Law of Finance 2 Flashcards
1
Q
Gramm-Rudman act
A
allowed banks to engage in trading profitable derivatives that they sold to investors.
2
Q
LIBOR
A
interbank borrowing costs; is the benchmark interest rate that banks charge each other for overnight, one-month, three-month, six-month and one-year loans.
3
Q
Volcker Rule
A
Restricted United States banks from making certain speculative investments that did not benefit their customers
Prohibited banks from conducting investment activities with their own accounts
Limited banks ownership of hedge funds or private equity funds to 3% of total ownership interest; ban on proprietary trading by commercial banks
4
Q
Consumer Financial Protection Bureau, or CFPB
A
responsible for supervising banks, credit unions, and other financial companies to enforce federal consumer financial laws.
5
Q
Which are exempt from CFPB regulations?
A
reverse mortgages, home equity lines of credit, mobile home loans
6
Q
goals of CFPB
A
Create easier-to-use mortgage disclosure forms
Improve consumer understanding
Aid in comparison shopping for the borrower
Prevent surprises at the closing table, a.k.a. “Know Before You Owe”
7
Q
Secure and Fair Enforcement for Mortgage Licensing Act or SAFE Act
A
gave states one year to pass legislation requiring the licensure of mortgage loan originators (MLOs) that met national standards and the participation of state agencies on the Nationwide Mortgage Licensing System and Registry (NMLS).
8
Q
Financial Choice Act
A
attempt to roll back Dodd frank act
9
Q
Administrative Procedure Act, or APA
A
governs the way administrative agencies of the federal government may propose and establish regulations.
10
Q
Internal Revenue Service, or IRS
A
xx
11
Q
Mortgage Assistance Relief Services (MARS)
A
is a Federal Trade Commission Rule that protects consumers from predators while they’re in default on their mortgage.; makes it illegal for upfront fees and requires disclosure
12
Q
Foreign Investment in Real Property Tax Act of 1980, or FIRPTA
A
If a seller is not a citizen, then the buyer (or their representative) must withhold 10 percent of the sale proceeds and send it to the IRS within 10 days of closing
13
Q
exceptions for FIRPTA
A
residential real estate under $300,000,
14
Q
HFA
A
Housing Finance Agencies, the many government agencies dedicated to providing fair housing standards and practices; coordinate and consolidate power through NCSHA national council of state housing agencies
15
Q
TDHCA
A
Texas Department of Housing and Community Affairs, responsible for homeownership, affordable rental housing, community and energy assistance programs and activities serving primarily low-income Texans
16
Q
MCC
A
Mortgage Credit Certificate, a certificate issued by certain state or local governments that allows a taxpayer to claim a tax credit for some portion of the mortgage interest paid during a given tax year
17
Q
TSAHC
A
Texas State Affordable Housing Corporation, offers home down payment assistance programs, including first-time homebuyer grants for Texas families
18
Q
VLB
A
Texas Veterans Land Board, finances land, home loans and home improvement loans for Texas veterans and active military members who are eligible under VLB requirements. It offers Texas veterans the opportunity to buy land at below-market rates with low down payments.
19
Q
programs administered by NCSHA
A
Mortgage Revenue Bonds (MRB)
The Low Income Housing Credit
The HOME Investment Partnerships Program (HOME)
20
Q
A consumer is considered a first-time homebuyer if they have not owned a home in ________.
A
3
21
Q
How much tax credit can be issued under the MCC program?
A
The annual tax credit will be 40% of the annual interest paid on the mortgage loan and not to exceed $2000 per year
22
Q
What demographic is specifically targeted by the efforts of the TSAHC?
A
low-income families and other underserved populations in Texas who don’t have acceptable housing options through conventional financial channels.
23
Q
Homes for Texas Heroes Home Loan Program
A
provides homebuyer assistance specifically to teachers, police and correctional officers, firefighters and EMS personnel, and veterans.
24
Q
DPA
A
down payment assistance
25
USDA
The United States Department of Agriculture, responsible for developing and executing federal laws related to farming, agriculture, forestry, and food
26
USDA Single Family Housing Programs
give direct loans or loan guarantees to help low- and moderate-income rural Americans buy safe and affordable housing in rural areas.
27
Multi-Family Housing Programs
offer loans to provide affordable rental housing for very-low-, low- and moderate-income residents, the elderly, and persons with disabilities.
28
Community Facilities Programs
provide loans, grants, and loan guarantees for essential community facilities in rural areas.
29
Section 502 Loans
commonly known as Single Family Housing Direct Home Loans, are loans that help low- and very-low-income applicants get decent and safe housing in eligible rural areas by providing payment assistance to increase an applicant’s repayment ability.
