Unit 15 Goverment Involvement in Real Estate Financing

Question 1

Define buydown

Answer 1

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 the seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time. 279

Question 2

Define certificate of reasonable value (CRV)

Answer 2

A form indicating the appraised value of a property being financed with a VA loan. 275 (Kyle 522)

Question 3

Define Community Reinvestment Act of 1977 (CRA)

Answer 3

Under the act, which was revised most recently in 2008, financial institutions are expected to meet the deposit and credit needs of their communities; participate and invest in local community development and rehabilitation projects; and participate in loan programs for housing, small businesses, and small farms. 282

Question 4

Define construction loan

Answer 4

A short-term loan usually made during the construction phase of a building project (often referred to as a construction loan). 278

Question 5

Define conventional loan

Answer 5

A loan that requires no federally sponsored insurance or guarantee. 270

Question 6

Define Equal Credit Opportunity Act (ECOA)

Answer 6

The federal law that prohibits discrimination in the extension of credit because of race, color, religion, national origin, sex, age, marital status, or receipt of public assistance. 281

Question 7

Define Federal Deposit Insurance Corporation (FDIC)

Answer 7

An independent federal agency established by Congress to examine and supervise financial institutions, manage receiverships, and insure deposits (currently up to $250,000 per depositor per financial institution). 267

Question 8

Define Federal Reserve System (Fed)

Answer 8

The country’s central banking system, which establishes the nation’s monetary policy by regulating the supply of money and interest rates. 266

Question 9

Define government-sponsored enterprises (GSEs)

Answer 9

Organizations created by the federal government (Fannie Mae, Freddie Mac, Farmer Mac, Ginnie Mae) to help increase loan opportunities for homebuyers. 269

Question 10

Define home equity loan

Answer 10

A loan under which a property owner uses the property as collateral and can then draw funds up to a prearranged amount against the property. Also called a home equity line of credit, or HELOC. 279

Question 11

Define mortgage insurance premium (MIP)

Answer 11

The FHA insurance that is a percentage of the loan amount that the borrower is charged as a premium. 273

Question 12

Define Office of the Comptroller of the Currency (OCC)

Answer 12

Government agency which sets standards and regulations for fiduciary lenders. 267

Question 13

Define open-end loan

Answer 13

A mortgage loan that is expandable by increments up to a maximum dollar amount, with the full loan being secured by the same original mortgage. 278

Question 14

Define package loan

Answer 14

A real estate loan used to finance the purchase of both real property and personal property, such as in the purchase of a new home that includes carpeting, window coverings, and major appliances. 277

Question 15

Define private mortgage insurance (PMI)

Answer 15

Insurance provided by a private carrier that protects a lender against a loss in the event of a foreclosure and deficiency. 272

Question 16

Define Real Estate Settlement Procedures Act (RESPA)

Answer 16

The federal law that requires certain disclosures to consumers about mortgage loan settlements. The law also prohibits the payment or receipt of kickbacks and certain kinds of referral fees. 282

Question 17

Define Regulation Z

Answer 17

Implements the Truth in Lending Act, requiring credit institutions to inform borrowers of the true cost of obtaining credit. 280

Question 18

Define sale-and-leaseback

Answer 18

A transaction in which the owner sells improved property and, as part of the same transaction, signs a long-term lease to remain in possession of the premises. 279

Question 19

Define secondary mortgage market

Answer 19

A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages. Mortgages are first originated in the primary mortgage market. 268

Question 20

Define triggering terms

Answer 20

Specific credit terms, such as down payment, monthly payment, and amount of finance charge or term of loan. 281

Question 21

Define Truth in Lending Act (TILA)

Answer 21

Federal government regulates the lending practices of mortgage lenders through this act. 280

Question 22

Define VA-guaranteed loan

Answer 22

A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the U.S. Department of Veterans Affairs in order to limit the lender’s possible loss. 274

Question 23

Primary mortgage market vs secondary

Answer 23

Primary is for the Consumer and secondary is for Bank to Bank

Question 24

Mortgage points are on the loan amount True of False

Answer 24

True