepayment privilege of no more than 10% of the original principal amount to be paid in any one year. Other loans might stipulate a fixed sum of money that can be paid in addition to the regular payments in a single year. Normally, a lender does not want a borrower to prematurely repay a high-yield loan. If a borrower with a high-interest loan seeks to refinance the property, the existing mortgage would be repaid in full and the lender would lose the opportunity to keep earning interest on it. Late Payment Penalty This one is pretty obvious. If the borrower is late on their payment, they will be charged a set late fee. A lot of times, the late charge is in the form of a percentage of the total payment, but can also be a flat fee. The borrower should be aware of the late payment penalty, because a lender might not penalize the borrower for up to a certain number of days after the payment is due.

Purchase-Money and Wrap-Around Mortgages

A purchase-money mortgage, like a wraparound mortgage, involves the buyer receiving funds from the seller in the form of a mortgage loan to purchase the property. In a purchase-money mortgage, however, there is often no encumbrance from an original mortgage remaining on the property as the seller already has paid off the mortgage. If there is an underlying mortgage on the property, it is a wraparound mortgage and will require an attorney to create the purchase agreement.

What is a REMT?

A real estate mortgage trust (REMT) is a type of REIT that buys and sells real estate mortgages instead of real property. Real property is the house. The mortgage is the loan. REMTs make income via origination fees, interest, and profits from buying and selling mortgages.

The Buyin'

A secondary market agency creates mortgage-backed securities by buying a large number of mortgage loans, pooling them together, and pledging the pool as collateral for the securities.

Security Interest

A security interest is a legal claim of collateral in exchange for a loan. The most obvious example of this is a mortgage (where a creditor has a right to seize a property if the lendee does not meet their obligations). Liens are only one type of security interest. They vary on the rights that they give to the holder of the lien and various other things.

What kind of IRA allows for alternative investments (like real estate)?

A self-directed IRA is a retirement account that allows for alternative investments (like real estate) that traditional IRAs do not.

Brokers' Commissions

A seller usually pays the commission for any broker who has been hired to represent the seller. If a broker represents the buyer or if each party has a broker of their own, each party may pay some part of the total cost of commission(s).

Property Flipping

A specific type of mortgage fraud that's been (unfortunately) popular can occur during flipping. To be clear, I'm not talking about the kind of house flipping you see on those HGTV shows. Buying a cheap, distressed house, making truly valuable improvements, and reselling it for a fair price for a profit is not fraud. The type of flipping I want to tell you about is different, and it's mortgage fraud. Let's talk more about this.

Subprime Loans

A subprime loan is a loan that has an interest rate greater than the prime rate. If the borrower has less than good credit, this is the option they'll be given by the lender. The lender assessment and qualification is based on a few factors, including, in this order: Credit score Size of down payment Number of delinquencies on a borrower's credit report Types of delinquencies

Subprime Lending

A subprime mortgage is a type of mortgage that is normally made to borrowers with lower credit ratings. As a result of the borrower's low credit rating, the lender offers a mortgage with a higher interest rate because the lender views the borrower as having a larger-than-average risk of defaulting on the loan.

Trusts

A trust is a fiduciary arrangement where a person (trustee) holds property as its nominal owner on behalf of a beneficiary. The most common example of a trust is when someone (a trustor) creates a trust to manage their wealth so it can be distributed to their heirs (beneficiaries). A deed of trust is similar; it's a trust used in real estate to allow lenders to ensure they secure a borrower's property.

VA-Guaranteed (GI) Loans

A veteran who meets the established time-in-service criteria is eligible for a VA loan. VA-guaranteed loans help veterans finance a home purchase with little or no down payment. This means VA loans can be used for 100% of the purchase price. However, residential property must be owner-occupied. Like the FHA, the VA does not lend money — it guarantees loans made by approved, qualified lending institutions approved by the agency. Therefore, the term VA loan refers to a loan that is not made by the agency but guaranteed by it.

Restored Entitlement

A veteran's remaining entitlement can be "restored" to them under certain conditions. First, if the original VA loan amount is repaid in full or the loan is assumed by another eligible veteran, the first veteran may apply to have their entitlement restored. If the veteran has their entitlement restored, they can apply for new loans and take full advantage of their entitlement as though they had never used it before. The entitlement cannot be restored if the property it was used for has not been sold, except for a one-time exception.

HUD

About 1.2 million households live in public housing units. HUD provides federal aid for local housing agencies who manage the housing for low-income residents at affordable rents. HUD also helps with technical and professional assistance in the various planning, development and management stages of these developments.

Credit Score

According to FHA, the current credit score that qualifies a borrower to pay the minimum of 3.5% down is 580. If the borrower has a credit score between 500 and 579, they would be required to put down at least 10%. This doesn't mean that they should only put 3.5% down if they're allowed to — the borrower should always put down as much as they can. You will see that some of the lenders out there have overlays. An overlay is something that is self-imposed by the mortgage company or investors to have stricter lending requirements, which means a less risky loan. When an overlay is in place, the lender requires the applicant's credit score to be higher than FHA standards. This is why you hear from some lenders that the required credit score is as high as 640.

FHA's Role in the Market

According to the U.S. Department of Housing and Urban Development (HUD), FHA has insured more than 40 million home loans since 1934. A 2016 report by HUD also states that FHA insured mortgages made up 19.9% of the loan market for purchases of single-family home. The FHA is also credited with the advent of fully amortized 20, 25, and 30-year mortgages, which weren't widely available before it came along. This has enabled millions more Americans to own a home.

Accrued Items

Accrued items are costs that are owed by a seller (such as real estate taxes in a state where these are not prepaid), but which will ultimately be paid by a buyer after they receive title to a property. That is to say, these expenses have been (or are being) incurred at the time of sale but need not be paid at the time the sale closes. In an effort to ensure that these expenses are handled fairly, the seller generally pays the buyer for these items through credits at closing. For example, a seller might credit a buyer for the proportion of annual real estate taxes that were charged during the part of the year that the seller occupied the property.

Consequences of Noncompliance: Civil Liability

Actual damage The cost of any legal action together with reasonable attorney's fees in a successful action If it violates certain requirements of the TILA, the creditor also may be held liable for either of the following: In an individual action, twice the amount of the finance charge involved In a class action, such amount as the court may allow Civil actions that may be brought against a creditor also may be maintained against any assignee of the creditor if the violation is apparent on the face of the disclosure statement or other documents assigned, except where the assignment was involuntary. (Check out more about these fines straight from the U.S. Code of Federal Regulations 15 U.S. Code § 1640 - Civil liability.)

Which of these constitutes actual notice?

Actual notice means a person has direct knowledge of something. Looking up a deed gives Maura actual notice. Recording a deed, occupying a property, and publishing information in the paper are forms of constructive notice.

Administration fee

Additional fee sometimes charged by a lender to establish the loan.

Section 8 Housing Vouchers

Additionally, Section 8 authorizes a variety of "project-based" rental assistance programs, where the owner reserves some or all of the units in a building for low-income tenants, in return for a federal government guarantee to make up the difference between the tenant's contribution and the rent in the owner's contract with the government. A tenant who leaves a subsidized project will lose access to the project-based subsidy.

Understanding the Risks of ARMs

Adjustable-rate mortgages aren't very popular with buyers who are risk-averse. Many choose a fixed-rate conventional mortgage because it offers the security of knowing the interest rate will stay the same for the life of the loan. If the buyer goes with an ARM to take advantage of the low starting rate, they must be aware that interest rates can and probably will increase at some point. If the payments reach the payment cap, negative amortization — an increase in the principal — can occur. The reason the principal and interest adjust when the interest rate adjusts is to keep the term of the loan the same, so the borrower will still be able to pay the loan off in the established time frame.

Adjustable-Rate Mortgages

Adjustable-rate mortgages, I'm sure you can guess, are mortgages whose interest rate is set to adjust after a certain amount of time. These types of mortgages are also known as variable-rate, floating-rate, or hybrid ARM if there is a set introductory interest rate, but are usually just shortened to ARM. One way to remember this is by thinking about your own arm. It doesn't just stay still. It moves up and down — it's fluid, just like this type of mortgage.

Originate, Then Sell

After a mortgage is originated, a mortgage banker might service the mortgage or they might sell the servicing rights to another financial institution. (Spoiler alert: a mortgage banker will probably sell the mortgage to an investor. It goes from the primary market to the secondary market quickly.) Infrequently, a mortgage banker may keep the loan in their portfolio. That is not the norm since most mortgage bankers want to free up the money to make another loan and collect more fees.

Notice of Default

After the lending institution issues the Notice of Default, it records it in the public registry so that other parties with a lien on the property may be aware of the foreclosure. The lender also must directly notify each party with a recorded interest in the loan. This requires a title search. If a party holding a lien against the property is not notified by the lender, that party may sue later to recover its losses.

Agricultural Bank Credit

Agricultural lending is an important business line for many banks, especially those in rural areas. Bank credit has played an important role in farm activities throughout U.S. history. Most farms in the United States remain family-owned. Financing supplied by banks is essential to many individual farm operators and to the development of new agricultural technologies and techniques. As with all forms of lending, agricultural credit presents the banker with a unique set of risks.

Marketable Title

Allows the recipient of the title to exercise ownership rights without having to defend those rights through litigation Shows that the property can be sold or mortgaged at fair market value by a practical and knowledgeable individual Does not have any defects that have not been openly accepted by the buyer Does not have any liens or encumbrances that have not been openly accepted by the buyer Many real estate transactions aim to exchange a marketable title for a property's purchase price, but it is not always easy to ensure that a title is actually marketable. A clear or marketable title can only be provided through the work of a seller's attorney or title insurance company.

Higher Rates and Fees

Along with the higher default risk associated with such borrowers come higher interest rates and fees, as compared to prime loans. This is why it's so important for potential homeowners to shop around for mortgages, especially if faced with the prospect of taking on a subprime loan. This way, they can see what interest rates and fees they're being charged by different lenders and can pick one that has the best rates and features, hopefully avoiding predatory lenders.

NCSHA Authorized Programs

Although state HFAs have their own state-run programs, they rely heavily on three federally authorized programs administered by NCSHA: Mortgage Revenue Bonds (MRB) The Low Income Housing Credit The HOME Investment Partnerships Program (HOME) NCSHA also participates in Section 8 contract administration and restructuring, and federal housing assistance programs, including homeless assistance and the Community Development Block Grant program.

Dodd-Frank Wall Street Reform and Consumer Protection Act

Among the many far-reaching regulations the Act implemented, it gave the FDIC the power to liquidate more than just commercial and investment financial institutions with its insurance fund. This meant that the FDIC was granted the power to liquidate insurance companies and other non-bank financial institutions and thus protect consumers from more risk.

80-10-10 Piggyback Loans

An 80-10-10 loan, also known as a piggyback loan, is really two mortgages in one. Instead of giving the borrower one fixed-rate loan at the current market rate, 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. For example, suppose a borrower wanted to purchase a home for $150,000. The lender might offer an 80-10-10 loan in which the borrower pays 10% down and receives two loans: one for $120,000 at 7% and the other for $15,000 at 9%.

Taxes are complicated.

An IRA may be subject to unrelated business taxable income, also called UBTI. That means taxes could cut further into the profits. Individuals who want to invest retirement funds in real estate should get in touch with a tax professional.

Abstract of Title

An abstract of title is an abbreviated history of a property, including info on any transfers, grants, wills, conveyances, liens, and encumbrances. An abstractor prepares the document by performing a title search, which will return the title's history. From this information, the abstractor summarizes all events that previously affected the title as well as current liens and encumbrances and their status. The abstractor will also attach a document to the abstract of title that lists the records that they used or did not use to generate the abstract.

Adjustable-Rate Mortgages

An adjustable-rate mortgage (ARM) is a loan with an interest rate that can increase and decrease periodically throughout the life of the loan. An ARM typically has an introductory interest rate that is lower than the market rate for conventional loans. An ARM's initial interest rate is locked for a certain amount of time — this is called the initial rate period. After the initial rate period ends, the lender can then adjust the loan rate every new adjustment period.

Appraisal

An appraisal is a report that shows the true market value of the home. Once the buyer selects the home and has an offer accepted, the lender will order an appraisal. This process can take 7 to 14 days. A home appraisal is done by an individual who is unbiased about the outcome. The appraiser will look at market data from the last six months for similar properties sold within a one-mile radius. They may need to look farther out if they do not have that data, say maybe for rural properties.

Which of the following must be included in an appraisal report?

An appraisal report must contain clear and decisive photographs of the subject property.

An appraiser using the sales comparison approach will be most focused on:

An appraiser using the sales comparison approach will be most focused on the market demand and what homes have recently sold for.

Assumption Loans

An assumption loan is a loan that is transferred (or, assumed) by another party, usually the buyer. An assumed loan has to happen with the full acknowledgment and consent of the lender. To create an assumption loan, an assumption agreement is prepared by the lending company and is signed by all the involved parties. The lending company will handle a credit check of the assuming party and probably charge an assumption fee. If the buyer who assumes the loan defaults on that assumed loan, then the lender will foreclose on the property and sue both the original maker of the loan as well as the party that assumed the loan if there is any remaining debt on the loan.

Encroachments

An encroachment occurs when a party that is not the property owner interferes with the property owner's land. This can take many different forms, but oftentimes happens when a property owner builds a fence over the property line, or has a tree that grows over into the neighboring property. 🌳 Encroachments are considered encumbrances because the free use of the property is inhibited by the encroaching party. And both properties are considered to have encumbrances until the issue is sorted out.

The government agency that was created in 1933 to give confidence to depositors after the bank failures of the 20s and 30s was the:

An independent agency of the federal government, the Federal Department Insurance Corporation was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s.

Cancellation Date

An option is also available for a "cancellation date" when the amortization schedule reaches 80% or the principal is paid down to 80% of the original value. You should obtain a copy of the amortization schedule from the lender if this was not provided at closing.

What Are Assets?

An underwriter will often consider a borrower's assets when underwriting the loan application. Assets are property owned by a person or company. These assets hold value to meet debts, commitments, or legacies. If these are liquid assets, such as stocks or bonds, they may not need to be liquidated at closing. Other non-liquid assets, such as real estate and automobiles, must be liquidated if they are to be used to offset debt payments.

Unsecured Loans

An unsecured loan is not connected to any particular asset. Unsecured loans include things like credit cards, overdraft protection, lines of credit, etc. Banks make unsecured loans based on the qualifications of the borrower. They need to be more particular about to whom they offer an unsecured loan because seizing valuable collateral is not an option.

USDA Farm Loans

Another department of the USDA is the Farm Service Agency, or FSA. This department serves farmers and ranchers who are unable to get credit to start, purchase, sustain, or expand a family farm. These FSA loans are temporary, but the goal is to get the farmer or rancher a start on building their own commercial credit.

The Federal Reserve Note

Another function of the Federal Reserve Act is the authorization of new banknotes. You might recognize these notes as the bills sitting in your wallet right now. They are officially known as Federal Reserve Notes. They are put into circulation by the different regional Federal Reserve banks. If you look at that bill in your wallet, you will find the words: "This note is legal tender for all debts, public and private." The unique power of that note is that the Federal Reserve backs up its value with its own assets.

United States Department of Agriculture

Another great resource is the USDA Home Loans and First Time Homebuyers website. USDA loans are a good option for first-time homebuyers. However, a person does not have to be a first-time homebuyer to get a USDA loan. One advantage is that the USDA Home Loan Program does not require a down payment. This is beneficial since some buyers have not been able to save for a down payment and for the closing costs associated with most mortgage programs.

What Can Real Estate Agents Do?

Another idea is to meet with individuals who could be facing foreclosure and help educate them on what is happening. Let them know that they should contact the loan servicer (where they send their payments) and see if they can work out a loan modification that could lower their payments. This is a good route if they still have a job and want to stay in the home.

The Treasury Department on Crime

Another major responsibility of the Treasury Department is the investigation and prosecution of financial criminals. Through the Office of Terrorism and Financial Intelligence (TFI), the Treasury tracks crimes such as money laundering. Money laundering generally refers to financial transactions in which criminals, including terrorist organizations, attempt to disguise the proceeds, sources, or nature of their illicit activities by funneling the money through otherwise legitimate business transactions.

S&Ls: Deregulation

Another significant part of the deregulation was the removal of loan-to-value (LTV) ratio restrictions. S&Ls had more freedom than ever before to make whatever loans they pleased. Couple this reduced regulation with the cutting of regulatory staff at the Federal Home Loan Bank Board (an effect of the Reagan Administration's budget cuts), and you've got a recipe for trouble. This meant that risky loans could now be made, and there were fewer people available to investigate them.

Special Warranty Deed

Another type of deed is a special warranty deed. Believe it or not, the special warranty deed is not very special. Often times in real estate, the word "special" just means limited. So, a special warranty deed is a limited warranty that only guarantees there is nothing against the property since the seller has owned the property (not prior to that time). We will discuss title insurance in Level 9, but you should remember that when a buyer is buying a property with a special warranty deed, it becomes even more important to have title insurance.

Wraparound Mortgages

Another type of subordinate mortgage agreement is sometimes created by a type of seller financing called a wraparound mortgage. A wraparound mortgage is an arrangement in which a subordinate mortgage is created on a home that already has a mortgage. In this situation, the seller holds a note for which the buyer is responsible. The lender still holds the original note, and the seller is still responsible. The buyer pays the seller, and the seller pays the lender. Anything leftover each month belongs to the seller. Wraparound mortgages are not insured by FHA.

FHA Information

Anyone who is a legal resident of the United States might qualify for an FHA loan. The only absolute qualification for an FHA loan is that the borrower be a U.S. citizen or hold a green card. As part of the FHA's mission, it insures home loans to qualified U.S. citizens and naturalized residents. Lenders view FHA loans as less risky, which allows them to have higher LTVs, lower down payments, and longer terms. Borrowers pay a mortgage insurance premium (MIP) in exchange for the FHA's insurance. This is attractive both to first-time homebuyers, who may not have the cash reserves for a down payment, and to lenders, who view the insured loans as less risky.

Which of the following things can be an indication that a transaction may have involved loan fraud?

Anything that causes money to go back to the buyer (at or after closing), without the knowledge of the lender, is illegal. When a property is quickly resold at an artificially inflated price, loan fraud has taken place. A contract calling for future improvements can be a red flag.

Hazards to Be Aware Of

As awesome as "your team" of professionals may be, keep these things in mind: Remember that it is a client who makes the choice, not you. Recommend more than one (inspector, loan officer, title company, etc.) You can help the client prepare questions to ask them when they call.

Down Payment Gifts

As of 2018, the annual gift tax exclusion is set at $15,000 for an individual; double that for a married couple ($30,000). Donations above that amount must be reported to the IRS and will count towards lifetime gift tax exclusion amounts. (As always, refer clients to their tax advisor before taking any actions.) As far as loan programs are concerned, gift limits can be based on the percentage of the sales price being paid as a down payment. If the buyer who is using a conventional loan is not able to put a certain amount down (percentage-wise), they may be required to pay for some of the down payment out of their own pocket. Likewise, a buyer who is using a government loan may not be allowed to pay for the whole down payment with gift funds if their credit score is below a certain number. Have your client discuss concerns with their lender.

FHA: Never a Lender Be

As part of this mission, the FHA insures private loans made to consumers by qualified lenders from the primary market. That's right: the FHA does NOT make loans; they insure them. That's why we call FHA loans "government-backed loans". There are other popular types of government-backed loans, including the USDA loans that we discussed in Level 4. There are also VA loans, which we will discuss later in this level. Don't forget, Maria, FHA insures loans — it doesn't provide the funding for them.

Getting a Mortgage Subordination Agreement

As soon as a homeowner knows they are going to get a second mortgage, they should get a mortgage subordination agreement. Lenders will sometimes offer their help in filling out the mortgage subordination agreement. Regardless, you should instruct your client to contact the second mortgage company and explain to them that they have a first mortgage, and that the first mortgage company is requesting a mortgage subordination agreement. It may take a while for the second mortgage company to process all the paperwork. If the lender doesn't hear back from them in a couple of weeks, the homeowner can reach out to check on the progress.

Fair Housing Act (Title VIII of the Civil Rights Act of 1968)

As we said in the previous slides, HUD plays a big role in enforcing the Fair Housing Act, or Title VIII of the Civil Rights Act of 1968. To refresh your memory, the Fair Housing Act is a federal law that prohibits discrimination in housing based upon race, color, religion, or national origin, and was amended to include sex, disability, and familial status. It's intended to protect the buyer or renter from seller or landlord discrimination.

Easements

As we talked about earlier in this course, an easement is a right to enter the property of another without owning it. The property owner conveys this right to another while still retaining full legal title. An obvious example of this is if there is a footpath on your property that is used by the public, or a fishing hole on your property that a neighbor has the right to use. The easement would allow these people to use that space of yours.

Life Insurance Companies: Primary AND Secondary Market Players

As you can see, life insurance companies are a unique player in the real estate game. Unlike other sources of funds, life insurance companies participate in both the primary mortgage market AND the secondary mortgage market. When a customer is borrowing funds from their own policy, the life insurance company is providing a direct source of funds as part of the primary mortgage market. By putting customers' pooled premiums in low-risk real estate investments, they are active in the secondary mortgage market.

Exemptions to RESPA

As you can tell, RESPA covers a lot of residential mortgage loans. But there are a few exemptions: Loans for business, commercial, or agricultural purposes Temporary construction loans Loans on vacant land Assumption without lender approval Conversion of a federally-related mortgage loan to different terms, if a new note is not required Transfer of a loan in the secondary market

Portfolio Lenders

As you may know, most traditional lenders offer mortgages to homebuyers and then sell those mortgages to the secondary market. Portfolio lenders, on the other hand, originate mortgages and then hold onto them and service them. They seek to make their profits from the loan origination and interest payments. Portfolio loans are common for renovation loans. They may also be a good option when the buyer is blocked from traditional loans due to their strict, standardized guidelines.

Ryan, a sales agent, needed to identify a listing price for his seller's home in the Brentwood neighborhood. That house is known as the subject property

As you remember, the sales comparison approach is a great tool for real estate professionals to use when evaluating vacant land or residential properties, so Ryan decided to use this approach for his client. (Note that the document an agent prepares will be called a CMA, or comparative market analysis. Only licensed appraisers can do official appraisals).

Principal and Interest Payments

As you saw earlier in this chapter, the easiest way to find the amount of principal and interest within a payment is to use a financial calculator or amortization schedule. Principal and interest don't account for all the expenses that most homeowners have to pay as part of their monthly mortgage payment. For example, most homeowners pay for taxes, mortgage insurance, and hazard insurance on top of their principal and interest. Nonetheless, the principal and interest figure is useful to know. It can also be useful to know how much of any particular monthly payment is going toward the principal balance and how much is going toward interest. For instance, interest payments on a mortgage are often tax-deductible. This can be important information for someone who is making a detailed financial plan.

Housing Finance Agencies (HFAs)

While HFAs differ from state to state, they do have some things in common. First, most HFAs are independent and operate under the direction of a board of directors appointed by each state's governor. The state HFAs also coordinate and consolidate their power through the National Council of State Housing Agencies (NCSHA), which was created in 1974 to better lobby the federal government. NCSHA members comprise not only the HFAs, but also more than 350 nonprofit and for-profit organizations.

Asset Managers

Asset managers are a special type of real estate professional. They deal with investment properties and their goal is to maximize the return of such properties. When a lender receives a distressed property through foreclosure, the task of making the right decisions to minimize losses and, if possible, increase returns often falls to an asset manager. Asset managers take over once the property has been acquired, and they deal with the day to day financial operation of the property, as well as monitoring the numbers to look for trends that indicate problems. They cooperate with on-site managers to run the property and make adjustments when problems are found. They may run financial analyses and advise on the disposition. They won't be making any of the decisions, though they may sit on the committee that does.

Why does an underwriter check a borrower's assets?

Assets hold value and can be used to meet debts, commitments, or legacies.

Federal Housing Finance Agency

At the Federal Housing Finance Agency's website, you can see the latest conforming loan requirements and mortgage rates, performance and accountability reports, interactive maps, and other data relevant to real estate finance. You can even comment on rules that are being considered by the FHFA.

Consumer Financial Protection Bureau (CFPB)

At the same time, another independent agency was established by Dodd-Frank in order to develop and enforce clear and consistent rules for the financial marketplace and hold financial firms to higher standards. Its name? The Consumer Financial Protection Bureau, or CFPB. The CFPB is responsible for supervising banks, credit unions, and other financial companies to enforce federal consumer financial laws. Before we dive into what the CFPB does, let's review the events that led up to its creation:

Zero Percent APR Financing

Auto companies can offer things like "Zero Percent APR financing available or $1,000 rebate," which means that the consumer can elect for "zero percent" financing and therefore give up a $1,000 rebate or reduction in the price of the vehicle. This means that the consumer instead pays $1,000 to get the "interest free" loan.

Chain of Title

While an abstract of title is a condensed version of a title's history, a chain of title is the full history of a title. It includes all of the information available about the property's title. Title companies and abstractors can use a chain of title to search for any possible discrepancies or lien issues. They can search for past grantors and grantees by accessing the grantor-grantee indexes. These books display the names of all grantors and grantees according to year. A complete line of ownership can be established by performing a search of the grantor-grantee indexes.

Mortgage

While most people think of a mortgage as the actual loan, the term "mortgage" specifically is a security instrument used by lenders to secure a promissory note. Here's how a promissory note and a mortgage work together: Promissory note (borrower promise and loan terms): States the terms of the loan and is also where the borrower promises to repay the loan Mortgage (the collateral): The lender and borrower agree that if the borrower does not keep their promise (in the promissory note), the lender can take ownership of the property. Another way to say it is that a mortgage is a pledge of property as collateral for the loan. The mortgage creates a claim that the mortgage holder (lender) has on the property — a lien.

Bankers Gotta Bank

Bank reserves, a.k.a. reserve accounts, are banks' holdings of deposits in accounts with their central bank (yes, even the bank has a bank, e.g., the Federal Reserve), plus the currency that is physically held in the bank's vault. Central banks may set minimum reserve requirements, meaning banks have to hold deposits at the central bank equivalent to at least a certain percentage of their liabilities. An example of a liability would be customer deposits, which customers have a right to take out. 💸

VLB Land Loan Requirements

Be wholly within the state of Texas Contain at least one acre, excluding any portion beneath a dedicated public roadway or navigable waterway or subject to frequent inundation or otherwise unusable Have legal, usable access to a public road. Access must be a minimum of 60 feet wide or meet the county public road width requirements, whichever is greater ("Usable" means that it can be driven on by a standard passenger car in inclement weather.) Be properly described by either a Field Note description of the tract with the Surveyor's Official Seal and Signature (original or copy), or a complete copy of the recorded subdivision plat if the description is by Lot & Block Not be zoned strictly for commercial use Not have been owned by you or your spouse within the previous three years

Title Commitment: The Preview

Before a buyer gets a title insurance policy, they'll get a title commitment. What's that? Good question, Maria! A title commitment is a pre-closing document that lists all of the terms, conditions, and exclusions that will be listed on the title policy. Consider it a "preview" of the final title insurance policy, which is given after closing. It lets the buyer know what the title insurance company is willing to insure on the property as well as what the title insurance company is NOT willing to insure.

Seller's Disclosure of Tax Payments and Insurance Coverage

Before an executory contract is signed by the purchaser, the seller shall provide the purchaser with: 1. A tax certificate from the collector for each taxing unit that collects taxes due on the property as provided by Section 31.08, Tax Code; and 2. A legible copy of any insurance policy, binder, or other evidence related to the property that indicates: a) The name of the insurer and the insured; b) A description of the property insured; and c) The amount for which the property is insured.

To Receive a Marketable Title

Before closing, a buyer will want to do the following things to help ensure that they receive a marketable title: Ensure that the proper professionals (e.g., title abstractors or title insurance agents) examine all records and paperwork associated with the title, including public records, current and past leases, evidence of title, the deed, and any documents connected with liens or other encumbrances Make certain that the property survey is accurate, perhaps by asking an independent surveyor to examine it Conduct a final inspection (or walk-through) with a professional inspector to ensure that the property is as the seller has represented it to be

Mortgage: Causes for Foreclosure

Being delinquent in payments Failure to pay property taxes Failure to maintain the mortgaged property to a standard Failure to keep the mortgaged property sufficiently insured

Foreclosure Rescue Scams

Beware of anyone seeking to charge you in advance for mortgage modification services. In most cases, charging fees in advance of a mortgage modification is illegal. Only your mortgage company has the discretion to grant a loan modification. Therefore, no third party can guarantee or pre-approve your mortgage modification application. Beware of individuals and companies using mail and/or phone solicitations that claim to be from your mortgage company, but insist that payments be sent to an alternate contact or address that is different from the information in your mortgage statement. Paying a third party to assist with your application may not improve your likelihood of receiving a mortgage modification. Beware of individuals or companies that ask you for payment, tout their success rate. In particular, avoid any businesses that:

Blanket Mortgage = Blanket Lien

Blanket mortgages create a blanket lien on the collateral properties. This means that in the event of default, the lender may foreclose on all of the properties thus encumbered. This can cause problems for those who buy a lot from a developer, because the house may still be encumbered by the developer's blanket mortgage. If the developer defaults, the lender may foreclose on all of the collateral property, including lots that already have been sold.

Blanket Mortgage

Blanket mortgages have more than one collateral property that acts as security for the loan. These mortgages typically are used by land developers and commercial investors, but anyone seeking to consolidate mortgage debts may receive such a loan. As they pay down the loan they can get various properties released of their encumbrances.

Hidden Balloon Payments

You believe that you have applied for a low-rate loan requiring low monthly payments only to learn at closing that it is a short-term loan that you will have to refinance within a few years.

Step 2: Put the knowns into the formula

Borrower's monthly income x Housing expense ratio = Monthly PITI Don't forget to convert the percent to a decimal! Answer: $6,000 x 0.33 = Monthly PITI

Functions of the Treasury Department

Borrowing the necessary funds to run the federal government Collecting revenue Producing coins and currency

Challenges for Retirees

But if these same people apply for a refinancing or a new mortgage to buy a home, suddenly they're told they don't look so great. They often can't qualify under the debt-to-income standards required for today's post-recession underwriting. Those rules sometimes set the bar for total household debt-to-income too high for retirees who have low income and are still making payments on auto loans, credit cards, home equity lines of credit, and other debts.

Negative Easements

But, if the easement does not allow a property owner to perform an otherwise legal activity, then it is considered a negative easement. The most common example of a negative easement is when a property owner is prohibited from building a structure or planting a tree on their property because it would block a neighboring property's view.

Non-Allowable Costs

Buydowns Document preparation fee Flood certification fee Processing fee Tax service fee Underwriting fee

Buyer Rebates

Buyer Rebates Anything during the transaction that causes money to go back to the buyer, either at or after closing, without the knowledge of the lender, is illegal. This is known as a buyer rebate. Sometimes the money comes from the seller, sometimes from the real estate agent or a mortgage loan broker, and sometimes through a third-party vendor.

Canceling PMI

By federal law, most monthly private mortgage insurance premiums for loans originated on or after July 29, 1999, are automatically canceled when the borrower builds up 22% equity in their home (based on the original loan balance), or 20% equity if the borrower requests cancellation at that time. If the borrower has financed the premium, they may be eligible for a refund. So-called high-risk loans, however, may be required to keep the insurance for 15 years, whether or not the borrower has built up 22% equity.

The Rise of Subprime Loans

By the time early 2001/late 2002 hit, subprime loans reached record levels of origination. Banks were giving out loans called NINJA loans, which literally stands for "No income, no jobs, no assets." These NINJA loans were essentially given to anyone who wanted them. Borrowers began defaulting at alarming rates in a market that was drowning, which made the values of their homes worth less than the balance of their loans. They would keep on this path until the crisis of 2008.

CFPB Regulations

CFPB regulates all consumer financial products (including mortgages) and holds jurisdiction over enforcement of TILA and RESPA. Some types of loans, however, are exempted from CFPB regulations, including: Reverse mortgages Home equity lines of credit Mobile home loans (when the mobile home is not attached to the real property)

Ten Facts That You Should Know about Capital Gains and Losses

Capital Assets. Capital assets include property such as your home or car, as well as investment property, such as stocks and bonds. Gains and Losses. A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset. Net Investment Income Tax. You must include all capital gains in your income and you may be subject to the Net Investment Income Tax. This tax applies to certain net investment income of individuals, estates and trusts that have income above statutory threshold amounts. The rate of this tax is 3.8 percent. Deductible Losses. You can deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use. Long and Short Term. Capital gains and losses are either long-term or short-term, depending on how long you held the property. If you held the property for more than one year, your gain or loss is long-term. If you held it one year or less, the gain or loss is short-term.

Exemptions

Capital gains is a type of tax that is usually levied against investors. The reason I say this is because up to $250,000 of capital gains is exempt if an individual makes that on a primary residence. This number jumps up to $500,000 for a married couple. So, if an individual bought their primary residence for $50,000 and sells it for $350,000, they would only be taxed on $50,000.

Which of these is NOT an example of a statutory lien?

With a statutory lien, the party who has the lien imposed upon them doesn't voluntarily give the creditor a security interest in their property. Instead, they have a lien involuntarily imposed on their property by someone they owe money to. Examples of statutory liens include tax liens, mechanic's liens, and vendor's liens. By contrast, voluntary liens are voluntarily entered into; both parties enter a voluntary lien consensually.

Choice Matters

With all of the various choices regarding loans, how does an agent make sure they are providing good choices to their client? One danger agents have is relying too much on only one loan officer or MLO. All of them have some limitations on the loans they offer. Some will not do Texas Veteran loans. Some do not offer USDA loans. Some do not do local housing grant programs. Some do not offer first-time homebuyer programs like the ones from the Texas Department of Housing and Community Affairs (TDHCA) or Texas State Affordable Housing Corporation (TSAHC).

A World of Opportunity

Clients who are new to the U.S. or who do not live in the U.S. need to get the right representation from their real estate agents, attorneys, and loan officers. They may be seeking to purchase investment properties rather than homes, which is a different process with different rules. Professionals who are experienced in working with foreign investors and homebuyers may get certified as international property specialists.

Closing Costs

Closing costs are sometimes paid by the seller, who can contribute up to 6% of the sale towards closing costs. How likely is it that the seller will be willing to pay for closing costs? That all depends on the market. If it's a buyers' market, your client may get lucky on getting the seller to contribute. If it's a sellers' market, in most cases the seller will not contribute to closing costs. This is because they could instead find another buyer who doesn't require them to pay for anything.

Adjusting the Comps

Comp 1: Comp 1 sold for $150,000 three months ago. Comp 1 has hardwood flooring but no air-conditioning. Because Comp 1 does not have air conditioning (like the subject property does), Ryan added the estimated value of the air conditioning unit ($2,500) to the sales price ($150,000) for a comparison value of $152,500. Comp 2: Comp 2 sold for $140,000. It does not have hardwood flooring, but it does have air conditioning. Ryan added the missing subject feature hardwood flooring ($1,500) to the sales price ($140,000) and came up with a price of $141,500.

After it received praise from both sides of the aisle, President Wilson signed the Federal Reserve Act in 1913, creating the Federal Reserve. While previous attempts at creating a federal bank had left many common workers feeling like they were left out in the cold in favor of the big banks, this new bank felt like it existed for all Americans.

Conduct the monetary policy of the United States Supervise and regulate financial institutions for the protection of the consumer Maintain the financial system's stability Provide services to the government, to financial institutions, and to the public

Loan forms

Conforming loans are made using the Uniform Residential Loan Application (Fannie Mae Form 1003 or Freddie Mac Form 65). Non-conforming loans use application forms of the lender's choosing. It's not as important for these to have a standardized form because they're not going to be sold to Fannie Mae or Freddie Mac on the secondary market.

Reconstruction Finance Corporation

Congress created the Reconstruction Finance Corporation (RFC) whose purpose was to build confidence in the economy. The RFC created a mortgage company to sell and buy FHA and VA loans in what would be known as the secondary mortgage market, making them more appealing to lenders/mortgage originators. These government measures were done in an effort to get lenders excited about the housing market again.

Relinquished Control

Conservatorship means that another entity took over control of these corporations to ensure they wouldn't go bankrupt. The government did this because if these entities collapsed, it would have had a hugely negative impact on the American economy. Because of conservatorship, 90% of mortgages are still owned by the government.

The guidelines that determine if a conventional loan is conforming or non-conforming are set by:

Conventional conforming loans are loans that conform to the guidelines set by Fannie Mae and Freddie Mac and thus can be sold on the secondary market to Fannie Mae and Freddie Mac.

The Trustee

Within a deed of trust setup, the trustee is a third-party fiduciary and the one who holds the bare title to the real estate. The trust deed sets out the terms of the deal, including installment payments, interest rates, late penalties, and default provisions. One thing to note about how Texas handles deeds of trust is that the trust beneficiary (the lender) can also serve as the trustee. This is usually not an issue when it comes to real estate, as the trust is usually placed in a separate, third-party financial firm.

Growing Trouble

Within the first few years of deregulation, S&Ls (especially those in Texas) experienced massive growth. They were investing in commercial loans and speculative real estate to raise capital. But there was a big problem growing. As early as 1983, over a third of S&Ls in the United States were not profitable, and many were going bankrupt. State and federal insurance were used to refund the depositors, but they ran out of funds as more and more banks went under. Even so, a lot of troubled S&Ls kept their doors open and kept making more bad loans.

Primary Market Institutions

Credit unions Commercial banks Life insurance companies Savings banks

Not Profiting, But Sustaining

Credit unions aren't out to maximize profits, but they still need to make enough of a profit to sustain themselves as businesses. People who work at credit unions need to earn salaries, and there will always be overhead expenses related to paying for the buildings and supplies every business requires. And, just like banks, a credit union needs to maintain a large enough operating reserve to ensure that members can withdraw their money when they want it.

To be eligible for the VA loan program, a veteran must have been discharged other than dishonorably. They must have served actively for 90 days or have been discharged due to a service-related disability during the following wartime periods:

World War II: September 16, 1940, to July 25, 1947 Korean War: June 27, 1950, to January 31, 1955 Vietnam War: August 5, 1964 to May 7, 1975 Similarly, a veteran who has served 180 days of continuous active duty or been discharged for a service-related disability during the following peacetime periods also is eligible: Peacetime Dates After World War II: July 26, 1947, to June 26, 1950 Korean War: February 1, 1955, to August 4, 1964 Vietnam War: May 8, 1975 to September 7, 1980 (or October 16, 1981, for officers) U.S. citizens who served with a foreign government allied with the United States during World War II also may be eligible.

Limits on Deficiency Judgments

Deficiency judgments are limited somewhat by Texas law. The Texas Property Code says that an action brought to recover a deficiency must be brought within two years of the foreclosure sale. The person against whom the action is taken may request that the court determine the fair market value of the property as of the date of foreclosure. If the fair market value is determined to be higher than the foreclosures sale price, the amount of the claim may be offset.

Foreclosure in a Seller's Market

Deficiency judgments aren't as common in a seller's market. When there are more buyers than sellers, the property should fetch a decent sales price that is enough to cover the money owed by the borrower. This is yet another reason why it is so important for you as an agent to keep in touch with your clients. If this unfortunate situation arises, you can at least do a market analysis and help the person determine if they can sell the home before the foreclosure.

Demand

Demand can be defined as consumers' ability and willingness to buy a good or service at a certain price. The demand for real estate is affected by several factors. Price Price is the clearest example of a factor that affects demand. When real estate costs more, fewer people are willing to buy. The price of a particular piece of real estate is influenced by many factors. Prices can increase because of increases in construction costs, the cost of financing, and property values.

Timing of a Foreclosure

Depending on the timing of the required notices I discussed earlier, it usually takes a couple of months to carry out an uncontested non-judicial foreclosure. Of course, the process can be delayed if the borrower contests the action in court, seeks delays and adjournments of sales, or files for bankruptcy. Judicial foreclosures, naturally, take longer.

Step 2: Calculate the monthly payment

Divide the total annual interest by 12 months to get the monthly payment. $16,000 ÷ 12 = $1,333.33 Final Answer: Emily's monthly payment will be $1,333.33.

Foreclosure Causes: The Five D's

Divorce If a married couple owns a home together and later gets divorced, one person may be designated as responsible for making the mortgage payments on the home that the couple previously shared. This can be a financial strain on the person making mortgage payments, especially if their spouse was supposed to help with payments and failed to do so. The emotional and financial stress that comes with the process of divorce, paired with potential communication problems, can lead to missed mortgage payments. Drugs You may have an idea in your head of what a drug addict looks like. Forget that. Alcoholism and substance abuse can affect all types of people. It's a serious problem that exists in every zip code you'll ever work in. When an individual has an addiction, they will spend more and more money on drugs and alcohol and care less and less about prioritizing their mortgage payments. They could also lose their job because of the addiction and not be able to afford their home.

Utility

Does the property fulfill a need? If there's no use for it, there's no value: plain and simple. That's how you measure utility. *In this case, utility doesn't necessarily concern the idea of development. That's because the property could have utility to an investor who plans to use it for future gains. Scarcity If one type of property is abundantly represented in a market area, its value significantly decreases. If a market is filled with for sale signs, values will stay flat. Transferability If you're stuck with a property that cannot be transferred, it too is of little value. What do I mean by non-transferable? Sometimes there's a cloud on the title, sometimes there are government regulations, sometimes there are other restrictions or encumbrances that get in the way. There you have it: DUST.

Not All Seller Financing Is a Wraparound Mortgage

Does this mean that seller financing always creates a wraparound mortgage? No way, Maria! For there to be a wraparound mortgage, there must be an existing mortgage that will remain in place in the seller's name after the transaction. If the original loan is already paid off, or if the seller plans to pay it off at closing, the new buyer will have seller financing, not a wraparound mortgage.

Foreclosure Causes: The Five D's

Drugs You may have an idea in your head of what a drug addict looks like. Forget that. Alcoholism and substance abuse can affect all types of people. It's a serious problem that exists in every zip code you'll ever work in. When an individual has an addiction, they will spend more and more money on drugs and alcohol and care less and less about prioritizing their mortgage payments. They could also lose their job because of the addiction and not be able to afford their home.

Taxes

During the housing market crisis, the banks could either send borrowers the 1099 (IRS tax form) for the deficiency or not. If the 1099 applied to the borrower's situation, they were taxed on the judgment. However, in most cases, the banks were not asking for the borrower to pay it back. This all depended on the lenders. Most of the time, the banks will not pursue a deficiency judgment.

Employers Don't Have to Comply

Employers are not required by law to complete VOEs from mortgage lenders, but employers typically try to comply with the request. Employers may require written consent from employees before providing information to mortgage lenders, and they might have a policy requiring employees to notify HR of upcoming requests.

Less Common FHA Loans (Part 2)

Energy Efficient Mortgage (EEM) Home Equity Conversion Mortgage (HECM) Good Neighbor Next Door Homeownership Vouchers Native American Housing Manufactured Home Financing Disaster Relief

Applying the Cost Approach

Establishing the improvement's cost of reproduction (or how much it would cost to rebuild the structure) Estimating the existing building's depreciation (loss in value) Establishing the value of a comparable land parcel Making the appropriate adjustments to the comparable parcel Combining the figures from the previous steps into the cost approach formula Stating the value of the subject property

Applying the Income Approach

Estimating the net operating income. Determining the capitalization rate. Applying the IRV formula to arrive at a value estimate.

If a buyer borrows money from his family to finance a property:

Everything about the loan agreement should be in writing with all of the terms of the loan detailed.

What's an Executory Contract Again?

Executory contracts are contracts that have not yet been fully performed. This includes any transaction that defers material action by either party that pertains to ownership or possession of real property into the future. Think of it this way: An executed contract is one that is fully performed at closing. It's done, finished. An executory contract, on the other hand, leaves something dangling — usually the most important item of all, the delivery of a deed. In an executory contract, the buyer doesn't own the property sometimes for years. The deed and transfer of title takes place after all of the payments are made.

Where Regulation Z Applies

Extended to consumers Offered on a regular basis (For instance, Ms. A offering her friend Ms. B a loan doesn't fall under Regulation Z, but a car dealership that offered consumer financing on a regular basis would.) Either subject to a finance charge, such as an interest rate or financing fees, or is to be paid in four or more installments To be used for personal, family, or household purposes (that is, not for business, commercial, or agricultural purposes) A closed-end transaction (that is, any line of credit that is not open-ended or revolving)

When talking about a closing statement, a negative balance or a negative amount is referred to as a credit.

FALSE A credit is a positive balance or a positive amount.

What are some of the advantages for borrowers of FHA loans?

FHA loans are great because, in addition to requiring a lower down payment, they don't charge a prepayment penalty, can be assumed by other borrowers, allow borrowers who couldn't get conventional loan approval to get a loan, and can be made on a graduated payment schedule. They can't, however, be used for invest property, only owner-occupied property.

The Types of Loans That Are Insured

FHA mortgage insurance only applies to single-family or multi-family homes. The FHA insures more mortgages in the world than anybody else, insuring over 34 million home mortgages and 47,205 multifamily projects since their birth in 1934. They insure all types of loans with a variety of terms.

The Wraparound Mortgage

FYI: Agents cannot write an offer for a wraparound mortgage. Because there is an encumbrance from the original mortgage, the Texas legislature has concerns for the buyers' protection and wants offers and contracts only written by attorneys. If the purchase-money mortgage is seller financing and has no other encumbrance, agents can write these offers using the TREC Seller Financing Addendum.

The FDIC is funded by private banks and Congress.

False. The FDIC receives no money from Congress. Instead, the FDIC is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities.

The Federal Reserve System acts according to the monetary policy, making all member banks agents of the federal government.

False. While Congress establishes overarching objectives for the Fed, they relinquish control over the operational conduct of monetary policy. This makes the Federal Reserve (and all member banks) an independent agent of the federal government.

Foreign lenders like to make loans in the United States because the volatility of market can lead to higher returns on investments.

False: Foreign lenders tend to make loans in the United States because of favorable tax policies and comparatively steady, reliable returns.

Funding for FHA is provided by tax-payers.

False: Funding for FHA is provided through the proceeds of mortgage insurance premiums paid by borrowers.

The gross rent multiplier (GRM) is the ratio of the price of a real estate investment to its annual rental income, accounting for expenses such as property taxes, insurance, and utilities.

False: The gross rent multiplier (GRM) is the ratio of the price of a real estate investment to its annual rental income BEFORE accounting for expenses such as property taxes, insurance, and utilities.

Secondary Market Members

Fannie Mae Freddie Mac Ginnie Mae Federal Home Loan Bank Private investors Life insurance companies

Verification of Employment (VOE)

Fannie Mae allows a lender to document a non-self-employed applicant's employment with pay stubs from the most recent pay period, W-2 forms for the previous two years, or by a third-party verification. Any employment gaps of more than 60 days must be documented by the lender.

Underwriting Guidelines & Risk

Fannie Mae and Freddie Mac set the underwriting guidelines for the secondary market. If the mortgage pool (MBS) meets their underwriting guidelines (comprised of conforming loans), it may be sold with their backing.

Ginnie Mae

Fannie Mae continued its operation in the secondary mortgage market, concentrating on its portfolio liquidity by buying and selling loans (risky and non-risky), staying governmentally chartered, but becoming a privately-funded company. Ginnie Mae took over Fannie Mae's part in the housing assistance and support programs under the Department of Housing and Urban Development (HUD), which is where Ginnie Mae's focus still is today.

Fannie Mae's Debt Service Ratio

Fannie Mae requires a back-end ratio not to exceed 45%. In order to qualify for the loan, the total house payment plus all the person's long-term debt cannot exceed 45% of their gross monthly income. Typically, both an applicant's housing expense ratio and their total debt service ratio must fall below the maximum limits set by lenders for the applicant to qualify for the loan. However, there is a recent trend toward using only the debt service ratio, as there is some evidence that indicates there is no correlation between high housing expense ratios and default when the debt service ratio is held constant.

Farmer Mac

Farmer Mac is a secondary market for agricultural loans and not a direct lender — they assure that attractively-priced mortgages are readily available. When a consumer is planning to purchase or refinance an agricultural property or a business serving a rural constituency, it's to their advantage to work with a lender who offers a variety of options, including loans that qualify for Farmer Mac's long-term fixed-rate funding. Like Fannie Mae and Freddie Mac, Farmer Mac also buys and pools loans to create mortgage-backed securities. Farmer Mac guarantees these securities as well.

Jaselle's $4,000 in her savings account is federally insured. Which agency is responsible for insuring her savings?

Federal Deposit Insurance Corporation

What the the relationship between the Federal Home Loan Banks and their members?

Federal Home Loan Banks are cooperatives and their members are shareholders. Thrifts, credit unions, and insurance companies all have the right to become members of FHLBanks.

The Federal Home Loan Bank System

Federal Home Loan Banks are member owned cooperatives. Banks, thrifts, credit unions, and insurance companies have the right to become members of the FHLBanks. Each member is a shareholder. Most lenders take advantage of being able to borrow money from their regional FHLB office at good terms.

Carried Through the Closing Date

Federal and state laws, as well as the negotiated terms of a particular purchase agreement, may dictate whether certain expenses can be prorated or how they should be prorated. In Texas, prorations are calculated through the closing date. That means that the seller pays for closing day when dealing with prorated items.

Flood certification fee:

Fee for a service hired to determine whether a property is located in a federally designated flood zone

Escrow waiver fee:

Fee paid when an escrow account is not being established. Some states (including, Illinois, New York, Oregon, and the District of Columbia) have barred lenders from charging this fee, as it may violate the RESPA section disallowing parties from charging a fee for services that are not actually performed.

Expectations

Finally, a buyer's expectations of their future financial situation, and of the economy as a whole, will affect the demand for real estate. Consumers are less likely to buy a home if any of the following situations apply: Buyers expect that their income will decrease in the near future. They expect that the price of housing will decrease in the near future. They expect that the price of housing will decrease at the time they expect to sell their current house.

Step 1: Find the monthly income

First we have to find the monthly income. To do that, we just divide Moira's annual income by 12. $72,000 ÷ 12 = $6,000

Fixed-Rate: Pros & Cons

Fixed-rate mortgages are good in a few ways: The payments are always going to be the same. Whatever the interest rate might be in the world, the borrower is protected. Because of the stability, they'll be able to create a monthly budget and not have to worry about it changing because of the house payment.

Mortgage Insurance Premium

For FHA loans, borrowers must pay a mortgage insurance premium (MIP). No matter what the loan-to-value ratio (LTV) of the loan is, all borrowers are required to pay a 1.75% MIP. These MIPs are how the FHA program is funded — no taxpayer money is used whatsoever. The funds from these premiums are stored in an account and used to fund the entire FHA operation. The upfront MIP can be financed into the mortgage, but the borrower will still be responsible for paying the annual premium.

And You Get All of These Disclosures for the Low, Low Price of $0

For loans subject to RESPA, no fee may be charged for preparing the Closing Disclosure, Loan Estimate, escrow account statement, or any other disclosures required by the Truth in Lending Act.