30
FSA
Farm Service Agency - This department serves farmers and ranchers who are unable to get credit to start, purchase, sustain, or expand a family farm.
31
Direct Operating Loans:
These loans are used to buy things like livestock and feed, farm equipment, fuel, farm chemicals, and insurance. They can cover family living expenses, be used to make minor improvements or repairs to buildings and fencing, and go toward general farm operating expenses.
32
microloans
Microloans are operating loans meant be put toward the needs of small and beginning farmers, non-traditional, specialty crop and niche type operations. They ease some of the requirements and offer less paperwork.
33
direct farm ownership loans
These loans are used to do things like purchase or enlarge a farm or ranch, construct a new or improve existing farm or ranch buildings, and for soil and water conservation and protection purposes.
34
guarenteed loans
Guaranteed loans allow lenders to extend credit to family farm operators and owners who don’t qualify for standard commercial loans. Farmers receive credit at reasonable terms to finance their current operations or to expand their business; financial institutions receive additional loan business and servicing fees, as well as other benefits from the program, like protection from loss.
35
youth loans
Youth loans are used by young people participating in clubs like 4-H clubs or FFA to finance educational, income-producing, agriculture-related projects. (Oh, to be young and in loans!)
36
Minority and Women Farmers and Ranchers Loans:
These loans encourage full participation from minority and women family farmers by targeting a portion of direct and guaranteed farm ownership and operating loan funds for minority and women farmers to buy and operate a farm or ranch.
37
Beginning Farmers and Ranchers Loans:
These loans provide credit opportunities to eligible family farm and ranch operators and owners who’ve been in business less than 10 years. Aw, newbies!
38
emergency loans
These are designed to assist farmers and ranchers recover from any production or physical losses suffered from drought, flooding, other natural disasters or quarantine.
39
Native American Tribal Loans:
These loans are a resource for Tribes to acquire land interests within tribal reservations or Alaskan communities. The loans can be used to advance and increase current farming operations, provide financial prospects for Native American communities, increase agricultural productivity, and preserve cultural farmland for future generations.
40
loan estimate is provided to consumer within
3 days of application
41
The Consumer Financial Protection Bureau's program that created new, streamlined forms that consumers receive when they apply for and close on a mortgage is known as ____.
know before you owe
42
Loan estimate form replaced what two documents?
Good Faith Estimate GFE and Truth in lending TIL
43
Total INterest Percentage TIP
the total amount of interest that will be paid over the loan term as a percentage of the loan amount
44
revised loan estimates must be mailed
at least 7 business days before closing to allow three days for receipt.
45
closing disclosure
A five-page form that provides final details about the mortgage loan you have selected; replaced the HUD-1 settlement and Final TIL Disclosure in 2015
46
escrow account
An account set up by a mortgage company for paying property taxes and insurance during the term of the mortgage
47
settlement statement
Statement that summarizes all the fees and charges that both the homebuyer and seller face during the settlement process of a housing transaction
48
The Closing Disclosure can be completed by:
a title company representative or a real estate attorney
49
Signing the Loan Estimate and Closure Disclosure forms constitutes which of the following?
receipt of forms
50
settlement statement
was a document used when a borrower is lent funds to purchase real estate.; this form was replaced by closing disclosure; also known as settlement statement; were supposed to get this 1 days before settlement
51
Department of Housing and Urban Development (HUD)
is a government agency with the mission “to increase homeownership, support community development, and increase access to affordable housing free from discrimination.”
52
Federal Housing Administration, or FHA
provides mortgage insurance on loans made by FHA-approved lenders throughout the United States
53
TILA contains two regulations
regulation M (focuses on leased property) and regulation Z (focuses on consumer credit)
54
Regulation Z
requires that certain disclosures be made to all consumers seeking credit
55
mortgage bankers
usually work for a financial institution and are able to loan the money of that institution
56
mortgage broker
have NO money to lend. They bring lenders and borrowers together.
57
Reconstruction Finance Corporation, or RFC
purpose was to build confidence in the economy. The RFC created a mortgage company to sell and buy FHA and VA loans, making them more appealing to lenders/mortgage originators; dissolved in 1957
58
Federal National Mortgage Association (FNMA)
fannie mae was created by RFC; bought existing and established mortgages and lower income housing; became privately funded (government backed) ; work with larger commercial banks
59
Government National Mortgage Association (GNMA)
ginnie mae created in 1968; took over FNMA part in housing assistance and support programs under HUD; guarentee mortgage backed securities MBS
60
Federal Home Loan Mortgage Corporation (FHLMC),
Freddie Mac created as a part of the Emergency Home Finance Act of 1970; the focus is on conventional loans (government backed); work with smaller thrift banks
61
aggregator
work with government-sponsored enterprises, such as Freddie Mac and Fannie Mae, and create mortgage pools that turn into mortgage-backed securities (MBSs).
