Finance Flashcards
Title theory state
A state where the mortgage lender has title to the property until the debt is repaid
Reserve requirement
The percent of deposits banks are required to keep in the bank; set by the federal reserve
PMI
Private Mortgage Insurance – the private equivalent of FHA insurance - allowing for a high loan to value ratio versus low down payment conventional loans. PMI Insures the lenders risk
Lien Theory State
A state where the mortgage lender has a lien on the property and the borrower has title
Discount rate
The rate that banks pay when borrowing from the Federal Reserve
Secondary market
Where lenders go to borrow money; Fannie Mae, Ginnie Mae, Freddie Mac
Prime rate
The interest rate commercial banks charge their preferred customers
Subordination clause
A clause allowing a lender to move to or take a lower lien position
Primary market
Where consumers go to borrow money; banks, mortgage companies, etc.
TRID
Truth in Lending Act RESPA Integrated Disclosures
GPM - Graduated Payment Mortgage
Alone his payment start low and rise every year, usually for five years, after which they level off for the remaining term of the loan. It can result in negative amortization
Sub-prime loan
A loan with risk based pricing for borrowers with a credit rating in the A minus to F range. Interest rate will be 1 to 5% higher than for a prime borrower
Negative amortization
An increase in debt due to payments less than the interest owed – can be associated with a graduated payment mortgage
APR
Annual percentage rate – a number that tells a borrower the total cost of the loan – not just interest, but the sum of all charges associated with the loan
Certificate of eligibility
Evidence of VA approval of a qualified veteran for a VA loan
Reverse annuity mortgage
A home equity loan available to homeowners over 62 years of age - the lender makes payments to the borrower based on the equity in their property. The loan comes due upon the sale of the property or the death of the owner.
Assumption clause
A clause outlining the obligations of the original borrower and a new borrower in the event the loan is assumed
Conforming loan
A standardized conventional loan written on uniform documents that meets the purchase requirements of Fannie Mae and Freddie Mac; both loan amount and borrower characteristics must meet the guidelines
Non-conforming loan
A loan unable to be sold to Fannie Mae or Freddie Mac; for example, a subprime loan
Closing disclosure
The final closing disclosure to the consumer that must be received by the consumer three days before closing
Amortization
The repayment or satisfaction of a debt by installment payments of principal and interest on a regular basis
DD 214
Veterans discharge papers – provided to demonstrate eligibility for a VA loan
Truth in lending
TIL, REG Z, Regulation Z, or the consumer credit protection act - A law passed to help consumers understand the true cost of borrowing money
Conventional loan
A loan that is neither federally insured nor guaranteed; a private sector loan
Wraparound loan
A new mortgage on the property is placed in a secondary lien position. It includes both the unpaid balance of the first mortgage plus additional amounts; the first mortgage is not paid off.
VA
Veterans affairs – assist veterans in the purchase of housing by guaranteeing loans
Loan estimate
A combination of the TILA initial disclosure and the RESPA good faith estimate which must be provided to a buyer at the time of, or within three days of loan application
MIP
Mortgage insurance premium - insurance on the FHA loan, insures the whole loan
Trigger term
An advertising term that tells a buyer that financing is available without giving the cost of that financing –it triggers a need for additional information (monthly payment, interest rate, down payment, term, etc.)
