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Residential mortgage types chapter 10 real estate
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Terms in this set (20)
What are the two tiers of the U.S. mortgage market?
1) primary mortgage market
2) secondary mortgage market
Primary mortgage market
where lenders and borrowers meet to create mortgages
A secondary mortgage market
-Where lenders sell loans that they have originated to other investors
-The largest purchasers of a residential mortgages are fannie mae and freddie mac
-Most of the purchases in this market are for the purpose of loan securitization.
What are the two types of mortgages?
Prime conventional mortgages and government sponsored mortgages
Prime conventional mortgages
-Prime mortgages: loans to borrowers with good credit records and who are able to document their income and assets.
-Conventional mortgages: loans that do not have mortgage insurance or a loan guarantee from a U.S. governmental agency.
What is the most common form of residential mortgage?
-The fixed rate conventional mortgage
-ARMs peaked at 29% of the market in 2005.
-fell to 1% in 2009
-7.6% last week.
Conforming loan
is one that meets the standards that are required by fannie mae and freddie mac to purchase a loan.
Standards are:
-Current eligibility matrix
-Current eligibility matrix for ARMs
-Current loan limits
Prime mortgage insurance (PMI)
- PMI is a substitute that lenders use to protect themselves from default losses.
-Purchased by the borrower to protect lender from default losses.
-It is required for loans with LTV over 80%
-payout limited to 20% of loan amount.
-Premiums can be paid monthly or as a lump sum at loan origination.
PMI Cancellation rules
-Cancellation may be allowed when the loan balance falls below 80% of the current home value
-Borrower has the right to terminate when the loan balance falls below 80% of the original home value.
-Insurer must terminate the policy when the loan balance falls below 78% of the original home value.
Two largest examples of government sponsored mortgage
1) The federal housing administration default insurance program
2) The Veterans affairs loan guarantee program.
The nation housing act of 1949
-made it a national goal to provide a decent home and suitable living environment for every american family.
The FHA
-Does not make loans
-Provides default insurance to lenders who are willing to make loans consistent with the guidelines of their various programs.
-Primary tool is to make low down payment loans. 3.5% rather than 5-10%
-Insures lender against 100% of default losses.
-Size of loan is limited. It is currently at $271,050.
Interest only balloon mortgage
-Only monthly interest payment are required.
-Borrower must pay off entire principal balance at the end of 5-7 years.
Interest only amortizing mortgage
-For 15 years only monthly interest payments are required.
-at the end of 15 years the loan converts to a fully amortizing 15 year mortgage.
-May be either fixed or adjustable rate.
Hybrid adjustable rate mortgage
-an adjustable rate mortgage that locks in the initial rate for 2.3.5.7.or 10 years.
-Converts to traditional ARM thereafter
-Initial rate is lower than that on a fixed rate mortgage.
-Difference between hybrid ARM and Fixed rate is it decreases as the initial rate lock increases.
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Verified questions
ACCOUNTING
Juanita Ortega operates Outback Guide Service. She uses the following accounts to record and summarize her business transactions. $$ \begin{matrix} \text{General Ledger} & \text{ }\\ \hline \text{101 Cash in Bank} & \text{301 Juanita Ortega, Capital}\\ \text{105 Accounts Receivable—} & \text{302 Juanita Ortega, Withdrawals}\\ \text{Mary Johnson} & \text{401 Guide Service Revenue}\\ \text{150 Rafting Equipment} & \text{505 Maintenance Expense}\\ \text{205 Accounts Payable—} & \text{515 Rent Expense}\\ \text{Peak Equipment Inc.} & \text{520 Utilities Expense}\\ \end{matrix} $$ For each transaction: 1. Prepare a T account for each account the business uses. 2. Analyze and record each of the following transactions using the appropriate T accounts. Identify each transaction by number. 3. After recording all transactions, compute and record the account balance on the normal balance side of each T account. 4. Test for the equality of debits and credits. $$ \begin{array}{rl} \text{Date} & \text{Transactions}\\ \hline \text{Jan. 2} & \text{1. Juanita Ortega invested $\$ 12,000$ cash in her business.}\\ \text{7} & \text{2. Purchased two new whitewater rafts on account for $\$ 3,750$ from Peak Equipment Inc.}\\ \text{10} & \text{3. Billed, but did not collect, $\$ 750$ for guide services provided to Mary Johnson.}\\ \text{12} & \text{4. Repaired a raft at a cost of $\$ 123$ , Check 411.}\\ \text{14} & \text{5. Wrote Check 412 to pay the electric bill of $\$ 95$.}\\ \text{17} & \text{6. Received $\$ 225$ for guide service fees.}\\ \text{21} & \text{7. Paid the $\$ 225$ rent for the month, Check $413 .$}\\ \text{24} & \text{8. Paid $\$ 1,750$ toward the rafts bought on account, Check $414 .$}\\ \text{27} & \text{9. Juanita Ortega withdrew $\$ 250$ cash for personal use, Check $415 .$}\\ \text{29} & \text{10. Received guide service fees of $\$ 250 .$}\\ \end{array} $$
ACCOUNTING
Smithson Mining operates a silver mine in Nevada. Acquisition, exploration, and development costs totaled $5.6 million. After the silver is extracted in approximately five years, Smithson is obligated to restore the land to its original condition, including constructing a wildlife preserve. The company’s controller has provided the following three cash flow possibilities for the restoration costs: (1)$500,000, 20% probability; (2) $550,000, 45% probability; and (3)$650,000, 35% probability. The company’s credit-adjusted, risk-free rate of interest is 6%. What is the initial cost of the silver mine?
ACCOUNTING
Jones Real Estate Co. experienced the following events during the organizing phase and its first month of operations. Some of the events were personal for the stockholders and did not affect the business. Others were transactions of the business. $$ \begin{matrix} \text{Nov 4 } & \text{Evan Jones, the major stockholder of a real estate company, received \$107,000 cash from an inheritance.}\\ \text{5} & \text{Jones deposited \$54,000 cash in a new business bank account titled Jones Real Estate Co. The business issued common stock to Jones. }\\ \text{6} & \text{The business paid \$1,000 cash for letterhead stationery for the new office.}\\ \text{7} & \text{The business purchased office equipment. The company paid cash of \$9,500 and agreed to pay the account payable for the remainder, \$7,500, within three months. }\\ \text{10} & \text{Jones sold CDM stock, which he owned for several years, receiving \$73,000 cash from his stockbroker. }\\ \text{11} & \text{Jones deposited the \$73,000 cash from sale of the CDM stock in his personal bank account. }\\ \text{12} & \text{A representative of a large company telephoned Jones and told him of the company’s intention to transfer \$14,500 of business to Jones.}\\ \text{18} & \text{Jones finished a real estate deal for a client and submitted his bill for services, \$4,500. Jones expects to collect from the client within two weeks. }\\ \text{21} & \text{The business paid half its account payable for the equipment purchased on November 7. }\\ \text{25} & \text{The business paid office rent of \$1,000. }\\ \text{30} & \text{The business declared and paid a cash dividend of \$1,800.}\\ \end{matrix} $$ Classify each of the preceding events as one of the following: a. A business-related event but not a transaction to be recorded by Jones Real Estate Co. b. A business transaction for a stockholder, not to be recorded by Jones Real Estate Co. c. A business transaction to be recorded by the Jones Real Estate Co. Analyze the effects of the preceding events on the accounting equation of Jones Real Estate Co. Record the transactions of the business in its journal. Include an explanation for each entry.
ACCOUNTING
Which of the following will not appear on a post-closing trial balance? a. Accounts Payable b. Sales c. Owner’s Capital d. Cash
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