Key Terms Flashcards
The Fed
Federal Reserve System
The short term interest rate charged to a bank’s largest, most creditworthy customers
Prime Rate
The ___ is made up of lenders that originate mortgage loans
Primary mortgage market
The mortgage market in which loans are originated, consisting of lenders such as commercial banks, savings and loan associations, and mutual savings banks
Primary mortgage market
Institutions known as fiduciary lenders because of their fiduciary obligations to protect and preserve their depositors’ funds
Thrifts, savings associations, and commercial banks
Accumulate large sums of money from the premiums paid by their policyholders
Insurance companies
Insurance companies hold ___ of the money accumulated from premiums in reserve to ___ and cover ____.
part
satisfy claims
operating expenses
In addition to holding part of the money in reserve to satisfy claims and cover operating expenses, much of the money accumulated by insurance companies through premiums is free to be ___.
invested
In addition to holding part of the money in reserve to satisfy claims and cover operating expenses, much of the money accumulated by insurance companies through premiums is free to be invested in ___ such as ___.
Profit earning enterprises
Long term real estate loans
Cooperative organizations whose members place money in savings accounts.
Credit unions
Credit unions routinely originate longer term ___, ___, and ___ loans
first mortgage, second mortgage, and deed of trust
___ usually have large amounts of money available for investment.
Pension funds
Because of the comparatively high yields and low risks offered by mortgages, ___ have begun to participate actively in financing real estate projects.
Pension funds
Most real estate activities for pension funds are handled through ___ and ___.
Mortgage bankers
Mortgage brokers
Many commercial banks and mortgage bankers handle investments for ___.
Endowment funds
The ___ of hospitals, universities, colleges, charitable foundations, and other institutions provide a good source of financing for low risk commercial and industrial properties
Endowments
Large real estate projects, such as highrise apartment buildings, office complexes, and shopping centers, are often financed as joint ventures through ___ arrangements like syndicates, limited partnerships, and real estate investment trusts
Investment group financing
___ originate mortgage loans with money belonging to insurance companies, pension funds, and individuals with funds of their own.
Mortgage banking companies
___ make real estate loans with the intention of selling them to investors and receiving a fee for servicing the loans
Mortgage banking companies
Mortgage banking companies make real estate loans with the intention of selling them to ___ and receiving a(n) ___ for servicing the loans
Investors
Fee
Mortgage banking companies make real estate loans with the intention of selling them to investors and receiving a fee for ___.
servicing the loans
Mortgage brokers are NOT ___.
lenders
___ are intermediaries who bring borrowers and lenders together
Mortgage brokers
___ locate potential borrowers, process preliminary loan applications, and submit the applications to lenders for final approval.
Mortgage brokers
Mortgage brokers do not ___ loans once they are made
Service
The ___ requires that each individual state must license and register mortgage loan originators.
Federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act)
SAFE Act
Federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008
Anyone who, for compensation or expectation of compensation, takes a residential mortgage loan by phone or in person
Mortgage Loan Originator
A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages
Secondary Mortgage Market
In the ___, various agencies purchase existing mortgages from banks and savings associations and assemble those mortgages into packages called blocks or pools.
Secondary mortgage market
In the secondary mortgage market, various agencies purchase ___ from banks and savings associations.
Existing mortgages
In the secondary mortgage market, various agencies purchase existing mortgages from ___ and ___.
Banks and savings associations
In the secondary mortgage market, ___ are assembled into packages called blocks or pools.
existing mortgages
In the secondary mortgage market, existing are assembled into packages called ___ or ___.
Blocks or pools
Allows for the resupply of funds for lending to the primary mortgage market
Secondary Mortgage Market
Usually called Fannie Mae
Federal National Mortgage Association
A quasi-government agency established to purchase any kind of mortgage loans in the secondary mortgage market from the primary lenders
Fannie Mae
___ deals in conventiaonal, FHA, and VA loans.
Fannie mae
Fannie Mae buys a pool of mortgages from a lender, and that pool may then be used as collateral for ___ that are sold on the global market.
