Chapter 14-17 Flashcards
Primary Mortgage Market
- The marketplace whereby loans are originated. Where mortgage originators and borrowers come together to discuss the terms of a mortgage and to put the mortgage loan into place
Secondary Mortgage Market
The market where lenders sell their loans to the large secondary marketing agencies (FNMA, FHLMC, and GNMA) or to other investors.
Federal Home Loan Mortgage Corporation (FHLMC) (Freddie Mac
An independent stock company which creates a secondary market in conventional residential loans and in FHA and VA loans by purchasing mortgages.
Federal National Mortgage Association (FNMA) (Fannie Mae
A New York stock exchange company. It is a public company that operates under a federal charter and is the nation’s largest source of financing for home mortgages. Fannie Mae does not lend money directly to consumers, but instead works to ensure that mortgage funds are available and affordable, by purchasing mortgage loans from institutions that lend directly to consumers.
Federal Reserve System
The federal banking system of the United States under the control of central board of governors (Federal Reserve Board) involving a central bank in each of twelve geographical districts with broad powers in controlling credit and the amount of money in circulation.
Government National Mortgage Association (GNMA) (Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD) that guarantees securities backed by mortgages that are insured or guaranteed by other government agencies
Amortization
The liquidation of a financial obligation on an installment basis. complex process that calculates the amount of interest on any home loan. Most home loans are fully amortized. Some are partially amortized.
Amortized Loan
A loan to be repaid, interest and principal, by a series of regular payments that are equal or nearly equal, without any special balloon payment prior to maturity.
Interest Only Loan (straight or term)
A straight, non-amortizing loan in which the lender receives only interest during the term of the loan and principal is repaid in a lump sum at maturity.
Escalator Clause
a statement added to a promissory note that says that the lender (or legal holder of the note) can decrease or increase the interest rate of the note with given notice. If it is present in a promissory note, the borrower must agree to it as it can mean a higher mortgage payment. Specific conditions for this will be listed, such as cost of living increases.
Acceleration Clause
a statement in a promissory note that may require that the loan be paid in full at a specific time beyond what the current contract states. Generally, it is due to a breach in contract.
Discount Points
– The amount of money the borrower or seller must pay the lender to get a mortgage at a stated interest rate. Points are a type of pre-paid interest. Paying 1 point means the borrower is paying 1 percent of the loan amount
Escalation
The right reserved by the lender to increase the amount of the payments and/or interest upon the happening of a certain event.
Interest
The charge in dollars for the use of money for a period of time. In a sense, the “rent” paid for the use of money. often expressed in a percentage. For example, borrowers may pay 7 percent to borrow the funds. Because home loans are secured loans, they tend to be a bit more affordable
Prepayment Clause
a line in the contract they sign with their lender (within the promissory note) that states a penalty will be paid if the mortgage is paid off within a certain timeframe. This penalty cost is usually a percentage of the amount borrowed or a certain number of months’ worth of interest payments
Prepayment Penalty
The charge payable to a lender by a borrower under the terms of the loan agreement if the borrower pays off the outstanding principal balance of the loan prior to its maturity. Help the lender ensure they will get enough compensation and profit from the loan if you pay it off early.
Promissory Note
Promise to pay. Secured or unsecured loan. Following a loan commitment from the lender, the borrower signs a note, promising to repay the loan under stipulated terms. The promissory note establishes personal liability for its payment.
Straight Note
A note in which a borrower repays the principal in a lump sum at maturity while interest is paid in installments or at maturity.
Usury
On a loan, claiming a rate of interest greater than that permitted by law
Secured loans
loans backed by collateral. The loan is based on the value of the home and the home protects the lender. Should the borrower default, the home becomes accessible to the lender to seize to repay what is owed. Most home loans are secured loans.
Unsecured loans
The most common example is a credit card or a personal loan. It’s given based on the personal credit history and financial security of an individual. These are very rarely used in home loans.
Loan Origination Fees
This is a fee that is charged by the lender on a home loan. View it as a fee to obtain a loan. It is paid to the lender as a fee to put the loan in place. This fee is usually between 0.05 percent and 1 percent of the amount of the home loan obtained to purchase the home
Mortgagor
– Home buyer or borrower, your client. One who gives a mortgage on his or her property to secure a loan or assure performance of an obligation, a borrower. obtains the right to possess the property.
