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Chapter 9 > RE Finance > Flashcards

RE Finance Flashcards

1
Q

Fannie Mae

A

Secondary Markets
• Fannie Mae is the nation’s largest investor in residential mortgages.
- Lenders can sell Fannie Mae loans insured by FHA and guaranteed by
Department of Veterans Affairs (VA).
- Operation funded by securitization, act of pooling mortgages, then selling as mortgage-backed securities.
- Originator lender or other mortgage servicing company services these loans.
- Fannie Mae is a government-sponsored enterprise (GSE) that can borrow from U.S. Treasury to continue operating in the secondary market.

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2
Q

Freddie Mac

A

is a nonprofit, federally chartered institution controlled by Federal Home Loan Bank System.
- Sells mortgage loans from portfolio to investors through mortgage-backed securities
- Funds generated by sale of mortgages used to purchase more mortgages.
- Freddie Mac is a government-sponsored enterprise (GSE) that can borrow from U.S. Treasury to continue operating in the secondary market.

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3
Q

Ginnie Mae

A

is a government-owned corporation, operating under HUD.
- Does not purchase mortgages from lenders; does not buy, sell, or issue securities
- Guarantees principal and interest payments on federally insured or guaranteed mortgages through mortgage-backed securities
- Works with loans from FHA, VA, Rural Housing Service, or HUD’s Office of Public and Indian Housing
- Carries full faith and credit guarantee of U.S. government
- Ginnie Mae is a wholly-owned government corporation, not a GSE.

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4
Q

Underwriting

A
  • The process of evaluating a borrower’s risk factors before the lender will make a loan
  • The first step in getting a loan is for the borrower to fill out a loan application.
    Once the lender has the borrower’s completed application, underwriting can begin.
    The purpose of underwriting is to determine if the borrower and the property meet the minimum standards established by the primary lender and the secondary market investor.
    Once both the borrower and the property qualify, the loan process continues until it closes.
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5
Q

Truth in Lending Act (TILA)

A
  • The Truth in Lending Act (TILA), Title I of the Consumer Credit Protection Act, is aimed at promoting the informed use of consumer credit by requiring disclosures about its terms and costs.
  • TILA applies to real estate loans that are secured by the borrower’s principal dwelling. TILA defines a dwelling as a 1-4 residential structure, individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.
    Real estate loans that are exempt from the TILA include credit extended primarily for business, commercial, or agricultural purposes, or credit extended to other than a natural person. Additionally, loans over $25,000 that are not real estate loans are exempt.
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6
Q

Regulation Z

A

Regulation Z requires that creditors disclose the following items for real property secured loans:
Amount financed : Written itemization of the amount financed

Finance charge

APR :Variable rate and discounted variable rate disclosures

Total of payments

Payment schedule : Prepayment penalties, due-on-sale clauses, late payment charges, insurance, and loan assumptions disclosures

Name of the lender

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7
Q

Adjustable Rate Loan Disclosure

A

A lender offering adjustable rate residential mortgage loans must provide prospective borrowers with a copy of the most recent CFPB publication, which provides information about adjustable rate loans.

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8
Q

Real Estate Settlement Procedures Act (RESPA)

A
  • Protects consumers by mandating a series of disclosures that prevent unethical practices by mortgage lenders.
  • RESPA applies to all federally related, 1-4 unit residential mortgage loans. These include most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. The Consumer Financial Protection Bureau (CFPB is responsible for enforcing RESPA.
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9
Q

Equal Credit Opportunity Act (ECOA)

A

The Equal Credit Opportunity Act (ECO) ensures that all consumers are given an equal chance to obtain credit. This does not mean all consumers who apply for credit get it because factors such as income, expenses, debt, and credit history are considerations for creditworthiness.

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10
Q

Home Mortgage Disclosure Act (HMDA)

A

The federal Home Mortgage Disclosure Act of 1975 (HMDA) requires most mortgage lenders to gather data from borrowers who apply for loans. Its purpose is to determine whether lenders are serving their communities and to identify discriminatory lending patterns.

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11
Q

Fair Credit Reporting Act (FCRA)

A

The Fair Credit Reporting Act (FRA) is one of the most important laws that protects consumer identity and credit information.

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12
Q

The Fair and Accurate Credit Transactions Act (FACTA)

A

The Fair and Accurate Credit Transactions Act (FACTA) of 2003 gives borrowers the right to see what is in their credit file and to have any errors corrected.

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13
Q

Housing Financial Discrimination Act of 1977

A

The Housing Financial Discrimination Act of 1977 (Holden Act) prohibits the discriminatory practice known as redlining

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14
Q

Redlining

A
  • A discriminatory lending practice prohibited by the Holden Act.
  • Redlining is an illegal lending policy of denying real estate loans on properties in older, changing urban areas, usually with large minority populations, because of alleged higher lending risks, without due consideration being given by the lending institution to the creditworthiness of the individual loan applicant.
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15
Q

Credit Scoring

A

A statistical method lenders use to assess a borrower’s credit risk.