62
securities dealers
buy the MBS's
63
Asset-Backed Securities (ABS)
They are a pool of mortgages that are securitized by Wall Street.
64
Collateralized Debt Obligation (CDO)
pools of risky and non risky mortgages backed by mortgages and other debts
65
Collateralized Mortgage Obligation (CMO)
pool of risky and non risky mortgages backed by mortgages
66
Mortgage Backed Security (MBS)
A pool of mortgages packaged together and sold
67
Government-Sponsored Enterprises (GSEs)
The major participants of buying and selling mortgages in the secondary market. This includes: Fannie Mae, Freddie Mac, Farmer Mac, and the Federal Home Loan Bank
68
Non-Conforming loans:
Higher risk loans that do not fit Fannie Mae or Freddie Mac guidelines
69
conservatorship
When one entity takes control over a corporation to ensure they don't go bankrupt
70
Home Owners Loan Act
gave savings and loans the ability to be chartered by the federal government, and the thrifts were given essential lending authority to offer emergency relief for homeowners who could refinance their home loan for 20 years.; first fixed rated amortized loan was created
71
Real Estate Mortgage Investment Conduit (REMIC)
A REMIC is an investment vehicle that holds commercial and residential mortgages in trust, assembles said mortgages into pools based on risk, and then issues bonds (securities) on these pools to sell to investors on the secondary mortgage market
72
Collateralized Mortgage Obligations (CMOs)
Collateralized debt obligations (CDOs) that are made up of bundles or pools of mortgage-back securities (MBS) created by government agencies or investment banks and issued as investment-grade bonds
73
What does a REMIC do?
holds commercial and residential mortgages in trust, assembles mortgages into pools and issues bonds to investors in the secondary mortgage market.
74
tranches
These risk levels and classes of loans are known as this
75
Savings and Loan Associations (S&Ls):
Originally established by the government for the purpose of offering long-term, single-family home loans
76
commercial banks
Institutions that provide financial services to the general public and businesses
77
Secured Loan
A loan that is backed by collateral, which can be sold if necessary to recover the lender’s loss if the borrower defaults
78
What takes place in the primary market?
Mortgage lenders and borrowers come together to negotiate and create new mortgages in the primary market.
79
S&L downturn was
less regulation on loans and cutting of regulatory staff
80
Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
bailout measure for S&L failed banks; created RTC
81
Resolution Trust Corporation (RTC)
Duties of the Resolution Trust Corporation included:
Reselling savings and loan assets
Paying back the depositors with the proceeds
82
Which type of loan is granted based on the creditworthiness of the borrower AND the value of the collateral?
secured loan
83
The Glass-Steagall Act (passed in 1933
legislative response to the great depression ; separated investment and commercial banking activities
84
The Gramm-Leach-Biliey Act (passed in 1999)
replaced GSA and allowed investment and commercial banks to affiliate with each other once again
85
Financial Stability Oversight Council (FSOC)
This group of 15 members monitors the stability of the financial system, looks for risks in the system, and addresses those risks.
86
Consumer Financial Protection Bureau (CFPB)
The name kind of says it all. This agency’s job is to protect consumers in the realm of the financial sector. They do this by requiring lending institutions to have clear documentation regarding their transactions.
87
What is the goal of the Dodd-Frank Act?
prevent the excessive risk taking that led to the financial crisis of 2008.
88
The primary goals of the CFPB are:
Creating easier-to-use mortgage disclosure forms
Improving consumer understanding
Aiding in comparison shopping for borrowers
Preventing surprises at the closing table, a.k.a. “Know Before You Owe”
89
Why do life insurance companies tend to invest in commercial multifamily real estate?
it's considered low risk compared to stocks
90
self directed IRA
An individual retirement account that allows for alternative investments (like real estate) that traditional IRAs do not
91
holding cost
The investor’s cost of owning a property (including taxes, insurance, and utilities) for the time period before it is sold
92
credit union
A not-for-profit financial cooperative created to serve its members’ needs and provide services similar to those of a bank
93
depository institutions
Institutions that use money from their depositors to loan out for mortgages
94
Which of the following does NOT generate a profit?
credit unions
95
Which of the following is NOT an example of a depository institution?
insurance companies are not depository institutions.
96
Deposits at credit unions are insured by the
National Credit Union Administration (NCUA)
97
Deposits at banks are insured by the
Federal Deposit Insurance Corporation (FDIC).
