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Real Estate > Government Involvement In RE Financing Market > Flashcards

Government Involvement In RE Financing Market Flashcards

1
Q

3 basic components to the RE financing market

A
  • gouvernement influences, primarily the federal reserve system
  • the primary mortgage market
  • the secondary mortgage market
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2
Q

Under the umbrella of the monetary policy set by the Federal Reserve System

A

Lenders that are part of the primary mortgage market originate loans that are bought, sold, and traded in the secondary mortgage market.

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3
Q

The role of the FEDERAL RESERVE SYSTEM

A

To maintain sound credit conditions, help counteract inflationary and deflationary trends, and create a favorable economic climate. It divides the country into 12 federal reserve districts, each served by a federal reserve bank. Banks must join the Fed and purchase stock in its district reserve bank.
-regulates the flow of money and interest rates by controlling the rate charged for loans it makes to them.

The fed acts in the open market to stimulate economy at time of recession by increasing the amount of money in circulation by buying Treasury securities. Can also act to control
Inflation by decreasing the amount of money in circulation by selling Treasury securities.

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4
Q

Discount rate

A

The fed regulates the flow of money and interest rates in the marketplace through its member banks by controlling the rate charged for loans it makes to them.

When discount rate rises, interest rates on all sorts of loans will rise, making funding harder to obtain. When rate is lowered, interest rates go down:

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5
Q

Reserve requirements

A

The minimum level of funds that an institution must maintain.

The Feds reserve requirements place funds out of circulation; when reserve requirements are increased, lender solvency is improved but funding is harder to obtain.

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6
Q

Primary mortgage market

A

Made up of lenders that originate mortgage loans. Make money available directly to borrowers. For borrowers a loan is a means of financing an expenditure. From a lenders pov it’s an investment.

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7
Q

Income on a loan is realized from two sources:

A
  • finance charges collected at closing, such as loan origination fees and discount points
  • recurring income, the interest collected during loan term
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8
Q

Servicing loan

A

Involves

  • collecting payment
  • accounting
  • bookkeeping
  • preparing insurance and tax records
  • processing payments of taxes and insurance
  • following up on loan payment and delinquency
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9
Q

Savings associates
aka thrifts
Commercial banks

A

These institutions are knowns as fiduciary lenders because of the finish area location to protect and preserve their depositors funds. Mortgage loans are perceived as secure investment for generating income and enable these institutions to pay their depositors.

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10
Q

Office of the Controller of the Currency

OCC

A

This establishes standards and regulations fiduciary lenders are subject to.

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11
Q

Federal deposit insurance corporation

FDIC

A

Deposits in insured instituerions are covered up to the specified limit, currently $250,000 per depositor, per account.

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12
Q

Insurance companies

A

Accumulate large sums of money from the premiums paid by their policy holders. Part of money is held in reserve to satisfy claims and cover operating expenses, much of it is free to be invested in profit -earning enterprises.

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13
Q

Credit unions

A

Cooperative organizations whose members place money in savings accounts. Routinely originate longer-term first and second mortgage and deed of trust loans. Regulated by the national credit Union Association. NCUA insured deposits of up to $250,000 in all federal credit unions and majority of state charted CU.

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14
Q

Pension funds

A

Usually have large amounts of money available for investment. Because of comparatively high yields and low risks offered by mortgages, pension funds have begun to participate actively in financing real estate projects. Handled through mortgage bankers and mortgage brokers. The Pension Real Estate Association is non profit

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15
Q

Endowment funds

A

Commercial and mortgage bankers handle investments for endowment funds. Endowments of hospitals, universities, colleges, charitable foundations, etc provide a good source of financing for low risk commercial and industrial properties.

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16
Q

Investment group financing

A

Large real estate projects are often financed as joint ventures through group financing such as syndicates, limited partnerships, and real estate investment trusts.

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17
Q

Mortgage banking companies

A

Originate mortgage loans with money belonging to insurance companies, pension funds, and individuals; as well as funds of their own. They make loans wth the intention of selling them to investors and receiving a fee for servicing the loans. Organized as stock companies. They are subject to fewer lending restrictions than commercial banks or savings associations. Not mortgage broker

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18
Q

Mortgage brokers

A

Are not lenders. They are intermediaries who bring borrowers and lenders together.

