Financing 9% Flashcards

Question

Mutual Mortgage Insurance (MMI)

Answer 1

Insurance premiums and other specified FHA revenues are paid into one of four FHA funds. Losses due to foreclosure are met from these funds. MMI is paid for by the purchaser (buyer) under an FHA loan.

Answer 2

Notifies a defaulting party that a default has occurred. The defaulting party is usually provided a grace period during which to cure the default. Notices of default are frequently provided for in contracts for deeds and mortgages, and are sometimes required by operation of law.

Answer 3

To bring something back to its prior position, as in restoring a defaulted loan to current status.

Answer 4

The person who creates a trust and gives the instructions to the trustee.

Answer 5

A beneficiary statement is a statement of the unpaid balance of a loan and the condition of the indebtedness, as it relates to a deed of trust transaction.

Answer 6

A real estate loan in the first priority position. | See junior mortgage

Answer 7

The purchasing power of a dollar is measured by the Consumer Price Index. The Consumer Price Index (CPI) is designed to measure the change in the average level of prices paid for consumer goods and services by all private households. In measuring the CPI, not all goods and services are treated equally or in other words, given the same weight. Since housing prices and the associated interest costs form the bulk of most homeowners' outlay, changes in mortgage interest rates are heavily weighted when calculating the CPI. The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. It is a great indicator of inflation

Answer 8

When the trustee sells property under the Power-of-sale provision in a deed of trust, the recording of the NOTICE OF DEFAULT by the trustee commences the three month reinstatement period. When the trustor's right of REINSTATEMENT (3 months+ 20 days so more like 4 MONTHS) has run out, advertising of the sale begins by publishing the Notice of Sale. A Notice of Default is sent to junior lien holders advising them of a pending foreclosure on the first.

Answer 9

Generally have HIGHER INTEREST RATES for loans 1) Private individuals 2) Mortgage companies (Mortgage Bankers) 3) Real Estate Trusts

Answer 10

- Its a non-Institutional Loans - It is a mortgage loan given to a borrower in exchange for cash, as opposed to a mortgage given to finance a specific real estate purchase. Hard money loans often involve more risk for the lender and thus carry a HIGHER INTEREST RATE.

Answer 11

A certificate insured by the Veterans Administration setting forth a property's current market value estimate, based on a VA-approved appraisal. The CRV places a ceiling on the amount of a VA-guaranteed loan allowed for a particular property. (See VA loan)

Answer 12

-A Certificate of Reasonable Value (CRV) is issued by the Department of Veterans Affairs setting forth a property's current market value estimate, based on a VA appraisal. ---The CRV PLAVES A CIELING on the amount of a VA guaranteed LOAN ALLOWED for a particular property.

Answer 13

- The nominal rate of interest is the rate set forth in the promissory note. - Doesn't account for inflation (whereas the Real Interest Rate does)

Answer 14

A veteran is required to secure life insurance under the Cal-Vet Home Protection Plan.

Answer 15

- A conforming loan is one that meets the underwriting guidelines of Fannie Mae or Freddie Mac, particularly where size is concerned. Fannie and Freddie are the two government-controlled corporations that purchase and sell mortgage-backed securities (MBS). Simply put, they buy loans from the lenders who generate them, and then sell them to investors via Wall Street. A conforming loan falls within their maximum size limits, and otherwise "conforms" to pre-established criteria. - A jumbo loan, on the other hand, exceeds the conforming loan limits established by Fannie Mae and Freddie Mac. This type of mortgage represents a higher risk for the lender, mainly due to its size. As a result, jumbo borrowers typically must have excellent credit and larger down payments, when compared to conforming loans. Interest rates are generally higher with the jumbo products, as well.

