UNIT 15: Real Estate Financing- Practices
Blanket Mortgage
**COVERS more than one parcel of land A mortgage which covers more than one piece of real estate. Often used by a developer in the financing of undeveloped lots. Contains a partial release clause.
Purchase Money Mortgage
**Seller financing. -A mortgage given by the seller to the buyer to cover all or part of the sale price. -It may be a first or second deed of trust, and it becomes a lien on the property when the title passes. -The borrower holds title under a purchase money mortgage. -In the event of foreclosure on a purchase money mortgage, this lien takes priority over judgment liens against the borrower and over mechanics' liens. -In North Carolina, a seller-lender is not entitled to a deficiency judgment. ***With owner financing (aka seller financing), the seller doesn't hand over any money to the buyer as a mortgage lender would. Instead, the seller extends enough credit to the buyer to cover the purchase price of the home, less any down payment. Then, the buyer makes regular payments until the amount is paid in full. ***In other states, the term purchase money mortgage can refer to any loan obtained to purchase a property.
Secondary Mortgage Market
**Where mortgage loans are brought - the process replenishes funds for lenders in the primary mortgage market. A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages; also called the secondary money market. -Mortgages are first originated in the primary mortgage market.
Bridge Loan
**bridge between termination of one loan and beginning of another loan. Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.
Buydowns
**buyDOWN the rate A fee is paid to the lender to reduce the interest rate in the early years of the loan.
Construction Loan
**construction of improvements A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
Primary Mortgage Market
**lenders that originate loans the mortgage market in which loans are originated, consisting of lenders such as commercial banks, savings associations, and mutual savings banks. -These lenders make money available directly to borrowers.
Open-End Mortgage
**line of credit/equity line A mortgage containing a clause which permits the mortgagor to borrow additional money up to the original amount of the loan after the loan has been reduced, without rewriting the mortgage.
package loans
**packaged real & personal property A package loan includes real and personal property. Package loans usually include furniture, drapes, kitchen range, refrigerator, dishwasher, washer, dryer, freezer, and other appliances as part of the sales price of the home.
NC Predatory Lending Act
- impose restrictions and limitations on high cost loans - revise the permissable fees and charge on certain locations - prohibit unfair or deceptive practices by mortgage brokers and lenders - provide for public education and counseling about predatory lenders
Some of the major lenders in the primary market include the following:
-Savings associations, or thrifts, and commercial banks. -Insurance companies -credit unions -pension funds -endowment funds -investment group financing -mortgage banking companies -mortgage brokers
Points (FHA)
-The lender of an FHA-insured loan can charge discount points in addition to a 1% loan origination fee. -The payment of points is a matter of negotiation between the seller and the buyer. -However, if the seller pays more than the maximum percent allowed of the costs normally paid by the buyer—such as discount points, the loan origination fee, the mortgage insurance premium, buydown fees, prepaid items, impound or escrow amounts, and the like—the lender is to treat such payments as sales concessions, and the price of the property for purposes of the loan must be reduced.
FHA requirements
-The most popular FHA program is fixed-interest-rate loans for 10 years to 30 years on one-family to four-family residences. 1) In addition to paying interest, the borrower pays a one-time mortgage insurance premium for the FHA insurance. 2) The mortgaged real estate must be appraised by an approved FHA appraiser. The loan amount generally cannot exceed either of the following: (1) 98.75% for loans over $50,000 (for loans less than $50,000, the buyer must contribute 3% of the sales price to the down payment and closing costs) or (2) 97.75% of the sales price or appraised value, whichever is less. 3)The FHA regulations set standards for type and construction of buildings, quality of neighborhood, and credit requirements for borrowers.
Other FHA loan programs
-Title I: Home improvement loans are covered under this title. Such loans are for relatively low amounts and have repayment terms of no longer than 7 years and 32 days. -Title II, Section 234: Loans made to purchase condominiums are covered under this program, which in most respects is similar to the basic 203(b) program. -Title II, Section 245: Graduated payment mortgages, as discussed in Unit 13, are allowed under this program. Depending on interest rates, the LTV ratio of such loans might range from 87% to 93%. -Title II, Section 251: Adjustable-rate mortgages (ARMs) are allowed under this program. The interest rate cannot change more than 1% per year or more than 5% over the life of the loan.
