CE Shop Exam 6

_________________________ is the amount the client will pay at closing, in addition to any money that has already been paid. The client should be prepared to make this payment by certified check, cashier's check, or wire transfer

Estimated Cash to Close

_____________________ is the amount the client is being charged to get the loan and transfer ownership of the property. It can also be called "settlement costs." Page two of the form breaks this amount down into more detail

Estimated Closing Costs

Real Estate Cycle

Expansion - companies are hiring, lowering unemployment more buyers, heavy demand decreasing supply public confidence increases home prices rise Over Supply - many buyers in the market, demand stabilizes, lots of new construction, increasing supply, public confidence very high, home prices are over-valued Recession - Unemployment increases, foreclosures increase, supply surpasses demand; more properties sit vacant, public confidence falls, home prices fall Recovery - unemployment stabilizes, but remains high, foreclosures remain high,

Federal Housing Finance Agency

Information provided: Economic data about mortgage market activity, including the House Price Index and reports on refinancing and foreclosures How a licensee can use the information: A great indicator for how the housing market is doing as a whole, and you can use this to compare against your own market.

Freddie Mac

Information provided: Housing and economic-related research How a licensee can use the information: A great indicator for how the housing market is doing as a whole, and you can use this to compare against your own market.

Fannie Mae

Information provided: Housing and mortgage information for consumers; business resources for mortgage professionals How a licensee can use the information: Fannie Mae works in the secondary mortgage market; its standards set the stage for lender requirements. If Fannie won't buy a loan, lenders who depend on FNMA to resell won't underwrite it.

Bond Rating Agencies and Analysts

Information provided: Mortgage-backed security information How a licensee can use the information: This is helpful data for any investors you work with, but don't put yourself in the position of providing financial advice.

RealtyTrac

Information provided: Real estate market and foreclosure trends, as well as home search capabilities How a licensee can use the information: This is a good resource for searching for properties, keeping your finger on the pulse of the industry, and coming up with topics you can use for marketing (no plagiarizing!)

Internal Revenue Service

Information provided: Tax-related rules that impact homeowners and taxpayers How a licensee can use the information: Because taxes impact affordability, staying on top of tax incentives for homeownership can help you close more deals.

Banking and Insurance Analysts

Information provided: Underwriting standards How a licensee can use the information: By understanding what the lenders will be looking for to approve loans, you can better prepare your buyers to qualify for financing.

FEDs response to the 2007 Financial Crisis

LOWERED THE FEDERAL FUNDS RATE The rate dropped from 5.25% to nearly 0% The drop in rates made borrowing cheaper for banks and, through them, for consumers. This encouraged consumers to spend more, leading to economic improvement. EXPANDED OPEN MARKET OPERATIONS Long-term securities were purchased through a program called quantitative easing (QE) Trillions of dollars were spent purchasing these securities and lending money to financial institutions The influx of cash into the money supply made more money available for lending and purchasing, to spur further economic improvement.

Collateral

Property pledged when obtaining a loan.

Hardest Hit fund

Provided $7.6 billion to the 18 hardest hit states, plus the District of Columbia, to develop locally tailored programs to assist struggling homeowners in their communities.

FED cont.

Reducing reserve requirements, lowering rates, or purchasing securities encourages lending and spending to improve economy Increasing reserve requirements, raising rates, or selling securities reduces lending and spending to slow down an economy that may be growing too fast

(FED) Influences the monetary system through

Reserve requirements Rates (directly influence discount and federal funds rates, which then influence the prime rate) Open market operations (run by the Federal Open Market Committee)

When spending bills are less than revenue, this is a _______

Surplus

Tax Issues

Tax rules can indirectly influence the buying habits of property owners and investors.Raising taxes and establishing moratoriums can slow or discourage growth. Tax incentives can be used to encourage local employers to move to town. More employers = more growth, higher local employment rates, more consumers, and an increased demand for real estate.Taxpayer relief acts can stimulate the economy and local market. Property value fluctuations Local and national marketsZoning, environmental regulations, building standards, political events, economic events, and employment trends all influence real estate. The local real estate industry is largely dependent upon national market conditions.

