Chapter 14 Flashcards
Lenders and Discount Points
Lender sometimes charge discount points. A loan discount is simply prepaid interest collected by the lender at the time the loan is closed to increase the lenders yield or profit and decrease the interest rate charge to the borrower. Discount points may be paid by either the buyer or the seller. Generally the lender charges one discount point or 1% for each 1/8 of a percentage needed to increase the yield on the loan. Therefore, it takes approximately eight discount points to equal one percentage point in the interest rate. An interest rate of 7% +8 points brings the lender a yield equal to interest rate of 8% with no points.
Title Theory
Should the borrower default, the lender or trustee will conduct the foreclosure according to the provisions in the power of sale clause that allows a foreclosure auction sale without going to court.
Georgia is a Title Theory State
Georgia is a title theory state
Promissory Note (debt instrument)
The promissory note is a contract serving as evidence of the debt where the borrow makes a promise to pay. Also called the money you borrow
Security instrument: the mortgage
A mortgage is a contract in which the mortgagor also known as the borrower pledges real property as a security for a loan, therefore creating for the mortgagee which is the lender a lien on the property pledged as collateral.
Non-Judicial Foreclosure
Many states allow a lender to foreclose on a property without filing a lawsuit, as long as the power of sale clause is included in the security instrument, and as long as the sale is properly advertise in the local newspaper.
Exculpatory clause
If this clause is in place, the mortgage property becomes the lenders only security for the debt and the lenders right to a deficiency judgment against other property is waived.
Subordination clause
In the event of foreclosure, mortgage liens are paid off in the order in which they were recorded. The first to be recorded is the senior mortgage and any others that are recorded later or junior mortgages. However, a subordination clause can change the priorities. With this clause the holder of the loan that is first recorded agrees to take a subordinate position to a specified or anticipated lien that will be recorded later. Many landowners are willing to subordinate their mortgage lien to a development or construction loan because their security is enhanced by the improvements made to the property.
Private lending institutions
Approved private lending institutions make FHA loans. The lender can charge the market rate of interest and loan fees within limits set by the FHA
Down payment
The lender will make a loan for up to 100% of value. If the appraisal is equal to or greater than the sales price, this means that could be a zero down payment.
The veteran borrower is also not permitted to pay buyer agency fees or commissions.
Secondary mortgage market
As it was originally conceived, the secondary market for mortgage loans was to be an equalizing factor. Since the real estate market is highly localized, it could at a given time be thriving in one area and in a deep recession in another. And a thriving market, the lender could sell packages of loans to make more cash available for making more loans. In a depressed market, the lender with few loan applications and money to invest could buy packages.
Compliance with Regulation Z
All loans of the $51,500 for personal, family and household purposes.
All residential real estate transactions involving credit, regardless of the amount.
Residential mortgage loans for 2 to 4 family residential properties providing the owner occupied one of the units.
Exemptions:
Loans made to corporations or organizations.
Loans for farms and agricultural property.
Commercial and business loans.
Purchase money mortgage is, unless the seller handles many such transactions.
Additional Disclosures
The total finance charge
The annual percentage rate
Good faith estimate
Within three days of the loan application, the borrower must be given a good faith estimate of loan closing costs. Until the good faith estimate is provided, the lender may not charge any fees other than a credit report.
Trigger terms
Amount of down payment
Amount of an installment
How many installments
Time period of repayment