VA assumption rules
-VA loans require lender approval of the buyer and an assumption agreement. -Even when a VA loan is assumed, the original veteran borrower remains personally liable for the repayment of the loan unless the lender approves a release of liability. -To obtain a release of liability, the veteran must meet three requirements. 1) the loan must be up-to-date (there are no past-due payments). 2) the assumptor must have sufficient income and a good enough credit history to qualify for the loan. 3) the assumptor must agree to assume the veteran's obligation for the loan. Note that any release of economic liability issued by the lender does not release or restore the veteran's entitlement that is tied to the loan. This must be obtained separately from the VA.
Conventional Loan
-a loan with LOW risk a mortgage agreement that does not have government backing and that is offered through a commercial bank or mortgage broker -A loan that requires no insurance or guarantee. -most secure loan: LTV IS LOWEST. -Value is the sales price or the appraised value, whichever is less. -The lower the ratio of debt to value, the higher the down payment by the borrower will be. -For the lender, the higher down payment means a more secure loan, which minimizes the lender's risk. **EXAMPLE- if a property is worth $100,000, an 80% loan would equal $80,000, and the borrower would make a $20,000 down payment. -Lenders that originate conventional loans usually intend to sell those loans to the secondary mortgage market once the transaction closes. Fannie Mae and other secondary market institutions will only purchase mortgage loans that conform to their lending guidelines to ensure that loans that are packaged together for purchase have similar characteristics.
An increasing number of lenders look at the income generated from the fees charged in originating loans as their primary investment objective. Once the loans are made, they are sold to investors. By selling loans to investors in the secondary mortgage market, lenders generate funds with which to originate additional loans. In addition to the income directly related to loans, some lenders derive income from servicing loans for other mortgage lenders or investors who have purchased the loans. Servicing involves such activities as
-collecting payments (including insurance and taxes), -accounting, -bookkeeping, -preparing insurance and tax records, -processing payments of taxes and insurance, and -following up on loan payment and delinquency.
Ginne Mae- Government National Mortgage Association (GNMA)
-only buy government backed loans -exists as a corporation without capital stock and has always been a division of HUD. Ginnie Mae is designed to administer special-assistance programs and work with Fannie Mae in secondary market activities. -Fannie Mae and Ginnie Mae can join forces in times of tight money and high interest rates through their tandem plan. -The tandem plan provides that Fannie Mae can purchase high-risk, low-yield (usually FHA) loans at full market rates, with Ginnie Mae guaranteeing payment and absorbing the difference between the low yield and current market prices. -Ginnie Mae also guarantees investment securities issued by private offerors (such as banks, mortgage companies, and savings associations) and is backed by pools of FHA and VA mortgage loans. The Ginnie Mae pass-through certificate lets small investors buy shares in a pool of mortgages that provides for a monthly pass through of principal and interest payments directly to certificate holders. Ginnie Mae guarantees such certificates.
3 major government institutions in the secondary market
1. Fannie Mae 2. Ginnie Mae 3. Freddie Mac
The real estate financing market has historically had the following three basic components:
1. Government influences, primarily the Federal Reserve System, but also the Home Loan Bank System and the Office of Thrift Supervision 2. The primary mortgage market 3. The secondary mortgage market
Consumer Financial Protection Bureau (CFPB
A U.S. government agency that helps protect consumers by regulating financial products and services, like mortgages, credit cards, and student loans. -as the oversight agency for consumer protection within seven federal agencies including the Fed, HUD, and the Federal Trade Commission. CFPB enforces regulations for banks, most credit unions, and mortgage-related businesses. CFPB is also tasked with administering all the major laws and regulations that touch mortgage lending and will be discussed in detail elsewhere in this text: Truth in Lending Act, Equal Credit Opportunity Act, Fair Credit Reporting Act, Real Estate Settlement Procedures Act, Secure and Fair Enforcement for Mortgage Licensing Act, and the Interstate Land Sales Full Disclosure Act. ***One express mandate of the Dodd-Frank Act was that the CFPB consolidate the duplicate lender disclosures under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), creating the TRID (TILA.RESPA Integrated Disclosure) rules, effective October 3, 2015. (See Unit 21 for a comprehensive review of those rules.)
