Finance I Flashcards
Primary Mortgage Market
made up of lenders who originate loans. They make the money available directly to borrowers.
Commercial Bank
financial institution that is designed to act as a depository for funds and as a lender for commercial activities – usually short-term loans.
Credit Union
nonprofit financial institutions into which members place their money, usually through direct deposit. Credit unions pay no income tax, so they can pay higher interest rates on deposits than other savings institutions. They also offer a wide variety of loans at far lower interest rates than their competitors.
Insurance Companies
Life insurance companies hold a major portion of the savings of the American public. Only savings and loan associations control more savings than life insurance companies do.
Investment Groups
REITs enjoy special income tax benefits similar to those granted to mutual funds. They are exempt from corporate tax if they invest at least 75 percent of their assets in real estate and distribute 95 percent or more of their annual real estate income to their investors.
Mortgage Bankers
involved in originating and servicing loans for other lenders. When so doing, they act as mortgage bankers and can represent life insurance companies, real estate investment or mortgage trusts and, in some cases, other banks.
Mortgage Brokers
A mortgage broker is usually retained by a borrower to help obtain financing for a specific commercial property.
Mortgage
a financing instrument that creates a lien against a property. The lender who gives the money is the mortgagee, and the borrower who gives the mortgage is the mortgagor.
Promissory Note
(usually referred to as a “note” or a “bond”) and establishes legal evidence of the debt incurred.
Mortgage Clauses
Identification of participants Property description Attachment of Note Property Taxes Insurance Preservation and Maintenance of Property Defeasance Clause Acceleration Clause Signatures and Acknowledgements Prepayment Penalty Due on Sale Clause
Identification of participants
The names of the mortgagor (borrower) and the mortgagee (lender) are listed on the mortgage document.
Property Description
should be a proper legal description of the property
Attachment of Note
simply refers to the note, stating in some way that the borrower will pay the full sum due according to the terms of the note.
Property Tax
states that the mortgagor must pay all property taxes, assessments, claims, charges and liens on the property and that any failure to do so could put the mortgage into default.
Insurance
lender will require the mortgagor to provide hazard insurance in an amount that will adequately protect the lender’s interest in the property. In addition to adequate coverage, the lender must be named as a coinsured party
Preservation/Maintenace
requires the borrower to maintain the physical condition of the property and not to allow any abuse or destructive use that would reduce the value of the property.
Defeasance Clause
states that if the borrower repays the debt when due, the words of grant are void, the mortgage is canceled and the title is given back to the borrower.
Accelaration Clause
outlines what will happen if the borrower fails to pay the mortgage, to maintain the property or to perform any other agreement, stipulation or condition contained in the mortgage. Any failure on the part of the borrower can result in the lender accelerating the mortgage and take whatever steps are needed to recover the investment.
Signatures and Acknowledgement
where the borrowers sign, showing they accept all of the conditions of the contract
Prepayment Penalty
a lender will try to control prepayments by including a prepayment penalty clause that allows the lender to assess a penalty to the borrower for paying early.
Due on Sale Clause
form of acceleration clause that requires the borrower to pay off the entire mortgage debt when the property is sold. The due-on-sale clause is also known as an alienation clause, a nonassumption clause, a call clause or a right-to-sell clause.
PITI
Principal, Interest, Taxes, Insurance
Principal
capital amount borrowed, on which interest payments are calculated,
Interest
a charge for the use of the lender’s money.
Taxes
pay to the government to cover public services, such as schools, police, fire, and ambulance services.
Insurance
homeowner’s insurance, flood insurance and/or mortgage insurance.
Judicial Foreclosure
allows the sale of the mortgaged property under the supervision of the court, with the proceeds going first to satisfy the mortgage, then other lien holders, and finally the borrower if any proceeds are left.
Non Judicial Foreclosure
the lender gives the borrower a notice of default (NOD) and the intent to sell the property in a form prescribed by that state’s statute. This type of foreclosure is sometimes referred to as “power of sale” foreclosure.
Deed in Lieu Foreclosure
A defaulting borrower who faces foreclosure may avoid court actions and costs by voluntarily deeding the property to the mortgagee.
Right of Redemption
The borrower’s right of redemption, also called equity of redemption, is the right to reclaim a property that has been foreclosed by paying off amounts owed to creditors, including interest and costs
Deficiency Judgement
If the sale does not yield sufficient funds to cover the amounts owed, the mortgagee may ask the court for a deficiency judgment. This enables the lender to attach and foreclose a judgment lien on other real or personal property the borrower owns.
Loan Origination Fees
Typically 1 percent of the loan amount, although it could be higher. It covers the lender’s cost for generating the loan.
Points or Discount Points
Points represent prepaid interest and the lender charges them to get additional income on the loan.
Mortgagor Duties
Pay Mortgage
Keep Property in good condition
Pay taxes and assessments
Protect property from loss-Insurance
Who makes up the primary mortgage market?
Savings Associations Commercial Banks Credit Unions Insurance Companies Investment Groups Mortgage Bankers Mortgage Brokers
What is a mortgage
A mortgage is a financing instrument that creates a lien against a property.
