Notes Flashcards
What are the 3 basic financing components of the real estate market?
Government influences
Primary mortgage market
Secondary mortgage market
What is the primary government influence in the real estate market?
Federal Reserve System
What are the 3 government influences in the real estate financing market?
Federal Reserve System
Federal Home Loan Banks
Comptroller of the Currency
Under the umbrella of financial policies set by the ___, the ___ originates loans that are bought, sold, and traded in the ___.
Under the umbrella of financial policies set by the Federal Reserve System, the primary mortgage market originates loans that are bought, sold, and traded in the secondary mortgage market.
The ___ maintains sound credit conditions, helps counteract inflationary and deflationary trends, and creates a favorable economic climate.
Federal Reserve System
The Federal reserve divides the country into ___ Federal Reserve Districts that are each served by a(n) ___.
12
Federal Reserve Bank
All nationally chartered banks must join the ___ and purchase ___ in its ___.
All nationally chartered banks must join the federal reserve and purchase stock in its district reserve banks.
The ___ regulates the flow of money and interest rates in the marketplace through its ___ and by controlling ___ and ___
Federal Reserve
member banks
Reserve Requirements & discount rates
The federal reserve requires that each member bank keep a certain level of ___ on hand as ___.
Assets
Reserve funds
Reserve funds are unavailable for ___ or any other use.
Loans
The ___ the reserve requirement, the ___ money the lender has to lend, therefore the ___ will climb
higher
less
interest rate
Federal reserve member banks borrow money from the ___ in order to to expand their lending operations
District Reserve Banks
The discount rate is the rate charged by the Fed when it lends___ to its ___.
Money to its member banks
The ___ is the rate charged by the Fed when it lends money to its member banks.
discount rate
The Fed has the ability to increase or decrease the supply of money in the market through the purchase and sale of ___.
Securities
By ___ securities, the Fed takes money off the market, and the cost of money should increase.
Selling
By selling securities, the Fed takes money off the market, and the cost of money should ___.
Increase
By ___ securities, the Fed attempts to place more funds into the marketplace and drive the cost of money down.
Purchasing
By purchasing securities, the Fed attempts to place more funds into the marketplace and drive the cost of money ___.
Down
In addition to income directly related to loans, some lenders derive income from ___ loans for other mortgage lenders or the investors who have purchased the loans
Servicing
___ loans involves activities such as collecting payments (including insurance and taxes), accounting, bookkeeping, preparing insurance and tax records, processing payments of taxes and insurance, and following up on loan payment and delinquency.
Servicing
A growing number of consumers apply for mortgage loans ___.
Online
Many major lenders’ websites offer information regarding their ___ and ___
Current loan programs and requirements
Online brokerage or matchmaking organizations link ___ with ___.
Lenders with potential borrowers
Some borrowers prefer the ___ for its convenience in shopping for the best rates and terms, accessing a wide variety of loan programs, and speeding up the approval process
internet
In the secondary mortgage market, ___ has the function of conventional, VA, and FHA loans.
Fannie Mae
In the secondary mortgage market, Freddie Mac handles mostly ___ loans
conventional
In the secondary mortgage market, Ginnie Mae handles ___ loans
Special assistance
Ginnie Mae is a wholly owned government corporation within the ___
Department of Housing and Urban Development
Many lenders use the standardized forms and follow guidelines issued by ___ and ___
Freddie Mac and Fannie Mae
Use of standardized forms and guidelines issued by ___ and ___ is mandatory for lenders wishing to sell mortgages in the agencies’ secondary mortgage market.
Freddie Mac and Fannie Mae
In a straight loan, the borrower makes periodic payments of ___ only, followed by the payment of the ___ in full at the ___.
interest
Principal in full at the end of the term
The amount of interest due on any one payment date is calculated by computing the ___ interest (based on the ___) and dividing that figure by the ___ made each year.