Calculating Cash to Close

The Calculating Cash to Close section is where all the itemized amounts are totaled to determine the estimated cash the buyer will need to bring to closing.

Bureau of engraving and printing =

paper currency production

The information about ______________ and any _______________ should match what the client is expecting after discussion with the lender. These are both risky options, so if either of these items is "Yes," the client should discuss this with the lender and ask what other options are available. Additional information is included on the form if either feature is part of the loan.

prepayment penalties and balloon payments

The _________________ section shows the amounts that will comprise each monthly payment. In this example, the mortgage insurance isn't required after year seven, so the monthly payment is reduced. Clients should be sure that the payment is affordable, and that the items they want included in escrow are recorded here.

projected payments

FSA guaranteed loans

provide lenders (e.g., banks, Farm Credit System institutions, credit unions) with a guarantee of up to 95% of the loss of principal and interest on a loan. Farmers and ranchers apply to an agricultural lender, which then arranges for the guarantee. The FSA guarantee permits lenders to make agricultural credit available to farmers who may not meet the lender's normal underwriting criteria.

When demand is greater than supply it's a "_______ market"

sellers

Liquidity

the ease with which an asset is converted to cash, differentiates these categories

Regulation Z

was enacted as part of the Consumer Protection Act in 1968. TILA's purpose was to better educate the public about the costs of credit and financing through improved disclosures that are required of lenders and credit providers.

Truth in Lending Act

was enacted as part of the Consumer Protection Act in 1968. TILA's purpose was to better educate the public about the costs of credit and financing through improved disclosures that are required of lenders and credit providers.

APR Annual Percentage Rate

which accounts for charges and fees associated with a loan or credit in addition to the interest rate, gives you a clearer picture. Let's walk through this: With Loan A, you're paying $50 in interest (5% x $1,000) plus $25 in other charges or fees. So you pay $75 total for the loan. Divide this by your amount received ($75 / $1000) and we get an APR of 7.5%. With Loan B, you're paying $60 in interest (6% x $1,000) and no fees. Divide this by your loan amount ($60 / $1,000) and we get an APR of 6%.

demand

How many buyers there are for the available properties; price and demand usually align (when demand is high so is price, and when demand is low so is price).

Federal Home Loan Banks

(FHLBanks) Lend money to member banks to keep credit flowing in local markets

HUD Mission

(Housing and Urban Development) Create strong, sustainable, inclusive communities and quality affordable homes for all

(FED) Nations money manager or central bank

- 12 reserve district banks, each manages by a board of directors - board of governors, 7 members appointed by president and confirmed by Senate - Federal Open Market Committee (FOMC) = seven Board of Governors members + NY Reserve Bank president + four other reserve bank presidents

The CFPB's three pronged approach to its mission of consumer protection

- Education, through plain-English notices, such as "Know Before You Owe" publications for mortgagors, credit borrowers, and consumers obtaining student loans. - Enforcement, through rule-making, supervision, and enforcement of federal consumer financial protection laws, and restricting unfair, deceptive, or abusive acts or practices against consumers. - Research, through response and investigation of consumer complaints, researching consumer behavior, and monitoring financial markets for new risks to consumers.

What does U.S. Treasury do?

- Promotes sustainable economic growth and stability - Ensures the country's financial security - Advises the president on economic and financial issues - Improves financial institution governance

What factors increase SUPPLY?

- availability of properties - construction of new properties - renovations or conversions of properties - low construction costs

What factors may increase DEMAND

- high employment levels (low unemployment) - stable or increasing wages - consumer confidence - availability of loans or credit - low or falling interest rates - growing population

pledge

A pledge is different from hypothecation in that the owner actually surrenders possession of the property to a lender to hold as security for a debt repayment.

supply

How many properties are on the market; supply is usually opposite of price (when supply is high price is low; when supply is low price is high).