98
Loan Officer:
Professional who facilitates the mortgage loan process and is employed by one specific financial institution
99
Mortgage Loan Originator (MLO)
A licensed professional who helps consumers get mortgage loans; can be commercial or residential (RMLO)
100
Sandi went to John, a loan officer at Ace Lending, and filled out an application for a mortgage loan. The loan was approved and Ace Lending funded the loan. Ace Lending is a:
mortgage banker
101
Real Estate Investment Trust (REIT)
A registered company that owns and operates commercial real estate; investors can buy and sell interests in real property in the form of REITs
102
Real Estate Mortgage Trust (REMT)
A type of real estate investment trust that buys and sells real estate mortgages instead of real property
103
Price-to-Earnings Ratio (P/E)
A common method of predicting the price of a stock that tells an investor how much dividend they will receive per dollar of stock purchased (low P/E means stable/established; high P/E means riskier)
104
3 types of REIT's
Equity REIT, mortgage REIT, Hybrid REIT
105
What is the difference between a REIT and a REMT?
A Real Estate Mortgage Trust (REMT) is a REIT that buys and sells real estate mortgages (usually short-term junior instruments) rather than real property. REMTs are involved in the secondary mortgage market and not the primary market.
106
increase in interest rates effects REIT's and REMT's how?
REIT's are positively impacted due to increase in occupancy of rental real estate (commercial); REMT's are negatively impacted because consumers are less likely to get a mortgage
107
Mortgage Backed Securities:
Asset-backed securities that are secured (collateralized) by either a mortgage or group of mortgages
108
Real Estate Bond:
A bond that is secured by a mortgage or group of mortgages
109
Hard Money Loan:
An asset-based loan in which a borrower receives funds secured by real property; typically issued by private investors or companies; usually short term
110
Which financial conditions are more likely to encourage seller financing?
when institutional loans are difficult to get and interest rates are high
111
As of 2018, the annual gift tax exclusion is set at for X an individual; double that for a married couple Y
$15,000; $30,000
112
portfolio lenders
originate mortgages and then hold onto them and service them.They seek to make their profits from the loan origination and interest payments.
113
soft money
These loans are most often obtained by investors who just miss the bank qualifications necessary for a more traditional loan. The lenders in this process use bank statements, property cash flow, profit and loss forms, and/or tax returns to qualify borrowers.
114
CISP
certified international property specialist ; valid for 3 years
115
Encumbrance:
A claim on a property belonging to someone other than the owner
116
easement
The right to enter the property of another without owning it
117
Affirmative Easement:
An easement that gives people the right to use someone else's personal property for a specific purpose
118
negative easement
An easement that prohibits a property owner from performing an otherwise legal activity on their own property
119
servient estate
The party that has the burden of granting the other party access in an easement
120
dominant estate
The party that is gaining access to the servient estate’s land in an easement
121
easement appurtenant
An easement that applies to the land regardless of the owner
122
easement in gross
An easement that applies to the person or entity, not the specific land
123
floating easement
An easement that does not have a clearly marked, fixed location to which access is granted
124
express easement
An easement created by a written agreement between two or more parties
125
implied easement
An easement created as a logical feature of the land
126
prescriptive easement
Easement created when a dominant party has been using the servient party’s land continually, out in the open, for a statutory amount of time
127
restrictive covenant
A type of encumbrance that restricts how a buyer could use the property they are buying
128
security interest
A legal claim of collateral in exchange for a loan
129
lien
A right to possession of a property by someone other than the owner until a legal duty is satisfied by the owner
130
Statutory Lien
A lien that is obtained through a government law — such as a tax lien, mechanic's lien, vendor's lien, etc.
131
Judgment Lien:
A nonconsensual lien that is created through the power of a court
132
2 categories of easements:
affirmative and negative
133
3 ways to create an easement
express, implied or prescriptive
134
3 general categories of liens
voluntary, statutory and judgement
135
2 subcategories of voluntary liens:
purchase money security interest liens and non purchase money security interest liens
136
Purchase-Money Security Interest Liens
a type of consensual lien that holds the actual purchase as collateral.
137
Non-purchase-money security interest liens
instead of putting the purchased property up as collateral for the loan, the lendee puts up their already owned personal property up as collateral.
138
actual notice
the buyer is actually aware
139
constructive notice
when it is so obvious that the person should have known about it.
140
General Warranty Deed
Warranty that identifies the owner of the property and guarantees that the property is free of defects
141
special warranty deed
Limited warranty that guarantees there are no defects against the title since the seller has owned the property
142
What information is specified by the note?
It specifies the amount of the debt, the rate of interest, the date on which interest charges are to begin, and the amount and terms of repayment.
