Government involvement and real estate financing
Real Estate Investment Trust
(REIT) a RE Investment business with at least 100 investors, organized as a trust
Resolution Trust Corporation
(RTC) an agency formed to manage the disposition of bankrupt loans
Purchase money mortgage
(seller or owner financing) *a mortgage where the seller financing all or part of the sales price of a piece of property for a buyer
VA guaranteed loan requirements (time in service criteria)
*90 days of active service for people currently on active duty *90 days of active service for veterans who served during World War II, Korean War, Vietnam conflict, and gulf war *minimum of 181 days of active service during inter conflict between periods of 1947-1980 * 2 full years of service during any peacetime period since 1980 or the full period (at least 181 days) for which the vet was called or ordered to active duty *6 or more years of continuous active duty as a reservist in the army, navy, Air Force, marine corps, or coast guard, or as a member of the army or air national guard.
Computerized Loan Origination
- now possible on the internet - various websites provide interest rates, points, APR's for various types of loans - agents can complete a loan applicaiton on the internet and can get loan approval before the client leaves your office - competition on website mortgage loan origination = lower costs for the borrower
prepayment penalty
1. borrow
prepayment penalty
1. borrower may pay off loan at any tie before the end of the term of the loan or make additional payments to the principal during the term. 2. Penalties may be assessed by the lender to compensate for unearned interest when a loan is paid in full prior to the scheduled end of the loan term a.) prepayment penalties may be regulated by state law b. ) prepayment penalties are prohibited on mortgage loans insured or guaranteed by fed govt of sold to Fannie Mae or fredddie Mac. * charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost
Deed of Trust
1. creates a 3 party agreement that conveys "naked title" or "bare legal title" to the third party (trustee ) who has certain obligations to the lender (the beneficiary ( the borrower is the trustor 2. generally provides simpler and faster foreclosure than a mortgage and can be used to secure multiple promissory notes
Income on a loan does from 2 sources (Primary mortgage market )
1. finance charges ( collected at closing) 2. recurring income from interest (collected during term of loan)
Recording mortgage or deed of trust (3) where recorded? what notice of debt? establishes what
1. recorded in the county where property is located 2. gives constructive notice of the debt 3. establishes lien's priority
number of discount points determined by
1. the difference between the interest rate and required yield 2. length of time lender expects borrower to pay off loan
Assumption and liability
1. the purchaser is personally liable for debt 2.in the event of foreclosure, the purchaser may be held liable for any deficiency 3. unless specifically released by the lender, the original borrower may also be liable for the debt or any deficiency 4. loan may not be assumed in many cases without lender approval requiring assumer to qualify
Basis Point
1/100 of 1% (percentage point)
FHA terms: _______% of purchase price is the minimum downpayment for borrower to obtain a FHA insured loan
3.5%
In the Transfering of a loan, the consumers must be notified within _______ days after the date in which loan was acquired
30 days
Seller is allowed to pay for some closing costs , up to ___% of loan amount in a VA
4% of closing costs
guidelines set by Fannie and Freddie for comforting loans is
417k-625k$ limit for single family
Truth in Lending Act (TILA)
A consumer must be fully informed of all finance charges and the true cost of the financing before a transaction is completed >the finance charge disclosure must include any loan fees, finders fees, service charges, and points , as well as interest >lender must compute and disclose the annual percentage rate (APR)
Alienation Clause
A contract clause that gives the lender certain stated rights when there's a transfer of ownership in property ( DUE ON SALE CLAUSE
Discount Points
A fee charged by the lender at settlement that results in increasing the lender's effective yield on the money borrowed. * One discount point = 1 % of the loan amount.
bond
A financial security that represents a promise to repay a fixed amount of funds
Growth Equity Mortgage (GEM)
A fixed -rate mortgage set up like a 30 year conventional lan, but payments increase regularly like an ARM . Also called Rapidly Amortizing Mortgage
Certificate of Reasonable Value (CRV)
A form indicating the VA approved appraisal value of a property being financed with a VA loan. *CRV places a limit on the amount of the VA guaranteed loans allowed for property *if purchase price is higher than VA appraisal , veteran must pay difference in cash VA borrower pays a loan origination fee to the lenders , as well as a funding fee to the USDA
Conventional Loan
A loan that requires no federally sponsored insurance or guarantee *viewed as most secure loans because their LTV ratios are often the lowest *LTV may be 80% of value because the buyer may make a downpayment of 20% *usually with 20% down, and a conventional loan, no additional insurance or guarantee on the loan is necessary to protect the lenders interest. * can be sold on secondary market (Fannie Mae, Freddie), *PITI must not exceed 28% of total monthly gross income. Total monthly debt obligation of borrower cannot exceed 36% of monthly gross income
Adjustable-Rate Mortgage (ARM)
A mortgage that permits the lender to periodically adjust the interest rate so that the rate reflects fluctuations in the cost of money
Partial Release Clause
A provision in a blanket mortgage which obligates the lender to release each parcel held as security upon payment of a specified sum.