M2

All M1 items, plus "near money" (retirement accounts, CDs or similar types of interest-bearing deposits valued under $100,000, Money market accounts, Savings accounts)

M3 (least liquid)

All M2 items, plus near, near money" (Institutional money market funds, funds, at non-U.S. banks, CDs or similar types of interest-bearing deposits valued over $100,000

ARRA

American Recovery and Reinvestment Act of 2009 "The stimulus package" designed to create new jobs and save existing ones, to spur economic activity and invest in long-term growth, and to foster new accountability and transparency in gov. spending

Real Estate Investment Trust (REIT) Analysis

Information provided: Commercial real estate information How a licensee can use the information: Many REITs focus on commercial investments; if you work with investors, get to know a REIT analyst.

Reserve Requirements

Amounts that member banks keep on deposit with their district Federal Reserve bank are called reserve requirements. They help ensure that banks will have funds available when they need them. ​ The amount a member bank must keep on reserve can vary anywhere between 3 and 22%, depending on factors, such as the location of the bank and the type of deposit.​ City banks tend to have higher reserve requirements than rural banks due to their higher activity level.​ Checking accounts have a higher reserve requirement than savings accounts because checking deposits are considered more short-term than savings deposits.​​​

Some treasury bureaus include

BEP, Fiscal Service, CDFI, FinCen, IRS, OCC, U.S. Mint, Inspector general

hypothecation

Borrower is legal owner and has the right to possess and control the property; lender has the right to foreclose after a loan default.

Section where loan costs from services provided by a third party are included

C

M1 (most liquid)

Cash on hand, Checking accounts at U.S. banks, credit unions etc., Traveler's checks

Interest Rate

Check that the Interest Rate is what was discussed with the lender. If the rate is adjustable, the column "Can this amount increase after closing?" displays "Yes" and includes information about how it will adjust and the way the interest rate will change.

Leverage

Controlling a large investment with a small amount of funds.

Ginnie Mae

Information provided: Consumer educational resources about Ginnie Mae's role in financing How a licensee can use the information: It's good to understand Ginnie Mae's role so you can explain it to consumers if asked.

U.S. Census Bureau

Information provided: Data on population, housing, and the economy How a licensee can use the information: This can help you spot trends that you can use for marketing and on behalf of your clients and investors.

ECOA (Equal Credit Opportunity Act)

ECOA prohibits creditors from discriminating against protected classes or asking for certain types of information. The intent is to make credit equally available to all credit-worthy applicants. Protected class status includes race, color, religion, national origin, sex/gender, marital status, age (over the age of 18), or dependence on public assistance.

Unintentional violations

Damages of two times the finance charge, up to $1,000

Dodd-Frank Wall Street Reform and Consumer Protection Act

Dodd-Frank; included the establishment of the Consumer Financial Protection Bureau (CFPB). This sweeping financial reform legislation established the Consumer Financial Protection Bureau, whose mission is to ensure that consumer financial products and services are fair, transparent, and competitive. The Dodd-Frank Act is being implemented in phases; recent changes in qualified mortgage rules are part of the act

Secondary Market (National)

Fannie Mae Fed Home Loan Bank Freddie Mac Investment bans Ginnie Mae Private investors - National institutions purchase loans made by local lenders - Players in the secondary market package loans and sell these packages to investors as Mortgage Backed Securities

Agricultural Lending Programs

Farm Credit System Farmer Mac USDA Rural Development Program USDA Farm Service Agency

Programs Under HUD

Federal Housing Administration (FHA) Government National Mortgage Association (Ginnie Mae) Community Development Block Grant Fair Housing Housing Choice Vouchers Native American Housing

Intentional violations

Fines up to $5,000 and/or imprisonment up to 12 months

Federal Deposit Insurance Corporation (FDIC)

Five-person board of directors Members are appointed by the president and confirmed by the Senate No more than three members can be from the same political party Funding is received from bank and thrift premiums and U.S. Treasury security earnings The FDIC insures deposits up to $250,000 per depositor, per bank or thrift institution, and inspects operations and soundness of banks Insured = Deposit accounts, including: checking accounts, savings accounts, money market, certificates of deposit (CD) Not insured = Mutual funds, securities, stocks, bonds, insurance, and annuity products are not insured by the FDIC Insures deposit accounts at banks and thrifts, at least $250,000 per insured bank Two common insolvency methods: purchase and assumption, and payout

HUD Mission Statement

Goal #1: Strengthen the housing market to bolster the economy and protect consumers. Goal #2: Meet the need for quality, affordable rental homes. Goal #3: Use housing as a platform to improve quality of life. Goal #4: Build strong, resilient, and inclusive communities.

