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Real estate > Unit14/15:Financing > Flashcards

Unit14/15:Financing Flashcards

1
Q

Participants in a deed of trust

A

Borrower: trustor
Lender: beneficiary
Third party who holds deed: trustee

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2
Q

Defeasance clause

A

The borrower defeated the loan, given ‘satisfaction’

Paid in full, the lender now releases any interest

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3
Q

Strict foreclosure/friendly foreclosure

A

No sale takes place (After appropriate notice, title just given to lender)

No sale takes place (deed handed over aka ‘deed in lieu of foreclosure)
– Not best case scenario bc of plethora of side reasons (ie acceptance of prior/any junior liens)

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4
Q

REDEMPTION

Equitable right of redemption vs statutory right of redemption

A

E - defaulted borrower can redeem after default but before sale

S - state allows borrower recovery for a certain period of time after foreclosure sale

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5
Q

Are prepayment penalties allowed on loans insured or guaranteed by the federal gov’t?

A

No

Cannot charge on loans sold to Freddie Mac or Fannie Mae

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6
Q

Assignment of mortgage

A

When a lender sells the loan to an investor or other mortgage company

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7
Q

Mortgage as a negotiable instrument

A

Mortgage companies can sell your loan (but it won’t affect the borrower)

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8
Q

Lien theory states:

A

Mortgagors retains BOTH legal and equitable title.

Remember: both and lien have 4 letters

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9
Q

Lenders and flood insurance

A

If lendor finds out a property is in a flood zone, can give the borrower 45 days to purchase flood insurance
If they do not purchase, lenders purchases and charges borrower

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10
Q

Loan origination fee

A

Processing of a mortgage is loan origination

It’s a charge. Not interest.
Typically, 1 percent of loan amount (can range 1-3 points but 1 point is 1%)

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11
Q

Usury

A

Charging interest in excess of max rate

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12
Q

Hypothecation

A

You can hypothetically take this

It’s collateral

For the lender when applying for a mortgage loan

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13
Q

Title theory states

A

Mortgagors retain equitable but give mortgagee legal title

Remember: title oNE (holds only one)

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14
Q

Promissory note

A

A contract made by borrower agreeing to repay a debt

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15
Q

Discount points

A

One point as 1% of loan amount (again) but it’s a charge of interest, not just a charge like loan origination fees

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16
Q

Arrears

A

Interest is paid on a loan at either the beginning or end of a pay period

Arrears is at the end
Advance is at the beginning

Distinction will be in the note and it matters bc of a sale before debt is paid off

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17
Q

Alienation clause

A

Re: resale
Aka ‘due-at-sale clause’, resale clause, call clause
Lender can either ask for all due at closing or new buyer can take on loan for a decided interest rate

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18
Q

Land contract / owner financing

A

renting and buying all at once

Down payment, then monthly payment which would cover principal and interest. May also include taxes and/or insurance reserves.
Seller retains legal title can evict if default. If default, seller keeps money.

Common among undeveloped acreage or farm land

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19
Q

Judicial/non judicial foreclosures

A

Sale with court action

Sale with no court action
‘Power of sale’

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20
Q

Deficiency Judegment

A

When foreclosure didn’t produce enough to cover loan amount, the borrower can have a personal judgement against him/her which requires them to come up with the remaining debt

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21
Q

Novation agreement

A

Switching persons

When someone (a seller) wants no ties to the property or it's encumbrances they may want to have a novation agreement. 
Lender must have it in writing. Seller will be free of all loans and liabilities.
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22
Q

What is a major disadvantage to lenders of accepting a deed in lieu?

A

Takes real estate subject to all junior liens

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23
Q

Deed of trust

A

A 3-party instrument used to create a mortgage lien by which the borrower conveys title to a (lender-appointed) trustee, who holds it as security for the lender. Easier than foreclosure, if default happens

*Trust deed: conveys naked or bare title – title w/o the right of possession

Borrower = trustor

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24
Q

Growing equity mortgage

A

A fixed-rate mortgage in which monthly payments are increased over the life of the loan

25
Q

Certificate of eligibility

A

Document that determines the max VA loan to which a vet is entitled

26
Q

Purchase-money mortgage (PMM)

A

seller financing

buyer gives seller a note and mortgage

27
Q

A loan that finances real and personal property

A

Package loan

28
Q

Buydown

A

Lump sum give to lender which decreases interest rate either temporarily or permanently

29
Q

What does the Equal Credit Op Act prevent discrimination against?

A

Marital status, religion, income from public assistance, race, color, age, national origin or sex

30
Q

Type of loan used by developers, securing loan with several parcels

A

Blanket loan

31
Q

Real Estate Settlement Procedures Act

A

To ensure buyer and seller are aware of closing costs

32
Q

Margin

A

A premium added to the index rate representing the lender’s cost of doing business
Used in adjustable rate loans

33
Q

Loan-to-value (LTV) ratio

A

Debt to value
The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral

The value portion is the lower of the sale price or the appraised value

High down payment is good; more secure

34
Q

Open-end loan

A

Interest rate on initial amount borrowed is fixed, rate on future advances is linked to future market rates

35
Q

Under regulation Z:

A

A borrower, other than a residential purchase-money or first mortgage borrower, has three days in which to rescind a transaction by notifying the lender of intent to rescind

36
Q

Community reinvestment act requires financial institutions to help meet their communities’ needs for low-income and mod-income housing - T/F?

