Real Estate Finance Flashcards
Primary Mortgage Market
Process of originating, processing, underwriting, closing and funding mortgage loan
Secondary Mortgage Market
When lenders sell the mortgage to an investor to receive funds to that they can make additional mortgage loans to others
Commercial Banks
Financial institutions that provide a variety of financial services, including loans
Savings and loan associations (S&Ls) aka Thrifts
financial institutions that specialize in taking savings deposits and making mortgage loans
T/F
One purpose of the primary mortgage market is to buy loans to free up money to make more loans available.
False - that is secondary mortgage market
Mortgage Bankers
Persons or entities in the business of making mortgage loans - lenders of money
MUST BE LICENSED
Mortgage Brokers
Persons or entities in the business of soliciting, processing, placing, or negotiating mortgage loans for others
MUST BE REGISTERED WITH SUPERINTENDENT
Surety Bond for Mortgage Banker
$50,000 - $500,000
Surety Bond for Mortgage Broker
$10,000 - $100,000
Promissory Notes
Financing instruments that is evidence of a promise to pay a specific amount of money to a specific person within a specific time frame.
T/F
Borrower is mortgagor and the lender is mortgagee
True
T: Mortgages are the primary security instrument used in lien theory states
T:When property is pledged as security for a debt, but the borrower still holds legal title and possession, it is known as hypothecation
T: In a title theory state, the borrower has possession of the property, but until the debt is fully paid, the borrower has only equitable title.
T: Mortgages are the primary security instrument used in lien theory states
T:When property is pledged as security for a debt, but the borrower still holds legal title and possession, it is known as hypothecation
T: In a title theory state, the borrower has possession of the property, but until the debt is fully paid, the borrower has only equitable title.
Lien Priority
Refers to the different positions a mortgage and other liens may have and what that can mean to the lender.
T/F
Real estate tax liens always have the highest priority in the event of a foreclosure
True
First Mortgage (lien position when there are multiple mortgages)
a security instrument that has a first lien position. First mortgage holder is paid first if there is a foreclosure
Second Mortgage (lien position when there are multiple mortgages)
security instrument in a second lien. more risky position because a first mortgage gets paid first out of foreclosure proceedings in the event there is a default. If there is nothing left, second mortgage holder gets nothing. Second mortgage may be used to help buy the property or it could be a home equity loan used for home improvements or repairs or to send a child to college
T/F
In the event of a foreclosure, the mortgage holder in the second lien position has less risk than the holder in the first lien position
False - second lien holder has more risk.
Conventional Loan
a mortgage loan NOT insured or guaranteed by a government entity, meaning FHA or VA
Can be conforming or nonconforming loans
Conforming Loan
When a loan meets the criteria necessary to be sold in the secondary market
T/F
Traditional conventional loans may be long term, fully amortized, and fixed rate
True
Long Term loans generally have total paymebts spread out over how long?
25-30 years
Balloon Payment
A final lump sum that pays any remaining principal and/or interest at the end of a loan term
Fully Amortized Loans
apply payments to the principal and interest. Total payments over the life of loan will pay off entire balance of principal and interest due at the end of the term.
-even though the payment stays the same for the life of the loan, the amount applied to principal and amount applied to the interest are adjusted each month. If all payments are made on time, the loan will be paid off in full with the last scheduled payment
Private Mortgage Insurance
offered by private companies to insure a lender against default on a loan by a borrower. PMI is required for 90% conventional loans
Housing Expense Ratio
Total Housing Expense / Gross Monthly Income = Ratio %
Predatory Lending
loans that take advantage of ill informed consumers through excessively high fees, misrepresented loan terms, frequent refinancing that does not benefit the borrower, and other prohibited acts
What term best describes the process by which a borrower pledges property as security for a loan without giving up possession of it?
Hypothecation
States in which title is conveyed to the mortgagee are referred to as…
Title theory states
a home developer has an existing mortgage for the purchase of land. If the new lender of a second construction mortgage wants to ensure that the second construction mortgage takes priority over the existing first mortgage, what type of clause must be contained in the construction mortgage?
Subordination Clause
T/F The VA lends money for mortgages only to veterans
False - it GUARANTEES the mortgage loans made by approved lenders to veterans
Which element of an adjustable rate mortgage determines whether the interest rate goes up or down?
Index
Package Mortgage
includes both real estate property and personal property
Blanket Mortgage
covers two or more parcels or lots, usually to finance new subdivision developments
Bridge Mortgage
occurs between the termination of one mortgage and the beginning of the next
Wraparound Mortgage
Secondary financing arrangement in which a lender, who is often the seller, leaves the original loan intact and gives the borrower a second, larger loan
What term would BEST describe the type of loan where a seller finances all or part of the sale of property for the buyer?
Purchase Money Mortgage
When a loan balance for an adjustable rate mortgage grows because of deferred interest when payments are not covering the interest portion of the loan, this is known as….
Negative amortization
