Chapter 9 - Principles of Financing

Question 1

Federal National Mortgage Association (FNMA) (Fannie Mae)

Answer 1

A New York stock exchange company. It is a public company that operates under a federal charter and is the nation’s largest source of financing for home mortgages. Fannie Mae does not lend money directly to consumers, but instead works to ensure that mortgage funds are available and affordable, by purchasing mortgage loans from institutions that lend directly to consumers.

Question 2

Federal Reserve System

Answer 2

The federal banking system of the United States under the control of central board of governors (Federal Reserve Board) involving a central bank in each of twelve geographical districts with broad powers in controlling credit and the amount of money in circulation.

Question 3

Federal Home Loan Mortgage Corporation (FHLMC) (Freddie Mac)

Answer 3

An independent stock company which creates a secondary market in conventional residential loans and in FHA and VA loans by purchasing mortgages.

Question 4

Government National Mortgage Association (GNMA) (Ginnie Mae)

Answer 4

A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD) that guarantees securities backed by mortgages that are insured or guaranteed by other government agencies. Popularly known as “Ginnie Mae”.

Question 5

Primary Mortgage Market

Answer 5

The marketplace whereby loans are originated.

Question 6

Secondary Mortgage Market

Answer 6

The market where lenders sell their loans to the large secondary marketing agencies (FNMA, FHLMC, and GNMA) or to other investors.

Question 7

Acceleration Clause

Answer 7

A condition in a real estate finance instrument giving the lender the power to declare all sums owing the lender immediately due and payable upon the happening of an event, such as sale of the property, or a delinquency in the repayment of the note.

Question 8

Amortization

Answer 8

The liquidation of a financial obligation on an installment basis.

Question 9

Amortized Loan

Answer 9

A loan to be repaid, interest and principal, by a series of regular payments that are equal or nearly equal, without any special balloon payment prior to maturity.

Question 10

Discount Points

Answer 10

The amount of money the borrower or seller must pay the lender to get a mortgage at a stated interest rate.

Question 11

Escalation

Answer 11

The right reserved by the lender to increase the amount of the payments and/or interest upon the happening of a certain event.

Question 12

Interest

Answer 12

The charge in dollars for the use of money for a period of time. In a sense, the “rent” paid for the use of money.

Question 13

Interest Only Loan

Answer 13

A straight, non-amortizing loan in which the lender receives only interest during the term of the loan and principal is repaid in a lump sum at maturity.

Question 14

Prepayment Penalty

Answer 14

The charge payable to a lender by a borrower under the terms of the loan agreement if the borrower pays off the outstanding principal balance of the loan prior to its maturity.

Question 15

Promissory Note

Answer 15

Following a loan commitment from the lender, the borrower signs a note, promising to repay the loan under stipulated terms. The promissory note establishes personal liability for its payment. The evidence of the debt.

Question 16

Straight Note

Answer 16

A note in which a borrower repays the principal in a lump sum at maturity while interest is paid in installments or at maturity.

Question 17

Usury

Answer 17

On a loan, claiming a rate of interest greater than that permitted by law.

Question 18

Acceleration Clause

Answer 18

A condition in a real estate finance instrument giving the lender the power to declare all sums owing the lender immediately due and payable upon the happening of an event, such as sale of the property, or a delinquency in the repayment of the note.

Question 19

Alienation Clause

Answer 19

A clause in a contract giving the lender certain rights in the event of a sale or other transfer of a mortgaged property.

Question 20

Assignment

Answer 20

The transfer to another of any property in possession or in action, or of any estate or right therein. A transfer by a person of that person’s rights under a contract.

Question 21

Assignment of Rents

Answer 21

A provision in a mortgage or deed of trust under which the lender may, upon default by the trustor, take possession of the property, collect income from the property and apply it to the loan balance and the costs incurred by the lender.

Question 22

Assumption of Mortgage

Answer 22

The taking of a title to property by a grantee wherein the grantee assumes liability for payment of an existing note secured by a mortgage or deed of trust against a property, becoming a co-guarantor for the payment of a mortgage or deed of trust note.

Question 23

Default

Answer 23

Failure to fulfill a duty or promise or to discharge an obligation.

Question 24

Defeasance Clause

Answer 24

The clause in a mortgage that gives the mortgagor the right to redeem the mortgagor’s property upon the payment of the mortgagor’s obligations to the mortgagee.

Question 25

Hypothecate

Answer 25

To pledge a thing as security without the necessity of giving up possession of it.

Question 26

Mortgage

Answer 26

An instrument recognized by law by which property is hypothecated to secure the payment of a debt or obligation.

Question 27

Mortgagee

Answer 27

One to whom a mortgagor gives a mortgage to secure a loan or performance of an obligation; a lender or creditor.

Question 28

Mortgagor

Answer 28

One who gives a mortgage on his or her property to secure a loan or assure performance of an obligation; a borrower.

Question 29

Satisfaction of Mortgage (Release of Mortgage)

Answer 29

The discharge of a mortgage from the records upon payment of the debt.

Question 30

Beneficiary

Answer 30

The lender on the security of a note and deed of trust.

Question 31

Trustee

Answer 31

The third party under a deed of trust.

Question 32

Trustor

Answer 32

One who borrows money from a trust deed lender, then deeds the real property securing the loan to a trustee to be held as security until the trustor has performed the obligation to the lender under terms of a deed of trust.

Question 33

Junior Mortgage

Answer 33

A mortgage recorded subsequently to another mortgage on the same property or made subordinate by agreement to a later- recorded mortgage.

Question 34

Priority of Lien

Answer 34

The order in which liens are given legal precedence or preference.

Question 35

Recording

Answer 35

The process of placing a document on file with a designated public official for public notice.

Question 36

Subordinate

Answer 36

The make subject to, or junior or inferior to.

Question 37

Subordination Agreement

Answer 37

An agreement by the holder of an encumbrance against real property to permit that claim to take an inferior position to other encumbrances against the property.

Question 38

Deed in Lieu of Foreclosure

Answer 38

A deed to real property accepted by a lender from a defaulting borrower to avoid the necessity of foreclosure proceedings by the lender.

Question 39

Deficiency Judgment

Answer 39

A judgment given by a court when the value of security pledged for a loan is insufficient to pay off the debt of the defaulting borrower.

Question 40

Foreclosure

Answer 40

Procedure whereby property pledged as security for a debt is sold to pay the debt in event of default in payments or terms.

Question 41

Redemption

Answer 41

Buying back one’s property after a judicial sale.

Question 42

Short Sale

Answer 42

A seller’s attempt to sell the real estate whereby the liens are greater than the value of the property.