Loan Origination Activities (Part 2)

Question 1

The 1004 is also known as what?

Answer 1

The Uniform Residential Appraisal Report (URAR).

Question 2

What is an Appraisal (1004)?

Answer 2

An estimate or opinion of value as of a certain date that is supported by objective data.

• An estimation; not a guarantee of value.
• The processor orders the appraisal.
• It is valid for 12 months.
• Must be re-certified if the appraisal will be 4 months old or more at closing.

Question 3

What are three different Appraisal approaches?

Answer 3

1. ) Sales Comparison Approach
2. ) Cost Approach
3. ) Income Approach (capitalization approach)

Question 4

Describe Sales Comparison Approach, “Market Approach”

Answer 4

-Compares property being appraised with other similar properties sold recently in the same market area; best used for evaluating residential properties.

Question 5

Describe Cost Approach

Answer 5

• Calculates the cost of land, site improvements, to build the structure on the land, and the cost of any depreciation to the property to reproduce the property.
• Also used to evaluate the cost to replace property that was damaged due to natural disasters (“Replacement Cost Approach”).
• Best used for new construction.

Question 6

Describe Income Approach (Capitalization Approach)

Answer 6

Estimates the value of real estate by analyzing the revenue, or income, the property currently generates or could generate.
-Used with commercial or investments properties.

Question 7

What is a Promissory Note?

Answer 7

It is signed by the borrower and evidences a promise to repay the debt to the lender.
-Requires the debtor to hypothecate property as condition of loan.

Question 8

A Promissory note is typically accompanied by what?

Answer 8

A Security Instrument.

Question 9

What are two main types of Security Instruments used in real estate transactions?

Answer 9

1. ) Trust Deeds (Non-judicial foreclosure)

2. ) Mortgages (Judicial Foreclosure

Question 10

What is a Trust Deed and its aspects?

Answer 10

It places specific financial interest in title of real property into hands of disinterested third party as security for payment of the note.

• Borrower is called trustor.
• Lender is beneficiary who retains note and deed of trust.
• Trustee hold legal title.

Question 11

What is a Mortgage and its aspects?

Answer 11

It is signed by the borrower and creates a voluntary lien on the property for the security of payment of the debt, evidenced by the promissory note.

• Borrower is called mortgagor
• Lender is the mortgagee who retains note and deed of trust.

Question 12

(Mortgage Clauses) Explain Acceleration Clause

Answer 12

Gives lender the right to declare entire loan balance due immediately because of borrower default or violation of other contract provisions.

Question 13

(Mortgage Clauses) Explain Alienation Clause

Answer 13

Gives lender certain state rights when there is a transfer of ownership in the property (AKA due on sale clause).