Equity And Principal Flashcards
PMM
Savings and loan
- long term, single family homes
* may offer; conventional, FHA, VA
Primary mortgage market
And
Secondary mortgage market
Primary- make loan directly to borrowers
Secondary- buy mortgages from primary market lenders
PMM
Mutual Savings Bank
Located NE USA
State chartered originate FHA or VA
PMM
Commercial Banks
Short term loans
Example: home improvements, mobile homes, commercial loans
PMM
Insurance companies
Specialize in long term loans that finance commercial and industrial properties
PMM
Mortgage Bankers
Lend own money and money of investors
Originate loans and package mortgage
PMM
Mortgage brokers
Do NOT lend own money
Bring borrowers and lenders together and r paid % of the money borrowed
PMM
Credit Unions
Provide a source of fund for their members
PMM
Pension Funds
Work through mortgage brokers and bankers in real estate financing
Secondary Mortgage Market
Provides rollover of funds:
(so primary lender has money available to meet demands of its new borrowers)
No conforming loans- do not meet secondary guidelines
Federal Reserve
Does
Controls money supply and credit available in country
Creates money
Regulates reserves
Sets discount rate of interest
Federal reserve
Over supply and under
Increased and decreased
Over=inflation
Under=recession
Reserve increased = money shrinks interest rates go up
Reserve decrease = money grows interest rates go down
Federal home loan corporation
Freddie Mac
Assists saving and loan and seconds market
Publicly owned buys mortgages pools them, sells bonds in the open market as mortgaged backed securities
Federal National Mortgage Association
Fannie Mae 1938
Provide liquidity and stability in housing market by purchasing mortgages from lending institutions
Government national mortgage association
Ginnie Mae 1968
High risk and special assistance programs housing for elderly
MBS
Mortgaged Backed Securities
Loans purchased by secondary markets are pooled and sold to investors
Unconventional Mortgage
Loan that is backed by government
FHA
VA
Conventional Mortgage
A mortgage (loan) where real property is used as security for the payment
Not backed by government, can be insured or not insured
Amortize
- means repay loan in monthly or other periodic payments that include principal and interest
- a portion is applied to principal balance (loan) and a portion is kept by lender at interest on the loan
Partially Amortized Loan
Balloon mortgage
Balance remains after final payment is made
Non-amortized Loan
Periodic interest payments made to lender, but nothing is applied to principal
Ex:
Term mortgage
Straight mortgage
Construction loan
Fully Amortized Loan
Direct reduction loan
At end of loan principal balance is zero
Ex: 30 year fixed loan
Straight Mortgage
Term Loan
Pays interest only, and principal is paid in full at the end of the term.
(Construction loan)
Nonamortized
ARM
Adjustable rate mortgage
Contains escalation clause
Usury Laws
Limit the max interest
Aggregate rate cap
Max that the interest can adjust for the life of loan
HELOC
Home equity loan of credit
Borrower write checks whenever money is needed
Principal and interest
P=loan balance
Interest = the charge for the use of money
ROI
Retrun on investment
Measures profit of property
Margins
Profit charged by lender and added to index to determine the interest.
Margin remains constant, 2% to 7%
Lower margins mean better loan for borrower
After tax cash flow
atcf
ROI= ____x100%
E
Equity
The difference between the market value and any liens on the property
