Morgan's (IV-A,B,C, D) Flashcards
Written legal document or contract defining rights, duties, and other obligations
Instrument
Type of instrument that has some form of collateral identified as alternate compensation in the event the borrower defaults according to the instrument
Secured instrument
Amount of principal (or after debt-money) a property owner has in the property
Equity
An asset’s being readily convertible to cash
Liquidity
A measurement unit for loan coasts
Points
One percent of the face value of the loan
One point
Return or profit a lender makes on a transaction, generally expressed as a percentage of the amount invested
Yield
Ratio obtained by dividing the loan amount by the property value, which is taken from the lesser of the appraised value or the sales price
Loan-to-value ratio (LTV or L/V)
Amount of money borrowed in relation to the property’s value
Leverage
High leverage (or a high LTV) equates to a large ___ coupled with a low ___.
Loan amount; downpayment
Policies that cover the “top” portion of the loan amount, generally no more than 30%, against early default
Private mortgage insurance (PMI)
An up-front sum paid by a borrower specifically to reduce the interest rate and thereby bring down the monthly payment
Buy-downs
Lender’s charge that prospective borrowers may elect to pay in exchange for the lender’s promise to fund the loan at a quoted interest rate even if the lender’s rates change before the loan is funded at closing
Lock-in commitment
The effective annual percentage rate; true annual cost of borrowing; allows more accurate consumer comparisons by taking into account loan charges and fees
Annual percentage rate (APR)
Loans that conform to a set of lending specifications, especially standard maximum limits on property values or requirements for borrower credit worthiness
Conforming loans
Rate charged by banks to their most creditworthy customers; also commonly refers to the rate the Federal Reserve system charges for its loans to banks
Prime interest rate/prime rate/prime
Credit status of borrowers with poor, limited, or no credit history leading to inability to qualify for a conventional or conforming mortgage due to the greater risk of default
Subprime or non-prime
Many lenders consider scores lower than ___ as subprime, depending on the lender.
660, 620, or 600
A lender’s charging an illegally high rate of interest
Usury
A wide array of practices by which borrowers are taken unfair advantage of (eg, severe penalty fees, interest rate hikes after a late payment)
Predatory lending
A lender’s up-front charge for making a loan
Discount points/points
Lender’s charge for preparing and processing a loan
Origination loan
Lender’s charge for preparing and copying loan-related documents
Document preparation (“doc prep”)
Lender’s processing charge, most commonly associated with VA loans
Funding fee
An account for the funds held by the lender to pay recurring expenses, such as property taxes and insurance, during the life of the loan; sometimes known as an escrow account
Impound or reserve account
This is required of the seller’s lenders to confirm that funds have been applied to pay off the seller’s loans
Satisfaction of mortgage certificate (or release deed for deeds of trust)
Confirmation notices from interested parties, such as getting a lender’s signature attesting to the exact remaining principal balance or a tenant’s signature attesting to the amount of security deposit held by the seller
Estoppel certificates
___ refers to a lender, or even a licensee, determining the probable maximum loan amount the borrower can repay by collecting preliminary information about the borrower’s financial circumstances; it is non-binding
Prequalification
The process a lender goes through of more closely reviewing a buyer’s credit and financial status to determine the actual maximum loan amount the lender would fund
Qualification (once approved, the applicant becomes known as a qualified or approved buyer)
List the components/considerations of a typical property review by a lender.
- Property appraisal (or Certificate of Reasonable Value for VA funding) for a current estimate of value
- Title search or attorney’s opinion of title to confirm the title is unencumbered
- Title insurance policy to transfer the risk of loss in the event of undiscovered flaws in the chain of title
- Property survey if any questions about boundaries, encroachments, etc.
- Zoning codes and ordinances that govern the use and future of the property
Loan types can be distinguished by what 3 primary elements?
- Repayment options
- Interest rates
- Loan purpose
Loans that are paid off over time, usually through equal monthly payments for a set number of years
Amortized loans
What is the difference between fully and partially amortized loans?
