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Real Estate > Real Estate Finance > Flashcards

Real Estate Finance Flashcards

1
Q

What is disintermediation?

A

The sudden flow of funds out of thrift institutions (which grant real estate loans) into the general money market (where real estate loans are not common).

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2
Q

What is intermediation?

A

Pooling the savings of many people, thus acting as a “go-between” for saver-depositors and borrowers on the home loans.

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3
Q

What are the goals of the Federal Reserve System?

A
  • Maintain sound credit conditions to help conteract inflation and deflaction
  • To encorage high employment
  • To safeguard the purchasing power of the dollar.
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4
Q

How many districts are there in the Federal Reserve System?

A

12 Districts.

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5
Q

How many Governors are in the Federal Reserves System’s Board of Governors?

A

Seven.

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6
Q

What are Reserve Requirements?

A

A ratio of savings money that the Federal Reserve requires to be reserved (not lent).

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7
Q

What does raising the Reserve Requirement do?

A

It decreases the amount of money in circulation, drives up interest rates and eventually lessens inflation by slowing down spending.

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8
Q

What is the “discount window”

A

It is the lending facility owned by the Federal Reserve Bank and is where Banks borrow from each other.

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9
Q

What is the discount rate?

A

The lending interest rate that the Federal Reserve charges member banks.

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10
Q

What is the Federal Funds Rate?

A

The rate of interest one bank charges another for the overnight use of excess reserves.

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11
Q

What can the Fed do to decrease the money supply?

A
  • Increase the reserve requirement.
  • Sell Government securities.
  • Increase the discount rate
  • or some combination of all three above.
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12
Q

Why is it that when the Fed buys government securities from the public, it increases the money supply?

A

Because when the Fed first issues a check to the government for the securities. But the check is deposited into local banks. The local bank forwards the check to the Fed for payment. When the Fed receives its own check, it increases the reserves of the local bank by the check amount.

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13
Q

What is the Prime Rate?

A

Loan interest rate given to a commercial bank’s most favored corporate borrowers.

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14
Q

What is the Federal Funds Rate?

A

The interest rate that one bank harges another for the overnight use of excess reserves. This alternative source of temporary funds can be used instead of borrowing from the Federal Reserve.

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15
Q

Changing the money supply via …

  • changing the reserve requirement
  • buying/selling government securities
  • changing the discount rate

… are collective know as what?

A

Open-Market Operations.

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16
Q

What is the government’s spending and taxing policy collectively called?

A

Fiscal Policy.

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17
Q

If the U.S. Treasry decides to issue long term debt instruments called treasury certificates, consisting of notes and bonds, to help finance government spending, what happens to the mortgage investment market?

A

Money is siphoned away from the mortgage investment market.

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18
Q

What are the institutional factors that affect the local cost of mortage money?

A
  • Deposit cost
  • Borrowing cost
  • Sales cost
  • Administrative cost
  • Reserves
  • Liquidity
  • Profit
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19
Q

What forces influence changes in mortage interest rates?

A
  • Government spending
  • Government borrowing amounts
  • Inflation
  • Supply of money (from income)
  • Demand of money (from expenses)
  • Federal reserve actions
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20
Q

What is Tight Money?

A

Restrictive money policies of the Federal Reserve as it attempts to combat inflation by reducing the money supply.

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21
Q

What is Easy Money?

A

A loose money policy by the Federal Reserve. It is typically intended to combat recssion by increasing the supply of money in circulation.

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22
Q

What docment outlines the terms and schedule of repayment and is as legal evidence that a debt is owed?

A

Promissory Note.

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23
Q

What type of promissory note is used when the borrow agrees to pay the interest periodically and to pay the enntire prinicpal in a lump sum on the due date?

A

Straight Note.

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24
Q

What is amortization?

A

Reduction in the principal due to periodic repayal of the principal.

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25
Q

What type of Promissory Note requires periodic repayment that include both principal and interest?

A

Installment Note.

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26
Q

What do you call an installment loan that includes both principal and interest in equally installment payments that 100% self-liquidate the debt by the end?

A

Fully Amortized Loan.

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27
Q

What do you call a installment that is more than double the amount of a regular installment according to the Civil Code?

A

Balloon Payment.

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28
Q

What do you a call a loan where the payments do not even cover the monthly increase and each month this shortage is added to the principal owed, resulting in an increased loan balance, which in turns incurs additional interest?

A

Negative-Amortized Loan.

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29
Q

In a Deed of Trust, what is the lender called?

A

Beneficiary.

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30
Q

In a Deed of Trust, what is the borrower called?

A

Trustor.

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31
Q

In a deed of trust, what is the “third party” called?