Yearly interest
Based on the unpaid balance
The number of payments made
The current outstanding balance of a loan is $70,000. The interest rate is 7.5% per year and the monthly payment is $489.30. What is the annual interest rate?
$5,250
The current outstanding balance of a loan is $70,000. The interest rate is 7.5% per year and the monthly payment is $489.30. What is the monthly interest?
$437.50
The current outstanding balance of a loan is $70,000. The interest rate is 7.5% per year and the monthly payment is $489.30. What is the monthly principal?
$51.80
A 10-year loan of $50,000 at 6% has ___ units of $1,000
50
A 10-year loan of $50,000 at 6% has 50 units of $1,000. The amortized payment is $1,000 at 6% interest. What is the monthly amortized payment?
$555
Interest rate fluctuations and periodic caps have an effect on a(n) ___.
Adjustable rate mortgage
Without ___ and ___, a single mortgage’s interest rate could fluctuate wildly over several adjustment periods, depending on the behavior of the index to which it is tied.
Rate caps
Payment caps
Money received through a(n) ___ mortgage may be used for any purpose. Borrowers may opt to receive money in a lump sum, fixed monthly payments, open line of credit, or other options.
Reverse
Payments for a reverse mortgage are not due until ___, ___, or ___.
Property is sold
Borrower defaults
Death
The FHA Home Equity Conversion Mortgage is a common ___ mortgage
Reverse
The ___ the ratio of debt to value, the ___ the down payment by the borrower
lower the ratio
Higher the down payment
Mortgage amount divided by appraised value of property = ___
LTV ratio
If a property has an appraised value of $100,000 with a loan of $90,000, what is the LTV ratio?
90%
Explanation: $90,000 divided by $100,000 = 90%
What are the 2 biggest factors to consider when deciding to own or rent a home?
Mortgage terms
Payment plans
In order for a loan to be eligible for purchase on the secondary market by a government-sponsored enterprise (Fannie Mae or Freddie Mac), it must be a “___.”
Qualified mortgage
A qualified mortgage requires a debt-to-income ratio of ___%.
43%
For a qualified mortgage, the payments on all debtw - total housing plus any long term debts (anything >10 months to pay off) such as car payments, student loans, or other mortgages cannot exceed ___% of the buyer’s gross monthly income.
43%
Are expenses such as insurance premiums, utilities, and routine medical care included in the 43% of the debt-to-income ratio for a qualified mortgage?
No
Usually, the LTV ratio for a conventional loan is ___% of the value of the property
80
Why is the LTV ratio for a conventional loan usually 80% of the property value?
Borrower usually makes a down payment of at least 20%
The security for a conventional loan is provided solely by the ___.
Mortgage
The government is not involved in ___ loans.
Conventional
With the exception of ___ loans and a few ___ loans, the interest rate available to borrowers is largely based on credit scores.
FHA loans
few nonconforming loans
The ___ the credit score, the ___ the risk to the lender.
Higher credit score
Lower risk
Lenders almost always require a higher ___ and or larger ___ for those with lower credit scores
Higher interest rate
Larger down payment
A payment is considered late if it is more than ___ days past due.
30
Underwrites consider from ___ to ___ years of a potential borrower’s repayment history, especially for rent and/or mortgage loans
2 to 7 years
Applicants who are consistently more than 30 days late for rent or mortgage payments will most likely be ineligible for ___ and ___ loans and other loans that are sold to ___ and ___.
VA and FHA
Freddie Mac and Fannie Mae
LTV ratios of up to 95% of the appraised value of the property may be possible with ___.
mortgage insurance
PMI protects the top ___ to ___% of the loan against borrower default
20 to 30%
Because only a portion of the loan is insured, the lender must allow the borrower to terminate PMI coverage once the loan is…
repaid to a certain level
Under the Homeowners Protection Act of 1998, PMI must automatically terminate when the borrower reaches a(n) ___% equity position based on the original value of the property at the time the loan was originated with no allowance for appreciation or depreciation if the loan was written after July 29 1999, and the borrower is current on mortgage payments
22%
FHA qualifying ratios are ___% and ___%
31%
43%
The 203(b) fixed-rate loan is a popular ___ loan, especially among first time buyers.