Mortgage-backed securities
___ define loans that are conforming
Fannie Mae / Fredie Mac Conforming Loan Limits (2023)
Usually called Ginnie Mae
Government National Mortgage Association
Administers special assistance programs and guarantees mortgage backed securities using FHA and VA loans as collateral
Ginnie Mae
Ginne Mae administers special assistance programs and guarantees mortgage backed securities using ___ and ___ loans as collateral
FHA and VA
The Ginnie Mae ___ is a security interest in a pool of mortgages that provides for a monthly pass through of principal and interest payments directly to the certificate holder.
pass-through certificate
Ginnie Mae pass-through certificates are __ by Ginnie Mae
Guaranteed
Usually called Freddie Mac
Federal Home Loan Mortgage Corporation
Government sponsored enterprise that provides a secondary market primarily for conventional loans
Freddie Mac
Corporation established to purchase primarily conventional mortgage loans in the secondary mortgage market.
Freddie Mac
Also called an interest-only loan
Straight loan
Also called a term loan
straight loan
A loan in which only interest is paid during the term of the loan, with the entire principal amount due with the final interest payment
Straight loan
A nonamortized loan that essentially divides the loan into 2 amounts to be paid off separately
Straight loan
Also called a direct reduction loan
Amortized loan
A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan
Amortized loan
Unlike a straight loan, a(n) ___ loan partially pays off both principal and interest
Amortized
Most mortgage and deed of trust loans are ___ loans.
Amortized
Regular periodic payments are made over a term of years, generally 15 or 30 years, and at the end of the term, the full amount of principal and interest due is reduced to 0.
Amortized loan
Also called a level-payment loan
Fully amortized loan
Under a(n) ___, the mortgagor pays a constant amount, usually monthly. The lender credits each payment first to the interest due, then the principal amount of the loan. As a result, while each payment remains the same, the portion applied to repayment of the principal grows.
Fully amortized loan
The most frequently used amortized loan plan is the ___.
Fully amortized loan
In a fully amortized loan, while each payment remains the same, the portion applied to repayment of the principal ___, and the interest due ___ as the unpaid balance of the loan is reduced
Principal Grows
Interest declines
A fully amortized loan benefits the borrower because they pay less ___ if the ___ is paid off before the end of its term.
Less interest
Principal
Generally originate at one rate of interest, then fluctuate up or down during the loan term, based on some objective economic indicator
Adjustable rate mortgages
A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index
Adjustable Rate Mortgage (ARM)
Component of an ARM: The ___ is an undeterminable economic indicator that is used to adjust the interest rate in the loan. Most are tied to US Treasury securities.
Index
Component of an ARM: the interest rate is usually the index rate plus a premium called the ___. It represents the lender’s cost of doing business.
Margin
Component of an ARM: ___ limit the amount the interest rate may change.
Rate Caps
Most ARMS have 2 types of rate caps called ___ and ___
Periodic
Aggregate
Component of an ARM: A(n) ___ rate cap limits the amount the rate may increase at any one time.
Periodic
Component of an ARM: A(n) ___ rate cap limits the amount the rate may increase over the entire life of the loan.
Aggregate
Component of an ARM: The mortgagor is protected from unaffordable individual payments by the ___, which sets a maximum amount for payments
payment cap
Component of an ARM: The ___ establishes how often the rate may be changed, whether it is monthly, quarterly, or annually
Adjustment period
Component of an ARM: Lenders may offer a(n) ___, which permits the mortgagor to convert from an adjustable-rate to a fixed-rate loan at certain intervals during the life of the mortgage
Conversion option
A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized
Balloon payment
A balloon loan is a partially amortized loan because ___ is still owed at the end of the term.
principal
Is a lender legally obligated to grant the extension of a balloon payment for another limited term if payments are made promptly?
No
Also called a rapid payoff mortgage
Growing Equity Mortgage (GEM)
A loan in which the monthly payments increase annually, with the increased amount being used to directly reduce the principal balance outstanding and thus shorten the overall term of the loan
Growing Equity Mortgage (GEM)
A(n) ___ is most frequently used when the borrower’s income is expected to keep pace with the increasing loan payments.
Growing equity mortgage (GEM)
A loan under which the homeowner receives monthly payments based on her accumulated equity rather than a lump sum. It must be repaid at a prearranged date or on the death of the owner or sale of the property.
Reverse mortgage
Allows people 62 or older to borrow money against the equity they have built in their home
Reverse mortgage
___ mortgages are the opposite of conventional mortgages in that the homeowner’s equity diminishes as the loan amount increases
Reverse
Loan in which the borrower is not held personally responsible for the loan. Lender has no recourse against the borrower personally in the event of a default. Common in situations where the lender is highly confident that the value of the property involved is itself sufficient security. More common in commercial and investment transactions.