A

Trustee.

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32
Q

What do you call a contract between a buyer and the seller where the buyer is given possession and use of the property and in exchange agrees to make regular payments to the seller. In this type of contract, the buyer has equitable title, and the seller has legal title until all payments have been made.

A

Installment Sales Contract.

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33
Q

Savings Bank includes which two type of institutions?

A

Savings and Loans (S&Ls) and Credit Unions.

34
Q

What is a Thrift Instituion?

A

A Savings Bank.

35
Q

What is a Mutual Institution?

A

A Savings Bank where the depositors and borrows are given share certificates or receipts in return for deposits of money. The certificates are often called **share liabilities **rather than savings deposits.

36
Q

What is a Capital Stock Institution?

A

A savings bank where shares of stock, representing fraction shares of ownership of the institution, are issued to its investors. The depositors do not necessarily have ownership in this type of institution.

37
Q

State-chartered Thrift Institutions are supervised by whom?

A

The State Commissioner and, if insured, also by the Federal Housing Finance Board.

38
Q

What type of deposits provide the bank with long-term funds that are invested into various outlets?

A

Time Deposits.

39
Q

What organization licenses California’s state-chartered commercial banks?

A

California Department of Financial Institutions.

40
Q

What organization licenses nationally-chartered commercial banks?

A

The Controller of Currency.

41
Q

What type of loan is used to bridge the time during which a property remains unsold. That is, if a homeowner purchases a replacement house before selling the first house.

A

Swing Loans (a.k.a Bridge Loans).

42
Q

What does CRA stand for?

A

Community Reinvestment Act.

43
Q

What is the Community Reinvestment Act (CRA)?

A

A federal legislation that requires that all federally supervised financial instutions to openly disclose lending data and encourages lenders to offer mortgages for low- and moderately-priced housing to meet needs for low- and moderate-income families by offering loans to areas where they received deposits from.

44
Q

What are the two types of ownership structures for Life Insurance Companies?

A

Mutual Companies and Stock Companies.

45
Q

What are Loan Correspondents?

A

Agents for finding prospect borrowers. These agents are typically used by Insurance Companies.

46
Q

What are the trends that affect life insurance lending practices? (p.44)

A
  • Equity conversion positions during inflationary periods
  • Upfront participations
  • Variable and fixed annuities
  • Holding companies and joint ventures
47
Q

What is the Monetary Control Act (MCA)?

A

A legislation that completely phased out restrictions on interest rates that lenders can pay depositors. As a result, new systems for raising, mobilizing, and investing money were developed.

48
Q

What is potentially the largest source of real estate financing?

A

Pension Funds (public and private).

49
Q

Who supervises and sets policies for Pension Funds?

A
  • Trust departments of Commercial Banks
  • Trust departments of Life Insurances
  • Trustees of Unions
  • Trustees appointed by a Governor or Mayor
  • Employees and Employers
50
Q

Which regulatory organization is a branch of the U.S. treatsury and was created by FIRREA to replace the Federal Home Bank Board as the chief regulator of all federal and many state-charteered thift institutions?

A

The Office of Thift Supervision.

51
Q

Which regulatory agency was created by the FIRREA to replace the Federal Savings and Loan Insurance Corporation (FSLIC). This agency collects insurance premiums on checking and savings deposits from all federally insured savings associations.

A

Savings Association Insurance Fund.

52
Q

Which regulatory agency is primarily tasked to promote public confidence in the financial systems of commercial and savings banks and is empowered to insure deposits only (not securities or mutual funds) up to designated amounts per account? This agency manages the SAIF and the BIF.

A

Federal Deposit Insurance Corporation (FDIC).

53
Q

Which fund is the result of merging the Savings Association Insurance Fund and the Bank Insurance Fund?

A

The Deposit Insurance Fund (DIF).

54
Q

Which regulatory agency is a five-member board and oversees mortgage lending by the 12 regional Federal Home Loan Banks? This agency’s mission is to support local community financial institutions, facilitate access to credit, and insure that lenders carry out their housing and community deveopment finance requirements?

A

Federal Housing Finance Board (FHFB).

55
Q

Which regulatory agency oversees the Federal Reserve system by regulating activities of commercial banks, and regulating the flow of money and credit?

A

Federal Reserve Bank Board (FRBB).

56
Q

Which agency is responsible for regulating and supervising nearly 1600 national banks and 50 federal branches of fereign banks in the U.S. and has the objective of ensuring the safety and soundness of the national banking system?

A

Office of the Comptroll of the Currency (OCC).

57
Q

Which state agency oversees the operation of approximately 700 state-licensed financial institutions, including state banks and credit unions, and is charged with maintaining the integrity of all financial services by tis network of institutions?

