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Illinois Real Estate Pre-License Broker Course > Chapter 6: Real Estate Financing > Flashcards

Chapter 6: Real Estate Financing Flashcards

Definitions

1
Q

Mortgage

A

a voluntary lien on real estate

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2
Q

Mortgagor

A

the borrower, maker or payor

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3
Q

Mortgagee

A

the lender

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4
Q

Title-theory States

A

the mortgagor gives legal title to the mortgagee and retains equitable title - lender has right to immediate possession if mortgagor defaults

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5
Q

Lien-theory States

A

the mortgagor holds legal title - mortgagee/lender has a lien on property - if mortgagor defaults then formal foreclosure proceedings

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6
Q

Illinois is what theory lien or title?

A

neither - it’s an Intermediate Mortgage Theory State

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7
Q

Mortgage approach

A

buyer gets title

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8
Q

Deed of Trust

A

lender has title

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9
Q

Intermediate Mortgage Theory

A

Mortgage approach & Deed of Trust

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10
Q

Defeasance Clause

A

the lien is released by the lender at the time debt is fully repaid

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11
Q

Two parts of mortgage loans

A

the debt & the security for the debt

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12
Q

Two documents when a property is mortgaged

A

promissory note (amount owed) & security document (mortgage pledging property as collateral)

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13
Q

Hypothecation

A

the promise of collateral in return for a loan, for when a lender wants to protect itself from when a borrower misses payments.

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14
Q

Promissory Note

A

note or financing instrument - the borrower’s personal promise to repay a debt according to agreed terms - legally enforceable and fully negotiable upon signed

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15
Q

What does a promissory note state?

A

Amount of debt, time & method of payment, rate of interest

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16
Q

Unsecured note

A

used by banks (and other lenders) for short-term personal loans

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17
Q

Interest

A

a charge for the use of money

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18
Q

Payment made at the beginning of each period

A

payment in advance

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19
Q

Payment made at the end of a period

A

payment in arrears

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20
Q

Usury

A

charging interest in excess of the maximum rate allowed by law

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21
Q

Loan origination fee

A

the processing of a mortgage application - it is NOT prepaid interest - however IRS lets a buyer deduct the loan origination fee as interest paid up front as part of Regulation Z

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22
Q

Regulation Z

A

part of the Truth in Lending Act of 1968 designed to protect consumers against misleading lending practices

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23
Q

Discount points

A

fees paid directly to the lender at closing in exchange for a reduced interest rate - “buying down the rate”

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24
Q

One discount point equals

A

1 percent of the loan amount - 1 point is 1% of mortgage

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25
Q

Prepayment penalty

A

payment if borrower pays loan ahead of schedule

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26
Q

Prepayment penalty in Illinois is prohibited

A

on fixed rate loans w/ interest rate >8%

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27
Q

Prepayment penalty in Illinois is allowed

A

on adjustable rate loans

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28
Q

Deed of Trust (mortgage document) establishes

A

the property is security for a debt, identifies lender & borrower, includes legal description of property

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29
Q

Three-party instrument

A

Deed of trust, or trust deed

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30
Q

A deed of trust conveys

A

naked title/bare title

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31
Q

Naked title or bare title

A

title without the right of possession

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32
Q

The deed is given by the

A

buyer-borrower (Trustor)

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33
Q

Trustor

A

the “grantor” of a trust is the creator of the trust

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34
Q

Trustee

A

the person who manages the trust - holds the title on behalf of the lender/beneficiary

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35
Q

Beneficiary

A

the mortgagee, the holder of the note

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36
Q

Acceleration clause

A

the lender may declare the entire debt due and payable immediately “accelerate the maturity of the debt”

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37
Q

Without an Acceleration clause

A

the lender would have to sue the borrower every time a payment was overdue

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38
Q

Each discount point increases the lender’s yield by

A

1/8 of 1% (.00125)

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39
Q

1/8 of 1%

A

.00125

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40
Q

Release of mortgage (mortgage lien) or mortgage discharge

A

“Satisfaction of Mortgage”

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41
Q

Deed of Reconveyance

A

the trustee executes a release deed to the trustor

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42
Q

Impound Account

A

Escrow Account

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43
Q

Escrow Account

A

a reserve fund to meet future real estate taxes and property insurance premiums

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44
Q

PITI

A

Principal, interest, taxes & insurance

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45
Q

In IL a lender may not require an escrow accumulation of more than

A

150% of the previous year’s real estate taxes

46
Q

In IL an escrow account may be terminated by borrower when

A

the principal loan balance has been reduced to 65% of its original amount

47
Q

When a property is sold “subject to mortgage”

A

the buyer is not personally obligated to pay the debt in full

48
Q

When a buyer “assumes the seller’s dept”

A

the buyer becomes personally obligated for the payment of the entire debt

49
Q

Alienation clause

A

“due-on-sale” clause - the lender may either declare the entire debt due immediately or allow the mortgage to be assumed

50
Q

What is a second mortgage also called?

