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Real Estate > Chapter 13 - Sources of Financing > Flashcards

Chapter 13 - Sources of Financing Flashcards

1
Q

Primary Market

A

Where lenders originate loans and make funds available to borrowers

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2
Q

Savings and Loan Assocations

A

Primary source of residential real estate loans

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3
Q

Disintermediation

A
  • The result create when lenders are required to pay high rates of interest for deposits while receiving long-term income from low-interest rate mortgage loan
  • Results when depositors take money out of their saving accounts and invest directly in government securities, corporate bonds and money market farms
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4
Q

Life insurance companies

A
  • Not federally regulated but they are state regulated
  • Source of money is the premiums paid by policy holders
  • Long-term investing
    -Channel funds into government and corporate bonds and real estate
  • Do not invest in personal property loans
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5
Q

Secondary Market

A

A market in which mortgage loans can be sold to investors
- Provides a way for a lender to sell a loan

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6
Q

Participation Loans

A
  • One that requires interest plus a percentage of the profits
  • Provides insurance company with more inflation protection than a fixed rate of interest
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7
Q

Mortgage Companies (Mortgage Bankers)

A
  • A firm that makes mortgage loans and then sells them to investors - Will continue to service the loan
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8
Q

Mortgage Broker

A

One who brings together borrowers and lenders
- Does not lend money
- Mortgage broker’s fee is expressed in points

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9
Q

Municipal Bonds

A
  • A Source of home loans that in turn is financed by the sale of municipal bonds
  • Borrowers pay interest free from federal income tax
  • Accept lower rate of interest
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10
Q

Basic functions of a Computerized Loan Origination (CLO)

A

1) Provides information on current mortgage loan terms and loan types available on the market
2) Coveys loan application information electronically
3) Monitors the loan approval process so that practitioners can check on the progress of the loan application at any time

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11
Q

Private Investors

A
  • Commercial banks, Savings & Loans, Pension plans, Trust funds and other investors who are looking for low risk, long term returns on their investments
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12
Q

Investment Pools or Poolers

A

Looking for more security in their investment

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13
Q

Primary Investors

A

1) The pure portfolio purchasers who are looking for the initial investments with an attractive return
2) The poolers who are looking for longer-term more stable returns

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14
Q

Federal National Mortgage Association (FNMA) aka Fannie Mae

A
  • Buys mortgage loans from smaller banks or credit unions and guarantees these loans on the mortgage market for low and median-income borrowers
    -Standardized the terms of adjustable rate mortgages it will purchase
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15
Q

Mortgage Backed Securities

A
  • Agency guarantee repayment home seller program
  • Secondary market for sellers who carry back mortgages
  • A plan whereby the FNMA will buy mortgages from home sellers
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16
Q

Federal Home Loan Mortgage Corporation (FHLMC) aka Freddie Mac

A
  • Deal Primarily in conventional mortgages
  • Increases the availability of financing for residential mortgages
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17
Q

Participation Certificates (PCs)

A
  • A certificate representing an undivided interest in a Freddie Mac Pool
  • Popular investment for Saving & Loan Associations, Pension funds, and other institutional investors looking for high yield investments
  • Individuals who can meet the $25,000 minimum can invest
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18
Q

Government National Mortgage Association (GNMA) aka Ginnie Mae

A

Best known for mortgage back securities (MBS)
—Guarantees timely repayment of privately issued securities backed by pools of these mortgages
- Government guarantee of repayment
- Limited to HUD/FHA, VA and certain other loans

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19
Q

Federal Agricultural Mortgage Corporation (FAMC) aka Farmer Mac

A
  • Separate agency within Farm Credit System
  • Purchase loans directly from originators
  • Issue it own 100% guarantee securities
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20
Q

Farmer Mac Qualifications

A
  • Home cost no more than $100K
  • Located in a rural community with a population less than 25,000
  • LTV ratio less than 80%
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21
Q

Commercial Mortgage-Backed Securities (DMBA)

A

Organizations = Conduits
- Originate commercial and multifamily housing loan

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22
Q

Automated Underwriting System

A
  • Computerized system for loan approval communication between a loan originator and the investor
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23
Q

Desktop Originator/Desktop Underwriter (DO/DU) Government Underwriting Service

A

Fannie Mae
- Used by broker or practitioner to submit info to lender

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24
Q

DO/DU

A

Used by lender to submit application directly to FNMA

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25
Q

Real Savings

A

Individual & business spending less earnings

26
Q

Fiat Money

A
  • Government created
    -Printing press money
27
Q

Usury

A

Charging an interest rate that is in excess of the legal rate

28
Q

Due-on-Sale Clause

A

-Alienation clause
-Most loans contain this

29
Q

The place where a real estate borrower makes a loan application, received a loan and makes loan payments describes the

A

Primary mortgage market

30
Q

Federal Secure and Fair Enforcement Act (SAFE)

A
  • All states have passed similar acts
  • Affects residential mortgage loan originators
    Passed in 2008
31
Q

When savings are removed from thrift institutions in large amounts for investment in Treasury securities

A

Disintermediation occurs
- Results in a decrease in activity in the real estate market

32
Q

Savings and loan associations combat the problems of rising interest rates by

A

Encouraging borrowers to accept adjustable rate loans and enforcing due-on-sale clauses in mortgages

33
Q

The reasons for the decline in residential loans made by the S&Ls include

A
  • Deregulation of the lending industry
  • Proliferation of saving and loan organizations
  • New laws which allowed higher risk loans
  • The FSLIC was placed under the control of the FDIC to help restore the savings and loan system
34
Q

If the nations commercial banks are considered as a whole, what is true?

