MORTGAGES AND LOANS

mortgage loan that may be obtained from lending institutions are

1. Conventional loans (insured or uninsured) 2. Government loans (guaranteed, insured or funded by a government agency)

In order for the FHA to insure a loan there are certain requirements that must be met:

1. Owner/occupants-someone who intends to live in the property as a primary residence. 2. Mortgage Insurance premium (MIP) in addition to paying interest, the borrower is charged a lump sum of 1.5 % of the loan as a MIP

adjustable-rate mortagages

1. adjustment period 2. Index 3. Margin 4. cap 5. ceiling 6. Negative amortization 7. convertibility 8. Initial interest rate 9. assumability

MORTGAGES CLAUSE AND COVENANTS

1. date and names of mortgagor and mortgagee 2. note or bond (acceleration clause) 3. prepayment penalty clause 4. defeasance clause 5. right of foreclosure 6. alienation clause 7.marketable title 8. provides for execution by the borrower 9. provides for acknowledgement by the borrower

RIGHTS OF THE LENDER

1. has the right to foreclose on the property 2. has the right to to take possession of the property (after foreclosure) 3. has the right to assign the mortgage. ( the right of assignment)

RIGHTS OF BORROWER

1. has the right to possession of the property during the mortgage term as long as the borrower is not in default 2. the defeasance clause gives, the borrower, the right to redeem the title and have the mortgage lien released at any time prior to default by paying the debt in full

DUTIES OF BORROWER (mortgagor)

1. paying the debt insured by the mortgage on a timely basis 2. pay all real property taxes and assessments on a timely basis 3. keep the buildings in a proper state of repair 4. protect against loss by fire or casualty by insurance policy written in an amount at least 80% of the value of the structure. Many lenders also require insurance for 100% of the loan value MINUS the lot value

Every mortgage has two instruments

1. the promisssory note ( a personal IOU) or bond 2. mortgage

The standard type of foreclosure in NY, in which the owner is the mortgagor, is foreclosure by----------

ACTION IN EQUITY AND SALE

If interest is calculated in-------a monthly payment due on June 1 includes interest for use of the money in June

ADVANCE

The note can also be an---------, in which periodic payments are made on both principal & interest until such time as the principal is completely paid.

AMORTIZED NOTE MOST MORTGAGE LOANS ARE OF THIS TYPE

If interest is calculated in --------, a monthly payment includes interest for use of the money during the previous month example June 1 would include the interest for May

ARREARS

Mortgage loan interest almost always is calculated in -----, although it sometimes is calculated in ----------

ARREARS ADVANCE

•------ - allows the lender to demand payment of the entire balance remaining immediately due and payable if the borrower is in default.

Acceleration clause

A fix rate loan carries the same rate of interest for the entire term of the loan. With an-------------, the mortgage rate floats based on the fluctuations of a standard index.

Adjustable rate Mortgage The ARM or variable rate mortgage is one solution to the uncertainty of future financial rates

• --------entitles the lender to declare the principal balance immediately due and payable if the borrower sells the property during the mortgage term and makes the mortgage unassumable.

Alienation clause

•------- is an choice given to the borrower to volunteer to pay discount points. A--------allows payment of more points in return for a lower interest rate. usually refers to a fixed rate mortgage where the interest rate is "bought down"for a temporary period, usually 1-3 years. In order to---------- the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower's monthly payment.

BUY DOWN

• ---------two or more parcels of real estate are pledged as security for payment of the mortgage debt. The blanket mortgage usually contains a release clause that allows certain parcels of property to be removed from the mortgage lien if the loan balance is reduced by a specified amount.

Blanket mortgage

Pledging the property does not require the borrower to give up possession EXCEPT in case of ----------, or failure to perform an obligation.

DEFAULT

The borrower's---------cannot be defeated by a mortgage clause. This right is terminated by the foreclosure sale.

Equity of Redemption

•------------and up to the time a foreclosure sale is held, the borrower has an equitable right to redeem his property by paying the principal amount of the debt, accrued interest, and lender costs incurred in initiating the foreclosure.

Equity of Redemption After default,

---------is the process leading to the sale of real property pledged to secure the mortgage debt

FORECLOSURE

• The---------- does not make mortgage loans, instead, -----insured loans protect lenders against financial loss.

Federal Housing Administration (FHA)

A mortgage may provide for a --------that allows a specific time frame in which the payment may be made

GRACE PERIOD

•--------the monthly payments are lower in the early years of the mortgage term and increase at specified intervals until the payment amount is sufficient to amortize the loan over the remaining term.