Answer 16

The big guys- they haven't actually raised the money themselves. Loan is regulated by law. 1) Commercial banks - SHORT TERM loans w/ HIGH INTEREST RATES - Major source for CONSTRUCTION LOANS - Interested in LIQUIDITY: assets can be turned into cash quickly (therefore, they would be most interested in SHORT TERM LOANS) 2) Savings and loan associations ("thrifts") (S&Ls) Formerly accounted for more HOME LOANS than any other source 3) Insurance companies (life insurance companies) Typically deal with COMMERCIAL PROPERTIES and MULTI-FAMILY BUILDINGS. They favor loans for apartments, office, retail, and industrial properties, but may finance other property types (i.e. hotel or mixed used) on a case-by-case basis. -LONG TERM loans w/ LOW INTEREST RATES

Answer 17

Generally have HIGHER INTEREST RATES for loans 1) Private individuals 2) Mortgage companies (Mortgage Bankers) 3) Real Estate Trusts

Answer 18

- Its a non-Institutional Loans - It is a mortgage loan given to a borrower in exchange for cash, as opposed to a mortgage given to finance a specific real estate purchase. Hard money loans often involve more risk for the lender and thus carry a HIGHER INTEREST RATE.

Answer 19

A home equity loan seeks to use the equity that a mortgagor has built up in a property either for improving the property or some other use. Home equity is the difference between the value of the property and the debt attributed to the property. Say someone paid $100,000 for a house. Later, the house was appraised at $200,000, and the mortgagor has $50,000 left to pay on the mortgage. $200,000 – $50,000 = $150,000 equity

Answer 20

An open mortgage is a mortgage loan that can be paid back at any time without a prepayment penalty. A prepayment penalty is a fee that is charged by a lender whenever a mortgage is paid off earlier than its normal schedule. You need to determine what, if any, laws your state has adopted regarding prepayment penalties in conventional mortgages.

Answer 21

An open-end mortgage is a loan that can be reopened and borrowed against after some of it has been paid down. For example, you can borrow $150,000 via a mortgage loan with an agreement in place that after you pay some of it down, you can borrow back up to the $150,000 limit again.

Answer 22

A package mortgage is a loan that covers real estate and personal property being sold with the real estate. The buyer of a house in which furniture is being included in the sale may want to apply for a package loan. For example, this loan can be used to purchase a furnished vacation home.

Answer 23

The purchase money mortgage is the mortgage loan used to buy real estate. The term sometimes is used to mean the mortgage that a seller takes back as part of the sale price of a property. When a seller sells his property for $200,000, and the buyer has $50,000 cash, is approved for a $100,000 mortgage loan, but still falls $50,000 short, the seller can agree to take back a mortgage worth $50,000 to make the deal happen. State government sets rates for interest that cannot be exceeded — called the usury rate. These seller second mortgages may not be subject to the usury limits that are set by state law, so you need to verify that information in your state. Mortgages made by lenders (not sellers) are subject to these limits.

Answer 24

Reverse mortgages sometimes are called reverse annuity loans. These loans enable a property owner to use the equity in the property without selling the property. No payment is due on the loan while the owner still lives in the house. These loans often are used for income by senior citizens on fixed incomes with large amounts of equity in their homes. They’re usually paid off by the sale of the property after the homeowner dies or moves out.

Answer 25

A sale leaseback isn’t a mortgage, but can be a source of project financing and a means of obtaining the equity in a property. Usually used in commercial property situations, an owner-occupant uses a sale leaseback to sell the building but agrees to remain in the building under a lease. The new owner has a tenant and the old owner has gotten his money out of the building to use.

Answer 26

The shared equity mortgage allows for a share of the profit on the property to be given to someone else in return for help purchasing the property. A relative, investor, or lending institution may agree to provide funds for a down payment or help with the mortgage payment. When the property is sold, a predetermined share of the profit is given to the person who provided the financial help.

Answer 27

A temporary loan, also called interim financing, bridge loan, swing loan, or gap loan, is used when funds are needed for short periods of time to complete a real estate transaction. A typical situation where a temporary loan may be used is when a seller is selling one house and plans to use the proceeds from the sale to buy another house.

Answer 28

A wraparound mortgage is a new mortgage that literally wraps around an old mortgage. A seller sells a property to a buyer, but the seller doesn’t pay off an existing mortgage. The buyer gives a new, larger mortgage to the seller. This new mortgage includes the amount due on the original mortgage. The buyer makes payments on the new mortgage to the seller. The seller, in turn, makes payments on the old mortgage to the lender. This mortgage is used when the old mortgage won’t be paid off at the time of the sale of the property.