A
  • Total deposits exceed those in nations savings and loan associations
  • The bulk of their deposits are in demand accounts
  • Thar are active in construction loans
  • They are less active in long-term real estate loans
35
Q

State laws that prohibit lenders from overcharging interest on loans to individuals is known as

A

Usury laws

36
Q

Life insurance companies are ideally suited to make long term investments because

A

Payoffs can be calculated from actuarial tables

37
Q

What is one type of loan that life insurance companies will not invest premium dollars into

A

Loans secured by personal property

38
Q

Generally, life insurance companies are LEAST LIKELY to be interested in originating what type of real estate loan?

A

Single -family housing loans

39
Q

One kind of real estate loan calls for the lender to receive interest plus a percentage of any profits form the rental income from a property. What is true about these loans?

A
  • That are designed to protect the lender from inflation
  • They are known as participation loans
  • They are likely to be utilized by life insurance companies
40
Q

What do mortgage companies do?

A

They locate and qualify borrowers and then originate loans and service the loans which they have sold on the secondary market

41
Q

Who normally does mortgage banking?

A

Commercial banks, S&Ls and mutual saving banks regularly carry on mortgage banking activities.

42
Q

Do mortgage brokers service loans?

A

No.

43
Q

Municipal bond issues as a source of funds for real estate loans provide

A

a good source of below market rate funds for low and middle income families

44
Q

Much of the success of the secondary mortgage market is attributed to

A

Standardized loan procedures and government and private mortgage loan insurance programs.
- Lenders make higher LTV loans because of insurance programs.

45
Q

The Federal National Mortgage Association is

A

(Fannie Mae) A Privately held corporation which is active in buying (primarily) VA and FHA mortgage loans. It is not managed by the federal government.

46
Q

When Fannie Mae issues a commitment to purchase a specific dollar amount of mortgage loans within a fixed period of time,

A

It must purchase all loans delivered under the terms of the commitment, but participating lenders are not obligated to sell their loans

47
Q

Fannie Mae will not purchase

A

3rd or 4th mortgages

48
Q

Sidney sold his home to White and agreed to carry back a fixed rate loan on the property. The note and mortgage were prepared by a Fannie Mar approved lender using FNMA qualification procedures. Could this loan be sold to a lender for later resale at FNMA?

A

Yes, because it meets the criteria for the FNMA Home Seller Program

49
Q

Under Ginnie Mae’s mortgage backed securities program

A

Principal and interest are passed through to investors and the pool as a while is guaranteed by Ginnie Mae

50
Q

The Federal Home Loan and Mortgage Corporation

A
  • Deals primarily in conventional mortgages
  • Serves as a secondary market for members of the Federal Home Loan Bank System
  • Issues securities on its own mortgage pools.
  • Not an agency of the federal government
51
Q

Participation certificates issued by Freddie Mac can

A
  • Be sold for cash
  • May be used as collateral for loans
  • Are often held as investments
  • Minimum investment is $25,000
52
Q

A nearby Federal Savings and Loan Association owns a participation certificate issues by Freddie Mac. Should any of the mortgages in the pool represented by the certificate default, the losses are

A

retained by Freddie Mac
- Freddie Mac guarantees that interest and principal on participation certificates will be paid in full and on time. Any losses from a default are not passed on to investors

53
Q

Basic problems experienced by investors in mortgage backed securities include unpredictable

A

Maturity
-Yields are predicable

54
Q

The entry of private investment sources into the single family residential mortgage market resulted in

A

losing businesses to Fannie Mae, Freddie Mac & Ginnie Mae.
- The main problem with the real estate mortgage lending market was the private investors who encouraged loans results in predatory practices and value loss

55
Q

Computerized mortgage networks serve as conduits between

A

lenders and real estate brokerage offices

56
Q

In the arena of money and capital, homebuyers face strong competition for loan funds from

A

Business, government and consumer credit borrowers

57
Q

The interest rate charge to borrowers for home loans are determined by

A

Cost of money to the lender, reserves for default and all loan servicing costs and available interest alternatives. Usury laws have little, if any, effect on the rate

58
Q

Due-on-sale clauses in mortgages may be used by lenders to

A

refuse loan assumption by uncreditworthy borrowers. They are also used to increase the rate of interest when the property is sold by requiring repayment or renegotiations

59
Q

Loan contracts sometimes contain a prepayment penalty in order to

A

Discourage borrowers from shopping for new loans at a lower interest rate unless there has been a substantial drop in rates

60
Q

Individuals can invest in real estate by purchasing

A

Ginner Mae or Freddie Mac participation certificates or buying junior mortgages at a discount.

Real Estate (10 decks)

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