Conforming Loan
A conventional loan that follows a Fannie Mae or Freddie Mac residential loan. -a standardized conventional loan written on uniform documents that meets the purchase requirements of Fannie Mae and Freddie Mac - both loan amount and borrower characteristics must meet the guidelines. -Most guidelines require a 5% minimum down payment (although some have required less) that necessitates the purchase of private mortgage insurance (PMI). Generally, the borrower must personally provide at least 5% of the purchase price even if family members contribute additional down payment. Maximum contributions by the seller (or any third party) vary with different loan conditions but are capped at 6% of the sales price.
Jumbo Loan
A conventional loan that is too large to be purchased by Fannie Mae or Freddie Mac. -nonconforming loans include loans that exceed the maximum loan limits for conforming loans called a jumbo loan.
Department of Veterans Affairs (VA)
A federal agency that administers benefits provided by law for veterans of the armed forces. -authorized to guarantee loans to purchase or construct homes for eligible veterans. (Unremarried widows or widowers of veterans may also be eligible.) -Eligibility status varies and is determined by length of service during peace or war times. -Nonactive veterans wishing to use their entitlement cannot have received a dishonorable discharge from the military. -The VA also guarantees loans to purchase mobile homes and plots on which to place them. -GI loans assist veterans in financing the purchase of homes with little or no down payment at comparatively low interest rates. -From time to time, the VA issues rules and regulations setting forth the qualifications, limitations, and conditions under which a loan may be guaranteed.
Certificate of Reasonable Value (CRV)
A form indicating the appraised value of a property being financed with a VA loan.
Freddie Mac- Federal Home Loan Mortgage Corporation (FHLMC)
A government supervised enterprise established to purchase primarily conventional mortgage loans in the secondary mortgage market. -functioning as a government-owned enterprise similar to Fannie Mae, provides a secondary market for mortgage loans, primarily conventional loans originated by savings associations. -Freddie Mac has the authority to purchase mortgages, pool them, and sell bonds in the open market with the mortgages as security. -Many lenders use the standardized forms and follow the guidelines issued by Fannie Mae and Freddie Mac because use of these forms is mandatory for lenders that wish to sell mortgages in the agency's secondary mortgage market. The standardized documents include loan applications, credit reports, and appraisal forms.
FHA-insured loan
A loan INSURED by the Federal Housing Administration and made by an approved lender in accordance with FHA regulations. -The FHA does not insure property; it insures lenders against loss in case of borrower default. -An FHA-insured loan, then, refers not to a loan that is made by the agency but to a loan that is insured by it. FHA-insured loans are made by FHA-approved lenders, which are free to set the interest rates on the loans.
Reverse Mortgage
A loan based on the equity in a home, that provides elderly homeowners with tax-free income and is paid back with interest when the home is sold or the homeowner dies.
home equity loan
A source of funds for homeowners that wish to finance the purchase of expensive items, consolidate existing installment loans on credit card debt, or pay for other large expenses such as home improvement, medical, or educational costs. -a loan secured by equity value in the borrower's home
Private Mortgage Insurance (PMI)
A type of insurance used to protect lenders if a borrower puts less than 20% down on a home purchase. -Generally, the borrower must personally provide at least 5% of the purchase price even if family members contribute additional down payment. Maximum contributions by the seller (or any third party) vary with different loan conditions but are capped at 6% of the sales price. **One way a borrower can obtain a conventional mortgage loan with a smaller down payment is under a PMI program. -When the LTV ratio is higher than a specified percentage, typically 80%, the lender requires additional security to minimize its risk. The borrower purchases insurance from a PMI company as additional security to insure the lender against borrower default. LTVs of up to 95% of the appraised value of the property are possible with PMI. PMI protects a certain percentage of a loan, usually 20% to 30%, against borrower default. Normally, the borrower is charged a fee for the first year's premium at closing and a monthly renewal fee while the insurance is in force. The premium may be financed or the fee at closing may be waived in exchange for slightly higher monthly payments
subordination agreement
A written agreement between holders of liens on a property that changes the priority of mortgage, judgment, and other liens under certain circumstances.
