Chapter 15 yellow Gov't involvement in Financing Flashcards
Federal Reserve System
is to maintain sound credit conditions
help counteract inflationary and deflationary trends, and create a favorable economic climate.
consists of 12 reserve district banks
regulates the flow of money and interest rates
Discount Rate
the interest rate set by the FED that member banks are charged when they borrow money through the fed
Primary Mortgage Market
lenders who originate mortgage loans directly to home buyers.
Savings associations, thrifts, commercial banks
fiduciary lenders subject to the standards and regs of the (OCC) office of the comptroller of the currency.
The secondary Mortgage Market
in which loans are bought and sold only after they have been funded.
helps lenders raise capital to mean additional mortgage loans and is especially useful when money is in short supply.
It stimulates both the housing construction Market and the mortgage market
Fannie Mae
conventional, FHA and VA loans
buys from a lender a block or pool of mortgages that may then be used as collateral for mortgage-backed securities that are sold on the global market
GSE Govt Sponsored enterprises
Fannie Mae
Freddie Mac
Ginnie Mae
Farmer Mac
Freddie Mac
mostly conventional loans.
Farmer Mac
privately owned and pubilicflly traded
Created by congress to create a secondary market of agricultural mortgage and rural utilities loans and the portions of agricultural and rural development loans guaranteed by the USDA
Ginnie Mae
a division of HUD. organized as a corporation without capital stock.
administers special-assistance programs and guarantees investment securities issued by private offerors and backed by pools of FHA insured and VA guaranteed mortgage loans
The ginnie Mae Pass through certificate
a security interest in a pool of mortgages that provides for a monthly pass-through of principal and interest payments directly to the certificate holder. These certificates are guaranteed by Ginnie Mae.
LTV Loan to Value
The ratio of debt to the value of the property, where the value is the sales price or appraised value, whichever less.
The lower the the ratio of debt to value, the higher the down payment by the borrower.
For the lender, the higher downpayment means a more secure loan, which minimizes risk.
conventional loans
most secure because the LTV ratios are often the lowest. The ratio may be 80% of the value of the property or less because the borrower may make a down payment of at least 20%.
Not backed by govt.
PMI
private mortgage insurance is required by most lenders when less than 20% is given as a downpayment.
The borrower purchases insurance that provides the lender with funds in the event of borrower default on the loan.
Recourse loan
allows the lender to obtain deficiency judgement against the borrower’s assets after foreclosure.
conforming loans
meet the Fannie Mae guidelines of housing costs not exceeding 28% of Monthly Gross Income and other expenses not exceeding 36% of Monthly Gross Income.
They are eligible to be sold on the secondary market
nonconforming loans or jumbo loans
exceed the stated limits and are not marketable
FHA insured loans
operates under HUD.
it is a loan that is insured by the FHA.and must be made by an approved lending institution.
Mortgage Insurance Premium
The borrower is charged MIP for all FHA loans. It is an up front premium charged at closing and can be financed into the mortgage loan.
Discount Points
A unit of measurement used for various loan charges, one point = 1% of the amount of the loan
Discount Rate
The interest rate set by the FED that member banks are charged when they borrow money through the FED.
Assumption Rules
a qualified buyer may assume an existing FHA insured loan.
HUD home Sales
Foreclosures of FHS insured home by HUD provide opportunities for both homebuyers and investors.
VA Loans
guarantee loans used to purchase amor construct home for eligible veterans and their spouses.
CRV Certificate of reasonable value
issued by the VA for the property being purchased. It states the property’s current market value based on a VA approved appraisal.
VA and FHA insured Loans
can both repay the loan at any time with out a prepayment penalty
Package Loan
includes all real and personal property. They include furniture, drapes, appliances as part of the sales price of the home.
Blanket Loan
covers more than one parcel or lot. used by developers to finance a subdivision. but can also be used to finance the purchase of improved properties or to consolidate multiple loans on a single property.
Usually includes a provision called a Partial release clause
Partial Release Clause
permits the borrower to obtain the release of any one lot or parcel from the blanket lien by repaying a certain amount of the loan.
wraparound loan
enables a borrower with an existing mortgage loan to obtain additional financing from a second lender without paying off the first loan.
Open End Loan
provides a security interest when a note is executed by the borrower to the lender, but also secures any future advances of funds made by the lender to the borrower.
construction loan
made to finance the construction of improvements on RE such as home,s apartments and office buildings. The lender commits tot eh full amount of the loan but disburses the funds in payments during construction.
Short term or interim financing.
Sale and lease back
these are arrangements and not loans, and are used to finance large commercial or industrial properties.
land and buildings are sold to in investor, then the company leases back the land and buildings from the investor.
The buyer becomes the landlord and the original owner becomes the tenant.
Buydown
is a way to temporarily or permanently lower the interest rate on a mortgage or deed of trust loan.
home equity loan
a source of funds that takes advantage o the equity built up in a home. It is a junior or second loan. will carry a higher rate of interest.
HELOC Home equity line of credit
the lender extends a line of credit that the borrower can use at will.
Truth in lending act
requires that credit institutions inform borrower of the true cost of obtaining credit before the transaction is completed.
Regulation Z
applies when a credit transactions secured by a residence.
APR
Annual Percentage Rate must be computed and disclosed to the borrower under the TILA.
which is calculated based on all charges rather than the interest rate alone must be stated
Creditor
any person who extends consumer credit more than 25 times a year or more than 5 times each year if the transactions involve dwellings as security.
3 Business Day right of Rescission
the borrower has 3 business days in which to rescind (cancel) the transaction by notifying the lender.
Penalties
a creditor who fails to comply with any requirements of TILA, may be held liable tot eh consumer for actual damage and the cost of any legal action together with reasonable attorney’s fees.
ECOA (Equal Credit Opportunity Act
prohibits discrimination in the lending process based on the credit applicant’s race, color, religion, national origin sex, marital status and or receipt of public assistance.
CRA Community Reinvestment Act
refers to the reinvestment of financial institutions to help meet their communities’ needs for low income and moderate income housing.
RESPA RE Settlement Procedures Act
applies to any residential RE transaction involving a new first mortgage. Designed to ensure that the buyer and the seller are both fully informed of all costs related to closing the transaction.
