Unit 13: Government Involvement In Real Estate Financing Flashcards
Governmental agency to control the economic conditions in the country
The Federal Reserve System
This is the interest rate the government charges the banks
Discount rate
This is the interest rate the bank charges the consumers
The prime rate
When banks give loans directly to the consumer
Primary mortgage market
These loans are bought and sold only after they have been funded (closed); only banks can use them
Secondary mortgage market
What are the three major organizations in the secondary mortgage market
- Fannie Mae
- Freddie Mac
- Ginnie Mae
This is the Federal Agricultural Mortgage Corporation that works with farmers
Farmer Mac
The Government National Mortgage Association
Ginnie Mae
Mortgage loans are classified based on this ratio
LTV- Loan to Value- ration of debt to the value of the property (value is the sales price or appraised value, whichever is less). The lower the ratio of debt to value, the higher the down payment. The more down payment means a more secure loan, minimizes the lender’s risk.
These loans are considered the most secure loans because their loan to value ratios are often lowest
Conventional loans
A buyer can obtain a conventional mortgage loan with a down payment that is less than 20% of purchase price by obtaining this insurance`
PMI- private mortgage insurance
What are the two types of Government loans?
- FHA-Insured Loans- borrower can get with a low 3.5% down payment
- VA-guaranteed loans- little or no down payment
This type of loan includes real and personal property
Package loans- condo furniture included in mortgage
This loan covers more than one parcel or lot
Blanket loan
This loan provides a security interest when a note is executed by the borrower to the lender but also secures any future advances of funds. The interest rate on the initial amount is fixed but interest on future advances may be changed at the market rate in effect at that time.
Open-end loan
This type of loan is made to finance the construction of improvements on real estate such as homes, apartments, and office builings
Construction loans
This arrangement used to finance large commercial or industrial properties where the land and the building used by the seller for business purposes, is sold to an investor
Sale and leaseback
Paying a lump sum in cash to the lender at closing is called this:
Buydown- can save interest by paying points to get a better rate
This type of loan is a source of funds that takes advantage of the equity built up in a home
Home equity loan- original mortgage stays in pace, this is a junior loan which carries a higher rate.
This act requires that credit institutions inform borrowers of the true cost of obtaining credit
Truth in Lending Act and Regulation Z - enacted by the Federal Reserve Board and applies to all residence sales.
Three things to remember about the TILA (Truth in Lending Act)
- Full disclosure of cost of borrowing credit is required
- A 3 day right of rescission to change mind to cancel the contract DOES NOT apply to the mortgage
- Advertising- requires strict rules
The Federal Act prohibiting discrimination in the lending process
Equal Credit Opportunity Act (ECOA) similar to the Fair Housing Act for race, color, religion, national origin, sex, age and marital status or receipt of public assistance however the ECOA requires that credit applications be considered only on the basis of income, the stability of the source of that income, net worth (total assets and liabilities) and credit rating.
This act made it the responsibility of the financial institution to help meet their communities’ needs for low-income and moderate-income housing
Community Reinvestment Act of 1977 (CRA)
This Act applies to any residential real estate transaction involving a new first mortgage loan
Real Estate Settlement Procedures Act (RESPA)- to ensure that both the buyer and the seller are fully informed of all cost related to closing the transaction.
