TX 30 Hour Real Estate Finance (REVISED)

How many district banks does the fed have? Who manages them?

12, each managed by a board of directors

Which acts were introduced to stimulate the economy during the financial crisis?

ARRA HAMP HARP Dodd-Frank Wall Street Reform and Consumer Protection Act:

ARRA

American Recovery and Reinvestment Act

List the US Treasury Bureaus

BEP, Fiscal Service, CDFI, FinCen, IRS, OCC, U.S. Mint, Inspector General

Hypothecation

Borrower is legal owner and has the right to possess and control the property; lender has the right to foreclose after a loan default.

Pension Funds and Trusts

Buyers can borrow money from their pension plans/retirement accounts. Funds don't count in the debt-to-income ratio used by lenders. Failure to pay back the borrowed funds in time is considered early distribution.

M1

Cash, checking accounts, traveler's checks

Expansion

Companies are hiring, lowering unemployment; more buyers means heavy demand and decreasing supply, so home prices rise.

Private loan companies

Companies may be national, regional, local, or individual entrepreneurs. Use junior financing; require collateral Higher fees and interest rates fees and interest

Leverage

Controlling a large investment with a small amount of funds.

what is HUD's mission?

Create strong, sustainable, inclusive communities and quality affordable homes for all.

Community Reinvestment Act (CRA)(1977)

Created in response to the practice of redlining

Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)

Creates stricter regulation of financial services industry

Housing and Economic Recovery Act (HERA) (2008)

Designed to address the subprime mortgage crisis. Provisions included the SAFE Mortgage Licensing Act and the Mortgage Disclosure Improvement Act

Dodd-Frank Wall Street Reform and Consumer Protection Act

Dodd-Frank; included the establishment of the Consumer Financial Protection Bureau (CFPB)

US Treasury Responsibilities

Economic growth and stability, financial security, presidential advisement, financial institution governance

Real Estate Settlement Procedures Act (RESPA) (1974)

Eliminates kickbacks and referral fees among settlement service providers

List the Real Estate Cycles

Expansion Oversupply (aka hyper-supply) Recession Recovery

The Secondary Market is made up of...

Fannie Mae, Freddie Mac, and investors in mortgage-backed securities (MBSs).

List the agricultural lending programs

Farm Credit System Farmer Mac USDA Rural Development Program USDA Farm Service Agency

List the HUD programs

Federal Housing Administration (FHA) Government National Mortgage Association (Ginnie Mae) Community Development Block Grant Fair Housing Housing Choice Vouchers Native American Housing

Foreign Lenders/Investors

Foreign lenders provide real estate loans for U.S. purchases. Foreign investment in U.S. real estate is less stable than in prior years.

Which program is a NonGSE?

Ginnie Mae

Real Estate Investment Trusts (REITs)

Give investors opportunity to invest in real estate Can be equity, mortgage, or hybrid Invest mostly in commercial and multi-family real estate Sold like stock on the open market

HAMP

Home Affordable Modification Program

HARP

Home Affordable Refinance Program

Demand

How many buyers there are for the available properties; price and demand usually align (when demand is high so is price, and when demand is low so is price).

Supply

How many properties are on the market; supply is usually opposite of price (when supply is high price is low; when supply is low price is high).

Federal Deposit Insurance Corporation (FDIC)

Insures deposit accounts at banks and thrifts, at least $250,000 per insured bank

Federal Home Loan Banks (FHLBanks)

Lend money to member banks to keep credit flowing in local markets

What does a closing disclosure consist of?

Loan terms Projected payments Costs at closing Closing cost details & totals Comparison of amounts on Loan Estimate with Closing Disclosure Summary of borrow- er/seller transaction details Additional loan disclosures Loan calculations Contact information

What does a loan estimate consist of?

Loan terms Projected payments Costs at closing Closing cost details (loan costs, taxes, prepaids, escrow) Comparison information and other considerations

M2

M1 items, plus savings accounts, CDs (less than $100,000), money market accounts, retirement accounts

M3

M2 items, plus CDs (more than $100,000), non-U.S. bank accounts, institutional money market funds

US Treasury Functions

Manage government finances and accounts, collect monies owed to the U.S., pays monies owed by the U.S., pays government bills, produces money, enforces financial and tax laws, issues securities (treasury bonds, bills, and notes)

Qualified Mortgage

Meets certain lending standards. Doesn't include risky features (like balloon payments, terms longer than 30 years, etc.). Borrower's ability to repay has been assessed.

Mortgage Brokers and Bankers

Mortgage bankers originate their own loans and stay with the loan for the entire lifecycle. The SAFE Act requires loan originators to be fully licensed and carry a mortgage surety bond. Mortgage brokers seldom invest capital, work with many lenders, and don't service the loan beyond placement.

Mutual Savings Banks and Savings Associations

Mostly concentrated in the eastern U.S. Prefer to keep lending in their immediate geographic area.

List the TX Dept of Housing & Community Affairs programs to Assist Home Buyers

My First Texas Home Texas Mortgage Credit Certificate Texas Statewide Homebuyer Education Program

The US Treasury is the...

Nation's fiscal manager

Federal Reserve System (The Fed)

Nation's money manager or central bank.

Federal Housing Finance Agency (FHFA)

Oversees Fannie Mae and Freddie Mac and regulates the Federal Home Loan Bank. Establishes limits on conforming loans (loans that meet Fannie Mae and Freddie Mac requirements).

What are the five new-home construction phases or activities that impact the economy?