Mortgagee
Lender, provider of the loan. One to whom a mortgagor gives a mortgage to secure a loan or performance of an obligation, a lender or creditor
Satisfaction of Mortgage (Release of Mortgage
The discharge of a mortgage from the records upon payment of the debt.
Mortgage
An instrument recognized by law by which property is hypothecated to secure the payment of a debt or obligation. A “mortgage” refers to the legal process involved in securing that loan and legally tying its value to the home as collateral
Alienation Clause
A clause in a contract giving the lender certain rights in the event of a sale or other transfer of a mortgaged property. provides the lender with the right to demand full principal balance when the property is sold. It is sometimes called the Due-on-Sale Clause.
Assignment
– The transfer to another of any property in possession or in action, or of any estate or right therein.
Assignment of Rents
A provision in a mortgage or deed of trust under which the lender may, upon default by the trustor, take possession of the property, collect income from the property and apply it to the loan balance and the costs incurred by the lender.
Assumption of Mortgage
The taking of a title to property by a grantee wherein the grantee assumes liability for payment of an existing note secured by a mortgage or deed of trust against a property, becoming a co-guarantor for the payment of a mortgage or deed of trust note.
Default
Failure to fulfill a duty or promise or to discharge an obligation. If the borrower fails to meet those requirements, the borrower defaults on the loan automatically.
Defeasance Clause
The clause in a mortgage that gives the mortgagor the right to redeem the mortgagor’s property upon the payment of the mortgagor’s obligations to the mortgagee.
Hypothecate
To pledge a thing as security without the necessity of giving up possession of it.
Title Theory States and Lien Theory States
The state in which you sell the property will be either a title theory state or a lien theory state
Deed of Trust
The term “mortgage” or “deed of trust” refers to a document that the buyer signs. A loan is the actual financial transaction and money owed that must be paid back.
Beneficiary
The lender on the security of a note and deed of trust.
Trustee
The third party under a deed of trust.
Trustor
One who borrows money from a trust deed lender, then deeds the real property securing the loan to a trustee to be held as security until the trustor has performed the obligation to the lender under terms of a deed of trust.
Junior Mortgage
A mortgage recorded subsequently to another mortgage on the same property or made subordinate by agreement to a later- recorded mortgage.
Priority of Lien
The order in which liens are given legal precedence or preference. liens with a higher priority are paid first in this situation.
Recording
The process of placing a document on file with a designated public official for public notice.
Subordinate
The make subject to, or junior or inferior to.
Subordination Agreement
An agreement by the holder of an encumbrance against real property to permit that claim to take an inferior position to other encumbrances against the property.
Deed in Lieu of Foreclosure
A deed to real property accepted by a lender from a defaulting borrower to avoid the necessity of foreclosure proceedings by the lender.
Deficiency Judgment
– A judgment given by a court when the value of security pledged for a loan is insufficient to pay off the debt of the defaulting borrower
Foreclosure
Procedure whereby property pledged as security for a debt is sold to pay the debt in event of default in payments or terms
Redemption
Buying back one’s property after a judicial sale.
Short Sale
A seller’s attempt to sell the real estate whereby the liens are greater than the value of the property. A short sale happens when a property owner sells the home to a third party but does so at a rate that is less than what the total debt remaining on the home loan is.
Conventional Loan
A mortgage securing a loan made by investors without governmental underwriting, i.e., which is not FHA insured or VA guaranteed. This type of loan is customarily made by a bank or savings and loan association.
Loan to Value Ratio (LTV
The percentage of a property’s value that a lender can or may loan to a borrower.
FHA-Insured Loan
A mortgage loan in which payments are insured not issued by the Federal Housing Administration.
Private Mortgage Insurance (PMI)
Mortgage guaranty insurance available to conventional lenders on the first, high risk portion of a loan
Mortgage Insurance Premium (MIP)
The amount paid by a mortgagor for mortgage insurance on an FHA-insured loan.