143
mortgager
The person who takes a loan out from a bank (the borrower)
144
mortgagee
entity that lends money
145
In a deed of trust, a borrower is called a ____.
trustor
146
in a deed of trust, the lender is called a
beneficiary
147
in a deed of trust, the trustee is called a
third party
148
In a deed of trust, who holds the title to the real property while the borrower pays off their loan?
trustee
149
In a lien theory state, which party has equitable rights to the property?
mortgagor
150
In a title theory state, when the trustor defaults on their mortgage payments, who owns the property before the foreclosure sale?
the beneficiary
151
In a title theory state, what kind of rights does a trustor have?
equitable rights and right of possession.
152
What is the difference between a grantor and a grantee?
A grantor is an individual who is voluntarily conveying title to another. A grantee is a person accepting the property. They are the purchaser.
153
Habendum Clause
If the type of interest or use of the property under the deed needs further explanation, then the deed will include this
154
A person may not convey an interest in or enter into a contract to convey an interest in residential real property that will be encumbered by a recorded lien” without giving a -X day notice to both lender and purchaser.
7 day
155
Mortgage Subordination Agreement:
A legal document used to sort out situations when there are two mortgages on a home, and the homeowner wants to refinance the first mortgage
156
Wraparound Mortgage:
An arrangement in which the seller of a property extends a mortgage to a buyer; the seller maintains their original loan and continues to pay it while also receiving mortgage payments from the buyer
157
Lock-in Clause:
A provision that prohibits a borrower from making early payments on a loan for a specified period of time
158
Due-on-Sale Clause:
A clause stating that if a property is sold, then the mortgage must be repaid in full
159
Assumption Loan:
A loan that is transferred (assumed) by another party, usually the buyer, with the full acknowledgment and consent of the lender
160
Subject-to Loan
A loan that gives the buyer the title to the property but lets the seller’s financing remain in place
161
Exculpatory Clause:
A clause that relieves the borrower of personal liability to repay the loan
162
Non-Recourse Clause:
A clause that prohibits a lender from seizing any property outside of the property that the loan was secured with
163
Recourse Clause:
A clause that states that if a lender still has a deficit after seizing the secured property, then they have the right to seize other assets of the buyer
164
Form 3044
deed of trust promulgated for texas
165
What does the deed of trust do?
the buyer conveys the property to the trustee, to be held in trust, unless and until a default occurs under the deed of trust.
166
uniform covenants
are standardized terms for mortgage documents that exist in a number of states and are used in both mortgages and deeds of trust.
167
non uniform covenant
are standardized terms for mortgage documents that are state specific and are used in both mortgages and deeds of trust.
168
Except in the sale of unplatted land, sellers are not required to disclose easements related to the property. It is up to the buyer to make any inquiries.
true
169
Primary Lending Discount Rate:
The interest rate the Fed charges to other banks
170
amortized
Describes a loan that is to be paid off with equal monthly payments that contribute to both principal and interest; payments will be credited first to the interest, with any remainder credited to the principal
171
negative amortization
Occurs when the loan payment(s) are not sufficient to cover the interest due, causing the unpaid interest to be added to the principal balance
172
Annual Percentage Rate (APR)
The ratio of the total cost of financing to the loan amount (not to be confused with the interest rate)
173
discount points
Fees that the lender charges to lower the lending rate; one point is 1% of the loan amount
174
primary lending discount rate
is the interest rate the Fed charges to other banks.
175
Interest rates are influenced by the Federal Reserve System's _____
open-market activities, its primary lending discount rate, and the reserve requirement for banks.
176
interest rate and property values are
inversely correlated
177
The purpose of disclosing the annual percentage rate (APR) is to assist consumers in _____.
comparing mortgage loans AND seeing one rate that includes both interest and loan fees.
178
conventional loan
Any loan that is neither insured by the government nor guaranteed by the government
179
conforming loan
Loan that conforms to the guidelines set by Fannie Mae and Freddie Mac and thus can be sold to them on the secondary market
180
non conforming loan
Loan that does not follow Fannie Mae and Freddie Mac guidelines and thus will not be purchased by them on the secondary market
181
adjustable rate mortgage ARM
A loan with an interest rate that can change during adjustment periods throughout the life of the loan
182
LTV
A ratio of debt to value of the property
183
Float-to-Fixed Rate Loan:
Loan that has an initial interest rate determined by a margin and an index, and after the initial float rate period the loan converts to a fixed-rate loan
184
balloon mortgage
A type of loan, at the end of which the (often large) remaining balance of the mortgage is due as a lump sum
185
blanket mortgage
A loan for which more than one collateral property acts as security
186
home equity loan
A loan in which funds are borrowed using the homeowner’s equity for collateral; funds can be used for any purpose
187
The guidelines that determine if a conventional loan is conforming or non-conforming are set by:
fannie mae and freddie mac
188
3 ARM Periods are
initial rate period, adjustment period and lookback period
189
index
Each ARM loan selects an external economic indicator, such as the Treasury bond yield rate, as the index for the loan. lenders select external economic indicators to index their ARM loans.
