Chapter 10- Principles Of Real Estate Finance

Question 0

What is a Mortgage?

Answer 0

Document used to secure payment of that loan

• *note: borrower’s promise to repay
• *mortgage: document offers real property as security loan

Question 1

What is a note?

Answer 1

The legal document through which a loan is obtained to purchase real property

Question 2

What is a Loan to Value Ratio

Answer 2

Relationship between the loan and the value of property.

Mortgage represents difference between sale price and the down payment

Question 3

What is interest “in Arrears”?

Answer 3

Interest calculated at the end of a time period on the loan amount (Principle) And is usually calculated each month on the unpaid monthly balance. Charging an excessively high rate of interest is known as “usury”

Question 4

What are other fees associated w/ mortgage loans ?

Answer 4

(1) Origination Charge
(2) GFE/Good Faith Estimate- fee for specific interest rate the borrower chooses. Once origination charge is quoted by a lender in a 3 page document known as GFE
(3) Required services that the lender selects such as:
* *application fee
* *initial private insurance charge
* *Flood certification
* *Tax service fee
(4) Title company services and lenders title insurance
(5) Owner’s title insurance
(6) Required services that the borrower can shop for (pest inspection/survey
(7) Government recording charges
(8) Transfer taxes
(9) Initial escrow account deposit
(10) Daily interest charges
(11) Homeowner’s insurance

Question 5

Define Points?

Answer 5

Lender chArges a fee for the specific interest rate a borrower has chosen. One point is 1% of the loan.

Question 6

Definition of a mortgage loan

Question 7

What is a hypothecation?

Answer 7

Pledging the real property as collateral security while the borrower still remains possession and use of the property

Question 8

Define foreclosure.

Answer 8

Failure to make the mortgage loan payments on schedule, the lender can institute a legal procedure known as foreclosure to recover the balance of borrowed money. This is accomplished in PA through a court ordered foreclosure sale of the property at the county courthouse to highest bidder

Question 9

What is an Amortized mortgage?

Answer 9

Regular, periodic payments have a portion of each payment that is first applied to pay the loan interest. The remaining portion of the loan payment is then used to reduce the loan amount known as the principal.

Question 10

What is a term loan?

Answer 10

Regular payments consist only of interest. The loan principal is required to be paid at the end of a term loan in a large lump sum payment. When final loan payment is larger than other payments on loan referred to as balloon payment.

Question 11

Define purchase money mortgage

Answer 11

Whenever a seller provides a loan to help a buyer purchase the seller’s property

Question 12

Partially amortized mortgage/ balloon mortgage

Answer 12

An initial period of time, usually 3,5, or 7 years, during which the loan is amortized with payments including principal and interest that are calculated and spread out over a 30 year mortgage basis. At the end of initial amortized period of time of 3,5,7 years a final lump sum balloon payment is due

Question 13

For a buyer who needs financing to purchase a home, there are 2 essential documents known as?

Answer 13

(1) Promissory Note- borrower agrees in writing to borrow money and then gives a personal promise to pay back the money over time.
It is a negotiable instrument and as such it can be transferred to another party which allows for the financing to be transferred to other parties.
(2) mortgage- borrower pledges the real property as collateral security for the repayment of the loan.

Question 14

Define Defeasance provision

Answer 14

It is through the defeasance provision in the mortgage that the lender is required to remove the mortgage lien from the county court house records when the mortgage is paid in full. Lender filing and recording a “satisfaction piece” to show in the records that the loan obligation was satisfied

Question 15

Define acceleration provision

Answer 15

If the borrower fails to meet the terms and conditions of the mortgage the borrower is in default. The lender has the option to declare the full amount of remaining mortgage balance due and payable after typically providing 30days notice

Question 16

Define alienation provision

Answer 16

Referred to as “due on sale clause”

Question 17

Assumption of a loan versus financing subject to the loan

Answer 17

If the mortgage contains no due on sale clause, then an owner is permitted to sell that real property and simultaneously allow a purchaser to take over the existing mortgage.
If the buyer takes over the seller’s existing mortgage “subject to the seller’s existing mortgage”, then the seller is still personally liable for the debt. However, if the buyer assumes the seller’s existing mortgage , the buyer and seller together take responsibility for the payment of debt

Question 18

What is an estoppel certificate

Answer 18

The lender and buyer will want to know exact status of mortgage. Estoppel certificate accomplishes this objective by disclosing the amount of unpaid balance on the loan, the rate of interest on that loan and date when the last interest payment was made

Question 19

What is the primary mortgage market

Answer 19

Where mortgagor gets $$$ for mortgagee. All direct lenders that are available in the marketplace are collectively referred to as the primary mortgage market

Lenders in primary market 
Mortgage bankers
Savings and loans assoc
Credit unions 
Commercial banks 
Mutual savings banks 
Individuals 
Mortgage brokers work but don't lend

Question 20

What is the secondary mortgage market

Answer 20

Each time a lender provides a mortgage loan, money is removed from the lender’s pool of available funds. Lenders assign their loans in packages to investors through assignment of mortgage. All investors who buy loans from the primary mortgage market are known collectively as the secondary mortgage market. Sending money back to the lender of primary

Question 21

What is Fannie Mae

Answer 21

FNMA- federal national mortgage association. A private corporation that is the most dominant buyer of mortgages from the primary mortgage market.

Question 22

What is Ginnie Mae

Answer 22

GNMA- government national mortgage association. Guarantee to investors the timely payments of principal and interest on mortgage backed securities backed by FHA

Question 23

What is Freddie Mac

Answer 23

Federal home loan mortgage corp

Question 24

What is a warehouse agency

Answer 24

Is a purchaser in the secondary mortgage market that buys mortgages from primary mortgage market and then assembles the loans into packages for resale to investors