Graduated payment mortgage

Pledging property as security for the loan-------- is accomplished through the mortgage

HYPOTHECATING

------- is the money paid for using someone else's money

INTEREST

In the case of an--------- ,principal is the amount of money the lender has lent the borrower and on which the borrower will pay interest to the lender.

INTEREST- BEARING NOTE

Most construction notes are -----------. Which means that interest is paid periodically until the note matures and the entire principal balance is paid at maturity

INTEREST-ONLY NOTE

A-----------refers to any mortgage that is subordinate (lower in priority) to another mortgage. may be a 2nd, 3rd, or 4th mortgage. usually for a short term and at a higher interest rate than first mortgage.

JUNIOR MORTGAGE

• A -------- REFERS TO ANY MORTGAGE THAT IS SUBORDINATE TO ANOTHER MORTGAGE.

JUNIOR MORTGAGE

tax deductible expenses involved in home ownership are---and -------paid to local taxing authories

MORTGAGE INTEREST(not principal) AD VALOREM REAL PROPERTY TAXES

the original principal is the total amount of the . The amount remains the same in an interest-only or one-payment loan until the entire principal is paid

MORTGAGE LOANS

The--------- is the amount of money borrowed on which interest is either PAID or RECEIVED.

MORTGAGE PRINCIPAL

For an ARM the lender designates an index and then adds a --------above this index.

Margin (measure of profit) ex. index were 7 and the lender's margin were 2.50, the ARM would call for an interest rate of 9.5 Margins are sometimes expressed in terms of basis point, each basis point representing 0.01 of a percent, or 250 basis points.

•--------the most probable price, as of a specific date, in cash or in other terms, for which the property should be sold after reasonable exposure in a competitive market, under conditions requisite to a fair sale, with the buyer and seller acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.

Market value

1. Straight-Term mortgage 2. Adjustable Rate Mortgage (ARM) 3. Balloon Mortgage 4. Amortized Mortgage 5. Pledge Account Mortgage 6. Graduated Payment Mortgage (GPM) 7. Open-Ended Mortgage 8. Blanket Mortgage 9. Wraparound Mortgage 10. Purchase Money Mortgage 11.Swing Loan 12.Construction Mortgage 13. Shared Equity Mortgage 14. Home Equity Loan 15. Reverse Annuity Mortgage 16. Package Mortgage 17. Sale and Leaseback

Mortgage Loans

•------- is whatever the lender believes the property will bring at a foreclosure sale or subsequent resale.

Mortgage value

DEED OF TRUST

NOT generally used in New York. A type financing that requires the mortgagor (borrower) to convey title to the property to a TRUSTEE when the mortgagor pays off the debt(mortgage) the trustee is required to return the title to the trustor (borrower/mortgagor) , by executing a DEED OF RELEASE Because the lender benefits from the TRUST TITLE the lender is also known as the BENEFICARY

• --------when a loan payment amount is not sufficient to cover interest due, the shortfall added back into the principal, causing the principal to grow larger after payment is made.

Negative amortization-

when a new mortgage is placed, the lending institution may ask for a lump- sum payment of extra prepaid interest in the form of up-front -------. Each ------is 1% of the new loan. this is a one-time payment, usually at closing, BUT occasionally at mortgage applications or issuance of a mortgage commitment by the lender. May be paid by the seller or the buyer, depending on the terms of the sales contract.

POINTS

if the interest rate on the loan changes and therefore the monthly payment increase, the lender allows a ------------, in which the monthly payment remains the same and the money for the higher interest rate is added to the principal. Negative Amortization

Payment cap

• ----------another type of seller financing, is a mortgage given by a buyer to a seller to cover part of the purchase price. Here the seller becomes the mortgagee and the buyer becomes the mortgagor.

Purchase Money Mortgage

----------------limits the amount of tax and insurance reserves a lender may require

RESPA, the Federal Real Estate Procedures Act

•-------- does not regulate interest rates, but instead provides specific consumer protections in mortgage loans for residential real estate, and advertises credit terms available. The only specific thing that may be stated is the annual percentage rate, and it must be spelled out in full.

Regulation Z

Recording a release of a mortgage is as important as recording the original document. When the mortgage is paid in full, an instrument called a------------is drawn up by the mortgagee(lender) this document is also recorded and is called a----------. Failure to record may cloud the title to the property.