Answer 29

An open-end mortgage is a loan that can be reopened and borrowed against after some of it has been paid down. *An open-end provision in a mortgage allows the borrower to borrow additional amounts in the future without rewriting the loan documents. For example, you can borrow $150,000 via a mortgage loan with an agreement in place that after you pay some of it down, you can borrow back up to the $150,000 limit again.

Answer 30

A TIGHT MONEY MARKET is an economic situation in which the supply of money is limited and the demand for money is high. Due to the economic forces of supply and demand, interest rates typically go up during a period of tight money.

Answer 31

Tight monetary policy is a course of action undertaken by the Federal Reserve to constrict spending in an economy that is seen to be growing too quickly or to curb inflation when it is rising too fast. The Fed tightens policy or makes money tight by raising short-term interest rates through policy changes to the discount rate, also known as the federal funds rate. Increasing interest rates, increases the cost of borrowing and effectively reduces its attractiveness.

Answer 32

A security agreement is a document that creates a lien on PERSONAL PROPERTY. To perfect a security interest, a form called a financing statement should be recorded.

Answer 33

A charge or claim that one person (lienor) has on the property of another (lienee) as security for a debt or obligation. (See general lien, involuntary lien, mechanics' lien, statutory lien, tax lien, voluntary lien)

Answer 34

A mortgage is an instrument recognized by law by which property is pledged as security for the loan without the necessity of giving up possession of it.

Answer 35

NO! Institutional lenders are those lenders who lend their own money. **A mortgage company usually DOES NOT lend its own money, but rather acts in most cases as the REPRESENTATIVE OF AN INSTITUTIONAL LENDER. They are sometimes referred to as "loan correspondents" or "loan brokerage firms."

Answer 36

A Non-Institutional Lender A person, corporation or firm (not otherwise in banking and finance) that normally provides its own funds for mortgage financing as opposed to savings and loan associations or commercial banks that use other people's money—namely that of their depositors—to originate mortgage loans.

Answer 37

Private mortgage companies are really Mortgage Bankers. Most Mortgage Bankers fund loans themselves through a CONTRACT WITH AN INSURANCE COMPANY (ex. through Private premiums of insurance and pools of insurance policies)

Answer 38

A TIGHT MONEY MARKET is an economic situation in which the supply of money is limited and the demand for money is high. Due to the economic forces of supply and demand, interest rates typically go up during a period of tight money. The use of second trust deeds is most prevalent when there is a tight money market. This means that interest rates are high and money is more difficult to get.

Answer 39

Tight monetary policy is a course of action undertaken by the Federal Reserve to constrict spending in an economy that is seen to be growing too quickly or to curb inflation when it is rising too fast. The Fed tightens policy or makes money tight by raising short-term interest rates through policy changes to the discount rate, also known as the federal funds rate. Increasing interest rates, increases the cost of borrowing and effectively reduces its attractiveness. When the Fed takes steps to implement a "tight money" market, it usually means an increase in interest rates and a decrease in available loan funds. The sales volume of existing home sales decreases and borrowers have more difficulty in obtaining loans. The net effect is that sellers are forced to take back seconds to sell their property.

Answer 40

Understanding the difference between mortgage points and origination fees allows you to determine which lender has a better loan. DISCOUNT POINTS are fees that allow you to buy down your interest rate, therefore lowering your monthly payment. (1 POINT = 1% OF LOAN) For each point purchased, the loan rate is typically reduced by 1/8% (0.125%). ORIGINATION FEES are points the lender uses to cover overhead costs for the loan. (1% OF LOAN) Origination and discount point fees will be PAID AT CLOSING. In a refinance the fees can be added to the total amount being financed, which will make your closing costs or monthly payment higher. Basically, if you finance $100,000 and pay one origination fee and one discount point, you will be at $2000 in fees. Most lenders do not charge more than four percent because anything higher would be considered predatory lending. THEY ARE NOT MANDATORY THOUGH LENDERS MAY MAKE YOU THINK THEY ARE

Answer 41

Memory AID: The "OR" gives something of value to the "EE" in exchange for money. ``` Gives something/ Gives money Trustor/ Trustee Vendor/ Vendee Grantor/Grantee Lessor/Lessee ```

Answer 42

Interest is termed "simple" or "compound". SIMPLE interest is interest paid only on the principal owed. COMPOUND interest is interest paid on accrued interest as well as on the principal owed. **Most real estate loans charge simple interest rates.