FHA Assumption Rules
All FHA assumptions require the assuming buyer to qualify, and the borrower must occupy the property. All FHA loans made under the 203(b) program are for owner-occupied properties only.
computerized loan origination (CLO)
An electronic network for handling loan applications through remote computer terminals linked to various lenders' computers.
Prepayment (VA)
As with an FHA-insured loan, the borrower under a VA-guaranteed loan can prepay the debt at any time without penalty.
Annual Percentage Rate (APR)
Cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on a loan.
Credit unions
Credit unions are cooperative organizations in which members place money in savings accounts, usually at higher interest rates than other savings institutions offer. In the past, most credit unions made only short-term consumer and home improvement loans, but in recent years they have been branching out to longer-term first and second mortgages and trust deed loans.
Restoration of Entitlement (VA)
Even though a veteran has used a veteran's entitlement to purchase a home once, the veteran still may be eligible for another VA loan. -If the veteran is selling a current VA-financed home, entitlement can be restored. For instance, if the first house is sold and the original VA loan is paid off, the veteran's entitlement will be restored and the veteran will be eligible for another VA home loan that can be used to purchase a replacement home. -A veteran's entitlement also can be restored if the veteran sells the home to another veteran who is willing to assume the existing loan and if the buyer's entitlement is substituted for the entitlement of the selling veteran. ****The basic rule, with little exception, is that veterans can only have one property in their name at a time that is or was financed by a VA-guaranteed loan.
T/F?- FHA loans are characterized as no-down payment loans.
FALSE- Explanation FHA loans are characterized as low-down payment loans. It is VA loans that are typically "no down payment" loans.
T/F?- Regulation X of the Truth in Lending Act provides strict regulation of real estate advertisements that include mortgage finance terms.
FALSE- Explanation It is Regulation Z, not X, that regulates ads with mortgage finance terms.
T/F?- When there is a difference between appraised value and sales price, lenders will lend on the higher amount.
FALSE- Explanation Lenders will use the lesser of the two.
T/F?- The prime rate is the rate charged by the Federal Reserve System (Fed) when it lends to its member banks.
FALSE- Explanation The discount rate is the rate charged by the Fed when it lends to its member banks.
T/F?- The role of the Federal Reserve System is to limit lending and overborrowing by consumers.
FALSE- Explanation The role of the Federal Reserve System is to maintain sound credit conditions, to counteract inflationary and deflationary trends, and to create a favorable economic environment.
T/F?- The purpose of the Dodd-Frank Act was the duplication of lender disclosures.
FALSE- Explanation The purpose of the Dodd-Frank Act was the consolidation of lender disclosures.
T/F?- Mortgage brokers are lenders.
FALSE. -Mortgage brokers are not lenders; they are intermediaries who bring borrowers and lenders together.
T/F?- The purpose of the secondary market is to originate mortgage loans.
FALSE. Explanation The purpose of the primary market is to originate mortgage loans. The secondary market purchases, serves, and sometimes re-sells existing mortgages created in the primary market.
Discount Rates
Federal Reserve member banks are permitted to borrow money from the district reserve banks to expand their lending operations. -The discount rate is the rate charged by the Fed when it lends to its member banks. -The federal funds rate is the rate recommended by the Fed for the member banks to charge each other on short-term loans. **These rates form the basis on which the banks determine the percentage rate of interest they will charge their loan customers. -The prime rate, the short-term interest charged to a bank's largest, most creditworthy customers, is strongly influenced by the Fed's discount rate. In turn, the prime rate is often the basis for determining a bank's interest rate on other loans, including mortgages. These rates are usually higher than the prime rate. -In theory, when the Fed's discount rate is high, bank interest rates are high. When bank interest rates are high, fewer loans are made and less money circulates in the marketplace. On the other hand, a lower discount rate results in lower overall interest rates, more bank loans, and more money in circulation.
