Unit 7 - Real Estate Financing Programs

There are three types of mortgage participation:

1. Partnership among several mortgages 2. Partnership among several mortgagors 3. Partnership between a mortgagee and a mortgagor

PMI can be stopped once the LTV reaches ______.

78%

Payment Cap (ARM)

A limit to the increases or decreases in the amount the borrower pays over a period of time

Interest Rate Cap

A limit to the increases or decreases in the interest rate over a period of time to protect the borrower.

Streamlined Modification Program (SMP)

A loan modification program initiated in 2008 for at-risk borrowers with Fannie Mae and Freddie Mac loans.

Conventional Loan

A loan with no government insurance or guarantee

Partnership of Mortgagees

A mortgage participation involves more than one mortgagee as the owner of the instrument designed to finance a real estate project. It is used in large project financing. Several mortgagees join together, each advancing a proportionate share of the monies required and receiving a commensurate share of the mortgage payments.

Inflated Appraisals

A property that is knowingly appraised with a higher-than-market value by an appraiser acting in collusion with a borrower or lender

installment sale plan

A special financing tool designed to postpone capital gains income taxes on properties that do not qualify for special exemptions available under the income tax laws allows a seller to pay tax in amounts proportionate to the gain collected each year.

____________ is the systematic repayment of a loan by periodic installments of principal and interest over the entire term of the loan agreement.

Amortization

Predatory lending

Generally defined as the practice of charging interest rates and fees to unsuspecting borrowers that are higher than justified by risk-based financing.

VA

Govt guaranteed loan

FHA

Govt insured loan

A _________________ offers lower payments in the early years of the loan. The payments increase gradually until they are sufficient to amortize the loan fully.

Graduated Payment Mortgage

False Stated Income Fraud

In a stated income loan, the income that is put on the loan application is not fully verified - the borrower's income is misstated for qualification purposes.

Subprime Loans

Made for borrowers with less than perfect credit ratings; usually carries higher interest rates.

1031 Tax Deferred Exchanges

May be used by investors and business property owners to defer payment of capital gains taxes on investment properties

Realized Capital Gains

Monies received from refinancing, even if they exceed the price paid for the property

Property Flopping

Occurs when a home is purchased from an owner facing foreclosure at a price well below its distressed value by agreeing to a deal with the lender, and then immediately reselling it for a fat profit, sometimes to a fellow conspirator

A ________________ has equal payments of principal and interest with a lump-sum balloon payment at the end.

Partially Amortized Mortgage

Mortgage Forgiveness Debt Relief Act of 2007

Relieves borrower from liability to pay taxes on any monies forgiven by a bank due to a short sale or foreclosure.

_________ interest is paid only for the amount of principal still owed, and when money is repaid to the lender, that interest stops.

Simple

Initial Rate (ARM)

Sometimes called the teaser rate, it is a below-market rate that attracts borrowers to ARM loans2.

A ______________ mortgage features interest only payments until maturity or at the end of the term at which time the entire principal is paid back in one lump sum.

Term/Straight

Note Rate (ARM)

The adjusted rate (index plus margin), imposed from time to time at the adjustment period

Margin (ARM)

The rate added to the index at every adjustment period to derive the new note rate

Qualifying Rate (ARM)

The rate at which to qualify a borrower for an ARM loan; this rate sometimes ay be the maximum second-year rate.

Partnership of Mortgagors

The second type of mortgage participation involves several mortgagors sharing responsibility for a single mortgage on a multifamily property, called a cooperative.

Index (ARM)

The starting point to adjust a borrower's applicable interest rate.

Partnership of Mortgagees and Mortgagors

The third type of participation, called a participation mortgage, is engendered when a mortgagee becomes a partner in the ownership of a project on which a loan will be placed. When a developer requests a commitment for a participation mortgage on a substantial commercial real estate project, a lender may accept a higher LTV ratio, lower the interest rate, or make other concessions in return for a percentage of the project's ownership as a condition for issuing the loan commitment. These mortgagee ownerships range from 5 to 50% or more and simultaneously make the lender a partner in the development as well as its financier.

Adjustment Periods (ARM)

This indicates the frequency of interest rate adjustments with concomitant payments.

Piggy-Back Loan

When the borrower takes out a first and second mortgage simultaneously in order to avoid private mortgage insurance (there is no PMI as long as first mortgage is 80% or less).

A type of mortgage participation that would include the landowner, the developer, the construction company, and the financier would be called

a joint venture - In this form of equity participation, the developer usually supervises the entire project from inception until completion.

Unrecorded Second Mortgages

a seller-paid concession outside of closing

A __________ is money paid by someone (seller, builder, employer, buyer) to a lender in return for a lower interest rate and monthly payment.

buydown

A blanket mortgage has two or more properties pledged as __________ for one loan. It is often necessary to include a release clause.

collateral

A ______________ is made available in installments (obligatory advances) as improvements are completed.

construction/interim mortgage

The interest rate _________ is the number of dollars it takes to pay down $1,000 of a loan based on the interest rate and term of the loan.

factor

Identify Theft

false identity used on a loan application without the knowledge of the rightful property owner

With a fully amortized fixed-rate mortgage, the interest remains _________ over the life of the loan.

fixed

Deed Scams

forged seller's signature on the deed so the property owner does not know that the property is being fraudulently transferred and thief takes out a cash-out loan on the property, pockets the cash, and walks away having never made a payment on the loan

An ARM is tied to an _________ and features an adjustment period in which the rate adjusts based on the index.

index

A lender views ________ as money received or earned from a loan investment.

interest

Property Flipping

occurs when a property is purchased at a low price, appraised at an inflated value without any valid reason for the increase, and then resold at an inflated price

Equity Skimming

occurs when an investor creates a fictional buyer and false loan documentation to obtain a loan

Equity Flipping

occurs when homeowners are encouraged to keep refinancing their property, incurring costs without benefit to the homeowners

A __________ mortgage includes collateral, fixtures and personal property.

package

Interest in charged from the day that the money is borrowed until the day the loan is _______________.

paid in full

A _______ is 1% of the total loan amount.

point

A seller has agreed to carry back a portion of the sales price as a loan to a buyer. This is called a

purchase money mortgage - In a purchase money mortgage, the seller carries back a portion of the sales price or the entire sales price as a loan to the buyer. A purchase money mortgage can be either a senior or a junior lien on the property.

When mortgage interest rates are at relatively low levels many homeowners consider ____________ their existing loans as a method for saving money by lowering their monthly payments. The costs of refinancing are unregulated and vary dramatically among lenders.

refinancing

A _________________ is designed for seniors who own their homes free and clear.

reverse annuity mortgage

Foreclosure Rescue Scheme

takes advantage of homeowners who have fallen behind on their monthly mortgage payments.

A ________ loan requires payments of interest only with the entire principal being repaid at a specified time.

term