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Florida Real Estate Broker Chapter 12 - Financing Real Estate

Terms in this set (119)

The law that makes it illegal to deny credit on the basis of age is the:
Equal Credit Opportunity Act.
A lender promises to make a loan to an owner of a new apartment building once construction
of the building is complete. This is called:
a takeout commitment.
two parts to a mortgage loan
a pledge (or promise to pay) and the collateral
document signed by the borrower promising to repay a loan under agreed-upon terms.
Promissory Note
The promissory note contains all the loan details such as
the principal debt, interest rate, amount of each periodic payment, and the number of periodic payments
The note can be sold to another
financing company either on the primary or secondary market.
security instrument that the borrower signs voluntarily to pledge the real property as collateral
A mortgage
The act of pledging the property is called
hypothecation
There are two types of mortgage instruments
a mortgage and a deed of trust.
Mortgagor
borrower
mortgagee
lender
The Mortgage is personal property also called
chattel or an investment
The mortgage document typically contains the following items
1. The promise to repay the debt by making payments according to the note:
2. The promise to pay all taxes and keep the property insured (HOA):
3. The promise to maintain the property in good repair and condition
the mortgage is used to pledge property as
collateral
calls the entire balance of the loan becomes due if the borrower defaults on the loan;
An acceleration Clause
Borrower has___days from date of notice of acceleration to pay all money due (the full loan).
30
The foreclosure process cannot begin unless the entire debt
is delinquent
clause stipulates terms in which a mortgage loan can be prepaid; allows the borrower to pay off part or all of the loan without penalty, automatically included in Florida unless specifically excluded.
A prepayment
the lender required the borrower to relinquish title to the lender until the debt was repaid
title theory
the borrower keeps the title to the property while at the same time providing the lender with a mortgage (lien) to secure the debt
Lien Theory
What determines its priority in relationship to liens
the time and date of recording a mortgage lien
agree to step down in priority to allow another mortgagee to take a higher position
subordination
judicial process whereby the lender sues in court requesting a judgment to have the property sold by the courts to pay outstanding debt
Foreclosure
the lender will give constructive notice of the suit by filing
the lis pendens notice in the county where the property is located.
equity of redemption
the mortgagor has the right to redeem the collateral by paying the debt in full prior to the foreclosure sale
As of July 1, 2013, the plaintiff (the owner of the loan) must prove its right to foreclose by
filing A certification that the plaintiff is in possession of the original promissory note
Right to Foreclose
Florida statute 702.015
a personal judgment against other personal and real estate property owned by the mortgagor.
a deficiency judgment
when the buyer agrees to a non-judicial process of a deed instead of foreclosure
friendly foreclosure
a below-market interest rate offered by the lender to sell the loan
A Teaser Rate
the borrower and lender agree to refinance terms in advance. Usually, between 1 and five years,
Reduction Option Mortgage
The FHA was established in 1934 to help
alleviate the housing crisis caused by the 1930's economic depression. T
The maximum conforming loan limit for loans originated in 2014 for one-unit properties
$417,000
loan entails a prepayment of interest on a loan. The prepayment effectively lowers the interest rate and the periodic payments for the borrower
buydown loan
the seller allows the buyer to pay an agreed amount over time without money passing hands at closing.
Purchase Money Mortgage (PMM
a loan on several pieces of property.
Blanket Mortgage
clause is one where the mortgagee agrees to release certain parcels from the loan of the blanket mortgage upon payment by the mortgagor of a certain sum of money
partial release clause
loan is used in resort areas a great deal since the mortgage includes the fixtures, appliances, and other personal property in the same loan
Package Mortgage
Package Mortgage used extensively
in the sale of condominiums where the property comes with the refrigerator, stove, drapes, washer and dryer, and, sometimes, furniture. Everything the borrower needs is "tied up with a bow
paying the difference between the subsidized rate and current market rate
"the tandem plan
government agency guaranteeing funds through mortgage-backed securities
GNMA
purchase conventional mortgages from local SL's
Freddie Mac
Loans are pooled together and traded as
mortgage-backed securities
the normal flow of money into financial institutions from the public in the form of deposits.
Intermediation
depositors take their money out of financial institutions because they can earn more money in other investments.
Disintermediation
make loans to borrowers that are non-conforming mortgages. Instead of selling these loans in the secondary market, the loans are held in the bank's portfolio of assets.
