***Ch 16. Types and sources of mortgage money*** Flashcards
A mortgage loan with a calculated interest rate that may increase or decrease during the term of the loan based on a pre-determined index
Adjustable Rate Mortgage (ARM)
A mortgage loan that is fully repaid according to a periodic and consistent schedule that includes both principal and interest
Amortized Mortgage
A final installment payment on a note that is much larger than the previous monthly payments on the note
Balloon Payment
when two or more items of real property are pledged as collateral undergone mortgage loan
Blanket Mortgage
A loan that meets FNMA and FHLMC borrowing requirements
Conforming Loan
When depositors withdraw money from savings for direct investment with a borrower. Removes the intermediary and allows individuals to lend money to borrowers directly.
Disintermediation
typically a junior loan that is based on the equity portion of the home value
Home Equity Loan
Financial indicator that will be the basis for an adjustable rate mortgage interest fluctuations
Index
acting as middlemen between depositors and borrowers by allowing consumers to deposit funds and in turn invest that money for a profit
Intermediation
Also known as a Contract for Deed, seller finances the transaction, because of the outstanding debt the buyer owes the seller, the seller withholds title at closing and agrees to deliver title when the loan has been repaid in full or pre-agreed amount
Land Contract
A method for amortizing a mortgage whereby the borrower pays the same amount each month, and the principal and interest change each payment
Level Payment Plan
Sets the upper and lower interest limits for an adjustable rate mortgage
Lifetime Cap
The additional rate of interest charged over and above the index rate in an adjustable rate mortgage. also fixed and remains constant throughout the life of the loan
Margin
payment for mortgage insurance which protects the lender in the event of default
Mortgage Insurance Premium (MIP)
When the monthly payment is insufficient to pay the accumulated interest for that month, resulting in an increase in the amount of the principal
(instead of reducing the principal balance of a loan, the loan balance actually gets larger)
Negative Amortization
A loan that does not meet FNMA and FHLMC borrowing requirements
Nonconforming Loan
A debt secured by pledge of both real property and personal property such as range, refrigerator or furniture.
(chattel = personal property)
Package Mortgage
*commercial loans often accept chattels as part of the mortgage
principal and interest are made, but not enough is paid by the end of the loan term to pay the loan amount in full and a balloon payment is due at the end.
Partially Amortized Mortgage
Limits the time period interval for ARM interest rate adjustments
Periodic Cap
Non-governmental mortgage insurance needed to insure the portion of the mortgage balance that exceeds an 80% loan to value ratio
Private Mortgage Insurance (PMI)
is often associated with seller financing. It differs from a traditional mortgage in that the mortgage is exchanged for a debt without money actually transferring. the seller allows the buyer to pay an agreed amount over time without money actually passing hands.
Purchase money mortgage
designed to help senior citizens stabilize their income. Homeowners 62 years of age or older can “sell their equity” to the bank for payments over the remaining portion of their lives. When the homeowner dies, their property is either transferred to the bank or sold to pay the bank back for the payments.
Reverse annuity mortgage (RAM)
a below market interest rate offered on adjustable rate mortgages utilized attract new borrowers
Teaser rate
A mortgage loan that provides for periodic payments of interest only, with a balloon payment at the end of the loan term
Term mortgage
lump sum mortgage insurance premium paid at closing for FHA loans
UFMIP
Up Front Mortgage Insurance Premium
This type of mortgage accelerates the principal debt reduction, which satisfies the mortgage debt sooner, payments are made 26 times each year rather than 12 times
Biweekly mortgage
Brokers are not allowed to accept a listing on real property covered by a blanket mortgage unless there is a what in place to avoid fraud
Release clause
a type of loan where the interest rate remains the same, but payments in the early stage of the loan are low, but rise gradually through the term of the loan because it is anticipated that the borrower’s income will rise in the future. This type of loan does NOT include negative amortization
Growing Equity Mortgage
(GEM)
stimulates construction of new homes and homeownership by encouraging lenders to release greater amounts of funds for financing residential home. protects lenders in the event of borrowers default.
Federal Housing Administration (FHA)
Which loan has loan limits?
FHA loan
What is the qualifying ratio for FHA loans?
31% housing expense ratio / 43% total obligations ratio
What is the qualifying ratio for a VA loan?
obligations ratio not to exceed 41% of how much they make per month
What is the qualifying ratio for a conventional loan?
28%housing expense ratio / 36% total obligation ratio
Who has the ability to influence the cost of borrowing money in the banking system and control the amount of money in circulation with several economic tools
Federal Reserve System
What are the 3 main things the Federal reserve system does?
Changing the discount rate
Changing the reserve requirement
Open market operations
what is the interest rate that the Federal reserve system charges its member banks?
discount rate
what is the most effective method of influencing long term mortgage interest rates?
open market operations
what happens when the feds buy and sell securities
buy securities interest rates go down
sell securities interest rates go up
*think buy low sell high
What are the 3 agencies that are the major contributors in the secondary mortgage market?
Federal National Mortgage Association(FNMA) “Fannie Mae”
Government National Mortgage Association (GNMA) “Ginnie Mae”
Federal Home Loan Mortgage Corporation (FHLMC) “Freddie Mac”
Which agency purchases all three types of loans and has become a corporation trade on the New York stock exchange?
Federal National Mortgage Association(FNMA) “Fannie Mae”
Which agency is a government agency guaranteeing funding through mortgage-backed securities,does not lend money, but rather acts as a guarantor with the support of the full faith and credit of the United States Government.
Government National Mortgage Association (GNMA) “Ginnie Mae”
Which agency buys not only conventional loans, but FHA and VA loans as well, and is a quasi-government agency that competes with FNMA, and is a corporation traded on the New York Stock Exchange
Federal Home Loan Mortgage Corporation (FHLMC) “Freddie Mac”
created to prohibit discrimination by lenders based on race, religion, age, sex, marital status, national origin or receipt of money from public assistance programs.
Equal Credit Opportunity Act (ECOA)
What act is implemented by the Federal Reserve Regulation “Z”.
Truth in lending act
Which act informs consumers on the true cost with interest
Real Estate Settlement Procedures Act (RESPA)
What 3 things are lenders required to provide applicants according to RESPA?
An information booklet on borrowing within three days of application
A good-faith estimate of closing costs within three days of application
A uniform settlement statement (HUD-1) no later than closing. If the borrower wishes to review the settlement statement prior to closing, the lender/closing agent must provide at least one day for such a review
In a fully amortized mortgage although the monthly payment stays the same, what happens to the portion of each monthly payment thats applied to reduce the principal debt?
increases each month
Which type of mortgage requires an upfront mortgage insurance payment plus a monthly mortgage insurance payment?
FHA
Mortgage bankers area example of?
Disintermediation
The amount of a VA guarantee on a mortgage loan depends on?
the amount of the loan