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19
Q

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act).

A

Requires states to license mortgage loan originators according to national standards and also requires all state agencies to participate in the Nationwide Mortgage Licensing System and Registry.

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20
Q

Nationwide Mortgage Licensing System and Registry

A

The sole System of licensure for mortgage companies for 57 state agencies and the sole System of licensure for 59 state and territorial agencies.

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21
Q

Secondary mortgage market

A

Loans are bought and sold only after they have been funded. Helps lenders raise capital and make additional mortgage loans. Stimulates both the housing construction market and the mortgage market.

Mortgage loans as assembled into blocks called POOLS. Can be pooled by lender or by organization that buys them.

22
Q

Government-sponsored enterprises (GSE)

A

Key players in secondary mortgage market, created by federal government in the decades following the Great Depression and WWII to help increase loan opportunities for homebuyers.
Fannie Mae
Freddie Mac
Ginnie Mae

One of the most important features- development of standardized loan application, credit report, appraisal and other forms that are required for loans they purchase, as well as detailed guidelines for lending process.

23
Q

Fannie Mae

A

Originally federal national mortgage association. Created as government agency in 1938. Became completely private share holder owned corporation in 1968, still under congressional supervision.
Buys from a lender a block or pool of mortgages that may then be used as collateral for mortgage backed securities that are sold in the global market.
Sept 2008 FM was placed in federal housing finance agency.
Deals in FHA- insured, VA guaranteed, and conventional loans

24
Q

Freddie Mac

Originally federal home loan mortgage corporation

A

Created in 1970 as privately owned corporation but is also now under government conservatorship. Provides a secondary market for mortgage loans, primarily conventional loans.

25
Q

Farmer Mac

A

Privately owned and publicly traded, established by congress in 1988 to create secondary market for agricultural mortgage and rural utilities loans
Has not has financial difficulties like FM AND Fmac because market values in rural areas have not gone through the wide swing that most urban areas have experienced.

26
Q

Ginnie Mae

A

Created in 1968 and has always been government agency. A division of the Department of Housing and Urban development (HUD) organized as a corporation without capital stock. Does not buy or sell loans or issue mortgage backed securities. Instead, administers special assistance programs and guarantees investment securities issue by private offerors (banks, mortgage companies, savings and loans) and backed by pools of FHA insured and VA guaranteed mortgage loans.

27
Q

Ginnie Mae pass-through certificate

A

Security interest in a pool of mortgages that provides for a monthly pass through of principal and i retest payments di early to the certificate holder.

28
Q

Loan to value ratio

LTV

A

Mortgage loans can be classified based on LTV.
The ratio of debt to the value of the property, where the value is the sales price or appraised value, whichever is less. The LOWER the ratio of debt to value, the HIGHER the down payment by the borrower.

29
Q

Conventional loans

A

Viewed as the most secure loans because LTV are often lowest. Borrower makes downpayment of at least 20%.
Is not government insured or guaranteed.

30
Q

To qualify for conventional loan under Fannie Mae or Freddie Mac:

A

Monthly expenses including PITI must not exceed 28% of total monthly gross income. Also total monthly obligations must not exceed 36% . The maximum for total monthly obligations can be as high as 45% or 50% if borrower meets higher credit score and reserve requirements. Loans that meet these criteria are called CONFORMING LOANS.

31
Q

Federal Housing Finance Agency FHFA

A

Published the maximum loan limits for loans sold to Fannie Mae and Freddie Mac.

32
Q

Nonconforming loans

Jumbo loans

A

Exceed stated minutes set by FHFA and are not marketable.

33
Q

Private mortgage Insurance

PMI

A

Mortgage loan created with less than 20% of purchase price down. Borrower purchases an insurance policy that provides the lender with funds in the event of a default. Protects 20-30% (top portion of loan) against default.

34
Q

Homeowners Protection Act of 1998

HPA

A

Requires that the lender automatically terminate the PMI payment if the borrower has accrued at least 22% equity in the home and is current on mortgage payments.