Portfolio lenders
The primary sources of conventional loans are
banks
and savings and loan associations.
credit unions,
life insurance companies, pension funds,
mortgage bankers,
and private individuals
the interest rate is always quoted _____ and is always based on the loan's _____ balance
annually, unpaid
The factor for a 20-year loan at 6 percent is $ 7.16. What is the monthly payment for a $ 150,000 loan?
• $ 150,000 ÷ $ 1,000 = 150 (units of a $ 1,000)
150 × $ 7.16 (factor to pay off $ 1,000) = $ 1,074 per month
Conventional Mortgages do not allow for mortgage _________________
assumption
Fannie Mae is a government-sponsored enterprise, originally organized as a privately-owned corporation. As a secondary market player, it:
• buys conventional, FHA-backed and VA-backed loans • gives banks mortgage-backed securities in exchange for blocks of mortgages
• offers lenders firm loan purchase commitments, provided they conform to Fannie Mae's lending standards
• sells bonds and mortgage-backed securities guarantees payment of interest and principal on mortgage-backed securities
Ginnie Mae is a division of the Department of Housing and Urban Development. Its purpose is to administer special assistance programs and to help Fannie Mae in its secondary market activities. Specifically, GNMA:
• guarantees payment on FNMA high-risk, low-yield mortgages and absorbs the difference in yield between the mortgages and market rates
guarantees privately generated securities backed by pools of VA- and FHA-guaranteed loans
Freddie Mac is a government-sponsored enterprise, originally chartered as a corporation in 1970. As a secondary market player, FHLMC
buys mortgages and pools them, selling bonds backed by the mortgages in the open market.
Freddie Mac guarantees the performance on FHLMC mortgages.
stimulate the construction of new homes and homeownership by encouraging lenders to release greater amounts of funds for financing residential homes.
purpose of the FHA
Title II, Section 203(b) program for loans on one-to four-family residential properties.
basic FHA-insured loan program
The maximum FHA-backed loan a borrower can obtain will be
the lesser of the regional ceiling amount or the amount dictated by the loan-to-value standard
The maximum loan amount by the loan-to-value ratio by FHA
96.5%
The minimum down payment for an FHA-loan for single-family residential loans
3.5%.
FHA loans do not have a ________ Clause
Due-on-Sale
allows the purchaser to borrow enough money to rehabilitate a property
Section 203(k)—Construction Loan
The FHA 234c program is insurance for
condominium loans, which are quite common in Florida.
Section 234 (c) and
insures a loan for up to 30 years on a condominium unit. There are a few eligibility requirements:
• A condo complex must have at least four units.
• An overview of the basics of section 234 (c) are as follows;
• The typical mortgage program is a 30-year fixed-rate mortgage • This program helps make down payments more affordable
• Lenders are more likely to work with borrowers who have proven their eligibility requirements for Section 234 (c). • The FHA 234(c) is only for condominium properties.
The housing expense ratio (PITI divided by monthly gross income) cannot exceed for FHA loans
31% while the borrower's total obligations (PITI + other payments divided by monthly gross income) cannot exceed 43%.
Rural Housing Direct Loans are loans that are directly funded by the
Government
Rural Housing Direct Loans are loans available for low
and very low-income households to obtain homeownership
Rural Housing Direct Loans are commonly referred to
Section 502 Direct Loans.
Rural Housing Services Administration Loans are for up to how many years
33 years (38 for those with incomes below 60 percent of AMI and who cannot afford 33-year terms). The term is 30 years for manufactured homes.
the sale of real property coupled with a lease agreement whereby the seller becomes the rental tenant after the closing.
A Sale and Leaseback arrangement
Sale-Leaseback Mortgage is used only for ________ property
commercial
federal law that prohibits a lender from discriminating against any applicant for credit on the basis of race, color, religion, national origin, sex, marital status, age (unless a minor), or on the grounds that some of the applicant's income derives from a public assistance program
the Equal Credit Opportunity Act (ECOA)
The law applies to all persons who regularly participate in decisions involving
the extending of credit, including retailers, credit card companies, banks, and other mortgage lenders.