190
index rate
The index value published on the ARM's lookback date is the value that will be used to figure the rate on the mortgage for the next adjustment period
191
How is an ARM's interest rate calculated for the next adjustment period?
adding the index rate on the lookback date + the margin (a fixed value).
192
adjustment period cap
limits the amount that the interest rate can increase in any given adjustment period.
193
lifetime cap
puts a hard limit on the amount the interest rate may increase over the lifetime of the loan, no matter how high the index may increase.
194
Mitch's ARM has an initial rate of 4.3%. The margin is 2%, and the initial index rate is 2.3%. The initial rate will adjust only once every three years. The lifetime cap is 4%. What is the maximum interest rate that Mitch could pay?
8.3%
195
Graduated payment mortgage (GPM
is a blanket term for a family of loans characterized by low initial payments that increase (or “graduate”) at set intervals and by set amounts during the term of the loan.
196
In graduated payment mortgages, what increases during the term of the loan?
payments: A graduated payment mortgage (GPM) is characterized by low initial payments that increase (or “graduate”) at set intervals and by set amounts during the term of the loan.
197
reverse annuity mortgage
is a financial arrangement where the homeowner pledges equity to a lender in exchange for periodic payments of the pledged equity
198
refinancing
The process of obtaining a new mortgage in an effort to reduce monthly payments, lower interest rates, take cash out of a home for large purchases, or change mortgage companies
199
equity
The difference between the amount owed to the mortgage company and the amount the home is worth
200
subprime mortgages
Describes a type of lending or mortgage that involves borrowers with relatively low credit ratings
201
prime rate
The interest rate that’s issued to mortgage borrowers with what lenders deem “good credit”
202
federal funds rate
The interest rate that banks charge other banks for overnight loans
203
predatory lending
The unfair, deceptive, or fraudulent practices of some lenders during the loan origination process; imposing unfair and abusive loan terms on borrowers
204
NINJA loans
no income, no job, no assets
205
equity stripping
The lender makes a loan based upon the equity in your home, whether or not you can make the payments. If you cannot make payments, you could lose your home through foreclosure.
206
Bait-and-switch schemes:
The lender may promise one type of loan or interest rate but without good reason, give you a different one. Sometimes a higher (and unaffordable) interest rate doesn't kick in until months after you have begun to pay on your loan.
207
Packing:
You receive a loan that contains charges for services you did not request or need. "Packing" most often involves making the borrower believe that credit insurance must be purchased and financed into the loan in order to qualify.
208
loan flipping
A lender refinances your loan with a new long-term, high cost loan. Each time the lender "flips" the existing loan, you must pay points and assorted fees.
209
participation agreement
The agreement that governs the sale of a portion of an interest in an existing loan, plus the rights and obligations of the seller and buyer of an interest
210
participation fee
A monthly servicing fee based on the outstanding principal balance of the loan and the participant’s percentage share of any expenses incurred by the lender in connection with the enforcement of the loan
211
What is a participation fee?
a monthly servicing fee
212
When a lender forecloses on a home and loses money, the borrower could actually owe more income tax if the lender _________ .
forgives the deby
213
Compared to short-term capital gains, the tax rate for long-term capital gains is _____________.
lower
214
benchmark
A figure that allows investors to compare how a given mortgage is doing compared to other similar types of mortgages based on qualities like risk and investment type; also known as the index
215
spread
also known as the margin, is a fixed amount above the index which the borrower will pay.
216
fully indexed spread
The rate you get when you add the index and the spread
217
The ____________ is the difference between comparisons of similarly styled portfolios.
benchmark
218
margin/index are inversely proportional
high margin is a low index level
219
credit alert interactive voice response system (CAIVRS) identifies applicants through 6 different categories
No cases
A claim (that is, a lender’s claim on FHA insurance money)
A default
A foreclosure
A Department of Justice judgment
Multiple cases
220
The FHA program is funded solely by:
mortgage insurance premiums
221
Section 203(b)
insures fixed interest rate loans for owner-occupied, one- to four-family properties.
222
FHA interest rates are set and negotiated by the lender and the ____.
borrower
223
What is the minimum amount of investment a borrower must have to qualify for an FHA insured loan?
3.5%
224
The benchmark for FHA loans is not necessarily a credit score, but a borrower's ____.
history of reliable payment activity
225
FHA; the current credit score that qualifies a borrower to pay the minimum of 3.5% down is
580
226
FHA If the borrower has a credit score between 500 and 579, they would be required to put down at least
10%
227
overlay
is something that is self-imposed by the mortgage company or investors to have stricter lending requirements, which means a less risky loan.
