Unit 8: Gov Programs Flashcards
HUD
United States Housing and Urban Development
- Federal Dept created to increase homeownership
- OVersees Secondary Mortgage market, FHA, VA, and Fair Housing Laws
FHA Insured Loan Program,
FHA Provides mortgage default insurance
- Insures lenders against loss due to default
- Mortgage insurance premium, user fee paid by borrower (PMI)
FHA Provisions
- Loans from Approved Lenders
- Higher LTV because of lower DP
- Appraisal Required - minimum property standards
- LOAN LIMITS BASED ON COUNTY
- Caontract for sales and purchase must contain escape clause - if borrower can’t get loan, they can walk away and not lose EMD.
- Assumable to qualified buyers
- No prepayment penalty
VA Loan
Guarantee to lenders that they will be paid back.
- No PMI
- Must Pay User Fee/Funding Fee
VA Loan Provisions
- Approved Lender
- Up to 100% LTV
- No Limit
- Appraisal - minimum property standards
- Escape Clause
- Assumable by Vet and NON Vet
- No Prepay penalty
2 Certificates Required for VA loan
Cert of Eligibiltiy (entitlement) shows and amount
Cert of Reasonable Value - VA Apraised (CRV)
Secondary Market Activities
- Buying notes secured by mortgages from primary mortgage market lenders to supplement the mortgage and lending process.
- Keep low cost $$ flowing to the primary mortgage market
- Provides liquidity to mortgage market
3 Main secondary mortgage market orgs
Freddie Mac, Fannie Mae, Ginney Mae
The whole purpose is to put money back into the primary mortgage market so they can continue to write loans.
Federal Reserve System - The Fed
Purpose: To set monetary policy that provides a safe and stable monetary system by influencing short term rates through the availablity and cost of: MONEY AND CREDIT - change rate - print money - buy and sell treasury bills
Open Market Operations Manage the Supply of Money
- Money supply increases, interest rates decrease.
- Money supply decreases, interest increases
INVERSELY PROPORTIONAL
Discount Rate
Rate charged banks for borrowing money from fed.
Discount increase - Interest Increase
Discount decrease - interest decrease
Reserve Requirement
The amount of money banks must keep in coffers.
Reserve increases - interest increases
reserve decreases - interest decreases
Prime Rate
The interest rate charged to most trustworthy borrowers.
Prime goes up - interest goes up
Prime goes down - interest goes down
Intermediation
Financial middlemen collect many small saving accounts belonging to individual depositors and invet those funds in larger projects.
ie: Money flowing into banks gets unleashed as big development projects etc.
Disintermediation
Money withdrawn from banks leads to no projects
Mortgage Servicing
Process by which a loan correspondant or servicing firm on behalf of lien holder:
- Collects payments
- disburses tax and interest payments
- keeps records
Warehousing
Larger bank warehouses loans for smaller bank.
Lender borrows funds from commercial bank to close loan,
Commercial banks store the docs and services the mortgage
Truth in Lending Act - Reg Z
Nothing but Z truth!
- Purpose: promote the informed use of consumer credit by requiring the disclosure of costs and terms.
Truth in Lending Act - Reg Z APPLIES TO
ONLY: loans from institutional lenders, to consumers for non-business loans.
Truth in Lending Act - Reg Z DOES NOT APPLY TO
Loans made to corporations
Loans made for business or commercial purposes
Seller financing (not an institutional lender) (Such as a contract for deed, or purchase money mortgage)
Disclosure Requirements
- Total Finance Charges - all fees by charged by the lender in exchange for the loan
- Annual Percentage Rate (APR) - the effective rates
Total Fianance Charges that must be disclosed included
- nominal interest
- loan origination
- borrower paid points
- mortgage insurance
- guarantee charges
Total Fianance Charges that must be disclosed DO NOT include
- settlement charges for title insurance costs, credit report charges, appriasal fee, legal fee, or points paid by seller.
APR - Annual Percentate Rate
Aka Effective Rate, states the relationship of the total finance charge to the amount of the loan, expressed as an annual percentage.
A uniform measure of the cost of credit that inlcludes interest and finance charges
Disclosure Statement must be delivered
3 days after receipt of completed loan application
Recission (Cancellation)
Allowed 3 days after consummating the loan except in primary home loan.
Would work for HELOC, cash out refi, etc
Advertising requirements
- Price and APR are only specific finance terms allowed in ad.
- Terms that trigger the need for Price and APR are very specific monetary words:
- Down Payment of…
- Interest Rate of…
- Montly Payment of…
- Number of Payments - General words are ok - LESS THAN rent, LOW down payment, BELOW market interest rate
Settlement portion -RESPA
Real Estate Settlement Procedures Act
Standardize and regulate real estate settlement practices.
Applies to all federally related loan transactions, including loans to purchase.
Disclosure Requirements - all 3 days
- Special info booklet, detailing what the costs are, 3 days after completed loan app
- Good Faith Estimate of what costs will be - 3 days after getting completed loan app.
