UNIT 10 - REAL ESTATE FINANCE: LENDING INSTITUTIONS

Question 1

Board of Governors (BOG)

Answer 1

seven member board of the federal reserve system, which is a network of 12 federal reserve banks.

Question 2

Federal Open Market Committee

Answer 2

responsible for developing polices to promote economic growth, full employmet, and stable prices.

Question 3

reserve requirements

Answer 3

all member banks must set aside a certain percentage of their deposits as a reserve. The banks cannot lend this.. The BOG sets the reserve requirements.

Question 4

discount rate

Answer 4

the rate a bank borrows directly from the federal reserve bank.

Question 5

open market operations

Answer 5

the fed buys and sells gov securities (typically existing bonds). When the fed buys, then bank’s cash (money supply) increases which lowers interest.

Question 6

tight money market

Answer 6

when the money supply is tightened up, causing increase interest rates. (done by FOMC)

Question 7

Glass-Steagall Act

Answer 7

prohibits commercial banks from collaborating with full service brokerage firms or participating in investment banking activies.

Question 8

deregulation

Answer 8

a process whereby regulatory restraints are gradually relaxed.

Question 9

disintermediation

Answer 9

reduction in the use of intermediaries between producers and consumers, for example by investing directly in the securities market rather than through a bank.

Question 10

Depository Institutions Deregulation and Monetary Control Act

Answer 10

sweeping changes in 1980s.

1. raise deposit insurance from 40k to 100k
2. permits savings and loans (S&L) to offer a much wider range of services. (enter commercial lending, trust services, and non-mortgage consumer lending)

Question 11

Garn-St. Germain Depository Institutions Act

Answer 11

1982 - completed the process of giving expanded powers to federally chartered S&Ls.

Question 12

Alternative Mortgage Transaction Parity Act

Answer 12

1982 - allowed lenders to originate adjustable-rate mortgages and mortgages with balloon payments and negative amortization.

Question 13

Financial Institutions Reform, Recovery, and Enforcement Act

Answer 13

1989 - Officer of Thrift Supervision and Housing Finance Board were authorized to oversee the S&L regulation. Now the FDIC insurces 250k.

Question 14

Gramm-Leach-Bliley Act

Answer 14

1999 - repealed part of the Glass-Steagall Act. Allowed commercial banks, investment banks, insurance companies, and securities firms to consolidate. Create a new “financial holding company” that could engage in insurance and securities underwriting activities.

Question 15

Housing and Economic Recovery Act

Answer 15

2008 - established the federal housing financ agency.

Question 16

Dodd-Frank Wall Street Reform and Consumer Protection Act

Answer 16

Established the Consumer Financial Protection Bureau (CFPB), which regulates consumer finance products and services.

Question 17

primairy mortgage market

Answer 17

market in which lenders make mortgage loans by lending directly to borrowers

Question 18

financial intermediary (process is called intermediation)

Answer 18

The liasison between supplies and users of credit. combines funds from many sources, and adapts them into loans for the consumer.

Question 19

depository institution

Answer 19

accepts deposits in the form of savings accts. makes loans using their depositors’ monies.

Question 20

institutional lender

Answer 20

accepts deposits that are then pooled to be invested.

Question 21

mortgage yield

Answer 21

interest + origination fees + points

Question 22

commercial banks

Answer 22

all purpose lenders whose real estate loans represents only a portion of their overall activity

Question 23

compensating balance

Answer 23

a borrower deposits funds with the bank in order to induce the lender into making a loan.

Question 24

thirft institution

Answer 24

largest single resource for residential mortgage credit. S&Ls, savings banks, and mutual savings banks. can be owned as a mutual organization or as a stock institution. insured by FDIC

Question 25

mutual ownership

Answer 25

all depositors share ownership in the savings and loan or bank, which is managed by a board of trustees. the depositors are paid dividends on their share of the earnings.

Question 26

savings banks

Answer 26

distinctive type of thrift institution

Question 27

mutual savings banks

Answer 27

established to encourage savings by people who did not have a large amt of disposable income

Question 28

credit unions

Answer 28

association whose members usually have the same type of occupation. Supervised by the national credit union association board. deposits are insured by the federally insured national credit union share insurance fund.

Question 29

insurance companies

Answer 29

supplies money for large commercial loans to developers and builders. usually don't do residential, but can buy loans from mortgage companies and invest in Ginnie Mae gov insured or guaranteed loans.

Question 30

non-institutional lenders

Answer 30

do not take deposits. they are private lenders that invest their own or borrowed funds.

Question 31

private individuals (sellers)

Answer 31

most common way to create a junior loan is by sellers carrying back a trust deed on the sale of their own home.

Question 32

mortgage companies (mortgage banker)

Answer 32

company whose principal business is the origination, closing, funding, selling, and servicing of loans secured by real property. they lend their own money or borrowed from warehouse lenders.

Question 33

warehouse line

Answer 33

revolving line of credit extended to a mortgage company from a warehouse lender to make loans to borrowers

Question 34

mortgage broker

Answer 34

(not to be confused with mortgage bankers). a third party originator -- not a lender. They coordinate the loan process between the borrower and lender and charge an origination fee.

Question 35

REIT

Answer 35

company that owns operates income producing real estate, or engages in financing real estate.

Question 36

non-financial institutions

Answer 36

i.e. pension funds, universities, trust departments of banks, title companies

Question 37

secondary mortgage market

Answer 37

buying and selling existing mortgages

Question 38

debt instrument (mortgage backed security)

Answer 38

collat by the mortgages that have been bought in the secondary mortgage market

Question 39

government sponsored enterprise

Answer 39

financial services corp created by congress

Question 40

housing GSE

Answer 40

fannie mae, freddie mac, federal home loan banks

Question 41

federal housing finance agency

Answer 41

established 2007, sets limit of the size of the conforming loan

Question 42

ginnie mae

Answer 42

gov corp within HUD, created in 1968 when the federal national mortgage association was split into fannie mae and ginnie mae. It supports FHA, VA, and other loans. doesnt issue MBS, instead guarantees investors timley payments

Question 43

Consumer Credit Protection Act

Answer 43

1968 - launched truth in lending disclosures.

Question 44

Real Estate Procedures Act

Answer 44

protects consumers by mandating a series of disclosures that prevent unethical practices by mortgage lenders

Question 45

Home Mortgage Disclosure Act

Answer 45

requires mortgage lenders gather data from borrowers to determine whether lenders are serving their communities.

Question 46

redlining

Answer 46

illegal lending policy of denying real estate loans on properties in older changing urban areas, usually with large minority populations, bc of alleged higher lending risks without due consideration being given to the individual loan applicant prohibited by Housing Financial Discrimination Act of 1977

Question 47

Holden Act

Answer 47

increase lending in neighborhoods where in the past financing has been unavailable.

Question 48

Mortgage Loan Disclosure Statement

Answer 48

must be disclosed if a real estate broker negotiates the loans on behalf of the borrowers or lenders

Question 49

arranger of credit

Answer 49

required by cali for seller financing to find a person not a party to the transaction to arrange the credit.

Question 50

finance charge

Answer 50

the dollar amt the credit will cost.