228
203k
FHA loan for rehabilitation who need a loan in excess of $5000 to repair 1-4 residence
229
With an FHA Adjustable-Rate Mortgage, a borrower ____.
can switch to a fixed rate loan without financing
230
streamline refinanced
is the process of refinancing an FHA mortgage to get a better rate, without borrowers having to:
Verify income/employment
Share bank or asset information
Have a minimum credit score
Get a home appraisal
231
direct endorsement
When a lender has the authority to approve FHA loans in-house without submitting the file to the FHA regional office for prior approval
232
The maximum guaranty amount equals 25% of the conforming loan limits and are adjusted ____. VA
by county
233
Two methods are used to determine a veteran’s ability to qualify for a loan:
debt to income ratio 41% and residual income
234
The housing expense ratio ____.
is not applicable to VA loans
235
residual income
is defined as the amount of monthly income remaining after all the debts are deducted, including:
236
If a buyer puts a $240,000 offer on a property and the Certificate of Reasonable Value comes back with a value of $235,000, according to the VA guaranty, the buyer ____.
has the option to back out of the contract without penalty
237
What is a funding fee charged on VA loans used for?
to cover the cost of administering the VA home loan program
238
seller concessions
are the seller's agreement to pay for an amount of the buyer's closing costs.
239
Who may assume a VA loan (as long as they're qualified)?
a non veteran, a veteran and an investor
240
FHA minimum down payment
3.5%
241
the required percentage of down payment for the MIP
1.75%
242
Sale price - Down payment =
4 x (Entitlement + Down payment)
243
loan amount=
sale price - down payment
244
What is the funding fee?
2.15% with no down payment and 3.3% for a second loan
245
Verification of Employment Form:
A form that requests the length of the applicant’s employment, gross salary, additional income, and the likelihood of continued employment
246
underwriting
is when a mortgager gathers information in order to perform a financial analysis to determine the loan and interest rates they should provide.
247
Desktop underwriter DU
Fannie Mae's electronic CLO
248
Which of the following is NOT used by Desktop Underwriter for risk analysis?
fico score
249
Loan Prospector (LP)
freddie mac's electronic CLO
250
If an applicant does not meet the criteria for a loan, the Loan Prospector software can reject that loan.
Freddie Mac's Loan Prospector does not reject loans. Instead, it refers them for manual underwriting.
251
quantity survey method
the appraiser tallying up the value of everything that goes into the cost: labor and equipment, raw materials, business overhead, and other fees.
252
unit-in-place method
It takes direct and indirect costs into account, but combines them into a simplified cost for a building component.
253
square foot method
The appraiser estimates a cost per square foot for that specific type of building and then multiplies it by the square footage of the structure.
254
cost approach equation: property value =
cost of reproduction - (cost or reproduction x percentage of depreciation) + land value
255
depreciation %=
age of property/total useful life
256
income approach: value=
net operating income/capitalization rate
257
Residential Mortgage Credit Report (RMCR
Report containing information needed to underwrite a loan to sell on the secondary market
258
Fair Credit Reporting Act (FCRA
Legislation that promotes accuracy, fairness, and privacy of consumer information in the files of consumer reporting agencies
259
Equal Credit Opportunity Act (ECOA):
Law prohibiting credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or use of public assistance
260
Requests for credit history can also be referred to as ________.
inquiries
261
Loan companies may not inquire about:
marital status beyond asking if a borrower is married or single.
262
Taxpayer Relief Act of 1997
provides that first-time homebuyers may withdraw up to $10,000 from their IRAs, at any time, penalty-free for the purchase of a principal residence
263
2 qualifying ratios
housing expense ratio and total debt service ratio
264
The housing expense ratio is also known in the real estate world as:
the front end ratio
265
debt-to-income ratio (DTI)
(PITI + long-term liabilities) ÷ gross monthly income
266
net worth
assets minus all their liabilities
267
Debt-to-Equity Ratio
Total liabilities ÷ net worth*
268
A lock-in fee allows the borrower to lock in the float rate at what point in the process?
at the time of loan approval
269
Uniform Residential Loan Application:
Standard application used by banks to determine someone's ability to secure a mortgage loan
270
When a loan is being applied for, a loan officer sends the verified loan application to whom?
the underwriter
271
Verifications of Deposit VOD's
are requests sent to banks by state and federal agencies to verify whether a customer qualifies for subsidized housing, food stamps, medicare or medicaid
272
What must a Verification of Deposit for a refinance or new mortgage be accompanied by?
both a borrower's certification and an authorization form signed by the borrower
273
VOE
verification of employment
274
Uniform Residential Appraisal Report (URAR):
Form used in real estate appraisal to allow for standard reporting and analysis of single-family homes or single-family homes with an accessory unit
275
Consummation
The point at which the consumer becomes contractually obligated to the creditor on the loan
276
servicer
The company to which mortgage payments are sent
277
regulation x
the Initial Escrow Account Statement has to be supplied at settlement or within 45 days (calendar days!) of settlement.