- Uniform Settlement Statement - at least 3 days before closing - itemizing all settlement charges
TILA-RESPA - Consolidated required disclosures:
Loan Estimate, Closing Disclosure, HUD1
Loan Estimate
- Loan estimate combines finance charges AND settlement costs. 3 biz days after completed loan app.
EXCEPT REVERSE MORTGAGES
Closing disclosure
Uniform settlement statement that must be provided 3 biz days prior to close EXCEPT HELOC AND REVERSE MORTGAGE
HUD 1
Uniform settlement statement that must be provided 3 biz days before close. FOR HELOC AND REVERSE MORTGAGE
Appraisal
A formal estimate or opinion of value. For appraisal purposes, value is measured in terms of money.
Value
An item has value if it has demand, utitlity, scarcity and transferability. The price at which most buyers would trade money for real estate, goods or service
Principal of value to guide appraiser
Principal of Substitution which is the basis for the sales comparison approach (Comp sales)
Sales Comparison Approach to appraisal
Most often used - All substitutions are made to the COMPS ONLY
Prices of SOLD comps are adjusted for
Condition of Sale
Market Conditions
Physical
If comp is better, than subtract, to get it down to your level.
If comp is worse, then add, to get it up to your level
Cost Depreciation Approach
- Cost of replacing improvements, deducts estimated depreciation, and adds the estimated value of the land
Cost to build new - depreciation, then add in land.
(Land is valued by comps)
Depreciation
Loss in value due to any reason
- Physical Deterioration
- Functional Obsolescence
- External obsolescence
Curable
Benefit of fixing is greater than cost of fixing
Incurable
Cost too much to fix to be worth it financially.
Monetary Policy
Actions taken by FED to influence the availablity and cost of money and credit.
Comparative Square Foot Method
Estimating bulding costs
Use published cost manuals to adjust for geography
Unit in Place Method
Estimates the cost of producing and installing all the components to build a house - foundation, walls, plumbing etc…
Quantity Survey Method
Calculates costs of all the physical components in the improvments, adding the cost to assemble them and including construction cost.
Functional Obsolesence
Home suffering from poor design - 1 pane window southern exposure - or obsolete equipment
FHA and VA loans do not have a due on sale clause
They are assumable by any qualified borrower
Advertisements may use what kind of terms
General Terms - Low Rates etc.. Once they are specific, they need to list price and APR
CMA
Not an appraisal, must disclose
Informal estimate of market value performed by a real estate agent to assist at arrving at a listing price
USPAP
Uniform Standards of Professional Appraisal Practice
Escape Clause
IF FHA or VA applicants can’t afford loan, they can cancel within 3 biz days
Secondary Market
Market where mortgages are purchased from primary lender to supplement the mortgage and lending process
Market Value
The highest price a willing and able buyer will pay for a property
Realtor can perform what informal assessment
BPO/CMA - not an appraisal
Sales Comp Approach
The approach to value in which similar properties that have sold recently are compared to the subjec property.
External Obsolescence
Happenings off your property but pretty close that bring the value down.
Cost Depreciation Approach
The most important way of appraising uniquie properties. ones that don’t have comps
Replacement Cost
Current cost of construction a building witht eh same uitility as the subject, using modern materials and techniques. Suitable replacement, not replica
Reproduction cost
Cost to build a replica with same or highly similar materials.
Compensation for a realtor flows through
the broker
Realtor can not represent themselves as
An appraiser
Appraiser
formally liscenced individual
A real estate liscensee MAY perform an appraisal in which circumstance?
Mineral rights or lease
USPAP
Uniform Standards of Professional Appraisal Practice
Failure to comply with USPAP
Violation of Chapter 475 F.S.
Market Value Pricipals
- Property on Market for reasonable amoutn of time.
- Arms length
- Both parties familliar with property’s use and shortcomings
- Neither is under abnormal pressure to buy or sell
Vacancy Ratio predicts market
High rental vacancy means people are buying
Low rental vacancy means there is nothing to buy, or its too expensive
Market is fast or slow to respond to change?
Slow
Highest and Best Use determinants:
- Physically possible?
- Financially Possible?
- Legally Possible?
For Sales Comp Approach to Appraisal, Elements of Comparison:
Condition of sale - any special terms?
Market Conditions - getting better or worse right now?
Physcial - size, amenity, condition, compared to comps
For Sales Comp Approach to Appraisal, Adjustments
- Made only to comps, not subject house
- Comp Better - Subtract (CBS)
- Comp Inferior - Add (CSI)
FOrmula for Cost Depreciation Method (For unique buildings)
Cost to build new - Depreciation = value
then add land value in there
Cost Depreciation Uses:
- Custom Home
- Model Home
- Speculative (Spec) Home
Depreciation
- Loss of value for any reason
- Depreciation affects improvment, not land
- Curable vs Incurable
Interest rates & Supply and Demand
Interest rates for ALL LOANS are set by the market based on supply and demand
When preparing a CMA, as liscensee takes into account:
the sale price of recent sales of similar properties and expired listings.
VA and FHA loans are or are not assumable?
Are assumable by qualified buyers
