Mortgages and FInance Flashcards
What is the pledge of property as security for a debt called?
A mortgage loan
What two contracts does a mortgage loan combine?
A note (the debt) and the mortgage (which pledges property to secure the debt)
The _______ gives the mortgage to the _______.
Borrower; lender
Who is the mortgagor? Who is the mortgagee?
Mortgagor is the borrower; Mortgagee is the lender
Who receives the mortgage?
The lender
In what states do the lenders hold title to the property?
Title theory states
In what states do the lenders have a lien on the property?
Lien theory states
In what mortgage loans doe the interest rates change at regular intervals?
Adjustable rate
The total interest rate is the sum of the ____ rate plus a _____.
Index; margin
The maximum change allowed in interest rate in an adjustable rate mortgage loan is called what?
Caps
True or false? Adjustable rate loans can provide interest rate caps annually and include life-of-loan limits.
True
True or False: In a biweekly mortgage loan, the total annual payment amount is similar to 12 monthly payments.
False. It’s similar to 13 monthly payments
In a biweekly mortgage loan, how often are payments made?
Every 2 weeks
True or False: A biweekly mortgage loan amortizes quicker than a monthly payment loan.
True.
What is a blanket mortgage loan?
Includes more than one parcel of real estate
What is a budget loan?
Payments include principal and interest, property taxes, and insurance (PITI)
What serves as collateral in a chattel mortgage?
Personal property (not real estate)
Loan specifications that would allow purchase by FNMA are what type of loan?
Conforming
What is a construction loan? How are interest rates for this type of loan?
Use of money is to build. Interest rates are high. They are high risk because of the uncertainty of completion of construction and sale or occupancy of the property.
True or False: Conventional loans are FHA insured, but no VA guaranteed.
False: they are not FHA insured.
In a conventional loan, when loan-to-value ratio exceeds ____%, private mortgage insurance (PMI) may be required by the lender.
80%
FHA loans are insured by who?
Federal Housing Authority, part of the US Department of Housing and Urban Development
Describe a flexible payment loan.
Interest rate changes bring about a change in the remaining term, instead of changing the payment amount.
What is a bridge loan?
Used to cover the difference in funds realized from the sale of an existing home and the funds needed to buy a new home. Or, used to cover a deficit during the period between construction loan and a permanent loan.
What is a gap loan?
Used to purchase a house while waiting for the sale of a former house. Or, used to fund the shortfall between construction loan and a permanent loan amount.
Explain graduated payment.
Payments are low in early years and increase to a level amount sufficient to pay interest fully and to amortize principal over the remaining term.
What type of loan is a junior mortgage, limited by the amount of equity in a home?
Home equity loan
What is a loan from a seller who doesn’t transfer title until final payment is received?
Land contract/contract for deed
In what type of loan can more principal be borrowed at a later date within the loan agreement?
open or open end
What is package loan?
Collateral pledged includes real estate and personal property, such as furniture/appliances
A loan from the seller to the buyer, where seller provides title at closing, is called what?
Purchase-money mortgage
What is a reverse annuity?
Lender pays the borrower a lump sump and/or monthly amount. Borrower must be over age 62 and have substantial equity in house.
What is a swing loan?
Interim loan to fill a temporary need for funds to buy another property.
Explain VA guaranteed.
Lender is guaranteed against loss, up to a preset amount, by the US Department of Veterans Affairs
What is the term for a second mortgage that overstates its balance by including an existing first mortgage?
Wraparound loan
What is the term for when payments exceed interest, with the difference reducing principal?
Amortizing
True or false: Assumption does not relieve the original borrower, who is the property seller, of any obligations.
True
True or false: Under assumption, a purchaser agrees to become liable to repay the existing loan owed by a seller of a property.
True
What is the large final payment on a loan called?
Balloon payment
What form is provided by a mortgage lender to a borrower that describes the financial terms of a loan?
Closing disclosure
Borrowers can compare what document to the closing disclosure to assure they get the promised loan?
Loan Estimate
What US government agency administers TRID (TILA-RESPA Integrated Disclosure)?
Consumer Financial Protection Bureau (CFPB)
For most income-producing properties, a debt coverage ratio of at least ____ times is sought by a prudent lender.
1.2
What term describes the comparison of net operating income from the property to required debt service?