278
closing disclosure copies must be kept by creditors for how many years after consummation?
5
279
Title Plant:
A collection of privately owned and maintained title records
280
title
bundle of rights to property
281
Who is qualified to perform the title search?
lawyers and insurance companies
282
abstract of title
condensed version of title's history
283
chain of title
full history of a title
284
Title Commitment:
A pre-closing document that lists all of the terms, conditions, and exclusions of the title policy; a "preview" of the final title insurance policy
285
Which of the following is issued during court sales and protects the buyer’s interest in property sold by the court?
certificate of sale title insurance
286
ABCD's of Title Commitment
schedule A: actual facts
schedule B: buyer's notice of things not covered
schedule C: clear this list prior to issue of title insurance
schedule D: disclosure of parties who will share any part of title insurance premium
287
a bankers year has how many days in it?
360
288
default
Any breach of a valid contract
289
Acceleration Clause:
States that whenever there is a breach of contract on the part of the borrower, the lender may make the entire amount of the loan due immediately
290
delinquent
Describes the state of a borrower who fails to pay the principal, interest, taxes, or insurance for a loan on time or at all
291
5 d's of foreclosure
death, divorce, drugs, disease, denial
292
Moratorium:
A suspension of loan payments for a period of time
293
Forbearance
The act of refraining from exercising a legal right
294
recasting
Changing the terms of the loan
295
short sale
A sale in which the lender will agree to accept less than what is actually due on the mortgage before the property goes into foreclosure
296
deed in lieu of foreclosure
An alternative to foreclosure in which the defaulting borrower voluntarily transfers the property title to the lender
297
Maximizing the lender's return on their portfolio of properties acquired by foreclosure is the task of the _____.
asset manager
298
Judicial Foreclosure
A foreclosure that is processed through the court
299
Non-Judicial Foreclosure
A foreclosure that does not involve a suit or the ruling of the court (as a result of terms in the contract)
300
Redemption Period:
Period of time after a home has been sold at a foreclosure sale when the former owner can reclaim it by paying the outstanding mortgage balance and all costs incurred during the foreclosure process
301
Most common use of a judicial foreclosure
HOA foreclosure
302
redemption period in Texas
two years (compared to 180 days for commercial property).
303
Texas is a strict foreclosure state
true
304
Deficiency Judgment
Requires the defaulted borrower to pay any remaining balance owed to the lender, generally after the sale of a foreclosed property (2 year time limit)
305
Equitable Redemption
Occurs before the sale (auction) of a property; allows defaulting debtors to pay the defaulted portion of the debt (and costs the lender incurred) in order to reinstate the loan and prevent a foreclosure sale (allowed in texas)
306
statutory redemption
A specified period in which debtors are allowed to recover their property after a foreclosure sale (not allowed in texas)
307
When a third party purchases a property at the foreclosure auction, it is _____ the debt
not encumbered by
308
When a mortgagee forgives the debt that remains after a foreclosure sale, it can have an effect on the borrowers’ _____.
income tax owed
309
Mortgage Debt Relief Act of 2007
generally allowed taxpayers to exclude income from the discharge of debt on their principal residence. expired in 2014
310
exemptions for capital gains tax
If this house is their primary residence, the first $250,000 (for single individuals) or $500,000 (for married couples) is excluded due to the tax code
311
Which of the following is a duty of the Department of Housing and Urban Development?
the enforcement of the fair housing act and RESPA
312
Which of the following is charged with assisting Texas from low-income families or other underserved populations who may not be able to secure conventional financing to purchase a home?
texas state affordable housing corporation
313
With amortized loans, the borrower is:
paying in arrears
314
Which of the following has 11 districts that cover the nation?
Federal Home Loan bank system
315
If a buyer and seller agree to seller financing, at the end of the transaction the seller will own:
a note
316
Which department insures bank deposits up to $250,000?
FDIC
317
Which clause in a mortgage agreement establishes that the full and legal title will return to the owner when the mortgage is fully paid?
defeasance clause
318
A client is interested in investing in real estate, but wants to incur the least amount of work and risk possible. Which investment vehicle would BEST fit these needs?
bonds
319
In a title theory state, which party has equitable rights to a property?
trustor
320
A VA loan may be used for all of the following EXCEPT:
investment property
321
The 203(b) FHA loan program is MOST likely to be a solution for:
first time home buyers