Fully (aka level-payment loans): equal payments the whole time
Partially: various schedule options, but the final payment is larger than others (balloon payment)
Loans that have payments that increase over time with the additional amount applied directly to principal, which brings down the interest payments and overall repayment period of the loan
Growing equity mortgages
Fixed-rate, scheduled payment loans that allow the borrower to make lower payments initially and increase them to make up for the difference
Graduated payment loans
Similar to a partially amortized loan in that they have single, level payments for the life of the loan with a much larger final payment; however, the payments are interest-only and the entire principal is due at the end of the term
Term loans (or straight loans, or straight note, or interest-only loans)
Type of loans in which there is no reduction in principal
Non-amortized loans
Loans that have an interest rate that remains the same for the life of the loan
Fixed rate loans
Loans that have a fluctuating interest rate that gets adjusted at periodic intervals; typically allow a borrow to pay a lower rate for the first few years, which keeps their initial expenses low, then adjusts either to a pre-set interest rate or a rate based on market conditions
Adjustable-rate mortgages (ARMs)
Loans that allow the rate to vary over the life of the loan, generally based on an appropriate index; often structured to adjust at 6-month intervals with a 1/2 percent per year cap on increases and a 2.5% increase cap over the life of the loan
Variable rate mortgages
Loans in which the interest rate is adjusted periodically, general every 3-5 years, to remain in line with current market rates
Renegotiated/renegotiable rate mortgages
Loans that are generally paid to the borrower in installments during the course of a construction project; typically require the borrower to make interest-only payments and arrange for permanent financing, called an end loan or take-out loan at the end of the construction period
Construction loans (or interm loans)
These loans cover more than one lot, parcel, or property; common in subdivision developemnts; typically include a partial release cause which allows the borrower to pay off and release separate parcels as they get sold
Blanket loans
Funding to purchase personal as well as real property (as in the sale of a furnished condo)
Package loans
Loans that allow a borrower to take out a second loan, make a payment large enough to cover both loans to the new lender, and have the new lender make the payments on the original loan
Wraparound loans
Type of loans that offer a line of credit secured by a property and are usually created for improvements that will be done in stages, so the borrower’s monthly indebtedness keeps pace with actual outlays
Open-end loans
Loans made on an agreed amount of a homeowner’s equity in the property, either in a lump sum or a line of credit
Home equity loans (also referred to as second mortgages or junior mortgages)
Loans that provide payments from a bank to the homeowner, who generally has already paid off any original loans
Reverse mortgages (or reverse annuity mortgages - RAMs)
Short-term loans made to cover a temporary shortfall or period prior to the funding of the permanent loan
Bridge loans (aka swing loans; also referred to as gap financing)
Secured loans that allow the lender to attach only the collateral, leaving all other borrower assets judgment-proof in the event of borrower default
Non-recourse loans
Basic loans between an individual and a lender
Conventional loans
Loans that are made with government backing after satisfying certain specific government guidelines
Insured loans
Type of loan that provides funding for a buyer, and property-secured income for the seller
Seller-financing
Method used by some businesses to free up equity in a business property by selling it to an investor who in turn leases it back to the business
Sale/leaseback financing
Mortgage loans arranged for subprime borrowers
Subprime mortgages; aka non-conforming loans
The local bank or financial institution that originates the loan represents what is known as the ___.
Primary mortgage market (or primary market)
Once a loan is sold as part of a package, it has been securitized as a component of a mortgage-backed security and enters into what is known as the ___.
Secondary mortgage market (or secondary market)
Once a loan is sold as part of a package, it has been securitized as a component of a mortgage-backed security and enters into what is known as the ___.
Secondary mortgage market (or secondary market)
Once a loan is sold as part of a package, it has been securitized as a component of a mortgage-backed security and enters into what is known as the ___.
Secondary mortgage market (or secondary market)
List the three most common financing methods available to institutional lenders.
- Conventional financing
- Federal Housing Administration (FHA)
- Department of Veterans Affairs
Loans made by lending institutions without following any particular government program’s requirements; typically charge somewhat higher interest rates and require a greater down payment than government loans
Conventional loans
Seller financing may take the form of a ___ mortgage (aka a seller carryback), in which the seller provides a supplementary loan to the buyer that makes up the difference between the purchase price and the total of the buyer’s other loans and cash.
Purchase-money
When is seller financing attractive?
When lenders are reluctant to lend (such as on raw land) or when the seller wants to “pay bank” and collect the interest or spread out the receipt of proceeds for tax benefits or some other personal financial reason
An arrangement by which a property owner, usually commercial, sells the property to an investor with the understanding that the seller may lease the property from the buyer immediately; often made to free up capital for use by the former owner (now the lessee)
Sale and leaseback, sale/leaseback, leaseback
First time home buyers (those who have not had an ownership interest in a residence within the last three years) may be eligible for a ___ to help with a down payment.
Home-buyer grant
VA loans are available for military and ex-military borrowers who qualify for a ___ from the VA. The property has to be appraised by the VA and receive a ___, which serves as the counterpart to a standard appraisal.
Certificate of eligibility; certificate of reasonable value (CRV)
True or false - unless the original borrower has received a release of liability from the VA and the lender has accepted it, the borrower remains financially liable to the lender for the loan in the event a subsequent buyer defaults.
True
What is another source of funding for rural, farming, and ranching communities?
Farm Service Agency (FSA) - they make direct and guaranteed farm ownership along with business operating loans to qualified applicants
What are the three major government programs involved in the secondary mortgage market?
- Fannie Mae (Federal National Mortgage Association - FNMA)
- Ginnie Mae (Government National Mortgage Association - GNMA)
- Freddie Mac (Federal Home Loan Mortgage Corporation - FHLMC)
Which government organization is a corporation chartered by the government to purchase and sell conventional, FHA, and VA mortgages in the secondary market?
Fannie Mae
Which government organization is a division of HUD that works with Fannie Mae to provide a government guarantee for mortgage-backed securities, and underwrites FHA, VA, and certain farmer’s home administration loans?
Ginnie Mae
Which government organization was newly created to increase the availability of residential financing and deals primarily in conventional loans?
Freddie Mac
