real estate financing Flashcards
straight note
A note calling for the entire amount of its principal
to be paid together with accrued interest in a
single lump sum when the principal is due.
impound account
A money reserve of the borrower’s funds held by
a lender or carryback seller to pay for annual obligations
owed by the owner to others.
hypothecate
To pledge a thing as security without the necessity
of giving up possession of it.
short payoff
A sale in which the lender accepts the net
proceeds at closing in full satisfaction of a greater
amount of mortgage debt.
land contract
A contract used in a sale of real property whereby
the seller retains title to the property until all
or a prescribed part of the purchase price has
been paid. Also commonly called a land sales
contract, conditional sales contract, installment
sales contract or real property sales contract.
reinstatement
A property owner or junior lienholder’s right to
cure any monetary default on a mortgage prior
to five business days before the trustee’s sale by
paying the delinquent amounts due on the note
and trust deed, plus foreclosure charges.
closing statement
An accounting of funds made to the buyer and
seller separately. Required by law to be made at
the completion of every real estate transaction.
[See RPI Form 402]
amortization
The liquidation of a financial obligation on an installment
basis; also, recovery over a period of
cost or value.
foreclosure
Procedure whereby property pledged as security
for a debt is sold to pay the debt in event of
default in payments or terms.
cramdown
The reduction of the principal balance of a
loan.
shared appreciation
mortgage
A type of split-rate note calling for the buyer to
periodically pay interim interest at a fixed rate,
and when the balance is due, to further pay
the holder of the note as additional interest an
agreed fraction of the property’s increased
value.
applicable federal rate
Rates set by the Internal Revenue Service for carryback
sellers to impute and report as minimum
interest income when the note rate on the carryback
debt is a lesser rate.
balloon payment
Any final payment on a note which is greater
than twice the amount of any one of the six regularly
scheduled payments immediately preceding
the date of the final/balloon payment. [See
RPI Form 418-3 and 419]
judicial foreclosure
The court-ordered sale by public auction of the
secured property. Also known as a sheriff’s sale
interest rate
The percentage of a sum of money charged for
its use. Rent or charge paid for use of money,
expressed as a percentage per month or year of
the sum borrowed
nonrecourse mortgage
A debt secured by real estate for which the
holder’s sole source of recovery of amounts owed
is the value of the property securing the debt, no
money judgment permitted for a deficiency in
the value of the secured property on foreclosure
or short payoff.
non-conforming loan
A conventional loan with a loan amount greater
than the loan amount limits set by Fannie Mae
and Freddie Mac. Non-conforming loans are
also known as jumbo loans.
seller financing
A note executed by a buyer of real estate in favor
of the seller for the unpaid portion of the sales
price on closing. Also known as an installment
sale, credit sale or carryback financing.
voluntary lien
Any lien placed on property with consent of, or
as a result of, the voluntary act of the owner.
tranches
Investment pools divided into various levels of
risk, reward and rate of maturity.
usury
A limit on the interest rate charged on nonexempt
real estate loans.
financial crisis
An economic downturn resulting from the failure
of banking and government agencies to regulate
and adjust to developing market conditions.
collateral
Tangible assets attached to a loan which are
worth more than the cash value of the loan.
debt
That which is due from one person or another;
obligation, liability.
qualified residential
mortgage
A home loan which meets low-risk criteria, exempting
it from the originating lender 5% risk retention
rule. QRMs are expected to meet abilityto-
repay requirements, including the maximum
debt-to-income ratio of 43%. The final federal
QRM definition is still pending approval as of Q2
2014.
amortization table
A tabular schedule detailing the apportionment
of principal and interest on each periodic payment
due on an amortizing loan.
construction loan
A loan made to finance the actual construction
or improvement on land. Funds are usually
dispersed in increments as the construction progresses.
bankruptcy, Chapter 11
A proceeding in which the homeowner’s financial
obligations are restructured, allowing them
to repay their debts over a three-to-five period.
adjustable rate mortgage
adjustable rate mortgage
put option
The provision in all trust deeds which, in tandem
with anti-deficiency laws, grants an owneroccupant
of a one-to-four unit residential
property under a purchase-assist mortgage the
right to default and force the lender to buy the
property for the remaining loan amount through
foreclosure.`
sale and leaseback
A financial arrangement where at the time of
sale the seller retains occupancy by concurrently
agreeing to lease the property from the
purchaser. The seller receives cash while the
buyer is assured a tenant and a fixed return on
buyer s investment.