Truth in Lending Act (TILA)
Federal government regulates the lending practices of mortgage lenders through this act.
Fannie Mae- - Federal National Mortgage Association (FNMA)
Government-sponsored enterprise; one of the largest AND OLDEST purchasers of residential mortgages in the secondary market. -federally owned enterprise that provides a secondary market for mortgage loans—conventional loans as well as FHA and VA loans. Until that time, Fannie Mae was a privately owned corporation that issued its own stock. Fannie Mae buys a block or pool of mortgages from a lender in exchange for mortgage-backed securities that the lender may keep or sell.
Lead Paint notification (FHA)
HUD now requires that a lead paint notification form be given to residential buyers to sign on or before the date the purchaser executes (signs) the sales contract. The FHA requires that the lender be provided with a copy of the notification form at the time of the loan application. In the event the purchaser does not receive and sign the form on or before the date the sales contract is executed, the contract must be re-executed. This HUD guideline is required for FHA-insured loans on homes built prior to 1978.
regulation z
Implements the Truth in Lending Act requiring credit institutions to inform borrowers of the true cost of obtaining credit.
Insurance companies
Insurance companies amass large sums of money from the premiums paid by their policyholders. While a certain portion of this money is held in reserve to satisfy claims and cover operating expenses, much of it is invested in profit-earning enterprises, such as long-term real estate loans. Although insurance companies are not considered primary lenders, they tend to invest their money in large, long-term loans that finance commercial, industrial, and larger multifamily properties rather than single-family home mortgages.
a short-term loan usually made during construction of a building.
Interim loan -An interim loan is a short-term loan usually made during construction of a building. After completion of the structure, a permanent loan ("takeout loan") is usually arranged.
Mortgage Priorities
Mortgages and other liens normally have priority in the order in which they have been recorded. 1)A mortgage on land that has no prior mortgage lien on it is a first mortgage. 2)When the owner of this land executes another loan for additional funds, the new loan becomes a second mortgage, or a junior mortgage, when recorded. **The second lien is subject to the first lien; the first has prior claim to the value of the land pledged as security. -Because second loans represent greater risk to lenders, they are usually issued at higher interest rates and for shorter terms. -The normal recordation priority of mortgage liens may be changed by the execution of a subordination agreement, in which the first lender subordinates its lien to that of the second lender. To be valid, such an agreement must be signed by both lenders. Subordination agreements may be contained in the mortgage itself or they may be separate agreements filed for recordation.
Interest Rates (FHA)
Neither HUD nor the FHA regulates the interest rates paid on FHA-insured loans. -The rates fluctuate from lender to lender, and the buyer is responsible for obtaining the lowest interest rate possible.
Pension funds
Pension funds usually have large amounts of money available for investment. Because of the comparatively high yields and low risks offered by mortgages, pension funds have begun to participate actively in financing real estate projects. Most real estate activity for pension funds is handled through mortgage bankers and mortgage brokers.
Points (VA)
Points are payable by either the veteran borrower or the seller. There also is a funding fee, which the veteran pays the VA at closing. Generally, all veterans using the VA home loan program must pay a funding fee. Similar to the mortgage insurance required in an FHA loan, the funding fee reduces the loan's potential cost to taxpayers since VA loans require no down payment and has no monthly mortgage insurance. The funding fee is a percentage of the loan amount which varies based on the type of loan and the veteran's military category, amount of down payment (if any), and whether or not the veteran is a first-time loan user. Vets have the option to finance the VA funding fee or pay it in cash, but the funding fee must be paid at closing time. The funding fee is a sliding fee, ranging from 0.5% to 3.33%. The funding fee can be added to the note.
prime rate
Rate of interest banks charge on short-term loans to their best customers
Trigger Terms
Specific credit terms that may not be advertised unless the advertisement includes other detailed information. -Specific credit terms, such as down payment, monthly payment, dollar amount of the finance charge, or term of the loan, may not be advertised unless the following information is set forth as well: cash price; required down payment; number, amounts, and due dates of all payments; and APR. -The total of all payments to be made over the term of the mortgage must also be specified unless the advertised credit refers to a first mortgage or deed of trust to finance the acquisition of a dwelling.