35
Q

FHA insured loan

A

FHA loan actually refers to a loan that is insured by the agency. Must be made by an FHA approved lending institution. The FHA insurance provides additional security to lender.
Most popular program covers fixed rate loans for 10-30 years on 1-4 family residences. Does not set Interest rates but does limit lender fees and specifies how closing costs and down payment may be paid and by whom, and regulates rate increases and caps on adjustable rate loans.
FHA loans cannot charge prepayment penalties.
Adjustable-rate mortgages, home improvement and rehabilitation loans, and loans for condos.
Can obtain an FHA insured loan with a down payment as low as 3.5% of the purchase price on a one to four unit structure. Some closing costs can be included in loan.

36
Q

Mortgage insurance premium

MIP

A

Borrowed is charged this for all fha loans. Up front premium is charged at closing and can be financed.

37
Q

Discount points

A

Lender of FHA insured loan may charge discount points in addition to loan origination fee. If seller pays more than 6% of costs normally paid by buyer (loan origination fee, mortgage insurance etc) the lender will treat payments as a reduction in sales price and recalculate mortgage.

38
Q

Assumption rules

A

Qualified buyer may assume an existing FHA insured loan. Must pass credit check. Less expensive than applying for a new loan.
Loans originated dec 15, 1989 and later an assumption is not permitted without complete buyer qualification.

39
Q

VA-guaranteed loan

A

The VA is authorized to guarantee loans used to purchase or construct homes for eligible veterans and their spouses .

  • no VA dollar limit on the amount of the loan. VA does however limits amount it will guarantee.
  • can only have one loan at a time. And only own two properties acquired using benefits.
  • loan benefit never expires as long as any prior loans have been paid in full.
  • no prepayment fee
  • pay a funding fee
  • can be assumed by qualified buyer
40
Q

Criteria meet one for VA approved loan

A

-90 days of active service for service people on active duty and veterans of at least 90 days during war time
-a minimum of 181 days of active service during interconflict persons 1947-1980
-two full years of service
during any peacetime period since 1980
-six or more years of continuous duty as reservist

41
Q

Certificate of reasonable value

A

The CRV is issued by VA and states the property’s current market value based on VA approved appraisal. Places a ceiling on amount of a va guaranteed loan allowed. If purchase price is greater, veteran may pay difference.

42
Q

Package loan

A

Includes real and personal property.

43
Q

Blanket loan

A

Covers more than one parcel or lot. Usually used by developer to finance a subdivision.
Can be used to consolidate multiple loans on a single property.
Includes partial release clause. Permits borrower to obtain the release of any one lot or parcel from a blanket lien h repaying a certain amount.

44
Q

Wraparound loan

A

Enables borrower with an existing mortgage loan to obtain additional financing from the second lender without paying off the first loan. Second lender gives a bar or a new, increased loan at a higher rate of interest and assumes payment of existing loan. The total amount of the new includes existing loan as well as additional funds needed by borrower.
Can be used to refinance

45
Q

Open-end loan

A

Provides a security interest when a note is executed but also secured any future advances of fund made by lender.
Less costly alternative to a home improvement loan

46
Q

Construction loan

A

Is made to finance the construction of improvements on Real Estate such as homes, apartments, and office buildings. Lender commits to the full amount of loan but disperses the phones and payments during construction. These payments are known as draws. Draws are made to General contractor and lender inspects work before each payment.
-construction loans are generally short-termor intermin financing. Borrower only pays interest on money that has actually been disbursed. Borrower is expected to arrange for permanent loan. Aka end loanor take-out loan.

47
Q

Sale-and-leaseback

A

Not loans, but used to finance large commercial or industrial properties

48
Q

Buydown

A

A way to temporarily or permanently lower the interest rate on a mortgage or deed of trust loan. Pimp sun is paid in cash though lender at the closing. Typically reduce the interest rate by 1-2% over the first one to two years of loan. After that, rate rises. You

49
Q

Home-equity loan

A

Source of funds that takes advantage of the equity built up in a home. Becomes a junior lien to original. Alternative to refinancing because only the amount borrowed will be subject to the higher rate. Also, is tax deductible.
Can be fixed loan or line of credit.

50
Q

Home equity line of credit

HELOC

A

A home equity loan taken out as a line of credit. One downside is that the full amount of the line of credit will appear on borrowers credit report even though not being used.

Real Estate (13 decks)

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