Military Income

For military income, the lender should obtain a Leave and Earnings Statement (LES). This statement should contain the same information as a Verification of Earnings statement. If the LES indicates that the borrower's contract is up within 12 months, the lender should include at least one of the following with the loan submission: Documentation showing the applicant has extended their contract/enlistment period A statement from the applicant that they intend to extend their contract/enlistment period A statement from the applicant's superior officer that the applicant is eligible for an extension or re-enlistment, and that there is no reason they would be denied for such Verification of an offer of civilian employment to the applicant Other exceptionally strong underwriting factors The LES should indicate income that the applicant receives for their military quarters' allowance, subsistence and clothing allowance, and other military allowances, such as overseas pay and combat pay. These types of income are not taxable and can be included in the applicant's effective income calculation only if they can reasonably be expected to continue, due to the nature of the applicant's military duties.

Tweaking the Levers

For our purposes, it is mainly just important to observe that when the Fed buys securities from the securities market, it increases the money supply by putting more money into the hands of consumers. When the Fed sells securities, it decreases the money supply by collecting more money in exchange for the debt instruments.

Prorating Expenses

For our purposes, the proration process is a method of dividing accrued items and prepaid items between a seller and a buyer.

It's on the Buyer to Look

For potential buyers, it is their responsibility to check the public record for any possible claims of interest to a piece of property. If a party's interest has been properly recorded (serving as constructive notice) and the buyer fails to look in the public record for claims of interest, such as a lien, then the buyer may have problems when the interested party decides to claim their legal interest.

Maintenance of the Property

For similar reasons, the lender will seek to prevent poor maintenance and disrepair from befalling a property. However, it is difficult for lenders to keep constant watch on every property that serves as collateral for their loans. It is unfortunate, but some frustrated borrowers, when faced with foreclosure, will deliberately damage the collateral. This makes speediness in the foreclosure process, once begun, essential.

Shortened Loan Terms

For someone trying to pay off their mortgage, refinancing their loan can shorten their loan term from a 30-year to a 10- or 15-year loan. There might be a slight increase in the monthly payment, but if the interest rate is also lower, the borrower will be paying a lot more on the principal. This means that they'll be paying off their mortgage much sooner. For someone who wants to do away with their mortgage as quickly as possible, this is a good reason to refinance.

4 of 12OffOn

For the average homeowner, meaning those who are not losing their home due to foreclosure, there are many ways homeownership affects their taxes. Interest on their mortgage loan is deductible for income tax purposes if it's their primary residence or an investment property. If they are lucky enough to have a Mortgage Credit Certificate on their mortgage loan, part of their interest is even a tax credit. Property taxes (ad valorem taxes) are deductible on both homes and investment property.

FHA Advantages for the First-Time Homebuyer

For the reasons just listed, first-time homebuyers often find FHA loans their best (only?) way to get into a home. It's important for you to understand that the FHA defines a first-time homebuyer as someone who has never owned a home before or who has not owned a home for at least the last three years. Additionally, for couples, if one spouse is a homeowner but the other spouse has never owned before, then, according to the FHA, both spouses are considered first-time homebuyers when purchasing a home together.

How ARMs Are Written

For the second example of 4/1, the 1 means that the rate will adjust every year. BUT, you could also see 4/6, which might mean that the rate could change every six years or every six months. For this type of situation, it's important to make sure you and your client understand what the lender means by this number.

Lock-In Fee

For this reason, many lenders allow borrowers to pay a lock-in fee to lock in the float rate at the time of the loan's approval. A borrower using a mortgage broker should make sure to ask to see the lender's commitment letter stating that the rate has been locked. No one wants to be caught in the hands of any insidious broker who keeps the lock-in fee in the hopes that the float rate won't change — sometimes leaving borrowers high and dry if the rate does change. 😮

Approval to Operate

Foreign banks may operate U.S.-based branches if they have the approval of the Federal Home Loan Bank and the Federal Reserve Board. The branch must have been in operation since September 29, 1994 or meet the time requirements of the state law.

Freddie Mac Balloon Mortgages

Freddie Mac offers both five- and seven-year balloon mortgages (referred to as balloon/resets). Freddie Mac allows for the seven-year (but not the five-year) mortgages to be underwritten for borrowers with "A-minus" credit.

Gift Requirements

Gifts are great, but these rules must be followed: Gift funds should be paid to the title company (escrow account) via a cashier's check or wire transfer before closing. This is often preferred over the gift giver putting funds in the gift receiver's personal bank account. Gift funds must be in the exact same amount stated in the gift letter. A gift is a gift, not a loan. The gift-giver cannot expect to be paid back. Buyers should retain copies of the deposit slip and the check as necessary.

Gifts

Gifts! My favorite thing ever. A borrower who does not have sufficient funds for closing may use gift funds. In this context, a gift is cash that the borrower receives from a relative, fiancé, or domestic partner that does not need to be repaid. Some gifts can come from charitable or nonprofit organizations. Gifts cannot come from interested parties in the transaction, like the seller, unless the party also is a relative of the borrower. Like other funds, the lender must verify the amount of the gift and that the donor can afford it. The lender does this by sending a gift form to the donor.

TILA does many things, including:

Gives consumers the right to cancel certain credit transactions that involve a lien on a consumer's principal dwelling Regulates certain credit card practices Provides fair and timely resolution of credit billing disputes TILA doesn't regulate the charges that may be imposed for consumer credit, with the exception of certain high-cost mortgage loans. What it does, instead, is requires uniform or standardized disclosure of costs and charges, so that consumers can shop till they drop.

Graduated Payment Mortgage

Graduated payment mortgage (GPM) is a blanket term for a family of loans characterized by low initial payments that increase (or "graduate") at set intervals and by set amounts during the term of the loan. Payments usually increase anywhere between 7.5% and 12.5% annually until reaching a fixed amount that continues for the rest of the term.

HOA Foreclosures

HOA foreclosures are the most common use of judicial foreclosure. A homeowners association in Texas may foreclose its assessments lien judicially by filing a lawsuit. Before this can happen, the HOA needs to talk to the lien holder (bank) to let them know about the situation. In most cases, the lien holder will pay the HOA and put the payments on the loan balance. Texas law states that an HOA cannot foreclose on an active duty member of the armed forces while that person is on tour of duty. Also, the HOAs now need a majority vote of the owners to proceed with the foreclosure. If a homeowner lives in a condo or within a community that has an HOA, it's important for them to understand that the HOA has the power to foreclose because of unpaid assessments. They may not be aware that, even if they are keeping up with their mortgage payments, they could lose the home to foreclosure if they fail to pay the HOA fees. If the HOA has a lien on the property, they can foreclose that lien.

Computerized Loan Origination Systems (CLO)

HUD encourages the use of Computerized Loan Origination Systems (CLO), which is computer software that allows an employee to enter information about a buyer and property to determine the likelihood of that person defaulting on the loan. CLOs help minimize the variations of human judgment in loan qualification. (Less bias? Sounds good to me!) Not only does it expedite the loan process, it can save the borrower money.

What is HUD?

HUD stands for The United States Department of Housing and Urban Development. (Whew, no wonder they shortened it.) HUD is a cabinet department of the Executive branch of the federal government. It was created in 1965 through President Lyndon B. Johnson's "Great Society" program. We'll talk more about this history of HUD over the next few slides, but first let's talk about what HUD does.

Underwriter Registry

HUD's DE Underwriter Registry lists all FHA-approved individuals that may underwrite for FHA. This registry ensures the quality of underwriters by screening them and keeping their record in various federal databases. It's the lender's responsibility to approve its individual underwriters for the DE program, making lenders accountable for the FHA loans they originate.

HUD was created with the mission to do all of the following EXCEPT:

HUD's mission is to increase homeownership, support community development, and increase access to affordable housing free from discrimination.

Why Get a Hard Money Loan?

Hard money lenders are used for many reasons. They can be used if the buyer cannot get a conventional loan for some reason. For example, the buyer may be the sole proprietor of a new corporation. They may not have been in business long enough to meet all the borrowing guidelines according to the Dodd-Frank Act. It's also a more common option among investors who are flipping homes (in the legal, legitimate sense) and just need the money to buy property, make improvements, and then sell them within a short time period. The amounts of these types of loans can vary, but they will only cover up to 80% or 90% of the LTV. This means the lender wants the buyer to put down at least 10% or 20% of the sales price.

What are the steps an appraiser would take when conducting an appraisal?

Here are the eight steps of appraisal in order: 1. State the objective. 2. List the data needed. 3. Gather and record data. 4. Determine the highest and best use. 5. Estimate the land value. 6. Estimate property value using applicable approaches. 7. Reconcile the final value estimate. 8. Complete and present the value report.

Allowable Costs

Here are the potential costs HUD allows the buyer to be charged: For all loans: Appraisal fee Credit report Compliance inspection fee for FHA appraisal (limited to $75) Energy efficient mortgage (EEM) report fee Escrow fee (limited to 50 percent of the total amount, and no more than the seller pays) Home inspection fee up to $200 Notary fee Origination fee (limited to 1 percent of the loan amount)

How is a nonjudicial foreclosure typically carried out?

Here are the steps for nonjudicial foreclosure: Step 1: A notice of default and sale is sent. Step 2: The borrower has the right to redeem and reinstate their loan. Step 3: The property is sold via auction. Step 4: A deed and certificate of sale is issued to the buyer from the auction. Step 5: If statutory redemption is an option, the former borrower can redeem their property for a limited time. A deficiency judgment may be issued to the former borrower.

Monetary Policy

Here in the United States, Congress established maximum employment and price stability as the macroeconomic objectives for the Federal Reserve; they are sometimes referred to as the Federal Reserve's dual mandate. Apart from these overarching objectives, Congress determined that operational conduct of monetary policy should be free from political influence. As a result, the Federal Reserve is an independent agency of the federal government.

Forgiven But Not by the IRS

Here's the most important thing to know: If a borrower owes a debt to someone else and they cancel or forgive that debt, the canceled amount may be treated as taxable income by the IRS. From the years 2008 through 2014, there was relief given to homeowners that had debt forgiveness on their primary residences. That relief is presently expired.

The chart above shows how a typical 3-2-1 temporary buydown would be calculated.

Here, the effective rate is the difference between the note rate and the buydown percentage, and the monthly subsidy required is the difference between the payment that would be collected at the note rate and the payment actually collected at the effective rate. To establish the above buydown at three graduated steps over three years would take a buydown fund of $5,148, the total amount of subsidy required to be paid out over the years.

Inflation and Interest

High inflation can be damaging to the real estate market. When inflation is low, interest rates are usually low as well. The opposite is also true: high inflation and high interest rates go hand in hand.

Other Ways to Get a Lien There are quite a few other ways liens can be placed on a property. An owner could see their property slapped with a lien if they fail to make payments on one of the following:

Home improvement loans Equity loans Reverse mortgages Unpaid property taxes Unpaid income taxes Unpaid child support Unpaid Homeowner's Association fees Unpaid municipal services costs

The Cost of Refinancing

Homeowners should make sure the expense of refinancing will pay for itself in monthly savings. It's not a free service, and it's not exactly cheap. It's a brand new transaction with a lender (new or not). The process generally costs a few thousand dollars, with factors like the home's value, market conditions, and loan amount affecting that price tag. You might see advertisements and specials for "no closing cost" mortgages, but don't be fooled into thinking it's actually free. Rather than charging closing costs outright, the lender is probably charging their fees in another form.

Do the Fees Make Sense?

However, does the loan have above-average or unnecessary fees that seem to be out of the ordinary? Maybe the borrower has great credit, but is getting a less than stellar interest rate? Any of these things plus others can be the sign of predatory lending.

Ginnie Mae: The Government Has Its Back

I'm gonna reiterate this one more time for those of you sitting way, way in the back of the virtual classroom: Ginnie Mae is different from Fannie Mae and Freddie Mac because Ginnie has the U.S. government on their side. Its mortgages are backed by the government, unlike Fannie Mae and Freddie Mac. Ginnie Mae doesn't have an investment portfolio of mortgages and MBSs, which means no CMO/CDO subprime scary loans hanging out. Liability for the mortgages falls on the banks that create the mortgages, which makes Ginnie Mae less responsible for what happens if someone is delinquent on their house payments, but they also give banks the benefit of securitization. For Fannie Mae and Freddie Mac, the banks pass responsibility onto them, putting them at higher risk.

Pre-Qualification

I've said it before, and I'll say it again, Maria. A good agent will recommend the buyer get pre-qualified before beginning to look at homes. In fact, pre-approval — with a lender pre-approval letter in hand — would be even a step better.

Step 1: State the Objective

Identifies the property with a complete legal description Establishes which property's rights are to be appraised (Typically this will be fee simple ownership, which is full ownership, but it may be less than full ownership, like a tenant's leased occupation rights, right-of-way, or an easement.) States the type of value the appraisal seeks to define, which is typically the market value (an investment value, value in use, or appraised value; however, it also determines property value in certain situations) Determines the effective date of the valuation because value changes over time Clarifies any limitations (this part protects the appraiser!)

Other FDIC Policy Standards

Identify the geographic areas in which the institution will consider lending. Establish a loan portfolio diversification policy and set limits for real estate loans by type and geographic market (e.g., limits on higher risk loans). Identify appropriate terms and conditions by type of real estate loan. Establish loan origination and approval procedures, both generally and by size and type of loan. Establish prudent underwriting standards that are clear and measurable, including loan-to-value limits, that are consistent with these supervisory guidelines. Establish review and approval procedures for exception loans, including loans with loan-to-value percentages in excess of supervisory limits. Establish loan administration procedures, including documentation, disbursement, collateral inspection, collection, and loan review. Establish real estate appraisal and evaluation programs. Require that management monitor the loan portfolio and provide timely and adequate reports to the board of directors.

Insurance Requirement

If Borrower fails to maintain any of the coverages described above, Lender may obtain insurance coverage, at Lender's option and Borrower's expense. Lender is under no obligation to purchase any particular type or amount of coverage. Therefore, such coverage shall cover Lender, but might or might not protect Borrower, Borrower's equity in the Property, or the contents of the Property, against any risk, hazard or liability and might provide greater or lesser coverage than was previously in effect. Borrower acknowledges that the cost of the insurance coverage so obtained might significantly exceed the cost of insurance that Borrower could have obtained. Any amounts disbursed by Lender under this Section 5 shall become additional debt of Borrower secured by this Security Instrument. These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting payment.

Tax Clause

If Santa Claus had a dry, boring cousin, it would be Tax Claus. Real estate loans include a tax clause that states the borrower's obligation to pay property taxes in full when they become due. Most residential mortgage loans use escrow accounts to collect taxes (and insurance payments) month by month, allowing the lender to closely monitor and ensure the payment of taxes. However, for loans with large down payments, or for commercial real estate loans, the escrow account requirement may be waived, or it may not be required at all.

Foreclosure Option

If a borrower fails to make the requisite tax payments, the government could foreclose on the property and sell it to recover back taxes. In such a case, the lender would receive only the sale price of the property, less the taxes owed. This amount could be significantly less than they would earn if the borrower stayed out of default and kept making payments for the life of the loan. The tax clause allows a lender to deem a borrower "in default" if they have not paid their taxes. If necessary, the lender could foreclose on the property.

If a borrower is being offered a high interest rate from a lender, the factor most likely affecting that rate is the borrower's net worth.

If a borrower is being offered a high interest rate from a lender, the factor most likely affecting that rate is the borrower's credit score.

VA-Guaranteed (GI) Loans

If a buyer purchased a property for $350,000 with a loan for 100% of the purchase price, they most likely used a VA-guaranteed loan. VA allows low or no downpayment options for veterans and spouses of veterans.

If a buyer puts a $240,000 offer on a property and the Certificate of Reasonable Value comes back with a value of $235,000, according to the VA guaranty, the buyer:

If a buyer puts a $240,000 offer on a property and the Certificate of Reasonable Value comes back with a value of $235,000, according to the VA guaranty, the buyer has the option to back out of the contract without penalty or pay the $5,000 difference as a down payment.

Zero Closing Costs Can Be Pricey

If a lender offers a "zero closing cost" mortgage, borrowers should see if that charge is being re-allocated in the form of a higher interest rate (perhaps a quarter or half of a percent higher). Other lenders may refrain from charging closing costs upfront and instead roll the closing costs into the new loan. Neither of these practices is bad (as long as they're made clear to the consumer, of course!), but a borrower should be aware of them and make sure they're getting the mortgage they signed up for.

When a loan is amortized, the monthly payments:

If a loan is amortized, there will be equal monthly payments that contribute to both principal and interest until the entire loan is paid. The payments will be credited first to the interest when due, with any remainder credited to the principal.

Constructive Notice

If a party places their claim to a property in a public record (such as a deed), it is considered that other parties have been served constructive notice. Constructive notice is the legal presumption that individuals will obtain information through due diligence. If legal interest in a property has been properly filed in the public record, that filing serves as legal constructive notice to everyone of that party's interest, but if that party fails to properly file, then that party's interest in the property may be forfeited or very difficult to claim.

Types of Incentives

If a property owner has a $15,000 exemption and that owner's property is appraised at $100,000, then they will pay ad valorem taxes as though the house was appraised at $85,000.

Attorney's Opinion of Title

If a prospective borrower or buyer wants to use an attorney's opinion of title as evidence of title, the borrower must first hire an abstractor to prepare an abstract, which contains a summary of all of the events that have affected or currently affect the title, as well as a listing of records that they did and did not use. Abstractors do not give opinions concerning the condition of the title. Therefore, abstractors should exercise proper care by accurately recording and conveying all information in order to avoid claims of negligence.

Making a Claim Under the DTPA

If a purchaser feels that they need to seek recourse against the seller, then a claim may be made under the Deceptive Trade Practices-Consumer Protection Act (DTPA), which can result in treble damages (triple the amount) plus attorney's fees. Add up the numbers and one can easily see that the potential downside is significant. And the statute contains no significant defenses for well-meaning sellers who thought they were giving the buyer a good deal, even if the whole arrangement was the buyer's idea in the first place.

Redemption Period

If an HOA does foreclose on the property, there is a statutory redemption period. A statutory redemption period is the time after your home has already been sold at a foreclosure sale when you can still reclaim the property. The person redeeming their home will need to pay the outstanding mortgage balance and all costs incurred during the foreclosure process.

Short Sales

If it appears that the house will sell for less than what is owed, the ideal situation is to start a short sale process. This is when the bank accepts a sale that brings in less money than what is owed. If you do a short sale, you may be able to negotiate with the lender on what is still owed. The homeowner may receive a form from the IRS stating that they have to pay tax on the sale. The lender may forgive the balance or make it a personal loan. You need to know the exceptions that can help eliminate the tax burden on the homeowner. For example, if they are going through bankruptcy and foreclosure at the same time, the debt forgiveness is insolvent.

You Don't Have to Be Told for It to Be Constructive Notice

If notice is given anywhere in the public record, it is considered constructive notice. This is a legal claim regardless of whether the notice is communicated by any other means. A property owner may also give constructive notice of ownership by visibly occupying or making use of the property.

Scarcity

If one type of property is abundantly represented in a market area, its value significantly decreases. If a market is filled with for sale signs, values will stay flat.

Debt Guidelines

If the credit report indicates any recent inquiries, the lender must establish that no new lines of credit have been opened since the time of the credit report. Debts with fewer than six months remaining are not included in the total debt service ratio. Insubstantial debts, which have less than a two percent effect on the debt service ratio, are not included in that ratio. Revolving accounts (such as credit cards) that are paid in full at closing are not included in the total debt service ratio.

hen a third party purchases a property at the foreclosure auction, it is _____ the debt.

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.

Purchaser Receives Deed

If the debtor does not redeem a property during the statutory redemption period, or if the state does not permit a statutory redemption period, then the purchaser at the foreclosure sale receives a deed to the property. The deed is NOT encumbered by the debt, but the title transfers as is. This type of deed is sometimes called a sheriff's deed, because it is typically executed by either a master in chancery or a sheriff. In Texas, it is the trustee that auctions the property on most mortgage foreclosures and the purchaser receives a trustee's deed.

affirmative easement.

If the easement gives the right for people to use a property for a specific purpose, then it is an affirmative easement. This is the category that most easements fall under. An example would be if there was a right to access a public beach through a gate on private property — that would be considered an affirmative easement.

Solving an Encroachment: Lawsuit

If the encroacher does not cooperate with either of these solutions, the issue might need to go to court. This course of action is obviously not recommended. Along with possibly ruining a relationship with the neighbor, it could wind up just costing a lot of money for nothing (lawyers can be expensive!). And after it's all said and done, the court might even rule in favor of a prescriptive easement if the encroachment has been going on long enough.

Solving an Encroachment: Buying Part of the Land

If the encroacher does not want to move the encroachment, they can always purchase the part of the land from the property owner that contains the encroachment. If a sale is to occur, the mortgage lender would need to be contacted.

Loss During Foreclosure

If the homeowner experiences a loss on the foreclosure (the property sells for a fair market value of less than what they owe), they cannot deduct this as a loss on their taxes. Borrowers might want to consider working out a loan modification, which will adjust the payments or add payments to the end of the term of the loan. If this is possible, the homeowner gets more time to gain some equity on the property.

Capital Gain Taxes

If the homeowner has a gain on the foreclosure, they may have to pay taxes on it. Profits from foreclosure are currently taxed and exempted identically to profits on any other type of sale. For example, if the house costs $100,000 and the homeowner put in improvements over time of about $50,000, what they have in the house is $150,000. If they sell it for $250,000, they may have to pay taxes on the gain. If this house is their primary residence, the first $250,000 (for single individuals) or $500,000 (for married couples) is excluded due to the tax code. This is capital gains tax exemption sellers receive when selling their primary residence. Homeowners should always identify the improvements that they have made while owning the home so they can minimize the capital gain.

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).

Foreclosure Fees

If the loan stays in default and the servicer ends up needing to foreclose on the property, there are many more expenses. Foreclosure costs can include property title search fees, legal fees, and even the expense of mailing the foreclosure notices. Where do all those expensive charges end up? You guessed it. They are added to the loan.

Contract for Deed with a Mortgage

If the property being sold under the contract for deed is encumbered by a mortgage, then another related pre-closing requirement is contained in Property Code section 5.016: A person may not convey an interest in or enter into a contract to convey an interest in residential real property that will be encumbered by a recorded lien without giving a seven-day notice to both lender and purchaser.

Short Sales

If the property owner cannot afford to keep the property and there is not enough equity to market the property, the lender may agree to a short sale. A short sale is 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. The choice to do a short sale is strictly the lender's. Though the process of a short sale is more complicated and drawn out than traditional home sales, the new buyer still gets clear title to the property.

Break the Rules: Foreclosure?

If the rules in the loan document are violated, the lender has the power of foreclosure. As long as the borrower is fully aware of the facts about the reverse mortgage, there really is no bad or ugly side to it. And lenders go to great extremes to be sure the borrower understands what they're agreeing to. The borrower must know the facts.

Income from Other Properties

If the veteran intends to rent out the property they currently occupy when they obtain and occupy the new property being purchased with the VA loan, this money may not be included in the applicant's effective income. However, it may be used to offset the mortgage payments on that property's mortgage. Income from other properties with an established history may be included in the effective income calculation.

Multi-Unit Residences

If the veteran wishes to purchase a multi-unit residence with the VA loan, certain restrictions apply: The applicant must have enough cash reserves to cover six months' mortgage payments. The applicant needs some documentation of their experience in acting as a landlord. Rental income from the additional units may be included in the veteran's effective income only if it can reasonably be expected. To account for vacancy, only 75% of the property's potential rental income is considered.

Habendum Clause

If there is more than one grantee, then the granting clause should clarify the type of interest passed to each. There are different types of ownership and interest in property. It is necessary that the granting clause address this. If the type of interest or use of the property under the deed needs further explanation, then the deed will include a habendum clause.

Recasting Without Moratorium

If there is no moratorium period, the lender may recast the loan in such a way as to allow for the borrower's distressed financial situation. For example, the lender may lower the monthly payments and extend the loan term, adjust interest rates, or provide for a graduated payment structure.

Desired-if-not-Required Reserves

If there is not a reserve requirement in place, banks will decide to hold some reserves — called desired reserves — in case of unexpected events, like unusually large net withdrawals.

Soft Money

If there's such a thing as hard money loans, what's soft money? These loans are most often obtained by investors who just miss the bank qualifications necessary for a more traditional loan. There are a few different reasons why they could have been unqualified. The investor may own more than 10 properties, be self-employed, has experienced a bank foreclosure in the last four years, or may not be showing enough income on their tax return. The underwriting for soft money loans is done manually. The lenders in this process use bank statements, property cash flow, profit and loss forms, and/or tax returns to qualify borrowers.

It's All About Risk

If you look at the FHA guidelines, the base credit score is 580, but some lenders will have other requirements in order to protect their investors. This is why you may hear one lender say that they can lend at 580 and others at a 640 credit score. It all has to do with the overlays that the lenders have in their policies. And besides credit, the guidelines should cover the capacity of the borrower to pay back the loan, the value of the property, and the level of equity invested in the property. They also consider whether the borrower is purchasing mortgage insurance that will protect the institution if the borrower cannot pay.

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

If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable by the IRS.

Transferability

If you're stuck with a property that cannot be transferred, it too is of little value. What do I mean by non-transferable? Sometimes there's a cloud on the title, sometimes there are government regulations, sometimes there are other restrictions or encumbrances that get in the way.

Getting Rid of PMI

If your client is required to get PMI, you should let them know that they should try to get rid of it as soon as possible. If there's any way for them to avoid having to get it, they should try. Maybe they can scrounge up some more money for the down payment so the lender doesn't require PMI. I'll give you a few reasons why you should tell your client to avoid PMI:

Upping the Supply

Imagine that overnight, the Fed makes a policy change that floods the loan market with money, like drastically lowering interest rates. Suddenly, lenders would have greater access to cheap funds to lend to borrowers. The overall increased availability of lender money would reduce the demand for loans by borrowers from any one lender since the borrower would have plenty of lender options to choose from. In recognition of the competition, lenders would need to lower their loan costs to attract borrowers.

1933 Banking Act

Immediately after his inauguration, President Franklin D. Roosevelt called a special session of congress and declared a four-day banking holiday. And during this "holiday," Roosevelt signed the 1933 Banking Act (sometimes known as the Emergency Banking Act of 1933). With this act, Roosevelt hoped that the banks would reopen with a renewed confidence. As President Roosevelt told the American people during one of his famous fireside chats, "I can assure you that it is safer to keep your money in a reopened bank than under the mattress."

Consider the Market

Improvements should be made only after a market study has been conducted. Sometimes a study will indicate that converting a property from its current or intended use is economically more valuable than improvement. Even if improvements or conversions can be made to make the property profitable, it may not generate enough net operating income (NOI) to allow a potential buyer to receive financing.

Remediation

Improving a distressed property may include rehabilitation or refinancing. In the case of a physically distressed property, remediation of a hazard, such as lead-based paint, may be necessary. Even if remediation is necessary before the property can be sold or turned to value, the asset manager is faced with several options. For example, if a particular apartment complex is foreclosed, in part because the tenants recognized an asbestos exposure risk, the cost of reducing the risk to safe residential levels may be more than the cost of converting the complex to hold small offices and reducing the risk to 40-hour workweek levels. This is known as risk-driven remediation.

Fannie Mae

In 1938, the Federal National Mortgage Association (FNMA), also known as Fannie Mae, was created by the RFC. Fannie Mae bought existing and established mortgages, until the dissolution of the RFC in 1957. Fannie Mae ended up being kind of a wild card in terms of buying mortgages and really shook up the secondary market.

Changes in Texas Title Laws

In 2005 the Texas Legislature made changes regarding executory contracts. Contracts for deed and leases with an option to buy had traditionally given a tremendous advantage to the seller, who technically retained "legal title" to the property. The buyer, on the other hand, had only "equitable title" — an unclear concept that typically requires filing an expensive lawsuit to enforce. A buyer under financial pressure was more likely to abandon the property, along with their down payment, and move on.

High-Cost Areas

In 2016, the Housing and Economic Recovery Act (HERA) provisions set loan limits as a function of local-area median home values. This is why the maximum conventional loan limit is different in some cities than in others. In areas where 115% of the local median home value exceeds the baseline loan limit, the local loan limit is set at 115% of the median home value. The local limit cannot, however, be more than 50% above the baseline limit. In the District of Columbia and all states except Alaska and Hawaii, the highest possible local area loan limit for a one-unit property is $679,650.

The Dodd-Frank Wall Street Reform and Consumer Protection Act

In July 2010, The Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted, a sizable piece of financial reform legislation named after sponsors U.S. Senator Christopher J. Dodd and U.S. Representative Barney Frank. The act was a huge Wall Street reform, and provided common-sense protections, creating a new consumer watchdog to prevent mortgage companies and pay-day lenders from exploiting consumers. The main goal of Dodd-Frank was to protect people from unfair and abusive financial practices, and to make sure things like the financial crisis didn't happen again.

Prepaid or Accrued?

In Texas, taxes are paid in arrears. Taxes due at the end of 2020 will cover taxes from January 1, 2020 through December 31, 2020. So taxes are accrued items. Insurance is generally paid one year in advance, making it a prepaid item. Interest is paid monthly in arrears. The November 1st mortgage payment pays interest for the month of October. This makes interest an accrued item.

Going to the Courthouse

In Texas, when a lender posts the property for foreclosure and puts a copy of the posting on the courthouse wall, that action accelerates the loan. This is because of the acceleration clause that we just talked about, and not just because of the past four or five payments past due. The entire balance is due.

What does the deed of trust do?

In a deed of trust, the buyer conveys the property to the trustee, to be held in trust, unless and until a default occurs under the deed of trust.

Grantee

In a deed, the grantee is the person accepting the property; they are the purchaser. The grantee must be readily identifiable for a deed to properly transfer title. A deed that has a fictitious person, a club or society that is not properly incorporated, or a company that does not exist as the grantee is not enforceable.

In a lien theory state,

In a lien theory state, no defeasance clause is needed since the borrower already owns the property. Lien theory states use mortgages instead of deeds of trust. The mortgage document uses a release clause saying that the lender releases the lien when all the payments are made.

Lien Theory States and Foreclosure

In a lien theory state, the borrower (or mortgagor) holds the title of the property. If they default, they continue to hold the title until the lender sues to reclaim the title. This makes foreclosure more complicated in lien theory states than title theory states, because judicial proceedings are involved.

Lien Theory States

In a lien theory state, the mortgagor (or borrower) retains the title to the property, the promissory note serves as the mortgagor's promise to pay the lender for the loan, and the mortgage serves as the mortgagee's collateral for ensuring that the loan does get paid. If the mortgagor defaults, the mortgagee can go through a formal foreclosure proceeding to get the title to the property. When the mortgagor pays off the loan, the mortgage is satisfied and the mortgagee releases their lien on the property.

Public Housing

In a public housing situation, the housing authority owns the resident's building and is the resident's landlord. A private company may manage the building for the housing authority or be part of the ownership, but the building is controlled by the housing authority. HUD sets income limits, or the level of income used to determine eligibility for public housing, to be used by housing agencies. "Lower income" limits are set at 80% of the median income for the county or area in which an applicant for public housing chooses to live. "Very low income" limits are set at 50% of the median income. It is natural for income limits to vary based on housing agency area.

In both public housing and subsidized housing, the housing authority serves as the resident's landlord.

In a public housing situation, the housing authority owns the resident's building and is the resident's landlord. In subsidized housing, the housing authority is not the landlord.

Buying and Selling Loans

In a secondary mortgage market, a lender is willing to advance funds to a borrower in exchange for periodic interest payments for the use of those funds; and, for the same reason, an investor is willing to purchase a promissory note from a lender. These notes sell at present values.

Wraparound Mortgage Risks

In a wraparound mortgage, the seller takes on the risk of buyer default. The wraparound mortgage creates a lien on the property, but it is a lien subordinate to the lien created by the seller's mortgage. Thus, if the seller cannot repay their lender because of the new buyer's default, the lender's right to recover damages supersedes the seller's. The profit that the seller stands to receive after they make mortgage payments is what the seller gets for assuming the risk.

Let's Talk Equity

In accounting and finance, equity is the difference between the value of the asset and the cost of the loans of something owned. For example, if someone owns a home worth $215,000 but owes $50,000 on a loan against that home, they have $165,000 equity in the home. If the liability exceeds the value of the assets, they have negative equity.

The Treasury's Role in Fighting Crime!

In addition to keeping up with financial and consumer policies and tracking the economy, the Treasury plays a major part in financial sanctions, small business programs, tax policy, tracking terrorism and illicit finance, along with monitoring for money laundering. The department also performs a critical and far-reaching role in enhancing national security by implementing economic sanctions against foreign threats, identifying and targeting the financial support networks of national security threats, and improving the safeguards of our financial systems.

TILA Also Does

In addition to setting up a more uniform system for disclosures, TILA makes sure to: Protect consumers against inaccurate and unfair credit billing and credit card practices Provide consumers with rescission rights Provide for rate caps on certain dwelling-secured loans Impose limitations on home equity lines of credit and certain closed-end home mortgages

Less Common FHA Loans (Part 1)

In addition to the more common FHA loans we just looked at, other mortgage programs are also available: Section 203(h): Mortgage insurance for disaster victims (100% financing available; must file within one year after declaration of disaster) Section 203(n): Mortgage insurance for purchase of a unit in a cooperative housing project Section 221(d)(3) and (4): Mortgage insurance for multifamily rental or cooperative projects Section 223(e): Mortgage insurance for older, declining areas Section 234(c): Mortgage insurance for condominium projects Section 255: Mortgage insurance for Home Equity Conversion Mortgage (reverse mortgage) Section 811: Supportive housing for persons with disabilities (provides direct funding to nonprofit organizations to support housing for low-income adults with disabilities)

Section 203(b)

In case ya didn't remember from Chapter 2, the award for most frequently used FHA loan goes to Section 203(b): the One- to Four-Family Mortgage Insurance. This is the Federal Housing Administration's main program. It insures fixed interest rate loans for owner-occupied, one- to four-family properties. Terms are available for 10, 15, 25, and 30 years. The loan requires at least a 3.5% down payment (gift funds are allowed) and a credit score as low as 580. This mainstay of the FHA single-family insurance program remains an important financing option for first-time homebuyers, people who may have trouble qualifying for a conventional loan or who live in underserved areas.

Other Circumstances

In certain circumstances, those who have served after the post-Vietnam peacetime period and have since been separated from service also may be eligible. To qualify, a veteran must have: Completed either 24 months of active-duty service or the entire period for which they were ordered or called to active duty (which must be at least 181 days) Received a hardship or early-out discharge (USC 1173 and 1171, respectively) after completing 181 days of active-duty service Been discharged for a service-related disability, certain medical conditions or an involuntary reduction in military forces

The United States Treasury

In essence, the purpose of the U.S. Treasury is to maintain a strong economy and create economic opportunities and job opportunities. The Treasury does this by promoting conditions enabling economic growth and stability, both at home and abroad, while working to strengthen national security by combating any financial threats. And by protecting the integrity of the financial system, the Treasury manages the U.S. Government's finances and resources effectively.

What an Applicant Must Pay

In order to cover the cost of administering the VA home loan program, every applicant must pay a funding fee to the VA at closing. The amount of the funding fee varies depending on regular or reserve military status, amount of down payment, and whether it is a first or subsequent use of VA financing. For example, a regular military veteran making no down payment and using the VA loan program for the first time would pay a funding fee of 2.15%. Generally, the funding fee can be added to the loan amount.

MLO Qualifications

In order to get licensed as a mortgage loan originator, interested individuals need to take pre-licensure courses and pass a written test. After that, they are required to take continuing education courses every year to maintain their license. Another key part of the process is fingerprinting, FBI criminal background checks, and independent credit reports for the approval of the Nationwide Mortgage Licensing System (NMLS). Note: Mortgage loan originators in Texas have the state license as well as the national license and must qualify for both licenses.

The Supply of Money

In short, one very important factor affecting the supply and demand of housing is the supply of money. In general: The higher the supply of money available to finance real estate ventures, the higher the demand for housing. When the demand for housing becomes higher than the supply, property price increases. The lower the supply of money available to finance real estate ventures, the lower the demand for housing. When the supply becomes higher than the demand, property price decreases.

Making Mortgage Liquidity

In short, the secondary mortgage market came about as a byproduct of the Great Depression. Because of the economic devastation, many homeowners were having trouble making their mortgage payments, resulting in widespread foreclosure. Because of this, Congress created a secondary market for mortgages, where the actual mortgages could be easily bought and sold. This is known as mortgage liquidity. When a bank is able to sell the mortgages they make, they are able to take the money from the sale and originate more mortgages. So, the secondary market makes mortgages more available to borrowers.

Subsidized Housing

In subsidized housing, the housing authority is not the landlord. The housing is owned and operated by private owners who get subsidies in exchange for renting to low- and moderate-income individuals and families. Owners can be individual landlords or for-profit or nonprofit corporations. Additionally, subsidized housing can be obtained through vouchers. In this case, the subsidy is used by a tenant to find rental housing in the private market and is paid to a private landlord. This subsidy remains with the tenant. There's also multifamily subsidized housing, in which the subsidy is given to the owner who provides affordable housing. This subsidy stays with the property.

The Housing and Urban Development Act of 1970

In the 1970s, studies began to show that the biggest housing problem afflicting low-income families and individuals was no longer substandard housing, but instead the high percentage of income spent on housing. With this knowledge, Congress passed the Housing and Community Development Act of 1974, amending the Housing Act again to create the Section 8 Program.

S&Ls: Money Market Accounts

In the 1980s, MMAs (no, not Mixed Martial Arts) gained popularity because interest rates paid to investors were generally higher than what they could get from a savings account. People withdrew their money from savings and loan associations to get in on money market accounts. S&Ls found themselves lacking sufficient funds to keep providing mortgages.

Guaranteed Securities

In the case of Fannie Mae and Freddie Mac, they do not necessarily own or sell the securities. A lender can also bring a mortgage package to Fannie Mae/Freddie Mac and they exchange the guaranteed securities for the mortgages. These guaranteed securities are attractive to investors for two reasons: First, they cost less than purchasing an entire loan and are more easily liquidated. Second, they are guaranteed. That is, the holder of the security receives the full payment from it, whether or not the borrowers of the mortgages held as collateral pay their loans in full. For this guarantee, investors take slightly lower profits from the mortgages than if they held them themselves, through the payment of a guaranteed fee.

Subordination Clause

In the context of real estate financing, when there are multiple encumbrances secured by the same property, a subordination agreement orders them in the sequence that the loans will be paid off. The subordination agreement is made available through the subordination clause.

The VA Option Clause

In the event that the purchase price is greater than the amount cited in the CRV, the veteran may withdraw from the contract without penalty and have the earnest money refunded. They also have the option of paying the difference between the purchase price and the CRV as a down payment. To be clear, these options are only available if the sales agreement contains a VA Option Clause. It's super important to include that clause, if a buyer client is using a VA loan!

Employment/Income Verification

Income that is not likely to continue, or sources of income such as overtime, part-time, and second jobs that do not have a two-year history may be used in the lender's calculations to offset debts outstanding for the first two years of the loan period (such as car payments). Income from applicants who work on commission or are self-employed should be considered in much the same way as for a conventional loan.

Inflation

Inflation is a general rise in prices. It results in a decrease in the dollar's purchasing power. That is, because of inflation, an item that cost $1 back in 1913 would cost over $27 today. Inflation is a normal part of the operation of a free market and there are many indexes used today to measure it, such as the Consumer Price Index (CPI) and the Producer Price Index (PPI). It is important for those involved in real estate finance to be able to accurately predict rising or falling inflation, especially if it occurs at a quicker than average rate. It is important to note that inflation is influenced by governmental actions, such as increasing the money supply. The two largest contributors to inflation in the United States are the cost of health care and the cost of housing.

Inflation and Interest

Investors may desire to purchase real estate to hedge against high inflation, only to be deterred by the interest rates necessary to make a purchase. This can, however, be an advantage if the current owner holds an assumable loan at a rate lower than the market rate. An investor may be enticed to buy the property at a price much higher than market value in order to assume the favorable loan and hedge against inflation.

Super-Low Interest Rates

Is the lender marketing astonishingly low interest rates? Is it below market? That's a red flag. 🚩 This might just be a trick to get a client to call them up, only to have them learn that the rate isn't available. Even if the interest rate is low and your client still wants to go with that lender, they will probably try to make up for the difference with some sort of fees somewhere along the line.

Pressure to Act Fast

Is your client being pressured to act fast, to take advantage of the rate before it changes? That's a red flag. This is a huge decision that could affect the rest of their lives. It should take time and deliberation before a client figures out what they want to do. No one, especially a lender, should be pressuring a client to make a decision within a set amount of time.

Negotiation Is Possible

It is worth repeating that state laws may stipulate arrangements other than those described, as may the regulations associated with certain types of financing. In addition, many transactions leave substantial leeway for the principals to negotiate about how expenses are allocated. In all of these cases, the final division of fees may look considerably different than this general example. Purchase contracts should reflect all negotiated and stipulated agreements regarding the allocation of expenses.

Title Defects are Rare

It is, however, very rare for any of these situations to occur. The importance of title insurance is the guarantee it gives to the lender. A title insurance company will not issue a policy if there is even a teensy, tiny chance it will have to pay for a title defect. Therefore, title companies perform thorough title searches, searches of the tax records, searches of legal records for judgments, and sometimes even informal property inspections to determine whether there are undisclosed easements.

Daily Prorations

It may be necessary to go further and calculate a daily charge for the item. In this case, there are two methods commonly used to calculate daily charges: A 360-day year: The 360-day year is known as a "banker's year;" it is commonly used in banking and other financial calculations, and is divided into 12 months of 30 days each. To figure daily charges using a 360-day year, you can divide the yearly charge by 360 or divide the monthly charge by 30.

Know Before You Owe

It was the best of times, it was the worst of times. It was Oct. 3, 2015, to be exact. The CFPB's Know Before You Owe mortgage disclosure rule had just taken effect.

Subprime Loans in History

It wasn't until the Community Reinvestment Act of 1977 that regulations on who should be given mortgages started to loosen. A few years later, the Deregulation and Monetary Control Act of 1980 let lenders charge higher interest rates based on the credit score of the borrower. In 1982, that was followed by the Alternative Mortgage Transaction Parity Act, which let lenders use balloon payments and adjustable-rate mortgages. And then, as we talked about in a previous level, in 1986, the Tax Reform Act shifted tax deductions from consumer credit to mortgages.

Subprime Loans in History

It wasn't until the Community Reinvestment Act of 1977 that regulations on who should be given mortgages started to loosen. A few years later, the Deregulation and Monetary Control Act of 1980 let lenders charge higher interest rates based on the credit score of the borrower. In 1982, that was followed by the Alternative Mortgage Transaction Parity Act, which let lenders use balloon payments and adjustable-rate mortgages. And then, as we talked about in a previous level, in 1986, the Tax Reform Act shifted tax deductions from consumer credit to mortgages. With the help of these de-regulations, according to the Federal Reserve Board, the number of subprime mortgages grew by 25% every year, from 1994 to 2003.

All of the following are true of gift funds, EXCEPT:

It's not true that gift funds must be deposited in the buyer's bank account on closing day. Most lenders require gift funds to be deposited in an escrow account prior to closing.

Lower Rates

It's quite possible that a credit union will be able to offer lower origination fees and interest rates than a traditional bank. Since credit unions are not trying to profit off of their services, they may charge their customers less. Remember, they only need to earn enough money to sustain the business. Banks, on the other hand, need to bring in enough profits to pay their investors.

FHA 203(b) Loans

It's time to talk about Section 203(b), regarding the Federal Housing Administration's most used program and the main subject of this lesson. This program insures fixed interest rate loans for owner-occupied, one- to four-family properties. When a borrower is getting an FHA loan, they are most likely getting the loan that falls under the Section 203(b) program, called the FHA 203(b). The FHA 203(b) loan insurance program is for people who want a single-family FHA insured mortgage loan. The FHA 203(b) "may be used to purchase or refinance a new or existing one- to four- family home in both urban and rural areas including manufactured homes on permanent foundations" according to FHA.gov. For these FHA guaranteed loans, lenders offer loan terms at 15 or 30 years. The FHA does not set interest rates for these loans, instead they are negotiated between the borrower and lender.

Consider Every Option

Just make sure your client talks to the lender about all the different options available to them. If they go in with the idea that everything is negotiable, they might come out farther ahead than someone who might not know that they can fight for their own self-interest, even with big banks who seem to own the world. It's worth a shot!

Who is qualified to perform the title search?

Lawyers, qualified title searchers, or insurance companies usually perform title searches for prospective buyers or mortgagees.

Leasehold Title Insurance

Leasehold title insurance is a policy that assures lessees that they have a valid lease.

Non-recurring Closing Costs

Legal or document preparation fee: Fee paid to a lawyer or law firm for the preparation of legal documents for transaction and lender-required forms. May also be paid to the lender for documents prepared in house. Notary fees: Fee for forms that must be attested to, or notarized. Option fee: A negotiated fee paid by the potential purchaser at the time of contracting for an option to terminate the contract for so many days, as spelled out in the earnest money contract. Pest inspection/treatment: Fee for inspection or treatment and repairs of pest infestations, wood rot, and water damage (as a lender may require as a precondition of procuring the loan). Recording fees: Fee for recording legal documents with a local county recorder. Title insurance: Assurance to the potential homeowner that they are receiving clear title to the property being purchased—free of liens and encumbrances, as well as discrepancies in boundaries and area, if a survey was done.

Why Lenders & Buyers Like ARMs Let's start with lenders.

Lenders Like 'Em ARMs are good for lenders because they help to avoid the interest rate risk inherent in real estate investment. The risk is this: If a lender lends a borrower money at a fixed rate for up to 30 years, and the interest rates subsequently go up, the lender loses money in the form of an opportunity cost. That is, if the lender still had the money, they could lend it out at a higher rate and make more of a profit. The ARM avoids this risk because it allows the lender to adjust the rate according to market conditions.

Net Worth

Lenders also consider the net worth of an applicant in order to make a loan decision. A person's net worth is the sum of all of their assets minus (-) all of their liabilities.

Public Records

Lenders require an extensive examination of public records before they issue a loan. This way, lenders consider title insurance the ideal form of evidence of title because insurance companies thoroughly examine public records before issuing a policy to protect against any defects in the title. This process involves a title search performed by an abstractor, attorney, or company employee. Afterward, the company attorney issues an opinion regarding who they think has a legitimate claim to the property. Once the insurance company has discovered all pertinent public record information, it issues a title commitment, which ensures that the company will issue a policy.

Are There Ways to Avoid PMI with a Low-Downpayment Loan?

Lenders sometimes offer conventional loans with smaller down payments that do not require PMI. Usually, you will pay a higher interest rate for these loans. Paying a higher interest rate can be more or less expensive than PMI - it depends on a number of factors, including how long you plan to stay in the home. You may also want to ask a tax advisor about whether paying more in interest or paying PMI might affect your taxes differently. Borrowers making a low down payment may also want to consider other types of loans, such as an FHA loan. Other types of loans may be more or less expensive than a conventional loan with PMI, depending on your credit score, your down payment amount, the particular lender, and general market conditions.

Deficiency Judgments

Lenders sometimes seek a deficiency judgment against a defaulted borrower, guarantor on a loan, or endorsers if a foreclosure sale does not generate enough money to pay off the loan and cover the costs of the foreclosure. A deficiency judgment requires the defaulted borrower to pay any remaining balance owed to the lender. Deficiency judgments are usually sought on what is owed after the sale of a foreclosed property, while the property is foreclosed on the basis of defaulted mortgage payments

Evaluating Risk

Lenders use credit scores to evaluate any potential risks that could come from lending money to consumers and to mitigate losses due to bad debt. Credit scores are used by lenders to determine who qualifies for a loan, at what interest rate, and with what credit limits.

Truth in Lending Act (TILA)

Let's look at another vital piece of legislation, shall we? The Truth in Lending Act of 1968, also known as TILA, is a federal law designed to promote the informed use of consumer credit. TILA requires consumer credit disclosures about terms and cost in order to standardize the manner in which costs associated with borrowing are calculated and disclosed.

Escrow Accounts

Let's rewind it back for a moment to get clear on the function of escrow accounts. The escrow account contains money that the borrower pays to the loan servicer, which the servicer reserves until it's needed to pay for the home insurance and property taxes. Escrow accounts are mandatory for many loans, including government-insured loans and some conventional loans. Some buyers elect to have an escrow account even if they don't have to have one as a condition of the loan. It divides costly expenses into manageable monthly payments and simplifies their budget.

Mortgage Originator

Let's start with the mortgage originator. As we talked about earlier in this chapter, mortgage originators are either mortgage banks (who supply their own funds) or mortgage brokers (who do not supply their own funds). Mortgage bankers use what's called a warehouse line of credit, which is just a fancy way to say a line of credit given to mortgage bankers for the purpose of creating mortgages.

Real Estate Holdings

Life insurance companies have to be smart with their money. Consequently, their three biggest holdings are stocks, bonds, and real estate. The majority of their real estate exposure comes in the form of financing commercial, multifamily real estate investments. 🏙

FHA Qualifications

Like I said earlier, the only absolute qualification for an FHA loan is that the borrower be a U.S. citizen or hold a green card. However, HUD keeps a limited denial of participation (LDP) list. This list contains all the borrowers who are suspended, disqualified, or, in some other way, excluded from the FHA programs. A borrower can end up on the list for many reasons, including default on an FHA loan within the past three years, or intentional fraud. In addition to this list, lenders are required to check the Government Services Administration's Pro/Non-Pro list (also known as the GSA list). Lenders can be approved by the FHA to underwrite FHA loans "in house," that is, without being required to submit FHA loan applications to the FHA regional office for approval. These lenders must fill out a HUD 71101 application and pay a one-time, nonrefundable application fee of $1,000. FHA-approved lenders typically save borrowers 10 to 14 days in processing time

Appraisal

Like I said, the biggest thing they look for are similar properties. Let's look at a very specific example of this: a Dome Home. This is a unique type of housing. To get a value for it, an appraiser would have to look at other dome homes to get a correct value, even if they were outside of the one-mile radius.

What Are Some Pluses and Minuses to PMI?

Like other kinds of mortgage insurance, PMI can help you qualify for a loan that you might not otherwise be able to get. But, it may increase the cost of your loan. And it doesn't protect you if you run into problems on your mortgage - it only protects the lender.

Which of the following is NOT required information on most loan applications?

Loan applications need to contain certain information, including the borrower's monthly income, social security number, and the address of the property.

George works for XYZ Bank as a loan officer. Sam wants to finance an apartment building. He calls George to schedule an appointment to make an application. What will George do?

Loan officers are like mortgage brokers in that they facilitate the mortgage loan process and often receive a commission for their services. The difference is that loan officers are employed by one specific financial institution. They usually specialize in commercial or residential loans.

The Loan Process

Loan underwriters evaluate deals to determine loan amounts, the creditworthiness of borrowers, and the income potential of projects. Lenders usually specialize by product type, including single-family residential, multi-family residential, retail, office, industrial, and more. Loans and the rights to service them often are bought and sold. There are differences between pre-qualification, pre-approval, and final loan approval:

Government vs. Conventional Loans

Loans are either government-guaranteed (insured), such as FHA or VA loans, or they are conventional loans. Conventional loans are not insured by the government. They either call for private mortgage insurance (PMI) or they can be free of insurance if the buyer pays a down payment of at least 20% of the sales price.

