unit 8- financing real estate

Usury

the practice of lending money at exorbitant rates of interest and is the subject of both federal and state law.

The security instrument of choice in California is

A deed of trust

The purpose of an impound account is to

Accumulate reserves for future reoccurring costs

fully armortized

( (equal payments including both interest and principal are made over the loan term)

negative armortized

(Loan payments do not cover all of the interest due, which is then added to the remaining loan balance)

partially amortized

(most of the principal remains to be paid in the last payment)

nonamortized

(the straight note, typically interest only, with the entire amount of pricipal due at then end of a loan term)

Home loan payment terms may be described as:

-fully armortized( (equal payments including both interest and principal are made over the loan term) -partially amortized (most of the principal remains to be paid in the last payment) -nonamortized (the straight note, typically interest only, with the entire amount of pricipal due at then end of a loan term) -negative armortized (Loan payments do not cover all of the interest due, which is then added to the remaining loan balance)

in addition to prohibiting discriminatory language in real property instruments, the Unruh Act also A. Requires more explicit notice be given to a trustor or a mortgager in default B. Regulates the amount of home equity an owner can protect C.Stipulates certain contract rescission rights D. Regulates contracts between blood relatives and/or spouses

A.

A mortgage broker arranges a 3 year $15K second loan secured by a deed of trust. The maximum commission that may be changed is A. 15% B. 10% C. 5% D. No limit

A. Second- less than $20K- 3 years or more- 15% Second- $20K or more - 2 to less than 3 years- 10% Second - $20K or more- less than 2 years- 5%

The federal agency that insures savings accounts is the

FDIC

Amortized Loan

a loan that is repaid in equal payments over its life

Antideficiency protection

provides ultimate safety net for homeowners. If a homeowner can no longer make payments on a loan secured by a mortgage or deed the only recourse for the lender is to take back the property. This helps is the market crashes.

Hypothecation

real property will be forfeited to the holder of the security instrument if the underlying debt is not paid

An instrument used to secure a loan on person property is called

security instrument

the statitute of frauds

spdcifies the types of contracts that need to be written

Security Instrument

the written instrument by which a debtor pledges property as collateral to secure a loan.

difference between a mortgage and trust deed (or mortgage worth power of sale)

there is no right of redemption following a trustee's sale. The sale is absolutely final and purchaser can take possession immediately.

california forclosure act (California homeowner bill of rights)

took effect on Jan 1 2003, makes changes to non judicial foreclosures in california

calculate interest to be paid for 17 days on a loan with a remaining balance of 176,000, when interest rate is 6%

176,000 x .06 = 10560 10,560 / 360 = 29.33 daily interest 29.33 x 17 (days)= 498.67 interest for 17 days

calculate interest to be p[aid for one month on a loan with a remaining balance of 176,000 when the interest rate is 6%

176,000 x .06= 10,560 10,560/ 12= 880 $880 monthly interest

An instrument in which property is hypothecated to secure the payment of a debt or obligation is know as

A mortgage

Straight Note

A note in which a borrower repays the principal in a lump sum at maturity while interest is paid in installments or at maturity.

An agreement to sell a homeowners equity in the home describes a A. Home equity mortgage B. Real property sales contract C. Deed of trust D. Bill of sale

A.

Money is a medium exchange as well as a measure of A. Value B. Intrinsic worth C. credit D. Investment potential

A.

Performance of a contract may be excused if a party can prove which of the following? A. Impracticality of performance B. A better deal elsewhere C. Novation D. Lack of negotiating skills

A.

To pledge a thing as security for an obligation with out surrendering posession of it refers to A. Hypothecation B. Alienation C. Transformation D. Substitution

A. Hypothecation

A broker negotiated a loan for a buyer. He will need to prepare a A. A Mortgage - loan disclosure statement B. Real Estate transfer disclosure statement C. Good Faith estimate D. Natural Hazard Disclosure statement

A. Mortgage Loan Disclosure statement

a request for notice of default would be of most help to A. beneficiary of a second trust deed B. trustor C. beneficiary of a first trust deed D. trustee

A. beneficiary of a second trustee. Since forclosure wipes out all junior liens, the holder of a junior lien should request the recording of a request for notice of default announcing that a default has occured.

