Ch. 15 Government Involvement in Financing

Question 1

Federal Reserve System (FED)

Answer 1

maintains sound credit conditions, help counteract inflationary and deflationary trends, and create a favorable economic climate

Question 2

Primary Mortgage Market

Answer 2

The market where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transaction. Mortgage brokers, mortgage bankers, credit unions and banks are all part of the primary mortgage market.

Question 3

Secondary Mortgage Market

Answer 3

Loan originators free up more funds for making additional loans by selling mortgages to Fannie Mae, Freddie Mac and other purchasers in exchange for cash to possibly originate more loans. (Loans are bought and sold only after they have been funded)

Question 4

Fannie Mae

Answer 4

has shareholders,but under the conservatorship of the Federal Housing Finance Agency (FHFA), Creates Mortgage-backed securities using pool of mortgages as collateral; deals in conventional, FHA, and VA loans

Question 5

Freddie Mac

Answer 5

Primarily Conventional loans, purchases mortgages, pools them, and uses them as security for Bonds sold on the open market

Question 6

Ginnie Mae

Answer 6

Government Agency, a division of HUD, administers special-assistance programs, guarantees mortgage-backed securities using FHA and VA loans as collateral

Question 7

Conventional Loans

Answer 7

The most secured loans, usually required 20% down, LTV is often lowest for these loans, not government insured or guaranteed

Question 8

Farmer Mac

Answer 8

The Federal Agricultural Mortgage Corporation, for agricultural mortgage and rural utilities loans

Question 9

PMI- (Private Mortgage Insurance)

Answer 9

Required on a Conventional loan that has a down payment less than 20%, once accrued at least 22% equity and current on payments PMI is no longer required

Question 10

MIP-(Mortgage Insurance Premium)

Answer 10

FHA-insured loans require a small amount of cash to close a loan. As a result, all borrowers must pay a MIP to insure the lender against loss if the homeowner defaults on the mortgage. While there are ways to avoid PMI with conventional loans, there is no way to avoid MIP on FHA loans because the down payment is only 3.5 percent.

Question 11

VA-guaranteed loan

Answer 11

Veteran must apply for a certificate of eligibility, The VA guarantees loans to purchase manufactured homes and the lots on which to place them, must meet time-in-service criteria

Question 12

Package Loan

Answer 12

includes real and personal property, usually includes furniture, drapes, kitchen range, microwave, refrigerator, dishwasher, washer, dryer, and other appliances as part of the sales price of the home

Question 13

Blanket Loan

Answer 13

covers more than one parcel or lot, includes a provision known as a partial release clause, this clause permits the borrower to obtain the release of anyone lot or parcel from the blanket lien by repaying certain amount of the loan, multiple lots owned and pay them off lot by lot w/no changes to the loan itself

Question 14

Wraparound Loan

Answer 14

enables a borrower with an existing mortgage loan to obtain additional financing from a second lender w/o paying off the 1st loan. (2nd Lender will make payments on the 1st loan)

Question 15

Open-End Loan

Answer 15

allows the borrower to increase the amount of the mortgage at a later time, borrower may go back to the lender and borrow more money if conditions are met

Question 16

Home Equity Loan

Answer 16

source of funds that takes advantage of the equity built up in a home/alternative to refinancing b/c only the amount borrowed will be subject to the higher rate (PAYMENT RECEIVED IS A LUMP SUM)

Question 17

HELOC

Answer 17

Home Equity Line of Credit- the home equity loan can be taken out as a fixed loan amount of as a Line Of Credit. (Allows you to draw cash as you need it up to your credit limit)

Question 18

Regulation Z

Answer 18

enacted by the Federal Reserve Board to enforce the Truth in Lending Act (TILA)-requires that credit institutions inform borrowers of the true cost of obtaining credit/ Provides strict regulations of real estate advertisement

Question 19

Equal Credit Opportunity Act (ECOA)

Answer 19

prohibits discrimination in the lending process based on the credit applicant’s race, color, religion, national origin, sex, marital status, age, or receipt of public assistance. Credit applications are based solely on the basis of income, stability source of that income, net worth (total assets and liabilities), and credit rating

Question 20

Real Estate Settle Procedures Act (RESPA)

Answer 20

ensures that the buyer and seller are fully informed of all settlement cost/prevents kickbacks

Question 21

Community Reinvestment Act (CRA)

Answer 21

requires financial institutions to help meet the needs for affordable housing in their communities

Question 22

Fair Credit Reporting Act (FCRA)

Answer 22

requires that reasons for a loan application rejection be provided to the applicant within 30 days and the applicant must be given the right to a free copy of any credit report considered in the loan application

Question 23

Sale-and-leaseback

Answer 23

Lendor is the Owner..
Arrangement in which one party sells a property to a buyer and the buyer immediately leases the property back to the seller. This arrangement allows the initial buyer to make full use of the asset while not having capital tied up in the asset. Leasebacks sometimes provide tax benefits

Question 24

Buydown

Answer 24

A payment made at closing to reduce the interest rate on the loan