Assumption rules in FHA loans
A qualified buyer may assume an existing FHA loan *if the loan originated on 12/15/1989 or later, a complete buyer qualification is required *if loan originated prior to that date, all that is required is a buyer credit check Sometimes older loans have a lower interest rate and the appraisal may not be required
nonconforming loan AKA jumbo loan
A residential mortgage loan that exceeds the loan amount acceptable for sale to Fannie Mae and Freddie (exceed their loan limits) *not marketable on secondary market *held in the lenders investment portfolio and are commonly referred to as portfolio loans, for high-end buyers you will want to know lenders who deal with non-conforming loans
debt-to-income ratio
A standard tool that calculates whether a borrower will have difficulty meeting his or her loan repayment obligation.
Buy Down Loan
A way to temporary (or permanently ) lower the interest rate on a mortgage or deed of trust loan *example: a homebuilder wishes to stimulate sales by offering a lower than market value interest rate *a lump sum is paid in cash to the lender at the closing *the payment offsets (and so reduces) the interest rate and monthly payments during the mortgages first few years *typical buy down arrangements reduce the interest rate by 1% to 2% ever the first one to two years of the loan term , after that , the rate rises *the hope is that the borrowers income will also increase
Finance Instrument
A written document used in the borrowing or lending of money. The most common type is a promissory note.
FHA most popular loan programs cover. insurance for fixed rate loans, 10-30 year loans and 1-4 family housing but ALSO offers insurance on _____Loans, _____Loans and Loans for ___________ Purchases
Adjusted Rate Mortgage Loans, Home improvement loans, Rehab Loans, Loans for condos
Ginnie Mae secondary market function
Administer Special Assistance, NOT LOANS
Home Equity Line of Credit (HELOC)
An open-ended loan which can be drawn from when needed, up to the credit limit, and uses available equity in a residence as collateral.
Traditionally, discount points on the loan get paid by the _______. However, FHA-insured loans allow _________ to contribute up to ________% of the borrower's closing costs, including points.
BUYER, .....Seller to contribute up to 6% of borrowers closing costs (sales price) If seller pays excess of 6% closing costs, the amount will be applied and reduce the sales price and the mortgage will be calculated accordingly
In FHA, the ratio for owner occupancy to renters is considered by FHA with regard to insuring loans for ________s
CONDOS
Blanket Loan
Covers more than one parcel or lot. >usually used by developers to finance a subdivision >usually includes a provision known as a partial release clause which permits the borrower to obtain the release of any one lot of parcel from the blanket lien by repaying a certain amount of the loan, >the development lender issues a partial release from the mortgage lien on the entire property for each parcel sold
VA loans
Department of veterans affairs, assists veterans in financing the purchase of homes, farms, and small businesses with little to no down payment at market interest rate. GUARENTEED by VA
Wraparound Loan
Enables a borrower with an existing mortgage or deed of trust loan to obtain additional financing from a second lender without paying off the first loan. *second lender makes a new loan with higher interest rate and assumes payment of the first loan , the borrower pays the new lender for BOTH loans >good if the first loan has a prepayment penalty
KEY PLAYERS in the Secondary mortgage market.. 4 government sponsored enterprises (GSEs)
Fannie Mae (federal national mortgage association), Freddie Mac (federal home loan mortgage corporation, farmer Mac (fed. agriculture mortgage corporation), Ginnie Mae (government national mortgage association)
Freddie Mac (FHLMC)
Federal Home Loan Mortgage Corporation, created in 1970 as privately owned corporation, ownership:privately owned, also now under govt conservatorship. PRIMARILY BUYS: Conventional Loans
Fannie Mae
Federal National Mortgage Association (one of GSE) CREATED as a governmental agency in 1938, ownership: became a private shareholder corporation in 1968 under congressional supervision, WHAT THEY DO: Buys from a lender a block or pool of mortgages that may be then used as collateral for mortgage-backed securities that are sold on the global market. **Primarily buys conventional loans, FHA insured loans, Va guaranteed loans
Fannie Mae
Federal National mortgage association. *the nations largest, and privately owned , investor in residential mortgages (conventional, FHA, VA)1
credit unions
Financial institutions that are a type of cooperative organization where members share something in common (ie an employer) , pool their deposits together, pay members better interest rates ,and loan money to fellow members
Most popular FHA programs cover
Fixed rate loans 10-30 year terms 1- 4 family residences are more popular
deposits
Funds given to a bank to be credited to an account
Ginnie Mae (GNMA)
