Module 2 Real Estate Financing Principles Flashcards
What does the Mortgage packet consist of what?
The mortgage package consists of two very important documents:
- Promissory Note: Unconditional promise to repay the loan, detailing the amount, payment schedule, due date, interest rate.
- Mortgage: The mortgage is the pledge of the property as security for repayment of the debt. The borrower, called the mortgagor, is the one who pledges the property. The lender, called the mortgagee, receives the pledge.
What is the Primary Mortgage Market?
The market in which borrowers and mortgage lenders come together to create and negotiate terms of a mortgage transaction
What is the Secondary Mortgage Market?
The secondary market exists for the purchase and sale of existing mortgage loans to investors. It is designed to provide greater liquidity to the residential real estate market by providing a steady flow of funds from investors back into the primary market.
The secondary market investor does not lend money.
What is another name for the Promissory note ?
The promissory note is also called the note, or the real estate lien note.
What is the real estate agents role in the Mortgage Process?
- Prequalification/Preapproval of Buyers: Facilitating the assessment of the buyer’s creditworthiness.
-Discussing Loan Programs: General information on various mortgage loan options. - Answering Loan and Closing Queries: Assisting with inquiries regarding loan terms, interest, closing processes, etc.
- Providing Lender Recommendations: Suggesting potential lending institutions.
- Drafting Sales Contract: Including terms, financial conditions, etc.
- Tracking Dates and Financing Progress: From contract to close.
What happens when the borrower completes the repayment of the note ?
the lender gives the mortgage back to the borrower along with a release of lien.
What happens if the borrower fails to repay the note on time
If the borrower fails to repay the note on time and defaults on the payment of the note, the lender may foreclose on the property and sell it to satisfy the unpaid promissory note.
Not all foreclosure properties sell at the foreclosure auction. When a property fails to close at the foreclosure auction, the lender takes ownership of the property and enters the property in their financial records as an asset. The property owned by lenders this way is called Real Estate Owned or REO. The unpaid note is written off as a loss.
What happens post foreclosure
Real Estate Owned (REO):Properties unsold at foreclosure auctions are owned by the lender. Unpaid notes are written off.
What are Mortgage Theories in the U.S.?
Title Theory
Lien Theory
What is title Theory ?
In Short: Lender owns the property until the loan is paid, then transfers ownership back to the borrower.
In title theory states, the lender holds the actual title to the property until the mortgage is fully paid.
The borrower transfers legal ownership of the property to the lender for the duration of the loan. The borrower still has possession of the property and can live in it, use it, and so on, but the legal ownership remains with the lender.
If the borrower pays off the mortgage, the lender transfers the title back to the borrower, and the borrower becomes the legal owner again. If the borrower defaults, the lender already holds the title, so they can sell the property more directly to recover the money owed.
Which states have title theory?
Alaska
Arizona
California
Colorado
Nevada
Washington
Oregon
Idaho
Utah
Wyoming
Texas
Nebraska
South Dakota
Missouri
Tennessee
Mississippi
Georgia
North Carolina
Virginia
West Virginia
What is Lien Thoery ?
In Short: Borrower owns the property, lender has a legal claim (lien) on it until the loan is paid.
In states that follow the lien theory, the borrower (the person taking out the mortgage) keeps ownership of the property.
When the borrower takes out a mortgage, the lender receives a lien on the property. A lien is a legal right or claim against a property, and it ensures the lender has a way to get their money back if the borrower doesn’t make their payments.
In this setup, the borrower owns the property and can use it as they wish, but the lender has a sort of “security interest” in it. If the borrower fails to pay back the loan, the lender can tak
Which states have lien theory?
South Carolina
Florida
Louisiana
Arkansas
New Mexico
Kansas
North Dakota
Wisconsin
Iowa
Illinois
Indiana
Ohio
Kentucky
Pennsylvania
New York
New Jersey
Delaware
Connecticut
Maine
What are Residential Loan Sources?
Depository Institutions
Non-Depository institutions/ Non-Depository Mortgage Loan Originators
What are Depository Institutions?
These are your traditional banks and credit unions like Wells Fargo or Navy Federal. They hold deposits from customers (like checking and savings accounts) and can also lend out that money in the form of loans, including mortgages.
What are Non-Depository institutions?
These institutions specialize in originating and sometimes servicing mortgage loans, but they don’t accept deposits from customers.
Examples:
Quicken Loans: Now part of Rocket Companies, Quicken Loans is a notable mortgage lender that operates entirely online.
Fairway Independent Mortgage Corporation: An independent mortgage lender that provides various mortgage services.
Guaranteed Rate: Offers various loan options and operates both online and through physical branches.
loanDepot: A large non-bank lender that offers home purchase and refinance loans.
Freedom Mortgage Corporation: Specializes in VA and FHA loans.
New American Funding: An independent, family-owned lender that offers various mortgage services.
What are Loan Originators?
The primary mortgage market is made up of the businesses that lend to borrowers for the purchase of real estate.
They initiate, or originate, the loan paperwork and the cash that is transferred to buyers at a real estate closing.
What happens during the Loan Origination Process
- Origination Activities: Application, qualification, etc.
- Processing Phase: Building a loan file with documents to prove worthiness.
- Underwriting: Loan approval or denial.
- Closing: Signing documents, disbursing funds.
- Funding: Transfer of funds to a title or escrow company.
Which government agencies were created to regulate the mortgage lending industry at both the federal and state level.
HUD/FHA
VA
Fannie Mae
Freddie Mac
Ginnie Mae.
What is Fannie Mae?
In 1938, the federal government created an agency called the:
Federal National Mortgage Association
Created in order expand the secondary mortgage market by working with lenders to make more money available for home loans.
Fannie Mae was re-charted in 1968 as a privately owned and managed corporation. It operates on private capital as a self-sustaining entity.
What is Fannie Mae’s role in residential real estate lending?
It addresses imbalances of mortgage credit among regions of the United States by making funds available in capital deficient area of the country.
It allows lenders to originate mortgage loans for sale, rather than for portfolio investment.
It standardizes mortgage loans, which attracts investors who traditionally did not invest in the primary market.
What is Freddie Mac?
Freddie Mac is a federally chartered corporation, established as the Federal Home Loan Mortgage Corporation (FHLMC) in 1970 to purchase mortgages in the secondary market.
Created specifically to compete with Fannie Mae to ensure that there wasn’t a monopoly in the secondary mortgage market.
How do Fannie Mae and Freddie Mac work together ?
Both Fannie Mae and Freddie Mac buy mortgages from lenders, freeing up lenders to provide more loans. They then bundle these mortgages and sell them to investors as securities. This helps keep the mortgage market stable and helps keep interest rates down.
What was the purpose of the Federal Housing Finance Agency (FHFA) ?
On September 7, 2008, a government agency took control of Fannie Mae and Freddie Mac (Conservatorship). They did this because both companies were struggling due to a bad housing market. If these companies failed, it could’ve caused big problems worldwide, made it harder and pricier for people to get home loans, and hurt the entire economy.