Planning, construction, buying/selling, moving, and living

Life Insurance Companies

Prefer to finance large, commercial projects rather than traditional single-family homes Often purchase blocks of single-family mortgages from the secondary market

Government-Sponsored Enterprises (GSEs)

Private companies such as Fannie Mae, Freddie Mac, Farmer Mac, and the Federal Home Loan Bank that were created by the U.S. Congress to make borrowing easier and more cost effective. Commonly, GSEs serve homeowners, farmers, and students.

Federal Equal Credit Opportunity Act (ECOA) (1974)

Prohibits discriminatory practices by lenders

Collateral

Property pledged when obtaining a loan.

How does the fed improve economy?

Reducing reserve requirements, lowering rates, or purchasing securities encourages lending and spending

Administrative Procedures Act (1946)

Regulates agencies and their roles

Home Mortgage Disclosure Act (HMDA) (1975)

Requires documentation to show that lenders are serving the housing needs of their communities

Truth in Lending Act (TILA) (1968)

Requires full disclosure of the terms and conditions of credit

How does the Fed influence the monetary system?

Reserve requirements Rates (directly influence discount and federal funds rates, which then influence the prime rate) Open market operations (run by the Federal Open Market Committee)

The Secondary Mortgage Market Process

Secondary market players purchase loans from primary lenders and package and sell them as mortgage-backed securities to investors. The money received is then used to purchase additional loans.

Secondary Mortgage Market—National

Secondary mortgage market players (Fannie Mae, Freddie Mac, Ginnie Mae, etc.) purchase loans from local lenders and package and sell them as mortgage-backed securities.

Collateralized Mortgage Obligations (CMOs)

Security made up of mortgages and/or mortgage-backed securities and organized into tranches (security classes). Played a role in the 2007 financial crisis.

List ways of Private Financing

Sellers Family member or other individual may make $15,000 tax-free gift to other individuals within IRS limits Private loan companies

American Recovery and Reinvestment Act (ARRA) (2009)

Stimulus package created as a response to the economic crisis

list the properties of money

Store of value Unit of account Medium of exchange

List the Factors Affecting Real Estate Cycles

Supply Demand Population

List the Tax Issues

Tax rules can indirectly influence the buying habits of property owners and investors. Property value fluctuations Local and national markets

List Significant TX Legislation

Texas Safe Act (T-SAFE) Chapter 5 of the Texas Property Code Texas Administrative Procedures Act

Equitable title

The borrower's interest in a mortgaged property.

Describe the 2007-2008 Financial Crisis

There were more subprime (higher-risk) mortgages and underwater homes. Unemployment led to increased foreclosures. Acts introduced to stimulate the economy

Primary Mortgage Market—Local

These are the banks, credit unions, and mortgage companies that provide loans to consumers.

Recession

Unemployment and foreclosures increase and supply is greater than demand, so home prices fall.

Oversupply (aka hyper-supply)

Unemployment is low and hiring stabilizes. There are many buyers and lots of new construction with increasing supply, so homes are over-valued.

Recovery

Unemployment stabilizes but remains high, as do foreclosures. Lots of supply means few buyers and home prices are under-valued.

Real Estate Bonds

Used to secure funds for financing real estate projects Municipal bonds are used to fund local projects like roads, schools, and other infrastructure Corporate bonds are credit instruments used to raise funds

Credit Unions

Valuable resource for real estate financing Have greater flexibility in making loans Generally not governed by federal, state, or local regulations

Disintermediation

When bank deposits are less than bank withdrawals.

Population

When population increases, housing demand usually does, too. Demographics impact supply and demand, and as a result, housing prices.

What influences Real Estate?

Zoning, environmental regulations, building standards, political events, economic events, and employment trends

Federal Home Loan Bank (FHLB

advances funds to member banks in exchange for collateral (usually mortgages).

Freddie Mac

buys conforming loans (mostly from thrifts), packages and sells into MBSs, sells shares of MBSs.

Fannie Mae

buys conforming loans, packages and sells into MBSs, sells shares of MBSs.

Raising taxes and establishing moratoriums...

can slow or discourage growth.

Commercial banks' primary source of capital is...

checking account deposits

US mint

coin production

Commercial banks provide...

construction (interim financing), home improvement, manufactured housing, and home equity loans

What has a tremendous effect on the economy?

construction of new homes

Tax incentives can be used to...

encourage local employers to move to town.

The Secondary Market makes the primary market possible by...

giving primary lenders a place to sell their loans to obtain funds to make new loans.

When growth is too fast...

infrastructure may not be able to support it.

M3 is the...

least liquid

Local markets are influenced by...

local events (zoning ordinances, employment trends, etc.) as well as national and international activities (economic and political events).

More employers equals...

more growth, higher local employment rates, more consumers, and an increased demand for real estate.

M1 is the...

most liquid

The local real estate industry is largely dependent upon...

national market conditions.

How does the fed slow down economy?

ncreasing reserve requirements, raising rates, or selling securities reduces lending and spending

Bureau of Engraving and Printing

paper currency production

List the insolvency methods of the FDIC

purchase and assumption, and payout

What does the Federal Open Market Committee (FOMC) consist of?

seven Board of Governors members + NY Reserve Bank president + four other reserve bank presidents

How are the board of governors of The Fed appointed? How many are there?

seven members appointed by president and confirmed by Senate

Taxpayer relief acts can...

stimulate the economy and local market.

Tax rules can indirectly influence...

the buying habits of property owners and investors.

When growth is dependent on one industry or employer...

the community may over-build and be left holding the bag if the employer leaves.

When growth is too slow...

the local economy can be negatively impacted

Liquidity differentiates...

the measures of money

Lender delivers Loan Estimate to applicant within...

three business days of application

Closing Disclosure provided to consumer at least...

three business days prior to consummation