Chapter 17 Flashcards
adjustable
rate loan
type of mortgage loan with
an interest rate that can
fluctuate or adjust
periodically based on
changes in an index
amortization
process of paying off a
debt, such as a mortgage
loan, over time through
regular payments that
include both principal and
interest
assumability
ability of a borrower to
take over an existing
mortgage loan from a seller,
subject to lender approval
debt
ratio
financial measure used by
lenders to assess a
borrower’s ability to manage
debt by comparing their
monthly debt payments to
their gross monthly income
deed of
trust
deed of trust is a legal
document used in some states
instead of a mortgage to secure
a loan on real estate. It involves
three parties: the borrower
(trustor), the lender
(beneficiary), and a neutral
third party (trustee) who holds
legal title to the property until
the loan is repaid
Equal Credit
Opportunity
Act
federal law that prohibits
lenders from discriminating
against borrowers on the
basis of race, color, religion,
national origin, sex, marital
status, age, or receipt of
public assistance
Fannie Mae
government-sponsored
enterprise (GSE) that
provides liquidity to the
primary mortgage market by
purchasing and securitizing
mortgage loans from lenders.
FHA
The Federal Housing
Administration (FHA) is a
government agency that
insures mortgage loans made
by FHA-approved lenders,
providing lenders with
protection against losses in
case of borrower default.
Freddie Mac
government-sponsored
enterprise (GSE) that
provides stability and
liquidity to the secondary
mortgage market by
purchasing and securitizing
mortgage loans from lenders.
Ginnie Mae
government agency that
guarantees mortgage-backed
securities (MBS) backed by
federally insured or
guaranteed mortgage loans,
such as FHA and VA loans.
hypothecation
Hypothecation is when a
borrower pledges property,
like a house, as collateral for
a loan. This means if the
borrower fails to repay the
loan, the lender has the right
to take possession of the
property to recover the
money owed.
income
ratio
A financial measure used by
lenders to assess a
borrower’s ability to afford a
mortgage loan by comparing
their gross monthly income
to their monthly housing
expenses.
lien
theory
Lien theory is a legal concept
in some states that considers
a mortgage to be a lien on the
property. This means the
borrower retains ownership
of the property while the
lender holds a security
interest in it until the loan is
repaid.
loan
balance
loan balance is the
amount of money still owed
on a loan at any given time.
It’s the remaining principal
balance plus any accrued
interest and fees, minus any
payments made by the
borrower
loan
commitment
formal agreement by a
lender to provide financing to
a borrower, subject to certain
conditions and requirements
being met
loan-to-value
ratio
financial measure used by
lenders to assess the risk of a
mortgage loan by comparing
the amount of the loan to the
appraised value of the
property.
mortgage
A mortgage is a loan used to
buy a home or other real
estate. It’s a legal agreement
between the borrower and
the lender that gives the
lender the right to take
possession of the property if
the borrower fails to repay
the loan
mortgage
financing
Mortgage financing is the
process of borrowing money
from a lender, usually a bank
or mortgage company, to buy
a home. The lender provides
the funds needed to
purchase the property, and
the borrower agrees to repay
the loan over time, typically
with interest
mortgage
insurance
policy that protects the
lender against financial loss
if the borrower defaults on
the mortgage loan.
mortgagee
mortgagee is the lender
in a mortgage transaction.
They’re the person or entity
that provides the loan to the
borrower in exchange for a
security interest in the
property being purchased.
mortgagor
mortgagor is the
borrower in a mortgage
transaction. They’re the
person or entity that takes
out the loan and pledges
their property as collateral to
secure the loan.
note
note is a legal document
that outlines the terms of a
loan, including the amount
borrowed, the interest rate,
and the repayment schedule.
