Real Estate Financing: Practice

Question 1

Office of Thrift Supervision

Answer 1

A government agency that governs the practices of fiduciary lenders. OTS was created by the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)

Question 2

Discount rate

Answer 2

the rate charged by the Federal Reserve when it lends to its member banks.

Question 3

The Prime Rate

Answer 3

the short-term interest rate charged to a bank’s largest, most creditworthy customers

Question 4

Fannie Mae

Answer 4

a government-sponsored enterprise. It is organized as a privately owned corporation that issues its own common stock and provides a secondary market for mortgage loans.

Question 5

Ginnie Mae

Answer 5

A government agency that plays an important role in the secondary mortgage market. It guarantees mortgage-backed securities using FHA and VA loans as collateral.

Question 6

Freddie Mac

Answer 6

A government-sponsored enterprise established to purchase primarily conventional mortgage loans in the secondary mortgage market. (Similar to Fannie Mae)

Question 7

conventional loans

Answer 7

A loan that requires no insurance or guarantee

Question 8

Straight Loan

Answer 8

Only interest is paid during the term of the loan, with the entire principal amount due with the final interest payment.

Question 9

Interest-Only Mortgage

Answer 9

Requires the payment of interest for a stated period of time with the principal due at the end of the term.

Question 10

Amortized Loan

Answer 10

A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan.

Question 11

Fully Amortized Loan

Answer 11

The mortgagor pays a constant amount, usually monthly. Repayment of the principal grows and the interest due declines as the unpaid balance of the loan is reduced.

Question 12

growing-equity mortgage (GEM)

Answer 12

uses a fixed interest rate, but payments of principal are increased according to an index or a schedule. Thus, the total payment increases, and the loan is paid off more quickly.

Question 13

PITI

Answer 13

borrower’s monthly housing expenses, including PITI, must not exceed 28 percent of total monthly gross income. Also, the borrower’s total monthly obligations, including housing costs plus other regular monthly payments, must not exceed 36 percent of his or her total monthly gross income

Question 14

private mortgage insurance (PMI)

Answer 14

Insurance to protect a lender against a loss in the event of a foreclosure and deficiency. Purchased by borrower to receive lower down payment.

Question 15

FHA Loan

Answer 15

A loan insured by the Federal Housing Administration and made by an approved lender in accordance with the FHA’s regulations.

Question 16

Buydown

Answer 16

A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder or seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time.

Question 17

VA Loan

Answer 17

A mortgage loan made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs in order to limit the lender’s possible loss.

Question 18

Farm Service Agency (FSA)

Answer 18

An agency of the federal government that provides credit assistance to farmers and other individuals who live in rural areas.

Question 19

Farm Credit System (Farm Credit)

Answer 19

A federal agency of the Department of Agricultural that offers programs to help families purchase or operate family farms.

Question 20

Farmer Mac

Answer 20

A government-sponsored enterprise that operates similarly to Fannie Mae and Freddie Mac but for agricultural loans.

Question 21

purchase-money mortgage (PMM)

Answer 21

A note secured by a mortgage or deed of trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price of the real estate.