A

California Department of Financial Institutions (DFI).

58
Q

Which trade association is headquartered in Los Angeles, with 9 of the 10 largest S&Ls located in California in the early 1990s? (Following the S&L scandals their influence diminished).

A

California League of Savings Insitutions.

59
Q

Which trade association comprises the principal investors and lengding interests in the mortgage banking field and promotes fair and ethical lending practices via a wide range of education programs and publications?

A

Mortgage Bankers Association of America (MBA).

60
Q

Which voluntary organization provides valuable financial data to federally and state chartered member banks, government agencies, economists, researchers and the public at large?

A

American Bankers Association (ABA).

61
Q

Which association primarily is consisting of many banks who are not part of a large bank chain?

A

National Asoccation of Independent Mortgage Banks (NAIMB).

62
Q

Which institute, located in New York, is comprised of voluntary memberships of most of the life insurance companies operating in the U.S. and publishes Life Insurance Fact Book annually?

A

Institute of Life Insurance.

63
Q

Which association is the lobbying group for loan brokers nationwide, has members that subscribe to a code of ethics, and provides education and guidance to an industry that provides over 50 percent of all residential loans originated in the U.S.?

A

National Association of Mortgage Brokers (NAMB).

64
Q

What is the biggest characteristic of Individual Private Lenders?

A

Their lending practices typically lack structure, which can have its pros and cons for the borrower and lender.

65
Q

In the reading, how is Private Lender strictly defined?

A

A person who lends directly to another person.

66
Q

What are Mortgage Brokers?

A

A person who helps Private Lenders (who is typically dissatisfied with deposit interest) and a borrowers (who typically does not qualify for insitutional loans) find one another.

67
Q

Are seller carry back loans exempt from usury laws and thus can charge any interest rate they wish?

A

Yes.

68
Q

According to California Usury Laws, what is the maximum rate for loans secured by real property?

A

The greater of 10 percent or 5 percent above the Federal Reserve Bank of San Francisco discount rate.

69
Q

Who are California Usury Laws primarily targeting?

A

Direct Private Lenders.

70
Q

What are Mortgage bankers?

A

Incorporated business that package real estate loans to be sold to a permanent investor often with servicing retained for a fee. Mortgage bankers act as correspondents for investors.

71
Q

What is a Mortgage (Loan) Correspondent?

A

A Mortgage Company (bank or broker) that originates a loan for an investor such as a life insurance company, bank, thift association, pension fund, etc.

72
Q

In California, which organizations license mortgage companies?

A

The Department of Corporations (DOC) or the Department of Real Estate (DRE).

73
Q

Which legislation made attempts to level the playing field between Mortgage companies licensed by DOC and those licensed by DRE by requiring consistent licensing laws to apply to all loan representatives?

A

The Recovery Act of 2008.

74
Q

A mortgage broker, or intermediary, is governed by which sections of the California Business and Professions Code (B&P) (Article 8: Real Property Loans)?

A

Sections 10240 through 10248.

75
Q

What does the Traditional Mortgage Loan Disclosure Statement (MLDS) convey?

A

Information about estimated costs and expenses and commissions to be paid. New rules require that the initial disclosure be within a certain tolerance of the final costs and terms. Specifically, the APR must be within 1/8 of a percent of the original calculation of the disclosure.

76
Q

What is the Real Property (Mortgage) Loan Law?

A

A California statute that governs real estate loan brokers, limiting commissions, requiring disclosure of the borrower and regulating ballon payments and insurance requirements.

77
Q

What conditions/lenders are exempt from the Real Property Loan Law?

A
  • Regulated Institutional Lenders
  • Seller carried back loans
  • Loans secured by first trust deeds when the principal amount is $30,000 or more
  • Loans secured by second trust deeds when the principal amount is $20,000 or more
78
Q

For loans secured by first deed of trust, recite the maximum brokerage commission for 1) less than two-year term, 2) from two to less-than-three-year term 3) three year or longer term, respectively.

A
  • 5%
  • 5%
  • 10%
79
Q

For loans secured by second deed of trust, recite the maximum brokerage commission for 1) less than two-year term, 2) from two to less-than-three-year term 3) three year or longer term, respectively.

A
  • 5%
  • 10%
  • 15%
80
Q

What are the limitations on fees charged by Mortgage Brokers according to Real Property Loan Law?

A
  • Combined fees cannot exceed 5 percent of the amount of the loan but need not be less than $390.
  • Miscellaneous costs and expenses cannot be charged for moer than $750.
81
Q
A

Real Estate (2 decks)

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