RESPA rules apply to the following:

Loans made by a lender, creditor, or dealer Loans made or insured by an agency of the federal government Loans made in connection with a housing or urban development program administered by an agency of the federal government Loans made and intended to be sold by the originating lender or creditor to Fannie Mae, Ginnie Mae, or Freddie Mac Loans that are the subject of a home equity conversion mortgage or reverse mortgage issued by a lender or creditor subject to the regulation

Types of Lenders

Local banks that lend their own money and do not sell their loans on the secondary market are portfolio lenders. Commercial lenders specialize in financing for income-producing properties such as shopping centers, industrial and office properties, and multi-family homes.

Private Mortgage Insurance

Low or zero down payment options can allow buyers to purchase a home with less than 20% down. Unfortunately, as you learned in the last chapter, they usually require the borrower to pay extra for private mortgage insurance (PMI) each month. As the balance on a home decreases and the value of the home itself increases, borrowers may be able to cancel their PMI with a mortgage refinance loan. The lender will decide when PMI can be removed, but the law requires it to be removed by the 78% equity mark. If the borrower wants to get out from under the PMI sooner, a refi might be the ticket!

TDHCA Services

Low-interest mortgage financing Emergency food or shelter Rental subsidy Energy assistance Weatherization Economic development The provision of basic public infrastructure for small rural communities

How to Avoid PMI

Luckily, there are some things that can sometimes be done to avoid PMI. One is to "buy out" your PMI. Some larger banks will let you take a slight increase in the interest rate instead of paying for PMI. This is usually a better bet because: Much, if not all, the mortgage interest paid is tax-deductible. A mortgage can be refinanced for a better interest rate down the road, sooner than 78% home equity is reached.

Monetary Policy

Monetary policy is a term used to refer to the actions of central banks to achieve big, macroeconomic policy objectives, such as price stability, full employment, and stable economic growth.

Money Laundering

Money laundering generally refers to financial transactions in which criminals, including terrorist organizations, attempt to disguise the proceeds, sources, or nature of their illicit activities by funneling the money through otherwise legitimate business transactions. Money laundering facilitates a broad range of serious underlying criminal offenses and ultimately threatens the integrity of the financial system.

Mortgage Liens

Mortgage Liens A mortgage lien guarantees possession of the property to the lender if the borrower does not make the required payments. The mortgage lien allows the lender to force the sale of a property to recoup any losses. The borrower uses the property as collateral and places it as security for a home equity loan. Some mortgages allow the borrower to have full legal title to a property, but the lender owns a lien (a legal claim against property for owed money) on the property and can foreclose on the property if the borrower does not make mortgage payments.

Mortgage Brokers

Mortgage brokers have no money to lend. They bring lenders and borrowers together. (The mortgage broker usually does business with many lenders.) The mortgage broker will usually take the application, process the file, and will then guide the buyer to the program that will be the most beneficial to their situation. The loan company will fund the loan. After that, the loan is taken to the secondary market.

Mortgagor (Borrower) and Mortgagee (Lender)

Mortgage documents are two-party instruments, and those two parties are: Mortgagor: The person who takes a loan out from a bank (the borrower) Mortgagee: The organization or person who lends money (the lender) Maria, these terms (mortgagor and mortgagee) are important — memorize them!

Tax Deductions

Mortgage interest Real estate taxes Discount points paid at closing Loan origination fees

What takes place in the primary market?

Mortgage lenders and borrowers come together to negotiate and create new mortgages in the primary market.

Lenders Want Priority

Mortgage lenders generally require a preferred lien, also known as a first mortgage lien, which means that (other than real estate taxes) no other major liens against the property can take priority over the mortgage lien. In some states, (including Texas) a deed of trust is used rather than a mortgage document, because the lender can sell or use the property only if loan terms are not met.

ARMs: Highs and Lows

Most ARMs will have a floor rate. This is the lowest the interest rate can go, even if the market moves lower. This protects the lender. Conversely, most ARMs will also have a rate cap. This protects the borrower. There are two types of rate caps: An adjustment period cap limits the amount that the interest rate can increase in any given adjustment period. A lifetime cap puts a hard limit on the amount the interest rate may increase over the lifetime of the loan, no matter how high the index may increase.

The Deed of Trust as Security Instrument

Most Texas real estate transactions use a deed of trust as the security instrument. A deed of trust is a right to real property being held by one party for the benefit of another. Whereas a mortgage creates a lien on a property for the lender, a deed of trust literally gives the right to the property to another party. A deed of trust is different than a mortgage in a few other ways, but most notably in its treatment of foreclosures and in the number of parties involved. A deed of trust gives the trustee the right to foreclose on a property if the borrower defaults.

Index Links

Most mortgages are linked to one of three potential indexes: The London Interbank Offered Rate (LIBOR) The 11th District cost of funds The maturity yield on one-year Treasury bills Based on one of these three indexes, the index rate of the ARM will move up or down. Those three indices are probably things you don't necessarily need to know but might be interesting information. Or if you have an investor client who knows their stuff, it could be good to be able to throw that info around.

Qualifications

Most people who work as mortgage loan originators get a bachelor's degree, preferably in finance or business. Since there is not a degree that's specific to mortgage originators, and because the U.S. wanted to tighten up standards after the financial crisis, MLOs must be licensed for the profession. They have to take a minimum of 20 hours of pre-license education courses

Usually Privately Owned

Most portfolio lenders are privately owned and much smaller than the big banks. They can use their own discretion in lending decisions. They might even accept stocks as the collateral for the loan. An example of a portfolio loan that is available in Texas is a company that is offering buyers a 0% down payment with an FHA loan if they have a credit score of 640 or better. This could be great for buyers who have good credit but not much money available

Lender Considerations

Most real estate is purchased with borrowed money. Making real estate loans carries a certain amount of risk for lenders; for this reason, lenders must have a firm grasp of a borrower's financial qualifications. Lenders consider a borrower's income, credit, debt, source of funds for the down payment, and net worth.

Most residential mortgage loans use what to collect taxes and insurance month by month?

Most residential mortgage loans use escrow accounts to collect taxes month by month, allowing the lender to closely monitor and ensure the payment of taxes. The importance of the escrow method and the tax clause is to protect the lender's position as the primary lienholder on the property.

Acceleration Clause

Most security instruments contain an acceleration clause, which makes the entire loan amount due immediately upon default. Default occurs when the borrower violates any of the terms of the loan agreement, which is most often in the form of delinquent payments. The acceleration clause is important legally, because the lender would otherwise have to sue for each late payment as it became due. Let me state that again in different words: if a party breaches a contract, then the full performance of that contract becomes immediately due

Ten Facts That You Should Know about Capital Gains and Losses

Net Capital Gain. If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a net capital gain. Tax Rate. The capital gains tax rate usually depends on your income. The maximum net capital gain tax rate is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gains. Limit on Losses. If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return. Carryover Losses. If your total net capital loss is more than the limit you can deduct, you can carry over the losses you are not able to deduct to next year's tax return. You will treat those losses as if they happened in that next year. Forms to File. You often will need to file Form 8949, Sales and Other Dispositions of Capital Assets, with your federal tax return to report your gains and losses. You also need to file Schedule D, Capital Gains and Losses with your tax return

More Reasons to Like GPMs

Nevertheless, some lenders continue to offer GPM plans to interested and qualified borrowers. GPMs are attractive to some lenders because they typically have market interest rates 0.5% to 0.75% higher than comparable fixed-rate loans. Borrowers who can't qualify for a fixed-rate loan may qualify for a GPM on the basis of the lower initial rates. GPMs can make sense in rapidly appreciating areas because the increased payments go along with an increase in the value of the property.

Servicer Transfer Notices

New servicer's name and address Date when the current servicer will stop accepting payments Date when the new servicer will start accepting payments Phone numbers of both service companies Information about any changes in optional insurance policies Assurance that the terms and conditions of the loan (as long as they are not directly related to servicing details) will not change because of the transfer Statement about the consumer's rights and where to direct questions or complaints

Hard Money Loans

Next, let's go over something known as a hard money loan. This is a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private investors or companies. That's why you're learning about them in this chapter about private lenders!

What are three ways the government influences the price of real estate?

No, the gross domestic product (GDP) measures economic growth and is not an example of a way the government influences the price of real estate. The government influences the price of real estate by dictating the supply of money, interest rates, and taxes.

Texas Is a Non-Disclosure State

Notice that promissory notes are not recorded in the public record. Texas is a non-disclosure state, meaning you will not find sales prices in public records. The loan amount is disclosed in the recorded deed of trust but not the sales price. There is a loophole though: it's that sales prices are reported in the multiple listing service... and the multiple listing service is available to the taxing authorities... and tax records are open to the public. Still, real estate license holders should not tell anyone the sales price except when using the sale as a comparable for another potential buyer or seller. It's right to try and keep private information private.

The Uniform Residential Loan Application

Now let's dive right into a step-by-step explanation of the Uniform Residential Loan Application. The Uniform Residential Loan Application is the standard application used by banks to determine someone's ability to secure a mortgage loan. The person applying for the loan will fill this out, not the agent, but buyers might have questions about the application that you can help them answer. Download this form or open it in a new tab so we can go over each section together!

CLO: Desktop Underwriter

Now let's talk about two different kinds of CLOs. First up: Desktop Underwriter. Fannie Mae encourages lenders to use its automated electronic underwriting system, Desktop Underwriter (DU). This tool is designed to reduce the time and cost involved in underwriting. According to Fannie Mae, some lenders have reported savings of as much as $1,400 in underwriting costs. The system, which can be accessed over the internet, is available 24 hours a day, seven days a week, to Fannie Mae lenders who subscribe to it.

Step 3: Solve using the formula

Now we just plug our knowns into our formula, remembering to convert the 45% to its decimal form: $2,150 ÷ 0.45 = $4,777.78 Final Answer: To qualify for this loan, Johnny would need to make at least $4,777.78 a month.

Upping the Demand

Now, let's consider a scenario where the demand for loans significantly increases when the supply of money basically remains the same. Anything could cause this, but let's imagine that it has grown more and more costly to rent an apartment. This would drive more people to seriously consider buying a home, thereby increasing the demand for mortgage loans. Again, if we think of demand as the number of loans desired at a given price point, we would expect that the equilibrium point to head back in the other direction (up and to the left) on the demand curve. If the supply of money available for loans remained basically constant and the number of people (unhappy renters) wanting loans increased, that would drive up the price borrowers would be willing to pay for a loan. Influencer Fed

Panic Behavior

Now, when a large number of people withdraw their money from a bank at the same time, it tends to create an even bigger panic, resulting in even more withdrawals. This chain of events could cause banks to become insolvent almost instantly. And, in fact, during this era, more than one-third of all U.S. banks failed. Little wonder that Americans were having a hard time trusting that their money was safe in the bank.

Certificate of Eligibility

Obtaining a VA loan requires a Certificate of Eligibility, which only the VA may issue. These certificates must be obtained each time the veteran applies for a loan, applies to have their entitlement restored, or applies to refinance their VA loan. A veteran, reservist, or active serviceperson should use VA Form 26-1880 and provide evidence of their status.

Know Before You Go

Of course, as a buyer's agent, you may want to make sure your client already has loan pre-approval before you start showing them houses. Your time is precious and important, so you don't want to waste any of it on a client who might not even be able to get a loan. Even if a client has a loan pre-qualification, you might want to wait until they get full pre-approval. Pre-qualification is basically a lender saying, "Well sure, we would potentially give you a home loan." It's a quick process that uses estimates and unverified information that the borrower supplies.

Conclusion

Of course, if after the six-month period, Mr. and Mrs. Borrower are not able to return to make the regular monthly payment on the loan, the lender would have to consider foreclosing on the collateral property. However, by coming to the lender early (as soon as they realized they were in trouble) Mr. and Mrs. Borrower helped avoid greater difficulty than was necessary and found a solution that is acceptable to both parties.

Entitlement Math

Okay. I bet you're ready for someone to clear up things a little bit...right? After all, if a veteran's basic entitlement is $36,000, and the VA will only guarantee the first 25% of the loan, then it would seem that the largest loan a vet could get would be $144,000, correct? Well, because the VA recognizes that in most places in the U.S., $144,000 will not be enough to get a borrower into a home, the VA began linking its guaranty limits with the FHA conforming loan limits. And, as I mentioned earlier, those limits are presently set at $510,400 in Texas. To figure out the maximum guaranty amount, all we need to do is find 25% of that loan limit. $510,400 x 0.25 = $127,600 That means that 25% of the conforming limit of $510,400 would be $127,600, which is the maximum guaranty amount.

Secure and Fair Enforcement for Mortgage Licensing Act

On July 30, 2008, the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, or SAFE Act, was passed. The SAFE Act gave states one year to pass legislation requiring the licensure of mortgage loan originators (MLOs) that met national standards and the participation of state agencies on the Nationwide Mortgage Licensing System and Registry (NMLS).

Loan Documents

Once everything comes out of underwriting, the documents are prepared and sent to the title company. At that time, the title company will go over the documents and create a Closing Disclosure (CD). They will then send the CD back to the lender to get approval. Depending on the lender, the title company may send a copy of the CD to you, the real estate agent. You may have to ask your buyer or seller to review the CD. According to Consumer Financial Protection Bureau (CFPB), the CD will only have the information of the buyer or seller, meaning one party will not see the details of the loan for the other party.

Security Instruments

One important point to reinforce is that promissory notes in and of themselves are not secured by assets. A secured note is actually secured through its reference to a security instrument. What's a security instrument, you ask? A security instrument is a generic term that refers to any document that gives lenders a claim to a borrower's property in order to secure a loan. In real estate, security instruments take the shape of mortgages and deeds of trust. So, a loan is granted through a signed promissory note and either a mortgage or a deed of trust. It takes two!

Construction Mortgage

One important type of open-end mortgage is the construction mortgage. In a 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. At the end of the building's construction, the entire loan amount plus the interest accrued becomes due. This is usually paid for with a long-term mortgage that the borrower has arranged for in advance.

Who:

One last thing that can make a discussion on real estate cycles confusing is the issue of perspective. The market may be great for a seller but awful for a buyer. It could be great for homebuyers but lousy for shopping center owners. That's why it's helpful to describe the market in terms of expansion or recession; "good" and "bad" are only meaningful if we know whose perspective is being considered.

The Equal Credit Opportunity Act

One last thing to keep in mind regarding the lending process: lenders are required to abide by the Equal Credit Opportunity Act (ECOA), which makes it unlawful for a creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, sexuality, gender presentation, marital status, or age. It also mandated that loan companies may not ask about marital status beyond inquiring if the borrower is married or single. For example, lenders may NOT ask if an applicant is widowed or divorced.

Qualification Standards

One more reason why a credit union could be particularly appealing to homebuyers is that their underwriting standards might be more relaxed or flexible than a bank's. If the borrower has less-than-great credit history or a lower income, they could still qualify for a loan at a credit union. The credit union may even offer special deals to borrowers that can't be found elsewhere.

Most Common Rebate

One of the common forms of rebates happens when the contract calls for money to be paid to a certain vendor for future improvements to be done to the property after closing. EXAMPLE $20,000 is to be paid to ABC Home Improvements for future improvements. ABC Home Improvements is owned by a friend of the buyer and after closing the friend and the buyer split the $20,000. No improvements are made, no payments are made, and the lender has to foreclose and finds the property worth less than the loan amount.

First Time Homebuyers' Program

One program offered through TDHCA is the First Time Homebuyers' program. (A consumer is considered a first-time buyer if they haven't owned a home for a three-year time period.) A first-time homebuyer program is essentially a way for first-time homebuyers to receive financial assistance when making their first investment in a new home. These programs make it easier for a first-time buyer to understand and navigate loans, mortgages, and down payments on their new home.

ARMageddon?

One thing that your client should watch out for with ARMs is a lender trying to give them a loan for a home that they can't afford. These loans can be great, but they can also be risky, and blow up on a borrower if they're not careful. For example, if your client's income is $50,000/year and they're pre-approved for a $500,000 mortgage, something's probably off. A good rule of thumb is that a borrower can afford something 2 - 2.5 times their income. So, for that client, a house listed at $130,000 would be more in their price range.

How ARMs Are Written

One thing you will need to know is how ARM mortgages are written. They look like a wonky fraction. You'll see things like 2/28 or 4/1. The first number will always be the number of years that the interest rate is fixed for. So for the first example, the fixed rate will be for two years. In the second one, it will be for four. The second number doesn't always mean the same thing. (This isn't confusing at all. ) In the first example of 2/28, the second number probably means that the interest rate floats/changes for the remaining 28 years after the two year initial fixed period.

Other Income

Other forms of income should be considered as they would for a conventional loan. Similarly, the lender should use the IRS's "Employer's Tax Guide" to determine federal income and social security taxes and subtract the appropriate amounts from the veteran's effective income.

Why should borrowers avoid PMI?

PMI usually costs .5% - 1% of of the loan annually

Payments made to an insurance company in exchange for coverage are called:

Payments made to an insurance company are called premiums.

Mortgage Constant Factors

Payments on amortized loans are calculated by using mortgage constant factors. These factors are: The original principal balance on the loan The annual interest rate The loan term

Who is harmed by predatory lending?

Predatory lending includes the unfair, deceptive, or fraudulent practices of some lenders during the loan origination process. It primarily harms borrowers.

Predatory Lending Defined

Predatory lending includes the unfair, deceptive, or fraudulent practices of some lenders during the loan origination process. While there are no legal definitions in the United States for predatory lending, an audit report on predatory lending from the office of inspector general of the FDIC broadly defines predatory lending as "imposing unfair and abusive loan terms on borrowers."

Predators Like Collateral

Predatory lending typically occurs on loans backed by some kind of collateral, such as a car or house, so that if the borrower defaults on the loan, the lender can repossess the property, sell it or foreclose on it, and make their money back. Lenders might be accused of tricking a borrower into believing that an interest rate is lower than it actually is, or that the borrower's ability to pay is greater than it actually is. The lender, or others as agents of the lender, may even profit from the repossession or foreclosure upon the collateral.

Due-on-Sale Clause

Pretty much every mortgage in the United States contains a due-on-sale clause, sometimes called an alienation clause. The primary purpose of this clause is to prohibit a new buyer from being able to assume the terms of the original loan without the lender's approval and involvement. The due-on-sale clause essentially states that if a property is sold, then the mortgage must be repaid in full at the time of the sale. Because of this, a mortgage cannot be transferred from the seller to the new buyer. The seller's mortgage must be paid off in full after the sale and a new mortgage must be obtained by the buyer.

PITI: Definition & Formula

Principal + Interest + Taxes + Insurance = Monthly payment amount

Private Money: Missing in Action

Private money has been mostly absent from the secondary mortgage market since the subprime mortgage market meltdown of 2008. Prior to the meltdown, most purchases were by private investors, helping lead to the crisis. Investors have not fully regained confidence in the marketplace since then, making the federal government the investor on over 90% of mortgages in the United States through Fannie Mae, Freddie Mac, FHA, or VA.

What Is Private Mortgage Insurance?

Private mortgage insurance, also called PMI, is a type of mortgage insurance you might be required to pay for if you have a conventional loan. Like other kinds of mortgage insurance, PMI protects the lender — not you — if you stop making payments on your loan.

Secured vs. Unsecured

Promissory notes can be secured or unsecured. A secured note refers to a mortgage that pledges rights (a lien or title, depending on state law) against a property as security for the debt. The note will, when applicable, refer to the mortgage or deed of trust that is security for it. An unsecured note has no collateral pledged for the loan and is a promise backed only by the signature of the borrower. Unsecured notes may sometimes be called signature loans.

Adjustable-Rate: Pros & Cons

Pros The real big draw toward ARMs is the fact that they offer introductory interest rates that will be lower than fixed-rate. If interest rates are dropping, ARM borrowers will be able to reap the benefits without doing anything. They won't have to refinance to take advantage of lower interest rates. If the borrower doesn't intend to stay in the house long, they'll be able to take advantage of cheap interest before selling their house. If they sell before the adjustment, they won't have to worry about a payment increase.

Public and Subsidized Housing

Public housing under HUD was implemented in order to provide decent and safe rental housing for eligible low-income families, the elderly, and persons with disabilities. There's a large range of types of public housing: from single-family homes to high-rise apartments for elderly families.

In the Old Days: Settlement Statement

RESPA also used to require that both the borrower (a.k.a. the buyer) and the seller receive something called the Settlement Statement at closing. The Settlement Statement was a standardized form that showed all of the borrower's and seller's charges arising from the settlement of their real estate transaction. We'll go over this more in Chapter 6!

Good Faith

RESPA was designed to protect potential homeowners and empower them to become more educated and aware consumers. According to the U.S. Department of the Treasury, RESPA requires lenders to provide "good faith estimates" of closing and settlement costs to prospective borrowers. It also prohibits the practice of kickbacks.

Which of the following is TRUE of investment options?

Real estate bonds tend to be lower risk than corporate bonds. They are ideal for patient investors who are looking for a slow and steady investment.

What TILA Covers

Real estate loans Loans for personal, family, or household purposes Consumer loans for $25,000 or less Note: TILA does NOT cover business loans.

Just like FHA loans, VA regulations limit the fees that the applicant can pay to obtain a loan. The applicant can pay:

Reasonable and customary amounts for VA "Itemized Fees and Charges" VA appraisal fee VA compliance inspection fee VA funding fee Other fees authorized by the VA Up to 1% as a flat charge by the lender as an origination fee to cover expenses that are not included in the itemized fees Reasonable discount points Credit report Flood inspection fee (provided the inspection is not done by a VA appraiser or the lender)

Separation Payments

Recently discharged veterans also may be receiving one of two types of separation payments: A special separation benefit (SSB), which is taxable in the year received and may be considered by the lender as a substantial cash reserve A voluntary separation incentive (VSI), which is paid and taxed annually and calculated by multiplying the veteran's years of service by two (with a minimum of six years' service) VSI is to be counted in the veteran's effective income. A veteran's disability payments should also be included in their effective income.

reconvey

Reconveyance means the return of title to the original owner. Most commonly arises in the context of reconveyance of real estate deeds—also referred to as deed of reconveyance.

Refinancing Definitions

Refinancing is the process of obtaining a new mortgage in an effort to reduce monthly payments, lower interest rates, take cash out of a home for large purchases or change mortgage companies. Most people refinance when they have decent equity in their homes. Equity is the difference between the amount owed to the mortgage company and the amount the home is worth.

Regulation Z applies to loans that are:

Regulation Z applies to loans that are (1) extended to consumers; (2) offered on a regular basis; (3) either subject to a finance charge or to be paid in four or more installments; (4) used for personal, family, or household purposes; or (5) a closed-end transaction (not open-ended or revolving).

Reg Z Made E-Z

Regulation Z bans practices concerning payments made to compensate mortgage brokers and other loan originators. The goal here is to protect consumers in the mortgage market from unfair practices and wrongdoings. The prohibitions related to mortgage originator compensation and steering deal mainly with closed-end consumer loans secured by a "dwelling or property that includes a dwelling." The rule does not apply to open-end home equity lines of credit or time-shares. Nor does it apply to loans secured by real property if the property doesn't include a dwelling.

Acceleration Clauses

Remember acceleration clauses from earlier in this level? This clause protects the lender and can facilitate foreclosure. Acceleration happens when the lender demands immediate payment in full. The lender may also invoke the "power of sale," which is what authorizes the non-judicial foreclosure. Without further ado, let's read a sample of a Deed of Trust from Fannie Mae. Pay close attention to the rights and responsibilities of each party.

REMICs vs. CMOs

Remember how we discussed CMOs in Chapter 1? Let's do a quick review Collateralized Mortgage Obligations. Collateralized Mortgage Obligations (CMOs) are bundles or pools of mortgage-backed securities (MBS) created by government agencies or investment banks and issued as investment-grade bonds. Sounds kinda similar to a REMIC, right? The Difference Here's the difference between REMICs and CMOs. Whereas CMOs are a security, REMICs are an organization, a business entity. And that difference in structure results in very different tax benefits for REMICs.

What Is Title?

Remember that in real estate, title is the actual ownership of a real property in which a party may own a legal or equitable interest. It includes the bundle of rights. To hold the title is to hold legal ownership of a property. It also gives someone the right to use the property. A title is not a physical object, instead it is a collection of rights of ownership a person has.

Fiduciary Duties and the Lending Process

Remember that lenders do not usually have fiduciary duties to your client. You do. A diligent agent will take the time to learn about the loan programs that are available to help their clients in various situations. Be sure you have a variety of lenders on your team so that all of the programs are covered and you know which lender can best help the client with their particular situation.

Step 2: Apply the debt-to-equity ratio formula

Remember the formula: Total liabilities ÷ Net worth = Debt-to-equity ratio So we simply plug in our numbers to get: $40,000 ÷ $10,000 = 4 Final Answer: This gives us a total of 400% for the debt-to-equity ratio. (Remember, you must convert the decimal to a percentage at the end.)

Effect on Investments

Remember when we talked about CDOs and CMOs and Mortgage-Backed Securities? These all have to do with subprime lending. If you'll recall, MBSs are different types of loans bundled together, including subprime loans. A bundle can include very good loans (A+, A) mixed with subprimes (B, C...). When these borrowers began to default on these subprime loans, nobody was aware of how these investment tranches were being affected. Investments were still being made and securitized even further. Private investors were very interested in the riskiness of these tranches. In 2008, it all came to a head when the housing market collapsed. Many companies went under, but the burden really fell on the taxpayers when the government bailed out some of the companies in trouble.

Fair Market Value

Remember, a lender may obtain a deficiency judgment when the property in foreclosure is sold at a public auction for less than the loan amount which the underlying mortgage secures. There's a limit on these judgments, though. They can't be larger than the difference between the fair market value of the property and the defaulted loan amount at the time of the sale. It doesn't necessarily matter what the property actually sold for at the foreclosure sale. Fair market value is determined by a professional appraisal.

Don't Give Legal Advice

Remember, most real estate license holders are NOT lawyers. Unless a real estate professional is also a licensed attorney, they do not have the authority to give legal advice and can face liability and punishment for the unauthorized practice of law. If the buyers and sellers with whom you work need legal advice, or if they ask you for legal advice, you should recommend that they consult real estate attorneys before signing any legally binding documents.

Trustor, Trustee, and Beneficiary Tip: Suffixes

Remember, the suffixes -or and -er refer to a person or object that does a specified action. An employer employs people. A trustor (borrower) receives a loan from a bank in exchange for creating a deed of trust (the security instrument) for their bank. The suffix -ee refers to a person or object that receives the action. An employee is employed; they don't employ. Likewise, a trustee (third party) receives the mortgage from the borrower and holds the right to the property on behalf of the beneficiary (lender).

What Are These Limitations?

Remember: A lien is an outstanding debt or financial obligation on a property, such as a mortgage, and an easement, as previously defined, is the right to use a part of someone's property. Taxes are payments to the local, state, or national jurisdictions governing a subject property. A restriction is a private, land-use control that limits property use and development. Most deed restrictions are developed by neighborhood associations or by a subdivision developer. For example, a common deed restriction in subdivisions states that homes may be used only for residential purposes.

Requests for credit history can also be referred to as:

Requests for credit history are often times called inquiries.

Regulation Z (Truth in Lending)

Requires lenders to disclose to buyers the true cost of obtaining credit so that the borrower can compare the costs of various lenders.

Residual Income

Residual income is defined as the amount of monthly income remaining after all the debts are deducted, including: Income tax Social security tax Maintenance and utilities

Reverse Annuity Mortgages

Reverse mortgages can also be used to take cash out of the property, refinance just to eliminate payments, or to set up an annuity where the homeowner actually receives cash each month instead of paying payments each month. A reverse annuity mortgage is sometimes called a RAM. A reverse annuity mortgage is a financial arrangement where the homeowner pledges equity to a lender in exchange for periodic payments of the pledged equity. In essence, it is the periodic receipt of equity liquidation in exchange for an increase of debt owed on the property. It's the opposite of paying down your mortgage. Payments for this type of mortgage are likely to stay the same month-to-month.

Schedule B: Buyer's Notice of Policy Exceptions

Review with buyer all the items listed as exceptions to the coverage. These exceptions cannot be changed and will NOT be cleared at closing so it's important to review before closing. Note that everything the seller owns (air rights, surface rights, and subsurface rights) will be transferred to the buyer unless exception is made specifically. If the buyer and seller agree that seller is going to keep a portion of the mineral rights, for example, it will be reflected in the title commitment and in the warranty deed. (I recommend checking out the title commitment for this reason.)

Determining Property Value

Sales comparison approach: The sales comparison approach to value is based on the prices that similar properties (also known as comparables) in the vicinity have sold for recently. Cost approach: The cost approach to value seeks to determine how much a property would cost to replace (meaning, rebuild) after subtracting accrued depreciation. Income approach: The income approach considers the income that an owner could get from the property.

What is TRUE of a buyer's market?

Sales prices are more negotiable for buyers in a buyer's market since the real estate supply is high.

Savings and Loan Associations

Savings and loan associations, also known as thrift lenders, were originally established by the government for the purpose of offering long-term, single-family home loans. In the past, most conventional mortgage lending was done by the savings and loan industry. S&Ls dominated the home loan market.

Features of Section 203(b)

Section 203(b) loan features of lower down payments, higher allowed total debt ratios, and underwriting consideration of compensating factors all improve the chances for many to achieve their dream of homeownership. Section 203(b) loans can also be used for the purchase of condominium and cooperative units.

Accounting Statements

Section 5.077 requires an annual accounting statement every January, which must include amounts paid, the remaining amount owed, the number of payments remaining, the amount paid in taxes, the amount paid for insurance, an account for any insurance payments by the insurer, and a copy of the current policy. The buyer has the right "at any time and without paying penalties or charges of any kind" to convert an executory contract to "recorded, legal title" under section 5.081. That means probably a general warranty deed, but no less than a deed without warranties. The seller has no choice in the matter so long as the buyer offers the balance owed under the contract.

Which type of loan is granted based on the creditworthiness of the borrower AND the value of the collateral?

Secured loans are granted based on the creditworthiness of the borrower AND the value of the collateral, which can be confiscated and sold if the borrower goes into default.

Tax exemptions are offered to qualifying:

Senior citizens Individuals with disabilities Homestead property

Servicer Responsibilities

Servicer Responsibilities There's a lot that goes into being a servicer. Specifically, they need to be there and be active. When a borrower submits a qualified written inquiry, the servicer has to get to work right away. That is, they need to take action within an appropriate time frame following the receipt of the inquiry. It is typical for a servicer to give written acknowledgment within 20 business days and then take necessary actions within 60 business days. During this time, a servicer needs to be careful not to disclose any information about overdue payments to any consumer reporting agencies.

This is for two reasons:

You know what they can afford and won't show them homes that are out of their price range If a home is getting multiple offers, you can set the closing date sooner rather than later, as a means of negotiation.

How Else Can a Borrower Avoid PMI?

You may also want to consider saving up the money to make a 20 percent down payment. When you pay 20 percent down, PMI is not required with a conventional loan. You may also receive a lower interest rate with a 20 percent down payment.

What is NOT a sign of recession?

Signs of recession include high unemployment, lower retail sales, and more stagnant real estate sales. Economic activity would drastically decline and stay that way for more than a few months,

Interbank Borrowing Rate

Similar in definition to LIBOR, the interbank rate is the rate of interest charged on short-term loans made between banks. You see, in order to manage liquidity and meet the reserve requirements set by regulators, banks must borrow and lend money between each other in the interbank market. The interbank borrowing rate depends on maturity, market conditions, and credit ratings.

Streamline Refinance

Since 1980, the FHA has permitted insured mortgages to be streamline refinanced.

Qualifying the Property

So how does it all happen? In order to determine a buyer's financial qualifications, lenders need to evaluate and qualify both the buyer and the property. For the property, the underwriter will evaluate the value of the property to determine whether it is adequate collateral for the loan.

Hard Money Credit Requirements

So if hard money loans are an alternative for someone who may have trouble meeting loan requirements, how do borrowers qualify? They don't exactly have to. Private lenders may do a credit check on potential borrowers, but the credit score isn't paramount. The private lender is probably more interested in making sure the applicant doesn't have bankruptcies or foreclosures in their past. They want some idea of the person's likelihood of repaying the loan. Since they are offering a collateral loan, the lender will be most interested in the equity of the property. If the lender approves, the loan funds are quickly made available so the buyer can purchase the home as a cash deal.

The Secondary Mortgage Market

So what exactly is the secondary mortgage market? Simply put, it is the place where mortgages are bought and sold.

Prepaid or Accrued?

So what's accrued and what's prepaid? Let's take a look at some popular items in transactions: In Texas, taxes are paid in arrears. Taxes due at the end of 2020 will cover taxes from January 1, 2020 through December 31, 2020. So taxes are accrued items. Insurance is generally paid one year in advance, making it a prepaid item. Interest is paid monthly in arrears. The November 1st mortgage payment pays interest for the month of October. This makes interest an accrued item.

Loans Covered by RESPA

So which loans does RESPA cover? RESPA applies to most loans that are secured by a mortgage lien placed on a one- to four-family residential property. So, people's family homes that they buy with a mortgage. These loans include: Purchase loans Assumptions Property improvement loans Refinancing loans and equity lines of credit (generally)

The Appeal and Benefits of REITs

You may be wondering what the appeal of a REIT is. Well, many investors like REITs because they allow them to invest in real estate but avoid some of the hassles and risks involved with traditional real estate investment (such as going out and buying a duplex to rent out to tenants). The investor who chooses a REIT doesn't have to go out and find a house, apartment complex, or a plot of land to buy. Real estate investment trusts take away some of those challenges that make old-fashioned real estate investment difficult. The majority of REITs are traded on the stock market, have diverse holdings, and can be liquidated quickly if the investor desires to do so. Put simply, REITs allow investors to mitigate some risk by spreading their ownership interest across all the properties the REIT owns.

The Secondary Mortgage Market

So, the mortgages are created in the primary mortgage market, then the primary lender sells them off into the secondary mortgage market, where they are bought by investors. They can be government-backed entities, such as Fannie Mae and Freddie Mac, or they can be private investors. FHA, VA, and conforming conventional loans are all eligible to be packaged and sold on the secondary mortgage market. Non-conforming loans, like jumbo loans, are not eligible.

life insurance

Some buyers choose to use money from their life insurance policies for the down payment on a home. They don't have to pay back the loan amount (since they're essentially borrowing money from themselves) and they could save money because it's tax-free. The policy will continue normally and even accumulate interest because the loan amount remains on the account. Over time, policyholders can do this again and increase their real estate portfolios. It's an appealing idea, but it's not without risks

Direct Endorsement

Some lenders have the authority to approve FHA loans in-house without submitting the file to the FHA regional office for prior approval. This is known as a direct endorsement (DE) and it can save quite a bit of time in processing the loan. The file is submitted to FHA after closing and funding. The file can be rejected by FHA if it is not according to standard or if FHA suspects fraud.

203(b) vs. 203(k)

You might be asked to remember the difference between these two kinds of FHA loans sometime in the future, like, say, on an exam. Here's a little memory trick: Imagine the b stands for boring. 203(b) loans are your standard, boring FHA loan. Imagine the k stands for kitchen. 203(k) loans allow a borrower to take out money to purchase a property and do repairs on it, like fixing up the kitchen.

Legality of Deficiency Judgments

Some states do not allow deficiency judgments. When deficiency judgments are not allowed, the debt is called non-recourse financing. Borrowers who obtain non-recourse financing are not personally liable for the loan. In the event of default, the only way for lenders to collect the remaining balance of a loan is by foreclosure. In states that do allow deficiency judgments, the foreclosed mortgagor loses not only the property, but also will have to pay additional money to clear their debt. It's pretty rough for the consumer.

Estimate of Expenses

Some states — not including Texas — require that license holders give their clients an estimate of the expenses involved in closing the transaction at the time the purchase contract is signed. A Loan Estimate is typically used to comply with this state requirement.

Someone who specializes in running the day-to-day affairs of a property is called a:

Someone who specializes in running the day-to-day affairs of a property is called a property manager.

Money Laundering

You see, the Treasury Department isn't just made up of tax collector Poindexters. A big responsibility of the Department is the investigation and prosecution of financial criminals. Through the Office of Terrorism and Financial Intelligence (TFI), the Treasury tracks crimes such as money laundering.

How Is PMI Paid?

Sometimes you pay for PMI with a one-time upfront premium paid at closing. This premium is shown on your Loan Estimate and Closing Disclosure on Page 2, in Section B. If you make an upfront payment and then move or refinance, you may not be entitled to a refund of the premium. Sometimes you pay both upfront and monthly premiums. The upfront premium is shown on your Loan Estimate and Closing Disclosure on Page 2, in Section B. The premium added to your monthly mortgage payment is shown on your Loan Estimate and Closing Disclosure on Page 1, in the Projected Payments section. Lenders might offer you more than one option. Ask the loan officer to help you calculate the total costs over a few different timeframes that are realistic for you.

Foreign Lenders

Sources of financing aren't limited to the United States. Lenders who are based in other countries have financed the purchase of all sorts of properties all over the U.S. According to a 2016 Forbes report, some of the most active foreign lenders are banks in Canada, China, Switzerland, and the United Kingdom. They tend to finance commercial real estate (offices, retail stores, and multi-family complexes) rather than single-family homes.

Interest Rates

Speaking of interest rates, have you ever wondered why lenders charge some borrowers higher interest rates than others? The factor most likely responsible for a high interest rate is that borrower's credit score.

USDA Farm Loan Types (Part 1)

Youth Loans: Youth loans are used by young people participating in clubs like 4-H clubs or FFA to finance educational, income-producing, agriculture-related projects. (Oh, to be young and in loans!)

Step 1: Convert percentage to a decimal

Step 1: Convert percentage to a decimal To do this, you'll remove the percent sign and move the decimal point two places to the left: 2.4 → 0.024 Step 2: Identify the equation for annual taxes Property value x Tax rate = Annual taxes

FHLB Affordable Housing Programs

Such community-based partners are working at the grassroots and most closely understand the housing needs of their communities. [...] Many projects are designed for seniors, the disabled, homeless families, first-time homeowners and others with limited resources or special needs. Each FHLBank also operates a Community Investment Program (CIP) that offers below-market-rate loans to members for long-term financing for housing and economic development that benefits low- and moderate-income families and neighborhoods. The program is designed to be a catalyst for economic development because it supports projects that create and preserve jobs and helps build infrastructure to support further growth. Unlike the AHP, the CIP does not provide grants.

What We're Leaving Behind

TIL Disclosure - A two-page form that: Explains basics of proposed mortgage Not a contract or a commitment to lend Shows the APR, finance charge for the money being borrowed, the amount financed, and the total of all the payments that will be made over the life of the mortgage Breaks down monthly payments into principal and interest, mortgage insurance, and property tax and insurance Tells if a mortgage interest rate is variable or fixed and details prepayment penalties GFE - A three-page form that: Gives estimate of settlement charges and loan terms Summarizes the loan and the answers to questions about rising interest rates and balloon payments Shows estimate of any extra charges that come with closing costs

TILA

TILA introduced the Annual Percentage Rate, or APR, calculation mandated for all consumer lenders. (APR refers to the annual rate charged for borrowing or earned through an investment and is expressed as a percentage representing the actual yearly cost of funds over the term of a loan.) Doing so barred the old pattern of misleading interest rate calculations (used mainly on auto loans).

TILA's Regulations

TILA is designed to help consumers compare the costs of credit from different lenders with one another and with the cost of buying with cash and to protect consumers from unfair and inaccurate credit practices. The act has two principal regulations, referred to as Regulation M and Regulation Z.

Loans and Home Down Payment Assistance

TSAHC also provides low, fixed-rate mortgage loans and home down payment assistance grants to help qualified homebuyers purchase a home. These loans and assistance programs are available throughout all of Texas through a network of lenders and provide lots of benefits, too. Benefits include: A 30-year fixed interest rate mortgage loan Down payment assistance % is based on the total mortgage loan amount No upfront points or fees are taken out of the down payment assistance The best part about this program? Recipients do not have to be first-time homebuyers and don't need to live in the home for any certain amount of time. Plus, this down payment assistance is like a gift, in that it never needs to be repaid.

A lender makes a $100 million loan on a commercial property. Another investor purchases $20 million of the loan. What is this an example of?

a participation agreement

Property Tax Foreclosures

Tax foreclosures occur when the borrower has failed to pay property taxes on the property. In Texas, tax foreclosures are judicial foreclosures, meaning they require court permission before the foreclosure can happen. Once the court gives their approval of the foreclosure, notices are posted at least 21 days prior the sale (same as with mortgage foreclosure notices). Generally, the former owner has the right to reclaim (redeem) the property even after the auction has passed. The reclaiming owner would need to pay the buyer at least 25% more than the amount the buyer paid at the auction.

Types of Incentives

Tax incentives include tax exemptions, tax deductions, and tax credits. A tax exemption is a dollar-by-dollar reduction in the appraisal value of a property (the value it will be taxed on). The value a government places on land or buildings for real estate taxes is the assessed value.

Tax policies:

Tax policies regarding capital gains tax, homestead exemptions, and mortgage interest deductions affect supply and demand for real estate.

Temporary Buydown

Temporary buydown loans are an alternative to the adjustable-rate mortgage or graduated-payment mortgage. They provide the borrower with the temporary help they need without any chance of negative amortization and with a predictable payment structure. The disadvantage is that there is a higher loan fee for this type of loan.

The second Number in "5/1 ARM"

The 1 could represent the adjustment period, meaning that the rate will adjust to the new index every year after the first five years. This value may be written in years or months, so you'll have to read the loan documents closely. You could also see a larger value as the second number, such as "2/28." This would signify a two-year rate lock, followed by 28 years of a floating rate. Finally, the second number could also represent the lifetime cap. Why is it like this? I don't know. Should you read the loan documents? Yes!

203(k) for Rehabilitation Loans

The 203(k) is pretty popular as well. Non-investors who need a loan in excess of $5,000 to rehabilitate or repair their one-to-four family residences can use a 203(k) loan. The purchaser is required to put 3.5% of the loan amount down and have a 640 credit score or better. If purchasing a property that requires rehabilitation, the borrower can receive one fixed- or adjustable-rate loan that includes the purchase price and the cost of rehabilitation. The funds of the loan are paid into an escrow account from which they are disbursed by the lender upon completion of the rehabilitations. The loan amount for a 203(k) is based on the home value including renovations. It's neat because only one loan is needed to both purchase and improve the property. Borrowers can refinance and rehab their own homes. The 203(k) loan can be used to buy property otherwise not eligible for financing.

Real Estate Better than Bonds?

The AAA-rated life insurance companies do carry a small percentage of stock holdings in their portfolios, but it is insignificant in comparison to their real estate exposure. For them, commercial multifamily real estate represents a scenario in which they can obtain better results than their bond holdings without having to take on the significantly greater risk of the stock market.

A Different Fund for Non-Bank Liquidation

The Act set up a different fund of money for the liquidation of these non-bank financial institutions. Instead of using the Deposit Insurance Fund, the Orderly Liquidation Fund was created to liquidate non-bank financial companies.

Step 8: Write and Present the Value Report

The Appraisal Standards Board, or ASB, is responsible for establishing the rules for completing an appraisal and compiling its report. The ASB also enforces the Uniform Standards of Professional Appraisal Practice, or USPAP, which outlines the ethical and professional standards of real estate appraisal. In this step, the appraiser completes their report in accordance with USPAP standards and presents it to the client. Written reports are the industry standard, but the USPAP also allows oral reports. Generally, however, the appraiser presents their findings in the written format that the client requests.

The Closing Disclosure

The Closing Disclosure (also called the closing statement) is a form used to itemize services and fees charged to the borrower by the lender when applying for a real estate loan. For loans that require a Loan Estimate and that proceed to closing, creditors must provide the Closing Disclosure reflecting the actual terms of the transaction. The creditor is generally required to ensure that the consumer receives the Closing Disclosure no later than three business days before consummation of the loan.

The Consumer Financial Protection Bureau's program that created new, streamlined forms that consumers receive when they apply for and close on a mortgage is known as ____.

The Consumer Finance Protection Bureau's program that created new, streamlined forms that consumers receive when they apply for and close on a mortgage is known as Know Before You Owe.

HUD

The Department of Housing and Urban Development (HUD) is a government agency with the mission "to increase homeownership, support community development, and increase access to affordable housing free from discrimination."

Dodd-Frank Agencies

The Dodd-Frank Act created a couple of government agencies for the purpose of making sure the new regulations are being followed: Financial Stability Oversight Council (FSOC) This group of 15 members monitors the stability of the financial system, looks for risks in the system, and addresses those risks.

What is the goal of the Dodd-Frank Act?

The Dodd-Frank Act was created to prevent the excessive risk-taking that led to the financial crisis of 2008.

FDIC Responsibilities

The FDIC has many responsibilities. For example, the FDIC: Directly examines and supervises more than 4,500 banks and savings banks for operational safety and soundness. Examines banks for compliance with consumer protection laws, including, but not limited to: the Fair Credit Billing Act, the Fair Credit Reporting Act, the Truth-In-Lending Act, and the Fair Debt Collection Practices Act. The FDIC also examines banks for compliance with the Community Reinvestment Act (CRA), which requires banks to help meet the credit needs of the communities they were chartered to serve. Responds immediately when a bank or thrift institution fails.

FDIC Funding

The FDIC is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. They receive no funding from Congress. The FDIC insures approximately $9 trillion of deposits in U.S. banks and thrifts — deposits in virtually every bank and thrift in the country.

Warranted Confidence

The FDIC is responsible for promoting public confidence in the U.S. financial system. And it works! Insuring consumer deposits has helped tremendously in limiting the effect on the economy when a bank or other institution fails.

FHA 203K Property Rehabilitation Program

The FHA 203K Property Rehabilitation Program is a government loan designed to preserve the nation's existing housing stock by facilitating renovation and restoration. It features down payments of as little as 3% and can involve loan amounts up to 110% of the home's after-improvement value.

Section 251: Adjustable-Rate Mortgage Insurance

The FHA adjustable-rates mortgages (ARMs) are available to purchasers of one-to-four family dwelling units. The down payment, maximum loan amount, and qualifying standards are the same as for 203(b) and may be written for 30 years. The FHA offers a standard one-year ARM and four hybrid ARM products with an initial interest rate that is constant for the first three, five, seven, or ten years. After the initial period, the interest rate will adjust annually. FHA ARMs have both annual and life-of-the-loan caps on the amount that the interest rate can go either up or down at each adjustment period. The different interest rate caps are as follows: One- and three-year ARMs have annual caps of 1% and life-of-loan caps of 5% Five-, seven-, and ten-year hybrid ARMs have annual caps of 2% and life-of-loan caps of 6%

Fair Credit Reporting Act Protections

The Fair Credit Reporting Act grants certain rights to consumers. Here is a summary of those rights: Consumers must be told if information in their file has been used against them. Consumers have the right to know what is in their file. Consumers have the right to ask for a credit score. Consumers have the right to dispute incomplete or inaccurate information. Consumer reporting agencies must correct or delete inaccurate, incomplete, or unverifiable information. Consumer reporting agencies may not report outdated negative information. Access to consumer files is limited. Consumers must give their consent for reports to be provided to employers. Consumers may limit "prescreened" offers of credit and insurance they get based on information in their credit report. Consumers may seek damages from violators. Identity theft victims and active-duty military personnel have additional rights.

Fair Housing Act (Title VIII of the Civil Rights Act of 1968)

The Fair Housing Act covers most housing, but sometimes exempts owner-occupied buildings with no more than four units, single-family housing sold or rented without the use of a broker, and housing operated by organizations and private clubs that limit occupancy to members.

Fair Housing Act Protection

The Fair Housing Act says that in the sale and rental of housing or in mortgage lending, no one may discriminate based on race, color, national origin, religion, sex, familial status, or disability. The Fair Housing Act also makes it illegal for anyone to: Threaten, coerce, intimidate or interfere with anyone exercising a fair housing right or assisting others who exercise that right. Advertise or make any statement that indicates a limitation or preference based on a protected class. This prohibition against discriminatory advertising applies to single-family and owner-occupied housing that is otherwise exempt from the Fair Housing Act.

Why "Open Market" Operations?

The Fed does business with many different security dealers and primary dealers. When these dealers compete with each other based on price, the Fed's choice emerges from that competition in the "open market."

Federal Deposit Insurance Corporation

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States federal government that preserves public confidence in the banking system by insuring bank deposits. Since the inception of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure. (Wow!)

Insurer of Deposits

The Federal Deposit Insurance Corporation insures all types of deposits — certificate of deposit (CDs), checking, savings, money market, and NOW accounts (checking accounts where you can earn interest on deposited money) — held in all FDIC-insured depository institutions, including national banks and federal savings associations. The present insured amount is $250,000, per depositor, per insured depository institution for each account ownership category.

Jaselle's $4,000 in her savings account is federally insured. Which agency is responsible for insuring her savings?

The Federal Deposit Insurance Corporation insures up to $250,000, per depositor, per insured depository institution for each account ownership category.

The Federal Deposit Insurance Corporation is an independent agency of the U.S. federal government that preserves public confidence in the banking system by:

The Federal Deposit Insurance Corporation is an independent agency of the U.S. federal government that preserves public confidence in the banking system by insuring bank deposits.

FHLB Affordable Housing Programs

The Federal Home Loan Bank System features two programs to support homeownership. Affordable Housing Program (AHP) Community Investment Program (CIP)

Federal Housing Administration (FHA)

The Federal Housing Administration (FHA) is a part of the United States Department of Housing and Urban Development (HUD) and is charged with: Increasing homeownership Facilitating the financing of home sales and home repairs Contributing to building healthy neighborhoods and communities

Federal Housing Administration

The Federal Housing Administration (FHA) was created in 1934, which paved the way for the creation of mortgage insurance, something that didn't exist before the beginning of the FHA. This insurance market was created to ensure payment of loans to lenders, even if a borrower was in default. This served as a measure of security to protect against another potential financial crisis.

Foreign Investment in Real Property Tax Act

The Foreign Investment in Real Property Tax Act of 1980, or FIRPTA addresses real estate transactions by non-citizens. If a seller is not a citizen, then the buyer (or their representative) must withhold 15% of the sale proceeds and send it to the IRS within 10 days of closing. A comprehensive purchase and sale agreement should include a paragraph that explains FIRPTA, to ensure that all parties are advised of their responsibilities in this regard.

Garn-St. Germain Act of 1982

The Garn-St. Germain Act of 1982 made some amendments to the due-on-sale clause that took into consideration divorce settlements and deaths. In these situations, the title can be passed without having to pay off the entire mortgage.

Carla is a teacher who is wanting to buy her first home. Which program might best help her achieve her goal of homeownership?

The Homes for Texas Heroes Home Loan Program provides homebuyer assistance specifically to teachers, police and correctional officers, firefighters and EMS personnel, and veterans.

Here's what the IRS has to say about the act:

The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief. This provision applies to debt forgiven in calendar years 2007 through 2017. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn't apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home's value or the taxpayer's financial condition. The amount excluded reduces the taxpayer's cost basis in the home.

