Government Financing Regulations Flashcards
FOMC (Federal Open Market Operations)
The Federal Open Market Committee
- Buying and selling of US debt to and from Fed members banks
- The more FOMC buys the more money available for banks to lend out, vice versa
- Stabilizes US government borrowing
Discount Rate
Rate at which banks borrow directly from the Fed
Set by the Fed
-Lowest interest rate
Fed Funds Rate
The rate at which banks loan to each other
Short term interbank lending
Highest
Prime Rate
The theoretical best interest rate available from a bank
Typically not possible to borrow at the prime rate unless a large corporation
Used as a benchmark, pay a premium over it
Set by the market, floats above the Fed Funds Rate
The best interest rate, middle ground
Raising Revenue (Define and state drawback)
Make People and businesses pay taxes
Drawback: Reduces purchasing power of consumers
Borrowing Money
Issuing Government securities, such as bills, bond
Drawback: Deficit spending - compete with consumers for loans
Printing Money (Define and state drawback)
Print money to pay for debts
Drawback - reduces value and causes inflation
What are the three ways that the government raises Money?
US Department of Treasury manages government revenue.
- Raising Revenue
- Borrowing Money
- Printing Money
Which rate has the greatest impact
Federal Funds Rate
Real Estate Settlement Procedures Act (RESPA)
A federal law that requires lenders to provide borrowers with information about closing costs (fee, points, commissions, etc.) for financing 1-4 family residential homes.
Prohibits certain kickbacks, referral fees, and unearned fees.
The lender must report transactions to the IRS.
Affiliated Business Arrangements (ABA’s)
Mortgage and brokerage companies, title companies, home inspectors and other service providers package services together are permitted to package services together under RESPA
- Must share at least 1% common ownership
Consumer must: - be fully informed
- be given other options if desired
ABA providers can be paid for their services and receive a return on 1% investment but nothing more (no additional fees)
Dodd Frank Act & TILA-RESPA
- Changed some RESPA requirements and processes
- Loan estate Form must be given details at closing
- Must be given to consumer no later than 3 business days after loan app
- Closing Disclosure is called a CD (must be given at least 3 days prior to the date of the closing)
Truth in Lending Act
(Regulation Z
- Enforced by Consumer Financial Protection Bureau
- Provides consumers with full disclosure of the cost of credit
APR (Annual Percentage Rate)
TILA requires lenders to calculate their cost of credit and express them as APR if they advertise specific loans terms
Must express them as APR
APR includes = interest rates, points, loan fees, disclosure of penalties, etc.
-APR doesn’t include - municipal taxes, attorney fees, credit reports, etc.
APR Disclosure required when triggered
Ex. 3% down payment
No triggered terms
Ex. low down payment
When is regulation triggered?
Anytime you are advertising a specific rate.
Do real estate agents fall under TILA?
If advertising loan arrangements for a referral fee.
Proration
If there is an expense prepaid or unpaid at closing, or income that must be divided between the buyer and seller, it will be prorated and reflected on the Closing Disclosure
Proration : What would prepaid expenses show at closing?
Credit to the seller, and debit to the buyer
Proration : What do unpaid expenses show at closing?
Debit to the seller and credit to the buyer.
Closing Disclosure (Closing statement)
- Consumers must receive a closing disclosure
- Replaced HUD-1
- Details the actual costs of closing no later than 3 days before the date of closing
TRID (TILA -RESPA Integrated Disclosure
- Established under the Dodd Frank Act
- Combines Truth in Lending and the RESPA rules
Redlining
Illegal practice of credit discrimination. It is outlawed under the Equal Credit Opportunity Act (ECOA)
Blockbusting
Employing fear tactics to induce panic selling or panic peddling a neighborhood
illegal
Steering
Directing client to or away from certain areas or properties based on protected class status
Property taxes payment?
Paid quarterly (4times per year
RESPA (Real Estate Settlement Procedures Act)
A federal law that requires lenders to provide borrowers with information on closing
costs for financing 1-4 family residential homes and sets forth additional prohibitions
- Banks must provide a borrower with a bona die (good faith) estimate of the amount
and range of charges for real estate settlement within 3 days of the loan application
TILA (Truth in Lending Act) or Regulation Z
- Law enforced by the Consumer Financial Protection Bureau.
- Supposed to provide consumers with full disclosure of the cost of credit.
- Requires the disclosure of pertinent information such as down payment and annual percentage rate if a triggering item such as interest rate is advertised.
In a 1031 taxes are:
Deferred
Residential properties are depreciated on a ______year schedule.
27.5 YEAR
Equal Credit Opportunity Act (ECOA)
- Prohibits discrimination in lending
- requires credit application only based on income and stable source of income, credit rating
Predatory Lending
When lending is unfair, deceptive and abusive.
Lenders fail to disclose loan costs and risks, steer borrowers towards unfairly high-interest rates
Usury
When someone charges an illegally high rate of interest
1031 Like Kind Exchanges
Defers the payment of capital gains taxes
alleviates the disincentive for business growth created by tax code
203b
FHA section that allows anyone to qualify for assistance as long as they are purchasing a primary residence
- generally for 1-4 family owner occupied homes
- condos and co-ops qualify