Answer 43

A promissory note evidencing a loan in which payments of interest only are made periodically during the term of the note, with the PRINCIPAL PAYMENT DUE IN ONE LUMP SUM UPON MATURITY. A straight note is usually a non-amortized note made for a short term, such as three to five years, and is renewable at the end of the term. (See promissory note) A straight note is defined as one in which payments of interest only are made periodically during the term of the note with the principal payment due in one lump sum upon maturity. PEOPLE MAY CHOOSE A STRAIT NOTE OVER AN AMORTIZED NOTE TO MAKE MINIMUM PAYMENTS

Answer 44

Cash-on-Cash Return is the ratio of income received by the investor based only on the cash invested. It is expressed as a percentage and does not include appreciation. Calculated as Annual Dollar Income Ëœ Total Dollar Investment. For example when you purchase a rental property, you might put down only 10% for a cash down payment. Cash-on-cash return would measure the annual return you made on the property in relation to the down payment.

Answer 45

The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral. The loan-to-value ratio is the percentage of a property's value that a lender can or may loan to a borrower. For example if the ratio is 87%, this means that a lender may loan 87% of the property's appraised value to the borrower. For instance, if someone borrows $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000 to $150,000 or $130,000 ÷ $150,000, or 87%. The remaining 13% represents the borrower's equity. **The higher the LTV ratio, the riskier the loan is for a lender.

Answer 46

PRIMARY MORTGAGE MARKET The mortgage market in which loans are originated and consisting of lenders such as commercial banks, savings and loan associations and mutual savings banks. SECONDARY MORTGAGE MARKET A secondary market is one in which existing mortgages are bought, sold, or borrowed against. A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for selling mortgages. Fannie Mae, Ginnie Mae, Freddie Mac, and Farmer Mac are responsible for creating and establishing a viable secondary mortgage market. The MORTGAGEE (lender) transfers the loan (not the mortgagor)

Answer 47

A "request for notice of default" is filed with the county recorder when the second trust deed is recorded. If there is a default on the first trust deed, the recorder will send a copy of the "Notice of Default" to the holder of the second. This gives the holder of the second time to reinstate the first and begin foreclosure on the second. **It protects holder of second because upon foreclosure of first trust deeds, second trust deeds are wiped out.

Answer 48

Notifies a defaulting party that a default has occurred. The defaulting party is usually provided a grace period during which to cure the default. Notices of default are frequently provided for in contracts for deeds and mortgages, and are sometimes required by operation of law.

Answer 49

- "Notice of Default" is given to defaulting party when default has occurred. - A "request for notice of default" protects the holder of a second trust deed (aka second lien) Since foreclosure wipes out all junior liens(such as a second mortgage) , the holder of a junior lien should request the recording of a request for notice of default announcing that a default has occurred.

Answer 50

The agent can give a monetary incentive to prospective clients (ie. buyer and seller) as long as a FULL DISCLOSURE is made to ALL PARTIES to the transaction.

Answer 51

This is a Graduated Payment Adjustable Mortgage. This plan combines elements of a Graduated Payment Mortgage and an Adjustable Rate Mortgage. It starts like a GPM with lower payments that increase in fixed steps until they level off, after which the interest rate may vary. This loan may produce negative amortization.

Answer 52

is an increase in the principal balance of a loan caused by making payments that fail to cover the interest due. The remaining amount of interest owed is added to the loan's principal, which ultimately causes the borrower to owe more money.V

Answer 53

The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral. The loan-to-value ratio is the percentage of a property's value that a lender can or may loan to a borrower. * A low loan-to-value ratio indicates a large down payment * A high LTV ratio is risky for a lender For example if the ratio is 87%, this means that a lender may loan 87% of the property's appraised value to the borrower. For instance, if someone borrows $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000 to $150,000 or $130,000 ÷ $150,000, or 87%. The remaining 13% represents the borrower's equity. **The higher the LTV ratio, the riskier the loan is for a lender.