Multi-Family Housing Program

The Multi-Family Housing Programs offer loans to provide affordable rental housing for very-low-, low- and moderate-income residents, the elderly, and persons with disabilities. Funds can be used to buy and improve land or to provide necessary facilities like water and waste disposal systems. The USDA also provides rental assistance to help eligible rural residents with their monthly rental costs.

The Board of Governors

The President of the United States nominates seven people to serve on the Board of Governors for 14-year terms, and the Senate confirms the president's nominations. Additionally, the president appoints a chairman and vice-chairman of the board from the seven nominees.

Real Estate Settlement Procedures Act (RESPA)

The Real Estate Settlement Procedures Act, or RESPA, was enacted by HUD in 1974. RESPA is a statute focused on consumer protection. RESPA aims to educate consumers about closing and settlement services and to provide information that helps consumers be informed judges of these services' proper cost. Its intent is to eliminate questionable fees that are unnecessarily tacked-on and can increase the cost of closing and settlement services.

SAFE Act Requirements

The SAFE Act says that state-licensed mortgage loan originators must: Pass a written qualified test Complete pre-licensure education courses Take annual continuing education courses Submit fingerprints to the Nationwide Mortgage Licensing System (NMLS) for submission to the FBI for a criminal background check Provide authorization for NMLS to obtain an independent credit report (for state-licensed MLOs)

Services You Can Shop For

The Services You Can Shop For section includes fees that can include survey, inspection, and title fees. As far as the title fees go, most of those fees are regulated, but the processing fee may differ. If the services the borrower shops for are from a list supplied by the lender, they may increase in total up to 10% from the estimate at closing. If the service providers are not chosen from the lender's list, these fees can increase without limits.

Rudy is selling his home. He reaches an agreement with his buyer, Joey, that Rudy will transfer the deed to Joey and Joey will repay him with interest for the sale price of the home. Meanwhile, Rudy's original loan will remain in place. What situation is this describing?

a wraparound mortgage

Steward for the U.S. Economy

The Treasury serves as the steward of U.S. economic and financial systems and as an influential participant in the world economy. Along with promoting economic prosperity and ensuring the financial security of the United States, activities such as advising the President on financial situations and encouraging economic growth are also part of the responsibility of the Treasury Department.

Which of the following is NOT a purpose of the Truth in Lending Act?

The Truth in Lending Act does NOT regulate rates lending institutions can charge.

USDA Rural Housing Program

The USDA has a program called the Rural Housing Program. This program seeks to improve and build housing and community facilities in rural areas. It offers loans, grants, and loan guarantees for things like: Single- and multi-family housing Child care centers Fire and police stations Hospitals Libraries Nursing homes Schools First responder vehicles and equipment Housing for farm laborers

Avoiding Foreclosure

The VA guarantee makes it less likely that the lender will lose money in foreclosure. However, the lender is required to do what is necessary to avoid foreclosure, such as moratoriums and recasting. The VA may choose to make a defaulted loan itself (a loan with three months of payments still outstanding) current by paying the outstanding amount. In such a case, the VA has a prior claim to the money it advances to the veteran. This means that if an amount is received from the defaulted veteran in a deficiency judgment, the VA is repaid first.

Credit

The VA sets standards for the consideration of applicants' creditworthiness as well. Credit reports must either be three-file credit reports (that is, Equifax, Experian, and TransUnion) or residential mortgage credit reports (RMCRs).

Volcker Rule

The Volcker Rule was originally proposed by American economist and former U.S. Federal Reserve Chairman Paul Volcker. The rule did several important things. It: Restricted United States banks from making certain speculative investments that did not benefit their customers Prohibited banks from conducting investment activities with their own accounts Limited banks ownership of hedge funds or private equity funds to 3% of total ownership interest Volcker felt that all of these activities played a large role in the financial crisis. The Volcker Rule is thought of primarily as a ban on proprietary trading by commercial banks. What does this mean exactly? Deposits are used to trade on the bank's own accounts (even though a number of exceptions to this ban were included in the Dodd-Frank Act.) The Volcker Rule went into effect on July 21, 2015, and in August 2016, many large banks requested a 5-year delay to exit illiquid investments.

Increase in Demand

The adjustment of the reserve requirement has a similar effect on the economy as the adjustment of the discount rate, except it more directly affects the supply of loans. When the reserve requirement is high, banks literally have less money to lend. This shifts the demand curve for real estate, causing prices to drop and sales to fall off. Similarly, when the requirement is low, banks have more money to lend. This causes increases in the demand for real estate, the prices of homes, and the number of sales.

Conventional Loan Limits

The amount of money a buyer can borrow is not just limited to how much they qualify for with the lender. The government also limits how big a conforming conventional mortgage can be. 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. For homes located in very high-cost areas, the upper limit for a single-family residence is set at $679,650. 💸 Note: these limits will be adjusted by the FHA as they see fit. Please visit their website for the most current information.

Premium Amount

The amount of the PMI premium varies with the size of the borrower's down payment, the kind of loan (for example, fixed-rate vs. adjustable-rate mortgage), the borrower's credit score, and the amount of coverage the insurance provides. A very general estimate is that PMI costs about $30-70 each month per $100,000 borrowed. That can be more than $100 every month, even for starter homes in most areas.

A Highly Desirable Lower Rate

The appeal of a balloon mortgage is that it typically has an interest rate that is 0.25% to 0.5% less than comparable fixed-rate mortgages. Those who plan to sell their homes after five or seven years are in an excellent position to take advantage of this rate reduction. The lower rate gives borrowers increased purchasing power because their housing expense is lower and they qualify for larger loans.

Regulation Z requires that certain disclosures be made to all consumers seeking credit. Lenders must disclose:

The application fee for obtaining the loan The address of the property that is to be collateral for the loan The total sale price, including the down payment The amount financed, which is the sale price plus any other financed fees, less the down payment The loan's finance charge, which is the sum of the discounts, fees, and interest payments The total amount of the loan payments The annual percentage rate (APR), which is the ratio of the finance charge to the total amount of the loan payments Any prepayment penalties The charge for late payments Whether the loan is assumable or not If the loan is an adjustable-rate mortgage, what the highest possible interest rate is If the loan is an adjustable-rate mortgage (ARM), how the periodic interest rate is calculated and how monthly payments are derived from it Additionally, lenders must provide ARM borrowers with a pamphlet titled "Consumer Handbook on Adjustable Rate Mortgages," or any other literature containing the same information.

Who may bid on a property at a foreclosure auction?

The auction is public, and anyone may make a bid on the foreclosed property.

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

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.

Sandi went to John, a loan officer at Ace Lending, and filled out an application for a mortgage loan. The loan was approved and Ace Lending funded the loan. Ace Lending is a:

The bank in this situation would be a mortgage banker, since it is the entity funding the loan (not just bringing the borrower and lender together, as a broker would).

The Benchmark

The benchmark (also known as an index) is a way for investors to compare how this mortgage is doing compared to other similar types of mortgages. To find the benchmark for a specific mortgage, they look at things like risk and the style of the investment portfolio. This way, the mortgage has a standard that it can be compared to. The benchmark/index is the number that adjusts when the time comes. It's the adjustable in adjustable rate.

The difference between comparisons of similarly styled portfolios is the:

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

How Reverse Mortgages Work

The borrower does not have to qualify for the loan. This is because the lender's protection is in the property. The borrower still owns the home. The lender has a lien on the property just like they would with other mortgage loans. There are no monthly payments. This sounds good, but since there are no payments, interest is being added to the amount borrowed every month (negative amortization). So the balance is constantly going up. The longer the borrower has the loan, the higher the balance will get. It is very possible that if the borrower lives a nice, long life, the balance could exceed the value of the property. That's not a problem for the borrower, but what about heirs that would like to keep the property?

Interest Rate Caps and Adjustments

The borrower will also have to look out for subprime loans that don't have interest rate caps. This means they can just go up and up and up with no limit, which is going to be hard for anyone to deal with.

The first-lien balance is $120,000 and the seller is asking $150,000 on the property. This means that the seller has $30,000 equity.

The buyer only has $10,000 for a down payment. The buyer could pay the $10,000 to the seller, assume the $120,000 FHA loan, and sign a second lien note and deed of trust to the seller for the additional $20,000. The buyer will own the property and have two payments: one to the seller and one to the first lien holder.

Buyer Risks

The buyer takes on the risk of the seller not making the loan payments to the lender (even though the buyer is paying the seller as agreed) and the lender exercising their right to foreclose. In that event, the lender has no duty to the new buyer at all and the new buyer can lose everything they already invested.

These Costs Still Apply

The buyer who takes out a hard money loan still has the required costs of the title policy, home insurance, and appraisal. These come with fees that can range from a few hundred to thousands of dollars.

Escrow Account

The cost of establishing the escrow account is the amount of all of the monthly payments from the account or less if the escrow account is interest-bearing. Some lenders will charge points at closing instead of using payments from escrow. However, this can be much more expensive for the borrower. For example, the amount required to establish the escrow account in the example above is $4,983. If the lender charged 6 points (3 + 2 + 1) instead of establishing this account, the buyer would pay $6,000, more than $1,000 more.

The Life of a Mortgage

The creation of a new mortgage is called origination. Mortgages can be originated by mortgage brokers, mortgage bankers, or correspondent lenders. There are many processes that take place during the creation and maintenance of a mortgage. These include processing, underwriting, closing, funding, and servicing. These actions take place in the same specific order each time.

Formula

The debt-to-equity ratio can be found using a simple formula: Total liabilities ÷ Net worth = Debt-to-equity ratio ⭐️ ProTip: An easy way to remember the formula to find debt-to-equity ratio is to consider the fact that debt is just another word for liabilities and equity is just another word for net worth.

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

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

Non-Recourse Clause

The difference between them is that, with a non-recourse clause, the lender can only seize the property that the loan is secured by, and if not enough money is made from that sale to satisfy the loan, then the lender is all out of luck.

Disadvantages

The disadvantages of a temporary buydown include: Buydown plans are typically expensive and require a large payment at closing. A buydown is only temporary, and the borrower will have increased monthly payments that may be difficult to afford.

The Discount Rate

The discount rate is the interest rate at which the Fed lends money to its member banks. When a member bank in sound financial condition requires a short-term loan, the Fed will advance the funds at what is known as the primary credit rate, the most important of the Fed's discount rates and the one often referred to as the discount rate. This rate is typically set slightly above the short-term market interest rate.

CD

The document is then prepared and filled in by either a title company representative or a real estate attorney. The information on the document either comes from the contract or the loan documents sent to the title to prepare for closing.

Which one of these provisions states that if a property is sold, then the mortgage must be repaid in full at the time of the sale?

The due-on-sale clause states that if a property is sold, then the mortgage must be repaid in full at the time of the sale.

The Effects of Taxes

The effects of taxes associated with mortgages are more far-reaching than you might first realize. Let's take Austin for example (although this is happening all over Texas). Residents who bought their houses several decades ago, before Austin was a tech capital, have seen huge gains on the worth of their properties. Houses that once cost $25,000 have sky-rocketed up to $600,000 to $700,000 in value. As a result, many long-time residents of the city are being forced to sell their homes because they can no longer afford their property taxes. And when they do sell, they are making an enormous capital gain. Adding insult to injury, when they are forced to sell their homes, these displaced residents get taxed again.

Federal Funds Rate

The federal funds rate is the rate that depository institutions pay when they borrow money from each other to adjust their reserve balances and to keep an adequate amount of money in their account at the Federal Reserve. Reserve balances are set by the Federal Reserve to be certain the Fed has sufficient available funds to cover checks and electronic payments that are processed on behalf of the dealers.

Recession

The final phase in the real estate cycle, recession, starts when occupancy falls below the long term average. Homes sit on the market, unsold. Prices are at their lowest. Foreclosures abound, especially when the real estate recession is coupled with an economic recession that leaves homeowners unemployed and unable to pay their mortgages. A recession is a period in which economic activity drastically declines and stays declined for more than six months.

Property Flipping

The first buyer purchases the home for $400,000 (the actual value) and then resells it at $600,000 with help from a phony appraisal and a straw (phony) buyer, and they each pocket $100,000. No payments are made on the $600,000 loan, and when the lender forecloses, they find the property is only worth $400,000. The lender takes a loss, their costs increase, and we all pay.

Direct Farm Ownership Loans

The first type of USDA farm loan is the Farm Ownership loan. Like the name clearly suggests, this loan helps in purchasing a ranch or farm. It also assists with: Enlarging an existing farm or ranch Making a down payment on a farm Purchasing easements Constructing, purchasing, or improving farm dwellings, service buildings or other facilities and improvements necessary for the farm operation Promoting soil and water conservation and protection Paying loan closing costs

Sales Comparison Approach

The first way to approach value calculation is the sales comparison (or direct sales comparison) approach, also referred to as the market data approach. With this method, the factor most relevant to an appraiser is market demand. An appraiser focuses on recent sales to find the value of the subject property using at least three comparison sales, or comparables (often called comps).

Monthly Housing Expense Ratio

The formula to find the monthly housing expense ratio is the same as the formula to find the annual housing expense ratio, with the only difference being that in this case, you would plug in the monthly amounts for those items: Monthly PITI ÷ Borrower's monthly income = Housing expense ratio The housing expense ratio gives lenders a simple, straightforward method to qualify borrowers for loans.

Gift Form

The gift form asks the donor to state the following: The amount of the gift Their relationship to the borrower That the funds need not be repaid Funds that come from the seller are known as concessions or seller contributions. Lenders will often allow, but limit, seller contributions. It is normal for the seller to pay certain closing costs and discount points of the buyer.

Grantor

The grantor is the individual who is voluntarily conveying title to another. Because all parties to a contract must have contract capabilities, the grantor in a deed must be

Growth Equity Mortgage

The growth equity mortgage (GEM, sometimes growing or graduated equity mortgage) is similar to the GPM in that it involves an increasing payment schedule. GEMs do not negatively amortize: All of the payment increases go toward the principal — that is, the equity — from which the mortgage derives its name. Some GEMs have payment increases that are tied to an index. Unlike ARMs, however, it is the rate of the principal payments increase that is tied to the index rather than the interest rate, which remains constant. For example, suppose a borrower takes out a GEM for $80,000 at an interest rate of 7.25% that has annual payment increases for 10 years. The payment increases are determined by the mortgage contract to be 80% of the change in the per capita income growth index.

The housing expense ratio is also known in the real estate world as:

The housing expense ratio is also known in the real estate world as the front-end ratio.

The housing expense ratio:

The housing expense ratio is not applicable to VA loans. However, the debt service ratio must not exceed 41%.

Comparing APRs

The idea behind the APR is that this rate will more accurately represent the actual cost of the loan to the borrower than the interest rate alone. By comparing the APR among various lenders, the buyer is doing a more "apples to apples" comparison. Suppose a lender is offering two options: a loan with one discount point at a certain interest rate and a second loan with two discount points at a slightly lower rate. (I'll explain discount points in a moment.) Which option is better? To determine this, a borrower can simply compare APRs. The loan with the lower APR costs the borrower less money over time. If the APRs are equal, both loans cost the borrower the same amount.

Choosing an Index and Margin

The important thing to know about margin/index amounts is that the higher the margin, the lower the index level, and vice versa. There may be a few margin/indexes available for the borrower to choose from, so they should figure out which will work best for them before choosing one. EXAMPLE If the margin is 3% and the index is 5%, the interest rate will be 8%. If the index goes down to 3% at the next index reset period, the interest rate on the mortgage will be 6% (margin + index). When these two — the margin and the index — are combined, this is called the fully indexed interest rate.

IRV Formula

The income approach is found using the IRV formula: Net operating income (I) ÷ Capitalization rate (R) = Value (V) Applying the Income Approach You can break this formula down even further into three steps: Estimating the net operating income. Determining the capitalization rate. Applying the IRV formula to arrive at a value estimate.

The Investor

The last party involved is the investor. These include insurance companies, banks, pension funds, foreign governments, hedge funds, and government-sponsored enterprises. Investors choose investments based on their amount of risk and prepayment penalties. For example, a hedge fund will probably be looking for something riskier, while a pension will want something much less risky.

The Dodd-Frank Act

The last set of financial regulations I want to go over is a major one. In fact, it's the most far-reaching Wall Street reform in history. It passed not too long ago, and people are still debating its pros and cons today. We're talkin' Dodd-Frank. This huge collection (over 2,000 pages!) of financial reform legislation is formally known as the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Obama administration passed it in 2010 with the intention of correcting the excessive risk-taking that led to the financial crisis of 2008.

Documents Needed

The lender might ask for the borrower's last two years of W-2s and one month of pay stubs in order to verify their income. If the client is self-employed, they will need to provide tax documents from the past two years. The lender might need additional documents, depending on the circumstances, since everyone's financial history is different. This process is not a short one — it can take up to 21 days to verify that all the documents are correct. This is why it is so important that you, as a real estate agent, understand the ins and outs of third-party financing, which will be covered in our Promulgated Contracts course.

The Margin = A Fixed Value

The lender will add the index rate on top of a fixed value called the margin at the lookback date to determine the ARM rate for any particular adjustment period. Margins are most often given in terms of basis points. This margin does not change, so the interest rate will always at least equal the margin regardless of how interest rates move in the market. Example 1: 1 basis point = 0.01%.Example 2: 50 basis points = 0.5%

Lender's Policy

The lender's title insurance policy covers the lender in the case of any title defect uncovered after closing, and it's issued on the dollar amount of the loan. The policy amount decreases each year in accordance with the remaining amount of the loan. Most lenders require borrowers to pay for a loan policy before issuing a mortgage loan.

Owner's Policy

The lender's title insurance policy covers the lender in the case of any title defect uncovered after closing, and it's issued on the dollar amount of the loan. The policy amount decreases each year in accordance with the remaining amount of the loan. Most lenders require borrowers to pay for a loan policy before issuing a mortgage loan.

Mitch's ARM has an initial rate of 4.3%. The margin is 2%, and the initial index rate is 2.3%. The initial rate will adjust only once every three years. The lifetime cap is 4%. What is the maximum interest rate that Mitch could pay?

The lifetime cap of 4% + the initial rate of 4.3% = 8.3% lifetime cap. That's the maximum interest rate that Mitch could ever pay.

FHA Appraisal

The loan cannot be taken out until the property has been appraised by an FHA-approved appraiser. Appraisal fees are usually about $375 for a house that is about 2,000 square feet. The FHA has no requirement for the property to sell at or below the appraised value. The sale price can be any price agreed upon by the buyer and seller. However, maximum insurable loan amounts are computed on the FHA appraised value of the property or sale price (whichever is less). The difference between actual sale price and maximum loan amount must be paid in cash by the borrower as a down payment at closing or the borrower can choose not to buy the home.

Loan Servicing

The loan servicer is responsible for the day-to-day management of a mortgage loan account, including collecting and crediting monthly loan payments, and handling the escrow account as needed. An escrow account is a fund held by the servicer that the borrower pays into for property taxes and homeowner's insurance. The mortgage servicer is required to provide a free annual statement that details the activity of the escrow account, showing the account balance and payments for property taxes, homeowners insurance, and other escrowed items. If a loan is transferred to a new servicer, the borrower generally gets two notices: one from the current servicer and one from the new servicer.

Broker Commissions and Licensing

The majority of a mortgage broker's commissions come from the approval of loan applications, so it's in their best interest to find lenders with the lowest rates and the most relaxed underwriting standards. They should also help their customers make responsible choices with their financing options. Each state's licensing laws will cover the requirements for mortgage brokers. In some states, including Texas, mortgage brokers and mortgage bankers must have a state mortgage broker license AND a federal mortgage broker license to originate loans.

VA Loan Limits

The maximum guaranty amount equals 25% of the conforming loan limits, which are adjusted yearly. VA's loan limits are the same as the Federal Housing Finance Agency's conforming loan limits. As of June 2020, the conforming loan limit was $510,400 for all counties in Texas.* (The actual limit is established on a county-by-county basis.) *Current loan limits can be found on the applicable government agency's website.

When a borrower goes to a mortgage loan officer to apply for a loan, they are talking to someone in which type of market?

The mortgage market has a two-tiered structure. At the first level is the primary market, where lenders underwrite loans to borrowers seeking to purchase real property. The secondary market is where the notes themselves are bought and sold.

Although closing costs still apply, the amount of documentation and underwriting is greatly reduced. These costs can be included in the new mortgage amount with sufficient equity in the property as determined by an appraisal.

The mortgage must already be FHA insured. The mortgage must be current, not delinquent. The refinance must result in lowering of monthly principal and interest payment. No cash may be taken out.

Owner's Policy

The owner's policy of title insurance is a title insurance policy that insures the buyer against title defects. It's usually issued for the sales price of the property instead of the loan price, since the buyer needs coverage for the entire cost of the property if a title defect means they lose the home. Owner's policies are purchased for a one-time fee at closing and are valid for as long as the owner or their heirs have an interest in the property. The buyer or seller may pay for owner's policy — that is generally part of the negotiation of closing costs. Note that the lender's policy only covers the lender. Without an owner's policy, the buyer is at risk of losing their property with no compensation if a title defect surfaces. Always urge your buyer clients to consider an owner's policy!

Appraisal Fees

The party that ordered the appraisal usually pays the fees associated with that appraisal. Normally, this is paid by the buyer because it is required by the lender in order to get loan approval.

What's in the Credit Report?

The personal profile section of the credit report contains the personal and identifying information of the consumer. It lists their name, aliases, date of birth, current address, previous addresses, current employer, and previous employer(s). The credit summary includes all of the accounts a consumer has opened, their current status (open or closed), account balance, delinquencies, and the number of account inquiries. An account inquiry is the purchase of a credit report by a lender.

Principal & Interest

The principal and interest are the "PI" in PITI.

PITI: Definition & Formula

The principal and interest represent the loan financed, whereas the taxes and insurance represent those items that lenders have escrowed and paid for by the borrower as part of the monthly payment. The escrow of taxes and insurance protects the lender's interest in the property collateralized by their loan.

Loan Processing

The process for getting an FHA loan isn't terribly different from the conventional loan process. The first thing a borrower will need to do is to get a pre-qualification letter from the lender. The lender, either over the phone or in person, will gather information about the borrower's income and debt to determine how much they can borrow. Like I talked about before, this involves their debt-to-income ratio. At this time, they may run a credit report to verify that everything the borrower gave them is correct and there will be no surprises.

Acknowledging the Borrower's Debt

The promissory note begins with an acknowledgment of the borrower's debt to the lender and the borrower's promise to repay the debt, either to the lender named in the note or to anyone who later holds the note. The note is a negotiable instrument that can be sold to another investor or lender. It specifies the amount of the debt, the rate of interest, the date on which interest charges are to begin, and the amount and terms of repayment. It is the complete contract or agreement of the loan terms between the borrower and the lender.

Transferrable to Future Lenders

The promissory note begins with an acknowledgment of the borrower's debt to the lender and the borrower's promise to repay the debt, either to the lender named in the note or to anyone who might later hold the note. Another party could end up holding the note, because promissory notes are a negotiable instrument that can be sold to another investor or lender. If a lender sells a borrower's loan to another bank, the borrower will then owe repayment of their loan to the new bank.

What information is specified by the note?

The promissory note is a negotiable instrument that can be sold to another investor or lender. It specifies the amount of the debt, the rate of interest, the date on which interest charges are to begin, and the amount and terms of repayment.

What's a Promissory Note?

The promissory note is the common document for all loans, not just the ones commonly referred to as mortgages. It is an agreement between the obligor, maker, or payor (borrower) and the obligee or payee (lender), and it is the written agreement of the borrower's personal promise to repay the lender. In the note, the borrower acknowledges the debt, and the agreement provides for all of the terms of repayment.

Loan Terms

The promissory note specifies: The amount of the debt The rate of interest The date on which interest charges are to begin The amount and terms of repayment The note is the complete contract or agreement of the loan terms between the borrower and the lender

Which instrument states the terms of the loan and has the borrower's promise to repay the loan?

The promissory note states the terms of the loan and has the borrower's promise to repay the lender.

What's in the Credit Report?

The public records contained in a credit report include federal district bankruptcy records, state and county court records, tax liens (from unpaid taxes), and monetary judgments. This section contains the number of inquiries initiated, as well as the name(s) of the inquiring party or parties. The report also contains information about the consumer's account history: all of the accounts the consumer has opened, the account number, status (open or closed), monthly payment, date opened, balance, terms, highest balance reached, limit, past-due amounts, and the payment status of the account.

Things to Remember About a Contract for Deed

The purchase price is paid for over a specified time in payments. The seller keeps the title. The buyer gets possession. When all payments are paid, the buyer gets the title. The seller is responsible for the original loan payments. If the seller does not pay the original mortgage, the buyer has no rights. The lender will then foreclose and the buyer will be evicted. The seller can take out additional liens against the property. The buyer may use, possess, or profit from the property. The buyer must make timely payments, maintain the property, and purchase the property at the end. The seller can sue for specific performance or damages and may foreclose on the property. Remember: In Texas, contracts for deed and lease-purchase agreements with an option to purchase are executory contracts. These forms must always be drawn up by an attorney.

Closing Disclosure Purpose

The purpose of the Closing Disclosure form is to help consumers understand their loan options and to avoid costly surprises at the closing table. The Closing Disclosure is the document that both the seller and the buyer will sign at the closing table.

Why Does It Exist?

The purpose of the Federal Home Loan Bank System is to support residential mortgage lending and related community investment through its member financial institutions. The System provides members with access to: Reliable, economical funding and technical assistance Special affordable housing programs

Seller Financing: FHA or VA Assumption

The second scenario that's common with seller financing is the assumption of an FHA or VA loan. If the qualifying buyer does not have the cash available to buy the seller's equity but would love to assume that old first-lien mortgage at that great low-interest rate, the seller could carry part of the equity on a second lien.

Primary vs. Secondary market

The secondary market helps to stabilize the primary market by replenishing the funds that primary lenders have lent out and keeps money circulating in the finance industry. The entire system is driven by the interest rates of these mortgages. Mortgages make more mortgages. That's how it goes.

Deposit Insurance Proposals

The solution for people's anxiety over the safety of their money seemed fairly obvious: deposit insurance. The idea for a national deposit insurance fund had been floating around for a while. This fund would serve to insure deposits into banks, assuring bank customers that they would have no problem withdrawing it in full. Customer faith in banks would increase, and the banks would survive and be able to serve the needs of the American people.

ARM Margin

The spread, also known as the margin, is a fixed amount above the index which the borrower will pay. This is given as a percentage to be added on top of the index. For example, if the spread on a loan is 3%, then the borrower is always paying 3% above whatever the index is at the last adjustment. The rate you get when you add the index and the spread is the fully-indexed rate. The important thing to know about margin/index amounts is that the higher the margin, the lower the index level, and vice versa. That is, if the chosen index is generally a very low rate which isn't prone to large variations, the spread will be higher. There may be a few margin/indexes available for the borrower to choose from, so they should figure out which will work best for them before choosing a loan.

How It Works

The system uses pre-programmed information and formulas to conduct a quantitative risk analysis, taking away human bias. The result is based on the information the lender provides and three-bureau, merged-file credit reports. It allows the lender to complete a web version of the Uniform Residential Loan Application, or to fill out a "Quick 1003" using a smaller set of data for a quick recommendation.

The ABCD's of Title Commitment

The title commitment is divided into four sections called schedules — A, B, C, and D. Luckily, these letters happen to correspond with their respective schedule's purpose: Schedule A: Actual facts (names, legal, price, lender) Schedule B: Buyer's notice of things not covered by the title policy, i.e., utility easements, etc. Schedule C: Clear this list; here, the title agent lists their requirements that must be cleared in order for them to issue the final title insurance policy Schedule D: Disclosure of all parties who will share any part of the title insurance premium Schedules A and B have some important things license holders need to keep an eye out for.

Who Gets the Title Commitment

The title company will send a commitment for title insurance to the buyer at the address listed in Paragraph 21 of the TREC One to Four Family Residential Contract. The buyer's agent should also receive a copy of the commitment. The buying party should double check the names of the sellers, the legal description of the property, and any issue that will not be cleared up at closing. And the buyer will want to determine if anything is being reserved by the seller, like mineral rights.

In a deed of trust, who holds the title to the real property while the borrower pays off their loan?

The trustee, usually a third party, holds the title to the real property while the borrower pays off their loan.

Underwriting

The underwriter's goal is to make sure that the buyer can pay back the loan, it's sellable/desirable to other investors in the market, and it meets all of Fannie Mae and Freddie Mac guidelines. The underwriters look at e-v-e-r-y-t-h-i-n-g. Make sure your buyer is honest from the get-go, otherwise this can slow down the process. Just as the appraiser can, the underwriter can send it back with conditions that need to be met in order to get the loan approved. The processor will then need to go and get those conditions met and cleared before it moves back to underwriting for a clean approval.

Portfolio Lenders

The underwriting guidelines are different when the loan is staying in-house. They can be more flexible because they don't have to meet minimum standards for being sold on the secondary market. Portfolio loans may also be more appealing for borrowers in that the borrower will always know who is servicing the loan for the lifetime of the loan.

Step 4: Determine the Highest and Best Use

The value principle of the highest and best use says that there is one most profitable and efficient use of any given tract of land and that this best use should dictate a tract's development. So an appraiser conducts a highest and best use study so they can establish that one most profitable, legal, and plausible use for the property. This is what the appraiser will base their final value estimate on. The appraiser may discover that the current use does not constitute the highest and best use. Whether the appraiser's decision is in favor of or against the property's current use depends upon the information they gather in Step 3. Basically, the appraiser takes the information they gathered in Step 3 that pertains to governmental controls, economic status, and physical characteristics of the property and considers to what extent each of these attributes meets the marketplace's needs.

Reasons for The FHA

There are a few specific reasons the FHA program was created when it was: Two million construction workers had lost their jobs. Mortgage terms were not feasible for a lot of people. At that time, only four out of 10 households owned their own homes. And since its creation, FHA loans have been a major contributor to the mortgage industry. FHA created the long term fully amortized loans, making home buying more attractive to consumers. They also created good qualifying standards for borrowers, lowering risk for lenders, as well as quality appraisal methods, protecting lenders from loss.

Fun Mint Facts!

There are a number of mint branches that are no longer in commission. But probably the most interesting of those is the branch located in the country of the Philippines! The Manila Mint (located in the Philippine capital city of Manila) opened all the way back in 1861, under the rule of the Spanish government. But it shut down after the Spanish-American War in 1898, when the Philippines became a United States possession and the San Francisco Mint started producing most Filipino coins. But in 1920, the mint reopened as an official U.S. mint branch! Production lasted until 1941 when the Japanese invaded the Philippines during World War II. To this day, the Manila Mint has been the only U.S. Mint located outside the Continental U.S.

Texas Veterans Eligible for Special Loan Program for Land

There are a number of programs for veterans who wish to purchase a home, and in Texas, veterans may be eligible for the Texas Veterans Land Board, or VLB, a loan program that offers Texas veterans the opportunity to buy land at below-market rates with low down payments. (VLB considers any veteran who is a resident of Texas a "Texas Veteran.")

Recording Documents

There are certain documents involving encumbrances that need to be recorded in the public record. These include deeds, deeds of trust, judgment liens, and mechanic's liens. These documents should be recorded so that the history and background of a property can be available for reference. The history of a title should reveal all information that a prospective buyer or property owner needs to know in order to successfully transfer the title of a property free from encumbrances.

Pension and Retirement Programs

There are companies out there that collect money for seniors' retirement accounts and use those funds to invest in the real estate lending industry. Like the life insurance companies we learned about in the previous chapter, they have found real estate holdings to be a good investment.

Distribution Rights

There are many rules that REITs must follow. To qualify as a REIT, the company needs to distribute 90% or more of its taxable income. Any income that the REIT retains, it has to pay taxes on like other corporations.

Living by the Rules

There are rules. You may recall that it is possible for seniors to defer their property taxes in Texas. But if a borrower has a reverse mortgage, in their loan documents they promise they will pay their taxes every year. They have also agreed to keep the property insured. Remember, the lender's protection for the money they loaned is in the property.

The Foreclosure Process

There are specific steps that take place in a foreclosure in Texas. The lender sends a demand letter to the homeowner, who has 20 days to pay the past due amount. After the 20 days have passed (and at least 21 days before a foreclosure sale), more foreclosure notices must be sent. These go to the county clerk (where the property is located), the county court where the sale would happen, the defaulting borrower, and any other creditors who have liens on the property.

Cancel or Convert the Debt

There are two basic ways a lender can handle a foreclosure. The lender can cancel the debt or it can turn the debt into an unsecured loan that the borrower still owes. If it becomes an unsecured loan (depending on the laws) the lender can charge interest on the note. Since it is now an unsecured loan, this is not a write-off. If the lender forgives the debt, they must report it to the IRS as income in the year it was canceled.

Redemption on Mortgage Foreclosures

There are two types of redemption: equitable and statutory. For mortgage foreclosures (also called lender foreclosures), Texas allows equitable redemption (before the auction) but does not allow statutory redemption (after the auction). Statutory redemption allows debtors to redeem (regain possession of) their property after the auction.

Strict Foreclosure

There's a third type of foreclosure called strict foreclosure that allows a lender to sue a homeowner who has defaulted and recover the property directly, without having to sell it. It's only used in a few states (not Texas) and only when a property is worth less than the loan amount.

FHLB Districts

These days, the Federal Home Loan Bank System is composed of 11 Federal Home Loan Bank Districts. This is because in 2015, one of the bank districts (Seattle) closed. The 11 remaining districts are Chicago, Indianapolis, Pittsburgh, Boston, New York, Cincinnati, Atlanta, Topeka, Dallas, San Francisco, and Des Moines (who now oversees all of Seattle's old territory). Within those districts there are several banks, credit unions, insurance companies, and certified development financial institutions that report to the districts.

Either the buyer or the seller may pay any discount points (this should be negotiated), but they cannot be financed in the loan.

These fees and discount points may be paid by the lender, seller, or any other third party, although seller concessions deemed "excessive," that is, in excess of 4% of the total loan amount, are prohibited. Seller concessions are the seller's agreement to pay for an amount of the buyer's closing costs. This can include payment of the funding fee, prepaid items, permanent buydowns, and discount points in excess of those determined by the market. Payment of normal discounts and the buyer's closing costs are not considered seller's concessions.

Regional Banks

These regional Reserve Banks have boards of directors made up of local citizens. The great compromise is that these banks represent both the people and the private sector of banking, while the Board of Governors represents the federal government side.

Paying for Moratorium

These sums can be repaid through one of three methods. The lender can: Increase the monthly payments after the moratorium Extend the term of the loan Allow for a balloon payment at the end of the current loan term These methods also may be combined. For example, the lender could increase the monthly payments slightly and extend the term of the loan.

A lender sends a borrower a Notice of Default and gives them a specific time to cure it. If the default is not cured, the lender forecloses without going to court. What kind of foreclosure is this?

This is a non-judicial foreclosure, because it does not involve a suit and the ruling of the court.

The Primary Mortgage Market

This is the primary mortgage market: the market in which mortgage lenders and borrowers come together to negotiate and create new mortgages. The various businesses that meet this consumer need for mortgages are called loan originators.

FHLB Affordable Housing Programs

Through 2014, the FHLBanks have awarded more than $4.8 billion that has assisted in the purchase, construction or rehabilitation of more than 758,000 units of affordable housing. Now in its 25th year, the FHLBanks' Affordable Housing Program (AHP) has become one of the most successful and valuable private sources of funding for the financing and building of affordable housing in the United States. The AHP is a competitive grant program created by Congress in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and began operations in 1990. The AHP is designed to address local housing needs. It is administered regionally by each FHLBank, working through its financial institution members and those members' community-based partners.

Legal Description

for a deed to adequately convey title, the property must be identified and distinguished from all other properties in the world. This is called legal description. Only legal land description methods, such as metes and bounds or rectangular survey descriptions, should be used. An address, district, or any other form of informal land description will not meet the legal description requirement.

Privacy and the Sharing of Information

he final proposed change deals with privacy and the sharing of information. Know Before You Owe says that creditors have to provide certain mortgage disclosures to the consumer. CFPB got a lot of questions regarding sharing the disclosures provided to consumers with third parties to the transaction, including the seller and real estate brokers. CFPB acknowledged that it is "usual, accepted, and appropriate" for creditors and settlement agents to provide a closing disclosure to consumers, sellers, and their real estate brokers or other agents. This proposes additional commentary to clarify how a creditor can provide separate disclosure forms to the consumer and the seller.

Judgment Liens

involuntary, general liens that attach to a person's property as a result of court action

Mortgage brokers are intermediaries between:

lenders and borrowers

Executory Contracts Need to Be Recorded

n the past, lease-options and other executory contracts did not need to be recorded. This is no longer the case.

Amortized Loans

oan will usually be paid off in portions over time, or amortized. The word amortization is a Latin term that means "killing off." 💀 If the note is to be amortized, there will be equal monthly payments that contribute to both principal and interest until the entire loan is paid. The payments will be credited first to the interest when due, with any remainder credited to the principal. Fully amortized loans usually have higher payment amounts than other types (interest-only, partially amortized), but are consistent in the amount that has to be paid. Amortized loans are always paid in regular intervals, usually monthly. When the last monthly payment happens, the loan is paid in full.

The Wraparound Mortgage

purchase-money mortgage, like a wraparound mortgage, involves the buyer receiving funds from the seller in the form of a mortgage loan to purchase the property. In a purchase-money mortgage, however, there is often no encumbrance from an original mortgage remaining on the property as the seller already has paid off the mortgage. If there is an underlying mortgage on the property, it is a wraparound mortgage and will require an attorney to create the purchase agreement.

What is the purpose of the Texas State Affordable Housing Corporation?

to assist low-income families or other underserved populations who may not be able to secure conventional financing

Demand tells us how many consumers are able to afford a home,

which in turn is affected by many factors, such as employment rates, wages, interest rates, and more. Characteristics of the population, the social attitudes prevalent at the time, and the legal and tax structure of the economy also shape the demand for real estate.

A blanket mortgage:

A blanket mortgage uses more than one piece of collateral to secure the loan.

What is an encumbrance?

An encumbrance is any claim on a property belonging to someone other than the owner.

Which of the following is NOT TRUE about fixed-rate mortgages?

Borrowers could refinance in a few years if the interest rates are scheduled to go down.

Warehousing fee

Fee charged by a lender as an additional amount for establishing a loan.

Formula

To get the property value, take the cost of reproduction, and subtract the depreciation value. Then add the value of the land. (Cost of reproduction - Depreciation value) + Value of land = Property value

The Three Types of Liens

Voluntary liens Statutory liens Judgment liens

What does this formula solve for: (PITI + Long-term liabilities) ÷ Gross monthly income?

total debt service ratio

Loans the FHA does NOT insure:

wraparound mortgages subprime mortgages jumbo loans

The FHA is credited with creating the first fully amortized

20, 25, and 30-year mortgages.

A consumer is considered a first-time homebuyer if they have not owned a home in ________.

3 years

Which of the following is NOT exempted from CFPB regulations?

30-year, fixed-rate mortgages are NOT exempted from CFPB regulations.

What is the difference between a REIT and a REMT?

A Real Estate Mortgage Trust (REMT) is a REIT that buys and sells real estate mortgages (usually short-term junior instruments) rather than real property. REMTs are involved in the secondary mortgage market and not the primary market.

Texas Department of Housing and Community Affairs

A Texas governmental agency that has financing programs to help low-income and moderate-income families acquire housing.

Depository Institutions

Banks, credit unions, and savings and loan associations (S&Ls) are all examples of depository institutions. They use money from their depositors to loan out for mortgages.

Which of these is an example of constructive notice?

Beth's deed transfer is recorded in the public record.

Certificate of Sale Title Insurance

Certificate of sale title insurance is a policy that is issued during court sales and protects the buyer's interest in property sold by the court.

Which of these are provisions of the Fair Credit Reporting Act?

Consumers have the right to know what is in their file, ask for a credit score, and dispute incomplete or inaccurate information. Consumer reporting agencies have to correct or delete inaccurate information. Consumers do not have to pay for the right to see their report.

Cost Approach

Cost of reproduction - (Cost of reproduction x Depreciation percentage) + Value of land = Property value Answer: $200,000 - ($200,000 x 0.15) + $50,000 = Property value

Characteristics of Value

D stands for demand. U is for utility. S means scarcity. T is for transferability.

Economic Indicators

Employment opportunity is the biggest factor for residential real estate demand. Demand for real estate is high in areas where job opportunities are sprouting up and employment is plentiful. It's not so hard to sell a home that is a brief commute away from multiple major employers.

Schedule A: Actual Facts

Ensure that names are spelled correctly and that the legal descriptions are accurate. Finding errors now will save a lot of time later.

Taxes and Escrow

Even when the escrow account is waived, the lender usually has a tax service check every year to make sure that the ad valorem (property) taxes on the property were paid. The purpose of the escrow method and the tax clause is to protect the lender's position as the primary lien-holder on the property.

Low-rent Apartments

HUD also offers rental assistance in the form of low-rent apartments. Low-rent apartments work through a direct transfer of funds from the government to apartment owners, who can then lower the rents they charge to low-income tenants. Low-rent apartments are available for senior citizens, people with disabilities, and families and individuals. Again, income limits apply.

What Is a REMIC?

Holds commercial and residential mortgages in trust Assembles said mortgages into pools based on risk Then issues bonds (securities) on these pools to sell to investors in the secondary mortgage market

In a title theory state, what kind of rights does a trustor have?

In a title theory state, a trustor has equitable rights and right of possession.

Clear Title and Marketable Title

It is important that everyone gets a clear title when they purchase property. This means that people must be informed about any claims against the land so that they can make certain they are cleared up before they buy. And it means they must be protected against any undiscovered claims that may arise to threaten their title and the possession of their property. Title insurance provides this protection.

ARM'd and Dangerous

Make sure you tell your client about this potential type of mortgage, in case it's something they're not aware of. If they do the math, they might see that this type of mortgage can potentially save them money. They have the ability to negotiate with the lender on ARMs. Some may say you want your client to be ARM'd and dangerous. Also, if they only plan on staying in their house for say, 12 years or less, it makes sense to try to get a 10- to 15-year introductory interest rate. They'll save a lot of money this way, which can help them save money to buy a new home.

Mortgage Bankers

Mortgage bankers usually work for a financial institution and are able to loan the money of that institution.

Which of these have NO money to actually lend:

Mortgage brokers have no money to lend. Instead, their job is to bring lenders and borrowers together.

Types of Default

Most defaults in mortgage contracts are on the side of the borrower. Not all defaults, however, are caused by a failure to make a payment on the loan. Defaults can also come from: Nonpayment of taxes Lack of required insurance Improper use of the property Damage to the property

What is TRUE of recession?

Recession would cause high unemployment.

The Federal Reserve System is composed of:

The Federal Reserve System is composed of twelve member banks spread throughout the United States.

Factors That Affect Real Estate Prices

The demand for property The supply of property Unemployment Government influence

Three Approaches to Calculating Value

The sales comparison approach The cost approach The income approach

What do Fannie Mae, Freddie Mac, and Ginnie Mae all have in common?

They work to increase mortgage availability by buying loans.

Transfer Tax

Transfer taxes are usually a seller's responsibility.

Balloon loans

Usually last for three to 15 years and are indexed against a Treasury index

Where's the Mint? U.S. Mint branches are located in:

Washington D.C. Philadelphia, Pennsylvania Denver, Colorado West Point, New York Fort Knox, Kentucky

Step 2: Find the total monthly expenses

We know Johnny will pay $1,600 for his housing payment, $350 for his car payment, and $200 for his student loan payment. To find his total monthly expenses, we just add them up. $1,600 + $350 + 200 = $2,150 Answer: Johnny's total monthly expense is $2,150

The amount of a foreign currency a dollar can buy is called the:

When dollars are exchanged for foreign currency, the cost is based on the exchange rate.

What does the power of sale clause do?

allow a lender take possession of a property without court approval if a buyer defaults on their loan

Easement in Gross

applies to the person or entity, not the specific land

Most farms in the United States:

are owned by families or individuals

Secondary mortgage market agencies engage in two main activities:

buying loans and issuing mortgage-backed securities

How are temporary buydowns typically paid for?

by depositing cash into a buydown fund established at closing

How is a promissory note secured?

by referencing a security instrument

Assumption fee:

ee charged by the lender for allowing the assumption of a loan by another party and forgiving the original borrower's obligation.

In an amortized loan, interest is paid:

in arrears

Which mortgage group provides mortgage financing by using their own funds?

mortgage bankers

When Fannie Mae packages loans to be sold to investors, they are creating:

mortgage-backed securities

Compounded Interest & Negative Amortization

paying less than what's required to pay principal and intrest monthly

What is a dollar-by-dollar reduction in the appraisal value of a property?

tax exemption

Which form replaced the Good Faith Estimate and the Initial Truth in Lending?

the Loan Estimate form

The FHA doesn't make loans, it insures loans. Where does the money from those loans come from?

the money for FHA-insured loans is supplied by primary lenders.

Excessive Fees

(a) A seller may not include as a term of the executory contract a provision that: (1) Imposes an additional late-payment fee that exceeds the lesser of: (a) Eight percent of the monthly payment under the contract; or (b) The actual administrative cost of processing the late payment; (2) Prohibits the purchaser from pledging the purchaser's interest in the property as security to obtain a loan to place improvements, including utility improvements or fire protection improvements, on the property; (3) Imposes a prepayment penalty or any similar fee if the purchaser elects to pay the entire amount due under the contract before the scheduled payment date under the contract; (4) Forfeits an option fee or other option payment paid under the contract for a late payment; or (5) Increases the purchase price, imposes a fee or charge of any type, or otherwise penalizes a purchaser leasing property with an option to buy the property for requesting repairs or exercising any other right under Chapter 92. (b) A provision of the executory contract that purports to waive a right or exempt a party from a liability or duty under this subchapter is void.

Step 3: Plug in the numbers and solve

$90,000 x 0.024 = $2,160 The annual taxes for the property is $2,160. Step 4: Solve for monthly taxes It's great that you have the annual taxes for the property, but the number we're really looking for is the amount of taxes the borrower will pay per month. So how do we get that? Simply divide the annual tax figure by 12 months as shown here: $2,160 ÷ 12 = $180

What does a REMIC do?

A REMIC holds commercial and residential mortgages in trust, assembles mortgages into pools and issues bonds to investors in the secondary mortgage market.

What must a Verification of Deposit for a refinance or new mortgage be accompanied by?

A Verification of Deposit for a refinance or new mortgage be accompanied by both a Borrower's Certification and an Authorization Form signed by the borrower.

Due-on-Sale Clause

A clause, included in many mortgages, permitting the lender to require the borrower to repay the outstanding balance when the property is sold. Prevents loan assumption.

Which of the following would motivate builders to build new houses right away?

A decrease in the cost of construction and price of raw land would motivate builders to build new houses right away.

Subsidized Housing

A part of a social program to as, government supported accommodation to people with low or moderate incomes; when the government provides subsidies or rent assistance for people living in private market housing. (Housing subsidies, public housing, etc.)

Look for PMI-Free Programs

Another thing that can be done is to let your client know about special programs that could waive the PMI for first-time homebuyers, potentially in specific neighborhoods. Just make sure your client talks to their lender about the possibilities of these programs. If your client is part of a credit union, there's a good chance they will waive PMI if your client has good credit.

loan originators

As far as these rules, the term "loan originators" also refers to mortgage brokers, who may be a person or a mortgage broker company, including companies that close loans in their own names but use funding from a third party, including employees of creditors and loan officers.

Forbearance for the Borrowers: Balloon Payment

At the end of the six-month forbearance period, the principal balance is $97,829.64. The scheduled principal balance (what the balance would have been had there not been forbearance) for this month is $94,319.36, a difference of $3,510.28. This is the amount that will be due in the balloon payment at the end of the loan term (plus compounded interest on it).

Conforming ARMs

Both Fannie Mae and Freddie Mac offer competitive ARM products. Fannie Mae ARMs have the London Interbank Offered Rate (LIBOR), available from Fannie Mae or the Wall Street Journal, as their index.

History of the Secondary Mortgage Market: Part III

By the 1960s, much of the country was experiencing rapid real estate growth, but conventional loans weren't able to keep up with FHA and VA in the secondary market. With all of these extremely sought after FHA and VA loans, conventional loans were left in the dust. They didn't have the same amount of liquidity as FHA or VA loans, which left a lot of local mortgage lenders broke and distressed, unable to compete in the market anymore.

The Glass-Steagall Act

Dealing in non-governmental securities for customers Investing in non-investment grade securities for themselves Underwriting or distributing non-governmental securities Affiliating (or sharing employees) with companies involved in such activities

Priority

Disputes often arise concerning who recorded a deed first, who had constructive or actual notice, or who took possession of a property first. It is important to note that taking possession of a parcel of land or property takes precedence over recording a deed. Priority, in this case, refers to the order of rights in relation to time. This means that if neither party has taken possession of the property, then whoever recorded the deed first has ownership rights.

The Great Recession

During this time, housing prices fell 31.8%, even more than during the Great Depression. Two years after the recession ended, unemployment still lingered above 9%.

What is a funding fee charged on VA loans used for?

Every applicant must pay a funding fee to the VA at closing to cover the cost of administering the VA home loan program.

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

FHA does not provide the money for FHA loans. The money comes from a primary lender. Banks, credit unions, and mortgage companies all make FHA loans. FHA provides insurance.

Flood monitoring

Fee paid to a service to maintain monitoring on whether flood remapping affects a property.

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.

HUD keeps a limited denial of participation (LDP) list.

Possible Delays

Here are a few things that can cause delays in this process: Transcripts from IRS Appraisal Underwriting conditions Documentation

Sales Comparison Approach

Let's start with the most commonly used method and the one you will see most often in residential real estate sales. The sales comparison approach determines value by comparing the subject property to the sales prices of "comps" (short for comparables, aka similar properties) that have been sold recently.

Mortgage Loan Origination

Loans originate in the primary mortgage market. They come into being through a mortgage loan originator. The originator will take the application from the buyer and begin to qualify both the buyer and the property that will be the collateral for the loan. (Both Buyer Approval and Property Approval are necessary for loan origination.)

Non-Conforming Loans

Loans that do not fit Fannie Mae or Freddie Mac guidelines are called non-conforming loans. MBS pools can also be made of non-conforming loans without the backing of a GSE. These loans are usually bought by hedge funds or private investors or someone who wants to take a bigger risk with their investments. A single MBS may have any number of investors, similar to how a stock would have many owners.

Lower Monthly Payments

Lower monthly payments are probably the biggest reason for people wanting to refinance their home loans. It used to be that a 2% savings on interest was typically enough to get homeowners to refinance. These days, lenders recommend refinancing even if the savings amount to as little as 1%. This will still be a huge saving, and the buyer will be paying off more of the principal, gaining more equity while paying less money monthly. Sounds like a win-win-win. 🏆🏆🏆

A lock-in fee allows the borrower to lock in the float rate at what point in the process?

Many lenders allow borrowers to pay a lock-in fee to lock in the float rate at the time of the loan's approval.

What:

Market conditions aren't the same for all property types, either. A strong market for single family homes does not necessarily mean there will be a strong market for new commercial buildings and apartment complexes.