Debt coverage ratio
Following a foreclosure sale, this is the unpaid amount due from the borrower when the foreclosure sale does not bring enough money to fully repay the mortgage balance plus expenses of foreclosure.
Deficiency judgement
What is a FICO score?
A credit score used by mortgage lenders to evaluate applicants, ranging from 300 to 850. A score above 680 qualifies for a prime loan.
What is a first mortgage?
The one recorded first against the property, recorded at the county courthouse.
An involuntary sale by a lender after certain borrower default is known as ____.
Foreclosure
True or false: A jumbo loan is for an amount that exceeds FNMA guidelines.
True
What is a junior mortgage?
Any mortgage lower in priority to the first mortgage.
A loan estimate must be provided by a mortagage lender to a proposed borrower within _____ (timeframe) of loan application, and that details loan terms.
Three days. This allows borrowers to comparison shop for loans.
What is loan to value ratio?
Percentage ratio of the mortgage principal compared to the property value.
what is negative amortization?
Monthly payment is less than interest . Principal balance increases.
Describe novation
A three-party agreement where one party is substituted for another
What is the term for creation of a mortgage loan?
Origination
A mortgage that is not scheduled to be repaid within the next 10 years is known as ____.
Permanent mortgage
What is prepayment privilege?
The right to pay off the mortgage prior to maturity.
What is prepayment penalty?
Mortgage may provide a penalty if it is paid off before maturity.
True or False: FHA and VA loans have a prepayment penalty.
False; they can be aid off early.
Primary mortgage market refers to…?
Participants who originate mortgage loans (mortgage bankers, brokers, lending institutions).
Order of payment to satisfy mortgages and other liens in the event of a foreclosure sale is known as…?
Priority
What is private mortgage insurance?
PMI insures partial repayment to lenders of defaulted conventional mortgages.
Explain refinancing.
Repayment of a mortgage loan by substituting another mortgage loan. It is often desired to reduce the interest rate or to extract cash by increasing the principal.
This is recorded at the county courthouse after the first mortgage.
Second mortgage
True or False: A first mortgage is above a second mortgage in priority of claim.
True
The secondary mortgage market refers to…?
The purchase of existing mortgages. Fannie Mae and Freddie Mac are the largest loan purchasers.
Upon a defaulted mortgage, the lender may agree to a sale at a price that is less than the full amount owed to avoid the foreclosure process. This is called what?
A short sale
What terms refers to: Agreement by a purchaser to become liable to make payments on the existing loan of a property that he purchased, but not become liable for the entire principal balance.
Subject to
Agreement in a loan that the loan will not move up in priority, even after a mortgage having higher priority is paid off is known as _____.
Subordination
What does subprime refer to?
Loan that is underwritten with less than prime qualities, such as a low borrower FICO score. Borrowers with a low FICO score, often below 620, may still be eligible for a loan, likely required to be a subprime loan.
What is the term?
Period of time until loan maturity. The term may represent the full amortization time or be earlier with a balloon mortgage.
What is TRID (TILA-RESPA Integrated Disclosure)?
Federal regulations based on the Truth in Lending Act and Real Estate Settlement Procedures Act, covering the required Loan Estimate and Closing Disclosures forms for mortgages
What is a mortgage banker?
A company that originates, services, and sells mortgage loans.
What is a mortgage broker?
A company the originate and sells mortgage loans.
True or False: Department of Veterans Affairs is an agency that guarantees loans made to eligible veterans up to a certain amount. Down payments may be zero.
True
A government agency that subsidizes mortgages to serve low and moderate-income homebuyers is known as a _____.
Government National Mortgage Association (GINNIE MAE or GNMA)
What is a federal national mortgage association?
A government-sponsored enterprise that buys mortgage loans on the secondary mortgage market.
True or False: The Federal National Mortgage Association (FNMA or FANNIE MAE) originates mortgage loans.
False
What is FHA?
Federal Housing Administration. Branch of HUD that insures qualified mortgages.
True or False: Down payments on an FHA loan may be as small as 8%
False- as small as 3%
True or False: Federal Home Loan Mortgage Corporation (FREDDIE MAC or FHLMC) performs the same functions as FNMA.
True
True or False: Commercial banks originate mortgages and construction loans in addition to business and consumer loans.
True.
Savings and loan associations accept deposits and originate mortgages and what other type of loan?
Construction loans.