Govt National mortgage association, created in 1968, Governmental agency, ownership: govt agency, a division of HUD (dept of housing and urban development) organized as a corporation without capital stock *DO NOT BUY OR SELL LOANS, or issue mortgaged backed securities *administer special assistance programs *Guarantees investment securities offered by private groups (banks, mortgage companies, savings and loan associations
Farm Service Agency FSA loan programs fall into two categories of loans
Guaranteed loans that are made and serviced by private lenders and guaranteed for a specific percentage by the FSA Loans made directly by the Farm Service Agency
Buying "subject to " or assuming a seller's mortgage or deed of trust
In assuming a mortgage or deed of trust 1.the purchaser is NOT liable for the debt 2. In the event of foreclosure= the purchaser is NOT personally liable for a deficiency
Acceleration Clause
Is a contract clause that gives the lender the right to declare the entire loan amount due immediately because of the borrowers default, or other reasons as stated in the contract
A creditor, for purposes of Regulation Z ,
Is any person who extends consumer credit more than 25 times each year or more than 5 times each year if the transaction involved dwellings as security
Sub-prime Loans
Loans with more risks and higher interest rates offered by some lenders to borrowers with questionable credit histories. *allowed in the conforming market (B- C loans, B C Credit)
VA guarantees loans to purchase _______ homes and the lots on which to place them
Manufactured homes
Graduated Payment Mortgage (GPM)
Mortgage that allows borrower to make smaller payments in early years of mortgage, with payments increasing yearly until payments are high enough that they'll fully amortize the loan
assignment of mortgage
Note cn be sold to a third party investor. 2. the securing mortgage or deed of trust will be assigned with the note to its purchaser 3. when debt paid in full (satisfied) assignee is required to execute the satisfaction (release_ of the security instruent
NMLS (nationwide mortgage licensing system and registry) is the ______ system of licensure for MLO's for all 50 states
ONLY
payment cap
On an adjustable-rate mortgage, the limit on the monthly payment increase that may result from a rate adjustment. *can lead to negative amortization
Portfolio loan
One held and serviced by the lender rather than sold on the secondary market
Government Sponsored Enterprises (GSEs)
Organizations created by the federal government after WW II and the Great Depression (Fannie Mae, Freddie Mac, Farmer Mac, Ginnie Mae) to help increase loan opportunities for homebuyers.
IN a conventional loa, if a buyer puts down less than 20% LTV, they will be required to have_________________________. If buyer puts down 20% LTV , PMI is not required
PMI (private mortgage insurance)
Forward Commitment Purchase Program
Program where a commitment is made by Freddie Mac (FHLMC) to buy mortgages for 6-8 months, with delivery of mortgages at the option of the seller
Negotiable instrument
Promissory note or other finance instrument that is freely transferrable
Triggering Terms
Specific credit terms, such as down payment, monthly payment, dollar amount of finance charges or term of loan May not be used unless these terms AND INFO are also listed in AD: *CASH PRICE *REQUIRED DOWN PAYMENT *NUMBER, AMOUNTS AND DUE DATES OF ALL PAYMENTS ANNUAL PERCENTAGE RATE( APR) *TOTAL NUMBER OF PAYMENTS TO BE MADE OVER THE TERM OF HE MORTGAGE
Lien Theory States
States where a mortgagee hold a lien against property (not actual title) until the loan is repaid, and the mortgagor holds the actual title.
Regulation Z provides strict regulation of real estate advertisements that refer to mortgage financing terms
The APR must be stated if a variable- rate mortgage is advertised , its advertisements must include: >the number and timing of payments >the amount of the largest and smallest payments >a statement of the fact that the actual payments will vary between these two extremes ***Triggering terms: specific terms such as down-payment, monthly payment, dollar amount of the finance charges or term of the loan MAY NOT be advertised UNLESS includes the following info: *CASH PRICE *REQUIRED DOWN PAYMENT *NUMBER, AMOUNTS AND DUE DATES OF ALL PAYMENTS ANNUAL PERCENTAGE RATE( APR) *TOTAL NUMBER OF PAYMENTS TO BE MADE OVER THE TERM OF HE MORTGAGE Penalties apply
Farmer Mac
The Federal Agricultural Mortgage Corporation— *a privately owned and publicly traded company established by Congress to create a secondary market for agricultural mortgage and rural utilities loans and the portions of agricultural and rural development loans guaranteed by the U.S. Department of Agriculture (USDA). *PRIMARILY BUYS AGRICULTURAL MORTGAGE & RURAL UTILITY LOANS and AGRICULTURAL AND RURAL DEVELOPMENT LOANS *part of farm credit system, reg by farm credit admin.
debt-to-income ratio
The amount of debt a person or a household has in relation to his or her income. Lenders use this ratio to decide if more debt can be taken on by the borrower. A person's debt-to-income ratio is determined by dividing total monthly debts by gross monthly income.