Close to a Sure Thing

Pre-approval, however, is verified. The client fills out an official application for a mortgage, documents are required, and the lender does a deep dive on their financial background. When the client has their pre-approval letter, then you should feel good about showing them houses.

Short-term loans:

Secured loans for a term of one year or less

The Primary Mortgage Wants to Stay Primary

So it makes sense that the lenders of the first mortgage would want a mortgage subordination agreement signed by the secondary mortgage holders if a homeowner is in the position to refinance their mortgage. They want to hang on to that first spot!

The acceleration clause causes the entire balance to become due upon:

The acceleration clause causes the entire balance to become due upon default of the loan terms by the borrower.

The maximum guaranty amount equals 25% of the conforming loan limits and are adjusted:

The maximum guaranty amount equals 25% of the conforming loan limits and are adjusted yearly, on a county-by-county basis.

Qualifying Ratios: Total Debt Service Ratio

The second qualifying ratio lenders use is known as the total debt service ratio, or the debt-to-income ratio (DTI) or the back-end ratio. This formula for this ratio is: (PITI + Long-term liabilities) ÷ Gross monthly income = Total debt service ratio

Federal Fund Rate

These banks may also keep more than the required amount in their accounts. Excesses of the required reserves may be lent out to banks, usually for just one night, whose reserves may not meet the requirement. The lending rate between banks at the Federal Reserve is known as the federal funds rate.

No Shortages of Mortgages

These borrowers are approved for these mortgages by FHA-approved lenders. After the approval, the FHA applies the private mortgage insurance to the loan, making sure the lenders will be okay if the borrower defaults. Not only do they need to be given by specific lenders, but loans have to meet specific requirements to qualify for FHA insurance.

Housing Finance Agencies

These offer buyers a wide range of homebuying support and assistance at a more local level.

Contract for Deed with a Mortgage

This behind the scenes mortgage is the scary part for the buyer. The seller may or may not make their monthly payments to the original lien holder. And even though the new laws protect the buyer from the seller, it is necessary to remember that the original lender owes nothing and has no legal obligations to the buyer.

Why Is It Called a Wraparound Mortgage?

This is called a wraparound mortgage because usually the seller has a mortgage on the property that they keep, paid off with the monthly payments received from the buyer. For this reason, the seller usually charges a higher interest rate than that of the mortgage they hold. Nevertheless, this rate can be lower than the current market rate, making it appealing to buyers. Buyers also receive the advantages of no qualifying process and few closing costs. For example, there is no lender's origination fee, appraisal fee, or credit report fee, but there may be legal fees and homeowner's fees.

Mortgage Fraud

Unfortunately, real estate fraud is something that's happened a lot in the past and can still happen today. And almost anyone involved in a home buying transaction could be involved in committing fraud: the agents, mortgage broker, appraiser, or title company. The mortgage lenders are usually the victims. Mortgage fraud results in inflated appraisals and property values and bogus documents recorded in public records. Anytime these kinds of losses occur, it damages everyone

Term loans:

Usually made by traditional lenders and secured for a fixed term that is at least partially determined by the investor's income statements and projections

Which of these loan types is paid in installments called "draws"?

Yes, a construction mortgage is paid in installments called draws.

What is the margin in an ARM?

a fixed amount above the index which the borrower will pay

Loan Flipping:

A lender refinances your loan with a new long-term, high-cost loan. Each time the lender "flips" the existing loan, you must pay points and assorted fees.

Benefits of FHA ARMs

An FHA ARM has much of the same appeal over a conventional ARM that a fixed-rate FHA loan has over a conventional fixed-rate loan. Here are a few reasons why: FHA ARMs have lower down payment requirements. Lenders consider them safer investments than conventional ARMS. In addition, ARM borrowers can switch over to a fixed-rate loan without refinancing (streamlined refinance, remember?).

Jenny has the right to cross her neighbor's property in order to access the boat ramp, but the right ends if she sells her property to another person. What kind of easement does Jenny have?

An easement in gross is an easement that specifically applies to the person or entity (not the specific land).

Easment

An easement is a condition which allows a property owner to convey a right to another party while retaining full legal title. For example, if there was a footpath on your property that was used by the public or a fishing hole on your property that a neighbor has the right to use, an easement would allow these people to use your property. However, the footpath walkers and fishing hole swimmers would not actually own any part of your property.

Express Easement

An express easement is the most basic way an easement is created. Just like express contracts, an express easement is created by a written agreement between two or more parties. Express easements are often recorded in the deed to the property, especially if it is an easement appurtenant.

The Real Estate Bond Process

An individual gets a mortgage to buy a home. As per usual, the lender sells the mortgage to a government-sponsored enterprise (GSE) or investment bank on the secondary market. The mortgage is packaged with other loans and (real estate) bonds are issued. Some of the interest paid by the homeowners becomes the yield earned by bondholders.

Additional Facts

An individual may hold more than one FHA loan. If the buyer has sold a home and the original FHA loan was assumed by that purchaser, the buyer can apply for another FHA. The first loan must be current and the buyer must be an owner-occupant, or the loan must be reduced to 75% of the maximum loan available to the owner-occupant (under 203b), according to a new appraisal. Non-realty items should be specified on a separate document, not the contract. If they are put on the contract, the FHA will assign a value to each item and reduce the appraised value of the property accordingly. If a Non-Realty Items Addendum is part of the contract, do NOT submit it with the loan application. This reduces any confusion by the lender, and the addendum is a legally binding document on its own

Regulation Z requires that lenders disclose:

Annual Percentage Rate

How it Works

Clients deposit funds into pensions. The funds are often collected from employees via payroll deductions. Once the client gets to the designated retirement age, the funds are distributed. Distribution usually takes the form of a monthly payment rather than one lump sum.

Fannie Mae

Fannie Mae's requirements for temporary buydowns are less stringent than Freddie Mac's. They require only that the buydown period not exceed 36 months and that the total annual increase in the interest rate not exceed 1%. They allow for increases in the interest rate that are more frequent than annually.

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.

The Closing Disclosure Must Be Accurate

If the actual terms or costs of the transaction change prior to closing, the creditor must provide a corrected disclosure that contains the actual terms, which results in a new three-day waiting period before closing. To be clear: The Closing Disclosure is the official name of the RESPA/TILA form that serves as the closing statement, which is still sometimes called the settlement statement.

The two disclosures required by TRID are the

Loan Estimate, which must be given three days after the borrower applies for the loan, and the Closing Disclosure, which must be provided within three days of closing.

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

RESPA requires lenders to disclose the annual percentage rate (APR) to borrowers. This assists consumers in comparing mortgage loans AND seeing one rate that includes both interest and loan fees.

More on Securities

The Fed typically has one of two goals in mind when buying and selling securities: Reach a targeted amount of reserve balances held at the Reserve Reach a targeted federal funds rate

The Mortgage Debt Relief Act of 2007

The Mortgage Debt Relief Act of 2007 came about, in part, as a way to combat some of the subprime and predatory lending practices associated with the early 2000s. Specifically, it sought to protect homeowners from unfavorable tax implications resulting from a lender's loan debt forgiveness — especially since some of those loans were entered into under what might be considered predatory lending practices.

Services You Cannot Shop For

The Services You Cannot Shop For section could include an appraisal fee, a credit report fee, and the tax status fee. There is a zero tolerance for extra fees paid to the creditor or to third party companies for services the consumer cannot shop for. This cost cannot increase from the Loan Estimate to the Closing Disclosure.

The difference between REMICs and CMOs is

The difference between REMICs and CMOs is REMICs are a(n) organization, and CMOs are a(n) security.

Mortgage Brokers

The mortgage brokers act as independent agents for the mortgage bankers, but in the end, both of these entities end up selling back these mortgages into the secondary market very quickly upon origination. The reason for the quick turnaround time is to sell the loan before the interest rate changes.

What is the primary difference between Fannie Mae and Freddie Mac?

The primary difference between Fannie Mae and Freddie Mac is the size of financial institutions they deal with. Fannie Mae deals with larger commercial banks whereas Freddie Mac works with smaller "thrift" banks.

What is the purpose of the Federal Home Loan Bank System?

The purpose of the Federal Home Loan Bank System is to support residential mortgage lending and related community investment through its member financial institutions, and to provide access to reliable economical funding, technical assistance and special affordable housing programs.

Stress Test & Conservatorship

The subprime mortgage crisis tested this implicit guarantee. And the result was that the U.S. government had to bail out and put into conservatorship Fannie Mae and Freddie Mac in September 2008.

Not All Banks are Approved

But not every bank can offer an FHA home loan. Some lenders choose not to participate, and some lenders aren't given permission to offer them. The FHA requires a lender to get its approval before it can issue an FHA home loan. The FHA and HUD work together with its lenders to insure quality, regulatory compliance, and fairness in the lending process.

Qualifying the Buyer

For the buyer, an underwriter will typically look at five aspects of the applicant (sometimes called the "underwriter five"): Income Credit Assets Debts Net worth

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.

What law deals with sales of real property by non-U.S. citizens?

No, TILA has to do with disclosure in lending. The answer is that the Foreign Investment in Real Property Tax Act of 1980 (or FIRPTA) deals with sales of real property by non-U.S. citizens.

Watch That Amortization!

Some GPMs negatively amortize because the initial payments are not enough to cover all the interest due. This interest becomes compounded into the principal, causing even more interest to be due at the next payment period. However, not all GPMs have this feature. Some loans may have initial payments that cover all and only the interest, which in turn graduate to amortizing payments in the course of the loan term.

Holding a Distressed Property

Some distressed properties may be turned into profitable assets for their owners through intelligent asset management. As a general rule, an owner should hold the property if the net present value of all of its future cash flows exceeds the net present value of the owner's best alternative investment opportunity. However, certain conditions may make holding the property undesirable. For example, its current tenants may be upset with past management and desirous to leave, or the owner may want to diversify their investment portfolio with other assets. There could also be macroeconomic factors beyond the performance of the particular property that would make an owner sell.

Section II: Property Information and Purpose of Loan

The address for the property they're trying to secure The number of units in the property (single-family properties are one unit) (The legal description should be left blank!) How they'll be using the property Will the property be a primary residence, secondary residence, or investment property? The next line is specifically for construction loans For the line dealing with refinance loans, an applicant can use estimates and have their loan originator walk them through the rest Last is the source of the funds: where is it coming from? Savings? Gift? A 401k? Inquiring minds want to know.

FHA Loan Limits

The maximum allowable amount for an FHA loan varies by location. Loan limits vary in certain areas because of differences in property costs. Check out the HUD website for a tool that lets you look up the most current FHA loan limits by state and county.

Keys to Avoiding Foreclosure

The most helpful thing you can do is educate your buyer client when they are buying a house. If the client has previously rented a home and has had trouble paying the rent, they may have experience with asking the landlord or property manager to agree to an alternative payment plan. If they are transitioning to homeownership, they need to understand that such lenience could be harder to come by when working with a bank. Mortgage payments are generally considered late after 15 days and could show up on their credit report after 30 days. Education and communication with your client are key.

Income

The second factor affecting real estate demand is personal income. If the average salary goes down, or the unemployment rate goes up, the demand for certain types of housing is likely to decrease. If employment is on the upswing and/or wages increase, there will be more demand for real estate, including real estate at higher price points.

Mortgage Bankers

They receive money to fund these mortgages from a variety of sources. Often it is borrowed from a warehouse lender or from one of the financial institutions that provide them with capital. The money is then used to fund mortgages for their clients. A mortgage banker's primary business is to earn the fees associated with loan origination.

Allowable Costs

Title insurance For refinancing: Beneficiary statement Courier fee Reconveyance fee

Mortgage-Backed Securities

Two of the most prominent GSEs, Fannie Mae and Freddie Mac, purchase mortgages from lenders and package them into mortgage-backed securities (MBS) to sell to investors. These bundles of loans carry the financial backing of the GSEs that create them. As a result of this financial backing, investors find the MBSs more attractive than they otherwise would. The mortgage loans are pooled (bundled) with similar mortgages at the same rate and terms. Large lenders will also create their own pools and smaller lenders will join together with other lenders to create pools as well.

Initial Rate of Interest

Usually, there's a fixed rate at the beginning of this type of mortgage, known as the initial interest rate. After this period, the interest will adjust based on the ARM margin, which is a benchmark and additional spread added to the initial rate.

How Credit Unions Work

What's a credit union doing with its depositors' money, if not profiting? They invest it! By investing a pool of all the members' money, they can gain more in interest than the individual members could by investing it on their own. The credit union may dip into that pool of money in order to give its members loans at a competitive interest rate. The rest (minus the reserves, of course) can be invested externally.

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

When a lender receives a distressed property through foreclosure, the task of making the right decisions to minimize losses and increase returns often falls to an asset manager.

Servicers and Escrow Accounts

When it comes to escrow accounts, the servicer has these responsibilities to the borrower: A servicer must submit an annual statement of each escrow account to the borrower within 30 days of the completion of the computation year. Then, the servicer needs to conduct an analysis of the escrow account. After that, they can submit it to the borrower.

Which of the following BEST describes the difference between lien theory states and title theory states?

While both lien theory states and title theory states use promissory notes (the promise to pay), lien theory states use mortgages and title theory states use deeds of trust.

Branching Out to Help Others

While continuing to support FHA and VA fixed-rate mortgages, Fannie Mae also began supporting assistance for lower-income housing, even though that didn't generate very much money for private investors. Then they began rolling out brand new, riskier mortgage options, such as longer-term loans with minimal borrower equity required.

Balloon Mortgage

A balloon mortgage is not fully amortizing. It has a short term, usually five or seven years, but payments based on a longer term, as if it were 30 years, for example. At the end of the loan's term, the often-large remaining balance of the mortgage is due as a lump sum. At this time, the borrower can refinance this amount (if they qualify). Some balloon mortgages have a conversion option that allows the borrower to convert the remaining balance to a 25- or 23-year fixed-rate mortgage, based upon the term of the balloon mortgage. The conversion option usually provides for a rate slightly higher than that of fixed-rate mortgages.

What is a balloon payment?

A balloon payment is a large payment due at the end of a balloon loan, such as a mortgage, commercial loan or other amortized loan.

Biweekly Mortgage

A bi-weekly mortgage isn't a different type of loan so much as a different payment schedule. Loan payments are made every two weeks rather than once per month. This is a plan that reduces the total interest paid on the loan (great for the borrower!), and also shortens the risk period for the lender.

Delinquency

A borrower is said to be delinquent on their payments if they fail to pay the principal, interest, taxes, or insurance for a loan on time or at all. Most lenders would rather work with a borrower in default than foreclose on a property. They will foreclose as a last resort. Lenders may be willing to recast the loans of delinquent borrowers or to allow a suspension of payment for a period of time (a moratorium). We'll learn more about options for borrowers in default in the following chapter.

What is the minimum amount of investment a borrower must have to qualify for an FHA insured loan?

A borrower must have at least a 3.5% down payment according to FHA regulations.

Loan Fees

A buyer is usually responsible for paying loan origination fees for a new loan, and for paying assumption fees if they assume the seller's existing loan. If a seller is paying off a mortgage before its due date, they may be required to pay a prepayment fee.

What is a Credit Union?

A credit union is a financial cooperative that is created to serve its members' needs, not for profit. Some other names for credit unions include cooperative banks, credit associations, and people's banks

How Credits and Debits Affect Buyers and Sellers Put simply:

A debit to the buyer increases the amount due from the buyer at closing. A credit to the buyer decreases the amount due from the buyer at closing. A debit to the seller decreases the amount the seller receives at closing. A credit to the seller increases the amount the seller receives at closing.

Inflation and Deflation

A decrease in the purchasing power of the dollar is inflation. An increase in the purchasing power of a dollar is deflation.

Granting Clause

A granting clause is a formal statement declaring that the grantor wishes to convey their current interest at that time. No deed may state that a grantor wishes to convey interest in the future. Deeds convey current interest at the time of deliverance only. Sometimes the granting clause is called words of conveyance. The extent and wording of a granting clause depends upon the type of deed and the deed's exact objective. Depending upon the grantor's intent, any of these words or wordings may be used: "Grant" "Grant, sell, and convey" "Remise, release, and quitclaim"

What is the difference between a grantor and a grantee?

A grantor is an individual who is voluntarily conveying title to another. A grantee is a person accepting the property. They are the purchaser.

Clarifies the Interest Being Granted

A habendum clause generally follows a granting clause as needed. When used, it will contain a phrase describing the extent of ownership. For example, a habendum clause commonly contains the phrase, "To have and to hold." A habendum clause clarifies the type and extent of interest conveyed by the granting clause. If the two are at odds, then the granting clause supersedes. The most common types of interest conveyed are fee simple, life estate, and easement.

Improvement Exemptions

A homeowner should take comfort in knowing that the cost of any large upgrades or remodels they make to their home, can be used to reduce the cost basis of their home. This will allow the homeowner to reduce or eliminate any taxable amount of the capital gain resulting from the home's sale. While repairs and maintenance don't count toward this number, things like replacing the roof or remodeling the bathroom are the things that can be removed from the sale price. If a client's house sells for $275,000, but they have replaced the roof and remodeled the kitchen and bathroom for a total of $25,000, their adjusted cost basis will be $250,000, keeping them just within the $250,000 exclusion limit.

The Housing Affordability Index

A housing affordability index greater than 100 means that a median-income family could qualify for more than the median-priced home using a conventional 80% loan (meaning they pay a 20% down payment). If the Housing Affordability Index is below 100, then the same median-income family would NOT qualify to buy the median-priced home, which is normally the case during times of inflation and high interest rates.

Leases

A lease is an encumbrance because the party residing in the property does not own the title to the property. In other words, the owner's (or, the lessor's) use of the property is significantly limited. If a home is being leased, then the owner can't just go hang out in the home even though they own it. Makes sense, right? And as a side note: lease agreements aren't terminated when a property is sold.

Why is it important for the lender to qualify the property being financed?

A lender must evaluate the property being financed to make sure that, if they have to foreclose in the future, they will be able to recover their cost.

Prepaid Items

A prepaid item is an item that has been paid for ahead of time, generally by the seller. For example, a seller might have prepaid an insurance policy that is required by the local homeowner's association. A buyer must then generally "purchase" this item from the seller at the time of the sale, either with cash, credits or in some other way that the principals have negotiated. Accrued items are generally debited to the seller and credited to the buyer, and prepaid items are credited to the seller and debited to the buyer.

Homestead Exemptions

A property that is occupied by its owner as a permanent residence is considered a homestead. Second homes, vacation homes, and unoccupied investment properties aren't considered homesteads. Most states (including Texas) provide some sort of homestead exemption so that only a portion, rather than the full value, of the home is taxed.

Purchase-Money Security Interest Liens

A purchase-money security interest lien is a type of consensual lien that holds the actual purchase as collateral. For example, when you take a mortgage out on a home, the home is what secures the loan. These types of liens exist outside of real estate, too. Whenever a seller finances the purchase of property with the property as the security interest, whether it be a car, furniture, or electronics, it is considered a purchase-money security interest lien.

Real Estate Bonds

A real estate bond, or mortgage bond, is a bond that is secured by a mortgage or group of mortgages. This type of bond might be secured by personal property (like valuable equipment) in addition to real estate. The bonds are backed with these valuables so that, in the event of the borrower defaulting, the bondholders can take the property. They may keep the property, or (more likely) sell it to get their investment funds back.

What is a REIT?

A real estate investment trust (REIT) is a registered company that owns and operates commercial real estate. (Typically, these companies must meet special federal rules to get a pass-through tax status.) Investors can take advantage of the benefits of owning real estate, such as hedging against inflation, by buying and selling shares in REITs.

Buying Loans

A real estate loan is essentially an investment just like stocks and bonds. The lender (whether a lending institution or private party) is the investor. The lender commits its funds to the purchase or construction of a home, expecting a return in the form of interest payments. And just like other investments, real estate loans can be bought and sold.

Restrictive Covenants

A restrictive covenant is a type of encumbrance that restricts how a buyer could use the property they are buying. It could prevent a buyer from cutting down a tree, it could restrict the buyer from making any major changes to a building's facade, or it could dictate what kind of fencing is allowed on a property. Again, restrictive covenants are considered an encumbrance because the property owner's use of their own land is restricted by them

Secured Loans

A secured loan is a loan that has collateral. The collateral may be an automobile, a house, or something else of value. If the borrower defaults on the loan, the lender can take the collateral and sell it to recover their loss. Understandably, the lender will care about the value of the item being used as collateral.

security

A security is a debt instrument, such as a mortgage loan, that is held as evidence of a debt to be repaid with interest. The U.S. Treasury sells securities when it needs to acquire funds to finance government activities or to repay other securities. Most of the Fed's securities holdings are issued by the U.S. Treasury: About half of them are Treasury bills (T-bills), and the other half are Treasury notes and bonds.

Recording Expenses

A seller is generally responsible for recording expenses (i.e., filing fees and other similar costs) related to clearing defects from the property's title, such as recording satisfactions of liens, affidavits, and quitclaim deeds. A buyer is usually responsible for the recording expenses associated with the title transfer, such as the costs associated with publicly recording the deed that gives them title.

If the buyer with a low credit score is willing to pay a higher rate of interest, what type of mortgages are they able to get?

A subprime mortgage is normally made out to borrowers with lower credit ratings. Because of the risk associated with them, subprime mortgages have higher interest rates.

Title Plant

A title plant is a collection of title records that is privately owned and maintained, usually by a title insurance company, and not, as I previously believed, a really impressive house plant made of paper. It's another place to find information about title.

The Reserve Requirement

Changing the reserve requirement is another method the Fed uses to influence the market. The Fed has the authority to require all depository institutions (not just member banks) to keep a certain percentage of their funds in the regional Reserve bank.

Non-recurring Closing Costs

Closing/escrow/settlement fee: Fee paid to the settlement agent or escrow holder. Courier fee: The costs associated with delivering documents to the buyer, seller, lender, title company, law firm, county recorder, and so on to facilitate the closing process. Home inspection fee: Fee a home buyer must pay if they did not pay it at the time the home was inspected. Homeowner's association transfer fee: Fee charged by a homeowner's association for transferring all of their ownership documents to the new owner. Home warranty: Optional fee paid for an insurance policy covering items such as major appliances; not to be confused with a warranty provided by the builder of a new home that would cover the structure itself.

Background of Commercial Banks

Commercial banks are called commercial because they originally specialized in short-term capital loans to businesses for expansion and new construction. These types of loans were easier to underwrite and more appealing than residential mortgages for commercial banks because of their short-term nature. While commercial banks have continued to emphasize commercial loans, they also have diversified their lending with a substantial increase in consumer loans and residential mortgages. Some provide servicing and buy blocks of mortgages from other lenders.

Commercial Banks' Place in the Industry

Commercial banks are the largest source of investment funds in the United States. They offer demand, time, and savings deposits. Most of the mortgages created by commercial banks are sold to buyers on the secondary market. Still, some mortgages may be kept as portfolio loans. Banks offer many different mortgage products, and they also take part in home equity lending. Home equity loans are usually short term and high interest, which commercial banks tend to like.

Conforming

Conventional conforming loans are loans that 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).

Non-Conforming

Conventional non-conforming loans are loans that do not follow Fannie Mae and Freddie Mac guidelines and thus will not be purchased by Fannie and Freddie on the secondary market (although other secondary market buyers may choose to purchase them).

Consumer Financial Protection Bureau (CFPB)

Creating easier-to-use mortgage disclosure forms Improving consumer understanding Aiding in comparison shopping for borrowers Preventing surprises at the closing table, a.k.a. "Know Before You Owe"

Judicial Foreclosure

At the foreclosure proceedings, all creditors with a claim against the property appear and present evidence of their claim. The court recognizes the claims and their priority and then orders a public sale of the foreclosed property. A foreclosure that is processed through the court is called a judicial foreclosure. A judicial foreclosure is handled as a civil lawsuit and the whole process is supervised by a court.

Actual Notice

Actual notice is the next level of notice; it means the buyer is actually aware of it. After an individual has researched a property through public records and personal inspection, they now have direct knowledge of the property via the information that the individual themselves acquired. With that self-acquired information, the individual is expected to be able to infer, or at least ask about, subjects that may not be in the public record but are nonetheless of legal interest in the property.

Consideration

All contracts require some consideration (something of value that induces a party to join in a contract). Deeds also require consideration. While we think of consideration as a property's sale price, most deeds do not include the actual sale price. Instead, most deeds contain a minimal statement of consideration. If it is a common purchaser/seller deed, a statement such as, "For ten dollars and other good and valuable consideration," is used. This is true in Texas. Texas is a non-disclosure state and sales prices are not in the public records. If the property is a gift to a friend or relative, the consideration may be worded, "For natural love and affection." In both instances, those phrases are sufficient to meet the consideration requirement. Only when a corporation or trustee executes an instrument or when a court orders conveyance is a deed likely to contain the full consideration amount.

Verification of Employment Form

All income reported by the applicant should be verified by the underwriter. Employers should be sent verification of employment forms, which request the length of the applicant's employment, gross salary, additional income (such as overtime, bonuses, and royalties), and the likelihood of continued employment.

Three Important Time Periods

An ARM loan has three important time periods. Initial Rate Period: The introductory period of an Adjustable Rate Mortgage loan in which the interest rate is locked at the initial rate. Adjustment Period: Set periods of time in which the ARM loan's interest rate can be adjusted. Lookback Period: The date when the index rate for the upcoming adjustment period is selected.

How is an ARM's interest rate calculated for the next adjustment period?

An ARM's interest rate is calculated by adding the index rate on the lookback date + the margin (a fixed value).

The Internal Revenue Service

Another bureau of the Treasury Department is the Internal Revenue Service (IRS). Being the good taxpayer that you are, you are probably fairly familiar with the IRS already. The IRS is the largest of the Treasury bureaus. The responsibility of the IRS is to collect taxes and administer the Internal Revenue Code (the United States tax law). The IRS also oversees many government benefit programs.

Subject-to Loans

Another way of transferring the mortgage to another party is through a subject-to transaction. This type of transaction gives the buyer the title to the property but lets the seller's financing remain in place. The idea here is that the lending institution is not informed of this change in title holder. It's a big no-no for a lot of mortgages and violates the terms of a lot of loans — but it allows the buyer to obtain financing without all the overhead costs. It also allows the buyer to obtain the property more quickly, without having to go through the long process of loan origination. Selling via a subject-to transaction effectively creates a wraparound mortgage, but with fewer legal structures in place to protect buyer or seller.

Membership Benefits

Any bank may become a member of the Federal Reserve System, and all federal banks are required to become members. By becoming a member of the system, a bank has the benefit of borrowing money from the Fed. In exchange for this benefit, member banks must abide by the Fed's regulations and requirements.

Appraise the Roof!

Anybody can request an appraisal, and it may be sought for any reason, whether you want to determine a loan value or check for insurance coverage. An appraiser submits their evaluation in the form of an appraisal report, for which the appraiser must conduct a thorough study of the property.

Assuming VA Loans

Anyone (veteran or nonveteran, investor or not) may assume a VA loan. There is no limit to the number of VA loans an individual may assume. VA loans originated before March 1, 1988, are fully assumable with no qualifying and no change in terms. VA loans originated after March 1, 1988, are assumable only with a full qualification process on the borrower. There is still no change in the terms of the loan — this provision holds true for the life of the loan. The borrower assuming these loans closed after this date also assumes the obligation of the veteran to the VA. A 0.5% funding fee will be charged on all assumptions of VA loans originated after March 1, 1988. Up to a $500 lender's processing fee also will be charged. The person assuming the loan may be either an owner occupant or an investor. The Texas Real Estate Commission has an Assumption Addendum and a form for the Restoration of the Seller's VA Entitlement. (TREC #12-3)

Criminal Liability

Anyone who willingly and knowingly fails to comply with any requirement of the TILA will be fined not more than $5,000 or imprisoned not more than one year, or both.

Aim High

As an agent, when you're filling out a Third Party Financing Addendum for a client, you want to make sure you give yourself some wiggle room with the interest rate. There will be a space for you to fill out that says, "...with interest not to exceed ___% per annum. In this space, even though you know what the interest will most likely be based on the Loan Estimate you and your client received from the lender, you want to make sure you aim about half a percent higher than what that says. If the interest rate changes, you want to do this to be prepared for the contract to still be valid. Just be sure you tell your client about this adjustment and make sure they're okay with it if the interest rate does go up.

Balloon Payments

Balloon programs, like ARMs, are a good idea for lowering initial monthly payments and rates. However, at the end of the fixed-rate term, which is usually five or seven years, if borrowers still own their property, then the entire mortgage rolls into a fixed-rate or adjustable-rate mortgage with higher payments. A refinance might provide the perfect escape from that event!

Understanding is Key

Basically, a lender should not be making an unreasonable amount of money from a borrower. They should be making a fair and decent amount from a borrower who understands that they are getting the best product for their money. Even if the loan isn't exactly 100% in the borrower's best interests, that alone doesn't make it predatory. If the borrower fully knows and understands the parameters and still willingly accepts the loan, that is not predatory.

S&Ls: The Bailout

By 1989, the savings and loans industry was in such bad shape that Congress and President George H.W. Bush agreed on a bailout, a measure called the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). The act was financed by taxpayers. It cost $50 billion to close the failed banks and put an end to losses. The act also restored regulations to prevent future fraud and bad investments. The Savings and Loans Crisis, as it became known, was regarded as the worst bank collapse since the Great Depression.

By becoming a member of the Federal Reserve System:

By becoming a member of the Federal Reserve System, banks are able to borrow money from the Fed. However, all banks who are members then must also abide by federal rules and regulations.

The Great Recession

By the fall of 2008, millions of Americans were unemployed and trillions of dollars were lost. That's because irresponsible lenders were adding hidden fees and fine print to take advantage of consumers. Our financial regulatory system proved fragmented and antiquated, and was in need of serious oversight.

Fiscal Policy

As opposed to monetary policy, fiscal policy is a broad term used to refer to the tax and spending policies of the federal government. Fiscal policy decisions are determined by the Congress and the Administration; the Federal Reserve plays no role in determining fiscal policy.

Open-Market Operations

As stated earlier in the chapter, the Federal Open Market Committee (FOMC) is in charge of the Fed's principal tool — open-market operations. These operations consist of buying government securities, either from the U.S. Treasury or from other federal agencies, and selling them.

Factors Affecting PMI

As you know, PMI is usually required for conventional loans when the down payment (or equity, in the case of refinancing) is less than 20%. Lenders doing conventional loans may be able to offer a higher interest rate instead of PMI at their discretion, but PMI is more common.

Interest rates

: Interest rates set by the federal government affect the overall cost of homeownership for anyone who finances their purchase. High interest rates make homeownership more expensive, reducing demand. Real estate prices tend to fall in order to attract buyers in times of high interest rates.

The Promissory Note

A borrower receives the funds to purchase real property from a lender in exchange for signing a promissory note. In a promissory note, which is sometimes referred to simply as a note, the borrower acknowledges their debt and promises to repay the holder of the note. Yes, a promissory note is kinda like a grown-up IOU. It's used when a property is sold via seller financing. At the close of the transaction, the seller owns the note.

Section 8 Housing

A housing assistance program in which federal rent subsidies are provided either to tenants (in the form of certificates and vouchers) or to private landlords.

Mortgage Loan Originators

A mortgage loan originator is anyone who helps consumers get mortgage loans. They can specialize in either the commercial or residential (RMLO) market. Both types of mortgage loan originators can assist with mortgages for purchasing a new home or commercial property. They can also help with refinancing loans, attaining second mortgages, and getting home equity lines of credit.

What is a participation fee?

A participation fee is a monthly servicing fee.

A prepaid item is an expense that has already been paid by:

A prepaid item is an expense that has been paid by the seller.

Prepaid Items

A prepaid item is an item that has been paid for ahead of time, generally by the seller. For example, a seller might have prepaid an insurance policy that is required by the local homeowner's association. A buyer must then generally "purchase" this item from the seller at the time of the sale, either with cash, credits or in some other way that the principals have negotiated.

Properties in Distress

A property in distress is one that is in poor condition either physically or financially. The task of managing these properties often falls to a lender who has foreclosed on a property for default. In such a case, the lost loan amount is a sunk cost—it is irrecoverable—and should not affect the owner's decisions. The owner must decide whether to hold the property or sell it.

Which of the following is true about property tax exemptions?

A property tax exemption reduces the amount a property is appraised for before calculating the taxes. If a tax value is $250,000 and the exemption is $10,000 the consumer will be taxed on a value of $240,000.

Specific Liens

A specific lien is one that is specific to a certain property: a mortgage on a home, property taxes on that property, etc.

Tax Exemptions and Credits

A tax credit reduces the amount of taxes due. A tax exemption reduces the taxable value of an asset.

Who may assume a VA loan (as long as they're qualified)?

Anyone may assume a VA loan as long as they meet the qualifications. They do not need to be a veteran.

Income Approach

Appraisers generally use this method for commercial buildings like shopping centers, office buildings, and large apartment buildings. IRV Formula The income approach is found using the IRV formula: Net operating income (I) ÷ Capitalization rate (R) = Value (V)

The Downside of Traditional Real Estate

As mentioned, the traditional way of owning real estate comes with a few challenges for investors: It's real property that cannot be moved. A relatively big investment is required. (Real estate isn't cheap!) The investment can't be liquidated quickly. Selling the property can take a lot of effort and money. Investing a lot of money in a single property is risky.

(Small) Down Payment Required

FHA loans do not come with a no-money-down option, but by comparing the down payment that's required under the FHA program to conventional loans, you'll find a lot of the time it's much lower. FHA mortgages require a down payment as low as 3.5%, which can be paid for by the borrower or the FHA allows it to come from a family member or charitable organization in the form of a gift.

Wire transfer fee

Fee charged if funds are wire transferred at closing for a buyer or seller.

All of these are major participants in the secondary mortgage market EXCEPT:

Ginnie Mae, Freddie Mac, and Fannie Mae are the three key participants in the secondary mortgage market. The Federal Housing Administration participates in the primary mortgage market.

The US Treasury manages the government's revenue by:

In essence, the purpose of the U.S. Treasury is to maintain a strong economy and create economic opportunities and job opportunities.

To find property value using the cost approach, use the formula:

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.

Which of the following is a provision of the Fair Credit Reporting Act (FCRA)

Information on the reports that is disputed by a consumer must be reinvestigated and removed if inaccurate.

What is the function of the Texas Veterans Land Board (VLB) loan program?

It offers Texas veterans the opportunity to buy land at below-market rates with low down payments.

Common Limitations

Liens (such as a mortgage, mechanic's lien or tax lien) Easements Taxes Restrictions

The "O"s and the "E"s:

MOrtgagOr has two "O"'s, and so does bOrrOwer. MortgagEE has two "E"s, and so does lEndEr.

Step 5: Estimate the Land Value

Next, an appraiser needs to estimate the value of the land. An appraiser commonly evaluates the land parcel separate from any improvements upon it. Here, the appraiser locates similar parcels to adjust and then compare with the subject land parcel. An appraiser completes this in accordance with the sales comparison approach.

Step 2: List Necessary Data and Sources

Next, the appraiser must establish which approach or approaches they expect to use in the appraisal. The appraiser then decides what information is needed and how to go about collecting it.

Risks Involved

Pension and retirement programs also use funds to invest in the secondary mortgage market, including blocks of mortgage-backed securities. It didn't always pay off. For example, in the 2007-2008 financial crisis, mortgage-backed securities were hit hard. Every retirement fund that invested in these securities felt the negative effects of the financial crisis. Some people lost all their retirement savings. The companies responsible for those funds didn't fare so well.

Auctions

Some foreclosures will be settled by an auction of the property, in order for the lender to recoup some of its losses. The sale is public, and anyone may make a bid on the foreclosed property.

form replaced the Good Faith Estimate and the Initial Truth in Lending.

The Loan Estimate

Texas Department of Housing and Community Affairs

The Texas Department of Housing and Community Affairs, or TDHCA is another state program that was created to help Texans achieve an improved quality of life through the development of better communities. TDHCA is concerned with housing and community development issues like: Economic development Infrastructure for rural communities Energy assistance Manufactured housing

What agency is responsible for borrowing the money needed to run the Federal Government?

The Treasury Department

Rural Housing Program: Other Programs

The USDA's Rural Development Guaranteed Housing Loan Program is a program that assists approved lenders with providing low- and moderate-income households with the opportunity to own safe and sanitary housing as their primary residence in eligible rural areas. Through the program, applicants can "build, rehabilitate, improve or relocate a dwelling in an eligible rural area." The program gives a 90% loan note guarantee to approved lenders to reduce the risk of extending 100% loans to eligible rural homebuyers.

The Three Instruments of Monetary Policy

The discount rate The reserve requirement Open-market operations

20 days to pay the past due amount.

The first step of foreclosure in Texas is that the lender sends a demand letter to the homeowner giving them a minimum of

What is the minimum down payment for an FHA loan?

The minimum down payment for an FHA loan is 3.5%.

Supply & Demand

The principle of supply and demand affects the price and quantity of loans when these factors are manipulated by the Fed.

quantity survey method

The quantity survey method is quite intense. This involves the appraiser tallying up the value of everything that goes into the cost: labor and equipment, raw materials, business overhead, and other fees.

secondary mortgage market

The second level is the secondary mortgage market, where the notes themselves are bought and sold.

Executory Contracts Need to Be Recorded

The seller shall record the executory contract, including the attached disclosure statement . . . on or before the 30th day after the date the contract is executed.

Savings

There is no FHA savings account requirement, as long as you can put down 3.5%. You can also receive a gift for the down payment from a family member. (Lucky you, I just got some robot grease for my last birthday.) 🎁

PUD Information

This next section is for PUD information. PUD stands for Planned Unit Development, or a large subdivision or group of subdivisions that share some common elements.

Buyer rebates are:

Yes, the illegal practice of a buyer receiving money at closing without their lender's knowledge is known as a buyer rebate.

Warranty Deed: Two Types

so now you know all about what's on a warranty deed...nice! There are also two types of warranty deeds: General warranty deed Special warranty deed

easement, or right-of-way

, is the right to use a part of someone's property. It is not ownership in the most traditional or generic sense. For example, if a party wishes to use resources on someone's property or place wiring or pipes through someone's property, then they are likely to obtain a right-of-way

All of the following are true about REMIC's EXCEPT:

A REMIC assembles mortgages into pools and issues pass-through certificates, bonds, or other securities to investors in the secondary mortgage market.

Conventional conforming loans are:

A conventional loan is any loan that is neither insured by the government nor guaranteed by the government.

Credits

A credit is a positive balance or a positive amount. For our purposes, it is a figure entered in a party's favor when determining the overall costs associated with a transaction. On closing statements, credits reflect expenses that have been paid by a particular individual or expenses that are owed to that individual. Credits stand in contrast to debits.

What is a float-to-fixed-rate loan?

A float-to-fixed-rate loan is a loan with an initial, adjustable interest rate that transitions into a fixed rate.

The MLO Test

A mortgage loan originator is not likely to get a job in the field if they have not yet completed the education hours and passed the official test. The written test, often called the SAFE MLO test, is required by federal law and helps MLOs meet state requirements as well. The schoolwork doesn't stop there. Like real estate agents and brokers, mortgage loan originators have to take continuing education to maintain their licenses. For MLOs, this is an annual requirement. (Real estate agents need continuing ed every two years.) The rules of lending are changed and updated fairly often, and professionals need to stay in the loop.

Homestead Exemptions

A property that is occupied by its owner as a permanent residence is considered a homestead. Second homes, vacation homes, and unoccupied investment properties are not homesteads. Texas provides a homestead exemption so that only a portion, rather than the full value, of the home is taxed.

Accrued Items

Accrued items are generally debited to the seller and credited to the buyer, and prepaid items are credited to the seller and debited to the buyer.

primary mortgage market

At the first level is the primary mortgage market, where lenders underwrite loans to borrowers seeking to purchase real property.

What the Creditor Should Have on Hand

Closing Disclosure: Copies must be kept by creditors for five years after consummation. Post-Consummation Escrow Cancelation Notice: Creditors (or servicers) have to keep this and the Post-Consummation Partial Payment Policy for two years. Integrated Disclosure: Creditors have to keep this for three years after the consummation of the transaction.

Commercial Banks

Commercial banks provide financial services to the general public and businesses. This ensures stability, both economic and social, and sustainable economic growth.

Finding Depreciation

Depreciation is the loss in a building's value over time. In the cost approach, it's expressed as a percentage. To find the dollar amount, multiply the depreciation percentage (in its decimal form) by the value of the improvements. If you are including the depreciation calculations, the cost approach formula looks like this: Cost of reproduction - (Cost of reproduction x Depreciation percentage) + Value of land = Property value

Utility

Does the property fulfill a need? If there's no use for it, there's no value: plain and simple. That's how you measure utility. *In this case, utility doesn't necessarily concern the idea of development. That's because the property could have utility to an investor who plans to use it for future gains.

VA Entitlement Amount

Each veteran receives at least $36,000 of basic home loan entitlement, provided they meet the established service requirements. However, the specific amount of loan that would be guaranteed is based on the loan amount and prior use of the entitlement for another VA loan.

Easement Appurtenant

Easement appurtenant applies to the land regardless of the owner

Which of the following is FALSE about Verification of Employment forms?

Employers are not required by law to complete VOEs from mortgage lenders, but they typically try to comply with the request. Employers MIGHT require written consent from employees before providing information to mortgage lenders.

Standard Lending Policy

FDIC regulations require that each insured depository institution adopt and maintain a written policy that establishes appropriate limits and standards for all extensions of credit that are secured by liens on or interests in real estate or made for the purpose of financing the construction of a building or other improvements.

Section 8 Eligibility

Family composition Family size Spending habits Criminal charges Eviction history

Which of the following is NOT used by Desktop Underwriter for risk analysis?

Fannie Mae's Desktop Underwriter doesn't use FICO® Credit Scores for risk analysis.

How is Farmer Mac different from other GSEs?

Farmer Mac is in the business of agricultural mortgage loans. But, like other GSEs, they are not a direct lender.

Final Approval

Final approval, the most official step, happens when the lender is evaluating the exact loan for a specific property. Approval results in loan commitment; disapproval results in application rejection.

What is Foreclosure?

Foreclosure is the legal process whereby a lender takes control of a property held by a borrower in default and sells it to recover the lender's losses. Foreclosure usually happens only when the alternatives provided by moratoriums and recasting are not enough to allow the borrower to repay the loan amount. As a general rule, borrowers who are delinquent for three to four months and have not worked out a repayment plan with the lender are issued a Notice of Default and Intent to Foreclose.

General Liens

General liens attach to everything a person owns. For example, a judgment lien is a general lien. It can attach not only to real estate but to any personal property. Likewise, a federal income tax lien is a general lien.

Title Expenses

Generally, a seller is required to pay for the title search. However, if a buyer conducts another search of their own, then they usually pay for that additional research. The seller usually pays for the owner's policy while the buyer pays for the mortgagee's policy. But, remember this is always negotiable between the buyer and seller and is addressed in the sales contract.

Property Managers

If the title of a distressed property falls to a lender who has foreclosed the property, they may not have the managerial experience necessary to run the property. Such a titleholder may seek to hire a property manager. A property manager is a real estate professional who specializes in running the day-to-day affairs of a property. Property managers are different from asset managers in that they do not make decisions involving the sale or financing of a property. Many of them have a real estate license, but it's not always required. For example, if they are employed by the owner of the property, no license is necessary.

The First Bank of the United States

In 1791, the First Bank of the United States, headquartered in Philadelphia, was created at the behest of Treasury Secretary Alexander Hamilton. The large and powerful bank was run by bankers and dominated by the big-money institutes of the day. Due to its association with banking elites, the bank was not popular with the average agrarian-based American, and when the bank's 20-year charter expired, it was not renewed.

Bank of Failures

In 1893 and 1907, the United States experienced a couple of scary financial panics. During these scares, the stock market fell by almost 50%, and people sprinted to their banks to withdraw their money (known as a bank run).

Assigning a Value to the Subject Property

Knowing all of this, Ryan came to the conclusion that his client's property listing should be between $141,500 - $152,500. And he did this with the help of the sales comparison approach, as did you, since you now understand this concept. Note: The sales comparison approach is not 100% linear — this is just an example of the principles of this approach.

The Gramm-Leach-Biliey Act

Like most financial regulations, the Glass-Steagall Act served a noble purpose but was considered an overreach by some in the industry. Its requirement for banks to specialize, rather than diversify, may have actually made the industry riskier. The GSA was ultimately repealed in 1999. In came the Gramm-Leach-Biliey Act, which lets banks offer a bigger variety of services, including underwriting. Commercial and investment banks were once again allowed to affiliate with each other.

Fully Indexed Rate

Now that we've talked about index rates and margins, let's bring it all together and discuss the fully indexed rate. The index rate is added on top of the margin to get the fully indexed rate. The fully indexed rate represents the actual interest rate that the ARM borrower will pay.

Accrued Items

On a closing statement, items of expense that are incurred but not yet payable, such as interest on a mortgage loan or taxes on real property.

Replacing the TIL and GFE is the Loan Estimate form. So what does that thing do, exactly? Loan Estimate:

Only three pages long! (Happier trees, happier me.) Combines loan terms break-down of the TIL and closing costs break-down of the GFE Divided into sections that give clear explanations of any costs associated with the mortgage

When Is PMI Required?

PMI is arranged by the lender and provided by private insurance companies. PMI is usually required when you have a conventional loan and make a down payment of less than 20% of the home's purchase price. If you're refinancing with a conventional loan and your equity is less than 20% of the value of your home, PMI is also usually required.

Gulf War

Personnel who served on active duty during the Gulf War (August 2, 1990, to an as-yet undetermined date) also are eligible under the conditions for other peacetime personnel separated from service, except that the 181-day requirement is lowered to 90 days of active-duty service.

Step 1: Get the right formula

Remember that our basic formula for total debt service ratio: Total monthly expenses ÷ Gross monthly income = Total debt service ratio To solve for gross monthly income, we swap it around to look like this: Total monthly expenses ÷ Total debt service ratio = Gross monthly income

Finding Comps

Ryan identified some comparables (comps) for the subject property by identifying two homes (Comp 1 and Comp 2) in the Brentwood neighborhood (same location) that had the same amount of bedrooms and bathrooms and that had similar lot and square footage sizes. They also both were sold within the last six months, so he knew that their sales prices were fairly accurate.

How do Section 502 Loans assist low-income applicants obtain housing?

Section 502 Loans are loans that help low- and very-low-income applicants get decent and safe housing in eligible rural areas by providing payment assistance to increase an applicant's repayment ability.

Hard money loans are:

Secured by real estate, not by good credit and the promise to pay them back Short term loans (usually one to five years) Provided by one or more private investors (not banks or credit unions)

Shell companies are often used:

Shell companies are often used to obscure the identity of or limit the liability of the true owner/owners of real property. Shell companies are legal, but do not have any typical operations. They are, however, sometimes used to hide illegal funds.

Signing the Loan Estimate and Closure Disclosure forms constitutes which of the following?

Signing the Loan Estimate and Closure Disclosure forms only acknowledges receipt of those forms and nothing more. It does NOT constitute acceptance of the loan or its provisions.

Mission: HUDpossible

So how does HUD carry out that mission? HUD has many duties, one of which is the enforcement of the Fair Housing Act (Title VIII of the Civil Rights Act of 1968). HUD has a staff of administrative law judges to oversee cases it prosecutes involving violations of these acts. (Way to go, HUD!) HUD has the authority to seek damages and levy fines, the limits of which are set by Congress.

Tranches and LIBOR

So who owned all of these mortgage backed securities? Hedge funds and other financial institutions around the world did, but the securities were also in mutual funds, pension funds, and corporate assets. The banks chopped up the original mortgages (like a tasty salad, only different!) and resold them in tranches, or slices of a bundle of loans. These tranches made the derivatives impossible to price. Ugh. When banks figured out they would have to absorb the losses suffered, they went into full panic mode. Lending to other banks ceased. No one wanted to be caught with a worthless mortgage.

Advantages of FHA Loans

Some FHA advantages compared to conventional loans include: Borrowers who don't qualify for a conventional loan might be able to qualify for an FHA loan Mortgages can be made on a graduated payment schedule, with low monthly payments that increase over time. FHA-insured loans are not allowed to carry a prepayment penalty. FHA loans can be assumed by other borrowers. However, since 1986, the assumptor has had to go through the same underwriting process—verification of debts and income, etc., as the original borrower to prove their creditworthiness.

Predictable Service

Some borrowers just don't like the idea of their mortgage being tossed like a hot potato from company to company. Banks and mortgage companies are likely to sell mortgages to the secondary market as soon as possible. This is normal, and many consumers are okay with remembering to check their mail and be careful about where they are mailing their first few monthly mortgage payments as the loan settles into its (relatively) permanent home with a loan servicer. But some buyers will be happier getting a loan from a credit union and feeling more certain that the credit union will retain and service it long term.

Questions for the Lender

Some of the questions a buyer may need to ask the lender are: How often does the rate change? How much can it change in one adjustment period? Is there a lifetime cap the rate cannot exceed? What is the highest possible monthly payment? What is the index that adjustments are tied to? Remember, the lender adds a fixed rate (the margin) to the index at the time of adjustment. The buyer should also keep in mind that the cost of taxes and insurance tend to increase as the years go by. It can be tough if the P&I payment is also increasing.

Good for Some

Subprime lending can go wrong (and it certainly has in the past). But that doesn't mean that subprime mortgages are inherently bad or predatory. They just have terms that correlate to their increased risk levels for the lender. As long as the borrower is aware of their finances and stays current on their mortgage, a subprime loan doesn't have to be a negative thing. Instead, it could be a helpful way for someone to increase their credit score while also earning equity in an investment.

Step 3: Subtract liabilities from assets

Subtract the total liabilities from the total assets. $35,000 - $15,000 = $20,000 Final answer: This person's net worth is $20,000

Government Influence

Supply of money: The Federal Reserve controls the money supply and can print money. When money for financing is available, demand for housing rises. Government action has the most direct influence on inflation.

A federally related loan is one that is directly or indirectly supported by federal regulation, insurance, guarantees, supplements, or assistance.

TRUE: A federally related loan is one that is directly or indirectly supported by federal regulation, insurance, guarantees, supplements, or assistance.

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

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

Step 1: Divide the yearly expense for water

Take the annual bill ($328.50) and divide it by 365. $328.50 ÷ 365 = $0.90 Answer: This should give us a total of $0.90 per day for water.

Gonna Need a Lawyer

Texas currently does not have a promulgated contract for deed; therefore, real estate license holders should suggest that both parties obtain the services of an attorney to create or review a contract for deed. Parties should always ensure that terms of the contract are clearly established and that they understand those terms. Having an attorney review the contract prior to its signing prevents each party from being responsible for any obligations and damages of which they are unaware.

What is NOT a business incentive in Texas?

Texas doesn't provide tax deductions for businesses in affluent areas.

Mineral Rights Are Dominant

Texas law holds that the mineral estate is dominant. This means the owner of the mineral estate has the right to freely use the surface estate for reasonable necessary exploration, development, and production of oil and gas on the property.