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16
Q

Mortgage companies

A

Lender whose principal business is the origination, closing, funding, selling, and servicing of loans secured by real property

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17
Q

Real estate investment trust

A

A company with a minimum of 100 shareholders that owns operates income-producing real estate or engages in financing real estate.

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18
Q

Warehousing

A

Revolving line of credit extended to mortgage company from a warehouse lender.

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19
Q

Tight money

A

An economic situation in which the supply of money is limited, and the demand for money is high, as evidenced by high interest rates.

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20
Q

FDIC

A

Corporation that insures deposits in all federally chartered banks and savings institutions up to $250,000 per depositor.

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21
Q

Compensating balance

A

A minimum credit balance that a bank requires a borrower to keep on deposit as a condition for granting a loan.

22
Q

Pass-through securities

A

Mortgage backed securities that pass through the principal and interest of the underlying loans to investors.

23
Q

Credit union

A

Lender whose members usually have the same type of occupation.

24
Q

Mortgage yield

A

The total interest, fees, and points earned by the lender expressed as a percentage.

25
Q

Finance charge

A

The dollar amount the credit will cost the borrower

26
Q

Loan estimate

A

Document that lists the charges the buyer is likely to pay at settlement

27
Q

Mortgage Loan Disclosure Statment

A

California-required statement that disclosed expected maximum costs and expenses of making the loan that are to be paid by the borrower.

28
Q

The increase in the value when several smaller parcels are combined together into one larger parcel.

A

Plottage increment

29
Q

Features that add value to a property.

A

Amenities

30
Q

The price the property would bring if freely offered on the open market with both a willing buyer and a willing seller.

A

Fair market value

31
Q

The placement of a building on its lot in relation to exposure to sun, prevailing wind, traffic, and privacy from the street.

A

Orientation

32
Q

An orderly systematic method to arrive at an estimate of value.

A

Appraisal process

33
Q

Sometimes called the objective value

A

Market value

34
Q

The process that can be employed to convert income to value.

A

Capitalization

35
Q

The usefulness of the property to its owner. This is subjective value or the value given for personal reasons

A

Utility value

36
Q

Title to property must be marketable with an unclouded title.

A

Transferability

37
Q

The estimated period over which a building may be profitably used.

A

Economic life

38
Q

Lot that is the least desirable due to the lack of privacy because it is surrounded by the back yards of other lots

A

Key lot

39
Q

This may be the most important factor influencing value.

A

Location

40
Q

A lot found on a dead-end street with same way for ingress and egress.

A

Cul-de-sac lot

41
Q

The final step in an appraisal is to examine the values derived by the various approaches

A

Reconciliation

42
Q

The process of putting several smaller less valuable lots together under one ownership.

A

Assemblage

43
Q

Any buildings or structures on a lot

A

Improvements

44
Q

Short-term and temporary use of a property until it is ready for a more productive highest and best use.

A

Interim use

45
Q
  1. The term unearned increment most nearly means:
    A. an increase in value due to population increase.
    B. a decrease in value due to social forces rather than personal effort.
    C. a decrease of property taxes.
    D. depreciation.
A

A. an increase in value due to population increase.

46
Q
  1. The commonality of blighted areas, inflation, and the
    business climate is that they are——forces the influence value.
    A. economic
    B. physical
    C. political
    D. social
A

A. economic

47
Q
  1. Which of the following appraisal approaches is based primarily on the principle of substitution?
    A. Cost approach
    B. Summation approach
    C. Sales comparison approach
    D. Income capitalization approach
A

C. Sales comparison approach

48
Q
  1. Functional obsolescence would not include:
    A. eccentric design.
    B. items of surplus utility.
    C. lack of air conditioning.
    D. proximity to nuisances.
A

D. proximity to nuisances.

49
Q
  1. The major cause of loss of value of real property is usually due to:
    A. deterioration.
    B. passage of physical life.
    C. obsolescence.
    D. lack of maintenance.
A

C. obsolescence.

50
Q

Appraisal

A

An appraisal is an unbiased estimate or opinion of the property value on a given date.

51
Q

Value

A

Value is the present worth of rights to future benefits that come from property ownership.

Value or worth is the present and future anticipated enjoyment or profit from the ownership of property. It is the relationship between the thing desired and the purchaser. It is also the power of one commodity to attract other commodities in exchange.

52
Q

Purpose of an Appraisal

A

Transfer of property ownership

Financing and credit

Taxation

Insurance

Condemnation

Chapter 9 (2 decks)

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