Nonrecourse loans
Mortgage loans are generally classified based on their ___.
Loan-to-value (LTV) ratios
The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral
Loan-to-value (LTV) ratio
The ___ is the ratio of debt to value of the property (sale price or appraisal value, whichever is less)
Loan-to-value ratio
The Loan-to-value ratio is the ratio of debt to value of the property (sale price or appraisal value, whichever is ___)
Less
The Loan-to-value ratio is the ratio of debt to value of the property (___ or ___, whichever is less)
sale price or appraisal value
___ loans are viewed as the most secure loans because their LTV ratios are often lowest.
Conventional
Conventional loans are viewed as the most secure loans because their ___ are often lowest
LTV Ratios
A loan that requires no government insurance or guarantee
Conventional loan
Insurance provided by a private carrier that protects a lender against a loss in the event of a foreclosure and deficiency
Private Mortgage Insurance (PMI)
In a(n) ___ program, the borrower purchases an insurance policy that provides the lender with funds in the event the borrower defaults on the loan.
Private Mortgage Insurance (PMI)
A(n) ___ program allows the lender to assume more risk so that the LTV ratio is higher than for other conventional loans.
Private mortgage insurance (PMI)
A loan insured by the Federal Housing Administration and made by an approved lender in accordance with their regulations
FHA Loan
The FHA insurance provides ___ to the lender in addition to real estate
Security
As with PMI, the FHA ___ lenders against loss from borrower default
Insures
A borrower is charged a(n) ___ for all FHA Loans
Mortgage Insurance premium (MIP)
An up-front premium charged at closing for all FHA loans
Mortgage Insurance Premium (MIP)
The up-front premium for a mortgage insurance premium is charged ___ for all FHA loans, and can be financed into the mortgage loan
at closing
A mortgage loan on an approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs to limit the lender’s possible loss
VA Loan
A form indicating the appraised value of a property being financed with a VA loan
Certificate of Reasonable Value (CRV)
The ___ states the property’s current market value based on a VA-approved appraisal and places a ceiling on the amount of a VA loan allowed for the property.
Certificate of Reasonable value (CRV)
The Federal Agricultural Mortgage Corporation is usually called ___.
Farmer Mac
The ___ is another government sponsored enterprise that operates similarly to Fannie Mae and Freddie Mac but in the context of Agricultural loans
Federal Agricultural Mortgage Corporation (Farmer Mac)
___ was created to improve the availability of long-term credit at stable interest rates to American farmers, and ranchers, rural homeowners, businesses, and communities.
Farmer Mac
A note secured by a mortgage or deed of trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price of the real estate
Purchase Money Mortgage (PMM)
A note and mortgage created at the time of purchase when the seller agrees to finance all or part of the purchase price and consists of a first or junior lien, depending on whether prior mortgage liens exist.
Purchase Money Mortgage (PMM)
___ are often called seller financing or owner financing
Purchase Money Mortgage (PMM)
A(n) ___ is often used when the buyer does not qualify for a typical lender loan.
Purchase Money Mortgage (PMM)
A real estate loan used to finance the purchase of both real property and personal property, such as in the purchase of a new home that includes carpeting, window coverings, and major appliances.
Package Loan
A mortgage covering more than one parcel of real estate, providing for each parcel’s partial release from the mortgage lien on repayment of a definite portion of the debt
Blanket
A blanket loan usually includes a(n) ___, which permits the borrower to obtain the release of any one lot or parcel from the lien by repaying a certain amount of the loan.
Partial Release Clause
A method of refinancing in which the new mortgage is placed in a secondary, or subordinate, position; the new mortgage includes both the unpaid principal balance of the first mortgage and whatever additional sums are advanced by the lender.
Wraparound Loan
A(n) ___ loan enables a borrower with an existing mortgage or deed of trust loan to obtain additional financing from a second lender without paying off the first loan. The second lender gives the borrower a new, increased loan at a higher interest rate and assumes payment of the existing loan.
Wraparound loan
The total amount of the new loan for a(n) ___ loan includes the existing loan as well as the additional loan taken out by the borrower.
Wraparound
In the case of a wraparound loan, the borrower makes payments to the ___, and the new lender makes payments on the ___.