Federal Reserve System
The country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates.. REGULATE FLOW OF MONEY, REGULATE INTEREST RATES CHARGED FOR LOANS IT MAKES TO BANKS (discount points), and regulates the reserve requirements , the level of funds banks must maintain
Title Theory
The mortgagor conveys legal title to the lender or some other designated individual. Mortgagor retains equitable title and right of possession *b the lender holds legal title, they have right of immediate possession of the RE and rent from the mortgaged property if mortgagor defaults
Mortgagor/Mortgagee
The mortgagor is the borrower. The mortgagee is the lender. The borrower gives a mortgage to the lender.
Loan-to-Value Ratio (LTV)
The relationship between the loan amount and either the sales price or the appraised value of the property (whichever is less), expressed as a percentage. LOAN/VALUE= % LTV, the lower the LTV, the higher the downpayment to the buyer
Allodial System
The system of land ownership where anyone can own land.
mortgagor retains legal and equitable right of title and lender (mortgagee) must go t hru foreclosure to obtain legal title if defaults
This is lien theory
Mortgaged RE must be appraised by FHA approved appraiser, and borrower must meet standard FHA qualifications, if purchase price exceeds the FHA appraised property value, the buyer may pay the difference in cash as part of the downpayment T or F
True
Reasonable discount points may be charged on a VA guaranteed loan and either the veteran or seller may pay T or F
True
VA-guaranteed loan
US department of Veteran Affairs- *authorized to guarantee loans used to purchase and construct homes for eligible veterans and their spouses *manufactured homes
negative amoritization
When the debt service payment on a loan is not large enough to pay the interest due; the principal balance actually grows with each payment.
freely transferable
When the lender or creditor can obtain immediate cash by selling the note (e.g., when real estate notes are sold to the secondary market).
subordination clause
a contract that gives a mortgage recorded at a later date the right to take priority over an earlier recorded mortgage
Penalties (TILA) associated with TILA
a creditor who fails to comply with any to the requirements of TILA may be held liable to the consumer for ACTUAL DAMAGE and the COST OF ANY LEGAL ACTION together with the REASONABLE ATTORNEY FEES
reconveyance deed
a deed used by a trustee under a deed of trust to return title to the trustor
The Farm Service Agency (FSA) is
a federal agency of the Department of Agriculture and offers programs to help families purchase and operate family farms, or loans to help families purchase or improve single-family homes in rural areas through Rural Housing and Community Development
Origination Fee
a fee charged by a lender on entering into a loan agreement to cover the cost of processing the loan.
Balloon payment
a final payment at the end of a loan term to pay off the entire remaining balance of principal and interest not covered by payments during the loan term
Home Mortgage Disclosure Act
a law requiring all institutional mortgage lenders with assets of more than $10 million to make annual reports of all mortgage loans made in a given geographic area where they have at least one offie. *designed to help the got detect patterns of redlining
credit report
a listing of a borrowers credit history, including the amount of debt, record of repayment, job info, address info, etc
shared equity loan
a loan when a buyer and another investor (or seller, lender , etc) enter into a partnership, with buyer paying an equity share in a deal in leu of interest.Also called Participation Plan
Open End Mortgage
a mortgage allowing the borrower to request more funds from the lender, up to a certain, pre-defined limit, without having to renegotiate the loan
conventional loan
a mortgage that has no direct federal involvement, are NOT INSURED (FHA). NOT GUARENTEED (VA)
Fixed Rate Mortgage
a mortgage with a fixed interest rate and a fixed schedule of payments
straight note
a note that calls for payments of interest only during the term of the note, with. balloon payment at the end of the loan term to pay off the principal amount
Credit Score
a number assigned to a person that indicates to lenders their capacity to repay a loan.
FICO score
a type of credit scoring where a number from 300-900 is assigned to a credit report. the lower the score, the greater the risk of default. above 660 is an acceptable risk, 620-660 is marginal risk, below 620 is high risk
credit scoring
a way the lender makes certain determinations regarding the creditworthiness of potential borrowers. this involves a lender assigning specified numerical values to different aspects of a borrower
required by the lender, called a RESERVE FUND, impound of escrow account
accounts set up for real estate taxes and insurance premium *federal regulations limit the amount that can be held as reserves *flood insurance reserves , if applicable.
