Chapter 14 - Real Estate Financing and Math Flashcards
Mortgage
Money borrowed in order to purchase property.
Title-Theory
The lendor is the owner of mortgaged property. Does not apply in the State of WI
Lien-Theory State
Mortgage is collateral for the loan.
Mortgage Loans
Secured loans
borrower is required to pledge specific real property as security (collateral) for the loan. The debtor retains the right of possession and control, while the creditor receives an underlying equitable right in the pledged property.
Hypothecation
Debtor retains the right of possession and control, while the creditor receives an underlying equitable right in the pledged property.
Promissory note
Written agreement of the borrower’s commitment or promise to repay a debt over a specifically state time period. Completed by a borrower
Usury
Charging interest higher than the maximum rate allowed by state.
Loan origination Fee
Fee charged by the lender for evaluating and preparing your mortgage loan.
Discount Points
pre-paid interest on the mortgage. Equal to 1% of the amount of the loan.
Prepayment Penalty
May not exceed 60 days interest at the contract rate on the amount prepaid on fixed-rate covered loans over 25K if the borrower prepays more than 20% of the original amount within 36 months.
Defeasance clause
The lender is required to execute a satisfaction of mortgage when the note has been fully paid.
Satisfaction of mortgage
release of mortgage or mortgage discharge
Escrow account
Reserve fun to meet future real estate taxes and property insurance premium.
Borrower’s monthly loan payments
PITI: Principal, Interest Tax and Insurance
Primary Mortgage Insurance
PMI: protects lenders from losses by insuring the top 20% of a loan to cover any additional risk to the lender if the mortgage defaults.
National Flood Insurance Reform Act of 1994
Imposes certain mandatory obligations on lenders and loan servicers to set aside (escrow) funds for flood insurance on new loans
Alienation Clause
The specific terms in a mortgage may state that a lender requires be paid in full if the property is sold to another buyer. Also known as a resale clause or due on a sale clause.
Nonjudicial Foreclosure
Not in WI - allow nonjudicial foreclosure procedures to be used when the security instrument contains a power-of-sale clause. Requires no court action
Judicial Forclosures
Goes through the state court system. Happens when a borrower defaults and the mortgagee has given sufficient public notice.
Strict Foreclosure
The borrower is given notice and documents are recorded. After which the court creates a redemption period. It then specifies a time period in which the borrower has aright of redemption.
Redemption Period in WI
6-12 months.
Short Sales
When the proceeds do not cover the sellers debts.
Friendly Foreclosure
Deed in lieu of foreclosure. Carried out by mutual agreement rather than by lawsuit. Lender usually loses any rights pertaining to FHA of private mortgage insurance or VA Guarantees
Making Home Affordable Programs
The Home Affordable Modification Program (HAMP), the Home Affordable Refinance Program (HARP), and the Home Affordable Foreclosure Alternatives Program (HAFA)
HAMP | Home Affordable Modification Program
Helps delinquent borrowers modify the terms of their home mortgage loan to an affordable level.
HARP | Home Affordable Refinance Program
Help property owners refinance their properties who are not yet delinquent or more than 30 days overdue in the past 12 months.
HAFA | Home Affordable Foreclosure Alternatives Program
Provides alternatives to foreclosures by encouraging lenders and delinquent borrowers to enter into a short sale or a deed-in-lieu of foreclosure.
Equitable right of redemption
If, after default but before the foreclosure sale, the borrower (or any other person who has an interest in the real estate, such as another creditor) pays the lender the amount in default, plus costs, the debt will be reinstated and regular payments may be resumed
RESPA | Real Estate Procedures Act
Federal Consumer law that requires certain disclosures about the mortgage and settlement process and prohibts certain practices that increase the costs of settlement services.
RESPA Section 8
Prohibits kickbacks and fee-splitting for referrals of settlement services
RESPA Section 9
Prohibits home sellers from requiring that homebuyers buy title insurance from a particular company
RESPA Section 10
Prohibits lenders from requiring excessive escrow account deposits, money set aside to pay taxes, hazard insurance, and other charges related to the property
Truth in Lending Act (TILA) and Regulation Z
Disclosures of lending institutions in order to ensure borrowers are well informed.