Home equity sales contract

Agreement to sell homeowner's equity in the home; regulated by the California civil code, which requires specific notice , including right of cancelation, to the homeowner.

The cost of using money BEST describes A. Credit B. Interest C. A free market D. An open marjet

B.

The repayment of a loan in equal installments that includes both interest and principle reduction is referred to as A. A straight loan B. An amortized loan C. A mortgage loan D. A hard money loan

B.

When borrowing money to purchase real estate the "cost of credit" refers to? A. Loan origination fees charged by the lender B. The rate if interest charged to the purchaser C. The terms of the loan D. The down payment

B.

When comparing mortgage bankers and mortgage brokers, which of the following is true? A. Both deal exclusively in primary mortgage market B. Mortgage bankers usually lend their own funds, while mortgage brokers arrange loans. C. Both are corporations. D. All of the above

B.

Which of the following is a commonly used method of analyzing a borrower A. ZERO score B. FICO score C. SECA score D. FACTA score

B.

Both parties agree to cancel a contract in the process A. release B. rescission C. novation D. reformation

B. Rescission

Shared Appreciation Mortgage (SAM)

Below market rate and lower payments in exchange for losing some equity Loss of equity makes investment more expensive

California's Covered loan applies to loans that's do not exceed the maximum conforming limit established by Fannie Mae for A. One-to-four-unit rental properties B. Single-family properties only C. Owner-occupied one-to-four-unit properties D. One-to-four-unit investment properties

C.

RESPA regulates loans for which of the following? A. Land subdivisions B. Commercial property C. One-to-four-unit family dwellings D. Multiple family dwellings

C.

REal estate loans generally include a promissory note and a A. Purchase contract B. Settlement statement C. Security instrument D. Grant deed

C.

Which of the following is NOT an institutional lender? A. A savings loan B. Insurance company C. A mortgage loan D. Thrift

C.

Which of the following types of lenders makes the greatest number of different types of loans? A. Credit Unions B. Insurance Companies C. Commercial Banks D. Mutual Savings Banks

C. Commercial Banks Real estate, construction, interim financing and even consumer loans for home improvement.

When both parties to a contract agree to substitute new agreement for the present one, this is known as A. Release B. Rescission C. Novation D. Breach

C. Novation

Which of the following is NOT a way to terminate a contract? A. Rescission B. Release C. Verification D. Novation

C. Verification

Which of the following is exempt from usury laws in California? A. Any loan made or arranged by a real estate broker and secured by real property. B. Loans made by banks and savings and loan associations. C. Both A and B D. Neither A nor B

C. because of prop 2 passed on 1979

a holder in due course is someone who takes a negotiable instrument A. for value B. in good faith C. without notice of any defense against its enforcement D. All of the above

D.

Some lending activities are conducted under the rules of the California residential mortgage Lending Act. which of the following are exempt from this act? A. A real estate broker licensed in California B. Commercial banks C. A court appointed representative of an estate D. All of the above

D.

When the Federal reserve board wants to tighten the money supply, it would A. Raise thre amount of reserves required for member banks B. Raise the discount rate for member banks. C. Sell government bonds or treasury bills on the open market D. All of the above.

D.

Which of the following contributed to the current subprime lending crisis? A. Loans that rewuired little to no down payment B. No-doc loans in which the borrowers states income was "not verified" C. Low "teaser" interest rates with much higher party net when the initial rate period ended. D. all of the above

D.

a deficiency judgement against a mortgager is possible A. When the current market value of the property is less than the remaining loan balance. B. As long as the market demand exceeds supply and prices continue to rise. C. on purchase- money mortgage D. Never since anti definciency laws protect homeowners in California

D.