TILA
act that requires lenders to disclose consumer credit costs in order to promote informed use of consumer crediti
farmer Mac secondary market function
agricultural /rural use loans, A/G development loans
Growing Equity Mortgage
also called a rapid payoff mortgage , with fixed interest rate and increasing principal payments according to index *used when buyers income is supposed to increase
Helping Families Save Their Homes Act of 2009
amended TILA *Requiring that consumers be notified of the sale or transfer of their mortgage loans *the party acquiring the loan must provide the requires disclosures no later than 30 days after the date in which the loan was acquired
most mortgages are what types of loan
amortized
deed of trust
an instrument held by a third party as security for the payment of a note (rarely used in Ohio) like a mortgage, it creates a voluntary lien on real property to secure repayment of a debt, *the parties to a deed. of trust are the grantor or truster (borrower), beneficiary (lender), and trustee (neutral third party. *unlike a mortgage, a deed of trust includes a power of sale, allowing the trustee to foreclose non-judicially. ALSO KNOWN AS TRUST DEED
promissory note
an instrument that is evidence of a promise to pay a specific debt
Private mortgage insurance
an insurance policy that provides the lender with funds in the event of borrower default on the loan *enables a borrower to obtain a conventional loan with less than 20% down *protects the top 20-30% of the loan against buyer default *if foreclosed the insurance will typically bridge the gap between the sale and what is owed on the remaining mortgage *borrower pays monthly premium while __ is in force as prt of monthly mortgage payment *once borrower has accrued 20% equity in home, the payments for this will terminate *20% figures is based on the original purchase price of home *buyers can ask the lender to terminate the payments once and if equity in home is 20% based on current appraised value, but the lender is not required to do so. *The Homeowners Protection Act of 1998 (HPA ) requires that the lender automatically terminate if the payment if the borrower has accrued at least 22% equity in the home and is current on mortgage payments
equitable title
an interest created in property upon the execution of a valid sales contract, whereby actual title will be transferred by deed at a future date (closing) . also, the Vendees (buyers) interest in property under a land contract. Also called an equitable interest
Real Estate Settlement Procedure's Act (RESPA)
applies to any residential real estate transaction involving anew first mortgage loan and is designed to ensure that the buyer and the seller are fully informed of ALL OF THE COSTS RELATED TO CLOSING
Adjustable Rate Mortgage
begins at one rate of interest and then fluctuates up or down during the loan term based on a specific economic indicator ( index ) to which is added margin; rate caps limit the amount interest rate can be increased
Usury,
charging an interest rate that exceeds legal limits
closing costs , such as the VA's property appraisal, credit report, state and local taxes, recording fees may be paid by
closing costs , such as the VA's property appraisal, credit report, state and local taxes, recording fees may be paid by the veteran purchaser, the seller or shared by both
Finance charges:
collected at closing (loan origination fees, discount points)
recurring income from interest
collected during the term of the loan
Automated Underwriting Systems and Scoring
computerized systems for loan approval communication between a loan originator and the investor *on the lenders side bc can shorten loan approval from weeks to minutes, lower the cost of the loan app and approval by reducing lenders time spent on the approval process by up to 60% Freddie Mac uses Loan Prospector, doesn't charge lenders a fee for auto system Fannie Mae= uses Desktop underwriter, reduces approval time to minutes based on credit repot **through automated under writing, prospective buys can strengthen their purchase offer by including proof od loan approval
conforming loans
conventional Loans qualified to be purchased in the secondary market. *PITI must not exceed 28% of total monthly gross income. Total monthly debt obligation of borrower cannot exceed 36% of monthly gross income *limit for single housing between 417k-625k
Freddie secondary market function
conventional loans
Fannie mae what type of loans
conventional, FHA, and VA
Current Liabilities
debts of the business that must be paid within the next accounting period
deed of trust requires the execution of a release deed Or _____ _____ _________
deed of reconveyence
HUD
department of housing and urban development, a governing agency that deals with housing issues
FHA may charge ________ __________ in addition to a loan origination fee
discount points
Alienation clause
due on sale clause, resale clause or call clause; prevents future purchaser from being able to assume the loan 2, when the property is sold, the lender can declare the entire debt due immediately 3. the lender can change the interest rate to the market rate
amortized loan=
each payment pays interest and partially pays off principle *most mortgages *most Deed of trusts *periodic payments *in term of 10-30 years *called direct reduction loans
In states that allow brokerage involvement in mortgage loan process, a broker is permitted under RESPA to collect a fee of up to ____ point of the loan
earn a fee of up to 1/2 a point of the loan amount for providing borrower access to a lender available thru computerized loan origination system and assisting borrower in completing a loan app
Regulation Z
enacted by the Federal Reserves Board to enforce the TILA , requires the credit institutions inform borrowers of the true cost of obtaining credit *with proper disclosures, borrowers can compare the costs of various lenders to avoid the uniformed use of credit *regulation Z generally applies when a credit transaction is secured by a residence DOES NOT APPLY to BUSINESS OR COMMERCIAL LOANS, or to agricultural loans of any amount
default
failure to fulfill an obligation, duty, promise , as when a borrower fails to make payments, tenant fails to make rent, or party fails on a contract. mortgage, note or other documents will define what constitutes defaulr
The Federal Reserve's Board of Governors
federal financial regulatory agency
The Comptroller of the Currency
federal financial regulatory agency.. *Charters and examines the books of federally chartered commercial banks and imposes restrictions on assets they can hold.
