Financing 2 - Primary and Secondary Markets Flashcards
Unit 15, Page 283
Mortgage banker
Lends their own money to a loan. They are the “lender”.
Mortgage broker
Brings lenders and borrowers together. Do not use their own funds to lend money.
Prequalification vs preapproval
Prequalification simply estimates the maximum amount the borrower is likely to qualify for.
Preapproval is a solid written commitment from the lender to hold a mortgage up to a given amount.
Gross Monthly Income
Income before taxes
GMI
Gross Monthly Income
Qualifying ratio
Borrower cannot take out a loan IF:
-Their PITI payment is more than a specified % of their GMI (front end ratio) OR
-If their PITI payment + long-term debts is more than a higher specified amount of their GMI (back end ratio).
FHA loan
A loan that is insured by the federal government.
VA loan
A loan that is partially guaranteed by the federal government.
What does the Federal Reserve System do?
-Helps to maintain sound credit conditions
-Helps counteract inflationary and deflationary trends
-Creates a favorable economic climate
FNMA
Federal National Mortgage Association (Fannie Mae)
GNMA
Government National Mortgage Association (Ginnie Mae)
FHLMC
Federal Home Loan Mortgage Corporation (Freddie Mac)
What are the three major warehousing agencies?
FNMA, GNMA, FHLMC
What do warehousing agencies do?
They purchase a large number of mortgage loans and package them for resale to investors.
Purchase-money mortgage
Mortgage placed when a property is bought. In contrast to refinancing.
Reverse mortgage
Regular monthly payments are made TO the borrower based on the equity in the property. Must be 62 years old to qualify.
Home equity loan
A type of secondary mortgage where the borrower borrows from their equity in the home.
Home equity line of credit (HELOC)
Interim financing
-Bridge loan or swing loan.
-Often used to finance down payment on a new property until existing property sells.
-Usually interest only
Shared equity mortgage
Buyer gets help with down payment, concessionary interest rate or assistance with monthly payments in exchange for the lender receiving a share of the property. Lender receives an agreed upon % of the money when property is sold.
Package mortgage
Includes both real and personal property. Appraiser appraises personal property as well.
Blanket mortgage
Covers more than one parcel or lot. Often used to finance subdivision developments. Lender has to be willing to release individual lots as they are sold.
Wraparound mortgage
Method of financing when an existing mortgage is to be retained.
Open-end mortgage
Allows a borrower to obtain additional funds to improve their property. Lender is not obligated to advance additional funds. Most often used in commercial financing.
Construction loans
“Building loan agreement.” Interest only. Used in short-term financing to finance the construction of improvements of the property. Payments are made from time to time (“draws”) to the general contractor for that part of the construction work that has been completed. Tend to get refinanced into a permanent loan (take-out financing) with lower interest rate once project is complete.
Sale-leaseback
The seller stays in the property and pays “rent” to the buyer.
Truth in Lending Act (TILA)
Consumer disclosure bill. Requires credit institutions to inform consumers of the true cost of obtaining credit. “Know before you owe.”
DOES NOT APPLY to cash, business or commercial transactions.
What does TRID require?
Requires delivery or mailing of early disclosures about the proposed loan within three business days of completed mortgage application. Only applies to residential.
What is needed for a loan application to be complete?
(ALIENS)
-Address of the property
-Loan amount requested
-Income
-Estimated property value
-Name of borrower(s)
-Social security number(s)
APR
Annual percentage rate
Annual percentage rate
Includes interest rates, finance charges and other fees. It is the true cost of the loan.
What are triggering terms in advertising?
-Amount or percentage of down payment (unless none is required)
-Number of payments or period of repayment
-Amount of any payment
-Amount of any finance charge
If any triggering terms are used in advertising, what also needs to be disclosed?
-Amount or percentage of down payment
-Number of payments or term of loan
-The words “annual percentage rate” so identified, and whether that rate is to be increased after consummation
Predatory lending
When lenders use unfair or deceptive lending practices.
ECOA
Equal Credit Opportunity Act
What does Equal Credit Opportunity Act do?
Prohibits lenders from discriminating against applicants based on any of the federal discrimination classes, as well as age.
What is TRID?
TILA-RESPA Integrated Disclosure. Effective October 3, 2015
What does TRID NOT apply to?
-HELOCs
-Mobile homes
-Reverse mortgages
-Cash transactions
-Loans for commercial purposes
What is an LE?
Loan Estimate
Land contract
Buyer makes payments to the seller instead of a bank/lender. Buyer does not get the deed until they’ve paid an agreed upon amount.
Housing ratio vs total debt ratio
Housing ratio - Front end - monthly PITI
Total debt ratio - Back end - monthly PITI+LTD
When must the loan estimate (LE) be provided to applicant?
Within 3 days of completed application.