Mortgage banker
A person or firm not otherwise in banking, who provides independent funds for mortgage financing as opposed to banks that rely on deposits for funds to originate loans
CRV
VA appraisal - Certificate of Reasonable Value
Funding fee
A fee required to be paid by the buyer, seller or included in the loan at closing on all VA loans
Assumption “subject to“
A new borrower assumes the payments but not the liability on an existing loan - the original borrower remains liable
Leverage
Using borrowed funds for investment - low down payment
FHA
Federal housing administration; aids in home financing by ensuring high LTV loans with more lenient qualifying ratios
Straight assumption
A new borrower assumes the payments and liability on an existing loan, and usually releases the original borrower from liability
Sellers equity
Cash price minus loan balance
Deed of trust
A three party loan instrument: borrower, lender and trustee
Redlining
The refusal to lend in a particular geographic area. Prohibited by the Community Reinvestment Act
Equal credit opportunity act
ECOA - A law prohibiting discrimination by lenders on the basis of sex, marital status, race, religion, age, or participation in public assistance programs
Equity
The market value of a property less the outstanding debt
Usury
Charging an interest rate higher than the legal limit
Budget loan
A loan where the monthly payment includes not only principal and interest but also taxes and insurance; called a PITI payment
Note, promissory note
A personal promise to repay a debt
Fixed rate amortized loan
A loan with equal regular payments of principal and interest until the debt is fully repaid or amortized
Usury laws
Laws passed to protect consumers from excessive interest charges
Release Clause
A clause often found in a blanket loan allowing the borrower to obtain partial releases of specific lots by making required lump sum payments
Mortgage
A pledge of real property as a security for a debt
Community Reinvestment Act
A law requiring lenders to meet the needs of the community in which they are chartered to do business
Mortgage Broker
An individual who brings a borrower and lender together for a fee - an intermediary between the borrower and the lender
Buyer’s Equity
The down payment amount at closing
Open-end loan
A home equity line of credit - similar to a credit card buy secured by real property
Mortgagor
Borrower under a mortgage
Participation Loan
Two or more lenders own a share - to lessen the lenders’ risk; or one lender who collects principal and interest plus a percent of the profits on the investment property
Straight loan
A loan with payments of interest only until the end of the term, when the entire principal is paid in one lump sum; a zero amortization loan; a term loan
Hypothecation
The action of pledging real property as security for a debt
Defeasance Clause
A clause stating that the lien on the property is defeated when the debt is repaid
PITI
principal, interest, tax, insurance - a common payment for amortized loans
Construction loan
Short term financing with funds advanced periodically during the stages of construction - a term loan
Adjustable Rate Mortgage - ARM
A loan with an interest rate tied to a readily available index - the rate will be adjusted periodically causing payment changes
Bi-weekly loan
A fixed rate amortized loan in which one half of a monthly payment is made every two weeks resulting in much quicker growth of equity and significant interest savings
Package loan
A loan secured by real property plus personal property
Blanket loan
several pieces of property secured by a single loan (several lots on one note)
Predatory Lending
An unscrupulous lender taking advantage of a consumer’s lack of knowledge regarding lending practices
Balloon loan
A partial amortization loan - equal regular payments of principal and interest, but long before the debt is amortized a final payment, much bigger than the others, is required to pay off the debt; THE BALLOON PAYMENT
Term loan
A loan with payments of interest only until the end of the term, when the entire principal is repaid in one lump sum - a zero amortization loan - a straight loan
Shared Appreciation Loan
A loan with an investor/lender who collects principal and interest payments and then a percent of the profits when the property is sold
Loan processor
An individual who coordinates the loan application process for the lender
Power of Sale
A clause in a deed of trust allowing non-judicial foreclosure
Escalation Clause
A clause allowing the lender to raise the existing interest rate - although most often associated with an Adjustable Rate Mortgage, it can be used to overcome an alienation clause
Trustor
Borrower under a deed of trust
Trustee
A third party under a deed of trust who acts as an agent for the lender
Non-judicial foreclosure
Foreclosure that does not require court proceedings or a judgement of foreclosure - the result of the power of sale clause in a deed of trust
Acceleration clause
A clause in a mortgage allowing the lender to declare the whole amount of the principal due and payable in the event of default by the borrower
Mortgagee
Lender under a mortgage
Margin
On an adjustable rate mortgage, the percent added to the index
Fair Credit Reporting Act
FCRA - a law allowing individuals to inspect their credit files, correct errors and attach explanatory statements
Origination Point
One percent of the loan that is a loan processing fee
Beneficiary
Lender under a deed of trust
Alienation Clause
“Due on sale” clause stating that the balance of the debt becomes due if the property is sold by the mortgagor
Down Payment Assistance Programs
Government and private programs whose stated purpose is to help buyers to become homeowners
Buy Down
An upfront payment of points used to reduce the borrower’s monthly payment - by paying points at closing, a borrower may secure a lower rate on the loan
Point
One percent of the loan
Qualifying Ratios, Debt Ratios
The percent of monthly gross income that can be used to pay the PITI payment on a mortgage loan, and the percent of monthly gross that can be used to cover all debt including PITI; 28% - 36% would by typical debt ratios
Prepayment Clause
A clause stating that the borrower can pay the entire amount or the stated amount prior to the due date in the note and whether there will be a penalty associated with the prepayment
Discount point
One percent of the loan that is prepaid interest, tax deductible and results in increased yield for the lender
