Champions Real Estate Finance

The Fed uses three primary monetary policy tools to influence the cost and availability of credit:

1. Open market operations 2. The discount rate 3. Reserve requirements

The Community Reinvestment Act enacted in (blank) ensures that banks serve the needs of the community in which they where charted.

1977

When was HARP introduced?

2009

The (blank) loan was developed by HUD for the rehabilitation and repair of single family properties.

203(k)

FNMA/FHLMC Ratios

28% / 36%

FHA ratio

31/43

VA Ratio

41%

In order to qualify for exemption from capital gains, the property must have been the primary residence for two of the previous (blank) years

5

Truth in Lending Act (TILA)

A United States federal law that is designed to protect consumers in any credit transactions by requiring clear disclosure of key terms of lending arrangments all associated cost.

Encumbrances

A claim, lien, charge, or liability attached to and binding real property. An easement for ingress and egress.

Subordinate Clause

A clause in which a holder of a mortgage permits a subsequent mortgage to take priority.

Lifting Clause

A clause which gives the borrower the ability to replace the primary instrument with another without affecting the subordinate instrument's position.

Abstract of Title

A complete history of the title of a piece of property that includes deeds, easements, liens, foreclosure, wills, marriages, deaths, life, estates, fee simple estates, and anything else that had been recorded about a property.

Borrower, Lender, Trustee

A deed of trust is a three-party instrument who's parties include:

Department of Housing and Urban Development (HUD)

A federal cabinet department is active in national housing programs. Its mission is to create strong, sustainable, inclusive communities and quality affordable homes. It prevents housing discrimination through public education and enforcement are administered by the Assistant Secretary for Fair Housing and Equal Opportunity (FHEO)

Contract for Deed (Land Contract)

A financing technique wherein the seller agrees to deliver the deed at some future date and the buyer takes possession while paying the agreed amount. Also called an installment contract or cash for deed.

The entire term of the loan

A fixed rated mortgage remains fixed for ?

Collateral -Dependent Loans

A hard money loan is a specific type of asset-based financing in which a borrower receives funds secured by the value of a parcel of real estate.

Chain of Title

A history or list of all recorded owners all the way back to the sovereignty of the soil.

Foreclosure

A legal procedure by which secured property may be sold to satisfy an unpaid note.

Par loan

A loan with no discount points

Discounted Initial Rate (teaser rate)

A lower interest rate is offered by the lender during the first year or more of the loan.

Redlining

A practice in which banks refuse to make loans to people living in certain geographic locations.

Acceleration Clause

A provision in a written mortgage or note, stating that in the event of default, the entire amount of the principal becomes payable.

Real Estate Mortgage Trusts (REMT)

A special form REIT that invests in mortgages or mortgage-backed securities.

The Federal Home Loan Bank (FHLB) System

A system of regional banks from which local lending institutions everywhere in America borrow funds to finance housing, economic development, infrastructure and jobs.

promisary note

A written promise to pay a certain amount of money with a certain interest rate on a certain date

Initial Adjustment Cap

ARMs that offer a fixed rate period during the first years of the loan usually have an initial rate cap that is higher than the per adjustment cap

NMLSR

All residential mortgage loan originators must now be registered with the Nationwide Mortgage Licensing System and Registry.

Assumption Clause

Allows a new borrower to take over the payments on an existing loan under specified terms and conditions.

Real Estate Mortgage Investment Conduit (REMIC)

Allows for the indirect investment in mortgages through the sale of securities. Purchases "pools" of mortgages

Power of Sale

Also known as a statutory foreclosure. Foreclosure without going to court. (Have no choice)

U.S. Department of Agriculture (USDA)

Also referred to a "Section 502 loan" is insured by the U.S. Department of Agriculture. The program offers 100% financing (no down payment) for qualified borrowers. First time and repeat home buyers can obtain this loan. The program is for primary residence only; no second homes or investor financing is available under this program. The program is for purchases and refinancing only and cash-out refinances are Not allowed.

Federal Fair Housing Act of 1968

An act prohibiting discrimination in the sale or rental of housing on the basis of race, color, religion or national origin sex, handicap and familial status.