SATISFACTION OF MORTGAGE DISCHARGED OF MORTGAGE

Interest must be paid in arrears on all loans sold in the -----

SECONDARY MORTGAGE MARKET

The note can also be a------that requires no payments on either principal or interest until the note matures, and the entire principal & interest is paid at maturirty

SINGLE-PAYMENT LOAN

-----------are the most common form of junior mortgages, are often used to finance part of the difference between the purchase price of a property and the loan balance being assumed in a purchase involving assumption of the SELLER'S existing mortgage

Second mortgages

• ------buys and sells mortgages created in the primary mortgage market.

Secondary Mortgage Market

• ------ - Requires 4 chief disclosures: 1. annual percentage rate, 2. finance charge, 3. amount financed, 4. and total amount of money to be paid toward the mortgage in both principal and interest payments.

Truth-in-Lending Act (TILA)

•-------are used by New York State to fix a maximum allowable interest rate. Charging interest in excess of this rate is called----- NY has a ---------- rate This is adjusted at specific intervals by the --------

USURY LAWS USURY FLOATING USURY RATE NYS Banking Board

•------ -offers a loan that guarantees repayment of the top portion of the loan to the lender in the event the borrower defaults.

VA Guaranteed Loan Program

DEED IN LIEU OF FORECLOSURE ( a friendly foreclosure)

a borrower in default simply conveys the title to the property to the lender, to avoid record of foreclosure. this does not eliminate other liens against the property

FORECLOSURE by ACTION in EQUITY and SALE

a law suit is brought against the mortgagor by the lender, the property is sold at auction, and the proceeds are distributed among parties who have mortgages or other types of liens against the property.

AMORTIZATION

a portion of the payment is applied to the accruing interest, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases. The amount applied to principle increases, so that the loan is paid off in the specific time

EQUITY OF REDEMPTION

after default, and up to the time a foreclosure sale is held, the borrower/mortgagor has an EQUITABLE RIGHT to redeem his property by paying the PRINCIPAL AMOUNT of the debt, ACCRUED INTEREST, and LENDER COSTS incurred in initiating the foreclosure

NOTE or BOND

borrower is personally liable for mortgage debt

similar to the acceleration clause

call option

deficiency judgment

is a court order stating that the borrower still owes the lender money, because the proceeds of the foreclosure sale are not sufficient to satisfy the balance due to the lender.

ACCELERATION CLAUSE

lender may declare entire balance due if borrower is in default

• A-------- is a loan that constitutes a lien against the real property. The mortgage is a two-party instrument between the lender and borrower.

mortgage The mortgage pledges a described property as security for the repayment of a loan under certain terms and conditions.

ALIENATION CLAUSE

mortgage balance due upon sale of property; lender may or may not allow assumption

• A ------- is an individual or entity licensed by the New York Banking Department to engage in the business of making residential mortgage loans. Licensed and lends.

mortgage banker

DEFEASANCE CLAUSE

mortgage lien is "defeated" upon full payment of loan FORECLOSURE by lender if borrower defaults

• The lender who receives the mortgage is called the ------.

mortgagee The lender requires additional security of the property itself as collateral for the loan.

• The borrower who gives the mortgage is called the -----

mortgagor The borrower retains the title (ownership) to the property, but this title is ENCUMBERED by the LIEN created by the MORTGAGE in favor of the lender. If the lender is not paid according to the terms of the MORTGAGE and NOTE, the lender can foreclose the lien.

PREPAYMENT PENALTY CLAUSE

penalties may or may not be due lender if mortgage is paid before due date NO prepayment penalty on FHA &VA loans

• In making a mortgage, the lender requires the borrower to sign--------providing evidence that a valid debt exists.

promissory note

The right of assignment

provides liquidity to mortgages because the lender can sell the mortgage at any time and obtain the money invested rather than wait for payment of the loan over an extended time

ARMs are structured with -------which limit both the annual adjustment and the total adjustment during the lifetime of the loan.

rate caps (ceilings)

FHA-Insured loans

refers to a loan that is not made by the agency but insured by it.

In a ------------, the borrower pays INTEREST only for a specific term and at the end of the term, the borrower is required to pay the PRINCIPAL

straight-term mortgage

appreciation

the increase in the value of a property due to changes in market conditions, inflation or other causes

FHA 203(b)

the most widely used FHA mortgage and may be placed on 1-4 family residences

Ø In the-------, the borrower's equity in the property, the difference between the value of the property and its liabilities, provides sufficient security for the lender to make the loan. Therefore, insurance to protect the lender in case of the borrower's default is not necessary.

uninsured conventional loan