Freddie Mac
federal home loan mortgage corporation, *non profit, federally chartered institution that functions as a buyer and seller of savings and loan residential mortgages (conventional loans)
Origination fee ...... 1 % =
fee charged by the lender to cover the admin costs of making the loan, usually based on a percentage of the loan amount (where 1% = 1 point)
Recording
filing a document at the county recorders office, so that it will be in public recod
Community Reinvestment Act of 1977 (CRA)
financial institutions are expected to meet the deposit and credit needs of their communities; participate and invest in local community development and rehabilitation projects; and participate in loan programs for housing, small businesses, and small farms.*particiapte in loan programs for housing, small businesses, and small farms **the law requires that any federally regulated financial institution to prepare a statement containing: *A definition go the geographic boundaries of the community *an identification of the types of community reinvestment credit offered *comments from public about the institutions performance in meeting its community's needs *Financial institutions are periodically reviewed by one of the three federal financial regulatory agencies
VA limits on the amount of loan it will guarentee
for 2015, the guarantee limit was 25% of a loan of up to 417,000 on a one unit property for most of the country
examples of straight loan
home improvements and second mortgages , cheap interest payments followed by payment of principal at end
defeasance clause
in a mortgage, this clause requires execution of a satisfaction of mortgage (release of mortgage or mortgage discharge) when the note has been paid
Packaged Loan
includes real estate plus personal property and appliances *good for furnished condos and second homes *includes furniture, drapes, kitchen appliances, water, dryer, etc as part of the sales price of the home
if you know the monthly payment and interest rates you can determine the amount of the constant payment of an amortized loan from a prepared mortgage payment book or mortgage factor chart The mortgage fact chart indicates:
indicated the amount of monthly payments per $1,000 of a loan, depending on the term and interest rate *this factor is multiplied by the number of thousands of the amount borrowed
Home equity loan
is a source of funds that takes advantage of the equity built up in a home. *the original mortgage loan remains in place, the home equity loan is a JUNIOR to the original lien *can be used for a variety of financial needs such as to finance the purchase of an expensive item, to consolidate or pay off credit card debt, pay medical education or home improvement or other expenses *can be taken out as a FIXED LOAN amount or as a LINE OF CREDIT >with the HELOC, the lender extends a line of credit the borrower can use at will
Mortgage Insurance Premiums is : __________, charged when? used in which loan program? Paid by who?
is an insurance policy used in FHA loans if your down payment is less than 20%. The FHA assesses either an "upfront" MIP (UFMIP) at the time of closing, or an annual MIP that is calculated every year and paid monthly
trustee, in deed of trust
is the third party (neutral) in a deed of trust
acceleration clause
lender may accelerate the maturity of the debt in case of default *lender can step in to pay the real estate taxes or insurance or physically repair or maintain property
FHA debt to loan requirement
less than 43%
FHA does not set rates, but does
limit lender fees, specifies how and by whom closing costs and downpayment can be made, and regulates and caps in ARM
VA LOAN assists vets in financing the purchase of homes with ____ or ____ payment at market interest rates
little of no
generally , the loan for the purchase is what priority in regards to lien
loan for purchase is the first lien
VA borrower pays a _________ fee to the lenders , as well as a ___________ to the USDA
loan origination fee, funding fee
fha loans
loan that is insured by the federal government against the borrower defaulting on the loan. Usually has a lower down payment, can be fixed or adjustable interest rate, any person can apply for this type loans
When loans are "pooled" it means
loans are assembled into blocks and then sold in mass to investors
Construction Loan
made to finance the construction of improvements on real estate such as homes, apartments, and office buildings *lender commits to the full amount of the loan but disperses the funds in payments during construction, known as DRAWS **Before each payment, the lender inspects the work *construction loans are generally SHORT TERM or interim financing >>borrower pays only interest on he monies that have been dispersed >>borrower is expected to arrange for a permanent loan, also known as an END LOAN or TAKE OUT LOAN which will pay off (TAKE OUT) the construction financing lender when the work is completed by paying the principle owed on the construction loan
Bond- Type Securities
mortgage backed securities issued by GNMA (Ginnie Mae) , which are long term, pay interest semi-annually, and provide for repayment at a specified date.