A

True

37
Q

Amortized loan

A

Most mortgages are amortized (‘killed off’)
Equal payments reduce the full amount of principal and interest to zero
Also known as ‘direct reduction loans’

Most frequently used amortized loan is a ‘fully amortized’ or ‘level payment loan’ by paying off a constant amount

38
Q

(PMI) private mortgage insurance coverage?

When must a lender terminate it (if it originated after July 1999 )?

A

Protects top 20-30% of the loan against borrower default

When borrower accumulated 22% equity and is current on payments

39
Q

What is regulation Z?

A

Implements the truth in lending act requiring credit institutions to inform borrowers of the true cost of obtaining credit
Does NOT apply to business, commercial, agricultural loan…only residential

40
Q

Can mortgage brokers be lenders?

A

No

41
Q

Conventional loan

A

Seen as most secure bc ratio of loan to value
Traditionally 80% or less bc buyer puts down 20%

Use 28%, and 36% and piti - when this criteria is met it is a ‘conforming loan’ and this will qualify for Fannie Mae and me eligible to be sold in secondary market

42
Q

Reverse mortgage

A

62 y/o and up

Against equity

43
Q

Balloon loan

A

When you get to the last payment and it is way higher than the others – it is a ‘partially amortized loan’ bc some of the principal is still owned at the end of the term

44
Q

Straight loan

A

‘Interest-only’ or ‘term loan’

Loan is divided into two and paid off separately
Interest then principal

Cut ‘STRAIGHT’ down the middle into two

45
Q

Fannie Mae
Freddie Mac
Ginnie Mae

A

Fannie - conventional, VA, FHA loans*
Freddie - conventional*
*both buy and pool conventional mortgages
Ginnie - special assistance loans

46
Q

Federal reserve system

A

Keep everyone on track
Maintain sound credit conditions
Counteract inflationary / deflationary trends

Consists of 12 district banks

47
Q

What’s the FDIC

A

Federal deposit insurance corporation

Keeps reckless lending in check (don’t want to repeat the 80’s)

48
Q

Adjustable rate loans

A

Rate fluctuates throughout loan term

Index – economic indicator
Margin – the index plus a premium which will be your interest rate
Caps on payments and caps on rate
Certain times you can lock in to a fixed rate (sometimes) – adjustment rate period

49
Q

Mortgage Insurances:

Private mortgage insurance
and
FHA

A

PMI -Insures your loan, allowing for a lower down payment

FHA - works with FHA-approved lenders
FHA loans do not have to pay prepayment penalties

FHA is part of HUD

50
Q

VA guaranteed loans

A

Any of the following:

  • active 90 days (WWII, Korean War, Vietnam, Persian gulf)
  • 181 or more days interconflict between 07/26/47-09/06/80
  • Two full years peaceful periods since 1980
  • 6 or more years as a reservist in all factions

No prepayment penalties

Must meet a certain ‘certificate of eligibility’

51
Q

Agricultural loans

A

FSA (farm service America) helps farmers purchase and operate family farms
Farm credit system provides loans

52
Q

Wraparound loan

A

Allows borrower to get a second loan without paying off the first one
The second lender takes on the first lenders payments and charges the borrower and higher payment and higher interest rate

Only allowed if first lender allows it; for example, can’t do it if there is an acceleration clause in original loan documents

53
Q

Construction loans

A

Used to finance improvements

Lender disburses amounts in payments called ‘draws’ during construction

54
Q

Sale and leaseback

A

Used to finance large commercial or industrial properties

55
Q

Home equity loan

A

Alternative to refinancing

Taken out for big purchases, pay for medical bills, school, home improvement, or to consolidate existing loans or credit card bills

Can be taken out as one loan amount or an equity line of credit that the borrower can use at will (heloc)

Reasons not to do it: interest rates, tax consequences, costs involved

56
Q

Regulation z penalties

A

$10,000 for each day the violation continues

57
Q

Trigger terms

Reg z

A 
Down payment
Monthly payment
Dollar amount 
Finance charge 
Term of loan

Any of these must have other information along side it in an advertisement (such as req down payment, percentage rates, etc)

58
Q

Computerized loan origination (CLO)

A

Electronic network for loan applications

A broker or salesperson can pull up mortgage lenders, int rates, loan terms
Can help answer the online questions and receive up to a half-point fee.
Borrower pays the fee. Can be financed. Must be aware of any lenders available

59
Q

Growing equity/ rapid payoff loan

A

Fixed interest

But an index or schedule dictates an increase in principal payments to pay off more quickly

Real estate (11 decks)

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