The Federal Deposit Insurance Corporation (FDIC)

An agency created in 1933 to insure individuals' bank accounts, protecting people against losses due to bank failures (Insures deposits only)

Effective Age

An appraiser's estimate of the age of the house based upon its ongoing maintenance and upgrades.

Reverse Mortgage

An arrangement where the lender agrees to pay money to an elderly homeowner, either regularly or occasionally, and to be repaid from the homeowner's equity when he or she sells the home or obtains other financing.

Bonds

An instrument of corporate or governmental debt. (An IOU)

Real Estate Investment Trust (REIT)

An investment vehicle created by congress in 1960. The effort to make it possible for small investors to invest in larger commercial properties by purchasing shares in the organization that owns the real estate.

Seller Financing

Any financing arrangement where a seller takes a note and mortgage from the buyer for all or part of the purchase price of the property.

VA Qualification

Approval is based on two separate evaluations: residual income and debt-to-income ratio. Both are considered to be a guide to underwriting, and while residual income is the primary consideration, it must be considered along with other credit factors.

Mortgage Revenue bonds

Are sold to raise funds for lending to first-time homebuyers or low income homebuyers.

HOME Investment Partnership Program

Block grants to develop and support affordable housing for low-income residents.

Default

Breach or non performance of the terms of a note or covenants of a mortgage

Deed in Lieu

Cannot be accepted from borrower's who can financially afford their mortgage payments.

Refinancing options that Harp offers

Change from an adjustable to a fixed-rate mortgage. Lower interest rates Shorter term loans

Blanket Mortgage

Covers more than one piece of property.

United State Mint

Created by Congress in 1972 and became part of the Department of the Treasury in 1873. The primary mission is to serve the American people by manufacturing, distributing, and circulating precious metal coins, collecting coins and national medals. Also entrusted with providing security over assets.

D.U.S.T

Demand Utility Scarcity Transferability

SAFE Act

Designed to enhance consumer protection and reduce fraud.

The Safe Act

Designed to enhance consumer protection and reduce fraud. (Key component of HERA)

FHA's Single Family programs are limited to one-to four Family Property secured by

Detached or semi-detached dwelling Manufacturered Housing Townhouses or Row houses Individual units within FHA- approved Condominium Projects

The Housing and Economic Recovery Act (HERA)

Enacted on July 30, 2008, is a major housing law that serves multiple purposes: The modernization of the Federal Housing Administration (FHA) , foreclosure prevention, and the enhancement of consumer protections. The SAFE ACT is a KEY component of HERA : -it is designed to enhance consumer protection and reduce Fraud by requiring national minimum standards for mortgage training, including prelicensing education and annual continuing education Way to Remember: in order to be SAFE, you need a HERA! (female version of a hero)

Mortgage Banker

Entities which provide their own funds for the purpose of providing mortgage financing, as opposed to commercial banks/savings associations. (Held, or "Warehoused")

The size of a loan a veteran may receive determine by this service

Entitlement

Consumer Financial Protection Bureau (CFPB)

Established by the Dodd-Frank Act. The Bureau has the authority to examine and enforce consumer protection regulations for all mortgage-related businesses, large non-bank financial companies, and banks and credit unions with assets greater than $10 billion.

Secondary Market

Exists for the purchase and sale of existing mortgages to investors. Designed to provide greater liquidity to the residential real estate market by providing for a steady supply of funds from investors. Wherein loan originators such as mortgage bankers and brokers can sell their loans and thus recover cash for originating more loans.

Fiscal Policy

Federal Government spending. Approved by Congress. At the treasury level, funds can be raised to pay for government spending by raising taxes and increasing borrowing.

Freddie Mac (FHLMC)

Federally chartered corporation. Established in 1970 for the purpose of purchasing mortgages in the secondary market. Is a stockholder-owned corporation chartered by Congress to increase the supply of funds that mortgage lenders, such as commercial banks, mortgage bankers, saving institutions and credit unions can make available to homeowners and multi-family investors.