T/F?- The Equal Credit Opportunity Act (ECOA) prohibits lenders from discriminating against credit applicants on a number of factors, including marital status and age.
TRUE- Explanation The ECOA could be called a "fair lending act"; it has more protected classes (marital status and age, as examples) than the federal Fair Housing Act.
T/F?- FHA insures loans; VA guarantees loans.
TRUE- Explanation The FHA insures loans made by local lenders to qualified FHA borrowers; the VA guarantees loans made to qualified veterans.
T/F?- A real estate broker should know how large a loan payment the buyer can afford in order to effectively assist the buyer is finding affordable homes.
TRUE- Explanation The process of prequalifying buyer-borrowers helps brokers determine how much a buyer can afford to purchase. Without this information, brokers cannot be effective at selecting homes to show buyers.
T/F?- The creditworthiness of a borrower is a critical element in qualifying for a mortgage loan.
TRUE- Explanation Borrower creditworthiness is a key element in obtaining a loan; for example, interest rates available to borrowers are largely based on credit scores. The higher the credit score, the lower the risk to the lender.
T/F?- The Consumer Financial Protection Bureau (CFPB) was created as the oversight agency for consumer protection and enforces regulations for banks, most credit unions, and mortgage-related business.
TRUE- Explanation The Consumer Financial Protection Bureau (CFPB) was created as the oversight agency for consumer protection and enforces regulations for banks, most credit unions, and mortgage-related business. The CFPB was created as a response to the abuse and deceptive lending practices experienced during the financial crisis.
T/F?- A property appraised at $100,000 and secured by an $80,000 loan would have an LTV of 80%.
TRUE. Explanation The formula for LTV is loan / value. So $80,000 loan / $100,000 value = 80% LTV.
Due to the severe financial situations experienced since 2007, the U.S. Congress passed sweeping legislation to prevent future abusive and deceptive lending practices. The most notable and far-reaching legislative action affecting the real estate industry and real estate financing is the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as the Dodd-Frank Act. This act was tasked with the most comprehensive overhaul of financial regulation since the 1930s.
The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB)
FHA (Federal Housing Administration)
The FHA, which operates under the Department of Housing and Urban Development (HUD), neither builds homes nor lends money to purchase single-family housing. -Rather, it insures loans on real property made by approved lending institutions. -The FHA does not insure property; it insures lenders against loss in case of borrower default. -An FHA-insured loan, then, refers not to a loan that is made by the agency but to a loan that is insured by it. FHA-insured loans are made by FHA-approved lenders, which are free to set the interest rates on the loans.
Reserve Requirements
The Federal Reserve System requires that each member bank keep a certain amount of assets on hand as reserve funds. -These reserves are unavailable for loans or any other use. This requirement not only protects customer deposits, but it also provides a means of manipulation for the flow of cash in the money market. -By increasing its reserve requirements, the Fed in effect limits the amount of money that member banks can use to make loans. When the amount of money available for lending decreases, interest rates rise. By causing interest rates to rise, the government can slow down an overactive economy by limiting the number of loans that would have been directed toward major purchases of goods and services. -The opposite is also true—by decreasing the reserve requirements, the Fed can encourage more lending. Increased lending causes the amount of money circulated in the marketplace to rise, while simultaneously causing interest rates to drop.
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.
Real Estate Settlement Procedures Act (RESPA)
The federal law that requires certain disclosures to consumers about mortgage loan settlements. The law also prohibits the payment or receipt of kickbacks and certain kinds of referral fees. -RESPA requires that all transaction charges to the parties be clearly itemized on the Closing Disclosure form that makes loan fraud harder to conceal.
discount rate
The interest rate on the loans that the Fed makes to banks
Savings associations, or thrifts, and commercial banks
These institutions are known as fiduciary lenders because of their fiduciary obligations to protect and preserve their depositors' funds. Mortgage loans are perceived as secure investments for generating income and enable these institutions to pay interest to their depositors. Fiduciary lenders are subject to standards and regulations established by government agencies such as the Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS). These agencies govern the practice of fiduciary lenders. The various government regulations are intended to protect depositors against the reckless lending that characterized the savings and loan industry in the 1980s.
