Unit 10: Real Estate Finance--Lending Institution

redlining

A discriminatory lending practice prohibited by the Holden Act.

secondary mortgage market

A resale marketplace for mortgage loans.

reconveyance deed

Conveys title to property from a trustee back to the borrower (trustor) upon payment in full of the debt secured by the trust deed.

the resale or transfer of existing trust deed loans. The secondary mortgage market is for buying and selling existing mortgages from the primary mortgage market or from each other. Participants in the secondary mortgage market do not originate loans.

In the field of real estate financing, the term "secondary mortgage market" usually refers to

primary mortgage market

Market in which lenders make mortgage loans directly to borrowers.

mortgage-backed securities

Pools of mortgages used as collateral for the issuance of securities in the secondary market.

redlining The Housing Financial Discrimination Act prohibits redlining.

The Housing Financial Discrimination Act of 1977 prohibits the discriminatory practice known as:

finance charge

The dollar amount the credit will cost the borrower.

15% The Real Property Loan Law limits a licensee's commission to 15% where the loan term is three years or longer.

The maximum commission that can be charged by a licensee for negotiating a second trust deed of $7,500 for a period of five (5) years is:

loan-to-value

The percentage of appraised value to the loan.

Property The property is the underlying security for the mortgage loan.

The underlying security for the mortgage loan is the

FDIC The Federal Deposit Insurance Corporation (FDIC) now insures deposits in all federally chartered banks and savings institutions.

What federal agency insures deposits in all federally chartered banks and savings institutions?

real estate investment trust

A company with a minimum of 100 shareholders that owns operates income-producing real estate or engages in financing real estate.

security agreement

A document commonly used to secure a loan on personal propert y.

compensating balance

A minimum credit balance that a bank requires a borrower to keep on deposit as a condition for granting a loan.

deregulation

A process whereby regulatory restraints are gradually relaxed.

credit scoring

A statistical method lenders use to assess a borrower's credit risk.

monetary policy

Actions taken by the Fed to influence the availability and cost of money and credit as a means of promoting national economic goals

highest level of education completed. Hint: Several risk factors are taken into consideration when evaluating a borrower for a loan, such as the borrower's debt-to-income level, employment history, type of property, and assets.

All of the following are risk factors that the lender assesses during the underwriting process, except the borrower's:

tight money. Hint: To slow down the economy, the Fed sells government securities to the public. This reduces the banks' cash, tightens up the money supply, increases interest rates, and creates a tight money market.

An economic situation in which the supply of money is limited and the demand for money is high, as evidenced by high interest rates is:

tight money

An economic situation in which the supply of money is limited, and the demand for money is high, as evidenced by high interest rates.

Mortgage Loan Disclosure Statement

California-required statement that disclosed expected maximum costs and expenses of making the loan that are to be paid by the borrower

commercial banks

Commercial banks are the all-purpose lenders whose real estate loans represent only a portion of their overall activity. They make the widest range of loans, including loans for buying real estate, home equity loans, business loans, and other short-term loans. The major type of lending activity funded by commercial banks is for short-term (6-to-36 months) construction loans, even though they do make other types of loans as well.

Truth in Lending Act

Consumer-protection law passed to promote the informed use of consumer credit by requiring disclosures about its terms and costs.

FDIC

Corporation that insures deposits in all federally chartered banks and savings institutions up to $250,000 per depositor.

Loan Estimate

Document that lists the charges the buyer is likely to pay at settlement.

Equal Credit Opportunity Act

Federal act ensuring that all consumers have an equal chance to obtain credit.

Appraisal fees Regulation Z specifies the items that are not to be included in the finance charge for a real estate loan: seller's points, title fees, fees for preparing documents, notary charges, appraisal fees, and credit-report fees.

For a real estate loan, which of the following fees may not be included in the finance charge according to the federal Truth in Lending Act?

No other disclosures are required It is correct to disclose just the APR and does not trigger the requirement for additional disclosures.

If only the annual percentage rate (APR) is disclosed in an advertisement for property, which additional disclosures must be made?

credit union

Lender whose members usually have the same type of occupation.

mortgage companies

Lender whose principal business is the origination, closing, funding, selling, and servicing of loans secured by real property

pass-through securities

Mortgage backed securities that pass through the principal and interest of the underlying loans to investors

mortgage broker

Real estate licensee who is a third party originator.

warehousing

Revolving line of credit extended to a mortgage company from a warehouse lender

residential properties with 1-to-4 units. RESPA applies to all federally related mortgage loans made by lenders for the sale or transfer of 1-4 unit residential dwellings.

The Federal Real Estate Settlement Procedure Act of 1974 (RESPA) pertains to:

A loan secured by a first trust deed securing real estate upon which there is one-to-four family residential dwelling Hint: RESPA applies to all federally related, 1-4 unit residential mortgage loans. These include most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. The Consumer Financial Protection Bureau (CFPB) is responsible for enforcing RESPA.

The Real Estate Settlement Procedures Act (RESPA) applies to which of the following?

arranger of credit. Hint: To prevent abuses involving some of these seller assisted financing plans, the state requires the arranger of credit to give the borrower a written disclosure called a Seller Financing Disclosure Statement.

The Seller Financing Disclosure Statement only applies to a(n):

borrower Hint: To prevent abuses involving some of these seller assisted financing plans, the state requires the arranger of credit to give the borrower a written disclosure called a Seller Financing Disclosure Statement.

The Seller Financing Disclosure Statement only applies to a(n):

creditors to disclose credit terms so consumers can make comparisons. Hint: The Truth in Lending Act (TILA), Title I of the Consumer Credit Protection Act, is aimed at promoting the informed use of consumer credit by requiring disclosures about its terms and costs.