It serves as evidence of the
debt owed by the borrower to
the lender
payment
periodic installment made
by a borrower to a lender to
repay a loan.
points
Points, also known as loan
origination fees or discount
points, are upfront fees paid
by the borrower to the lender
at closing in exchange for a
lower interest rate on the
loan. Each point typically
costs 1% of the loan amount
and can lower the interest
rate by a certain percentage
for the life of the loan.
primary
mortgage
market
market where borrowers
obtain mortgage loans
directly from lenders, such as
banks, credit unions, and
mortgage companies.
qualification
process of determining
whether a borrower meets
the criteria set by a lender for
obtaining a loan.
Real Estate
Settlement
Procedures Act
(RESPA)
federal law that regulates
the real estate settlement
process and requires lenders
to provide borrowers with
certain disclosures and
protections.
Regulation Z
federal law that requires
lenders to disclose the terms
and conditions of consumer
credit transactions, including
the cost of credit and the
annual percentage rate
(APR).
secondary
mortgage
market
the market where existing
mortgage loans are bought
and sold by investors, such
as government-sponsored
enterprises (GSEs),
mortgage-backed securities
(MBS) issuers, and
institutional investors
seller
financing
financing arrangement in
which the seller of a property
provides financing to the
buyer, allowing the buyer to
purchase the property with
an installment agreement
rather than obtaining a
traditional mortgage loan
from a lender.
term
length of time over which
a loan must be repaid.
title
theory
Title theory is a legal concept
in some states that considers
a mortgage to transfer legal
title of the property to the
lender until the loan is fully
repaid. Once the loan is paid
off, the title reverts back to
the borrower
underwriting
The process by which a
lender evaluates a borrower’s
creditworthiness and the risk
associated with lending them
money
Uniform
Settlement
Statement
standardized form used in
real estate transactions to
itemize all charges and
credits associated with the
closing of a mortgage loan.
VA
The Department of Veterans
Affairs (VA) provides
mortgage loan guarantee
programs for eligible
veterans, active-duty service
members, and certain
surviving spouses.
What is a mortgage loan primarily used for?
To buy property
When the terms of the mortgage loan are satisfied, the mortgagee
may be required to execute a release of mortgage document
A conventional mortgage loan is one that is
not FHA-insured or VA-guaranteed
What must a consumer receive when there is an affiliated business arrangement between two settlement service providers?
A written disclosure about the existence of the arrangement and a written estimate of the charges or range of charges
The key feature of an adjustable mortgage loan is that
the interest rate may vary
The Equal Credit Opportunity Act (ECOA) requires lenders to
consider the income of a spouse in evaluating a family’s creditworthiness
At the closing of a mortgage loan
the parties complete all loan origination documents and the loan is funded
A borrower obtains a 30-year, fully amortizing mortgage loan of $300,000 at 8%. What is the principal balance at the end of the loan term?
Zero
The purpose of an income ratio in qualifying a borrower is to
safeguard against over-indebtedness
A distinctive feature of a promissory note is that
it is a negotiable instrument
If a borrower obtains an interest-only loan of $750,000 at an annual interest rate of 8%, what is the monthly interest payment?
$5,000
The primary role of the Federal Housing Authority in the mortgage lending market is to
insure loans made by approved lenders
Hopeful homeowner Henry has an eye on a house valued at $600,000. His lenders LTV is 80%. How much cash will Henry need to put in for a downpayment?
$120,000
A VA certificate of eligibility determines
how much of a loan the VA will guarantee
Under the Equal Credit Opportunity Act, a lender, or a real estate agent who assists a seller in qualifying a potential buyer, may not
ask the buyer/borrower about his/her religion or national origin
A bank is offering Henry a 30-year loan of $300,000 at a rate of 4.5%. The loan constant for this loan is 5.07. How much will Henry have to pay for monthly principal and interest?
1,521
The principal role of the Veteran’s Administration in the mortgage lending market is to
guarantee loans made by approved lenders
The three overriding considerations of a lender’s mortgage loan decision are
the ability to re-pay, the value of the collateral, and the profitability of the loan
The difference between a balloon loan and an amortized loan is
an amortized loan is paid off over the loan period
balloon payment
larger than normal payment at the end of the loan term
