Chapter 15: Real Estate Financing: Practices Flashcards
annual percentage rate (APR)
The relationship of the total finance charges associated with a loan. This must be disclosed to borrowers by lenders under the Truth in Lending Act
blanket mortgage
A mortgage covering more than one parcel of real estate, providing for each parcel’s partial release from the mortgage lien upon repayment of a definite portion of the debt
buydown
A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time
certificate of reasonable value (CRV)
A form indicating the appraised value of a property being financed with a VA loan
conforming loan
A standardized conventional loan that meets Fannie Mae’s or Freddie Mac’s purchase requirements
construction loan
A short term loan usually made during the construction phase of a building project
Consumer Financial Protection Bureau (CFPB)
A federal agency created by the Dodd-Frank Act in 2010 to oversee consumer protection via financial regulations within seven federal agencies
conventional loan
A loan from private investors that requires no government insurance or guarantee
Department of Housing and Urban Development (HUD)
A federal cabinet department active in national housing programs. Among its many programs are urban renewal, public housing, model cities, rehabilitation loans, FHA subsidies, fair housing enforcement, and water and sewer grants
Equal Credit Opportunity Act (ECOA)
The federal law that prohibits discrimination in the extension of credit because of race, color, religion, national origin, sex, age, or marital status
Fair Credit Reporting Act
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Fannie Mae (FNMA)
A quasi-government agency established to purchase any kind of mortgage loans in the secondary market from the primary lender
Federal Reserve System
The country’s central banking system, which controls the nation’s monetary policy by regulating the supply of money and interest rates.
FHA-insured loan
A loan insured by the Federal Housing Administration and made by an approved private lender in accordance with the FHA’s regulations
Freddie Mac
A corporation established to purchase primarily conventional mortgage loans in the secondary mortgage market
Ginnie Mae
A government agency under HUD that plays an important role in the secondary mortgage market. It sells mortgage-backed securities that are backed by pools of FHA and VA loans
home equity loans
A loan (sometimes called a line of credit) under which property owners use their residence as collateral and can then draw funds ups to a prearranged amount against the property
jumbo loan
A residential mortgage loan in excess of acceptable loan amounts for purchase by Fannie Mae or Freddie Mac; also called nonconforming loans
loan-to-value ratio (LTV)
The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral
open-end mortgages
A mortgage loan that is expandable by increments up to a maximum dollar amount, the full loan being secured by the same original mortgage; an equity line mortgage
package loan
A real estate loan used to finance the purchase of both real property and personal property, such as in the purchase of a furnished home that includes window coverings and major appliances
Predatory Lending Act
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primary mortgage market
The mortgage market in which loans are originated, consisting of lenders such as commercial banks, savings associations, and mortgage broker
private mortgage insurance (PMI)
Insurance provided by a private carrier that protects a lender against a loss in the event of a foreclosure and deficiency
purchase money mortgage
A note secured by a mortgage or deed of trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price of the real estate
rate lock
A guarantee from mortgage lenders that they will give mortgage loan applicants a certain rate, at a certain price, for a specific time period
Real Estate Settlement Procedures Act (RESPA)
Federal law that insures that residential buyers and sellers receive full disclosure of all settlement charges when a 1-4 family unit residence is financed by federally-related first mortgage loans. The Act mandates a HUD booklet about closing costs, a loan estimate of closing costs, and a standardized closing statement. The Act, known as Regulation X, also prohibits kickbacks from lenders
Regulation Z
Implements the Truth in Lending Act requiring credit institutions to inform borrowers of the true cost of obtaining credit
reverse mortgage
A loan under which the homeowner receives monthly payments based on the homeowner’s accumulated equity rather than a lump sum. The loan must be repaid at a prearranged date, upon the death of the owner, or the sale of the property
sale and leaseback
A transaction in which an owner sells an improved property and, as part of the same transaction, signs a long-term lease to remain in possession of the premises.
secondary mortgage market
A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages; also called the secondary money market. Mortgages are first originated in the primary mortgage market
subordination agreement
A written agreement between holders of liens on a property that changes the priority of mortgage, judgment, and other liens under certain circumstances
subprime mortgage
A loan made to a borrower with a credit rating below what is required for regular loans creating greater risk liability for the lender that is countered by higher interest rates and fess; called B, C, or D paper
trigger terms
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Truth in Lending Act
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VA-guaranteed loan
A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs to limit the lender’s possible loss
predatory lending
Unscrupulous, sometimes fraudulent, lending practices usually intending to make repayment impossible; designed to take advantage of unwary borrowers that are frequently the low-income, uninformed, elderly, or non-English speaking
Regulation X
The rules which implement and interpret the Real Estate Settlement Procedures Act (RESPA) of 1974
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)
Legislation passed in 2010, primarily affecting the financial institutions and their consumers in an effort to prevent a recurrence of events that caused the economic recession and the mortgage market meltdown during the mid 2000s.
