National Finance Flashcards
The two parts to a mortgage are…
the pledge, or promise to pay and the collarteral
If a person signs a note, without using property as collateral, it is referred to as a…
DEBENTURE
A promissory note is a negotiable instrument, meaning….
that the lender can sell it to a third party
The mortgagee is the..
LENDER
The mortgagor is the…
BORROWER
In a deed of trust the 3 parties involved are the…
- trustor = borrower
- benefiaicry = lender
- trusee = bank vice president or anyone else designated by the lender
Non judicial foreclosure is when….
the trustee holds naked legal title and has the right to foreclose, force the sale, with directions from the beneficiary.
Under a deed of trust, the beneficiary and trustee hold what….
Beneficiary (lender) holds the promissory note (promise to repay) and the trustee holds the security (deed of trust)
A mortgage or deed of trust document and a promissory note are similar in that they both…
are contracts between the borrower and the lender
When the borrower has paid the entire balance and the lender is required to execute a satisfaction of mortgage or a release deed of trust it is called a ….
SATISFACTION PIECE (ex: satisfaction of mortgage or deed of reconveyance)
The satisfaction piece puts on public record that the….
loan was paid and that the lender no longer has a lien on your property.
When a mortgage or deed is paid off, what allows the lender to release the mortgage or deed of trust rights and issue the satisfaction piece?
DEFEASANCE CLAUSE
A ‘prepayment penalty clause’ allows the lender to do what..
charge extra interest if the loan is paid off before the normal completion date. (not allowed with FHA or VA)
A ‘subordination clause’ is…
where a subsequent mortgage or deed takes priority…change in priority positions of holders of liens
“Subject to” an existing mortgage means that…
a buyer is purchasing a property “subject to the existing loan” and acknowledge the existing loan, and promise to pay the obligation. If they do not pay the original borrower is still liable.
“Assuming” an existing mortgage means that…
the purchaser is accepting the debt and is therefore personally liable for the entire debt. Seller will no longer be secondarily liable if the bank considers a NOVATION
A novation is a….
second contract to assume liability for the debt for the purchaser and relieve the liability to the seller.
Duties of the borrower in a mortgage or deed of trust are..(5 things)
- payment of the debt in accordance with terms of note
- payment of all real estate taxes on the property
- maintain adequate insurance
- maintain the property in good repair
- obtain lender authorization before making any major alterations to property
An ‘acceleration clause’ is when…
if a borrower defaults or misses payments the lender can call the entire balance due and payable immediately. Would not have power to foreclose without this clause.
Clause found in ARM’s that allows the interest rate to adjust over life of the loan…
ESCALATION CLAUSE
This clause prevents assumption of loan by a new purchaser by declaring the entire balance of the loan due and payable when the property is transferred…
ALIENATION CLAUSE (not allowed in FHA or VA)
A budget mortgage is when…
borrower places money into an escrow account for the purpose of paying tax and isurance
A monthly loan payment consists of…(P.I.T.I.)
PRINCIPAL
INTEREST
TAXES
INSURANCE
A mortgage or deed of trust, if recorded, must be recorded in the…
city, county or municipality where the property is located.
The priority of junior leans is determined by the…
date and time of recording.
Foreclosure is the legal process whereby…
the property pledged as security in the mortgage documents or the deed of trust is sold to satisfy the debt (promissory note).
The order of payment in foreclosure is….
- cost of the sale
- special assessment taxes and general taxes
- the first mortgage
- junior mortgages/whatever is recorded next
Judicial foreclosure is required to foreclose a _____ whereas non judicial foreclosure is required to foreclose a _____ and is a quicker process.
mortgage; deed of trust
The equitable right of redemption gives the borrower…
the right to clear up the debt prior to the foreclosure sale.
The statutory right of redemption gives the borrower..
the right to redeem after a foreclosure sale under certain conditions….right varies from state to state
If proceeds from a foreclosure sale are not enough to cover the debt, the lender can go to court and seek….(2 things)
- A deficiency judgment - general lien that would apply to all of the borrower’s assets
- Deed in lieu of foreclosure - lender becomes owner of property instead of going through formal foreclosure…(does not clear up junior liens however)
Charging interest in excess of the maximum rate allowed by state law is called….
USURY
Points (service points or origination fees) are used by lenders to….
increase their yield on loans
The total dollar amount of interest and points paid by a borrower at closing is called…
PREPAID INTEREST
The cost of points is not deducted from the loan and is treated as what on the settlement statement?
a debit to whoever agrees to pay them…(usually buyer)
How many points are required to increase the percentage yield by 1 percent?
8
By charging points, the lender is able to make a…
lower interest rate loan b/c they are compensated by the points.
The longer the loan…..
the lower the interest rate; the lower the monthly payment
A type of loan where only interest is paid is called a….