Borrower makes payments to the new lender
New lender makes payments on the original loan
A mortgage loan that is expandable by increments up to a maximum dollar amount, the full loan being secured by the same original mortgage
Open-end loan
An open-end loan secures a note executed by the ___ to the ___
Buyer to the lender
Open-end loans secure any future advances of funds made by the ___ to the ___
Lender to the borrower
___ loans are also called interim financing
Construction
A short-term loan usually made during the construction phase of a building project
Construction Loan
___ loans are made to finance the construction of improvements on real estate such as homes, apartments, and office buildings.
Construction Loans
In a construction loan, the lender commits to the full amount of the loan, but disburses the funds in payments called ___ during construction.
Draws
In a construction loan, ___ are made to the developer or general contractor for that part of the construction work that has been completed since the previous payment.
Draws
Construction loans are generally ___ financing, and the borrower is expected to arrange for a(n) ___ loan which will repay or take out the construction financing lender when work is completed.
Short term
Permanent loan
Permanent loans that follow construction loans are also called a(n) ___ loan or ___ loan
End loan
Take-out loan
A way to temporarily or permanently lower the initial interest rate on a mortgage or deed of trust loan
Buydown
A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder or seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time
Buydown
Provide a source of funds using the equity built up in a home
Home Equity Loans
A loan under which a property owner uses his residence as collateral and can then draw funds up to a prearranged amount against the property.
Home equity loan
Also called a line of credit
Home equity loan
With a(n) ___, lenders extend a line of credit that borrowers can use at will. Borrowers receive their money by checks sent to them, deposits made into their bank accounts, or a book of drafts they can use up to their credit limits.
Home Equity Line of Credit
Home equity loans can be taken out as a(n) ___ or as a(n) ___.
Fixed loan amount
Home Equity Line of Credit (HELOC)
Also called Regulation Z
Truth In Lending Act (TILA)
Federal legislation that allows the government to regulate the practices of mortgage lenders.
Truth In Lending Act
The ___ requires that credit institutions inform borrowers of all finance charges and the true interest rate before a loan is completed.
Truth In Lending Act
Because of the ___, borrowers can compare the costs of various lenders and avoid the uninformed use of credit.
Truth In Lending Act
Regardless of the loan amount, the Truth In Lending Act applies whenever a credit transaction is secured by a(n) ___.
Residence
The Truth In Lending Act does not apply to ___ or ___ loans or to ___ loans of any amount
Business or Commercial loans
Agricultural
Specific credit terms such as “down payment”, “monthly payment”, “dollar amount of the finance charge,” or “Term of the loan” are called ___.
Trigger Terms
Specific credit terms that may not be advertised unless the advertisement includes other detailed information.
Trigger terms
Trigger terms may not be ___ unless it includes other detailed information.
advertised
Trigger terms may not be advertised unless the advertisement includes ___.
other detailed information.
The __ shows the consumer the amount of money borrowed, interest rate, amount of interest paid, number of payments, individual amount of those payments, any associated costs for the loan, estimate of closing costs, and an estimate of cash needed to close.
Loan Estimate
___ is defined as when the lender has received the following information regarding a loan:
-address of property
-loan amount
-income of borrower
-contract price for the property
-borrower’s SSN
Application
The ___ prohibits lenders and others who grant or arrange credit to consumers from discriminating against applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided they are of legal age), or dependence on public assistance.
Equal Credit Opportunity Act
The ___ requires that lenders and other creditors must inform all rejected applicants of the principal reasons for the denial or termination of credit
Equal Credit Opportunity Act
Refers to the responsibility of financial institutions to help meet their communities’ needs for low-income and moderate-income housing
Community reinvestment
Under the ___, financial institutions are expected to meet the deposit and credit needs of their communities; participate and invest in local community development and rehabilitation projects; and participate in loan programs for housing, small businesses, and small famrs.
Community Reinvestment Act
Federal law that requires certain disclosures to consumers about mortgage loan settlements. It also prohibits the payment or receipt of kickbacks and certain kinds of referral fees
Real Estate Settlement Procedures Act (RESPA)
The Real Estate Settlement Procedures Act (RESPA) applies to any ___ real estate transaction involving a(n) ___ loan
Residential
New first mortgage loan
___ is designed to ensure that the buyer and seller are fully informed of all settlement costs
Real Estate Settlement Procedures Act (RESPA)