security instrument-
mortgage loans are secured loans that consist of the debt itself (promissory note) and the security for the debt (mortgage or deed of trust)
blanket mortgage
mortgage that covers more than one parcel of RE. 2. mortgage that covers an entire building or development, rather than an individual unit or lot
Fully amortized loan
most frequently used loan* *aka level payment loan) *MOrtgagor pays constant amount, usually monthly , the lender credits each payment first to the interest, then applied to principal amount of loan. As a result, while each payment remains the same, the portion applied to repayment of principal gross and the interest due declines as the unpaid balance of the loan is reduced *if buyer pays any additional amounts, it will amortize more quickly which benefits borrower, bc they will pay less interest if the loan is paid off before end of term
Points
one percent of the loan amount. Points are charged for any reason , but are often used for buy downs (where there may also be discount points) points are used to increase the lenders yield on a loan
mortgage brokers
one who , for a fee, places loans with investors, but typically does not service such loans
Underwriter
one who insures another or takes risks, such as by approving a loan
Mortgage banker
one who originates, sells and services mortgage loans, and usually acts as the originator and servicer of loans on behalf of large investors, such as insurance companies, pension plans, or FNMA
FHA operates under
operates under HUD
Straight loan=
periodic interest only payment Payment of principal in full at end of term
effective gross income
potential gross income, less a figure for vacancy and collection losses
interest =
principal x rate x time 1.charg for the use of money 2.may be due at the end of each payment period--interests in arrears (the normal ethos of interest payment 3 may be due at the beginning of each payment period--interest in advance
Priority of mortgage or deed of trust established by
priority is established by the date and time of recording
recording establishes a lien's
priority is established through recording
Secondary Markets
private investors and govt agencies that buy and sell mortgages
Equal Credit Opportunity ACT (ECOA)
prohibits discrimination in the lending process based on the applicants race, color, religion, national origin, sex, marital status, age , receipt of public assistance *requires that credit applicant be considered only on basis of income , the stability of the source of that income, net worth and credit rating
collateral
property pledged as a security for a debt
Open-end loan
provides a security interest when a NOTE is executed by the borrower to the lender, but also secures any FUTURE advances of funds made by the lender to the borrower. *borrower signs note with provisions to borrow money *borrower may take out future advances *interest rate can vary *home equity line of credit Is an example
Farm Credit System (Farm Credit)
provides loans to farmers , ranchers, rural homeowners, agricultural cooperatives , rural utility systems, and agribusinesses. >>Unlike commercial banks, Farm credit banks and associations do not take deposits , instead loanable funds are raised through the system wide sale of bonds and notes in capital markets
HUD home sales and foreclosures on FHA insures homes provides opportunity for both homebuyers and investors. HUD accepts bids on foreclosed properties ONLY from
real estate professionals who are registered with HUD and does not deal with general public, property is sold AS IS condition.
*FHA insured loans (Federal Housing Administration)
refers to a loan that is insured by the agency, * does not loan money *must be made by approved lending institutions *insurance provides additional security to the lender, insures against buyer default.
reserve requirements
regulations on the minimum amount of reserves that banks must hold against deposits
secure and fair enforcement for mortgage licensing act of 2008 (SAFE ACT)
requires that all states license mortgage loan originators according to national standards and also requires all state agencies to participate in the Nationwide Mortgage Licensing System and Registry , All mortgage loan originators must register annually and meet other requirements
*The Homeowners Protection Act of 1998 (HPA )
requires that the lender automatically terminate if the payment if the borrower has accrued at least 22% equity in the home and is current on mortgage payments
types of primary mortgage lenders
savings associations (thrifts), commercial banks, insurance companies, credit unions, pension funds, endowment funds, investment group financing, mortgage banking companies
subsequently recorded loans are what type of mortgages
second mortgages (junior liens)
Options for secondary mortgage market lenders
sell the loan, retain servicing, retain the loan unload servicing, sell the loan outright, including servicing
HUD's Good Neighbor Next Door program
special program that offers reduced payment on property that I purchased with an FHA insured loan, ***Intended to revitalize certain areas by allowing law enforcement officers, firefighters, emergency medical technicians, and pre-k through 12 teachers to purchase eligible property in areas at a 50% discount off the list price, Buyer MUST occupy property as primary residence for atleast 36 months (3 years)
lien priority can be changed with
subordination agreements
Veteran (in VA guaranteed loan) MAY NOT pay for
termite report, commissions, brokerage fees, or buyer broker fees
Financial institutions are periodically reviewed by one of the three federal financial regulatory agencies which are:
the Comptroller of the Currency The Federal Reserve's Board of Governors or The Federal Deposit Insurance Corporation
The Federal government regulates the lending practices of mortgage lenders through these 4 Acts