STRAIGHT TERM LOAN (borrower must be prepared to pay entire principal at the end)
A type of loan where interest and principal are paid on an equal basis until the final payment which is larger is called…(2 things)
balloon or partially amortized loan
Fully amortized loans consist of..
regular payments of principal and interest and the entire loan is paid off at the end
Type of mortgage that contains an escalator clause would be referred to as an..
ADJUSTABLE RATE MORTGAGE
ARM interest rates fluctuate but are capped for…
each period and for the term of the loan
In an ARM, the interest rate is usually the index plus a premium called the…
MARGIN
Type of loan where payments start out lower and go up is….(also specific example)
Graduated payment plan (ex: FHA 245 program). Good for young executives
Type of mortgage where homeowner receives monthly payments based on accumulated equity rather than a lump sum is…
REVERSE ANNUITY MORTGAGE….good for senior citizens who own their home
A mortgage given by the seller to the buyer to cover all or part of the sale price. Seller financing is called…
PURCHASE MONEY MORTGAGE
A loan on real estate, plus fixtures, and appliances; that always includes personal property as well as real property is a…
PACKAGE MORTGAGE
A loan on several pieces of land that usually contains a partial release clause is…
BLANKET MORTGAGE
A loan containing a clause which allows the mortgagor to borrow additional money without rewriting the mortgage
OPEN END MORTGAGE
A junior mortgage which provides an owner additional capital without refinancing the first mortgage. (The original mortgage is not disturbed)
WRAP AROUND MORTGAGE
Financing method where payment is subsidized at the beginning by a builder or other party for a period, and thereafter, the purchaser takes over and pays the regular payment amount..
BUYDOWN
A long term permanent financing for large construction projects, usually commercial, replaces construction loan on large commercial projects
TAKEOUT LOAN
A technique used by owners of property as a means of raising capital. The process involves the simultaneous selling and leasing back of the property usually through a net lease.
SALE LEASEBACK
An agreement between a mortgagee and a mortgagor which provides the lender with a certain percentage of ownership in the project once the lender makes the loan
PARTICIPATION MORTGAGE
A short term interim loan for buyer which may be placed on former house to buy a new house until first house sells
BRIDGE LOAN
the seller of realty - the seller under contract for deed
VENDOR
the purchaser of realty - the buyer under contract for deed
VENDEE
Who oversee’s the FHA?
Department of Housing and Urban Development (HUD)
The borrower of an FHA loan is charged what….
A one time mortgage insurance premium (MIP) which provides insurance to the lender. There is an upfront portion paid at closing and a monthly premium paid as well. Upfront portion can be added to the loan amount.
FHA does NOT build homes nor does it lend money itself. The term “FHA loan” refers to a loan that is….
insured by the agency
While the FHA insures loans, the VA does what….
guarantee’s repayment of loans up to a specific amount by making the veteran personally liable.
Maximum VA loan amount with no down payment is…
$417,000
With VA loans, the house must qualify with an appraisal and is issued a….
Certificate of Reasonable Value
VA loans may be assumed by a non-veteran, but….
veteran is still liable
VA itself will lend money in…..
rural areas where no financial institution is available.
FHA and VA will allow buyer to pay more than appraised value, if….
they pay the difference in CASH
The Rural Economic and Community Development (RECD), formerly known as Farmers Home Administration is what…
a federal lender with the US Department of Agriculture that makes loans for home purchases or construction in rural areas and small communities outside metropolitan areas.
Areas for direct loans from RECD are defined as having a population of…
20,000 or less
In addition to the property location, RECD requires that borrowers demonstrate…
a limited income record and a need for housing.
Loans are either made directly by the RECD or…
made by a private lender with RECD guaranteeing a certain percentage.
What is the “standard” and most popular type of FHA loan?
FHA section 203B; requires a minimum down payment with the maximum loan amount based on local market conditions.
With 20% or more down payment, conventional loans do not require….
private mortgage insurance (PMI)
Remember, whether an FHA, VA or conventional loan is made to a consumer, the lender and/or investor is primarily concerned with….(3 things)
- the current and future value of the property
- the income and income potential of the loan applicant
- the attractiveness of other investments that could be made for a better return
Assessing a buyers’ price range depends on three basic factors:
- stable income
- net worth
- credit history
Mortgage to income ratio is…
ratio between the monthly housing expense and stable monthly income
Debt coverage ratio is …..
ratio of annual net income to annual debt service
A history of the ownership of a parcel of land which lists transfers of title, rights, and liabilities. Does not guarantee or ensure the validity of the title of the property. It is a condensed history that merely discloses those items about the property that are of public record
abstract of title/abstract and opinion
The recorded history of matters that affect the title to a specific parcel of real estate, such as ownership, encumbrances and liens, usually beginning with the original recorded source of the title.
chain of title
In order for the title to qualify, the….(3 things)
abstract, chain of title, and the title insurance policy must meet the standards of the lender.