Some of the most important provisions of ECOA are that lenders may not:
• ask if the applicant is divorced or widowed; but may ask if the applicant is married, unmarried (meaning single, divorced or widowed), or separated;
• ask about birth-control practices, child-bearing capacity or expectations, or whether a woman of child-bearing age will stop working to raise children;
• Ask about the applicant's receipt of alimony or child support unless the applicant is first notified that such information need not be given; however, such questions may be asked if the applicant requests that income from such sources be used to qualify for a loan. Lenders may ask whether the applicant has any obligations to pay alimony or child
Failure to comply with the provisions of ECOA can result in punitive damages up to
$ 10,000 for individual action and up to the lesser of $ 500,000 or 1% of the creditor's net worth in class actions
federal consumer protection law that was enacted in 1968 with the intention of helping borrowers understand the costs of borrowing money by requiring certain disclosures about loan terms and costs and to standardize how certain costs related to the loan are calculated and disclosed. The set of regulations that implemented TILA is known as Regulation Z.
Truth-in-Lending Act (TILA)
the annual percentage rate (APR), the terms of the loan, and the total costs to the borrower must be disclosed before the loan is consummated.
Regulation Z.
expresses the effective annual rate of the cost of borrowing, which includes all finance charges, such as interest, prepaid finance charges, prepaid interest, and service fees.
annual percentage rate
triggering term must disclose a number of other credit terms
• the amount or percentage of any down payment;
• the number of payments or period of repayment;
• the amount of any payment;
• the amount of any finance charge.
An advertisement that contains a trigger term must also state the following terms:
• the amount or percentage of any down payment;
• the terms of repayment, which reflect the payment obligations over the full term of the loan, including a balloon payment;
• the annual percentage rate, using that term, and, if the rate may be increased after consummation, that fact.
The minimum requirements that creditors must consider under the ATR/ QM Rules are:
1. current or reasonably expected income or assets;
2. current employment status;
3. the monthly payment on the covered transaction;
4. the monthly payment on any simultaneous loan that the creditor knows or has reason to know will be made;
5. the monthly payment for mortgage-related obligations;
6. current debt obligations, alimony, and child support;
7. the monthly debt-to-income ratio or residual income (the amount of income remaining after all personal debts, including mortgage payments, have been paid); and
8. credit history. Also, effective January 10, 2014, Fannie Mae and Freddie Mac will no longer purchase a loan that is subject to the ATM/ QM rules if the loan: • is not fully amortizing;
• has a term of longer than 30 years; or
• includes points and fees in excess of 3% of the total loan amount, or such other limits for loan balances as set forth in the Ability-to-Repay rule.
federal law designed to prevent lenders, real estate agents, developers, title insurance companies, and other agents (such as appraisers and inspectors) who service the real estate settlement process from providing kickbacks or referral fees to each other, and from facilitating bait-and-switch tactics.
Real Estate Settlement Procedures Act (RESPA)
For conventional loans (loans that are not FHA insured or VA guaranteed) the current Federal National Mortgage Association ("Fannie Mae") guideline is that the back-end ratio (referred to by Fannie Mae as "maximum DTI" (debt-to-income ratio) should be no greater than
36%, with allowable ratios up to 45% if specific criteria of Fannie Mae's Eligibility Matrix are met
Conventional lenders use qualifying guidelines to assist in determining if a borrower qualifies. The Housing Expense Ratio (PITI divided by monthly gross income) should not be more than
28%
The Total Obligation Ratio (PITI + other debt divided by monthly gross income) should not be more than for conventional lenders
36%.
The qualifying ratio for a VA loan requires the borrower's total obligations ratio not to exceed
41%. There is no housing expense ratio for VA guaranteed loans.
full summary of all consecutive grants, conveyances, wills, records, and judicial proceedings are affecting title to a specific parcel of real estate, together with a statement of all recorded liens and encumbrances affecting the property and their present status.
The abstract of title
shows the successive changes of ownership, each one linked to the next so that a "chain" is formed
Chain of Title
A preliminary title report: • identifies
• identifies the property with an assessor's parcel number, street address, and legal description; • identifies the current owner of the residence; and • reveals title policy exceptions, such as property taxes, assessments, encumbrances, liens, and easements.
make a loan that will "take out" another lender's loan
A take-out commitment
the lender participates in the income of the mortgaged property beyond a fixed return or receives a yield on loan in addition to the straight interest rate
Participation Mortgage
The Federal National Mortgage Association's Automated Underwriting
Desktop Underwriting
The law that makes it illegal to deny credit on the basis of age is the:
Equal Credit Opportunity Act
A lender promises to make a loan to an owner of a new apartment building once construction
of the building is complete. This is called:
takeout commitment
VA mortgage
is guaranteed by the Department of Veterans Affairs
A lender quotes a mortgage loan of $325,000 at 5% interest. The monthly payment is
$1,744.67. How much of the second monthly payment will apply to the principal reduction?