the Truth in Lending Act (TILA), Equal Credit Opportunity Act (ECOA), Community Reinvestment Act of 1977 (CRA) and Real Estate Settlement Procedures Act (RESPA)
residual income
the amount of income a borrower has left after subtracting taxes, housing expenses, and all recurring debts and obligations (used for VA loan qualifying)
yield
the annual rate of return on a bond if the bond were held to maturity
trustor, in deed of trust means
the borrower
Title Theory
the borrower gives lender legal title and retains equitable title (deed) Legal title is returned to the borrower upon the full payment of the debt
3 Business Day Right of Rescission
the borrower has 3 business days in which to RESCIND (cancel) the transaction by notifying the lender *the right of rescission DOES NOT APPLY to: owner occupied- residential purchase- money or first mortgage or deed of trust loans
Assume the loan
the buyer obligates himself to repay an existing loan as a condition of the sale
Working Capital
the difference between current assets and current liabilities
Gain on Sale
the difference between the amount realized and the basis
discount
the difference between the stated amount of an obligation and the amount paid
Federal Funds Rate
the federal reserves target for short term interest rates
Federal Deposit Insurance Corporation (FDIC)
the government agency that insures customer deposits if a bank fails
Office of Thrift Supervision
the govt entity that regulated the savings and loans in the same manner that the Federal Reserve regulates commercial banks (OTS)
usury
the illegal action or practice of lending money at unreasonably high rates of interest. *charging interest of maximum rate allowed by law-- fed law exempts federally related residential first mortgage loan from state usury laws
Grantor, used in deed of trust
the individual who conveys the ownership rights of real property,(the borrower) in a deed of trust
Fair Credit Reporting Act (FCRA) if a loan app is rejected, , FCRA requires that a statement be released to applicant for reasons for rejection within
the lender detail the reasons for rejection in a statement that must be provided to the loan applicant within 30 days
beneficiary, in deed of trust is
the lender, In a deed of trust
Secondary mortgage market
the market that deals with loans that are sold after they are funded. By selling the loans on this market , primary lenders raise capital to make additional mortgage loans , they avoid interest rate risks (on APR loans when int rates fall or on fixed rate loans if int rates rise), make a profit on the sale, may continue to service the loan and collect a fee for that service
primary mortgage market
the mortgage market in which loans are originated, consisting of lenders such as commercial banks, savings associations, and mutual savings banks., credit unions, pension funds, endowment funds, investment group financing, mortgage banking companies, insurance companies
Lien theory
the mortgager retains legal and equitable title. the mortgagee has only a lien on the property as security for the debt. if the mortgagor defaults, the lender must go through foreclosure proceedings to obtain legal title. *borower retains legal and equitable title
residual income
the net operating income that an investment center earns above the minimum required return on its operating assets
promissory note
the persons promise to repay the debt 1. contains the amount of the debts , time and method of payments and rate of interest 2. is a negotiable instrument held by payee, who may transfer right to future payments by *signing the instrument over(assigning) to third party *delivering the instrument to the third party
housing expense ratio
the relationship of a borrowers total monthly housing expense to income, expressed as a percentage
Feudal System
the system of land ownership where a king or queen owns all the land and all the other people are merely tenants
yield
the total amount of money that can be made from an investment
Prime Rate
the west interest rate that banks charge their best commercial customers
Lender holds legal title and mortgagor holds equitable title,, legal title is returned to borrower upon full payment of debt
title theory
amortize
to diminish by installment payments
Discount points are used to
to increase the yield (true rate of interest) required by an investor who would purchase a loan
Hypothecate
to make property security for a loan without giving up possession of it, (as with a mortgage )
the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank)
transferred most of the federal reserves responsibilities for enforcing TILA in July 2011 to the new Consumer Financial Protections Bureau (CFPF)
Fannie Mae usually buys: 3 types of loans::
typically buys Conventional, FHA-insured loans, & VA loans secondary market.... now under govt conservatorship
Sale and Leaseback
used to finance large commercial or industrial projects. Investor purchases the real estate from a company and leases it back to them *frees up the business owners cash for working capital
Foreclosure
when a lien holder causes a property to be sold, so that unpaid debt secured by the lien can be satisfied from the sale proceeds
Amortization
when a loan balance decreases because of periodic installments that pay principal and interest
Buydown
when additional funds in the form of points are paid to a lender at the beginning of a loan to to lower the interest rate and monthly payments on the loan
open market operations
when the Federal Reserve Board sells or buys govt securities (or US dollars) as a means of controlling supply and demand and confidence in those items
Loan servicing includes
whether the loan is held or sold by the original lender , loan servicing includes: collecting payments (incl. taxes and insurance as required per the loan agreement), accounting and book keeping, preparing insurance and tax records, processing insurance and tax payments, following up on payments and delinquency