A loan in which a borrower is not held personally liable is a…
NON-RECOURSE LOAN. The lender of such loan generally feels confident that the property used as collateral will be adequate security for the loan.
When a _____ is included in the sale’s agreement, the seller of a security is not liable if the borrower defaults.
NON-RECOURSE CLAUSE
Default is….
the non performance of a duty or obligation that is part of a contract.
A written pledge by a lender to lend a certain amount of money to a qualified borrower on a particular piece of real estate for a specified time under specific terms. More formal than a preliminary loan approval.
CONDITIONAL APPROVAL (conditional or qualified commitment)
The analysis of the extent of risk assumed in connection with a loan is…
UNDERWRITING
The process of individuals investing their funds directly instead of placing their money with banks, savings and loans and other savings institutions.
DISINTERMEDIATION
A legal doctrine by which a person is prevented from asserting rights or facts that are inconsistent with a previous position or representation made by act, conduct or silence.
ESTOPPEL CERTIFICATE
Something that is sometimes inserted into a mortgage note in which the lender waives the right to a deficiency judgment…
EXCULPATORY CLAUSE
A ‘short sale’ occurs when..
A homeowner sells the property based on a listing price arrived at by a CMA. In the end, the lender agrees to accept a loan payoff amount that is less than what is actually owed. Short sales happen in lieu of a foreclosure.
A settlement agent could be…..(4 things)
An attorney, a real estate broker, a closer from the title company or a lender.
Transfer taxes are paid by _____ and can be paid how?
seller or lessor; by the purchase of tax stamps or by payment of a transfer fee.
The five primary mortgage market financing sources are…
- savings and loans
- banks
- insurance companies
- mortgage broker
- mutual savings banks
Savings and loans, once the leading mortgage lending institution, are regulated by ______ and deposits are insured by the ______ for at least______ amount
Federal Housing Finance Board(FHFB), Deposit Insurance Fund; $250,000
Bank deposits initiate real estate related loans of every variety and deposits are insured by the______for ____amount
Federal Deposit Insurance Corporation; $250,000
_________ are a source of mortgage financing that prefer larger commercial projects and like to have an equity position (participation financing).
INSURANCE COMPANIES
A person , corporation, or firm not otherwise in banking and finance, that either provides its own funds for loans or negotiates, sells, or arranges loans for compensation.
MORTGAGE BROKER
To tighten the economy, the Federal Reserve would….(3 things)
- increase discount rates
- sell securities
- raise the reserve requirements
The effect of the three ways the Fed controls the economy/interest rates are ranked from fastest to slowest in what order….
- change the discount rate - almost overnight effect in some places
- change reserve requirements - 30 to 60 days
- buying/selling securitis - 6 months to a year
The purpose of the secondary mortgage market is to…
provide liquidity of funds for the primary mortgage market
The promissory note is considered to be ________ (readily negotiable) that can be bought and sold.
PERSONAL PROPERTY
The 3 major warehousing agencies in the secondary mortgage market are….(full names, nicknames, initials
- Federal National Mortgage Association or Fannie Mae (FNMA)
- Government National Mortgage Associatioin or Ginnie Mae (GNMA)
- Federal Home Loan Mortgage Corporation or Freddie Mac (FHLMC)
Fannie Mae is a quasi government corporation meaning….
it was government when it originally formed but now is a private corporation
Largest purchaser in the secondary market and buys what type of loans?
Fannie Mae which buys FHA, VA, and conventional loans
What type of loans does Ginnie Mae buy and who is it controlled by?
FHA and VA, Department of Housing and Urban Development
What type of loans does Freddie Mac buy and who is it controlled by?
conventional loans, Department of Housing and Urban Development
The following can usually be deducted from on income tax returns….(3 things)
- interest payments made on first and second homes
- certain loan origination fees and discount points
- loan prepayment penalties and real estate property taxes
Property appreciates in value due to ….(2 things)
inflation and due to an increase in the intrinsic value
Disadvantages of real estate investment include…(3 things)
- not highly liquid
- have to be prepared to invest for the long haul
- high risk because markets are always changing
The three major laws regarding financing are…
- Truth in Lending Law
- RESPA
- Equal Opportunity Act
This law requires lenders to disclose to buyers the true cost of obtaining credit so that the borrower can compare the cost of various lenders.
Truth in Lending Law (Regulation Z)
Truin in Lending applies to…
residential loans, federally related 1-4 family properties, non-commercial properties, and family farms
________ transactions are not covered in Truth in Lending
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