Chapter 15 - Real Estate Financing Principles Flashcards
The clause in a mortgage or trust deed or note that can be enforced to make the entire amount of principal and interest due immediately if the mortgagor defaults on an installment payment or other covenant.
acceleration clause
A mortgage loan in which the interest rate may increase or decrease at specified intervals over the life of the loan.
adjustable-rate mortgage (ARM)
The clause in a mortgage or deed of trust stating that the balance of the secured debt becomes immediately due and payable at the mortgagee’s option if the property is sold by the mortgagor. In effect, this clause prevents the mortgagor from assigning the debt without the mortgagee’s approval; also called a due-on-sale clause.
alienation clause
The mortgagor pays a constant amount, usually monthly. The lender credits each payment first to the interest owed and the balance it applied to reduce the principal. At the end of the term (usually 15 or 30 years) the principal and interest is zero.
amortized loan
The process of electronically evaluating a loan application, assessing a borrower’s ability to repay, and subsequently providing a recommendation for or against loan approval.
automated underwriting
A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.
balloon payment
A loan that calls for 26 half-month payments a year, resulting in an earlier loan retirement date and lower total interest costs than with typical fully amortized loan.
biweekly payment plan
A mortgage covering more that one parcel of real estate, providing for each parcel’s partial release from the mortgage lien on repayment of a definite portion of the debt.
blanket mortgage
A mortgage on which a cash payment, usually measured in points, has been made to the lender to reduce the interest rate a borrower must pay; usually ‘bought down’ for the first two or three years of the loan.
buydown mortgage
A computer network tied into a major lender that allows agents across the country to initiate mortgage loan applications in their own offices.
computerized loan origination (CLO)
See interim financing.
construction loan
A contract for the sale of real estate wherein the purchase price is paid in periodic installments by the purchaser, who is in possession of the property even though title is retained by the seller until final payment. Also called an installment contract, land contract, or contract of sale.
contract for deed
A loan that is not insured by the FHA or guaranteed by the VA.
conventional loan
A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This is a way for the mortgagor to avoid foreclosure.
deed in lieu of foreclosure
An instrument used to create a mortgage lien by which the mortgagor (borrower) conveys title to a trustee, who holds it as security for the benefit of the lender (beneficiary); also called a trust deed.
deed of trust
A provision in leases and mortgages that cancels a specified right on the occurrence of a certain condition, such as cancellation of a mortgage on repayment of the mortgage loan.
defeasance clause
A personal judgment levied against the mortgagor when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.
deficiency judgment
An added fee charged by a lender to make the yield on a lower-than-market-value loan competitive with higher-interest-rate loans.
discount points
A line of credit made against the equity in the borrower’s home.
equity loan
A privately owned corporation that participates in the secondary market by buying conventional, FHA, and VA loans, Formerly the Federal National Mortgage Association (FNMA).
Fannie Mae
An agency of the U.S. Department of Agriculture that makes and guarantees loans and provides credit counseling and supervision to farmers and ranchers who are temporarily unable to obtain private, commercial credit.
Farm Service Agency (FSA)
A secondary market for farm real estate loans; the Federal Agricultural Mortgage Corporation.
Farmer Mac
A central banking system designed to manage the nation’s economy; “the Fed.”
Federal Reserve System (the “Fed”)
A loan insured by the Federal Housing Administration and made by an approved lender in accordance with FHA regulations.
FHA loan
A payment plan in which a mortgagor makes lower monthly payments for the first few years of a loan and larger payments for the remainder of the term.
flexible-payment loan
A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document.
foreclosure
A corporation established to purchase primarily conventional mortgage loans in the secondary mortgage market. Chartered as the Federal Home Loan Mortgage Corporation (FHLMC)
Freddie Mac
A loan in which the principal and interest are payable in monthly or other installments to reduce the loan balance to zero at the end of the loan term.
fully amortized loan
A corporation within HUD that participates in the secondary market. It sells mortgage-backed securities that are backed by pools of FHA and VA loans. Chartered as the Government National Mortgage Association (GNMA)
Ginnie Mae
The pledge of specific real or personal property as security for the obligation without surrendering possession of it.
hypothecation
- A charge made by a lender for the use of money. 2. Thy type and extend of ownership in property.
interest
Some states’ interpretation of a mortgage as being purely a lien on real property. The mortgagee thus has not right of possession buy must foreclose the lien and sell the property if the mortgagor defaults. Texas is a lien theory state.
lien theory
The amount a lender charges for processing a loan; usually a percentage of the face amount of the loan.
loan origination fee
The ratio of debt to value of a property; the loan amount divided by the lesser of sales price or appraisal.
loan-to-value ratio ( LTV)
A conditional transfer or pledge of real estate as security for the payment of a debt Also, the document used to create a mortgage lien.