Fair Housing

HUD's Office of Fair Housing and Equal Opportunity (FHEO) aims to eliminate housing discrimination, promote economic opportunity, and achieve diverse, inclusive communities through enforcement, administration, public education, and development of federal fair housing policies and laws.

Native American Housing

HUD's Office of Native American Programs administers housing and community development programs that benefit American Indian and Alaska Native tribal governments, tribal members, the Department of Hawaiian Home Lands, Native Hawaiians, and other Native American organizations, with the goal of increasing the availability of safe and affordable housing to Native American families.

HAMP

Home Affordable Modification Program plan used cost sharing and incentives to encourage lenders to reduce homeowner's monthly payments to 31% of their gross monthly income, with the lender responsible for getting the mortgage payments to under 38% and the government sharing the cost to meet the 31% goal. It also involved forgiving or deferring a portion of the borrower's mortgage balance. If they complies with this voluntary program, mortgage servicers received incentives to modify loans to help home-owners stay current

HARP

Home Affordable Refinance Program The cutoff date for this program included any loans made after June 1, 2009. The program allowed refinancing at more favorable rates, even when the loan-to-value ratio exceeds the 80/20 rule, which normally prompts private mortgage insurance, without the requirement for PMI. This program was not available to borrowers who had missed mortgage payments

"Lender Credits" line under section J

If an amount is shown in the "Lender Credits" line (under section J), it's a rebate from the lender that offsets some of the closing costs. Lender credits are typically provided to the borrower in exchange for a higher interest rate than would otherwise be offered.

Required by TILA and RESPA lenders must provide consumers with what disclosures?

Loan Estimate and Closing Disclosure forms

Primary Market (local)

Local lenders make funds available to borrowers Market Players Bank Thrift Credit Union Mortgage co.

Functions

Manage government finances and accounts, collect monies owed to the U.S., pays monies owed by the U.S., pays government bills, produces money, enforces financial and tax laws, issues securities (treasury bonds, bills, and notes)

How does the U.S. Treasury do this?

Manages federal finances, government accounts, and public debt Produces currency and coins, and issues government securities Collects duties, monies, and taxes owed to the U.S. and pays what is owed by the U.S. Supervises national banks and financial institutions Enforces finance and tax laws Investigates counterfeiters, forgers, and tax evaders (along with other government agencies, including the FBI and the Secret Service)

When the Fed decreases the percentage that member banks must keep on reserve

Member banks keep fewer funds on reserve at their district bank > Member banks have more money to use as loans to the community > The local economy heats up because more money is available

When the Fed increases the percentage member banks must keep on reserve

Member banks must keep more funds on reserve at their district bank > Member banks have less money to use as loans to the community > The local economy slows down because less money is available

Programs Availible through the TDHCA

My first Texas Home - designed to help low-to moderate-income buyers purchase their first home. This program provides assistance with down payment and closing costs, up to 5% of the mortgage loan. The program also seeks to provide homebuyers with competitive interest rates. Eligibility requirements related to homebuyer income and property price apply. The My First Texas Home program may be combined with another TDHCA program, the Mortgage Credit Certificate Program. Mortgage Credit Certificate Program - This program allows low-to moderate-income families the opportunity to reduce their federal tax liability, freeing income to make homeownership more affordable. Homeowners can claim a tax credit on a portion of the mortgage interest they pay each year. The credit maxes out at $2,000 annually, but because it's a credit, and not merely a tax deduction, it provides a dollar-for-dollar reduction to the home owner's federal income tax bill. Eligibility requirements related to income and history of home ownership apply, and buyers must complete a homebuyer course prior to closing on their loan. Texas Statewide Homebuyer Education Program (TSHEP) - Buying a home is a big commitment, and one that shouldn't be taken lightly. The state of Texas wants to ensure that prospective buyers are well informed and educated on before making their purchasing decision. Toward that end, the Texas Statewide Homebuyer Education Program provides education and counseling resources to homebuyers.