Answer 54

The interest held by a vendee under a contract for deed or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another's name.

Answer 55

State Bonds Funds for Cal-Vet loans come from voter-approved State General Obligation Bonds and Revenue Bonds issued by the legislature.

Answer 56

Loan brokers are regulated by the California Loan Brokerage Law.

Answer 57

margin Definition of "Margin" Difference between the index a lender uses to compute adjustable rate mortgage (ARM) rates and the interest rate the lender actually charges the borrower. The ARM interest rate is the sum of the total of the index and the margin. It is Set by the lender when application is made for a loan, and generally won't change after closing. The margin amount depends on the lender.

Answer 58

A trust account established to set aside funds for future needs relating to a parcel of real property. Many mortgage lenders require an impound account to cover future payments for taxes, assessments, private mortgage insurance and insurance in order to protect their security from defaults and tax liens.

Answer 59

A subordination clause is a clause in which the holder of a mortgage or trust deed holder permits a subsequent lien to take priority. Subordination is the act of yielding priority. This clause provides that if a prior mortgage is paid off or renewed, the junior mortgage will continue in its subordinate position and will not automatically become a higher or first mortgage.

Answer 60

If the seller (vendor) under a land Contract wishes to sell his/her interest to a third party through assignment, he/she must also convey title. The vendor's (seller's) signature would be required. The new contract holder must notify the buyer that title has been conveyed so they don't keep paying the original contract holder.

Answer 61

To pledge real or personal property as security for a loan or other obligation without surrendering possession of the property. The borrower retains the rights of control and possession, and the lender secures an underlying equitable right in the pledged property.

Answer 62

To pledge real or personal property as security for a loan or other obligation without surrendering possession of the property. The borrower retains the rights of control and possession, and the lender secures an underlying equitable right in the pledged property.

Answer 63

Leverage is broadly defined as the impact of borrowed funds on investment return. It is more specifically the use of borrowed funds to purchase property with the anticipation that the acquired property will also increase so that the investor will realize a profit on his/her investment.

Answer 64

* A clause in a mortgage authorizing the HOLDER of the mortgage to sell the property in the event of the borrower's default. The proceeds from the public sale are used to pay off the mortgage debt first, and any surplus is paid to the mortgagor. * A power-of-sale clause is also found in TRUST DEEDS, giving the TRUSTEE authority to sell the trust property under certain circumstances.

Answer 65

Although most California mortage lenders allow the borrower a 15-day grace period in getting the payment to the lender, federal guidelines would allow the lender to declare the payment late if it is received MORE THAN 10 DAYS AFTER DUE DATE.

Answer 66

If a real estate broker negotiates the sale of a land contract, he/she is responsible for making sure it gets recorded within 10 working days.

Answer 67

The redemption period is a period of time established by state law during which a property owner has a right to redeem real estate after a judicial foreclosure by paying the sales price, interest and costs.

Answer 68

a one-to-four-family residential dwelling financed by a federally related mortgage loan. (ie. INSTITUTIONAL LENDERS) a loan made by a savings & loan. a home loan made by a commercial bank. a loan capable of being sold to FNMA.

Answer 69

During the term of a Land Contract, title remains in the name of the seller (vendor) until the provisions of the contract have been met. Upon satisfactory performance, the vendor conveys legal title to the buyer (vendee). During the term of the contract, the vendee holds the equitable title or equitable ownership.

Answer 70

1) Covenants or restrictions of assignment or transfer of the land contract may hamper or prevent the transfer of buyer's interest therein. The buyer may not be aware of these problems until the time to transfer title. 2) A prevailing opinion among financial institutions that a Land Contract is poor collateral because it is subject to a more rapid termination in the event of default. 3) After full performance, the buyer may receive defective title or no title at all, although normally the contract will require delivery of a policy of TITLE INSURANCE. The buyer may have to pay the premium for this. 4) Lack of assurance that the seller has good title at the time the contract is made, coupled with the fact that prior to full performance by the buyer, the buyer may not rescind the contract on these grounds. 5) If during the contract term the seller should go bankrupt or die and title passes to heirs or be declared incompetent or have a conservator appointed, the buyer can at the very least anticipate time consuming, frustrating, and expensive litigation before obtaining a deed and policy of title insurance.

