UNIT 9 - LOANS

Question 1

promissory note

Answer 1

evidence of debt that states that a certain amt of money has been borrowed. (a negotiable instrument)

Question 2

hypothecation

Answer 2

the borrower (trustor) has possession of the property but transfers naked legal title of the property to a third party to hold as security for the lender in case of default on the loan

Question 3

pledge

Answer 3

the actual possession of pledge property is given to the lender (e.g. the jewelry is delivered to a pawnbroker)

Question 4

negotiable instrument

Answer 4

easily transferable (i.e. can be bought or sold).

Question 5

simple interest

Answer 5

the interest paid only on the principal owed.

Question 6

nominal / named rate

Answer 6

rate on the note

Question 7

effective interest rate

Answer 7

APR, the rate the borrower is actually paying.

Question 8

usury

Answer 8

charging of interest that is unreasonably high or beyond the legal limit set by the state

Question 9

interest only loan (straight loan, term loan)

Answer 9

regular interest payments during the term of the note. the interest rate is generally higher, and principal does not derease. a large payment is made at the end of the term to repay the principal and any remaining interest.

Question 10

amortization

Answer 10

liquidation of financial obligation. (installment of payments)

Question 11

partially amortized installment note

Answer 11

still regular payments on principal and interest, but there is a balloon payment on the last installation.

Question 12

security instrument

Answer 12

legal document given by the borrower to hypothecate the property to the lender as collat for a loan

Question 13

equitable title

Answer 13

interest held by the turstor under a trust deed and gives the borrower the equitable right to obtain absolute ownership to the property when the terms of the trust deed are met

Question 14

contract of sale

Answer 14

seller (vendor) becomes the lender to the buyer (vendee)

Question 15

deficiency judgement

Answer 15

if the property sells for less than what is owed to the noteholder, the borrower will be personally responsible for repaymet.

Question 16

alienation clause

Answer 16

the lender can call the entire note due if the original borrower transfers ownership of the property to someone else.

Question 17

conforming loans

Answer 17

terms and conditions that follow the guidelines set forth by fannie mae and freddie mac

Question 18

MMI (mutual mortgage insurance)

Answer 18

required insurance for FHA.

Question 19

graduated payment mortgage (GPM)

Answer 19

monthly payment that starts out at the lowest level and increases at a specific rate.

Question 20

home equity conversion mortgages (HECM)

Answer 20

reverse annuity mortgage for 62 and older who have paid off their mortgages or have only small mortgage balances remaining.

Question 21

subordination clause

Answer 21

used to change the priority of a financial instrument.

Question 22

AITD (wraparound mortgage) (all inclusive trust deed)

Answer 22

wraps an existing loan with a new loan and the borrower makes one payment for both.

Question 23

unsecured loan

Answer 23

small loan (basically iou)

Question 24

open end loan

Answer 24

revolving line of credit. preserve the original loan’s priority claim

Question 25

package loan

Answer 25

includes fixures attached to the uilding and other personal property

Question 26

blanket loan

Answer 26

covers more than one parcel. it usually contains a partial release clause.

Question 27

section 32 mortgages

Answer 27

high cost mortgages

Question 28

swing loan

Answer 28

temporary loan, usually due in six months

Question 29

pledged account mortgage

Answer 29

loan made against security.

Question 30

shared appreciation mortgage

Answer 30

lender offers below market interest in return for a portion of the profits when the property is sold.

Question 31

rollover mortgage

Answer 31

unpaid balace is refinanced, typically every 5 years.

Question 32

renegotiable rate mortgage

Answer 32

loan in which the interest rate is renegotiated periodically.

Question 33

ficticious trust deed

Answer 33

a recorded trust deed containing details that apply to later loan documents.

Question 34

assumption clause

Answer 34

allows a buyer to assume responsibility for the full payment of the loan with the lender’s knowledge and consent. (when a property is sold, a buyer may assume the existing loan)