U.S. Treasury

Nation's fiscal manager Responsibilities: Economic growth and stability, financial security, presidential advisement, financial institution governance

Properties of money

Store of value Unit of account Medium of exchange

FHA

The Federal Housing Administration (FHA) provides mortgage insurance on loans made by FHA approved lenders throughout the U.S. and its territories. The FHA insures mortgages on single-family and multi-family homes, including manufactured homes and hospitals. It's the largest insurer of mortgages in the world, insuring more than 34 million properties since its inception in 1934.

GNMA

The Government National Mortgage Association (Ginnie Mae or GNMA) was created to expand affordable housing in America by linking global capital markets to the nation's housing markets. In the past, banks routinely had to retain mortgages because they were nearly impossible to sell to investors. This obstacle significantly limited the number of new loans that could be originated. To combat this, Ginnie Mae developed the very first mortgage-backed security (MBS) in 1970, which allowed many loans to be pooled and used as collateral in a security that could be sold in the secondary market. These are loans that are insured or guaranteed by the federal government. Ginnie Mae provides a guarantee backed by the full faith and credit of the U.S. for the timely payment of principal and interest on an MBS that is secured by pools of government home loans.

Monthly Principal & Interest

The Monthly Principal & Interest amount will make up the majority of the client's monthly mortgage payment. However, the actual payment will be higher, given the addition of taxes and insurance. If the rate is adjustable, the information in the right-hand column explains the basic timing and amounts involved.

Equitable Title:

The borrower's interest in a mortgaged property.

Chapter 5 of the Texas Property Code

The code places specific and strict initial and ongoing requirements for executory contracts. The burden is on the seller to comply with these requirements, and failure to do so could result in penalties, such as the return of all payments made by the buyer. The seller may also be liable for penalties under the Deceptive Trade Practices - Consumer Protection Act, including having to pay three times the damages incurred and attorney's fees.

Housing Choice Vouchers

The housing choice voucher program is the federal government's program for helping very low-income families, the elderly, and disabled individuals to afford decent, safe, and sanitary housing in the private market. Because housing assistance is provided on behalf of the family or individual, participants are able to find their own housing, including single-family homes, townhouses, and apartments.

HDMA Home Mortgage Disclosure Act

The key purpose of HMDA is to provide the public and elected officials with sufficient information to enable them to determine whether financial institutions are fulfilling their obligations to serve the housing needs of the communities and neighborhoods in which they're located. HMDA requires many financial institutions to maintain, report, and publicly disclose information about mortgages. This helps public officials make decisions and policies, and it reveals lending patterns that could be discriminatory.

Community Development Block Grant

Title I of the Housing and Community Development Act of 1974 merged seven individual competitive grant programs into a block grant that gives local communities the right to decide how best to meet their own community development needs.

Disintermediation

When bank deposits are less than bank withdrawals.

Social Considerations

When growth is too slow, the local economy can be negatively impacted. When growth is too fast, infrastructure may not be able to support it. When growth is dependent on one industry or employer, the community may over-build and be left holding the bag if the employer leaves.

Population

When population increases, housing demand usually does, too. Demographics impact supply and demand, and as a result, housing prices.