Answer 71

A comprehensive indemnity contract under which a title insurance company warrants to make good a loss arising through defects in title to real estate or any liens or encumbrances thereon. Title insurance protects a policyholder against loss from some occurrence that has already happened. (See extended coverage policy, standard coverage policy)

Answer 72

monetary fine and/or jail time

Answer 73

U.S. Department of Housing and Urban Development A federal cabinet department which is active in national housing programs. Among its many programs are urban renewal, public housing, model cities, rehabilitation loans, FHA-subsidy programs and water and sewer grants.F

Answer 74

Under an installment loan agreement, a final payment that is substantially larger than the previous installment payments and repays the debt in full is called a balloon payment. *Under a partially amortized loan, the balance at maturity has only been partially reduced. The remaining balance due at maturity is referred to as a balloon payment .

Answer 75

when the period to file a lien has expired. The usual waiting period for the final disbursement is 35 days after the recording of the Notice of Completion. It would be hazardous to advance the final disbursement before that time for fear that there might be subcontractors who have not been paid and will file mechanic's liens. The subcontractors are wiped out 31 days after recording the Notice of Completion.

Answer 76

A document recorded to give constructive notice that a building job has been completed. (See constructive notice)

Answer 77

Notice given to the world by recorded documents. All people are charged with knowledge of such documents and their contents, whether or not they have actually examined them. Possession of property is also considered constructive notice that the person in possession has an interest in the property.

Answer 78

A statutory lien in favor of a building contractor (architects and designers in some states) to secure payment for materials supplied and services rendered in the improvement, repair or maintenance of real property. (See lien)

Answer 79

In the event of the mortgagor's default before final payment, the mortgagee's remedy is judicial (court-ordered) foreclosure. The mortgagee's first step would be to initiate the court action.

Answer 80

A land contract must contain the names of the buyer and seller, the sales price, the terms of payment, a full legal description and a lengthy statement of the rights and obligations of the parties.

Answer 81

A subordination clause is a clause most likely found in a trust deed. A subordination clause is usually standard in a junior trust deed because the junior trust deed gets a higher interest rate and is often not concerned about the inferior lien position.

Answer 82

Federal Reserve System (The Fed) The nation's central bank created by the Federal Reserve Act of 1913. Its purpose is to help stabilize the economy through the judicious handling of the money supply and credit available in this country. The system functions through a seven-member Board of Governors and 12 Federal Reserve District Banks, each with its own president.

Answer 83

An assigment of RENT CLAUSE in a TRUST DEED is an agreement between the trustor (property owner) and the beneficiary by which the beneficiary receives as security the right to collect rents from the trustor's tenants.

Answer 84

accelerates all sums owing. The phrase "calling a loan" refers to accelerating the remaining payments of the loan and making them all due and payable at the present time.

Answer 85

The HUD, Section 8 Program is a federal rent subsidy program for low-income and moderate-income tenants. Section 8 allows families to choose privately owned rental housing. The public housing authority generally pays the landlord the difference between the HUD-determined payment standard and the fair market rent, which must be reasonable.

Answer 86

The beneficiary (lender) prepares the BENEFICIARY STATEMENT upon written demand by an entitled person or his/her authorized agent. A beneficiary statement is usually requested in connection with the RECORDING of a NOTICE OF DEFAULT under a DEED OF TRUST or MORTGAGE.

Answer 87

The escrow agent obtains a beneficiary statement when an existing loan is to be paid or assumed by a buyer. The statement includes the balance due on the loan so the buyer receives the proper amount of credit.

Answer 88

The cap rate is a ceiling or limit on the adjustments made in the payments, interest rate or balance of an adjustable-rate loan.

Answer 89

When the buyer agrees to assume the seller's liability on a trust deed, the seller would remain secondary liable on the loan unless there is a substitution of liability which would relieve the seller of all liability.

Answer 90

Obligatory advances represent one form of construction loan distribution, often used in subdivision financing activities. The funds that will be forthcoming as construction progresses are known as: Obligatory advances The disbursements of money over the period of a construction loan which the lender is bound to make under the terms of the loan.