Chapter 15 - Financing II: Primary and Secondary Markets

Question 0

Construction loan

Answer 0

Made to finance the construction of improvements on real estate under which the lender disburses the loan proceeds while the building is being constructed. Generally bears a higher interest rate because of the risk assumed by the lender.

Question 1

Blanket mortgage

Answer 1

A mortgage covering more than one parcel of real estate.

Question 2

Credit union

Answer 2

A cooperative organization for savers and borrowers.

Question 3

Fannie Mae (formerly Federal Home LoanMortgage Company)

Answer 3

Sets standards and buys mortgages.

Question 4

Freddie Mac

Answer 4

Warehouse packages of mortgages.

Question 5

Ginnie Mae

Answer 5

Pools mortgages for investors.

Question 6

Home equity loan

Answer 6

Additional borrowings for homeowner: type of second mortgage.

Question 7

Interim financing

Answer 7

Bridge or swing loan to cover the gap between purchase of a new home and sale of the old one.

Question 8

Jumbo loan

Answer 8

Loan for higher amount than those bought by the secondary market.

Question 9

Mortgage banker

Answer 9

Institution set up to make loans. Use money borrowed from other institutions and funds of their own to make real estate loans that may later be sold to investors. Subject to considerably fewer restrictions than commercial banks.

Question 10

Open-end mortgage

Answer 10

Frequently used to obtain additional funds to improve their property. The borrower opens the mortgage to increase the debt after it has been reduced by payments over a period of time. The lender is not obligated to advance the additional funds.

Question 11

Package mortgage

Answer 11

Covers not only the real estate but also all fixtures, appliances and the premises. In recent years it has been used extensively in financing furnished condominium units.

Question 12

Portfolio loan

Answer 12

Loan not intended for sale in the secondary market.

Question 13

Primary mortgage market

Answer 13

Lenders who make individual loans directly to borrowers. In effect these lenders supply funds as an investment.

Question 14

Qualifying ratio

Answer 14

Percentage of income a borrower is allowed to spend on mortgage payments.

Question 15

Regulation Z

Answer 15

Implements the Truth-in Lending Act. requires lenders to inform borrowers of the true cost of obtaining credit so consumers can compare the costs various lenders and avoid uninformed use of credit. requires borrowers to inform of all charges, as well as true annual interest rate (APR), defines creditor as anyone who makes 25 loans a year, or more than 5 times if a dwelling is used as security, three-day right of rescission, and adverting restrictions based on triggering terms.

Question 16

Reverse mortgage

Answer 16

Mortgage through which elderly homeowner can draw against equity, building up a gradual debt with no repayments until moving out.

Question 17

Sale-leaseback

Answer 17

a transaction in which the owner sell their improved property and, as part of the same transaction, signs a long-term lease as to remin in possession of the premises.

Question 18

Shared equity mortgage

Answer 18

A mortgage loan in which the lender, in exchange for a loan with a favorable interest rate, participates in the profits (if any) the mortgagor receives when the property is eventually sold.

Question 19

Triggering terms

Answer 19

Applies to Regulation Z with respect to advertising in that is any one of the following triggering terms is used, three further items of information must be included: amount or percentage of down payment, number of payments or period of repayment, amount of any payment and amount of any finance charge. Any advertising must include the words “to a qualified borrower”.

Question 20

Truth-in-lending

Answer 20

The Truth-inLending Act is implemented by Regulation Z.

Question 21

Underwriting

Answer 21

Process by which the lender investigates the application information, studies credit reports and appraisal of the property before deciding whether to grant the loan. The lenders acceptance is written in the form of a loan commitment.

Question 22

Wraparound mortgage

Answer 22

An additional mortgage in which another lender refinances a borrower by lending an amount including the existing first mortgage amount without disturbing the existence of the first mortgage.