Truth-in-Lending Act
A law designed to protect buyers in their
dealings with lenders through upfront disclosure
of mortgage rates and charges.
home equity line of credit
A mortgage loan enabling a homeowner to borrow
against their home’s wealth, as an ATM.
portfolio category income
Unearned income from interest on investments
in bonds, savings and trust deeds notes;
dividends on stocks; profits on the resale of these
investments and land held for profit; and income
from management-free long-term income
property ownership.
late charge
A provision in a promissory note, lease or rental
agreement imposing an additional charge if
payments are not received when due or during
a grace period.
purchase-money
Nonrecourse mortgage financing created when
a lender provides purchase-assist financing to
fund the purchase or construction of a buyeroccupied
one-to-four unit residential property
or a seller carries back financing on the
sale of property which is the sole security for
repayment.
quantitative easing
The purchase of government bonds by the
Federal Reserve to drive down interest rates and
increase liquidity
notice of default
The notice filed to begin the nonjudicial foreclosure
process. Generally, the NOD is filed after
three or more months of delinquent mortgage
payments. [See RPI Form 471]
blanket mortgage
A single mortgage which covers more than one
piece of real property
points
A fee charged by a lender as prepaid interest
which in turn reduces the note rate on the
mortgage, with a point equaling 1% of the
amount of the mortgage.
nonjudicial foreclosure
When property is sold at a public auction by a
trustee as authorized under the power-of-sale
provision in a trust deed.
purchasing power
A homebuyer’s ability to purchase property
funded by mortgage money based on 31% of
their gross income for mortgage payments and
current interest rates.
recourse
On a debt secured by real estate and not subject
to anti-deficiency defenses, the creditor may
pursue a borrower on default for a loss due to a
deficiency in the value of the secured property if
the lender forecloses judicially.
subprime mortgage
A mortgage made to a borrower based on loose
underwriting standards and resulting in a high risk
of default
principal residence profit
exclusion
A tax exclusion on profit from a home sale up to
a certain dollar amount.
negative amortization
Occurs when monthly installment payments are
insufficient to pay the interest accruing on the
principal balance, so that the unpaid interest
must be added to the principal due.
passive income
Profits and losses from rental real estate, operations
and sales, and from non-owner-operated
businesses.
mortgage
An instrument recognized by law by which property
is hypothecated to secure the payment of a
debt or obligation; a procedure for foreclosure in
event of default is established by statute.
deed-in-lieu of foreclosure
A deed from a borrower to a mortgage holder
conveying title to property which is security for
a mortgage, given in consideration for canceling
the remaining debt and as an alternative to
foreclosure.
strategic default
The intentional default on a mortgage, forcing
the lender to foreclose and acquire the property
in satisfaction of the mortgage debt.
debt-to-income ratio
Percentage of monthly gross income that goes
towards paying debt.
graduated payment
mortgage
A mortgage providing for installment payments
to be periodically increased by predetermined
amounts to provide for an accelerating payoff
of principal.
acceleration
A demand for immediate payment of all amounts
remaining unpaid on a loan or extension of credit
by a mortgage lender or carryback seller. Also
known as “calling the loan.”
redemption
A property owner or junior lienholder’s right to
clear title to property of a trust deed lien prior to
the completion of the trustee’s sale by paying
all amounts due on the note and trust deed,
including foreclosure charges.
closing costs
The miscellaneous expenses buyers and sellers
normally incur in the transfer of ownership of real
property over and above the cost of the property.
wrap around mortgage
A financing device whereby a lender assumes
payments on existing trust deeds of a borrower
and takes from the borrower a junior trust deed
with a face value in an amount equal to the
amount outstanding on the old trust deeds and
the additional amount of money borrowed.
bankruptcy, Chapter 7
A proceeding in federal court in which the homeowner’s
assets are liquidated to pay off their
debts.
mortgage interest
deduction (MID)
An itemized deduction for income tax reporting
allowing homeowners to deduct interest and related
charges they pay on a mortgage encumbering
their primary or second homes
secondary mortgage market
A market for the sale of bonds or securities
collateralized by mortgage loans.
conventional mortgage
A mortgage securing a loan made by investors
without governmental underwriting, i.e., which
is not FHA insured or VA guaranteed. The type
customarily made by a bank or savings and loan
association.
