Chapter 13 - Overview of Real Estate Finance

Question 1

Amortized loans

Answer 1

Reduction of the balance of the loan by paying back principal owed on a regular basis.

Question 2

Buydown

Answer 2

Additional funds (discount points) are paid to lender at the beginning of a loan to lower the interest rate/monthly payments. Permanent or temporary.

Question 3

Conforming loans

Answer 3

Loan that meets Fannie Mae and Freddie Mac requirements and thus can be sold on the secondary market.

Question 4

Conventional loan

Answer 4

Any loan not insured or guaranteed by a government agency. They are secured by government sponsored entities (GSEs) - Fannie Mae, Freddie Mac, Ginnie Mae.

Question 5

Discount points

Answer 5

Funds paid by lendee to lender when buying mortgage in exchange for lower interest rates/monthly payments. Each point is 1% of the loan cost.

Question 6

Fannie Mae

Answer 6

Federal National Mortgage Association provides place for banks and lenders to sell FHA insured loans.

Question 7

Finance Instruments

Answer 7

Legal documents establishing rights and duties of all parties in a transaction.

Question 8

Freddie Mac

Answer 8

Federal Home Loan Mortgage Corporation - helps savings and loan associations acquire funds for lending. Sells mortgages from its portfolio.

Question 9

Ginnie Mae

Answer 9

Government National Mortgage Association - promote investment by guaranteeing payment on FHA and VA mortgages.

Question 10

Grace Period

Answer 10

Flexibility in payment schedule.

Question 11

Home Ownership and Equity Protection Act

Answer 11

HOEPA was enacted to amend TILA to prohibit predatory lending.

Question 12

Hypothecate

Answer 12

Debtor can pledge property as security for debt without giving up possession. Failure to repay debt could result in loss of possession.

Question 13

Loan to Value Ratio

Answer 13

Amont of money borrowed compared to value of property. EX: conventional 80% on $80,000 home is $64,000.

Question 14

Mortgage

Answer 14

Security instrument allowed debtor/mortgagor to pledge property as security for debt on that property.

Question 15

Mortgage Insurance Premium

Answer 15

Added to monthly payment or sometimes lump sum at closing.

Question 16

Mortgagee

Answer 16

Lender

Question 17

Mortgagor

Answer 17

The personal making a mortgage - the one who needs it, BUYER.

Question 18

Negative Amortization

Answer 18

Loan balance grows because payments do not cover the interest on the loans.

Question 19

Point

Answer 19

1% of the loan amount, used to pay administrative costs in processing a loan.

Question 20

Predatory Lending

Answer 20

Taking advantage of ill informed customers through excessively high fees, misrepresented terms, frequent refinancing, etc.

Question 21

Private Mortgage Insurance (PMI)

Answer 21

Offered by private companies to insure lender against a borrower’s default.

Question 22

Primary Mortgage Market

Answer 22

Lenders who make loans directly to borrowers - banks, mortgage companies, credit unions, savings and loan associations, etc.

Question 23

Promissory Note

Answer 23

Written promise to pay. Maker - mortgagor, payee - mortgagee.

• date
• names of parties
• $ debt
• how/when to be paid
• what happens if default
• signature

Question 24

Secondary Mortgage Market

Answer 24

Private investors and government agencies that buy and sell real estate mortgages - Fannie Mae, Freddie Mac, Ginnie Mae, etc.

Question 25

Securitization

Answer 25

Pooling mortgages and then selling them as mortgage backed securities - Fannie Mae!

Question 26

Nonconforming loan

Answer 26

Loans that do not meet Fannie Mae and Freddie Mac standards - classified due to size of loan and credit of the borrower.