A

a junior lien

51
Q

Subordination agreement

A

a legal document that establishes one debt as ranking behind another in priority for collecting repayment from a debtor

52
Q

2 other names for an Installment contract

A

Contract for deed or land contract

53
Q

Land contract buyer is called

A

vendee & is granted equitable title

54
Q

Land contract seller is called

A

vendor & retains legal title

55
Q

In an installment contract the seller delivers a “_____” title

A

a “clear” title

56
Q

In a land contract the seller can usually evict the buyer in the event of default unless

A

the buyer has 20% equity and a contract in excess of 5 years (then would need judicial foreclosure)

57
Q

Foreclosure

A

property pledged as security is sold to satisfy the debt

58
Q

Three types of foreclosure

A

Non-judicial foreclosure, judicial foreclosure & strict foreclosure

59
Q

Non-judicial foreclosure

A

when power-of-sale clause allows sale of property by way of a nonjudicial foreclosure

60
Q

Judicial foreclosure (Illinois is classified as a judicial foreclosure state)

A

property is sold by court after presentation of facts to highest bidder

61
Q

Strict foreclosure

A

if borrower doesn’t pay off the loan by a certain date, court awards full legal title to lender

62
Q

Deed in lieu of foreclosure

A

“friendly foreclosure” transfers the home’s title from the homeowner to the bank that holds the mortgage

63
Q

Short sale

A

lender accepts less than the amount owed on the property

64
Q

Deficiency judgement

A

an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note, or loan, in full

65
Q

HAMP

A

reduces loan to no more than 31% of pretax income by reducing interest rate, increasing term up to 40 years, reducing principal on which interest is charged

66
Q

HAFA

A

provides alternatives to foreclosures like deed-in-lieu of foreclosure or short sale

67
Q

Redemption

A

when a state allows delinquent buyers to redeem property

68
Q

Certificate of sale

A

a certificate issued to the winning bidder at a foreclosure sale - after confirmed by the court the holder recieves a sheriff’s deed

69
Q

Deficiency Judgement

A

personal judgment agains the borrower for the unpaid balance of a loan

70
Q

The Federal Reserve System requires tht each member bank keep a certain level of assests on hand as reserve funds

A

Reserve requirements

71
Q

Discount Rate

A

the rate charged by the Federal Reserve when it lends money to its member banks

72
Q

Prime rate

A

the short-tern interest rate charged to a bank’s largest, most creditworthy customers and it is a basis for determining a bank’s interest rate on other loans like home mortgages

73
Q

MLO

A

Mortgage Broker Licensing - anyone who for compensation or expectation of compensation, takes a residential mortgage loan by phone or in person

74
Q

Fannie Mae

A

does all loans

75
Q

Freddie Mac

A

mostly conventional loans - a mortgage that is not guaranteed or insured by any government agency

76
Q

Ginnie Mae

A

FHA / VA, special assistance loans - division of HUD - guarantees mortgage backed securities - guarantees “pass through certificate”

77
Q

when various agencies purchase a number of mortgage loans and assemble them into packages

A

blocks or pools

78
Q

Straight Loans

A

Interest-only loan, term loan, non-amortized loan - it divides the loan into two amounts to be paid off separately - borrower pays periodic payments of interest only followed by the payment of the principal in full at the end of the term.