Calculation of Mortgage Payment (Use of Financial Calculator and Mort-gage Tables)
The answer is $392.13.
$325,000 unpaid balance × .05 rate = $16,250 interest ÷ 12 months = $1,354.17 first month's interest
$1,744.67 monthly payment ‒ $1,354.17 interest = $390.50 payment on principal in month one
$325,000 ‒ $390.50 principal paid first month = $324,609.50 new principal balance
$324,609.50 unpaid balance × .05 rate = $16,230.475 interest ÷ 12 months = $1,352.54 second month's
interest
$1,744.67 monthly payment - $1,352.54 interest = $392.13 payment on principal in month two.
Which statement regarding a due-on-sale clause is true?
a. The lender initiates the clause if all or part of the property is sold or transferred without the lender's
prior consent.
b. The clause allows the mortgagee to call the outstanding loan balance plus accrued interest due.
c. The clause prevents another party from assuming the mortgage and requires the mortgage debt
to be paid in full when the property is sold.
One mortgage clause NOT normally found in a VA or FHA mortgage is the
prepayment penalty clause.
The amount paid by a mortgagor for mortgage insurance, either government or private is
called
mortgage insurance premium
A borrower does not give up possession of a property but does use the property as collateral
for a loan. This process is called:
hypothecation.
partial release clause is unique to which type of mortgage?
Blanket mortgage
Investor Brian is looking to free up equity in order to purchase a new commercial property.
He currently owns a building in which he operates his business from. In order to to purchase the commercial property he may perform which arrangement;
a sale-leaseback
Applicants for Rural Housing Direct Loans may have an income of up to:
115% of the median income for the area.
The below-market interest rate that is offered by the lender to sell the loan is called
A teaser Rate
What is Truth-in-Lending?
A federal law requiring lenders to fully disclose in writing all terms and conditions of a
mortgage
What does the term "buydown" mean?
a. Usually refers to a fixed rate mortgage where the interest rate is "bought down" for a tempo-rary
period, usually one to three years.
b. A lump sum is paid and held in an account used to supplement the borrower's monthly pay-ment
c. These funds can sometimes come from the seller to induce someone to buy their property
The Interest Rate for an FHA loan is:
Negotiated between borrower and lender.
Affordable Loan Solution offers:
3% down loan.
Which legal instrument would contain the interest rate, loan amount, maturity date, and
payment schedule
Note
Mike purchased a lot to build his house and got the seller to finance the purchase. Before
the lender would approve the construction loan,
The seller had first to allow the bank to take superior position in lien priority.
Under the IRS rules, the interest on home equity loans
up to $ 100,000 is tax-deductible
In the early years of the loan, the graduated payment adjustable mortgage involves
negative amortization
Which type of mortgage loan requires a balloon payment at the end of the loan term?
Partially amortized
Blanket mortgage
a. Is a loan on several pieces of property.
b. Contains a partial release clause.
When a borrower of a loan fails to keep up with the payments of the promissory note,
a. He/ she may be in default.
b. The property may be taken away from him/ her.
c. He/ she may end up with a judgment against the mortgagor.
Which of the following is true of annual percentage rate (APR)?
a. It is the effective annual rate of the cost of borrowing
b. It gives the prospective borrower a way to compare loans.
c. It includes all finance charges, such as interest, prepaid finance charges, prepaid interest, and
service fees
For tax purposes, the installment sale method
relieves the seller of paying tax on a capital gain before it is received.
A commitment without contingencies from a lender to fund a loan is called a
Firm
Nonconforming loans:
Are personal property of the lender, and can be bought and sold as chattel
Package mortgage __________.
Accepts both real property and personal property (chattel) as collateral.
Which of the following does the Federal Housing Administration do?
Sets standards for construction and underwriting
he take-out loan is most often used to retire a __________ loan.
construction
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