Unit 13: Government Involvement In Real Estate Financing

Question 1

Governmental agency to control the economic conditions in the country

Answer 1

The Federal Reserve System

Question 2

This is the interest rate the government charges the banks

Answer 2

Discount rate

Question 3

This is the interest rate the bank charges the consumers

Answer 3

The prime rate

Question 4

When banks give loans directly to the consumer

Answer 4

Primary mortgage market

Question 5

These loans are bought and sold only after they have been funded (closed); only banks can use them

Answer 5

Secondary mortgage market

Question 6

What are the three major organizations in the secondary mortgage market

Answer 6

1. Fannie Mae
2. Freddie Mac
3. Ginnie Mae

Question 7

This is the Federal Agricultural Mortgage Corporation that works with farmers

Answer 7

Farmer Mac

Question 8

The Government National Mortgage Association

Answer 8

Ginnie Mae

Question 9

Mortgage loans are classified based on this ratio

Answer 9

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.

Question 10

These loans are considered the most secure loans because their loan to value ratios are often lowest

Answer 10

Conventional loans

Question 11

A buyer can obtain a conventional mortgage loan with a down payment that is less than 20% of purchase price by obtaining this insurance`

Answer 11

PMI- private mortgage insurance

Question 12

What are the two types of Government loans?

Answer 12

1. FHA-Insured Loans- borrower can get with a low 3.5% down payment
2. VA-guaranteed loans- little or no down payment

Question 13

This type of loan includes real and personal property

Answer 13

Package loans- condo furniture included in mortgage

Question 14

This loan covers more than one parcel or lot

Answer 14

Blanket loan

Question 15

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.

Answer 15

Open-end loan

Question 16

This type of loan is made to finance the construction of improvements on real estate such as homes, apartments, and office builings

Answer 16

Construction loans

Question 17

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

Answer 17

Sale and leaseback

Question 18

Paying a lump sum in cash to the lender at closing is called this:

Answer 18

Buydown- can save interest by paying points to get a better rate

Question 19

This type of loan is a source of funds that takes advantage of the equity built up in a home

Answer 19

Home equity loan- original mortgage stays in pace, this is a junior loan which carries a higher rate.

Question 20

This act requires that credit institutions inform borrowers of the true cost of obtaining credit

Answer 20

Truth in Lending Act and Regulation Z - enacted by the Federal Reserve Board and applies to all residence sales.

Question 21

Three things to remember about the TILA (Truth in Lending Act)

Answer 21

1. Full disclosure of cost of borrowing credit is required
2. A 3 day right of rescission to change mind to cancel the contract DOES NOT apply to the mortgage
3. Advertising- requires strict rules

Question 22

The Federal Act prohibiting discrimination in the lending process

Answer 22

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.

Question 23

This act made it the responsibility of the financial institution to help meet their communities’ needs for low-income and moderate-income housing

Answer 23

Community Reinvestment Act of 1977 (CRA)

Question 24

This Act applies to any residential real estate transaction involving a new first mortgage loan

Answer 24

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.