Loan Estimate (LE)

Form replaced the GFE form and the initial TILA disclosures and includes some new disclosures. The form must be provided by the mortgage broker or creditor upon receipt of an application. The creditor or broker must give the form to the consumer no later than 3 business days after the consumer applies for a mortgage loan.

Major loan reforms spearheaded by the FHA have included.

Fully Amortized loans Downpayment as low as 3.5% Low Interest rates Mandatory collection of taxes and hazard ins premiums in an escrow account Guidelines for borrower qualification

FHA, VA and USDA loans

Governmental loans include

Sub-Prime Loans

Have risk-based pricing. The rates are not published on these loans. Borrowers are rated A-F with a prime borrower having an A rating. A minus to F-rated borrowers will pay 1 to 5 % higher than those with good credit. These are non-conforming loans.

OCCC-Regulate real estate transactions include:

Home Equity Loans Secondary Mortgages Home Improvement Loans Property Tax Lien Lenders

Cross-default clause

If borrower defaults on the primary instrument, the secondary instrument is automatically defaulted. This protects a subordinate lien holder by allowing him to foreclose a property if the first lien went into default, even if the subordinate lien was not in default.

Rental assistance

In the form of section 8 certificates or vouchers for low-income households.

Package Mortgage

Includes both real and personal property ( fixtures and furnishings)

Servicing

Includes collecting monthly payments, maintaining records of payments and balances, collecting and paying taxes and insurance ( and managing escrow and impound funds) remitting funds to the note holder, and following up on delinquencies.

Dodd-Frank Wall Street Reform Act

Increases the ins coverage on all federally insured credit union accounts up to $250,000

Private Mortgage Insurance (PMI)

Insurance provided by a private carrier that protects a lender against a loss in the event of a foreclosure and deficiency.

Lock-in Clause

Is a condition of a mortgage loan which prohibits prepayment of the loan prior to a certain date.

Farmer Mac

Is a government-sponsored enterprise with the mission of providing secondary market for agriculture real estate mortgage loans, rural housing mortgage loans, and rural utility cooperative loans.

Capacity

Is a measure of the borrower's ability to repay the debt, and is demonstrated through current earnings and job stability.

Character

Is a measure of the willingness of a borrower to make on-time payments. Credit character is revealed in the borrower's credit report.

Straw Buyer

Is a person who is used to buy property in order to conceal the actual owner.

Lien

Is a right given by law to certain creditors to have debts paid out of the property of a defaulting debtor, usually by means of a court sale.

Points

Is a unit of measure. (Discount charges)

USDA Farm Loans (FSA)

Is an agency of the US Dept of Agriculture. Farm Loan Programs for a farmer or rancher who is unable to obtain credit elsewhere to start, purchase, sustain, or expand a family farm.

Property Flipping

Is an elaborate scam in which unsuspecting first-time homebuyers are sold houses in serious states of disrepair for prices far above what the houses are actually worth.

Fiat Money

Is currency that is not backed by any precious metals at all.

M2

Is defined as M1 plus saving deposits, small-denomination time deposits (those issued in amounts of less than $100,000) and retail money market mutual funds shares.

M1

Is defined as the sum of currency held by the public and transaction deposits at depository institutions.

Churning

Is excessive selling/lending activity for the purpose of generating fees and commissions.

Prepayment Privilege Clause

Is included in some loans, and allows a borrower to pay off the loan prior to the due date without incurring penalties

Texas Department of Housing and Community Affairs (TDHCA)

Is responsible for affordable housing, housing related and community service programs, and the regulation of the states manufactured housing industry.

Collateral

Is something of value that can be pledged as security for repayment.

Physical Deterioration

Is the loss in a property's value due to daily wear and tear

Functional Obsolescence

Is the loss in desirability of the style, layout, or function of an element of a property over time.

Monetary Policy

Is the maintenance of a stable money supply that provides for growth in the economy while keeping inflation in. The federal reserves is responsible for this policy in the United States.

Market Value

Is the most probable price a property should bring in a competitive and open market under all conditions requisite to fair sale, under guidelines published by federal institutions Fannie Mae and Freddie Mac.