Regulation Z
Requires their lending interest rates must also include that the advertisement shall disclose all such rates to be paid during the life of the loan.
1026.24 Advertisements
A. Actually available terms
B. Clearly and inconspicuously
C. Advertisement of rate of finance charge.
Interstate Land Full Disclosure Act
applies to conveying properties across state lines, requiring sellers sell with more than 100 lots in a subdivision to register with the Department of Housing and Urban Development and provide potential buyers with disclosure reports on the condition of the property.
Amortized Loan
type of loan where the principal of the loan is paid down over the life of the loan through periodic scheduled payments. Amortized -literally translates to killing it off slowly
Bullet Loan
Large portion of the loan will be paid at the end date instead of being paid down gradually over the loan’s life
Balloon Loan
require one large payment that pays off your remaining balance at the end of the loan term
Adjustable-Rate Mortgage
interest rate starts out very low and adjusts over time according to an interest index, generally the interest rate adjusts up because a margin is added to whatever current rates are
Purchase Money Mortgage
Funds loaned against the equity of a property
Blanket Loan
Covers more than one lot, usually for the development of a subdivision
Wraparound Loan
When a borrower obtains a second loan without paying off the existing first loan
Construction loan
Used to finance improvements of real estate
Straight Loan
Interest Only
Sale and Leaseback
When the seller agrees to finance all or part of the transaction
Home Equity Loan (HELOC)
Line of credit often used to purchase an expensive personal item such as a boat or a car
Reverse Mortgage
62 or older, don’t have to pay it off until it is no longer your residence
Federal Reserve System (FED)
Used to controls interest rates.
Primary Mortgage Market
made up of lenders who originates or (creates) loans. After being originated in the primary mortgage market, most mortgages are sold into the secondary mortgage market and in turn enabling the originating lender to recycle/reuse the funds to make a new loan to a new borrower
Statute 224.71
Defines mortgage banker | person who
•Originates residential mortgage loans for itself, as payee on the note evidencing the residential mortgage loan, or for another person.
- Sells residential mortgage loans or interests in residential mortgage loans to another person.
- Services residential mortgage loans or provides escrow services.
Statute 224.74 (4)
Mortgage Broker | for compensation or gain or in the expectation of compensation or gain, does any of the following but does not make an underwriting decision or close a residential mortgage loan:
- Assists a person in obtaining or applying to obtain a residential mortgage loan.
- Holds himself, herself, or itself out as being able to assist a person in obtaining or applying to obtain a residential mortgage loan.
- Engages in table funding.
Statute 224.71 (5)
Mortgage Loan Originator | for compensation or gain or in the expectation of compensation or gain, does any of the following:
- Takes a residential mortgage loan application.
- Offers or negotiates terms of a residential mortgage loan
Secondary Mortgage Market
lenders sell already funded loans to other investors in order to recapitalize the lender’s resources.Fannie Mae and Freddie Mac Ginnie Mae are all participants in the secondary mortgage marketwhere loans are bought and sold only after being funded.
FHA | Federal Housing Administration
FHA approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments. The FHA does not lend money, rather it insures mortgages.
VA | Veterans Administration Loan
for military members currently serving in the U.S. military, veterans, reservists and surviving spouses and can be used to purchase single-family homes, condominiums, multi-unit properties, manufactured homes and new construction.
Debt-to-Income Ration
Percentage of monthly income that is spent on debt payments.
Mortgages, student loans, auto loans, minimum credit card payments, child support
Loan to Value
how much you are borrowing from a lender as a % of your home’s appraised value.
Prorating considerations
- Nature of the item being prorated
- Whether it is an accrued item that requires the determination of an earned amount
- Whether it is a prepaid item that requires the determination of an unearned amount (that is, a refund to the seller)
- What arithmetic processes must be used
