Principles Of Real Estate Financing Flashcards
Federal Reserve System
System of 12 federal reserve banks that regulate the flow of money and interest rates in the marketplace through its member banks by controlling their RESERVE REQUIREMENTS and DISCOUNT RATES. All nationally chartered banks must join the Federal Reserve System and purchase stock in its district reserve banks.
The system’s goals are:
1) Maintain sound credit conditions
2) Help counteract inflationary and deflationary trends
3) Create favorable economic conditions/climate
Three Basic Components of Real Estate Financing Market
1) GOVERNMENTAL INFLUENCES, primarily the Federal Reserve System
2) PRIMARY MORTGAGE MARKET
3) SECONDARY MORTGAGE MARKET
Primary Mortgage Market
The lenders that originate loans and make money available directly to borrowers.
**Secondary Mortgage Market
Helps lenders raise capital to continue making mortgage loans. Mortgage loans are bought, sold and traded in the SECONDARY MARKET, allowing banks to derive additional profit from the loans and alleviating their mortgage reserve limits enabling them to make more loans.
Various agencies purchase mortgage loans from banks and assemble them into packages (POOLS). Securities that represent shares in pooled mortgages are then sold to investors or other agencies.
What 3 federal agencies are primary players in the secondary market?
1) FANNIE MAE (Federal National Mortgage Association)
2) FREDDIE MAC (Federal Home Loan Mortgage Corporation)
3) GINNIE MAE (Government National Mortgage Association)
Mortgage
A LIEN or ENCUMBRANCE on the real property of a debtor called a MORTGAGOR.
**Mortgagor
The mortgage borrower who gives a note in exchange for a loan.
**Mortgagee
The lender of the mortgage loan.
*Title Theory State
States where the mortgagor gives the legal title to the mortgagee and retains equitable title. Legal title is returned to the mortgagor when the debt is paid in full. Because the lender (MORTGAGEE) holds legal title, the lender has the right to immediate possession of the real estate and rents if the MORTGAGOR defaults.
**Lien Theory State
States where the mortgagor retains both legal and equitable title. The mortgage has a lien on the property as security for the mortgage debt.
Intermediate Theory State
States where borrower (MORTGAGOR) does not automatically forfeit real estate on default of debt. Mortgagor must first be given a NOTICE OF INTENTION TO FORECLOSE before the lender (MORTGAGEE) can file suit and proceed with foreclosure.
Mortgage Loan Instruments
1) PROMISSORY NOTE - the mortgagor’s personal promise to repay a debt through the execution of note(s) totaling the amount of the debt.
2) MORTGAGE - a security instrument that creates a lien on the property
Duties of the Mortgagor
1) PAYMENT OF THE DEBT in accordance with the terms of the note
2) PAYMENT OF ALL REAL ESTATE TAXES on property given as security
3) MAINTENANCE OF ADEQUATE INSURANCE
4) MAINTENANCE OF THE PROPERTY IN GOOD REPAIR
5) RECEIPT OF LENDER AUTHORIZATION before making any major alterations to the property
**Acceleration Clause
The clause allowing the lender (MORTGAGEE) to accelerate the maturity of the debt if the borrower (MORTGAGOR) defaults. The lender may declare the entire debt due and payable immediately. Without an acceleration clause, the MORTGAGEE would have to sue the MORTGAGOR every time a payment was overdue.