Federal Funds Rate

Is the rate that the Federal reserve charges banks for unsecured loans, most of which are for a very short term.

Depreciation

Is the reduction of value of property from causes of deterioration or obsolescence.

Yield

Is the return that the investor recieves over the life of the loan. (Also known as profit)

Capital

Is the sum of all assets that the borrower has accumulated.

Exculpatory clause

Is used to limit the borrower's personal liability in the event of a default on a loan.

Front Ratio

Is used to qualify a borrower for a loan based upon the proposed house payment and his or her gross monthly income (GMI). The house payment is the monthly payment of principal, interest, taxes and insurance (PITI).

Conservatorship

Legal right given to a person to manage the property and financial affairs of a person deemed incapable of doing that for himself or herself.

Lifetime Cap

Limits the total amount the interest rate may increase over the life of an adjustable-rate mortgage loan.

Portfolio Loans

Loans that are not sold in the secondary market

Fixed-Rate Mortgages

Locks in the borrower's interest rate over the life of the mortgage.

Wraparound Mortgage

Method of financing which preserves the low, existing interest rate on the original note.

prepayment penalties

More than two-thirds of sub-prime loans have this.

Credit Unions

Not-for-profit banks set up by organizations that exist to serve their members. Return surplus income to their members in the form of dividends.

Equity Theft

Occurs when fraudsters forge a deed transfer or a satisfaction lien, and then obtain new liens on the property.

Cost-push inflation

Occurs when the cost of production and offering services increase, thereby causing manufacturers and tradespeople/vendors to rais their prices accordingly.

Deed in Lieu (DIL)

Of foreclosure (blank) is a mortgage modification option in which a borrower voluntarily feeds their collateral property in exchange for a release from all obligations under the mortgage.

Nonrecourse Clause

Often used by loan originators when selling loans on the secondary market. Protects the seller of the security from liability in the event of a default by the borrower.

FHFA (Federal Housing Finance Agency)

On September 7, 2008 this agency placed Fannie Mae and Freddie Mac in Conservatorship. Appoint (blank) as a conservator or receiver of the GSEs.

Processing

Once application is complete the file moves into this phase.

Recasting

Or re amortizing, a mortgage. This can reduce the borrower's monthly payment, thus making resolving a default situation more manageable. (Extending and reducing payments)

Balloon Note

Partially amortized and most commonly done with secondary mortgages.

Commercial Banks

Perform a variety of functions, from being a depository institution to providing lines of credit and loan products to the communities in which they are charted. Working capital is primarily generated through deposits from clients.

Neutral inquiries that are not rated as either positive or negative on a credit report.

Periodic review, Pre-approval and consumer initiated

Open-End Mortgage

Permits additional borrowing on the same note. This is sometimes called a credit card mortgage or a home equity line of credit - HELOC.

Federal National Mortgage Association (FNMA)

Plays a vital role in financing mortgages and increasing homeownership opportunities in the US. Began in 1938 as an agency of the federal government and was created to bring stability to the US housing market. In 1968, it became a privately owned and managed corporation. US Congress re-chartered it as a private company. Mandating that it operate with private capital on a self-sustaining basis to enhance the flow of funds through the secondary market home buyers.The largest investor in home mortgage today.

Through which avenue does the US Treasury promote economic growth.

Policies that support job creation

RESPA Section 8

Prohibits kickbacks, fee-splitting, and unearned fees.

PENSIL Application

Property Address, Estimated Value, Name of the borrower, SSN, Income, Loan Amount

FHA mortgage insurance

Provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans.

The Federal Housing Administration (FHA)

Provides mortgage insurance on loans made by blank- approved lenders throughout the US and its territories. Insures mortgages on single-family and multifamily homes including manufactured homes and hospitals. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.

At the treasury level, funds can be raised to pay for government spending by increasing borrowing and

Raising taxes

Conventional Loan

Refers to a loan made with real estate as security and which does not involve government participation in the form of insuring or guaranteeing the loan.

Office of Consumer Credit Commissioner (OCCC)

Regulates the credit industry and educates consumers and creditors. Agency efforts help produce a fair, lawful and healthy credit environment for social and economic prosperity in Texas.