Which of the following is a benefit of real estate ownership? A. Borrowing money against the value of the property B. Future appreciation C. Forced saving by paying down the amount owed D. All of the above

D. All of the above

Failure to perform a contract obligation is known as A. Release B. Rescission C. Novation D. Breach

D. Breach

Which of the following would NOT be illustrative of an institutional lender? A. Insurance Company B. Savings and loan C. Commercial bank D. Mortgage company

D. Mortgage Company- an institutional lender is one that usually lends its own money. A mortgage company usually does not lend its own money, but in most cases acts as the representative of an institutional lender.

certificate of discharge

Document that is recorded by a mortgagee as evidence of the release of the mortgagee's lien rights. Must be represented to the county recorder or could be used as a cloud on the owners title.

A provision that provides a lender the right to demand full payment of mortgage upon sale of the property is

Due on sale clause

Fixed Rate Mortgage (FRM)

Fixed interest rate; equal monthly payments of pricipal and interest until debt is paid in full. Stable with long term tax advantages; rarely assumable

Growing equity mortgage (GEM) also called rapid payment mortgage

Fixed interest rate; payments vast by index or schedule

HERA

Housing and Economic Reccovery Act 2008. Provisions made and resigned in 09 ARRA- American recovery and reinvestment act

Adjustable Rate Mortgage (ARM) also called flexible-rate or variable rate mortgage

Intrerest rate changes based on index; could increase payments, term, or principal; could have rate cap or payment cap Very popular with lenders; rate cap of no more than 5% advisable; with payment cap, negative amortization possible; usually assumable.

Granted payment mortgage (GPM)

Lower monthly payments rise gradually over 5 to 10 years, then level off with remainder of term. Easier to qualify for

Reverse Annuity Mortgage (RAM) equity conversion mortgage

One time monthly payment (s) are made to borrower she 62 or older using property as collateral. Provides cash to homeowner; loan amount plus accrued interest is due when property is sold or at homeowner's death; high closing cost require independent loan counseling for homeowner.

Renegotiable Rate Mortgage (RRM) rollover mortgage

Rate and payments constant for 3 to 5 year intervals; can change based on FHLBB index; rate cap of 5% over max 30 year term. Fair stable payments due less frequent changes in rate.

trustees sale

Sale of property held as security for payment of a loan on default of the trustor.

Granted payment adjustable-rate mortgage (GPARM)

Same as GPM, but additional payment change possible if index changes

SAFE Act

Secure and Fair Enforcement for Mortgage Licensing Act(part of HERA)

TRID

TILA-RESPA Integrated Disclosure[p-

HARP

The home affordable act refinance program. introduced in march 2009 and after extended to Spet 30 2017. Allows a borrower to refinance their mortgage with little to no equity on the home.

Prime rate

The minimum interest rate a commercial bank will charge to its largest clients.

When must the settlement agent provide the Closing Disclosure to the seller?

The settlement agent must provide the seller its copy of the Closing Disclosure no later than the day of consummation.

Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)

This act restructured the savings and loan association regulatory system; enacted in response to the savings and loan crisis of the 1980s.

judicial forclosure

a court supervised sale. There is an appraisal after which the court determines an upset price below which no bods to purchase will be accepted.

declaration of default

a notice accompanied by the original note and trust deed, provided by a lender (beneficiary) to a trustee upon the dafault of a trustor (borower), state the reason for the default.

promissory note

a written contract with a promise to pay a supplier a specific sum of money at a definite time

Option ARMs ('Pick-n-Pay' mortgages)

allowed a borrower to make a minimal payment , adding part of the interest owed of the remaining loan balance, thus evaporating what little equity might have been built up. In some cases making the loan value height than property value.

power of sale clause

allows the mortgagee to have a private foreclosure sale. proceeds from the public sale are used to pay off the mortgage debt first, and any surplus is paid to the mortgager.

beneficiary

lender

trustee

neutral third party

2/28 Adjustable-Rate Mortgage

offered low rate for first 2 years of loan term, followed by an adjustment to the index-plus-margin rate for the remaining 28.

trustor

owner of property

Real estate Loan interest payments

principal x rate = annual interest intrerest on a loan is typically calculated monthly to find the interest over moth divide the annual interest by 12.