Federal Reserve
The federal banking system of the United States
under the control of central board of governors
(Federal Reserve Board) involving a central
bank in each of twelve geographical districts
with broad powers in controlling credit and the
amount of money in circulation.
assumption
An undertaking or adoption of a debt or obligation
primarily resting upon another person.
lien
A form of encumbrance which usually makes
specific property security for the payment of
a debt or discharge of an obligation. Example
judgments, taxes, mortgages, deeds of trust,
etc.
mortgage-backed bond
An asset-backed security representing a claim
on the cash flows received on a mortgage loan.
seasoned loan
A loan in which payments by the borrower
have been consistently made when due for an
extended period of time.
penalty
An extra payment or charge required of the
borrower for deviating from the terms of the
original loan agreement. Usually levied for being
late in making regular payment or for paying off
the loan before it is due, known as late charges
and prepayment penalties.
junior mortgage
A mortgage recorded subsequently to another
mortgage on the same property or made subordinate
by agreement to a later recorded mortgage.
default
Failure to fulfill a duty or promise or to discharge
an obligation; omission or failure to perform any
act.
negative equity
The condition of a property owner owing more
on a mortgage than the current fair market
value of the encumbered property.
mortgage insurance
premium
The cost for default insurance incurred by a borrower
on an FHA-insured mortgage set as a percent
of the mortgage amount paid up front and
an annual rate on the principal balance paid
with monthly principal and interest for the life of
the mortgage
call
A lender’s demand for the balance of the loan
to be paid in full
real estate owned property
Property acquired by a lender through
foreclosure
credit score
A numerical representation of a borrower’s creditworthiness,
based on credit report information
obtained from a credit bureau.
capitalization rate
The annual rate of return produced by the operations
of an income property or sought by an
investor. The cap rate is calculated by dividing
the net operating income by the price asked or
offered for income property.
The annual rate of return produced by the operations
of an income property or sought by an
investor. The cap rate is calculated by dividing
the net operating income by the price asked or
offered for income property.
A document executed by a trustee named in a
trust deed to release the trust deed lien from title
to real estate, commonly used when the secured
debt is fully paid.
annual percentage rate
The relative cost of credit as determined in accordance
with Regulation Z of the Board of Governors
of the Federal Reserve System for implementing
the Federal Truth in Lending Act.
equity
The interest or value which an owner has in real
estate over and above the liens against it. Branch
of remedial justice by and through which relief is
afforded to suitors in courts of equity.
prepayment penalty
A provision in a promissory note giving a lender
the right to levy a charge against a borrower
who pays off the outstanding principal balance
on a mortgage prior to its maturity.
Regulation Z
A component of the Truth-in-Lending Act
requiring lenders to timely disclose a loan’s
annual percentage rate and all associated
costs to potential borrowers, enabling borrowers
to competitively shop for loans.
good faith estimate of costs
An estimate of a buyer’s settlement charges and
mortgage terms handed to the buyer on a standard
form within three business days following
the lender’s receipt of the mortgage application.
[See RPI Form 204-5]
consumer price inflation
An increase in the general price level of all goods
and services consumed in the economy.
par interest rate
The interest rate without the addition of a yield
spread premium or discount points.
intermediation
The process of pooling and supplying funds for
investment by financial institutions called intermediaries.
The process is dependent on individual
savers placing their funds with these institutions
and foregoing opportunities to directly invest in
the investments selected.
due-on clause
A trust deed provision used by lenders to call the
loan due and immediately payable, a right triggered
by the owner’s transfer of any interest in
the secured real estate.
Real Estate Settlement
Procedures Act
Legislation prohibiting brokers from giving or
accepting referral fees if the broker or their
agent is already acting as a transaction agent in
the sale of a one-to-four unit residential property
which is being funded by a purchase-assist,
federally-related loan
private mortgage insurance
Default mortgage insurance coverage provided
by private insurers for conventional loans with
loan-to-value ratios higher than 80%.
creditworthiness
An individual’s ability to borrow money, determined
by their present income and previous
debt payment history.
teaser rate
A temporary, low introductory interest rate found
in adjustable rate mortgages.
deficiency judgment
shadow inventory
anti-deficiency
A limitation placed on a mortgage lender’s ability
to recover losses on a default when the secured
property’s value is insufficient to satisfy the
mortgage debt.