Redemption real estate

The "right of redemption" refers to one's ability to reclaim the property even after the foreclosure sale takes place. In Texas, the "right of redemption" is only available for specific kinds of foreclosure actions such as foreclosures of certain tax liens and property owners association assessment liens

Private Mortgage Insurance: What and When

The Consumer Financial Protection Bureau (CFPB) is an agency of the United States government responsible for consumer protection in the financial sector. It also makes for a great pretend interview! So, what follows here is a series of questions about private mortgage insurance with answers taken, with gratitude, from the CFPB website. Enjoy this commercial-free program:

What CFPB Says, Goes

The Consumer Financial Protection Bureau, or CFPB, decided it'd be better for everybody if the process of closing on a home was simpler and more transparent. Makes sense, dontcha think? So! On October 3, 2015, the CFPB's brand new mortgage disclosure rule, Know Before You Owe took effect.

VA-Guaranteed (GI) Loans

The Department of Veterans Affairs (VA) is authorized to guarantee loans to purchase or construct homes for eligible veterans and their spouse. This includes the spouse of a veteran whose death was service-related or the spouse of a serviceperson missing in action/a prisoner of war (providing the spouse has not remarried). These loans can be used for owner-occupied houses or condominiums, improvements, manufactured homes, land, farms, and refinancing or assuming VA loans. Typically, there is no required down payment. Veterans qualify on the basis of their debt-to-income ratio, which must not exceed 41%.

The Dodd-Frank Act restricted the power of the FDIC regarding liquidating insurance companies and other non-bank financial institutions.

The Dodd-Frank Act gave more liquidation power to FDIC, allowing them to liquidate bank and non-bank institutions in order to better protect consumers from risk.

he FDIC has created their own lending policy that all lenders must use.

The FDIC created a number of policy standards outlined for lending companies, but not an entire policy that should be followed by all. Each lender should factor things such as company size, number of lenders, location, etc., into the creation of their policies in adherence to the FDIC.

The FHA program is funded solely by:

The FHA program is funded solely by mortgage insurance premiums (MIP) and does not rely at all on taxpayer money

Exerting Influence

The Fed can influence the market by raising or lowering the discount rate. When the discount is raised, banks that borrow money end up paying more for it. This makes financial institutions less willing to lend, as it costs them more money to do so. As you can see, in terms of economic forces, a higher discount rate lowers the supply of loans by increasing the cost lenders pay to issue them. This causes interest rate changes to ripple through the entire financial system, raising or lowering the cost of borrowing money in any capacity.

Hardest Hit Fund® (HHF)

The Hardest Hit Fund® was created to provide targeted aid to families in states hit hard by the economic and housing market downturn. The participating states were chosen either because they are struggling with unemployment rates at or above the national average or steep home price declines greater than 20 percent since the housing market downturn.

Making Home Affordable® (MHA)

The Making Home Affordable Program® (MHA) provided mortgage relief to homeowners to prevent avoidable foreclosures. This included the Home Affordable Modification Program (HAMP), which permanently reduced mortgage payments to affordable levels for qualifying borrowers. MHA expanded to include a number of other specialized programs. MHA helped over 1.8 million families obtain mortgage relief and avoid foreclosure. MHA expired in December 2016.

The Board of Governors

The President of the United States nominates seven people to serve on the Board of Governors for 14-year terms, and the Senate confirms the president's nominations. Additionally, the president appoints a chairman and vice-chairman of the board from the seven nominees. The job of the Board of Governors is to set the discount rate and the reserve requirement for member banks. Additionally, the board forms a proper part of the 12-member Federal Open Market Committee (FOMC). The remaining five members of the FOMC are appointed from the 12 Federal Reserve banks. The FOMC is in charge of the Fed's open-market operations, such as the purchase and sale of government securities.

Which of the following topics is covered in the monthly report published by the Real Estate Center at Texas A&M?

The Real Estate Center at Texas A&M provides good statistical information regarding Texas real estate, including statistics on employment, growth of communities, and housing activity.

Section 203(k): Rehabilitation Mortgage Insurance

The Section 203(k) loan makes it possible for the purchaser to obtain a single long-term loan (either fixed or adjustable rate) to cover both the acquisition and rehabilitation of a property. The 203(k) is also available for refinancing a property that is at least one year old. The value of the property is limited by the FHA mortgage loan limits for the area and is determined by either the value before rehabilitation, plus the cost of rehabilitation, or 110% of the appraised value after rehabilitation, whichever is less.

What demographic is specifically targeted by the efforts of the TSAHC?

The TSAHC targets the housing needs of low-income families and other underserved populations in Texas who don't have acceptable housing options through conventional financial channels.

Debt-to-Income Ratio

The VA has no housing expense qualifying ratio; only the total debt-to-income ratio is considered. Debt-to-income ratio means that the combined total of monthly debts cannot exceed 41% of the veteran's gross monthly income. These debts include: The house payment All installment accounts All revolving accounts Minimum payments on paid-out revolving accounts Child support Child care

But Is It Better Than Paying for PMI?

The appeal of the 80-10-10 loan is that it does not require the borrower to pay for private mortgage insurance and that, unlike PMI, the interest on the second loan is tax-deductible. PMI is cancelable when the borrower's equity reaches 20 percent, whereas the second loan of an 80-10-10 mortgage must be paid as any other loan. Only the individual borrower and those working in their interests can decide the best choice. An 80-10-10 loan does have lower payments than a comparable single loan, with PMI and greater tax deductions. But if the borrower intends to build equity fast, the PMI loan might save more money in the long run.

Another Rule: Stay with the Property

The borrower must continue living in the property. If they plan to move or sell in the future, this loan is not for them. Most loans allow borrowers to be gone temporarily as long as the intent is for them to return to the home. When the last homeowner passes away (if it's owned by a married couple, for example) or leaves the home permanently, the loan has to be paid in full.

Contract for Deed

The classic executory contract is the contract for deed (or land sales contract), where the seller keeps the title upon completion of the sale and the buyer gets the title after making payments over a period of years. All such devices now fall under the extensive rules and penalty provisions of Property Code Subchapter D. Contracts for deed, lease-purchases, and lease-options for longer than 180 days are unambiguously defined as executory contracts.

Cost Approach

The cost approach involves an appraiser's estimation of the current cost of reconstructing the property with improvements (known as the cost of reproduction), the depreciation value, and the land value.

When to Use the Cost Approach

The cost approach is also the method to use for determining the value of highly specialized buildings, such as museums or public libraries.

Which of these provisions relieves the borrower of personal liability to repay the loan?

The exculpatory clause relieves the borrower of personal liability to repay the loan.

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

The first step of the appraisal process consists of the appraiser identifying the purpose of the appraisal, the date, the property location, and any other aspects that make the specific appraisal project unique.

What are the four characteristics of value?

The fours characteristics of value are demand, utility, scarcity, and transferability (DUST).

Housing Expense Ratio

The housing expense ratio (also sometimes referred to as the housing-expense-to-income ratio or the front-end ratio) is a simple ratio that compares housing expenses to pre-tax income. The formula to determine the ratio is this: Housing expenses ÷ Income = Housing expense ratio

Early Efforts

The idea of a national deposit insurance fund was first brought up to Congress by William Jennings Bryan after the 1893 financial panic, but failed to get much traction. After the 1907 panic, things looked really dire, and many states took matters into their own hands, forming state deposit insurance funds. Still, there was a demand for a national fund. Over 100 bills were submitted to Congress in an attempt to set up a fund. But it wasn't until the Great Depression that the federal government decided to get into the deposit insurance game.

Deciding Factors

The institution should consider both internal and external factors in the formulation of its loan policies and strategic plan. Factors that should be considered include: The size and financial condition of the institution. The expertise and size of the lending staff. The need to avoid undue concentrations of risk. Compliance with all real estate related laws and regulations, including the Community Reinvestment Act, anti-discrimination laws, and for savings associations, the Qualified Thrift Lender test. Market conditions.

The Board of Governors

The job of the Board of Governors is to set the discount rate and the reserve requirement for member banks. Additionally, the board forms a proper part of the 12-member Federal Open Market Committee (FOMC). The remaining five members of the FOMC are appointed from the 12 Federal Reserve banks. The FOMC is in charge of the Fed's open-market operations, such as the purchase and sale of government securities.

Prescriptive Easements

The last way that an easement could be created is by prescription. Prescriptive easements occur when a dominant party has been using the servient party's land continually, notoriously, out in the open, for a statutory amount of time without anyone telling them that they could not.

Short Sale Types

The lender forgives the debt. (This is considered debt forgiveness and at times has been taxable income for IRS purposes; clients should check with a tax consultant.)

Equity Stripping

The lender makes a loan based upon the equity in your home, whether or not you can make the payments. If you cannot make payments, you could lose your home through foreclosure.

Bait-and-switch schemes

The lender may promise one type of loan or interest rate but without good reason, give you a different one. Sometimes a higher (and unaffordable) interest rate doesn't kick in until months after you have begun to pay on your loan.

Risk Level

The level of risk is important as well. Investments with high risk and low returns are of little interest to investors. To ensure that the level of risk associated with loans in the secondary market does not run too high, the largest buyers in the secondary market have established guidelines to which loans must conform if they are to be traded in the secondary market.

When a loan is being applied for, a loan officer sends the verified loan application to whom?

The loan officer then will order an appraisal and send the verified application and the appraisal to the underwriter.

Loan origination fee:

The loan origination fee is often referred to as points. On an FHA loan, the loan origination fee is one point. On a VA loan, the loan origination fee is determined at the discretion of the lender. Anything in addition to one point (on government loans) is called discount points. A point is equal to one percentage point of the loan amount. This amount is paid directly to the lender as a fee to set up the loan.

The Application

The loan process begins with the loan application. A borrower first meets with a mortgage broker or loan officer to fill out the application. After the application is filed, its information needs to be verified. For example, the salary and employment information is checked against the Verification of Employment Form, sent to the applicant's employer. The loan officer then will order an appraisal and send the verified application and the appraisal to the underwriter.

Grantor

The person transferring title to or an interest in real property to a grantee

Where Does PMI Show UP on the Loan Documents?

The premium is shown on your Loan Estimate and Closing Disclosure on Page 1, in the Projected Payments section. You will get a Loan Estimate when you apply for a mortgage before you agree to this mortgage. The premium is also shown on your Closing Disclosure on Page 1, in the Projected Payments section.

Which of the following affects the price of real estate?

The price of real estate is affected by the supply and demand for real estate. Demand for real estate is affected by many things, including the supply of available loan money, unemployment, confidence in the econom

The United States Mint

The primary responsibility of the U.S. Mint, a unit of the U.S. Treasury Department, is manufacturing, distributing, and circulating United States coins and precious metals, as well as providing asset security. The coinage produced and circulated by the U.S. Mint allows the United States to conduct its trade and commerce.

principle of substitution

The principle of substitution says that a person will pay only as much for a property as they must pay to acquire a comparable property (a substitute).

Power of Sale Clause

The property sale in a non-judicial foreclosure will usually take the form of an auction. Since we're talkin' about a court-free remedy, it's extremely important for borrowers to know what they're getting into when they sign the contract. Notices and legal documents must make the power of sale language very clear if this type of non-judicial foreclosure is going to be an option for the lender. Again, the power of sale clause is the clause that allows a lender to foreclose on a property without judicial proceedings. Now that's some real power!

Equitable Rights

The rights of an individual to occupy, lease, or sell a property.

The Return

The secondary market agency obtains the funds to make payments to the investors from the borrowers' repayment of the mortgage loans that back the securities. Often the securities involve a guaranty so that the investor will receive the full monthly payment from the secondary market agency, whether or not payment has been collected from all of the borrowers.

Deed of Trust Requirements

The trustor is to keep the property covered with property insurance and to pay the annual taxes. Sometimes the beneficiary will collect the taxes and insurance payment monthly as an escrow payment. The trustor must occupy and continue to occupy the property as their primary residence. The trustor must maintain the property and not use it for any illegal activity. The alienation clause says that if the trustor sells the property, the beneficiary must be paid in full. (Conventional loans cannot be assumed. FHA and VA deeds of trust do not have an alienation clause and can be assumed with qualifying.) If the loan defaults and the beneficiary posts the property for foreclosure, the trustor has the right to reinstate the loan by certain actions (according to state law) up until the day of foreclosure. This is called the right of redemption. There is no right of redemption in Texas on mortgage foreclosures once the foreclosure takes place.

Mortgages

The type of mortgage document used in Texas is called a deed of trust. The deed of trust allows the title to the property to be immediately put in the new buyer's name. And with it, the lender acquires a specific lien on the property, creating an encumbrance. It gives the lender the right to foreclose without going to court (a non-judicial foreclosure) in the event of default.

Qualifying Ratios: Housing Expense Ratio

The underwriter must use the information they have about the applicant's financial qualifications to determine whether that applicant can make the monthly mortgage payment and service all of their other debts over the term of the loan. One important part of this process is the qualifying ratio. There are two different qualifying ratios used by underwriters: Housing expense ratio Total debt service ratio

The Secondary Market

The vast majority of loans made by mortgage companies are then sold on the secondary market, because mortgage companies don't tend to hold loans in portfolios. Some mortgage companies operate entirely from the proceeds of secondary market sales, selling their loans to insurance companies and retirement funds, as well as to buyers such as Fannie Mae and Freddie Mac.

The Free and Clear Home

There are a couple of scenarios that are most conducive to seller financing. The first is when the seller's home has no loan on it (it's paid off) and the seller simply becomes the lender at the time of closing instead of taking the cash out of the property. Many times the seller can make more interest this way than they can with a savings account or CD.

Tax Incentives

There are a few reasons why foreign lenders may want to provide their services in the United States. One is favorable tax policies that make U.S. lending an attractive option. Another reason is that real estate financing in our country can be reliably profitable for these companies. Lending their funds in the U.S. is even more attractive for lenders whose home countries are facing uncertain economic conditions.

Cons

There are also some disadvantages: Interest is constantly in flux. If interest rates go way up, the borrower will end up paying way more than they began paying in the introductory interest period. The borrower will have to be careful because sometimes the rate caps don't apply to the first adjustment. Yikes! This is something they'll definitely want to discuss/negotiate with their lender. If a borrower isn't super knowledgable about ARMs, they might have trouble negotiating with the lender because there's so much that goes into them. Lenders might use the borrower's lack of knowledge to sign them up for something that isn't very beneficial to them.

Names of the Parties

There are many different terms used to describe the parties to the transaction in these documents. Below are some examples. Sometimes the buyer is the mortgagor (borrowing the mortgage). Other times the buyer is the trustor (giving the deed of trust), or the grantee (receiving the deed). The seller, who is not involved in the buyer's loan, becomes the grantor when they give the deed. The lender becomes the mortgagee (giving the loan and holding the note) and becomes the beneficiary in the deed of trust. The trustee holds the deed of trust in trust for the benefit of the beneficiary, with the permission of the trustor.

Crop Rights

These rights may have been never transferred and have allowed a previous owner to continue to produce crops on the land. This is usually done through the season and then transferred. If the sale happens and the property has been leased for crops, the lease stays intact until the lease expires.

Important Note

This lesson is focused on purchase money mortgage foreclosures. Tax foreclosures, HOA foreclosures, and foreclosures on equity loans are all covered under different laws. Most will require judicial foreclosure and some have a right of redemption after they are sold at foreclosure. Keep in mind, the following is in regard to purchase money first lien mortgages.

FHA (Federal Housing Administration)

This means that borrowers will need to get their loan through an FHA-approved lender, and not directly from the FHA. Costs, services, and standards will depend on the lender or mortgage broker. Borrowers will definitely want to do adequate research and shop around prior to making a decision.

Step 1: Find the total assets

This person's assets include cash and savings. We just add them together. $20,000 + $15,000 = $35,000 Answer: $35,000 total assets

No Clouds

Title insurance is assurance that every possible defect (known as "clouds") on the title to the land a person is buying has been called to their attention so that such defects can be corrected before they buy. And it is insurance that if any undisclosed claim against someone's policy arises out of the past to threaten their ownership of real estate, it will be disposed of, or that person will be reimbursed exactly as their insurance policy provides.

CFPB in Action

To apply for a regular mortgage, an individual has to interact with piles and piles of forms. (Piles for miles!) This is usually, as you can imagine, extremely overwhelming. (Cue the bad guys:) Some brokers take advantage of this grueling and often confusing process by pushing borrowers into loans they didn't need or can't afford. (Cue the good guys:) That's where CFPB comes in to save the day.

Finding the Housing Expense Ratio

To determine Jerome's housing expense ratio, we need two things: The monthly housing expense (PITI) The gross monthly income By way of reminder, PITI stands for principal, interest, taxes, and insurance.

Fannie Mae and Freddie Mac

To recap, Fannie Mae and Freddie Mac are both what is known as a government-sponsored enterprise (GSE), created by Congress to provide liquidity, stability, and affordability to the mortgage market. They are "sponsored" enterprises because, in spite of the fact that they were created by the government and operate under a government charter, they are publicly traded companies.

An unsecured note does NOT contain reference to a security instrument.

True: An unsecured note is not secured by a security instrument, so it contains no reference to such a thing.

For new construction and highly specialized buildings, an appraiser would most likely use the cost approach to value.

True: For new construction and highly specialized buildings, an appraiser would most likely use the cost approach to value.

In Texas, prorations are calculated through the closing date.

True: In Texas, prorations are calculated through the closing date.

Avoiding Balloon Payments or PMI

Two things borrowers don't like to pay? Balloon payments Private Mortgage Insurance (PMI) And those are two good reasons to refinance.

What is TRUE of USDA loans?

USDA loans don't require down payments.

Which Year to Use?

Unless otherwise noted in the question, in this course we will use the 360-day year. However, regulations in your area may require that you use the 365-day year. Also, in our calculations, we will assume that the seller is responsible for expenses incurred on the closing date. However, state laws determine whether the seller is in fact legally responsible for charges incurred on this date; these laws vary and you should confirm the standard used in your state before finalizing your calculations.

Verification of Deposit (VOD)

Verifications of Deposit, or VODs, are requests sent to banks by state and federal agencies, including the Veteran's Administration and the Social Security Administration, to verify whether a customer qualifies for any of the following: Subsidized housing Food stamps Medicare Medicaid Mortgage lenders send a verification of funds on deposit to determine if the consumer has the cash that will be needed for the down payment and closing costs when processing a mortgage loan application.

Streamline refinance

Verify income/employment Share bank or asset information Have a minimum credit score Get a home appraisal

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

When FHA-approved lenders call the credit alert interactive voice response system (CAIVRS), they can check information on a borrower's credit status on the basis of no cases, a claim, default, foreclosure, Department of Justice judgment, or multiple cases.

The Glass-Steagall Act

While the Banking Act of 1933 helped the nation recover some financial confidence by creating the Federal Deposit Insurance Corporation, that's not all it did. Another big provision of the Banking Act was the Glass-Steagall Act — a law that sought to separate commercial and investment banking.

A Right Held By Others

With a deed of trust, the right to real estate is held by another party until the terms of the loans are satisfied. There are two things that can happen: If the borrower pays off the loan, the third party will reconvey the property to the borrower. If the borrower defaults on the loan, the third party will reconvey the property to the lender

Georgia has a reverse mortgage. She lives to be 101, and so when she passes, the loan is worth more than the property. Her heirs decline to pay the difference. The lender forecloses on the property, sells it, but there is still a $50,000 deficiency. Who must pay it?

Yes, reverse mortgages are non-recourse loans, so the lender cannot make the heirs pay the deficiency. Instead, the lender will have to absorb the loss.

The Community Reinvestment Act (CRA)

You know that the Department of Housing and Urban Development, or HUD was created to create strong, sustainable, inclusive, and quality affordable communities for all. (See how I snuck in some review there?) Well, closely related to HUD in function is another governmental program you should know about, the Community Reinvestment Act, or CRA. The CRA was enacted by Congress in 1977 with the intent to address discrimination in loans made to individuals and businesses from low and moderate-income neighborhoods.

Packing:

You receive a loan that contains charges for services you did not request or need. "Packing" most often involves making the borrower believe that credit insurance must be purchased and financed into the loan in order to qualify

Fannie Mae Form 1004

You'll most likely see URAR listed as the "Fannie Mae Form 1004." The report covers a full appraisal process that includes all three approaches to value: the cost approach, the sales comparison approach, and the income approach.

Refinance

Your clients can eventually ditch the PMI by refinancing their loans. This involves a new appraisal of the property, and the homeowner needs to establish that they have 20% equity or more in order to refinance to a new loan that doesn't involve mortgage insurance. They may even get a better interest rate on the new loan!

Which one of the following definitions best describes a tax credit?

a dollar-for-dollar reduction in a taxpayer's tax liabilities

A person with a Mortgage Credit Certificate will get

a tax credit on their income taxes.

Tax deductions: Reductions in

a taxpayer's taxable income, which in turn lower the amount of that taxpayer's income tax liabilities (that is, their taxes owed)

What is an affirmative easement?

an easement that gives someone the right to use another's real property for a specific purpose

Primary dealers

are banks and securities broker-dealers that trade in U.S. Government securities with the Federal Reserve Bank of New York (FRBNY). The Federal Reserve sends and receives funds from the primary dealer's accounts at its bank. The purchase of government securities adds to the reserves from the banking system while the sale of securities drains those reserves.

This section also outlines the purchaser's options if the seller is found to have provided false information. The Property Code says that if the seller fails to provide the required information or provides info that is false, misleading, or deceptive, this:

entitles the purchaser to cancel and rescind the executory contract and receive a full refund of all payments made to the seller.

Without a secondary mortgage market, mortgages would be considered:

illiquid

In an ARM, to calculate the new rate at an adjustment period, what is added to the margin?

index rate

The total debt service ratio or debt-to-income ratio (DTI)

is also known as the back-end ratio.

Supply

is determined by the number of properties that are vacant or are available for sale or rent.

A life estate

is more restrictive than fee simple ownership. A life estate limits ownership to the lifetime of the owner or some other party. While a fee simple estate includes inheritance rights for the grantee's heirs, a life estate does not.

Loans the FHA insures:

loans for repair/rehabilitation of homes loans for condominiums adjustable rate mortgages (ARMs) graduated equity mortgages

Lenders need to evaluate and qualify both:

n addition to qualifying the buyer, a lender must evaluate the property being financed to make sure that, if they have to foreclose in the future, they will be able to recover their cost.

overlay

ou will see that some of the lenders out there have overlays. An overlay is something that is self-imposed by the mortgage company or investors to have stricter lending requirements, which means a less risky loan. When an overlay is in place, the lender requires the applicant's credit score to be higher than FHA standards. This is why you hear from some lenders that the required credit score is as high as 640.

Which of these loan types is eligible to be insured by the FHA?

rehabilitation loan

. The Closing Disclosure form, or CD,

replaced the HUD-1 and the Final Truth in Lending Disclosure on Oct. 3, 2015.

Which of the following is a difference between Fannie Mae and Freddie Mac?

the size of the financial institutions they deal with

Which of these is the equation for finding the total debt service ratio?

the total debt service ratio (a.k.a. DTI or back-end ratio) is (PITI + long-term liabilities) ÷ Gross monthly income.

vendors lien

you don't pay you're vehicle

Foreclosure Causes: The Five D's

Death A death in the family can sometimes trigger a series of financial struggles that lead to foreclosure of the family's home. This terrible outcome may be more likely to happen in cases where there is a primary breadwinner in the household and they are the one who passes. It's an awful financial stress on top of the emotional toll of losing a loved one.

FHA interest rates are set and negotiated by the lender and the:

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

Government-Sponsored Enterprises Government-sponsored enterprises (GSEs) are the major participants of the purchase and sale of mortgages in the secondary market. Some of the GSEs involved include:

FNMA: Federal National Mortgage Association, a.k.a. Fannie Mae FHLMC: Federal Home Loan Mortgage Corporation, a.k.a. Freddie Mac FHLB: Federal Home Loan Bank, a.k.a. FHLBank FAMC: Federal Agricultural Mortgage Corporation, a.k.a. Farmer Mac Plus one honorary mention, but technically not* a GSE: GNMA: Government National Mortgage Association, a.k.a. Ginnie Mae

Expectations

Finally, expectations affect supply as much as they affect demand. If sellers expect the price of real estate to go up in the near future, they will be less likely to sell right now. If sellers expect the price to go down soon, they will be more likely to sell right away. The case is similar for lenders as the interest rate is expected to increase or decrease. However, lenders are much like apartment managers. They cannot afford to not receive interest for any significant period of time. Likewise, market expectations only sway the timing of a person who's selling their house if they have the luxury of a flexible schedule.

The Price-to-Earnings Ratio

For example, if a REIT is selling at $144 a share and its expected dividend for the next fiscal year is $12 per share, then the P/E is $144/$12 = 12. As of this writing, P/Es at or below 16 are generally considered to be low ratios. (Those above 16 are high.) Low ratios tend to indicate consistent earnings in the near future, but usually belong to companies that are more established.

Liquidating Assets

For example, if when taking out a new loan, a borrower does not want an existing mortgage to be included in their long term debt total — perhaps because the borrower intends to repay the mortgage with the sale of the property to which it is attached — the property must either be sold or have a contract to purchase when the lender underwrites the new loan. This is to ensure that the property will be sold and the mortgage on the existing property satisfied.

Higher Mortgage Availability

GSEs also help to keep interest rates low by increasing mortgage availability, which is another primary reason for their creation. GSEs act as financial intermediaries to assist lenders and borrowers in housing and agriculture. They have created a secondary market for mortgage loans. Because of this, GSEs are the largest financial institutions in the U.S.

It's a Hassle

Getting rid of it is a hassle. As I said, homeowners can request PMI to be canceled at 80% home valuation, but it's not as easy as that. Usually, the lender will require a home appraisal, which can be an ordeal in itself, and a letter from the homeowner requesting a cancellation. Still, if there's a PMI contract that states that the homeowner cannot request cancellation at 80%, the homeowner will just have to wait. Always read the fine print, but especially with PMI.

Gift Rules & Requirements

Gifts are acceptable for primary residences (and sometimes second homes), but not investment properties. 🎁 The way the gift funds are transferred is important. Buyers must receive the gift properly with thorough documentation of the source of the gift. This usually calls for a wire transfer from the gift-giver to the escrow account (not the buyer's personal bank account) and an accompanying gift letter. If you're representing a buyer, you'll want to know early on if they will be using gift funds so you can inform them about the procedure.

Attorneys' Fees

If a buyer and a seller are paying their attorneys out of their own pockets, then the attorneys' fees are often omitted from the closing statement. However, if one or more attorneys' fees are to be deducted from the proceeds from the closing, then the party who hired the attorney as their representative will generally be debited for the attorney's fees.

Default Under a Contract for Deed

If a buyer defaults under a contract for deed, it is not permissible to simply evict a buyer under an executory contract, even if there is a default. The buyer has equitable rights and is more than just a tenant. The Property Code therefore requires ample notice and opportunity for the buyer to cure the default.

Consider the Length of Stay

If a consumer plans on living in their home for the next several years, the cost of a mortgage refinance will be paid for by the monthly savings gained. On the other hand, if a borrower is planning on moving to a new home in the near future, they may not be in the home long enough to recover from a mortgage refinance and the costs associated with it. Therefore, it is important to calculate a break-even point, which will help determine whether or not the refinance would be a sensible option.

If a foreclosure sale does not generate enough money to pay off the loan and cover the costs of the foreclosure, the lender might seek a:

If a foreclosure sale does not generate enough money to pay off the loan and cover the costs of the foreclosure, the lender might seek a deficiency judgment.

Foreclosure in a Buyer's Market

If we are in a buyers' market, the situation is more of a challenge. When there is a larger amount of available inventory, buyers have more choices and the values of homes are not as strong. Deficiency judgments are more likely.

Veterans Administration

In 1944, the Veterans Administration (VA) loan program was created, as a similar way to create government-guaranteed mortgages for veterans. Both of these programs allowed for fixed-rate, long-term mortgages with minimal down payment requirements, making mortgages more accessible for a lot of people and helping re-establish lender confidence in the market.

Participant Fees & Loan Documentation

In addition to making the one-time participation payment, the participant also pays the lender a participation fee, which is a monthly servicing fee based on the outstanding principal balance of the loan and the participant's percentage share of any expenses incurred by the lender in connection with the enforcement of the loan.

Seller Financing

It's not a very common type of financing, but when we talk about private lenders in real estate, seller financing comes to mind. Sellers have the option to provide all the financing for the person who is buying their home. Other times, the seller will supplement the financing the buyer obtains from an institutional lender. Sellers can be an especially important source of financing (and a more common source) when institutional loans are difficult to obtain, particularly in times of high interest rates.

Three Days Prior

Lenders are required to provide the Closing Disclosure three business days prior to closing. That means it is good to take time prior to closing to review it with your client and compare it to the Loan Estimate form that was provided at the beginning of the loan application process. It's also a good time to ask the lender to explain any discrepancies you weren't expecting. On closing day, you and your client want to already be familiar with its contents and to have resolved any issues your review uncovered. Here is a timeline that breaks down when you can expect it to be delivered and when closing can occur:

RESPA Prohibitions

In addition to the previously stated requirements, RESPA also contains several prohibitions for transactions that involve federally related mortgage loans. These regulations apply to transactions involving the purchase of a one-to-four family home: No party (such as a seller, lender, or servicer) may give or accept a fee or anything else of value for the referral of a closing service No party may charge a fee for a service that is not actually performed, nor may it split an earned fee with another party that has not performed or helped to perform the service for which the fee was charged The seller may not require as a condition of sale that the borrower use a specific title insurance company RESPA limits the amount of money a lender can keep in an escrow account for the payment of taxes and insurance

Recognition Clause

In addition to the release clause, developers often also will include a recognition clause in the blanket mortgage contract. This clause states that a lender who forecloses the developer's mortgage must recognize the rights of the individual homebuyers who have purchased lots from the developer.

Existing use or by necessity

In addition, implied easements can be created by existing use when a property is split with the intent that one of the parcels would continue to use the other. Or, the easement could be created by necessity, in which a parcel is sold that prevents another parcel from having access to a basic utility or public road.

Unsecured Notes

In contrast, unsecured notes do not reference security instruments; they only have the borrower's promise that the debt will be repaid. For this reason, unsecured notes create the most risk for lenders. And because of the high risk, interest rates on unsecured notes are usually much higher than on secured notes. A lender will look very carefully at the borrower's credit history before granting them an unsecured loan. And whether it is a secured note or an unsecured note, it will require the signature of the borrower as an acknowledgment of their debt to be paid. It is not required that the lender sign the note, as notes are transferable.

Employers Aren't Out to Get People, Generally

In general, employers will complete VOEs with truthful responses regarding the borrower's current employment situation. They will neither guarantee continued employment or defame the employee.

Sources of Income

In general, the underwriter looks for a two-year employment history, including a consistent working pattern that provides a good indication that the applicant's income will continue.

Interest Rates

Interest rates that are not fixed but are instead tied to the market are called floating rates. Simply put, the float rate is the interest rate at any particular moment. Borrowers are attracted to loans when the float rate is low, because they can lock in a low interest rate and save money throughout the term of the loan. Sounds cool, right? Interest rates, however, are locked in when the loan is issued. This means that between the time of application and closing, the rate could float up and leave the borrower with a higher interest rate than they would desire — after it is too late to get out of the loan. Sounds not cool, right?

Unwanted Risk

Is your client being swindled into getting a more risky loan than they'd like? That's a red flag. Your client should know what they are getting and be willing to get a riskier mortgage if that's what they want. If not, there's definitely something to be suspicious about. If your client who has a risky mortgage mentions anything about not getting the loan they originally wanted, it's time to maybe do some digging into their loan pre-approval and lender. 🕵️

It's Expensive

It costs a lot. PMI usually costs 0.5% - 1% of the loan annually. This means the homeowner can be paying over $200 extra per month for a house that costs $250,000. It seems like a lot of money for something that only benefits the lender. For that same homeowner, they could end up paying more than $38k over the life of their mortgage for PMI. Think about all the other things they could do with all that extra money. They could pay off their mortgage a lot faster, that's for sure. That's enough to buy a super fancy car, too, like the base model Tesla. So...a Tesla or PMI?

Party Payment Disclosure

It is essential that the lender knows exactly how much money for the down payment and closing costs are being paid from the buyer's funds. Anything being paid by any other party in the transaction must be disclosed in the contract and on the closing statement.

Grantor Names

It is important that the grantor's name be properly and consistently spelled throughout the deed. If a grantor's name changed since they acquired the title, then any conveyance document should include both names. If two names are needed, it would look like this: "Ms. A, now known as Ms. B."

Your Responsibility

In many states, a real estate license holder's official, legal responsibilities to the principals involved in a real estate transaction end with the signing of the sales contract. Even though a license holder may not have any legal obligation to provide services throughout the closing process (the final stage of the real estate transaction), it's not wise simply to walk away from a transaction after the sales contract has been signed. Deals can and do fall apart during the closing process, and when a transaction fails to close, this can mean unsatisfied clients and no commission. Real estate professionals who understand closing procedures and regulations can stay involved right up to the end of a transaction, helping to ensure that their principals' transactions close appropriately.

Who is usually the victim when loan fraud takes place?

In real estate fraud, the mortgage lenders are usually the ones being cheated.

Liquidating a Distressed Property

In some cases, it will be best to liquidate a property in distress. If operation of the property would result in a loss—that is, the total cost would exceed total revenue—selling the property is advisable. It is important to remember that the total cost of retaining the asset should not include any amount the lender lost on the loan, as that is a sunk cost. A distressed property may be worth no more than the land on which it is situated. Sometimes, however, improvements can make the difference in selling the property as raw land and selling it as an income producer. The owner must compare the expected sale price of the property in its current condition with the expected sale price of the improved property, less the cost of improvement.

Community Development Act of 1974

In the 1970s, studies began to show that the biggest housing problem afflicting low-income families and individuals was no longer substandard housing, but instead the high percentage of income spent on housing. With this knowledge, Congress passed the Housing and Community Development Act of 1974, amending the Housing Act again to create the Section 8 Program.

An agent is working with a foreign client who has put a large cash bid on a luxury property. The agent has never met the client in person, the client has never seen the property, and the client is purchasing the property in the name of a corporation that is operating several states away. How should the agent respond?

In this situation, there are several red flags that could mean the agent is dealing with a money launderer. The agent should speak with the managing broker about their suspicions immediately.

When to Use the Cost Approach

In which situations would the cost approach most likely be used? Typically, most residential appraisals do not use the cost approach. However, the cost approach is a great approach to value for appraisers to use on new construction. The cost approach is also the method to use for determining the value of highly specialized buildings, such as museums or public libraries.

Mortgage fraud red flags include:

Inflated price or appraisal Real estate agent is asked to remove the property from MLS (a violation of MLS rules) or being asked to increase the price in MLS to a higher price to match the sales price False financial statements by the buyer Contract calling for payments at closing for future improvements High fees to the mortgage broker, real estate broker or both No fee for a title policy on the closing statement A title company you have never heard of before Last-minute amendments to the contract, increasing the sales price

Retirement Vehicles

It's also possible for a borrower to own one or more retirement vehicles, such as a 401(k) plan or an Individual Retirement Account (IRA) that contain funds with which they may purchase real property under certain conditions. For example, funds in some retirement accounts may be used to purchase investment properties that are maintained within the account itself. Investment properties are properties such as rental homes, apartment complexes, and strip malls, at which the holder of the account does not live, visit, or vacation.

MARS Rules

It's illegal to charge upfront fees. You must clearly and prominently disclose certain information before you sign people up for your services. If you advise someone not to pay their mortgage, you must clearly and prominently disclose the negative consequences that could result. Don't advise customers to stop communicating with their lender or servicer. You must disclose key information to your customer if you forward an offer of mortgage relief from a lender or servicer. Don't misrepresent your services.

Power of Sale Clause

Non-judicial foreclosure is the primary method of foreclosure in Texas. Except for certain notice provisions, this type of foreclosure does not involve court action (hence the name non-judicial foreclosure). A deed of trust or mortgage document will usually contain a provision called a power of sale clause. This clause allows the lender to bypass the courts and take possession of and sell a collateral property when the borrower defaults on their loan.

Non-Purchase-Money Security Interest Liens

Non-purchase-money security interest liens are the other type of consensual lien. Non-purchase-money security interest liens are a little rarer, but the essential difference from the previous type of lien is that instead of putting the purchased property up as collateral for the loan, the lendee puts up their already owned personal property as collateral. Second mortgages count as non-purchase-money security interest liens, as do loans that are taken out with valuable property used as collateral (like at a pawn shop).

Title and inspection fees are examples of non-recurring closing costs that are associated with:

Non-recurring closing costs can be divided into two categories. Title and inspection fees are examples of non-recurring closing costs that are associated with the home-purchase process. Non-recurring closing costs, like the loan origination fee, may also be associated with the lender.

FHA Mortgage Insurance

Note: FHA is an insurer and not a lender.

The Glass-Steagall Act

Remember the 1929 stock market crash and bank failures that led to the Great Depression? I mean, I know you weren't actually there, but you remember that happened, right? Cool. Well, the Glass-Steagall Act was the legislative response to these things. The financial crash was largely blamed on too much commercial bank involvement in the stock market (including excessive risk-taking with depositors' funds). The GSA addressed this by separating investment and commercial banking activities.

Fair Credit Reporting Act (FCRA)

Now we're going to get into some laws that aim to protect people trying to get credit. People have the right to know what's going on with their credit scores, and lenders and businesses have the duty to be honest and transparent with their reporting. Hence, the Fair Credit Reporting Act, or FCRA, an act from the U.S. Federal Government to promote the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies. FCRA was enacted with the intention of protecting consumers from willful and negligent inclusion of inaccurate information in their credit reports.

Texas Business Incentives

Property tax abatements Permitting fee waivers Local cash grants Local funding to business-related infrastructure and recruitment, equipment, land, and economic development purposes The Texas Enterprise Fund (TEF) may provide cash grants for business expansion or relocation to Texas. The Texas Enterprise Zone Program provides state sales and use tax refunds to qualified projects in economically distressed areas of the state. The Texas Skills Development Fund provides financing for customized job training programs for businesses that want to train new employees or upgrade the skills of their existing workforce.

TILA-RESPA Integrated Disclosures Rule (TRID)

On August 1, 2015, it was decided that effective October 3, 2015, the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) would be combined, creating the TILA-RESPA Integrated Disclosures, or TRID. TRID requires that lenders give borrowers two disclosures: the Loan Estimate and the Closing Disclosure. The Loan Estimate form would replace the Good Faith Estimate and Truth-in-Lending Disclosure The Closing Disclosure would replace the HUD-1 and final Truth In Lending form

Going Down?

On the other hand, if interest rates are falling, it could be a good idea to refinance from a fixed-rate mortgage to an ARM. This is a less popular reason for refinancing, but potentially a beneficial one. It could be helpful to avoid future refinances if the interest rate is supposed to drop multiple times in the foreseeable future. Additionally, if the homeowner also plans to not stay in their current house for very long, refinancing to an ARM could be a good idea, allowing them to pay less while not having to worry about a future increase.

The Birth of a REMIC

On the primary mortgage market, banks and credit unions give loans to approved homebuyers. On the secondary mortgage market, investment banks take these loans and create mortgage pools or bundles from which their investment managers can issue bonds. These bonds are called mortgage-backed securities (MBS) because they get their value or are "backed" by the underlying mortgages that make up the pool.

Surveys

Lenders often will require a survey before originating a loan. All loans sold on the secondary market require title insurance and an accurate survey.

Funding FHA Loan

Once the approval is completed, the lender, in most cases, will wire the money to the title company. Once the buyer and the seller sign all the paperwork during closing, that's when the funding happens. The lender will send in the documentation required to fund and they will receive a funding confirmation. The funding can take up to eight hours depending on the time of day/if the money is already at the title company. Once the loan has funded, the keys can be released to the buyer, and bam! The transaction is completed.

Know Before You Owe

One CFPB program, Know Before You Owe, combines two federally required mortgage disclosures into a single, simpler form that makes the costs and risks of the loan clear and allows consumers to comparison shop. Yay! Comparison shop 'till you drop! This program and other ongoing federal oversight of nonbank companies and banks in the mortgage market work to protect borrowers from unfair, deceptive or other illegal mortgage lending practices.

Discount Points

One discount point is equal to 1% of the loan. Lenders will offer these points when the net present value of the future cash flows from interest is less than the value of the discount. Lenders are also motivated by the greater security offered by discount points: If the interest is paid up front (in the form of a discount), it cannot be lost through borrower default.

Conventional Loans

Let's begin this lesson on loan types with a very standard, or conventional kind of loan. A conventional loan is any loan that is neither insured by the government (which I covered earlier) nor guaranteed by the government (also explained earlier). For now, let's focus on the conventional fixed-rate mortgage, the most basic type of mortgage available. We will also consider alternatives to the fixed-rate mortgage.

Step 1: Find the depreciation percentage

Let's insert our givens into the formula. To find the total useful life, we just add the age of the property (10 years) to its remaining useful life (40 years) to get 50 years. Answer: 10 years ÷ 50 years = 20%

Quitclaim

One quick note: A quitclaim is a relinquishing of all, if any, current interest. Also, a quitclaim deed uses the wording, "quitclaim" rather than "grant, sell, and convey." A quitclaim is used when a property transfers ownership without being sold — a fairly common occurrence when transfers occur between family members.

Scenario: Prorations

Let's take a look at an example. Suppose a sale closes on July 14 and prorations are carried through the day of closing. Say that there is a $30 HOA bill for the month of July. Is the seller responsible for that bill? Yes! But only for those 14 days in July. Remember that prorations are calculated through the closing date, which means that the seller is responsible for accrued items through that date.

Self-employed Borrowers

Let's talk about documentation requirements for self-employed borrowers, or borrowers who own more than 25% of a business. A two-year history of income from self-employment must be established, with the following exception: If the borrower has a one-year history of self-employment and a prior, documented history of non-self-employment doing the same work, her or his income may be considered. In general, any borrower should have a two-year employment history with the expectation that this income will continue for at least three years. When there is no evidence that income will expire, it is assumed that it will continue. Secondary income also must have a two-year history.

Demand

Let's think of the way trends in fashion work. Most clothing items or accessories we consider valuable are that way because so many people are hungry and on the hunt for those items. As soon as the trend fades away and people have their eyes on something else, those same items go on sale. The D in DUST works sort of the same way. In order for a property to have value, there has to be a strong demand for it. Otherwise, it offers little to no value.

Lower Returns for Lower Risk

Low risk often equals low rewards when it comes to investing. The rate of return on real estate bonds is usually smaller than it is for corporate bonds. With corporate bonds, the investor is putting their faith (and money) into a business. If things don't go well for the corporation, the investor could take a serious loss.

Up in ARMs

One type of mortgage, which you've learned about already, is the adjustable-rate mortgage (ARM). This is generally a 30-year mortgage that charges a low rate for the first two or three years, then resets at a rate based on a current, prevailing benchmark rate like the London Interbank Offered Rate (LIBOR). Often, this reset rate will be higher than the initial rate.

Disability Exemptions

People with disabilities may receive a property tax exemption in certain states, including Texas. This exemption is sometimes augmented for those whose disability is related to military service. Again, an application and some documentation is required to get this tax exemption.

Real Estate Phases

Phase 1: Recovery ⛑ Phase 2: Expansion 🏠 Phase 3: Hyper supply 🏙 Phase 4: Recession 🙁

Buyer Loses if Seller Defaults

Many buyers under contracts for deed have lost a lot when they were diligently paying every payment that they owed to the seller, but (unknown to the buyer) the seller had stopped making any payments to the original lender. And in that scenario, the buyer would only have recourse against a seller that probably has no money.

Going From Adjustable to Fixed Rate or Vice Versa

Maybe the borrower thought that they wouldn't be in that house very long, so they got an adjustable-rate mortgage. And, then, things changed and now they want to stay but are worried about interest increases. Fortunately for borrowers, an ARM isn't permanent (we're still talking loans here, not appendages), and they can refinance out of the ARM and into a fixed-rate mortgage. They may want to switch from an adjustable-rate to a 30-, 15-, or 10-year fixed-rate mortgage. Switching to a fixed-rate mortgage may be the most sensible option, given the threat of rising interest costs.

Mortgage Assistance Relief Services (MARS)

Mortgage Assistance Relief Services, or MARS, is a Federal Trade Commission Rule that protects consumers from predators while they're in default on their mortgage. Since homeowners facing foreclosure may find themselves desperate to hold on to their homes, some companies swoop in and claim they can help by negotiating new mortgage terms with lenders or servicers. ☹️ MARS makes it illegal to charge upfront fees and requires specific disclosures in ads and the same specificity when a lender's offer is forwarded to a homeowner. If you offer mortgage assistance relief services - or work with companies that do - it's wise to know about the provisions of the Mortgage Assistance Relief Services (MARS) Rule.

No Deposits

Mortgage bankers (which are not necessarily individual people, and can be called mortgage companies) are NOT depository institutions. They function more in the role of intermediaries rather than a source of lending capital. Mortgage banks control the greatest share of the primary lending market. They manage capital, not from personal deposits, but from large investors such as insurance companies and retirement funds. Mortgage companies will also borrow money from commercial banks to finance loans.

MIP

Mortgage insurance is always required for FHA loans with down payments of less than 20%, but this is a different product called a Mortgage Insurance Premium, or MIP. Private mortgage insurance is supplied by private companies (hence the name), not the lenders themselves. When determining the amount of PMI coverage, they look at the borrower's credit score, lender, down payment amount, and market conditions.

VOE, There!

Mortgage lenders send a Verification of Employment (VOE) to a potential borrower's current employer to verify their employment (makes sense, right?). The lender is verifying the person's income, that they actually work where they said they did, and whether or not that employment is likely to continue in the future.

VLB Home Requirements

Must be the veteran's primary residence in Texas Must be a single family attached or detached home, town home or condominium If a duplex or other multi-family unit, must have been constructed at least five years prior to the closing date of the loan If a new home, must have either ENERGY STAR certification or HERS Index score of 75 or less Must remain as the veteran's primary residence for at least three years, and the Veteran borrower must occupy the home within 60 days after loan closing.

Securities Dealers

Next, we have the securities dealers. They usually come in after the MBSs have been created because they buy the MBSs. The reason they do this is to sell these MBSs to investors, but in order to do this, they create Asset-Backed Securities (ABS), Collateralized Debt Obligation (CDO), and Collateralized Mortgage Obligation (CMO).

CLO: Loan Prospector

Next: Loan Prospector. Freddie Mac's Loan Prospector (LP) is the 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" "Manual underwrite loan" As you can see, the system does NOT reject a loan, rather, it refers them to manually underwrite the loan.

Prime Lending

Prime lending is based on what's called a prime rate. The prime rate is the interest rate that's issued for mortgage borrowers with what lenders deem "good credit." This rate is usually three percentage points above the federal funds rate, which is set by the government. The federal funds rate is the interest rate that banks charge other banks for overnight loans, so adding three percent to that gives you the prime rate.

Finding PITI: Add It Up!

Principal & Interest: $620.07 Taxes: $180.00 Insurance: $93.75 $620.07 + $180.00 + $93.75 = $893.82 The PITI for Jerome's dream home is $893.82.

Public and Subsidized Housing: Eligibility

Public housing is designed for low-income families and individuals. Here's what housing agencies look at to determine eligibility: Annual gross income Whether an individual qualifies as elderly Whether an individual qualifies as having a disability Family status U.S. citizenship or eligible immigration status If an individual or family is designated eligible, the housing agency will proceed to check references. Housing agencies are required to deny admission to applicants whose past habits or activities determine they may prove detrimental to other tenants

Initial Escrow Account Statement

Regulation X says that something called the Initial Escrow Account Statement has to be supplied at settlement or within 45 days (calendar days!) of settlement. This IEAS needs to include: The amount of the borrower's monthly mortgage payment Which portion of that (↑) payment will go toward the escrow account and itemize estimated taxes, insurance premiums, and other charges that should be anticipated to be paid from the escrow account The IEAS will also indicate the amount the loan servicer decides is a cushion, as well as the account's running balance.

Correspondent Lenders

Similar to a mortgage banker, a correspondent lender offers loans using their own money at their own risk. The difference is that a correspondent lender generally works on a smaller scale than mortgage brokers and bankers.

A $200,000 conventional loan can be a:

Since $200,000 is well under the conventional loan limits, this loan can be categorized as a conforming loan.

Insurance and Maintenance

Since real estate loans are secured by the lien on the collateral property, the lender will do everything necessary to make sure that the property is taken care of. This includes requiring that the owner has proper hazard insurance and flood insurance, if appropriate. As with taxes, most insurance payments are collected by lenders before they become due. Since certain loans do not have an escrow account, nonpayment or failure to renew insurance can become a problem. In extreme circumstances, this failure can force the lender to foreclose. Another option the lender has is to purchase a new insurance policy (that may be far more expensive than the one the borrower would have purchased) and then demand payment from the borrower. Then, if the borrower does not pay, the borrower is in default.

FHA Walkthrough: Does She Qualify?

Since the total housing expense-to-income ratio should not exceed 31% and the total debt service ratio should not exceed 43%, our numbers of 23% and 38% indicate that Claire would be eligible for an FHA loan.

Financing with a Credit Union

Since this part of the course is all about sources of funds, let's talk about credit unions specifically in the context of buyers getting loans to purchase homes. There are a few reasons why your buyer clients may want to use a credit union for financing rather than a bank. The buyer may be attracted to the lower rates, flexible qualification standards, and a better chance of staying with the originating lender.

Underwriting

So again, as Matt said, underwriting is when a mortgager gathers information in order to perform a financial analysis to determine the loan and interest rates they should provide. It's part of the loan approval process.

Truth in Lending Act (TILA): A Brief History

So how did TILA come to be? Well, young scholar, the act was originally Title I of the Consumer Credit Protection Act. Most of the specific requirements imposed by TILA are found in Regulation Z, thus a reference to the requirements of TILA usually refers to the requirements contained in Regulation Z. (More on Reg Z later in this chapter!)

Causes of Financial Crisis

So how did this all happen? Well, when housing prices first began to fall in 2006, many in the real estate industry were thrilled. They thought this meant that the housing market was going to return to a more manageable level. What real estate agents didn't know was that there were a large number of homeowners who had questionable or bad credit. That's because up until this point, banks let people take out loans for 100% or more of the value of their new homes. 😕

Annual Escrow Account Statements

So what's in an annual escrow account statement? Let us count the things: Account history Projections for the upcoming year Current mortgage payment and the portion that goes to escrow Last year's mortgage payment and the portion that goes to escrow Total amount paid on the account from last year Balance at the period's end How surplus, shortage, and deficiency will be handled

The System

So, in order to take power away from the federal bank and give some to the private sector, the Federal Reserve Act created the Federal Reserve System (sometimes just known as "the Fed"). This system is composed of 12 member banks across the United States, each serving a different geographical area.

No Shortages of Mortgages

So, the Federal Housing Administration provides insurance on mortgages and the mortgages that qualify can only come from FHA-approved lenders. But don't worry, there are hundreds of lenders who work with and are approved by the FHA all over the United States, so there's no shortages of mortgages to be handed out to approved borrowers. This mortgage insurance exists so that borrowers with less than stellar credit and money history can get loans for houses.