FHA
As of 2013, the 203(b) FHA loan will finance up to __% of the borrower’s loan
97%
The VA does not normally ___, but instead it ___ made by approved lending institutions
Does not lend money
Guarantees loans
To determine what portion of a mortgage a VA loan will guarantee, the veteran must apply for a(n) ___.
Certificate of eligibility
A VA loan guarantee is tied to the current conforming loan limit for __ and __.
Fredie Mac and Fannie Mae
Lenders typically loan ___ times the guarantee for a VA loan
4 times
A conforming loan of $424,100 would equal how much of a VA guarantee?
106,025
424,100 divided by 4 = 106,025
In regards to VA loans, if the purchase price is greater than the amount cited in the ___, the veteran may pay the difference in cash.
CRV
The ___ offers programs to help families purchase or operate family farms.
Farm Service Agency (FSA)
Through the ___, the FSA also provides loans to help families purchase or improve single-family homes in rural areas.
Rural Housing and Community Development Service (RHCDS)
Through the Rural Housing and Community Development Service (RHCDS), the FSA also provides loans to help families purchase or improve single-family homes in ___.
rural areas
What are the 2 categories of FSA loans?
1) Guaranteed loans (made & serviced by private lenders and guaranteed for a specific percentage by the FSA)
2) Loans made directly by the FSA
Purchase Money Mortgage (PMM) payments are made to the ___ according to the terms of the note.
Seller
If the buyer stops making payments on a Purchase Money Mortgage (PMM), the ___ has recourse to foreclose on the property.
seller
Package loans include ___ and ___ property.
Real and personal property
___ loans usually include furniture, drapes, and appliances as part of the sales price of the home.
Package
In an open-end loan, the interest rate on the initial amount is ___, but the interest rate on future advances may be ___.
Initial amount is fixed
Future advances may be charged at market rate
A(n) ___ is often a less costly alternative to a home improvement loan.
Open-end loan
In a construction loan, before each payment , the lender has the right to…
inspect the work
In a construction loan, the general contractor must provide the lender with adequate waivers that release all ___ for the work covered by the payment.
Mechanic’s lien rights
When a home equity loan is taken, the ___ remains in place, and the home equity loan is ___ to the ___
Original mortgage loan
Junior to the original lien
___ are an alternative to refinancing and can be used for a variety of financial needs such as: financing purchase of expensive items, consolidating existing installment loans on credit card debt, and paying for medical, education, home improvements, or other expenses.
Home equity loans
The federal government regulates lending practices of mortgage lenders through which 5 laws?
1) Truth in Lending Act
2) Equal Credit Opportunity Act
3) Community Reinvestment Act
4) Real Estate Settlement Procedures Act
5) TILA and RESPA Integrated Disclosure Rule
In order for an advertisement to use trigger terms, it must also include which 5 things?
1) Cash price
2) Required down payment
3) Number, amounts, and due dates of all payments
4) Annual percentage rate
5) Total payments to be made over term of the mortgage
The ___ must be delivered or placed in the mail no later than the 3rd business day after receiving the consumer’s application.
Loan Estimate
The Equal Credit Opportunity Act requires notice of reason for rejection or termination to be provided in writing within ___ days.
30
The Equal Credit Opportunity Act provides that a borrower is entitled to a copy of the ___ if the borrower paid for the appraisal
Appraisal
Financial institutions are periodically reviewed by 1 of 3 federal financial supervisory agencies. What are these 3 agencies?
1) Office of the Comptroller of the Currency
2) Federal Reserve’s Board of Governors
3) FDIC
Financial institutions must post a public notice that their ___ activities are subject to federal review, and they must make the results of these reviews ___.
community reinvestment activities
public