Alienation (Due on Sale) Clause

Reserves the right of the lender to call the note (Declare the entire balance due) if the borrower sells the property without repaying the loan.

SML

Responsible for the chartering, regulation and supervision of Texas' thrift industry.

Up-Front Mortgage Insurance Premium (UFMIP) Calculations

Sales Price/Value × 96.5% LTV = Base Loan Amount

The single Family Housing Direct Home loan is also known as

Section 502 Direct Loan Program

The Federal Fair Credit Reporting Act (FCRA)

Sometimes called the Fair Credit Reporting Dispute Act, is a federal law designed to protect consumers against unfair credit reporting practices and protect and credit privacy. To assure the consumer that these agencies are fair, accurate and exhibit confidentiality in their credit reporting methods.

Trigger Terms

Specific credit terms that may not be advertised unless the advertisement includes other detailed information.

In title theory states

States where a mortgagee holds actual title to property until the loan is repaid. Compare to Lien Theory States.

Steering (channeling)

Taking buyers or renters to or away from a particular area based on the race, religion, etc. of the buyer or renter (most common complaint under law)

Regulation X

The Consumer Financial Protection Bureau's (CFPB)( Blank )which implement the Real Estate Settlement Procedures Act (RESPA) Ensures that consumers throughout the nation are provided with more helpful information about the cost of the mortgage settlement and protection from unnecessarily high settlement charges caused by certain abusive practices.

Closing Disclosure Delivery Requirement

The TRID rule requires that the consumer receives the Closing Disclosure no later than 3 business days before consummation.

Interim Interest

The accounting for amortized home loans assumes that there are only 12 months in a year, consisting of the first day of each month. The account begins on the first day of the month following the day the loan closes. The borrower pays interest for the period between the closing day and the day the principal repayment record begins. (Prepaid interest)

chronological Age

The actual age of the property in years.

Closing

The consummation of a real estate transaction in which all appropriate documents are signed and the proceeds of the mortgage loan are then disbursed by the lender.

Growth in employment, Transportation systems, Personal preference, Availability of credit, Federal government policy

The demand of real estate is affected by:

Escrow

The deposit of funds with a neutral third party who is instructed to carry out the provisions of an agreement.

Underwriting

The detailed process of evaluating a borrower's loan application to determine the risk involved for the lender.

Equal Credit Opportunity Act (ECOA)

The federal law that prohibits discrimination in the extension of credit because of race, color, religion, national origin, sex, age, or marital status. Ensures that all consumers are given an equal chance to obtain credit.

Character, Capacity, Capital and Collateral

The four C's of good lending:

RMLO

The industry term for residential loan originators, as mandated by the SAFE Act.

Discount rate

The interest rate charged member banks that borrow from the Federal Reserve Systems

Strict Foreclosure

The lender files a lawsuit on the homeowner that has defaulted. If the borrower cannot pay the mortgage within a specific timeline ordered by the court, ownership the property is transferred directly to the mortgage holder. The take place only when the debt amount is greater than the value of the property.

Judicial Foreclosure

The lender files suit with the (blank) system, and the borrower will receive a note in the mail demanding payment. If payment is not made after a certain time period, the mortgage property is then sold through an auction.

External Obsolescence

The loss in value of a property caused by factors outside the property itself.

Primary Mortgage Market

The market where borrowers and lenders come together to create and negotiate terms of a mortgage transaction.

Budget Mortgage

The monthly house payment includes principal, interest, taxes and insurance (known as PITI)

Margin

The percent added to the index in order to calculate the payment interest rate.

Loan-to-Value Ratio (LTV)

The percentage of the lesser of the appraised value or sales price that the lender will lend. ex: If a borrower is approved for an 80% loan, it means that the lender will loan up to 80% of the sales price or appraised value, whichever is lower.

Originator

The process of creating a new mortgage loan, including all steps taken by a lender to attract and qualify a borrower.

Funding

The process of transferring funds to a title or escrow company for disbursement

Back Ratio

The ratio of the borrowers total recurring monthly debts.