Baby Boomers

Years born: 1946 - 1964 Description: Children of the Silent Generation, a product of the post-WWII baby boom, a huge explosion in the U.S. population Housing trends: Those over age 58 tend to purchase townhomes or condos; 80% of those under age 58 purchase single-family homes (NAR survey 2014). Housing Needs:Four out of 10 intend to move in their retirement, with more than a third expecting to downsize their housing needs.The majority of Boomers want to age in place and rely on in-home services in order to maintain their independence or live with their adult children in multi-generation households

Millennials (Gen Y)

Years born: 1980s - 1990s Description: Many are children of Baby Boomers. This group tends to delay typical adulthood rites, such as marriage, career, family. Have never known a world without technology and grew up with social media. Housing trends: Fully 97% of this group financed the home purchase, with 56% blaming student loan debt for their inability to save. Prefer city life, smaller condo units, high-tech-enabled units; likely to look online first before making a purchasing decision; more than half used a mobile device, with 26% finding the home they eventually purchased via a mobile device. Housing Needs: Highly comfortable handling all or most of their tasks via the Internet, including virtual tours and other interactive online media. Less tied down to their job/location than previous generations and apt to move and change jobs more frequently, often living in areas far removed from where their work is located. Frequently take advantage of telecommuting opportunities.Strive for more work/life balance, and their homes reflect this need.

Generation Z

Years born: 1990s - 2001 (though some put this group between 1982 and 2002, and others lump Millennials with Generation Y) Description: Children of Generation X, this group saw the Great Recession, 9/11, and numerous industrial and governmental scandals in their formative years and can appear to lack direction. Housing trends: Many will likely get assistance from their parents to finance their housing purchases when/if they decide to purchase. Housing Needs: There's not enough data or evidence to make many claims for this generation yet, but their near ubiquitous usage of the Internet for nearly everything has led many to dub them the iGeneration. Almost everything for this generation is mobile friendly and shared or followed readily across multiple social media platforms.

Generation X

Years born: Early 1960s to early 1980s Description: Highly educated, active, balanced, grew up with technology and are comfortable using it Housing trends: Largest share of first-time homebuyers (76%) (NAR survey 2014). More than half used a mobile device to search for their homes, with 22% finding the home they eventually purchased via a mobile device. Housing Needs: ​Diversity and education have afforded them the ability and desire to move both jobs and locations more frequently than the boomers.More families are relying on both spouses working, and many Gen Xers start their own businesses.Demand greener and more sustainable living arrangements.

Silent Generation

Years born: Mid 1920s to mid-1940s Description: Grew up during the Great Depression era. During World War II, they watched America surpass its previous economic conditions and become a global superpower. Housing trends: Only 55% financed their home purchase, and those who financed averaged a 23% down payment. Housing Needs: They have the lowest median household income at $66,000 and tend to live off of retirement income, so need less expensive housing. Desire smaller, lower-maintenance homes.

Origination charges

are the fees that the lender charges to the client for making the loan. They're included in the charge shown on page one of the loan estimate form. The client should check that the amounts are as expected based on discussions with the lender

When supply is greater than demand, it's a "_______ market"

buyers

Loan Terms

clients should check each line and make sure it matches their understanding of their loan. The loan amount plus the down payment should equal the sale price of the home

US Mint =

coin production

"Other Costs" on Loan Estimate

costs that are associated with transferring the property and owning the home, as well as obtaining the loan

When spending and bills are more than revenue, this is a ________

deficit

Taxpayer Relief Act of 1997

exempted homeowners from paying taxes on capital gains up to $500,000 for married couples filing their income taxes jointly ($250,000 for individuals), provided the property was their primary residence and they lived there for two out of the previous five years. TRA '97 eliminated some previous requirements to obtain the exemption, making it easier for homeowners to claim the exemption. Essentially, the act relieved some of the tax burden homeowners may have been subject to when selling their home, potentially making homeowners more willing to sell their home and make a new home purchase.

leverage

leverage, which is using various financial instruments or borrowed funds to purchase and/or increase a property's (or other asset's) potential return. Leverage comes into play with real property financing when borrowers put down a percentage of their own money (the down payment) in order to purchase a property of which they can use, enjoy, and control 100%. Real estate investors are highly interested in leverage. If an investor puts 10% down on a property worth $350,000 ($35,000) and that property appreciates 20% over six years, the investor earns 20% on the entire $350,000 value, not just on the initial $35,000 invested.