mortgage
Securities that are secured by pools of mortgages and are used to channel funds from securities markets to housing markets; Fannie Mae, Freddie Mac, and Ginnie May have mortgage-backed securities programs.
mortgage-backed securities
A lender in a mortgage loan transaction.
mortgagee
A borrower who conveys property as security of a loan.
mortgagor
A written instrument, such as a not, that may be transferred by endorsement or delivery. The holder, or payee, may sign the instrument over to another person or, in certain cases, merely deliver it to the person. The transferee then has the original payee’s right to payment.
negotiable instrument
A loan for which the sole source of satisfaction for default is the property that was given collateral; the debtor has no personal liability for any shortfall. Equity loans and reverse-annuity mortgages are nonrecourse.
nonrecourse note
A mortgage loan that is expandable by increments up to a maximum dollar amount, the full loan being secured by the same original mortgage.
open-end mortgage
A method of financing in which the loan that finances the purchase of a home also finances the purchase of certain items of personal property, such as washers, dryers, refrigerators, stoves, and other specified appliances.
package mortgage
A provision in a deed of trust authorizing the trustee to sell a property in the event of the borrower’s default.
power-of-sale clause
A charge imposed on ta borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that otherwise are lost.
prepayment penalty
Mortgages are originated in the primary mortgage market.
primary mortgage market
Default insurance on conventional loans, normally insuring the top 20% to 25% of the loan and not the whole loan.
private mortgage insurance (PMI)
An unconditional written promise of one person to pay a certain sum of money to another at a future specified time.
promissory note
- Note secured by a mortgage or trust deed given by a buyer, as mortgagor, to a seller, as mortgagee, as part of the purchase price of real estate, 2. A mortgage given as part of the buyer’s consideration for a purchase of real property.
purchase money mortgage
Buying back real estate sold in a tax sale. The defaulted owner is said to have the right of redemption.
redemption
Law requiring credit institutions to inform borrowers of true cost of obtaining credit; commonly called the Truth in Lending Act.
Regulation Z
A document that transfers all rights given a trustee under a trust deed loan back to the grantor after the loan has bee fully repaid; also known as a deed of reconveyance.
release deed
An instrument indicating that a previously existing lien has been released and is no longer enforceable.
release of lien
A form of mortgage that enables homeowners age 62 and older to borrow against equity in their homes, receiving monthly payment to help meet living costs.
reverse-annuity mortgage
An agency within the U.S. Department of Agriculture that makes residential loans in rural communities with populations of 10,000 or less.
Rural Development )RD)
A transaction in which an owner sells improved property an, as part of the same transaction, signs a long-term lease to remain in possession of the premises.
sale-and-leaseback
A document acknowledging the payment of a debt secured by a tw0party mortgage document.
satisfaction of mortgage
A market for purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages; also called the secondary money market.
secondary mortgage market
A mortgage loan in which the lender, in exchange for a loan with favorable interest, participates in the profits (if any_ the mortgagor receives when the property is eventually sold.
shared-appreciation mortgage
A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage; the lender agrees to accept the proceeds of the sale and forgive the balance on the loan.
short sale
A loan in which interest is paid periodically but no principal is paid until the due date on the note, when the entire principal amount is due with the final interest payment.
term loan or interest-only loan
A Texas governmental agency that has financing programs to help low-income and moderate-income families acquire housing.
Texas Department of Housing and Community Affairs (TDHCA)
Created in 1946 to administer a program to provide low-interest, long term loans to Texas veterans for the purchase of land (the Land Progra. Also administers the Housing Assistance Program and the Home Improvement Program.
Texas Veterans Land Board (BLB)
Some states’ interpretation of a mortgage to mean that the lender is the owner or mortgages land. On full payment of the mortgage debt, the borrower becomes the landowner; not recognized in Texas.
title thory
Specific credit terms, such as down payment, monthly payment, the amount of finance charges, or the term of the loan, which, if included in an advertisement, trigger full disclosure of all financing terms under Regulation Z. Advertisement can include cost by itself.
trigger terms
A deed of trust.
trust deed
Charging interest at a rate higher than the maximum rate established by state law.
usury
A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the U.S. Department of Veterans Affairs to limit the lender’s possible loss.
VA loan
An agency that purchases a number of mortgage loans and assembles them into one or more packages of loans for resale to investors; Fannie Mae, Freddie Mac, and Ginnie Mae are warehousing agencies.
warehousing agency
A method of refinancing in which the new mortgage is placed in a secondary, or subordinate, position; the new mortgage includes both the unpaid principal balance of the first mortgage and whatever additional sums are advanced by the lender.
wraparound loan or mortgage