Capital gains tax

The sale of capital asset results in either a gain or a loss.

The sale of mortgage loans as investments

The secondary mortgage market was designed to provide greater liquidity to the residential real estate market, primarily by

Closed-End Mortgage

This loan includes a specific dollar amount and does not allow for additional borrowing on the same note and mortgage.

Community Development Block Grants (CDBG)

To help communities with economic development, job opportunities and housing rehabilitation

Mortgage Broker

Typically functions as a middleman between the borrower and the lender, negotiating, selling or arranging loans to be delivered to larger investors. At one time originated up to 80% of all mortgage loans. (Back on the rise)

Correspondent Lender

Usually smaller in scale than mortgage bankers or brokers, these lenders typically extend loans with their own funds, at their own risk.

Trouble Asset Relief Program (TARP)

Was created to restore the nations financial stability and restart economic growth.

Ginnie Mae (GNMA)

Was established in the U.S in 1968 to promote homeownership. It is wholly-owned government association that operates a mortgage-backed securities program designed to facilitate the flow of capital into housing industry. Does not issue, sell or buy pass-through mortgage-backed securities or purchases mortgages loans. It simply guarantees (insures).

The interest rate that is determined by individual banks.

What is the prime rate?

Release Clause

When included in a loan instrument, a (Blank clause) allows for a portion of the loan to be paid in exchanged for the lender releasing part of the property from the mortgage. Also called blanket Mortgage

Monetary inflation

When there is an excess of money supply in the market.

Demand-pull inflation

When there is more money in the market and less goods for sale.

Private lenders

Who provides VA home loans?

Income Approach

Will not be used in a typical residential transaction because it applies only to income-generating rental property.

Escalation Clause

a clause allowing the lender to raise the existing interest rate - although most often associated with an adjustable rate mortgage, it can be used to overcome an alienation clause

Texas Veterans Land Board (VLB)

a division of the General Land Office of Texas that administers three programs to assist Texas veterans in purchasing a principal residence and/or land and in financing home improvements

Up-front mortgage insurance premium (UFMIP)

a one-time mortgage insurance fee paid at closing on FHA mortgage loans. And it can be added to the loan even if it causes the loan to exceed the appraised value of the property.

Second and Third Mortgages

a second mortgage (or second deed of trust) is an instrument subordinate to the primary mortgage

In a lien theory state

a state where the mortgage lender has a lien on the property and the borrower has title. I own the title of my house.

Late payment penalty

a tax penalty equal to .5 percent of the amount of tax owed for each month (or fraction thereof) that the tax is not paid.

Ad Valorem

according to value

Supply and Demand

an economic concept that states that the price of a good rises and falls depending on how many people want it and depending on how much of the good is available.

Annual Premium

based on the LTV and its added to the borrower's monthly payment.

Gift Funds

cannot be cash on hand or be from a party related to the transaction (i.e. realtor, broker, seller) Only received by immediate family.

Service Readjustment Act, 1944

commonly known as GI Bill of Rights

Corporate Bond

debt instrument issued by a corporation to raise long-term funds

Federal Reserve (The Fed)

is the central bank of the United States

Index

is what the lender uses as an instrument for measuring changes in interest rates

Clauses

may be used in subordinate finance instruments to reduce the liability of the subordinate lien holder versus the first lien holders liability.

Interest

money paid at a particular rate for the use of money loaned to a person or entity, it is the cost of borrowing the money.

Chunking

occurs when a fraudster promises to show investors how to get rich by buying investment properties.

US Treasury

primary responsible for raising funds to finance the operations of the U.S. government.

Loan Amortization

the repayment of a loan using equal monthly payments that cover a portion of the principal and the interest on the declining balance. The amount of the monthly payment going toward interest payment starts off large and steadily declines, while the amount going toward the principal starts off small and steadily increases

Intermediary theory states

the third party trustee holding title to the property in trust has the right to foreclose once the buyer defaults. If the borrower doesn't make the payment we don't take them to court the forecloser starts.

Predatory Lending

when an unscrupulous lender takes advantage of a consumer's lack of knowledge regarding lending practices