Float-to-Fixed Rate Loans

Some lenders are now offering loans that are much like ARMs, called float-to-fixed loans. Like an ARM, 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. These loans allow borrowers to take advantage of the lower earlier rates (as with ARMs) but avoid the risk of later rate increases. Freddie Mac offers a float-to-fixed-to-float loan with beginning and ending periods of floating rates, with a fixed interest rate in between. Sometimes float-to-fixed rate loans are known as hybrid ARMs. A variant, the fixed-to-float rate hybrid ARM, will be discussed in more depth in connection with VA loans.

Redlining

Some lending institutions limit the number of loans or the loan-to-value ratio in certain areas of a community or city. This is called redlining, and it just ain't right. If an institution practices redlining because of an individual or group's membership in a protected class, it violates both the federal Fair Housing Act and the Community Reinvestment Act.

RESPA's Regulations

Some of RESPA's regulations — such as its disclosure requirements — apply only to lenders. However, RESPA includes sections that impose regulations that also apply to license holders. For example, one section of RESPA is specifically concerned with reducing the unnecessary and ethically dubious charges that can sometimes be associated with settlement and closing services. This part of RESPA explicitly "prohibits anyone from giving or accepting a fee, kickback, or anything of value in exchange for referrals of settlement service business involving a federally related mortgage loan."

Causes of Financial Crisis

Some said that the Community Reinvestment Act was to blame. The act pushed banks to make loans in subprime areas, after all. However, the biggest problem rested on the Gramm-Rudman Act, which allowed banks to engage in trading profitable derivatives that they sold to investors. Because these mortgage-backed securities needed mortgages as collateral, it created an ongoing demand for even more mortgages.

Investing in Homes

Some seniors have made the decision to become real estate investors themselves. Some investors have made good profits by buying homes that aren't in good cosmetic condition, doing the rehab, and then renting or reselling for their own account. It's important for an investor to be knowledgeable about the market and to be able to make good estimates of the total they will have to invest in the property (for both the purchase and repairs) and the amount they will be able to sell it for. They should also consider the holding cost, meaning the investor's cost of owning a property for the time period before it is sold. The taxes, insurance, and utilities still need to be paid by someone!

Mortgage Subordination Agreement

Sometimes a home has more than one mortgage on it. This can get confusing. Which mortgage takes precedent when a home is foreclosed? Or when a home is refinanced? This is where the mortgage subordination agreement comes into play. The mortgage subordination agreement is a legal document used to sort out situations when there are two mortgages on a home, and the homeowner wants to refinance the first mortgage. The mortgage subordination agreement works to identify which mortgage will take precedence over the other.

What Is a Participation Agreement?

Sometimes lenders like to offer to sell interests in their loans to various participants. The agreement that governs this type of sale, and the rights and obligations of the seller and buyer of an interest in the loan, is called a participation agreement. In these agreements, the lender and any other participant have similar interests in that each wants the borrower to repay the loan and comply with its obligations under the loan.

Recasting

Sometimes moratoriums involve recasting, or a change of the loan terms. A lender may recast a loan in place of a payment moratorium or may recast in addition to the moratorium. If there is a moratorium, the borrower will owe more money than what will be covered by the remaining monthly payments. A plan for catching up with the loan is necessary.

Loan Estimate

TRID calls for the use of a Loan Estimate for the loans it covers. The Loan Estimate is just what it sounds like — an estimate of what the terms of the loan will be and how much it will cost. A few key things about the Loan Estimate: It must contain a good faith estimate of credit costs and transaction terms. The creditor must deliver or place it in the mail no later than the third business day after having received the consumer's application. It must also be delivered or placed in the mail no later than the seventh business day before consummation of the transaction.

TSAHC Home Buyer Program

TSAHC offers several homebuyer assistance options to help Texas families and individuals achieve homeownership. These programs are available to people the program deems as Texas Heroes and low and moderate-income homebuyers in Texas. Homes for Texas Heroes Home Loan Program The Homes for Texas Heroes Home Loan Program provides homebuyer assistance specifically to teachers, police and correctional officers, firefighters and EMS personnel, and veterans.

Senior Citizen Exemptions

Texas offers a $10,000 senior citizen exemption in addition to the homestead exemption for residents who are 65 or older. School taxes are also frozen when the homeowner files for the over-65 exemption in Texas. Therefore, school taxes will no longer increase unless there are property improvements that cause the tax appraisal to increase. The percentage of the freeze is portable if the senior citizen were to move to a different property.

CRA

The CRA makes all banking institutions that receive Federal Deposit Insurance Corporation insurance get proper evaluation from federal banking agencies in order to determine if the bank offers credit in all communities in which they are chartered to do business. The law emphasizes that an institution's CRA activities should be completed in a "safe and sound manner," and doesn't require institutions to make high-risk loans that may bring losses to the institution.

Rural Housing Program: Community Facilities

The Community Facilities Programs provide loans, grants, and loan guarantees for essential community facilities in rural areas. First priority is given to health care, education and public safety projects, and typically projects include hospitals, health clinics, schools, fire houses, community centers, first responder vehicles, equipment, and lots of other community-based initiatives.

The Basics of the Direct Endorsement

The FHA can grant lenders unconditional Direct Endorsement authority to close loans without prior FHA approval. But before a lender is granted unconditional Direct Endorsement authority, they have to submit a specified number of loan files for review and approval by the FHA. The FHA will then review each loan file and then notify the lender of the acceptability of the mortgage.

Allowable Closing Costs

The FHA has outlined specific rules regarding the closing costs that can be allocated to the purchaser by the lender and overages must be waived or paid by the seller. For instance, the FHA limits loan origination fees to 1%. If a lender charges a 2% fee, the lender must either waive the additional 1% or charge it to the seller. The seller can also pay the balance of buyer's closing costs and all prepaid and discount origination points up to a maximum contribution of 6%, if that's what the seller and buyer agree to. If the seller chooses not to pay these overages at closing, as long as they are under the allowable closing cost limit prescribed by the FHA, they may be financed into the loan amount.

FHA & Closing Costs

The FHA lets home sellers, builders, and lenders pay some of the borrower's closing costs, such as an appraisal, credit report, or title expenses. In this case, a builder could offer to pay closing costs as an incentive for the borrower to purchase a new home. Lenders tend to charge a higher interest rate on a loan if they've agreed to pay closing costs. Borrowers can compare loan estimates from other lenders to find the option that makes sense for them.

History of the FHA

The FHA program was created in 1934, as a result of the Great Depression (it became a part of HUD after HUD's creation in 1965). Before the FHA, mortgages were very short term and only lasted three to five years. They were not amortized and a lot of them had balloon payments. Refinancing was not an option, so during the depression, a lot of these homes with mortgages were foreclosed on. Something needed to be done!

Step 1: Find his net worth

Remember, our formula uses net worth, so first we have to find David's net worth. We do that by subtracting his total liabilities from his total assets. $50,000 - $40,000 = $10,000 Answer: David's net worth is $10,000

Step 4: Solve for principal and interest

Remember, we're trying to figure out the largest mortgage payment — or principal and interest payment — Moira can qualify for. Since her taxes and insurance are $200, we have to subtract that from the PITI payment. $1,980 - $200 = $1,780 Final Answer: The largest monthly mortgage payment Moira can qualify using this housing expense ratio is $1,780.

Reverse Mortgages

Reverse mortgages are loans designed for people over the age of 62. They can be a lifesaver when used to supplement income needed for essentials like medicine, food, payments, etc. Reverse mortgages can sometimes allow the borrower to take cash out. So what about the Bad and the Ugly? Nothing is bad unless it's misunderstood. And if it's misunderstood, it can be really ugly. Let's look at the facts.

Reverse Annuity Mortgages

Reverse mortgages can also be used to take cash out of the property, refinance just to eliminate payments, or to set up an annuity where the homeowner actually receives cash each month instead of paying payments each month. A reverse annuity mortgage is sometimes called a RAM. A reverse annuity mortgage is a financial arrangement where the homeowner pledges equity to a lender in exchange for periodic payments of the pledged equity. In essence, it is the periodic receipt of equity liquidation in exchange for an increase of debt owed on the property. It's the opposite of paying down your mortgage. Payments for this type of mortgage are likely to stay the same month-to-month. Because of changes in Texas laws, reverse mortgages can now be used for purchase money

Seller's Disclosure Notice

Section 5.069 of the Texas Property Code concerns the Seller's Disclosure Notice, which states that before an executory contract is signed by the purchaser, the seller must provide the purchaser with a survey of the property's condition, as well as a document that outlines any encumbrances the property might have. Under some conditions, the seller must also provide the purchaser with information about the available utilities in the area. This section also outlines options that the purchaser has if it turns out the seller has provided misleading or inaccurate information.

Equipment loans:

Secured by business equipment and against which you can usually borrow 60-80% of the value of the equipment for the projected life of the equipment

Issuing Mortgage-Backed Securities

Securities (e.g., stocks and bonds) are investment instruments. Mortgage-backed securities are simply investment instruments that have mortgages as collateral.

Seller financing is only an option for a property when:

Seller financing is only an option when the seller owns the home free and clear with no liens. Seller financing loans cannot be balloon loans.

Which financial conditions are more likely to encourage seller financing?

Sellers are a more commonly utilized source of financing when institutional loans are difficult to obtain, particularly in times of high interest rates.

Mortgage Assistance Relief Services (MARS)

Services offered, in exchange for compensation, to assist in stopping foreclosure or repossession of a dwelling.

Submission

The loan officer, along with their processor, will look through all the documents to verify that they have everything in place before they submit to underwriting. The loan processors are very well versed and have every intention to make it go through underwriting smoothly. The process for this to come out of underwriting takes between 24 to 48 hours.

More Sample Credit Report

The next section in the report is where any personal information tied to your credit history is displayed. This information will have been supplied by the applicant to the creditor. In this section, expect to find the applicant's: Social security number Previous employers Telephone number(s) Address information

Opportunity Cost

The owner also must have an eye to opportunity cost. Even if they could increase their yield by improving the property, if the money that would be used for improvements could turn a greater profit elsewhere, the improvements may not be worth the trouble. That's opportunity cost. In general, the owner should improve the property only if the return of selling it "as is" and investing the improvement money elsewhere is less than the return of making improvements to the property and selling it.

principle of contribution

The principle of contribution says that an improvement to a home is worth only as much as it adds (or contributes) to the property's market value and does not always relate to the improvement's actual cost.

The Federal Reserve recently raised the discount rate. What is a possible result from this decision?

The raising of the discount rate will result in a decrease in the supply of loans, which leads to an increase in the price of housing loans, which leads to a decrease in housing demand.

Who Funds the Buydown?

The reduction in the rate is paid for by money held in an escrow account. This account can be established by the borrower, the seller, the builder, or pretty much any party that desires to do so. The seller, for instance, might desire to fund a buydown so that the buyer can qualify for the loan.

Internal Revenue Tax Legislation

The responsibility of the IRS is to collect taxes and administer the Internal Revenue Code (the United States tax law). The IRS also oversees many government benefit programs. And guess what? The IRS has a bunch of laws that impact the real estate industry, including Schedule C requirements, or the Profit and Loss form for businesses.

The sales comparison approach should be used for appraising:

The sales comparison approach should be used for appraising owner-occupied residential properties and vacant land.

Value Principles

The sales comparison approach to appraisal uses two value principles: The principle of substitution The principle of contribution

Statutory Liens

The second type of lien is known as a statutory lien. Statutory liens are liens that are obtained through legal action. With a statutory lien, the party who has the lien imposed upon them doesn't voluntarily give the creditor a security interest in their property. Instead, they have a lien involuntarily imposed on their property by someone they owe money to. One of the most common statutory liens is a tax lien. It works like this: when a party defaults on their local, state, or federal taxes, a tax lien can be placed on their property. When this occurs, the government holds the lien against the property and can seize the property if the property owner continues to default on their taxes.

A History of The Federal Home Loan Bank System

The Federal Home Loan Bank Act of 1932 extended $125 million in credit to savings and loan institutions and created the Federal Home Loan Bank System with twelve (12) regional banks. In 1933, the Home Owners Loan Act gave savings and loans the ability to be chartered by the federal government, and the thrifts were given essential lending authority to offer emergency relief for homeowners who could refinance their home loan for 20 years. The terms of these new loans were revolutionary: The first fixed-rated, amortized loan was created. For the first time, borrowers received amortized loans with rates as low as 5 percent with an 80 percent loan-to-value ratio. By 1936, one in every 10 homeowners received financing through this law. In the first two years of its enactment, one million loans totaling $3 billion were made. The amortized, fixed-rate loan is now the industry standard.

Federal Housing Administration (FHA)

The Federal Housing Administration, or FHA, provides mortgage insurance on loans made by FHA-approved lenders throughout the United States. The administration insures mortgages on single family and multifamily homes (including manufactured homes and hospitals). It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception.

The committee that is a part of the Federal Reserve System and is responsible for buying and selling securities is the:

The Federal Open Market Committee (FOMC) is in charge of the Fed's principal tool — its open-market operations. These operations consist of buying government securities.

The Federal Reserve can influence the supply of money by changing the discount rate. When they raise the discount rate, lenders tend to:

The Federal Reserve can influence the supply of money by changing the discount rate. When they raise the discount rate, lenders tend to lend out less money.

Policy Tools

The Federal Reserve uses a variety of policy tools to foster its statutory objectives of maximum employment and price stability. One of its main policy tools is the target for the federal funds rate (the rate that banks charge each other for short-term loans), a key short-term interest rate.

The Federal Reserve'

The Federal Reserve's control over the federal funds rate gives it the ability to influence the general level of short-term market interest rates. By adjusting the level of short-term interest rates in response to changes in the economic outlook, the Federal Reserve can influence longer-term interest rates and key asset prices. These changes in financial conditions then affect the spending decisions of households and businesses.

The Fed has at its disposal three instruments for implementing its monetary policy by influencing the money supply. The three tools are known as:

The Federal Reserve's three instruments for implementing its monetary policy are open market operations, the discount rate, and reserve requirements.

The Housing and Urban Development Act of 1970

The Housing and Urban Development Act of 1970 introduced the federal Experimental Housing Allowance Program (EHAP) and the Community Development Corporation, authorizing larger outlays for housing subsidy programs and rent supplements for moderate-income households.

Administrative Actions

The TILA authorizes federal regulatory agencies to require financial institutions to make monetary and other adjustments to the consumers' accounts when the true finance charge or APR exceeds the disclosed finance charge or APR by more than a specified accuracy tolerance. That authorization extends to unintentional errors, including isolated violations (e.g., an error that occurred only once or errors, often without a common cause, that occurred infrequently and randomly).

The Treasury Department

The Treasury Department is the executive agency responsible for promoting economic prosperity and ensuring the financial security of the United States. The Treasury Department performs a critical and far-reaching role in enhancing national security by implementing economic sanctions against foreign threats, identifying and targeting the financial support networks of national security threats, and improving the safeguards of our financial systems.

The Dodd-Frank Act includes a large group of financial reforms, including:

The Volcker Rule Regulation of derivatives Creation of the Consumer Financial Protection Bureau Creation of the Office of Credit Ratings

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

The benchmark for FHA loans is not necessarily a credit score, but a borrower's history of reliable payment activity. If a borrower can show that they have credit worthiness through their payment history, they're more likely to be approved for an FHA loan.

Fair Market Value

The borrower may ask the court to determine their property's fair market value at the time of the foreclosure sale. The amount that the lender can recover is then limited to the lesser of: The difference between the outstanding debt and the fair market value, OR The difference between the outstanding debt and the foreclosure sale price

square foot method

The square foot method is possibly the least accurate method, but it's the simplest and most widely used. The appraiser estimates a cost per square foot for that specific type of building and then multiplies it by the square footage of the structure

It's All Connected

The supply curve and the demand curve for any particular commodity are independent of each other; however, they are not independent of the curves for other commodities. For instance, because most real estate is purchased with borrowed money, the supply of loans affects the demand for real estate. The supply of loans is in turn affected by the supply of money and the interest rate. This will be important to know when we discuss the Federal Reserve's monetary policies and their effect on the real estate market.

The three parties to a deed of trust are:

The three parties to a deed of trust are the trustor (or borrower), trustee (third party holding the title), and the beneficiary (the lender). The seller isn't involved in a deed of trust (and mortgagors are party to mortgages, not deeds of trust).

Recording the Sale

The title company will take care of recording the sale. This will be done within seven days.

Who determines how the expenses in a real estate transaction will be allocated?

The title company will use the sales contract to determine how the parties have agreed to allocate the expenses.

Beware the Circumstances

The title to a home that has just been paid for and to which an individual has received a deed could be seriously threatened or completely lost by such circumstances as: Forgery Confusion due to similar name Errors in the records If a claim is made against a person's home and they are insured, title insurance companies will defend their title in court if necessary, completely at the company's expense. They will also bear the cost of settling the claim if it proves valid in order to protect the homeowner's title and keep them in possession of their property.

Federal Open Market Committee

The top monetary policy-making body for the Federal Reserve is the Federal Open Market Committee (FOMC). The Federal Reserve is able to manipulate the interest rate through the use of open market operations.

The Power of the Trustee

The trustee is pretty much a holding party. Their role is to hold the title while the trustor works to pay off the debt to the lender. The trustee's only real power comes into play if the trustor defaults on their payments. If the trustor defaults, the beneficiary (lender) could tell the trustee that they want to foreclose on the property. The trustee would then proceed with the foreclosure and handle the selling of the property at a foreclosure auction. The proceeds of the sale would go towards paying off the rest of the loan and any cost from the sale. If there is anything left over after making those payments, the money would return to the trustor.

unit-in-place method

The unit-in-place method is less granular. It takes direct and indirect costs into account, but combines them into a simplified cost for a building component.

Reverse Mortgage Fees & Rules

The upfront fees can be high. The fees are sometimes added to the loan balance at the beginning, eating up equity right away. The best time to get a reverse mortgage is while the borrower feels like they still have many years left to live in the home.

Disadvantages of FHA Loans

There is a maximum loan amount on FHA loans, and this can be limiting. For example, in 2013, the maximum loan amount in most areas of Texas for a single-family home was $288,750. The mortgage insurance premiums must either be paid up-front at closing or be financed. The FHA loan program only insures loans to owner-occupants. FHA loans require that the house meet certain conditions and must be appraised by an FHA-approved appraiser. Because an FHA loan does not have the strict standards of a conventional loan, it requires two kinds of mortgage insurance premiums: One is paid in full upfront (it can be financed into the mortgage) The other is a monthly payment

Texas Right of Redemption

There is a right of redemption in Texas, but it only applies to: HOA foreclosure of an assessment lien (mentioned in the previous slides) 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). Note that in Texas, these are the only instances where statutory redemption is possible. There is NO statutory redemption for lender foreclosures.

Investing Insurance Premiums

There's a whole wide world of investment options. What do insurance companies do with policyholders' money? The actual task of investing is handled by either an in-house team of experts (more common with large insurance companies) or contracted out to external investment professionals (more common with small insurance companies).

RESPA Prohibitions

These regulations apply to transactions involving the purchase of a one-to-four family home: No party (such as a seller, lender, or servicer) may give or accept a fee or anything else of value for the referral of a closing service No party may charge a fee for a service that is not actually performed, nor may it split an earned fee with another party that has not performed or helped to perform the service for which the fee was charged The seller may not require as a condition of sale that the borrower use a specific title insurance company RESPA limits the amount of money a lender can keep in an escrow account for the payment of taxes and insurance

Interest Rates

This increase in the dividends of REITs subsequently decreases the price-to-earnings ratio. Remember that low P/Es indicate solid and stable earnings. However, a rise in interest rates often accompanies a fall in the prices of the P/E's of REITs. This is because REITs compete with stocks, bonds, other securities, and bank CDs. When interest rates rise, the interest returns on certain investment tools that pay interest—such as bonds and CDs—increase. This causes investors to sell their other holdings and purchase these investments.

When There Is Statutory Redemption in Texas

This is a little tricky, and you'll definitely need to remember it for future exams, so let's just get super clear: there's no statutory redemption for LENDER foreclosures in Texas. That means if your lender is foreclosing on your home because you are in default on your loan, you will not be offered statutory redemption, only equitable redemption. The foreclosure auction sale is final. If the foreclosure is due to unpaid property (or ad valorem) taxes or an unpaid HOA assessment lien, the homeowner does get a statutory redemption period in Texas. In the case of the property taxes, that statutory redemption period is two years long.

A VA loan can be used to:

VA loans can be used to buy owner-occupied housing (or in other words, a primary residence), land, farms, condos, and manufactured housing. They can be used to fund improvements, assume another VA loan, or refinance a VA loan. They can't, however, be used to purchase investment property.

Vendor's Liens

Vendor's liens are another type of statutory lien. Much like mechanic's liens, vendor's liens occur when a property owner does not pay their financial obligation in full. The difference is that a vendor's lien concerns the selling of the property. Let's say that a seller sells their property to a buyer, but the buyer does not pay them the full price. In this case, the seller can place a vendor's lien on the home and can maintain the lien and right to repossess the home until the buyer pays the full price to the seller. Again, like other liens, this can occur with any type of property. It could be a home, car, or any other private property that is sold.

Warranty Deeds

Warranty Deeds The instrument that transfers ownership (the title) into a new owner's name is called a warranty deed. There are two categories of warranty deeds, general warranty deeds (sometimes called a full covenant and warranty deed) and special warranty deeds. What's in a Warranty Deed? A warranty deed has the following components: Grantor Grantee Consideration Granting clause Habendum clause Limitations Legal description Exceptions and reservations Grantor's signature Acknowledgment Delivery and acceptance

In a deed of trust, a borrower is called a:

A deed of trust is a three-party instrument involving the trustor (borrower), the beneficiary (lender), and the trustee (third party).

Secured Notes

A secured note makes reference to the security instrument that secures it: either a mortgage or a deed of trust. In essence, a secured note is backed up by the borrower's assets.

PMI protects the lender

Ace's Note: Make sure your clients are aware that private mortgage insurance does not protect the borrower. Lenders require borrowers to have PMI because it protects the lender in case the borrower stops making payments on the loan.

The lender will then have the borrower fill out the application, which will ask about the following:

Current employment Number of years on job Social security number Current address Other pertinent information Once the lender has this information, they will need to verify that the information is correct, as lenders do. The main goal during this process is to determine if the borrower has the ability to repay the mortgage.

Why do life insurance companies tend to invest in commercial multifamily real estate?

Life insurance companies tend to invest in commercial multifamily real estate because it's low-risk compared to stocks and other investment opportunities.

Which of these loans is an open-ended loan?

construction mortgage

The rate at which the Feds loan money to their member banks is called the:

discount rate

Loan Considerations

What is the interest rate currently at, based on the Fed? If it's high, an ARM could be beneficial to the borrower. If it's low and about to be on its way up, a fixed-rate will probably save them more money overall if they lock into the low rate. Do they plan on staying in their house long? If not, they should take advantage of the introductory low-interest rates of ARMs. Then they can get out of there before the rate increases, all while saving up for another home because of the low payments. If the rates did increase, would the borrower still be able to afford the payments? Maybe their introductory payment would be at the top of their budget. If so, they should avoid ARMs and go for the fixed-rate. When looking at ARMs, they should check to see how often they adjust. Some will adjust yearly, while others will adjust as much as monthly. If they'd rather have more stability, they should stick with a fixed-rate.

Flipping Fraud

When a property is purchased and then quickly resold at a value that is artificially inflated by false appraisals, loan fraud has taken place. No significant repairs or improvements have been made to the property, and the higher resale price is not fair. Usually, the first buyer is reselling the property to someone that is participating in the fraudulent activity. What is a group of fraudsters called, a flock? A flock of fraudsters.

Deed in Lieu of Foreclosure

When an owner is doing a deed in lieu of foreclosure in Texas, the deed is usually deemed to fully satisfy the debt. A deed in lieu of foreclosure is when the homeowner hands over the ownership of their house to the lender. At this time, the loan is cancelled in the exchange for the deed. However, there is no law in Texas that states that the lender cannot go after a deficiency judgment in this situation.

Supply and demand affect the price of real estate.

When supply exceeds demand, prices decrease ⬇️ When demand exceeds supply, prices increase ⬆️

Increases in the cost of financing, cost of construction, and land values can cause the price of real estate to:

When the cost of financing, construction, or land values increases, the price of real estate also increases.

Non-conforming conventional loan:

Will probably become a loan held in the lender's portfolio because it does not meet the guidelines to be sold. (For example, a "jumbo loan" will be a nonconforming loan because it exceeds the maximum loan amount allowed to be sold on the secondary market.)

How Does It Work?

With VLB, Texas veterans can buy one acre or more of land (with a maximum value of $125,000) with a five percent down payment on a 30-year, fixed rate mortgage. Additionally, the Land Board can finance homes with an application for a Texas Veterans loan at the time of purchase. The loan is made from a mortgage lender that is approved by Texas Veterans. In addition to a regular application, the consumer will complete an application for Texas Veterans. The purchase will be made by the lender and after closing will be sold to Texas Veterans. The consumer can use an FHA, VA or Conventional loan to purchase the loan. The primary benefit to the veteran is the low interest rate. Veterans with disabilities and unmarried surviving spouses of any service member killed in the line of duty may qualify for discounted interest rates.

With an FHA Adjustable-Rate Mortgage, a borrower:

With an FHA adjustable-rate mortgage, a borrower can switch to a fixed-rate loan without refinancing, making it an appealing option. This is called streamlined refinance.

Issued by the Seller

Wraparound mortgages are not issued by a lender but rather by the seller. Instead of selling the property and receiving a lump sum of cash at closing, the seller deeds the property to the buyer and "lends" them the sale price (or the sale price less the borrower's down payment), although the buyer does not actually receive any money. The buyer then repays the loan as they would to a lender, in monthly installments with interest.

Which of these loans would be eligible to be insured by the FHA?

Yes, the FHA insures loans to buy condos, to rehab homes, ARMs, and graduated equity loans. It does NOT insure jumbo loans, subprime loans, or wraparound mortgages.

Closing

closing, or settlement, is the final step of the home-buying and commercial sale process, when actual title to the property being purchased is transferred from the seller to the buyer. Payments are made to cover various costs of the process, and prorated items are settled from the escrow account held by the closing entity.

Step 2: Multiply the daily expense by the number of days in the period

$0.90 x 183 = $164.70 Final Answer: This gives us a total of $164.70 for the prorated water bill. This is the amount that should be credited to the buyer and debited to the seller as we calculate the various settlement expenses associated with the transaction.

Step 3: Solve for monthly PITI

$6,000 x 0.33 = $1,980 Answer: Moira's largest monthly PITI allowed by this housing expense ratio is $1,980.

CMOs vs. CDOs

ABSs are the basic form of MBSs. They are a pool of mortgages that are securitized by Wall Street. CMOs and CDOs are a little bit different. They both look similar on the outside (as in, they are pools of risky and non-risky mortgages, divided into tranches of risk), but while CMOs are backed by mortgages, CDOs are backed by mortgages plus other debts.

Appraisal and Closing

After an appraisal is done by a VA-approved appraiser, the VA issues a Certificate of Reasonable Value (CRV), which is an estimate of the market value on the date of inspection for the property being purchased. The CRV, which allows for a comparison between the sales price and the market value, places a ceiling on the amount of a VA loan allowed for the property. If there's a difference between the appraisal and the CRV, the VA now allows the appraisal's point of contact (usually the lender) to send a request to change the CRV value to the VA appraisal. The lender must also send market data in support of the request, within two days of receiving the appraisal.

Not a Guarantee

After the abstractor generates the abstract, the buyer's attorney evaluates all of the information on the abstract. The attorney then prepares an attorney's opinion of title that addresses the ownership condition of the property. Although the attorney's opinion of title and abstract are carefully produced, these reports do not guarantee against defects not found in the public records, nor can attorneys and abstractors promise that no errors occurred in the process.

The Aggregator

Aggregators work with government-sponsored enterprises, such as Freddie Mac and Fannie Mae, and create mortgage pools that turn into mortgage-backed securities (MBSs).

Equity Participation Mortgage

An equity participation mortgage is a mortgage loan in which the lender has a partial equity interest in the property or receives a portion of the income from the property during ownership (if it's an income-producing property).

The Second Bank of the United States

And much like the first bank, it was seen as a tool for serving only the interests of the bankers. Populist president Andrew Jackson had a personal and populist vendetta against the bank that struck a chord with many Americans. It reinforced the notion that the average American was decidedly not a fan of a banker-controlled central bank. But even with the central banks being so unpopular, it was also clear that things could not continue to operate the way they were. Financial panics were becoming all too common. And after a particularly bad 1907 panic that almost ended in disaster, the federal government knew it needed to step in.

Resolution Trust Corporation (RTC)

Another function of FIRREA was the creation of the Resolution Trust Corporation (RTC), a new government agency. Duties of the Resolution Trust Corporation included: Reselling savings and loan assets Paying back the depositors with the proceeds

If 12 properties have been sold in the last 3 months in an area, and there are 20 houses for sale now, there is a supply of housing for __________.

Approximately 4 properties are sold per month, so there is a five-month supply of housing on the market now.

Confirming Receipt

As was the case with the Loan Estimate form, by signing the Closure Disclosure form, the buyer is only acknowledging receipt of the form. Their signature does NOT constitute acceptance of the loan or its provisions.

Consider the Market

As with any investment decision, the market should be taken into account. If there is very little demand for rental property, even minor improvements may be a bad investment. The owner should always take into account the availability of buyers, which is dependent upon the profitability of the investment. If vacancy rates are high, investor demand for rental property will be low, and if inflation is high, demand will be high as well.

Insurance

As you know, property owners may have to pay for a number of types of insurance to get a loan, the most common of which is hazard insurance. Hazard insurance, also called homeowners insurance, protects owners and lenders against losses from fire or severe weather (such as hail). To ensure that a financed home has the coverage to protect their loan, lenders will often use an escrow account to collect premiums (as part of their monthly loan payment) from the borrower and pay the insurance company from that. The insurance rate will be dependent on a variety of factors, including the location and the material from which the house was constructed. For example, insurance premiums will be lower for masonry and brick homes than it is for those made of frame and stucco.

LIBOR

Because all of this was happening, something called interbank borrowing costs, or LIBOR rose. LIBOR is the benchmark interest rate that banks charge each other for overnight, one-month, three-month, six-month and one-year loans. It's the benchmark for bank rates all over the world. We'll go over interbank borrowing in the next slide.

Before showing your client houses, you want to make sure:

Before showing your client houses, you want to make sure your client is pre-approved for a home loan. Otherwise it might be a fruitless venture for you as an agent, if your client can't get the funds.

Mortgage broker fee:

Broker processing fees. Sometimes there are several of these under different names since some brokers have other "fees" listed that are beyond the scope of this course, sometimes referred to as "junk fees" since the fee covers nothing but netting more money for the mortgage broker. Agents need to have their borrowers ask questions about this fee (or fees) to the broker directly since some of these are negotiable and can be reduced or eliminated.

The Real Estate Market

But for our purposes today in this course, a market is a theoretical construct that isolates the selling and purchasing of any one particular commodity from the economy as a whole.

Additional Transaction Fees

Certain kinds of financing can result in additional transaction costs. These expenses include the following: If a loan requires private mortgage insurance, then it is usually rolled into the loan's balance and paid as part of your monthly mortgage payment. If a loan is FHA-insured, a buyer is usually debited for the mortgage insurance premium unless it is financed with the loan. If a loan is a Veterans Affairs loan, the buyer is debited for a funding fee to the VA.

Which of the following is issued during court sales and protects the buyer's interest in property sold by the court?

Certificate of sale title insurance is issued during court sales and protects the buyer's interest in property sold by the court.

Secondary Markets

Check out the websites of heavy hitters Fannie Mae, Freddie Mac, and Ginnie Mae. You'll find up-to-date news about the companies, as well as info on various loan products.

Types of Loans

Conventional Government-backed FHA VA (Veterans can buy a home without a down payment.) USDA Seller financing (TREC provides an addendum for the parties to negotiate seller financing.) Interest-only (The interest-only loan has monthly payments that are applied exclusively to the interest for a set period. All of the principal on the loan is due at the end of the term.)

Which type of conventional loans conform to the guidelines set by Fannie Mae and Freddie Mac and thus can be sold on the secondary market?

Conventional conforming loans are loans that conform to the guidelines set by Fannie Mae and Freddie Mac and thus can be sold to them on the secondary market.

Conventional Loans

Conventional loans have no government guarantee or insurance. At one time, all conventional loans required a 20% down payment. Later, an industry was developed for the provision of Private Mortgage Insurance (PMI) on conventional loans. Private mortgage insurance protects the lender in the event of borrower default on a conventional loan. Currently, PMI can be used to insure conventional loans with down payments of less than 20%. The insurance is for the protection of the lender, but the cost of the insurance is to the borrower. Once the homeowner reaches 20% equity, they can stop paying for PMI.

Which of the following does NOT generate a profit?

Credit unions are not-for-profit.

No Credit Scores

DU does not use FICO credit scores in its analysis. Since the technology that produces these scores is owned by Fair Isaac and Co., Fannie Mae cannot use them in compliance with its stated goal of informing applicants why their applications are accepted or rejected. Nevertheless, Fannie Mae encourages lenders to make use of FICO scores in evaluating an applicant's credit. DU is designed to reduce the subjective element involved in underwriting loans. However, because it does not use FICO scores or consider extenuating circumstances, lenders who use DU still must consider each loan applicant on a case-by-case basis.

Refinancing Changes Up the Lien Priority

Defaults happen. If a homeowner with two mortgages is to default on their mortgage, the first mortgage company will be the one to take precedent in receiving payment from the sale of the home (after any unpaid property taxes, of course). The second mortgage company will get paid after the first mortgage company is paid. If a homeowner refinances that first mortgage, they are basically paying it off by receiving a new loan. What was the second mortgage becomes the first mortgage, and the new mortgage now falls in line behind the first mortgage.

Foreclosure Causes: The Five D's

Denial The last of the five D's stands for denial. This is perhaps the most insidious cause of mortgage default and foreclosure. A borrower might get themselves into a lifestyle that they can't actually afford. Maybe they purchased a house that was too expensive in the first place. Maybe their spending habits just got out of hand. They could be in denial about what they can afford, and this denial leads to a downward spiral into more debt and default.

Key Differences

Despite offering the same services as banks, credit unions seek to differentiate themselves from banks by putting people and community before profits. Another difference between credit unions and banks is that credit unions grant ownership and membership (with voting rights) to their account holders. Members must apply to join a credit union, and there may be requirements on where members live or work.

Equitable Redemption

Equitable redemption occurs before the sale (auction) of a property. It is derived from common law and 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. Other parties with an interest in the real estate also can pay the defaulted portion off, in which case the debtor usually becomes responsible to that party for the redemption cost. The redeemer must pay the entire loan at this time if the debt has been accelerated.

If Emmy has a property worth $320,000 with a $65,000 loan, how much equity does she have in that property?

Equity is the difference between the value of the asset and the cost of the loans of something owned.

FHA Mortgage Insurance

FHA loans are mortgages insured by the Federal Housing Administration. FHA mortgage insurance gives lenders protection against losses that can occur when homeowners default on their mortgage loans. This insurance encourages lenders to offer FHA loans at attractive interest rates and with less stringent and more flexible qualification requirements.

Credit? Check!

FHA loans for new purchase homes and some kinds of refinancing require a credit check and a determination of the borrower's credit worthiness. But these loans are not necessarily credit score driven. The FHA looks for a history of reliable payments rather than using credit scores as the benchmark. In some cases, a minimum credit score may be required, but the payment activity is a major part of approving or denying an FHA loan application.

Common Types of Interest

Fee simple estate is the most general and most complete ownership one can hold. A fee simple estate means that the grantor is giving to the grantee full disposal of a property for the grantee's lifetime with the right to do with the property as the grantee sees fit and the right of inheritance for the grantee's heirs.

Underwriting fee

Fee sometimes charged by a lender if reselling the loan in the secondary market.

Price

First among these is the selling price: As the price of housing increases, owners become more willing to sell. Similarly, as the price of a loan increases — that is, as the interest rate goes up — lenders become more willing to lend (but buyers become less willing to take loans because of the higher interest rate).

Income

First, let's talk income. Underwriters research an applicant's income to determine whether that income is sufficient and reliable enough to repay the mortgage amount and the applicant's other recurring debts.

Solving an Encroachment: Move the Encroaching Object

First, the property owner could talk to the encroaching party and ask them to move whatever is encroaching on the property. This would be the simplest solution. It would happen something like this: Susan: Hey Dan, do you mind moving your storage shed back a few feet? It's encroaching on my property. Dan: No problem, Susan. I didn't realize I had been encroaching on your property. I will move it back over the property line.

RESPA and Closing

First, within three days of receiving a loan application, the lender must provide the applicant with the following material: A booklet entitled "Settlement Costs and You," published by HUD, concerning settlement services (It's quite a juicy read!) A truth-in-lending statement, indicating the total credit costs and the annual percentage rate (APR) of the loan, which may differ from the initial rate a borrower will pay on the loan A good-faith estimate of settlement costs, detailing the expected costs of closing and indicating which settlement services are mandated by the lender

Federally Related Mortgage Loans

For a loan to fall under RESPA, it has to be what is called a federally related mortgage loan. This is a loan that is directly or indirectly supported by federal regulation, insurance, guarantees, supplements, or assistance. This also includes loans that the originating lender intends to sell to a federal program, like Fannie Mae. (Hey there, Fannie!)

The Dominant and Servient Estate

For there to be an easement, there needs to be at least two parties. Often there are more than two parties, but for the sake of simplicity, let's just concern ourselves with a two-party easement right now. So, with an easement, one of the parties is gaining access to the other party's land. The party that has the burden of granting the other party access is known as the servient estate (as in, their land is subservient to the other party). The party that is gaining access to the servient estate's land is known as the dominant estate.

Release Clause

For this reason, developers often have a release clause included in the mortgage contract. The release clause states that when specific amounts of repayment are reached, as set forth in the contract, individual parcels of land may be released from the mortgage (that is, they become unencumbered). This gives buyers and their lenders more security.

Rate Caps

Fortunately, no. There's gotta be a stop to it or I imagine not many people would want to get these kinds of mortgages. The stopping point for the interest on an ARM is called a rate cap. These can limit how high the interest rate can go and also how big the difference can be between old and new payments. A homeowner wouldn't like waking up to find out that their mortgage payment was thousands of dollars higher than what they expected — this is what the rate cap helps to avoid.

Standard Title Insurance Policies

Fraud Forgery Abstract of title errors Incompetent grantors Foreclosure Unmarketable titles

Freddie Mac

Freddie Mac buys two types of temporary buydown loans: the 2-1 and the 3-2-1 buydowns. The basic 2-1 plan involves a first-year rate reduction of 2 points, lowered to 1 point the second year, and at the fixed note rate for the following years. However, any buydown plan with a greater than 1-point first-year reduction and a second-year increase in the interest rate of no more than 1 point falls under the 2-1 heading. The 3-2-1 plan is similar but lasts for three years with a 1-point increase each year up to the note rate.

First-Time Homebuyers

GPMs were originally designed to entice first-time homebuyers into the mortgage market. In theory, a young borrower who expects their income to increase in the coming years may purchase a house with a GPM whose graduated payments they expect to be able to meet in the future as their income increases. In practice, however, GPMs have fallen out of favor with many lenders because the paperwork and underwriting considerations are more difficult, and because they carry a higher rate of default.

Market Value

Generally, an appraiser is trying to determine the current market value of a property. Market value is the price for which a property will sell if offered openly under normal conditions. A property priced at market value will sell within a reasonable period of time. Typically, "reasonable" in the real estate market is one to three months. Determining market value takes into account things like the competitive market, the features of the property, and what other similar properties have sold for.

Cash Out Equity or Consolidate Debt

Generally, most homes will increase in value, and therefore can be a great resource for extra income. Increased value gives the opportunity to put some of that cash to good use, whether it goes towards purchasing vacation property, buying a new car, paying a child's tuition, funding home improvements, paying off credit cards, or simply taking a much-needed vacation.

Step 3: Gather, Record, and Verify Data

Geographic and Economic Characteristics This step commonly begins with a gathering of general information relating to geographic and economic characteristics of the area in which the property is located. The specifics of this step will, of course, vary according to the type of value and ownership right that the appraiser hopes to evaluate. Physical Description Every appraiser must collect a detailed physical description of the property. This is especially important for the sales comparison approach to appraisal. Only with a complete physical account of all the comparables and the subject property can the appraiser properly compare the properties.

Housing Finance Agencies (HFAs)

HFAs operate in every state, the District of Columbia, Puerto Rico, and the Virgin Islands, and in Texas, the department that serves as an HFA is called the Texas Department of Housing and Community Affairs.

Section 8 Housing

HUD manages Section 8 Housing, or a federally funded low-income housing program that allows private landlords to rent apartments and homes at fair market rates to qualified low-income tenants, with a rental subsidy administered by Home Forward. In this program, tenants pay about 30 percent of their income for rent, while the rest of the rent is paid with federal money. The number of units a local housing authority can subsidize under its Section 8 programs is determined by Congressional funding. The largest part of Section 8 is the Housing Choice Voucher program, which pays a large portion of the rents and utilities of about 2.1 million households.

Call the Attorney

Having an attorney review loan documents is always a good idea. On commercial loans, a smart investor will certainly ask their attorney to review the documents prior to signing them. Get ready for more attorney involvement if you choose to specialize in commercial real estate.

What an Applicant Can Pay

Hazard insurance Recording fees Survey Title examination Title insurance They are also permitted to pay fees such as recording fees, a credit report, a survey, and most appraisal fees.

Responsibilities

Here are some of the job duties for mortgage loan originators: Help the borrower find the best loan program for their situation Collect necessary applications and paperwork (Examples: tax returns, pay stubs, bank statements) Order and analyze credit reports Stay in touch with the title officer, escrow officer, appraiser, underwriter, and loan processor

Housing Finance Agencies (HFAs)

Housing Finance Agencies, or HFAs, are state-chartered entities designed to increase housing opportunities for lower-income and underserved people through the financing, development, and preservation of affordable housing.

High or Unpredictable Fees

How are the fees? Do they seem really high or do they change at closing? That's a red flag. Make sure at closing you compare the Loan Estimate form with the final charges from the lender. If there are large differences in the lender's favor, there's an issue. If they are in the client's favor, that's usually okay. Work with your client and use your best judgment to decide what to do. If the client feels like they need to cancel the loan, that's a big step, but much better than the consequences of not canceling a bad loan.

Net Worth

How do you find net worth? A person's net worth is the sum of all of their assets minus all of their liabilities. In formula form, that looks like: Assets - Liabilities = Net worth Assets Assets can include the following: Accounts in banks Savings and loans Credit unions Stocks and bonds Retirement funds The net cash value of insurance policies Real estate Automobiles Personal possessions Business equipment Business aircraft

When TRID Doesn't Apply

However, the Final RESPA-TILA Integrated Disclosure rule says that it does not apply to home equity lines of credit (HELOCs), reverse mortgages, mortgages that are secured by a mobile home or dwelling not attached to real property, or loans made by a creditor who only creates five or fewer mortgages per year.

Long-Term vs. Short-Term Capital Gains

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 rate of anywhere from 0% to 20%, based on the income of the seller. If the investor/owner has owned the property for less than a year, these are considered short-term gains and are taxed at a much higher rate.

Communication is Key

If the homeowners can afford to pay the shortage created by a short sale, the lender will expect them to pay it. Whether the homeowner can pay or not, they must communicate with the lender.

Tax credits:

Immediate, dollar-for-dollar reductions in a taxpayer's tax liabilities. For example, if a taxpayer owes $100 in taxes and claims a $25 tax credit for the same tax year, then they only owe $75 in taxes.

Implied Easement

Implied easements are created as logical features of the land. Often when a property is split in two, and one of those parcels of land has a feature that is needed by the other, an implied easement is created. Because implied easements have to do completely with the land, an implied easement cannot be an easement in gross, but must be an easement appurtenant.

The United States Treasury

In 1789, Congress established the United States Department of the Treasury to manage the government's revenue. The first Secretary of the Treasury was none other than Alexander Hamilton.

Home Owners Loan Act

In 1933, the Home Owners Loan Act gave savings and loans the ability to be chartered by the federal government, and the thrifts were given essential lending authority to offer emergency relief for homeowners who could refinance their home loan for 20 years.

History of FHA

In 1934, Congress created the Federal Housing Administration. It became a part of the HUD's Office of Housing in 1965. At the time the FHA was created, the housing industry wasn't doing too hot. Allow me to paint the grim picture: Two million construction workers were out of jobs, homebuyers seeking mortgages were having difficulty meeting their terms, mortgage loan terms were limited to half of the property's market value, and only four in 10 households owned homes.

Ginnie Mae

In 1968, Ginnie Mae was created as a result of the same HUD Act that initiated the second reorganization of Fannie Mae. Unlike Fannie Mae, Ginnie Mae was established as a government-owned corporation within HUD (and maintains that status to this day). Because Ginnie Mae is government-owned, it is NOT considered a GSE. This is important to remember as people often mistakenly lump Ginnie Mae in with Freddie Mac and Fannie Mae, which are government-sponsored, not government-owned. For a fee, Ginnie Mae guarantees timely payment of principal and interest on privately issued mortgage-backed securities (MBS) collateralized by FHA, VA, or other government-insured or guaranteed mortgages.

Mortgagor Has Legal and Equitable Rights

In a lien theory state, the mortgagor retains both the legal and equitable rights to a property. The mortgagor is the owner of the property. In contrast, the mortgagee (lender) has a lien on the property but no rights to the title. The mortgagee serves as nothing more than collateral to ensure the loan is paid.

Sale-Leaseback

In a sale-leaseback, the owner of a parcel of real estate sells it and immediately leases it back. This type of arrangement is mostly used by commercial investors who want to turn their illiquid real estate into cash without losing the use of the asset. An investor can claim a tax deduction for rent paid on property they use for business. The selling investor often will reserve the right to repurchase the property at the end of the lease period.

In a title theory state, when the trustor defaults on their mortgage payments, who owns the property before the foreclosure sale?

In a title theory state, the deed of trust actually conveys legal title to the property to the lender. The lender retains the legal rights, and the borrower only retains certain equitable rights to the property.

Capital Gains Tax Exemption

In addition, married couples who sell their principal residence are exempt from the capital gains tax up to the amount of $500,000. Homeowners who are single are exempt up to $250,000. These are examples of a tax-free gain (profit) on the sale of a house.

IRA Withdrawals

In addition, the Taxpayer Relief Act of 1997 provides that first-time homebuyers may withdraw up to $10,000 from their IRAs, at any time, penalty-free for the purchase of a principal residence. Quite a deal, huh? A first-time homebuyer, as defined by the act, is any individual who has had no equity in a principal residence in the previous three years. So, an IRA holder could take advantage of this benefit more than once, but all of the withdrawals must add up to no more than $10,000 until the disbursement age is reached. An account holder's immediate family, grandchildren, and descendants may also use the withdrawn funds because hey, a family that withdraws funds together, stays together. All withdrawn funds must be used within 120 days of withdrawal to avoid the penalty. If the loan applicant intends to purchase an investment property with their retirement account, or to use the penalty-free IRA withdrawal for the purchase of a principal residence, these funds should be considered by the underwriter in their decision.

Loan Assumption

In an assumption transaction (or "loan assumption"), the buyer purchases the home and assumes the existing mortgage on the property. (FHA and VA loans are assumable as long as qualifications are met.)

Exculpatory Clause

In an effort to limit any personal liability, a party (usually the borrower) can include an exculpatory clause in the loan contract. This clause relieves the borrower of personal liability to repay the loan. The lender can only foreclose on the property if they wish to recover the debt. The lender cannot pursue any other of the borrower's assets, even if the money recovered from the selling of the property is not sufficient to repay the debt. Borrowers prefer to include exculpatory clauses, but lenders are understandably resistant.

Manipulating the Rates

In basic terms, if the federal interest rate needs to be raised, then they will decrease the money supply by taking away surplus liquidity from commercial banks. If the interest rate needs to be lowered, they will increase the money supply by giving commercial banks liquidity. Liquidity describes cash or assets that can be converted to cash quickly.

In loan fraud, flipping involves buying a property and then quickly reselling it for a lot more money with a loan, using what two things?

In loan fraud, "flipping" involves buying a property and then quickly reselling it for a lot more money with a loan, using a phony appraisal and a straw buyer.

The Right to Cancel PMI

In most cases, borrowers have the right to cancel private mortgage insurance if the principal balance of their loan is 80% or less of the current fair market appraised value of your home. However, many lenders now seek to have the principal balance reduced to 78% (rather than 80%), which has been suggested by Fannie Mae if you reside in the home and from 65 to 70% for rental property. An appraisal will probably be required to cancel PMI. You may want to consider the valuation of similar properties in your neighborhood before expending the cost for a professional appraisal. Contact your lender first to determine what is required.

Freddie Mac

In order to try and fix this problem, Congress created the Federal Home Loan Mortgage Corporation (FHLMC), fondly known as Freddie Mac, as part of the Emergency Home Finance Act of 1970. The focus for Freddie Mac was on conventional loans, even though they were still authorized to buy FHA and VA loans.

Which of the following is NOT an example of a depository institution?

Insurance companies are not depository institutions.

Interest rates are influenced by the Federal Reserve System's:

Interest rates are determined by the market but are influenced by the Federal Reserve System's open-market activities, primary lending discount rate, and reserve requirement for banks.

Interest Rates and Property Values

Interest rates are inversely correlated with property values. That is, rising interest rates cause falling property values, and falling rates cause rising values. This is because most real estate is purchased with borrowed money. A borrower must pay more money to a lender during periods of high interest rates and thus is likely to spend less on the property itself.

The Cost of a Hard Money Loan

Interest rates for a hard money loan can range from 8% to 15%, depending on the lender and the risk level of the loan. On top of the loan, the lender will charge the borrower points. Points can range from 2% to 4% of the total amount of the loan.

Judgment Liens

Judgment liens, sometimes referred to as judicial liens, are the third kind of lien we'll learn about in this course. This type of lien is nonconsensual and is created through the power of a court. As an example, if Party A is awarded a judgment against Party B in a civil suit, and Party B cannot or does not pay Party A, then a judge can award a lien against Party B's property. If the lien is placed on a home, then the court could try and foreclose on the property. The court has the right to seize whatever property they choose to impose a lien on. In addition, a judgment lien only affects the property that lies within the county in which the lien is recorded.

Housing Assistance Lending

Know Before You Owe gave a partial exemption from disclosure requirements to certain housing assistance loans originated mostly by housing finance agencies. This particular update would promote housing assistance lending by clarifying that recording fees and transfer taxes can be charged in connection with those transactions without losing eligibility for the partial exemption. Additionally, the update would exclude recording fees and transfer taxes from the exemption's limits on costs.

Financing Real Estate with Life Insurance

Life insurance, as most people know it, is a policy for which you pay a monthly premium in exchange for a chunk of money at the end of the term. Many of us view life insurance simply as a plan and form of protection for the future of our families after we pass. Life insurance is great for this purpose, but it can also benefit the policyholder during their lifetime.

Where Credit Unions Invest

Like I mentioned, credit unions invest members' available funds to generate more capital. They tend to invest in government bonds, mutual funds, and currency. Credit unions generate profits (enough to operate and give back to their members) via a combo of investment income and the interest on member accounts.