79
Q

Amortized Loans

A

EXACT payment every month

80
Q

Adjustable-Rate Mortgage

A

a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan

81
Q

Periodic Cap Rate

A

limits the amount the rate may increase at any one time

82
Q

Aggregate Rate Cap

A

limits the amount the rate may increase over the entire life of the loan

83
Q

Balloon Payment Loan

A

a mortgage which does not fully amortize over the term of the note, thus leaving a balance due at maturity

84
Q

Growing Equity Mortgage

A

GEM - rapid-payoff mortgage - uses a fixed interest rate but payments of principal are increased according to an index or a schedule

85
Q

Reverse Mortgage

A

62+ years to borrow money against equity for any purpose - no payments due until property is sold or borrower defaults, moves or dies

86
Q

Nonrecourse Loan

A

Borrower is not held personally responsible for the loan

87
Q

Conventional Loans

A

most secure loans - loan-to value ratios are often the lowest - borrower makes down payment of at least 20%

88
Q

Fannie Mae and Freddie Mac require how many years to re-establish credit?

A

4 years

89
Q

Fannie Mae requires borrow’s monthly housing expenses including PITI not exceed ?

A

28% of total monthly gross income

90
Q

Fannie Mae requires borrow’s monthly financial obligations not exceed ?

A

36% of total monthly gross income (33% in the case of 95% LTV loans)

91
Q

Conforming loans

A

meet criteria and are eligible to be sold in the secondary market

92
Q

PMI

A

Private Mortgage Insurance - protects the top 20 to 30 percent of the loan against borrower default

93
Q

PMI under Homeowners’ Proctection Act of 1998

A

PMI must terminate when borrower reaches 22% equity based on original value

94
Q

FHA-Insured Loans

A

3.5% down, borrower charged MIP (Mortgage Insurance Premium), may get charged discount points in addition to loan origination fee - it more than 6% lender will treat payments as reduction in sales price and recalculate the mortgage

95
Q

VA-Guarenteed Loans

A

Dept of Veterans Affairs is authorized to guarantee loans for eligible veterans and their spouses, little to no down payments, no dollar limit on the loan rather the VA limits the amount of the loan it will guarantee

96
Q

Certificate of Eligibility (COE)

A

serves as that proof, and tells a lender that an applicant has officially met the minimum service requirement

97
Q

Certificate of Reasonable Value (CRV)

A

Establishes a ceiling on the maximum VA mortgage loan principal

98
Q

FSA

A

Farm Service Agency offers programs to help families purchase or operate family farms

99
Q

Purchase-Money Mortgages

A

mortgage issued to the borrower by the seller of a home as part of the purchase transaction. Also known a seller or owner financing, this is usually done in situations where the buyer cannot qualify for a mortgage through traditional lending channels

100
Q

Package Loans

A

RP+PP, usually developer offering on new property (i.e. appliances)

101
Q

Blanket Loans

A

Covers more than one parcel or lot, used to finance subdivision developments, contains partial release clause

102
Q

Wraparound Loans

A

instead of paying off their existing mortgage, the home seller keeps their home loan in place, while the buyer’s new mortgage “wraps around” the existing home loan

103
Q

Open-End Loans

A

a line of credit that allows you to borrow money when you need it

104
Q

Construction Loans

A

Interim Financing, short-term, borrower pays interest only on monies that have actually been disbursed - borrower to arrange take-out loan or end loan which will repay or take out the construction financing lending when work is complete

105
Q

Sale-Leaseback

A

buyer becomes landlord (lessor) and original tenant (lessee)

106
Q

Buy-downs

A

a way to temporarily (or permanently) lower the initial interest rate on a mortgage by 1 to 2 percent over the first on to two years of the loan term

107
Q

Home Equity Loans

A

HELOC, Original loan remains in place, home equity loan is junior to the original lien

108
Q

Truth in Lending Act and Regulation Z

A

requires credit institutions to inform borrowers of the true cost of obtaining credit, true cost of lending - applies to residential loans, APR must include: loan fees, finder’s fees, service charges, points, interest

109
Q

Three-day right of rescission

A

a right of a borrower to cancel a home equity loan or line of credit with a new lender, or to cancel a refinance transaction done with another lender other than the current mortgagee, within three days of closing

110
Q

ECOA

A

Equal Credit Opportunity Act prohibits lenders and others who grant or arrange credit to consumers from discriminating against credit on basis of: race, color, religion, national origin, sex, marital status, age or dependence on public assistance

111
Q

CRA

A

Community Reinvestment Act is responsibility of financial institutions to help meet their communities’ needs for low-income and moderate-income housing

112
Q

RESPA

A

Real Estate Settlement Procedures Act designed to ensure that buyer and seller are fully informed of all settlement costs in residential real estate (speaks to only closing itself)

Illinois Real Estate Pre-License Broker Course (1 decks)

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