VA Loan Program
: The United States Department of Veterans Affairs provides individuals who have served in the Armed Forces and their families with the ability to obtain affordable, easier access to a home mortgage loan
VA Guaranteed Loan
A loan made to qualified veterans for the purchase of real property wherein the Department of Veteran’s Affairs guarantees the lender payment of the mortgage. Highly lucrative.
Blanket Mortgage
A type of loan used to fund the purchase of more than one piece of real property. A blanket mortgage is often used for subdivision financing. The loan allows for the developer to sell off a portion of the property, called a parcel, when necessary, such as when a home is built. will still use the land as collateral for the loan. However, each of the individual parcels of land can be sold off without paying off the entire mortgage each time this occurs.
Buydown
– Obtaining a lower interest rate by paying additional points to the lender. The goal of a buydown is to lower the interest rate on a loan for at least the first years of the mortgage. In some cases, it can extend throughout the lifetime of the loan.
Construction Loan
A loan secured by real estate which is for the purpose of funding the construction of improvements or building(s) upon the property.
Package Mortgage
A method of financing in which the loan that finances the purchase of a home also finances the purchase of personal items such as a washer and dryer, refrigerators, stove, and other specified appliances.
Wrap-around Mortgage
A form of secondary financing for the purchase of real property. The seller extends to the buyer a junior mortgage which wraps around the existing in addition to any superior mortgages already secured by the property.
Purchase Money Mortgages
homeowner cannot qualify for typical loan. the loan is issued to the home buyer by the seller of the property. It is a component of the purchase transaction. These loans will incorporate various financing options such as interest-only loans, fixed rate terms, and other configurations.
installment land sales contract, which is often called a land contract, and sometimes termed as articles of agreement
a legally binding contract that is made between the home seller and the buyer. The home buyer agrees to make payments that include the purchase price of the home along with interest payments, over a set amount of time.
Second Mortgage
Also called a junior lien and sometimes interchangeable with a home equity loan, a second mortgage is a type of property-secured loan taken out on the portion of a home that’s not under mortgage
Pre-Approval
A step above pre-qualification, an evaluation of a potential borrower by a lender that determines whether the borrower qualifies for a loan from the lender, or the maximum amount that the lender would be willing to lend.
Pre-Qualification
A process whereby a loan officer takes information from a borrower and makes a tentative assessment of how much the lending institution is willing to lend them.
Yield
The interest earned by an investor on an investment (or by a bank on money it has loaned). Also, called return.
Mortgage Banker
A person whose principal business is the originating, financing, closing, selling and servicing of loans secured by real property for institutional lenders on a contractual basis.
Mortgage Broker
A broker who arranges a mortgage loan between a lender and a borrower for a fee.
Credit Unions
not profit-driven specifically but rather are owned by the members of the organization.
Underwriter
An individual at a lending institution who determines credit worthiness in order to qualify an applicant for a loan. The underwriter guarantees the payment to the buyer for the home and takes on the financial risk of taking on that loan.
Underwriting
The criteria with which a lender determines the credit worthiness in order to qualify them for the loan.
Truth-in-Lending Act (TILA)
The name given to the federal statutes and regulations (Regulation Z) which are designed primarily to ensure that prospective borrowers and purchasers of credit receive credit cost information before entering a transaction.
The Equal Credit Opportunity Act, better known by its acronym ECOA
covers all types of credit transactions, regardless of whether they are for a consumer or a business seeking commercial loans.
Federal Fair Housing Laws
Lenders are prohibited from denying the following services based on race, color, national origin, religion, sex, familial status or handicap.
Redlining
An illegal lending policy of denying real estate loans on properties in older, changing urban areas, usually with large minority populations, because of alleged higher lending risks without due consideration being given by the lending institution to the credit worthiness of the individual loan applicant
Real Estate Settlement Procedures Act (RESPA
– A federal law requiring the disclosure to borrowers of settlement (closing) procedures and costs by means of a pamphlet and forms prescribed by the United States Department of Housing and Urban Development.
Georgia Residential Mortgage Act (GRMA)
provide oversight within the mortgage industry by requiring those who work as a mortgage broker, lender, or loan originator to be licensed. The GRMA is governed by Georgia
Code Sections 7-1-1000 through 7-1-1021.