A buyer is not permitted to pay certain closing expenses, such as:

Loan closing/settlement fees Document preparation fees Loan application fees The lender is reimbursed for those fees by the 1% flat charge paid by the buyer. Attorney's fees Brokerage fees Escrow fees HUD/FHA inspection fees Notary fees Tax service fees

How Do Layers of Risk Affect Home Ownership?

Looking at the various layers examined by underwriters, it's important to understand that the presence of individual risk factors does not necessarily threaten a borrower's ability to maintain homeownership. But when layers of risk (a number of interrelated high-risk characteristics) are present without sufficient offset, their cumulative effect dramatically increases the likelihood of default and foreclosure.

How MARS Applies

MARS covers real estate agents who do things like promote their services as a way to help consumers avoid foreclosure by getting a lender's approval for a short sale. MARS does not cover, however, real estate agents who don't promote their services this way, and who only provide services to help people in buying or selling homes (listing homes for sale, showing homes, or finding homes that meet buyers' needs).

MLO Education Requirements

MLO educational courses can include the following topics: Mortgage principles Mortgage loan origination Real Estate Settlement Procedures Act (RESPA) Truth in Lending Act (TILA) Homeowner's Protection Act (HPA) Fair lending laws Privacy laws Loan process and underwriting

When a lender has a delinquent borrower, most lenders want to:

Many times, the lender is willing to do things to help the borrower rather than rush to foreclose. Recasting the loan can include lowering the payments, extending the term, or lowering the interest rate.

USDA Farm Loan Types (Part 1)

Microloans: Microloans are operating loans meant to be put toward the needs of small and beginning farmers, non-traditional, specialty crop and niche type operations. They ease some of the requirements and offer less paperwork.

How is the VA loan program funded?

No, mortgage insurance premiums are used to fund the FHA loan program. The correct answer is the VA requires applicants to pay a funding fee.

Recourse Clause

On the other hand, if the loan has a recourse clause, then the lender has the right to pursue the remaining deficit through the seizure of the borrower's other assets. So, lenders appreciate a good recourse clause, while borrowers prefer a non-recourse clause. To make up for the risk that is inherent in a non-recourse clause, lenders will often levy a higher interest rate on loans that offer a non-recourse clause.

A Type of Non-Recourse Loan

One of the best things about reverse mortgages is that they are non-recourse loans. There is no personal liability. If the borrower lived a long life and the balance on the loan now exceeds what the property will sell for, the lender cannot force anyone to pay for the loss. If the heirs choose to let the lender have the property rather than pay the debt, the lender will foreclose on the property, sell it for what they can, and the rest of the loss is the lender's.

Open-End Mortgage

Open-end mortgages are called "open-end" because they allow the mortgagor to borrow additional funds at a later date on top of the original loan amount. This is useful to a new homebuyer who wishes to buy, for example, furniture or a washer and dryer after the home purchase. With this type of loan, the borrower can take out more money without having to refinance. To pay off the new debts incurred, unlike ARMs whose interest rate changes but not the balance, the monthly payment or the loan term (sometimes both) of open-end mortgages will be increased, often with a concurrent change in the interest rate.

Permanent Buydown

Permanent buydown mortgages have been discussed under the heading of discount points. A borrower pays a percentage of the loan amount, called a discount, thereby lowering the note interest rate. These discounts are either paid as cash at closing or are financed into the loan amount. Fannie Mae will not purchase financed permanent buydown loans, although Freddie Mac will for certain fixed-rate mortgages.

Private mortgage insurance protects:

Private mortgage insurance protects the lender.

Additional Facts

Qualifying assumption of FHA loans (non-qualifying before 1986) allow for a release of liability of seller if the buyer assuming the loan is pre-approved by the lender and the transaction has been consummated to the then-applicable FHA standards. Escrow of taxes and insurance is required by the FHA. The FHA requires a larger down payment than a VA loan, which requires none. Anyone of legal age and otherwise legally capable of owning property, may obtain an FHA loan. The borrower does not need to be a citizen of the United States (a green card is sufficient). Gifts do not have to come from an immediate family member, although no direct business relationship with the borrower can exist.

Michael borrowed money from Regional Credit Union to purchase a new Texas home. Erica, a loan officer, helped Michael apply for the loan. Trust Holders 'R' Us is holding the right to the home. Which of these parties is the beneficiary in this situation?

Regional Credit Union is the BEST example of a beneficiary as they are the lender in the transaction. Trust Holders R Us is the trustee in the transaction as they are the third party nominally holding the right to the property, and Michael is the trustor as he is the borrower.

Calling on Congress

S&L banks wanted to ditch the low-interest rate restrictions that made it hard for them to compete with money market accounts. They asked Congress and got their wish. The Garn-St. Germain Depository Institutions Act was passed in 1982, giving S&Ls the freedom to offer higher interest rates on savings deposits. S&Ls also gained the ability to make commercial and consumer loans in addition to their original bread and butter, mortgages.

Foreign Buyers

Sales of residential real estate in the United States to international clients amounted to $102 billion from April 2015 to March 2016. That's a serious chunk of change. This figure comes from the National Association of REALTORS®' "2016 Profile of International Activity." Homebuyers from other countries view the United States as a great place to live or visit. They may also just be looking for a good investment.

Secondary Market Activities

Secondary Market Activities The secondary market agencies have two main activities: Buying loans Issuing mortgage-backed securities What does that look like? Glad you asked.

Spouses of Veterans

Spouses of veterans who died in service or from service-related injuries and have not remarried, as well as the spouses of service people missing in action or prisoners of war also are eligible.

Uniform Residential Appraisal Report

Standard appraisal report form used by lenders and appraisers. The URAR was developed and approved by Fannie Mae (Form 1004) and Freddie Mac (Form 70).

Economic Indicators

Supply and demand for housing Mortgage rates Job growth Interest rates

TRUE or FALSE: The purpose of the Closing Disclosure form is to help consumers understand their loan options and to avoid costly surprises at the closing table.

TRUE: The purpose of the Closing Disclosure form is to help consumers understand their loan options and to avoid costly surprises at the closing table.

How are temporary buydowns usually paid for?

Temporary buydowns are usually paid for out of a buydown fund collected as cash at closing.

CRA

The CRA requires that each government-insured depository institution act in good faith to meet the credit needs of its entire community, and the good faith of the institutions covered under the CRA is evaluated periodically by federal agencies responsible for regulating financial institutions. The CRA requires that lenders submit an annual statement, including public comments about their attempts to help low-income communities. An institution's past performance in helping its community is taken into account in considering an institution's application for new banks, including mergers and acquisitions.

Closing Disclosure

The Closing Disclosure (formerly known as a "settlement statement") is a document that provides a detailed list of each party's expenses as well as how much they have already contributed to the transaction thus far. This statement also provides an accounting of the final amount that the buyer must bring to the closing. To complete a closing or settlement statement properly, one must know which principal is responsible for each transaction expense.

Purpose of GSEs

The GSEs provide liquidity (the ready access of affordable funds) to the thousands of banks, savings and loans, credit unions, and mortgage companies that make loans in the primary mortgage market. The GSEs make those funds available to these members of the primary mortgage market by being willing purchasers of the loan bundles the lenders put together — as long as the loans meet the underwriting criteria of the GSEs.

Section 8 Housing Vouchers

The Housing Choice Voucher Program allows a tenant to move from one unit of at least minimum housing quality to another through "tenant-based" rental assistance. It also lets individuals apply their monthly voucher towards the purchase of a home. The maximum allowed voucher is $2,000 a month.

Treasury Department

The Treasury Departmentis tasked with investigating financial crimes such as money laundering.

U.S. Department of Agriculture (USDA)

The United States Department of Agriculture, or USDA, is the federal executive department responsible for developing and executing laws concerning farming, agriculture, forestry, and food. The USDA works to do lots of great things for the agricultural industry, including: Meet the needs of farmers and ranchers Promoting agricultural trade and production Assuring food safety Protecting natural resources Fostering rural communities Ending hunger everywhere

Finding the Buyer's Total

The actual amount that a buyer is to pay at closing is calculated by subtracting the buyer's total credits (such as prepaid earnest money or the balance of a loan that the buyer will assume from the seller) from the buyer's total debits (such as the purchase price). The remaining total is the amount that the buyer must bring to the closing to complete the transaction.

Proration Questions

The actual number of days or months in the period for which you are calculating the prorated expense is then multiplied by the monthly or daily charge (whichever is appropriate) to determine the accrued amount or prepaid amount for the item. Before you begin calculating prorations, then, you will need to answer the following questions: What kind of item is being prorated? Is the charge for the item assessed daily, monthly, annually, or according to some other schedule? Is this item accrued or prepaid? Which calculation method should be used? Where is my calculator? 😮

Getting to the Answer

The credit union can evaluate Jerome's qualifications as a borrower using two ratios: Housing expense ratio: Monthly housing expense (PITI) ÷ Gross monthly income Debt-to-Income ratio: Total monthly debt service (housing expense + all other obligations) ÷ Gross monthly income According to the credit union, Jerome's housing expense ratio cannot be more than 28% and his debt-to-income ratio must come in at 40% or less.

Review: The Fed's Three Instruments

The discount rate: The interest rate at which the Fed lends money to its member banks The reserve requirement: The requirement that all depository institutions (not just member banks) keep a certain percentage of their funds in the regional Reserve bank Open-Market operations: adjustments to the supply of money implemented by the Federal Reserve to influence the interest rate

The first Number in "5/1 ARM"

The first number usually indicates the amount of time for which the initial interest rate is locked in years (the initial rate period). In this case, the 5 would indicate that the initial index rate will stay fixed for the first five years. The second number does not have an industry-standard meaning, which can be a little confusing.

Who is responsible for the foreclosure fees?

The foreclosure fees will be added to the loan.

The goals of the CFPB are to create easier-to-use mortgage disclosure forms, improve consumer understanding, prevent surprises at the closing, and:

The goals of the CFPB are to create easier-to-use mortgage disclosure forms, improve consumer understanding, prevent surprises at the closing, and aid in comparison shopping for the borrower.

Grantor

The grantor is the individual who is voluntarily conveying title to another. Because all parties to a contract must have contract capabilities, the grantor in a deed must be: 18 years of age or older Of sound mind Legally competent Of legal existence As in all contracts, a grantor must be of the age of majority and of competent and sound mind. Generally, it is deemed that the grantor is of sound mind if they are capable of understanding the issues or actions covered in a contract.

What is a holding cost?

The holding cost is the investor's overall cost of owning a property for the time period before it's sold.

Corporate Bonds

The largest share of life insurer assets is comprised of corporate bonds. They invest in a variety of industries, with significant investments in industrial and manufacturing firms, financial firms, and real estate-related securities.

What is the process for applying for, receiving, and closing on a loan?

The lending process happens in this order: First, the borrower submits an application. Within three days, they're given a Loan Estimate form. If they proceed with the loan, a title search is performed. If everything is cool with the title, the title company issues a title commitment and title insurance. Within three days of closing, the borrower gets the Closing Disclosure. Closing happens, then, within 15 days, a post-settlement disclosure is sent.

Federal Deposit Insurance Corporation (FDIC)

The most notable feature of the 1933 Banking Act was the creation of the Federal Deposit Insurance Corporation (FDIC). The FDIC started insuring deposits in January 1934 for up to $2,500 (the insurance limit has historically been raised over time) and since then, no depositor has ever lost insured funds as result of bank failure.

Documentation

The participation agreement also provides representations from the lender to the participant as to the accuracy of the documentation comprising the loan. This is important so the participant can be sure that all payments under the loan have been paid to date and that there is no notice of default sent by the lender to the borrower.

The United States Mint

The primary mission of the U.S. Mint, a unit of the U.S. Treasury Department, is to serve the American people by manufacturing, distributing, and circulating precious metal, collectible coins, and national medals, as well as providing asset security.

Whose purpose is it to support residential mortgage lending and related community investment?

The purpose of the Federal Home Loan Bank is to support residential mortgage lending and related community investment. The system provides members with access to reliable, economical funding, technical assistance and special affordable housing programs.

Don't Steer Me Wrong

The rule also says a creditor or any other person cannot compensate, directly or indirectly, a mortgage broker or any other loan originator that is based on a mortgage transaction's terms or conditions, except the amount of credit extended. It also says a person cannot pay compensation to a loan originator for a particular transaction if the consumer pays the loan originator's compensation directly. The rule also says that a loan originator can't steer a consumer to a loan that provides the loan originator with greater compensation, compared to other transactions the loan originator offered or could have offered to the consumer, unless the loan is in the consumer's interest.

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

The sales comparison approach uses two value principles known as the principle of substitution and the principle of contribution.

The Sellin'

The securities are sold to investors, who receive a return on their investment in the form of periodic payments (usually monthly) from the agency. Mortgage-backed securities can be easily traded.

How will closing cost expenses be determined?

The title company will use the sales contract to determine how the parties have agreed to allocate the expenses.

Types of REITs

There are three types of REITs: Equity REITs: Trusts that hold income-producing properties Mortgage REITs: Trusts that extend credit to the owners of real estate Hybrid REITs: a combination of both equity REITs and mortgage REITs

How S&Ls Work

These S&L banks specialized in funding mortgages with deposits from savings accounts. The savings accounts didn't accrue much interest for the depositors, but they had the security of being federally insured.

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

This is called a deed in lieu of foreclosure.

A real estate agent is NOT allowed to advise their clients to get pre-qualified.

This is false. An agent should always encourage their client to get pre-qualified if they aren't already.

RESPA's Regulations

This means, for example, that license holders cannot accept payment of any sort for referring clients to a bank. License holders who provide computerized loan origination services must also comply with RESPA regulations. Violations of RESPA regulations can lead to serious penalties for both license holders and lending institutions' employees. Fines of up to $10,000 can be assessed, as can prison terms of up to a year.

Step 2: Find the total liabilities

This person's liabilities are their student loan balance and car loan balance. Add them to get the total liabilities. $5,000 + $10,000 = $15,000 Answer: $15,000 total liabilities

Debts

To determine whether the borrower has VA-related debts, the lender should ask whether they now or have in the past received VA disability payments or are the spouse of a veteran killed in service or from service-related injuries. If so, the lender must submit VA Form 26-8937 Verification of VA Benefit-Related Indebtedness. Until the VA completes and returns this form to the lender, they may not underwrite the loan.

Maximum Loan and Guaranty

To make these low-down or no-down loans acceptable to lenders, the VA guarantees the first 25 percent of the loan. This creates a loan product that has the equivalent of a 75 percent loan-to-value — at least in terms of the risk or exposure of the lender taking on the loan. There is no VA limit on the amount of loan a veteran can obtain, rather the limit is determined by the lender. The VA simply limits the amount of loan it will guarantee in the event that a veteran defaults on their loan. Because most lenders want to participate in the secondary market, and because Ginnie Mae (the secondary market for most VA loans) requires at least a 25% guaranty, the lenders will generally base the maximum VA loan amount on VA's guaranty.

Freddie Mac Gets It

Top credit officials at Freddie Mac, the giant federally controlled mortgage investment company, said that a "little known" policy revision now allows seniors and others to use certain retirement account balances to supplement their income for underwriting purposes — without actually tapping those balances or drawing down cash. The bottom line is this: If a debt-ratio problem is preventing a senior from getting a new, low-interest-rate mortgage and they've got substantial untapped retirement funds, that might help qualify them on income.

Acceleration Clauses

Trustee shall deliver to the purchaser Trustee's deed conveying indefeasible title to the Property with covenants of general warranty from Borrower. Borrower covenants and agrees to defend generally the purchaser's title to the Property against all claims and demands. The recitals in the Trustee's deed shall be prima facie evidence of the truth of the statements made therein. Trustee shall apply the proceeds of the sale in the following order: (a) to all expenses of the sale, including, but not limited to, reasonable Trustee's and attorney's fees; (b) to all sums secured by this Security Instrument; and (c) any excess to the person or persons legally entitled to it. If the Property is sold pursuant to this Section 22, Borrower or any person holding possession of the Property through Borrower shall immediately surrender possession of the Property to the purchaser at that sale. If possession is not surrendered, Borrower or such person shall be a tenant at sufferance and may be removed by writ of possession or other court proceeding.

Requirements

URAR has several important requirements. The report needs to include: An interior and exterior inspection of the subject property A street map showing the location of the subject property and all comparable properties used by the appraiser An exterior building sketch of the improvements, indicating dimensions Clear and descriptive photographs of the subject property and comparable sales used

When a lender forecloses on a home and loses money, the borrower could actually owe more income tax if the lender:

When a lender forecloses on a home and loses money, they have two choices. They can file a judgment against the borrower for the loss, or they can forgive the debt, which may become taxable income for the borrower.

Step 6: Estimate Value with Applicable Approaches

While each method will be treated separately, it is important to remember that an appraiser should use all of the applicable methods of valuation at their disposal to determine a final value.

Section 8 Housing Vouchers

While landlords are required to meet fair housing laws, they aren't required to participate in the Section 8 program. This means that some landlords will choose not to accept a Section 8 tenant.

Which of the following is NOT a function of the U.S. Treasury Department?

While the U.S. Treasury Department has many functions (such as producing coins and currency, borrowing necessary funds to run the federal government, and monitoring for money laundering), it does NOT issue home loans to homebuyers.

With interest-only loans, borrowers pay:

With interest-only loans, monthly payments are applied to the interest only for a set period.

Who issues a wrapraround mortgage?

Wraparound mortgages are issued by the seller.

But why did the HUD-1 get replaced? Think of it this way: the Closing Disclosure is just a new and better way to present information to clients. It eliminated some confusion that existed in the previous form.

You see, lenders were required to provide three different disclosure forms to consumers who applied for a mortgage under Federal law and lenders also had to give consumers two separate forms shortly before closing on the loan. All of these forms were designed by two different Federal agencies, and this meant that there was repetitive and inconsistent information. Many consumers were understandably confused and needed a more concise form instead.

What is a funding fee, in the context of VA loans?

a fee paid at closing to fund the VA loan program

What is a mortgage banker?

an entity or person who originates and services mortgage loans using their own funds

Tax credits

are dollar amounts that can be applied to taxes owed. For example, if a homeowner owes $500 in income taxes and has a tax credit of $100, they will owe $400 in taxes.

Which of these types of loans can always be sold on the secondary mortgage market?

conforming loans

Secondary Market: Major Participants

The mortgage originator The aggregator Securities dealers Investors

Tax and Insurance Reserves

A buyer is often required to open an escrow account to cover real estate taxes that are assessed during the time the transaction is taking place. In this case, they generally deposit at least enough in the account to pay for the taxes through the end of the month of closing. However, a seller is debited and a buyer is credited for any of the seller's unpaid taxes. A buyer often also pays at least the first year's premium on fire or hazard insurance at closing.

The Equal Credit Opportunity Act

Another act that's in place to protect people in the lending and borrowing process/credit process is the Equal Credit Opportunity Act (ECOA). ECOA was enacted on October 28, 1974. It prohibits creditors from discriminating against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age. It also mandated that loan companies may not ask about marital status beyond inquiring if the borrower is married or single. ECOA rules apply to any person who regularly participates in making credit decisions, like banks, retailers, bankcard companies, finance companies, and credit unions.

Cons

But they also have some disadvantages: If the interest rate is high when the borrower is trying to get a mortgage, their interest rate will stay high for the life of the loan. The only way they would be able to change their interest rate is to refinance, which can be helpful, but can also be a hassle. If the interest rate drops by a lot, the borrower won't be able to take advantage of the drop. Again, their only option would be to refinance. A lot of the time, fixed-rate mortgages are sold to the secondary market, while ARMs stay within the lender's institution. This means that ARMs can usually be more customizable than fixed-rate.

Assuming and Subject-to Provisions

But whether or not the buyer assumes the loan or buys a subject-to loan, the party who originally made the note will primarily be responsible for the loan (or share responsibility in the case of assumption) until the loan balance is fully paid off, or the loan is fully transferred to the buyer using a legal tool known as assignment. In the case of assignment, the full obligation is transferred over to the buyer and the seller is released from all obligation.

Lying on the Application

Did the lender ask your client to lie on the loan application? That's a red flag. A huge, HUGE red flag. 😱 This is straight-up mortgage fraud. Tell your client to run far, far away. If you're sure this was mortgage fraud, you or your client can gather up all the info necessary and report it to the FBI, the Federal Trade Commission, HUD, or if it's a local lender, call the local law enforcement agency.

Extensions and Modifications

Different loan instruments have different options as far as extensions and modifications — but often they are only available under certain circumstances. This can apply to a party who is under financial stress. The lender could be willing to recast the loan with a new interest rate, payment period, or payment amounts. Still, this is not a very common provision in loans because recasting a factor like the interest rate or payments would require all sorts of new loan origination practices like title examinations and mortgage insurance.

USDA Farm Loan Types (Part 1)

Direct Operating Loans: These loans are used to buy things like livestock and feed, farm equipment, fuel, farm chemicals, and insurance. They can cover family living expenses, be used to make minor improvements or repairs to buildings and fencing, and go toward general farm operating expenses.

Standard Lending Policy

Each financial institution's policies must be comprehensive and consistent with safe and sound lending practices, and must ensure that the institution operates within limits and according to standards that are reviewed and approved at least annually by the board of directors. Real estate lending is an integral part of many institutions' business plans and, when undertaken in a prudent manner, will not be subject to examiner criticism.

Tax service fee

Fee for a service that checks to make sure property tax payments are made or have been made.

Credit report fee

Fee paid to a credit reporting service for reviewing the borrower's credit history.

Appraisal fee

Fee paid to a licensed real estate appraiser, usually by the lender, to appraise the value of the property. The appraisal fee varies, depending upon the value of the home and the difficulty involved in justifying value. Appraisal fees on VA and FHA loans are higher than on conventional loans because they require the appraiser to inspect items not strictly associated with value (but such inspections are not for the borrower and should not be substituted for an independent inspection done for a borrower before purchase, if the borrower so chooses). This fee is usually negotiated directly with the lender, who orders the appraisal.

Appraisal review fee

Fee sometimes charged by a lender for a second appraiser to review the original appraisal when findings are considered questionable.

USDA Farm Loan Types (Part 1)

Guaranteed Loans: Guaranteed loans allow lenders to extend credit to family farm operators and owners who don't qualify for standard commercial loans. Farmers receive credit at reasonable terms to finance their current operations or to expand their business; financial institutions receive additional loan business and servicing fees, as well as other benefits from the program, like protection from loss.

escrow account

If the Closing Disclosure shows that your client doesn't have an escrow account, but they would prefer to pay property taxes and homeowner's insurance monthly instead of in one large lump sum, have your client talk to the lender. Also, some lenders may charge a fee if you choose not to have an escrow account. Was your client aware of this?

Commission

If the applicant's sole income is from commission, they should be requested to provide the previous two years' worth of tax returns. If only part of the applicant's total income is from commission, two years of W-2 forms and a Verification of Employment form are typically proof enough of such income.

Short Sales

If the house goes through a short sale, there is no law in Texas that states the lender cannot get a deficiency judgment. When doing a short sale, you want the agreement to state that the lender waives the rights to a deficiency judgment. If the short sale agreement does not contain that language, the lender has the option of filing for a deficiency judgment for the next two years. As a real estate agent, you need to be aware of this or have the knowledge of who you can talk to to make sure your client is getting the correct information.

Loan companies may not inquire about:

Loan companies may not inquire about marital status beyond asking if a borrower is married or single.

Where

Market conditions vary a lot by location. We can see trends emerge at the national level, but that doesn't mean that every city or region is experiencing the same point in the cycle at the same time. The real estate market is not the same in Austin, Texas as it is in Flint, Michigan.

Marriage's Effect on Grantor

Marriage may further complicate the grantor section of a deed, as it may necessitate two grantors. If a grantor is married, then in many states their spouse needs to sign the deed as well. This is because, in some states (including Texas), a person may have title to their spouse's property or may have homestead rights in the property.

Tax Deductions are Limited

Only deductible to a point. PMI is tax-deductible only if the adjusted gross income of the married taxpayer is less than $110,000. If married, but filing separately, the cutoff for tax-deductibility is $55,000 individually. If your client earns more than that, unfortunately, they will be left out in the cold. Really, PMI being deductible is the only real benefit of having it, so if your client makes more than $110k annually, help them look for other options.

RESPA rules apply to most federally related mortgage loans. These loans can include:

Refinancing First or subordinate liens One- to four-family structures, individual units of condos or cooperatives, or manufactured homes Property where a new dwelling will be constructed Installment sales contracts, land contracts, or contracts for deeds

RESPA and Closing

RESPA also requires that any time the closing agent refers a borrower to a firm with which the lender is affiliated, the lender must inform the borrower of the connection through an Affiliate Business Arrangement (ABA) Disclosure stating the relationship and that the buyer need not use affiliated firms. For example, if the borrower is referred to an appraiser whose firm is owned by the owners of the lender's firm, the lender must inform the borrower.

Real Estate Settlement Procedures Act (RESPA)

RESPA was passed by Congress in 1974. Before its creation, it was common practice for lenders to advertise loans at a certain rate of interest if the borrower used the lender's title insurance company or other affiliate's service at a greatly inflated price. Then the title company or affiliate would pay the lender a portion of the inflated fee as a kickback — an illegal fee or rebate for steering the business their way.

Designation on International Real Estate

Real estate agents can earn a designation in international real estate if they wish. One option is the National Association of REALTORS® Certified International Property Specialist (CIPS) designation, which requires the completion of five courses: two core courses and three electives. Interested agents must also submit a designation application and show proof of international real estate experience. These courses may be taken online or in a classroom, and the designation stays valid for a period of three years. Any coursework completed more than three years before submitting the application won't count, and therefore must be retaken to get credit towards the education requirement.

Disclosure Documents

The Washington State Department of Financial Institutions goes on to say that consumers should pay close attention to the disclosure documents they get towards the beginning and end of the loan process:

More Detail

The account history of the RMCR is quite detailed. These histories generally include detailed information about account activity in the past two years, including: Late payments The date(s) on which an account was delinquent The number of times each account has been past due The duration of its past-due status (30-59, 60-89 or 90+ days) The type and balance of each account

Limiting Capital Losses

These government-sponsored enterprises, many of which you learned about in the last chapter, were created by Congress to limit the risk of capital losses to those investors supplying money for mortgage loans. The goal was to improve the efficiency of the marketplace and transfer money from the investors to areas of high loan demand more easily. Basically, they wanted to create more mortgages faster.

Exceptions to the Foreign Investment in Real Property Tax Act

There are, however, exceptions to FIRPTA. One of the most common exceptions releases a transferee (or a purchaser or a buyer) from the obligation to withhold tax in cases in which the buyer purchases real estate for use as their home and the purchase price is not more than $300,000.

Debt-to-Equity Ratio

There's yet another way that lenders can evaluate a borrower's ability to repay a loan. Lenders will sometimes (especially for business loans) have a qualifying debt-to-equity ratio, also known as a total-liabilities-to-net-worth ratio. This ratio is a measure of the extent that the net worth of an enterprise can offset its liabilities. Generally, 400% is the maximum debt-to-equity ratio a lender will allow. In other words, a business must not owe more than four times the value of all its assets.

Ginnie Mae

This was a lot for one entity to do, so the Government National Mortgage Association (GNMA), also known as Ginnie Mae, was created in 1968 as an offshoot of Fannie Mae.

Section I: Type of Mortgage and Terms of Loan

What kind of mortgage they're applying for What the agency and lender case numbers are The amount of the loan The interest rate for the loan How many months the loan is for The type of amortization

Income

When talking about income, there is no official requirement. The lender will look at the whole picture of the borrower's debt-to-income ratio. In most cases, the debt-to-income ratio limit that lenders end up using is 45%. This means that a borrower's debt can only take up 45% of their entire income. At times, the lender may be able to go all the way up to 56% if the applicant's credit score is higher.

Federal Tax Foreclosure (IRS)

When the foreclosure action is taken by a lienholder that is junior to the federal tax lien, the sale of the property happens without affecting the federal tax lien. However, if the government agrees that the property can be sold free and clear of its liens, the proceeds from the sale are distributed according to the priorities of the interests of the various parties involved.

Mortgage Servicing and Escrow

A home mortgage gets passed on to a servicer for ongoing management. What exactly does that servicer do? Collects the homeowner's payments every month Maintains the escrow account (if the borrower has to or chooses to have one) for annual expenses, like taxes and home insurance Contacts the borrower about late payments or defaults Answers questions the borrower may have about the loan

When a Loan is in Default

A loan is in default when the borrower fails to make one or more payments. Since it's the mortgage servicer's responsibility to look out for the property, they take a series of actions to address the default. It could start with an in-person property inspection to check on the condition of the property and verify that the owner is still living there.

Mortgage Bankers

A mortgage banker is an entity or person who provides mortgage financing by using their own funds. The loans come from the mortgage banker, rather than a commercial bank or savings association.

Servicer Transfers

A mortgage can be switched over to a different servicer, but the homeowner will need to be notified of the change. This usually happens via separate notices from both the old servicer and the new servicer. The current servicer will send a letter 15 days before the effective date of transfer or earlier. The soon-to-be servicer sends a notice within 15 days after the effective date of the transfer. The effective date, to clarify, is the day that the first mortgage payment to the new servicer is due. Since this handoff can be a little confusing, there is generally a 60-day grace period in which late fees are waived for customers who have sent their payment to the wrong servicer.

The Seller Financing Addendum

A specific interest rate, payment schedule, and policy for dealing with default should be established. The Texas Real Estate Commission (TREC) provides an addendum for the parties to negotiate seller financing (the Seller Financing Addendum). When interest rates on money in the bank are very low, the seller can frequently make a greater profit by leaving the money in the property and becoming the lender. This can be a win-win for the buyer and the seller.

Evaluation of the Borrower

After the borrower submits an application, the lender evaluates their credit, their income and expenses, the source of their down payment, and their assets and liabilities. This helps to limit the risk taken on by the lender. The lender is trying to decide whether this borrower will be able to pay not only their down payment but all of the future payments. Most residential loans require a 20% down payment unless the loan is covered by private mortgage insurance (PMI) or is insured by the FHA or guaranteed by the VA. The lender will verify the purchaser's employment. They want not only to verify that the borrower has income, but that the income is likely to continue.

Escrow Documentation

Buyers who may be nervous about leaving important payments in the hands of some mortgage servicers can take solace in the documentation and timing requirements that servicers have to adhere to. Federal law states that mortgage servicers who collect escrow funds for taxes and insurance (or any other line item expense) are required to make those payments on time on the borrower's behalf. Servicers also need to provide their customers with itemized statements of estimated expenses for the next 12 months, plus the totals and anticipated dates for the payments. Servicers have 45 days after establishing an account to provide the first statement. An annual statement (at no cost to the borrower) showing the escrow balance and past payments is also required.

Collateral

Collateral is something of value that is pledged to a lender as a promise to repay a loan. In real estate finance, the borrower is offering real property as the collateral for a loan on that same property. The debtor is essentially saying, Hey, buy me this house and I will pay you back for it over time, including interest, and if I don't pay, you can take the house back from me. No need to show up to a lender's office saying this verbatim, but that's pretty much the deal most people seek when they apply for a mortgage.

Depreciation

Depreciation, you may recall, is the loss of value over time caused by wear and tear or functional obsolescence (when features lose value not because they are physically worn out, but because they no longer appeal to the modern consumer's lifestyle).

Expansion

During the next phase, called expansion, market activity really picks up. Businesses are hiring more, and people tend to view real estate as a good investment again. There is a general sense of being "out of the woods" and recovered from the last recession. Signs of expansion include: Most available properties have been bought or rented, driving vacancy rates down Rent and home prices are rising Construction for new homes and commercial buildings starts At the end of the expansion phase, people may pay more for real estate than it's worth, because they are anticipating future increases in value.

Comp Adjustments

Even in the most uniform suburban communities, the selection of comps will not be exactly the same as the subject property being appraised. There will be variations in square footage, condition, number of bedrooms and bathrooms, and the presence of features like fireplaces and swimming pools. These qualities make a property either inferior or superior to the subject property, which is why you can't just say, "Comp House A sold for $260,000 last month, so the value of the subject house should be $260,000." When you gather up comps, you won't be comparing apples to oranges. But you might be comparing oranges to tangerines. 🍊 To make adjustments, appraisers assign a dollar value to certain features and qualities of properties. This dollar amount isn't standardized; it's a judgment call based in part on the kind of things a particular community finds value in. If the comp has a desirable feature that the subject property does NOT have, the value of the feature is subtracted from the sales price of the comp. If the comp is lacking a desirable feature that the subject property has, the value is added to the comp price. The point of an adjustment is to see how much the properties would sell for if they were all exactly the same. Those prices should be telling the same story.

When to Use the Income Approach

Examples of properties that are a good fit for the income approach are apartment complexes. Of course, other considerations are factored into the valuation, but the income-producing potential is a big piece of the puzzle.

Private Investors

Family, friends, neighbors, and co-workers can become private investors in commercial real estate, too. Through online research, a businessperson can locate professional private investors or professional lending institutions. As you would expect, the investor will almost certainly want to have their attorney review the documents prior to signing. Private investors (lenders) may have higher interest rates or unusual terms compared to banks. This type of lending is called "hard money" lending.

FHA Loans

Federal Housing Administration (FHA) loans are an option for homebuyers who may not be qualified for a conventional loan. It allows them to put down a smaller down payment (as low as 3.5%) and get into their own home sooner than they may have been able to afford it without this program. The small down payment is acceptable to lenders because they have some assurance that the FHA will pay them if the buyer defaults.

Portfolio Lenders

Financial institutions that make real estate loans that they keep and service in house instead of selling them on the secondary markets. A portfolio lender will often have less stringent requirements than national banks. Big banks may not finance an investor if they have more than four mortgages, but local banks might. Good portfolio lenders allow the investor to finance as many properties as they want, as long as they continue to qualify and have enough reserves. Portfolio lenders are invaluable to the commercial property investor. 🏢

What is Loan Servicing?

I'm talking about servicing, which is a collection of monthly payments, usually including payments on the principal, interest, taxes, and insurance, or PITI (we'll discuss PITI in more detail later in the course) — along with the maintenance of records. The loan servicer is also responsible for sending the collected funds to the note holder and contacting the borrower about any delinquencies. Additionally, the loan servicer will provide the borrower an annual statement that details the activity of the escrow account, showing the account balance and payments for property taxes, homeowners insurance, and other escrowed items.

If a buyer purchased a property for $350,000 with a loan for 100% of the purchase price, which type of loan did they most likely use?

If a buyer purchased a property for $350,000 with a loan for 100% of the purchase price, they most likely used a VA-guaranteed loan. VA allows low or no downpayment options for veterans and spouses of veterans.

Information on the Notice

If the ownership of a loan changes, the required notice should contain the following information: Name, phone number, and address of the new loan owner Date of transfer of the loan to the new owner The location where proof of the transfer is recorded Contact info for the person who can receive legal notices and help with questions about mortgage payments

Know the Requirements

Investors should ask a bank lender for information about the typical terms and required documentation for a commercial loan before applying since it can be a time-consuming process. Some loans require the investor to meet certain requirements regarding their debt-to-cash ratios, cash flow, etc. If the borrower cannot meet these requirements, it could result in a higher interest rate. Also, note that the asset is equally important to the lender. They will spend just as much time underwriting the property as the mortgagee.

Property Preservation Services

It's bad news if the servicer finds the property in unacceptable condition. They have the authority to order repairs (such as landscaping and lawn mowing, boarding up broken windows) known as property preservation services. Do you think the loan servicer is going to foot the bill for potentially thousands of dollars worth of repairs? Nope. Well, the servicer will pay upfront for the work to be done, but the cost will be added to the homeowner's loan amount.

Friends and Family

Last of all, let's talk about the friends and family financing option. This is when a buyer finances their property using funds borrowed from their friends and/or relatives. Both the buyer and their friends or relatives making the loan should be certain that everything about the loan agreement is in writing, with all of the terms of the loan detailed. Both parties will have rights and responsibilities. The parties will need an attorney to draw up the Note and Deed of Trust to protect the parties. The title company attorney will be able to provide that service if needed. Remember that the lender (a friend or relative) will have the right to foreclose on the property if the borrower is not able to make the payments. This type of arrangement can sometimes be hard on the relationship.

With a thorough evaluation of the buyer's credit, the lender's risk would be:

Lenders must do a thorough examination of a potential buyer's credit, income, and debt. This can help to limit a lender's risk. Unfortunately, the risk cannot be totally erased.

The SAFE Act

Let's take a moment to go over one of the more recent legislation changes regarding the financial industry. I'm talking about the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, or SAFE Act. This national law required the states to pass legislation saying that all mortgage loan originators (MLOs for short) must be licensed in accordance with national standards. State agencies were also required to participate in the Nationwide Mortgage Licensing System and Registry (NMLS).

How can local governments influence real estate market economies?

Local governments can influence local real estate economies by imposing zoning policies to either encourage or slow down the growth of the community.

Conforming conventional loan

Made according to the guidelines that will allow the loan to be sold on the secondary market. (FHA, VA, and conforming conventional loans are all eligible to be sold on the secondary market.)

Loan Processing

Making real estate loans carries a certain amount of risk for lenders. For this reason, lenders must have a firm grasp of a borrower's financial qualifications. During loan processing, the lender collects information from the buyer that will help determine the loan type and amount they will qualify for. The person who is seeking the loan will need to complete and submit an application to kick off the loan processing. Lenders have to consider a borrower's income, credit, debt, source of funds, and net worth. They do this by creating a file for each interested borrower containing pertinent information about them and the property. They also verify that the information provided by the borrower is actually true. You can't be too careful when loans can be for hundreds of thousands of dollars.

Property Valuation

Mortgage lending activities involve more than just making sure that loan applicants are qualified. Lenders must also get a detailed understanding of the property that is to be mortgaged. This involves a thorough and accurate property valuation, using the sales comparison or cost approach for residential property and a cap rate for income-producing property. These methods of valuation will be discussed further in-depth in Level 9 so that you will feel confident and familiar with them when you encounter them in the real world. For now, I'll give you a brief overview of these property valuation methods.

Commercial Real Estate Financing

Now that you've learned quite a bit about the mortgage lending activities that precede the purchase of a residence, let's move on to commercial financing. Commercial real estate financing is usually done by banks and private lenders. Bank lenders will assess the real estate investor's credit history and income from their businesses, employment, or investments. Good credit history and solid income will usually enable the investor to have access to good financing. The bank will want to examine the investor's personal and business balance sheets for the past three to five years.

Loan Ownership Transfer

Okay, now you know what happens when the servicing of a loan is transferred to a different company. But it's important to remember that the owner of a loan and the servicer of a loan are not necessarily the same. These can be two separate entities. Like servicing, ownership of a loan can change without action on the part of the debtor. A new owner must provide notice to the borrower within 30 days of possessing the loan.

Cost Approach

Onto the next valuation approach. The cost approach estimates the value of a property by determining how much it would cost to completely replace it and then subtracting from that value to account for depreciation.

Portfolio banks are:

Portfolio lenders are local banks that lend their own money and do not sell their loans on the secondary market.

Real estate loans:

Secured by other real estate you own (Usually, you can borrow up to 75% against the value of the property for a term of between 10 and 20 years.)

Asset-based loans:

Secured by professional or perhaps personal assets

Cost

Servicing costs about 0.25% to 0.50% of the loan balance, and that fee is passed on to the borrower (usually from the secondary-market investor). While we're on the subject, I'll mention that a net basis rate or wholesale rate means that a servicing fee has not been included.

Interest Rates

The Federal Reserve controls this country's monetary policies. These policies can dictate the interest rates and supply of money. When inflation starts getting out of control, the typical response is an increase in interest rates and constriction of the economy. Economic activity in a slump? The Federal Reserve is more likely to reduce interest rates. Low interest rates make home purchases more affordable.

The Loan Assumption Addendum

The buyer in this type of transaction will want to thoroughly research the loan they will be assuming and the seller will want to make sure that they are being released from liability on their old loan. TREC provides the following addendum to help the buyer and seller negotiate the terms of an assumption (the Loan Assumption Addendum).

Recession

The final phase in the real estate cycle, recession, starts when occupancy falls below average (specifically, the long term average that evens out cycle changes). Homes sit on the market, unsold. Prices are driven down. Foreclosures abound, especially when the real estate recession is coupled with an economic recession that leaves homeowners unemployed and unable to pay their overly high mortgages.

Income Approach

The final valuation technique I want to introduce you to is the income approach. The income approach determines the value of a property by paying particular attention to the amount of income a property could produce for its owner. This could be actual income (such as rent that is actually being paid to the owner) or potential income (income that the owner could potentially collect if they rented out the space).

The Secondary Market

The majority of mortgages are not retained by the original lender who created them. Most are quickly packaged and offered up on the secondary market, which is where loans and servicing rights are sold to investors. This may feel like a bit of a bait and switch to the uninformed homebuyer who carefully selected a lender and thought they'd be working with that company for years to come. But this is the nature of mortgages, and it doesn't make much of a difference in the borrower's debt experience. The purpose of the primary market selling loans to the secondary market is that it frees up funds for the primary lenders to create more mortgages rather than stopping at the finite amount they could take on as portfolio loans.

Hyper Supply

The real estate industry has been booming, new properties are popping up left and right... what could possibly go wrong? Well, Maria, this is about the time when the market enters the hyper supply phase, in which supply catches up with (and eventually surpasses) demand. The first warning sign is an increase in vacant or unsold property. And yet, investors can't just stop building after all the work they've put into their projects up until this point. They're on the hook to finish projects and pay back the loans they took out. And so we enter the hyper supply phase, also called the "boom." Hyper supply is marked by: Crazy high prices Lots of building projects going on Vacancies start to rise

The sales comparison approach determines value by comparing the subject property to:

The sales comparison approach determines value by comparing the subject property to the sales prices of similar properties that have been sold recently.

What is TRUE about the secondary market?

The secondary market is where loans and servicing rights are sold to investors.

Money Supply

The supply of money is another contributing factor. If businesses and individuals want to borrow money in order to buy property, money has to be available for them to borrow. If the government (at federal, state, and/or local levels) is borrowing a lot of money, there is less available for relatively small borrowers, like individuals buying homes.

The Primary Market

There are two major, distinct markets to know about in real estate finance. The primary market is where mortgages are first created by connecting lenders to borrowers. Lenders in this market have a supply of savings deposited by their members. Rather than letting that money sit around indefinitely until the depositor withdraws it, the lender puts it to work by lending it to a borrower. The borrower gets the funds they need for that lovely home, and they pay interest to the lender (who makes some decent money off the situation). Some of that money is paid to the people who deposited their savings that made it all possible.

Loan Assumption

This can be very valuable for the buyer if interest rates are rising and there is a low rate on the loan they are assuming. If the seller bought the home in 2014 with a 3.5% interest rate on an FHA loan and then sells the property in 2019 - while interest rates have risen to 8% on new loans - it would probably be to the buyers' advantage to buy the seller's equity (equity is the difference between the value of the property and the current loan balance) and assume the seller's old loan.

Underwriting

Underwriting is the process of deciding the level of risk a lender would take on by offering a loan to a certain borrower for a specific property. It's a complex process that has been automated to some degree, but still requires the work of a specially trained professional. This decision about risk is made using the borrower's loan application, documents within their file, and information about the property for which the mortgage is sought.

VA Loans

VA (Veteran's Association) loans are similar to FHA loans. The VA guarantees loans instead of insuring them. The guarantee protects the lender if the borrower defaults on the loan. The borrower pays a fee upfront for the guarantee, but there are no ongoing monthly premiums. This type of loan can be guaranteed for 100% of the loan amount, meaning it allows qualifying veterans to buy a home without paying a down payment at all. And if the seller is willing to pay the buyer's closing costs (in addition to their own closing costs), the VA allows it. That means it's possible for a VA buyer to actually move into a new home for $0!

Step 1: Find the total annual interest

We just need to multiply the loan amount by the interest rate (in the form of a decimal, of course) using the formula above. $200,000 x 0.08 = $16,000 Answer: Emily's total annual interest is $16,000.

Buying Subject to Existing Mortgages

What happens when a buyer purchases a property subject to a seller's existing mortgage? You guessed it, the seller's obligations under the existing mortgage remain unchanged. Why? When purchasing a home subject to the existing mortgage, the title changes hands, so the buyer owns the house legally, but the seller's old mortgage stays in place. The buyer pays the seller, and the seller turns around and pays the lender, usually keeping a cut for themselves.

Selecting Comps

When I say "sold recently," I mean as recent as possible, with less than six months being the ideal time frame. Some slower markets may call for comps sold within the past year. Location is also a major qualifying factor when selecting comps. The properties should ideally be located within a mile and in the same neighborhood, or as close to the subject property on the map as possible. In rural areas (of which Texas has many), the one-mile rule for comps will not apply; just use common sense. Both the sales time frame and the size of the area may be expanded if necessary to find three or more comparable properties. The age of the property is considered, too. If a home was built more than 10 years before or after the subject property, it's probably not a good comp.

Other Loan Types

When the purchaser's credit and assets are not sufficient enough to secure a traditional loan, some non-traditional loans may be available. They include, but are not limited to: Seller financing Interest-only loans Assumption transactions Friends and family financing

Interest-Only Loans

With interest-only loans, monthly payments are applied to only the interest for a set period. During the life of the loan, the borrower is not paying down the principal amount at all. The advantage of this is that since they are not paying down principal, their payment will be significantly lower. Interest-only loans can be okay for short-term situations, but refinancing is key. Most homebuyers stay away from interest-only loans. They're more common in commercial real estate.

Can loan ownership be transferred?

Yes, and the new owner must provide notice to the borrower.

Leverage

You will also want to have a good understanding of leverage. In the context of mortgages, leverage is the use of a relatively small amount of money in order to get a much bigger loan for purchasing real estate. That relatively small amount is the down payment. Down payments can be very low (as with FHA loans, at 3.5%), somewhere in the middle (as with most conventional loans, at 5% to 20%), or basically as high as the borrower pleases. Leverage becomes a more important topic for people who are buying investment properties.

Pre-Approval

is the more official process of being approved by the lender to borrow a specific amount at an interest rate within a small range. A mortgage application, credit report, and supporting financial documentation are required.

Who owns the property when the borrower has a reverse mortgage on the property?

the borrower

Are Discount Points Deductible?

Because discount points lower the interest rate, they are treated as prepaid interest for tax purposes and are partly deductible. They are not, however, fully deductible in the year of payment unless ALL of the following apply: The taxpayer's principal residence secures the loan on which the points were paid, and the loan is used to buy or build that residence. The points paid were customary in the area. The points weren't paid in lieu of other customary fees. The taxpayer's cash investment in the property at closing is at least as much as the amount of the points. The points were determined as a percentage of the loan amount. The amount of the points is stated on the settlement statement as a discount. If all these conditions are not met, the borrower must spread the deduction over the life of the loan. However, if the borrower accelerates payment, reducing the loan's life, they can deduct the remaining point balance in the year that the mortgage is repaid completely.

Mortgage-Backed Securities

Mortgage-backed securities are asset-backed securities that are secured (collateralized) by either a mortgage or a group of mortgages. Real estate bonds are one type of mortgage-backed security (MBS) sold in the secondary mortgage market. A large percentage of newly originated mortgages are sold by their originators into this large and liquid market where they are packaged into MBS and sold to public and private investors. Such investors include Fannie Mae, Freddie Mac, pension funds, insurance companies, mutual funds, and hedge funds.

College Credit Union has decided to give Melissa a loan. In exchange, they have a mortgage on Melissa's house. Which term best describes College Credit Union?

Mortgagee is the term that best describes College Credit Union. Having received a mortgage in exchange for giving Melissa a loan, College Credit Union is a mortgagee.

In order to purchase her dream house, Jane is taking out a loan. In exchange for the loan, Jane is giving her lender a mortgage. What term best describes Jane?

Mortgagor best describes Jane as she is a borrower who is creating a mortgage in exchange for her loan.

Long-time liabilities

refer to the sum of all debts paid monthly (for example, monthly car payments, student loan payments, credit card payments, etc.). In fact, it's much simpler to call the total monthly expenses, so let's do that: Total monthly expenses ÷ Gross monthly income = Total debt service ratio

Classic symptoms of a recession include:

High unemployment Decreased spending by consumers and businesses Less investment in new buildings, factories, and equipment Land prices are at their lowest Decreased interest rates

Credit Reports

A major component of loan processing is ordering and checking the borrower's credit reports. Not all creditors report to all three of the big national credit reporting agencies (Equifax, Experian, and TransUnion), so a single individual could have a different score from each agency. If the lender can pull all three reports, they will use the median number for their loan decision. If a person has reports from two of the agencies, the lower score will be used (sorry). 😕

To qualify a buyer for a loan, lenders consider all of the following except:

All of these factors are considered. What's NOT considered? Fair lending laws say that the lender may not discriminate because of race, color, religion, sex, disability, familial status, national origin, receipt of public income, age, or marital status.

Closing

Closing. You know it as the end of something, or maybe just that glorious day on the calendar when a real estate deal is completed. If we're talking mortgage processes (and we are), closing is the consummation of a real estate transaction when all the necessary contracts are signed and the lender disburses the funds of the mortgage loan. The physical meeting at which the paperwork is signed for the property transfer is also called the closing.

Funding

Next comes funding. This should be your favorite step, Maria. It's when you get your commission! That's because this is the step when the money officially goes through. Funding happens when the lender provides the cash in the amount of the approved loan. It is the transferring of funds to a title company or escrow company so that they may be disbursed from there. Usually, the homebuyer doesn't get the keys until funding (not just closing) has occurred. 🔑

Residential Real Estate Financing

Now that you understand a bit about how property is evaluated, let's get back to the evaluation of the borrower. Banks, credit unions, mortgage companies, and savings and loan associations are some of the traditional lenders in the residential finance business. Remember, this group of lenders make up the primary mortgage market. This is where the consumer can walk in and fill out an application to finance their home.

Recovery

Ok, so say a recession (a period in which economic activity dramatically declines and stays declined for more than six months) just happened. Recovery is the phase that follows a recession. In a recovery, conditions stabilize and the outlook for the market is just starting to look brighter. Distinguishing characteristics of a recovery phase include: High unemployment (but it's not getting any worse) Lots of home foreclosures People have seen the damage caused by recession and are afraid to buy homes (even though it's arguably a good time to "buy low") Government lowers interest rates to encourage investments

The act that prohibits the practice of kickbacks is:

The Real Estate Settlement procedures Act

What does the SAFE Act require?

The SAFE Act requires that all mortgage loan originators must be licensed in accordance with national standards.

In addition to a senior citizen tax deduction, what other benefit is given to seniors to offset school taxes?

Their school tax rate may be frozen.

Hypothecation

You can also look at real estate financing as a type of hypothecation. This concept is closely related to collateral, as it involves a borrower pledging a certain asset as collateral for the loan. In hypothecation, the borrower maintains their ownership of the asset and has free reign to use and enjoy it. The lender has an equitable title in the property, meaning they have no right to the property unless there is a default. Once the loan is fully paid off, that right disappears.

Pre-Qualification

is the first step in determining "how much house" the buyer can afford and which type of loan might be best. The buyer supplies information about their financial situation to the lender, who then provides a general estimate.