The Truth-In-Lending Act (Regulation Z) requires:

secondary mortgage Hint: In contrast to the primary mortgage market, in which lending institutions make mortgage loans directly to borrowers, the secondary mortgage market is for buying and selling existing mortgages from the primary mortgage market or from each other. Participants in the secondary mortgage market do not originate loans.

The __________ market is the market that does not originate loans.

Three Hint: The Mortgage Loan Disclosure Statement must be signed by the borrower and the agent negotiating the loan. The broker negotiating the loan must keep a signed copy of the statement on file for 3 years.

The broker negotiating the loan must keep a signed copy of the Mortgage Loan Disclosure Statement for how many years?

sell government bonds and raise the discount rate. A tight money market means the supply of money is relatively limited and thedemand is high. Therefore, interest rates would generally increase. Selling government bonds takes money out of circulation as bonds are purchased. Raising the discount rate will mean less money will be borrowed and circulated.

The most effective method for the Federal Reserve to create a "tight" money market is to:

buying and selling FHA and VA loans in the secondary market. Fannie Mae was originally created to purchase FHA and VA loans in the secondary market. However, in recent years, Fannie Mae has also purchased conventional mortgages from approved lenders.

The original purpose of Fannie Mae was:

disintermediation

The process of depositors removing funds from savings.

underwriting

The process of evaluating a borrower's risk factors before the lender will make a loan.

deregulation Deregulation is a process whereby regulatory restraints are gradually relaxed. Disintermediation occurs when savers take money out of S&Ls and put it into investments that pay a higher rate of interest. Depreciation is a loss in value from any cause.

The process of gradually relaxing regulatory restraints is called:

APR

The relative cost of credit expressed as a yearly percentage rate.

Carlie Mac Hint: There are three major participants in the secondary mortgage market: (1) Fannie Mae, (2) Freddie Mac, and (3) Ginnie Mae.

The secondary mortgage market is for buying and selling existing mortgages from the primary mortgage market or from each other. Which of the following is not a major participant in the secondary mortgage market?

mortgage yield

The total interest, fees, and points earned by the lender expressed expressed as a percentage.

pledge

The transfer of property to a lender to be held as security for repayment of a debt. The lender takes possession of property.

thrifts Among institutional lenders, thrifts (savings and loan associations) provide the majority of home loans.

The type of lenders having the greatest percentage of its assets invested in residential real estate mortgages are:

Credit Report A credit report shows the borrower's payment history, balance of outstanding debt, credit history, number of credit inquiries, and types of credit held.

What shows the borrower's payment history, balance of outstanding debt, credit history, number of credit inquiries, and types of credit held?

Dodd-Frank Act Hint: The Dodd-Frank Act established the Consumer Financial Protection Bureau (Bureau or CFPB) and authorized it to regulate consumer financial products and services and enforce seventeen "inherited" consumer protection laws.

Which Act established the Consumer Financial Protection Bureau and authorized it to regulate consumer financial products and enforce several consumer protection laws?

Open market operations Hint: The Federal Open Market Committee (FOMC) of the Fed also buys and sells government securities, typically existing bonds, to influence the amount of available credit. The open market operations process is the most flexible and widely used technique for expanding or slowing the economy.

Which economic stimulation tool of the Federal Reserve involves purchasing and selling government securities?

Commercial banks Hint: Commercial banks make short-term (6-to-36 months) construction loans.

Which institutional lender commonly makes short-term construction loans?

Mortgage brokers underwrite loans and fund them at closing. Hint: A mortgage broker is a third party originator (TPOs)—not a lender. Mortgage brokers qualify borrowers, take applications, and send completed loan packages to the lender. The lender approves and underwrites loans and funds them at closing. The mortgage broker does not service the loan and has no other concern with it once it is funded.

Which of the following activities is not commonly performed by a mortgage broker?

Mortgage Companies Since mortgage companies do not have depositors, they use short-term borrowing called a warehouse line or warehouse line of credit to make loans to borrowers.

Which of the following lenders frequently uses a warehouse line to make loans to borrowers?

The primary mortgage market is where lenders make mortgages to borrowers Hint: The primary mortgage market is the market in which lenders make mortgage loans by lending directly to borrowers. Participants in the primary mortgage market sell loans in the secondary mortgage market to replenish their funds.

Which of the following statements is true regarding the mortgage market?

3-bedroom, 2 bath, large lot, with 10% down; total price $225,000 An ad must disclose all credit terms if it contains any one of the following four triggering terms: (1) the down payment, (2) the number, or term of payments, (3) the amount of any payment, or (4) the finance charge. In this case, the 10% down payment triggers the other disclosures.

Which of the following statements violates the federal Truth in Lending Act?

RESPA Hint: The federal Real Estate Settlement Procedures Act (RESPA) protects consumers by mandating a series of disclosures that prevent unethical practices by mortgage lenders. The disclosures must take place at various times throughout the settlement process.

_____ is a federal law that requires disclosure to borrowers of closing costs and procedures by means of a pamphlet and forms approved by the United States Department of Housing and Urban Development (HUD).

Underwriting Hint: Once the lender has a borrower's completed application the underwriting process can begin. Simply put, underwriting is the process of evaluating a borrower's risk factors before the lender will make a loan.

_____ is the process of evaluating a borrower's risk factors before the lender will make a loan.

Disintermediation Hint: Deregulation is a process whereby regulatory restraints are gradually relaxed. The first indication of a problem came in the late 1970s, when savers began to take their money out of savings and loan associations (S&Ls) and put it into investments that paid a higher rate of interest. This process, called disintermediation, began due to uncontrolled inflation, causing interest rates to increase dramatically.

__________ occurred when people moved money from savings and loans into investments paying a higher rate of interest.