Department of Housing and Urban Development (HUD)
This department works on national housing needs. It helps poorer families to buy homes.
FHA prepayment privilege
When a mortgage loan is insured by the FHA and the real estate given as security is a single-family dwelling or an apartment building with no more than four units, the borrower has the privilege of prepaying the debt without penalty. On the first day of any month before the loan matures, the borrower may pay the entire debt or an amount equal to one or more monthly payments on the principal. The borrower must give the lender written notice of intention to exercise this privilege at least 30 days beforehand; otherwise, the lender has the option of charging up to 30 days' interest in lieu of such notification. ***-Prepayment without penalty
Rate Lock
a guarantee from mortgage lenders that they will give mortgage loan applicants a certain interest rate, at a certain price, for a specific time period. -Usually borrowers lock in their interest rate a few weeks before settlement. -A longer rate lock typically is more expensive for the borrower. The price for a mortgage loan is typically expressed as points paid to obtain a specific interest rate. -If market rates rise after the rate is locked, borrowers will still get the lower rate, to the lender's detriment. ***But there's a downside: if rates fall after the rate is locked, borrowers might not be able to take advantage of that opportunity.
subprime mortgage
a loan granted to individuals with poor credit histories who do not qualify for a conventional mortgage. -One major component of what has been termed a "financial meltdown" must be the huge surge and rapid decline in the popularity of the subprime mortgage market.
Fair Credit Reporting Act
gives consumers the right to see their credit records and correct any mistakes. -Credit bureaus are required to limit the credit information they provide to the previous seven years (except for bankruptcies, which can stay on credit records for 10 years). -Individuals who have been denied credit based on information found in a credit report can examine their credit report at no charge. -Under the Fair and Accurate Credit Transaction Act (FACT Act), individuals who have not been denied credit but want to examine their credit report may now receive one free credit report per year from each of the national credit bureaus. -At this time, here are the three major credit bureaus where consumers can access their credit report and learn about protecting their credit identity: Equifax, Experian, and TransUnion. There is also a joint website for ordering the free annual report.
equity of a home
market value of a home - debt owed on the home
U.S. Department of Agriculture (USDA)
offers programs to help purchase or operate family farms. -It also provides loans to help purchase or improve single-family homes in rural areas—generally areas with a population of fewer than 10,000 that are not suburbs of urban areas. -Loans are made to low-income and moderate-income families, and due to subsidized interest rates, the interest rate charged can be as low as 1%, depending on the borrower's income. -The loan programs fall into two categories—guaranteed loans, made and serviced by a private lender and guaranteed by the agency, and direct loans from the agency.
The Federal Reserve System (The Fed)
privately owned, publicly controlled, central bank of the United States The role: is to maintain sound credit conditions, help counteract inflationary and deflationary trends, and create a favorable economic climate. It does this by regulating the supply of money and interest rates. -The Federal Reserve System divides the country into 12 Federal Reserve Districts, each served by a Federal Reserve Bank. -All nationally chartered banks must join the Fed and purchase stock in its district reserve banks. -Qualified state-chartered banks may also join the Fed.
VA-guaranteed loan
the VA does not lend money itself; it guarantees loans made by lending institutions approved by the agency. -The term VA-guaranteed loan, then, refers not to a loan that is made by the agency, but to one that is guaranteed by it. The guarantee works to protect the lender in case of default much like private mortgage insurance or FHA's MIP.
open market operations
the buying and selling of government securities to alter the supply of money -The Fed regulates the flow of money and interest rates in the marketplace through its member banks (and other depository institutions) by controlling their reserve requirements and discount rates. The Fed also can regulate the money supply through theFederal Open Market Committee, which buys and sells U.S. government securities on the open market. The sale of securities removes the money paid by buyers from circulation. When it buys them, it infuses its own reserves back into the general supply.
federal funds rate
the interest rate recommended by the Fed at which banks make overnight loans to one another(short term).