Terms in this set (143)
Party that borrows the money- buyer
Party that lends the money- bank
Given as security for loan. Pledge of Death
Mortgage is given as security
Promises to pay back the principle amount borrowed, normally with interest
Is a note that can be transferred from one party to another (assigned) very much like money
Borrowed money you still get to use it
Means there is a Lein on the property but you still get to use it
Lein Theory state
Lender had a Lein
Title Theory State
Lender recognized at the owner
3rd party (trustee) holds the deed during the term of Mortgage.
Contract for Deed
Installment contract/ land sales contract. This uses no third party leaders. Seller waits for full payment and retains legal title until all payments are made.. There is no mortgage. Buyer has equitable title with rights, duties
Charge for the use of someone else's money. Based on the conditions of the market, which is based on the law of supply and demand. Shortage of $, interest rates go up and when there is an abundance of money interest rates go down.q
Annual percentage rate which includes all the loan charges for the first year
Payment is paid after money used. Pays for month that is past.
Interest paid with the payment at the first of the month for the current month.
Interest paid in advance. Charged by lenders to increase their yield. 1 point=1% of loan amount
Adjustable Rate Mortgage (ARM)
The payment cap or max that a pmt may be raised during any interval is agreed to and becomes part of the agreement.
Based on cost of funds to lender
Features allow changing to a fixed rate loan within a given period of time
Federal Reserve System
"The Feds" operates to maintain sound credit conditions, helps control inflationary and deflationary trends, and creates a favorable economic climate.
The fed controls the flow of money in the U.S.
Lending institutions that Loan money to buyers to purchase homes.
The are loan originators who deal directly with buyers.
Examples of primary markets
Savings and loans
Secondary Mortgage Market
Is the ultimate source of the funds and includes insurance companies, pension funds and includes insurance companies, pension funds, investors, REIT's and Wall Street.
They do not originate loans; they buy and sell LANs out in the marketplace.
Their purpose is to provide national liquidity of mortgage funds. They buy and sell existing loans.
FNMA- federal national mortgage association is quasi-governmental agency.
Services approved lenders.
Purchases conventional mortgage sand packages them into bulk shares for resale to investors.
Largest dealer in the secondary market.
GNMA- is Government national mortgage association is a in off of Fannie Mae . It's a govt corporation and comes under housing and urban development. It's purpose is to administer special assistance programs to help Fannie Mae. Guarantees govt assisted loans where financing is unavailable (tandem plan)
Federal Home Loan Mortgage Corporation (FHLMC) is called Freddie Mac.
Was created as a wholly owned subsidiary of the federal home loan bank system.
Was established to provide a secondary market for conventional loans originated by Savings and Loan organizations and uses them as collateral for marketable securities to sell bonds.
Types of loans
Shared Appreciation Mortgage
Straight Payment Mortgage
Graduated pmt mortgage
Open end mortgage
Renegotiable rate mortgage
Reverse annuity mortgage (RAM)
Purchase Money Mortgage
Fully amortized Loan
When you make the pmt each month, some of the money goes to interest and some of the money goes to principal.
Each month, the amount going to principal increases and the amt going to interest decreases.
Death or to kill
Shared appreciation mortgage
Borrower gets a lower than mkt interest rate and the lender will get a share of the profit upon resale of the property.
Straight pmt mortgage (Term Mortgage)
This plan calls for periodic payments of interest only.
At the end of the term, the entire principal would be due in one payment called a ballon payment.
A large pmt normally at the end of a loan, whic is larger than the previous payments.
Graduated Payment Mortgage (GPM)
Is a mortgage that has lower monthly pmts in the early years and higher pmts in the latter years. Called negative amortization. You would have more at the end of the first year than you owed to start with
Open End Mortgage
This is a home equity loan.
Or line of credit.
Interest is only payed on the outstanding balance.
Current value of property minus any liens or debts against it.
Line of Credit
Open ended Mortgage
Renegotiable Rate Mortgage
At a pre determined time, the buyer goes back to the bank to renegotiate the rate on the loan.
Reverse Annuity Mortgage (RAM)
A mortgage in which the monthly payments are made to the borrower.
This is negative amortization.
In the end the lender owns the house.
Short term financing sometimes called interim financing.
Normally set up for the full amount and builder draws on the funds.
They are considered high risk and have a higher interest rate.
Removal of funds
Higher interest Rate
Usually the higher the risk, means -----------------.
Covers both real and personal property.
Mortgage that covers more than one parcel of real estate, not necessarily adjoining.
Purchase Money Mortgage
Mortgage given by the buyer to the seller as all or part of god purchase price.
It's a mortgage in Lieu of purchase money.
Owner sells property to a buyer and then has to lease it back from the new owner for a specific time at a specific amount.
Used when it's more practical to leave current financing in place.
Assuming a Mortgage
Is when one party assumes another parties loan, the new party is primarily responsible for repayment of the loan.
The original maker is still also responsible for repayment, unless the lender does a novation.
Subject to a Mortgage
A person is not personally obligated to pay the money back- the originator would.
However, the property could be sold to collect whatever possible to pay the mortgage and the seller is still liable.
Is a junior mortgage, subordinated to, but including the existing financing.
A new contract in replace of a pervious contract.
Approves or denies the loan based on the information obtained.
Collects and organized the documents necessary for the loan.
Loan to Value Ratio
% of the value of your property that the bank will lend you.
Values of less than 80% normally would require PMI.
Higher the ltvr the less down payment required
Financing arranged directly with the lending institution.
No Government agencies are involved.
Arrangements are btwn the lender and borrower.
Loan to Value Ratios of 80% or less
Do not need other protection.
Loan to value ratios over 80%
Requires PMI or Private Mortgage Insurance.
The higher the loan to value ratio
The less the down payment will be.
MGIC is Mortgage Guaranty Insurance Corporation.
This is a private mortgage insurance company.
Federal Housing Administration
Known as FHA.
It neither builds homes or lends money.
Insures loans for owner occupied 1-4 family dwellings made by private lending institutions.
Important facts about FHA Financing
Insures the lender (mortgagee) 100% against loss.
The buyer pays a one time up front insurance fee and monthly charge.
The property must be appraised by an FHA approved appraiser.
Has a maximum loan amounts and requires a down payment.
Sets min property standards for loans they insure.
Points can be paid by the seller or buyer.
Prepayment penalties are illegal on FHA loans.
Veterans Administration Loans (VA or DVA loans)
They guarantee loans as a benefit to the veteran on owner occupied 1-4 family dwellings, mobile homes, and lots.
Loans are guaranteed when borrower pays a funding fee.
Important Facts concerning VA Loans
Veterans must get a certificate of eligibility from the VA.
Veterans can get 100% loans up to $417k
Maximum interest rate determined by market conditions.
Appraisal by VA licensed appraiser.
Points on VA loans are negotiable.
Can be assumed by nonveterans.
Prepayment penalties are illegal on VA loans
Certificate of Eligiability
Certificate from VA indicating they are eligible for a loan.
If one VA loan is assumed by another vet, then the seller can have their certificate reinstated.
Certificate of Reasonable Value
Certificate issued by a certified approved VA appraiser regarding the appraised value of the property.
Pre payment Penalties
Penalties for paying early... Illegal on VA loans.
Type of financing required on VA and FHA loans.
At year end, lender pays taxes, and insurance out of escrowed funds.
Qualify the Property
This is done in the appraisal and the important items are:
Location,age and condition
Qualifing the Buyer
Determining of the borrower will be able to pay the loan. Items considered:
qualifying the title
Is qualified by checking: if it's s marketable title, are their liens, CC&R's
Due on sale clause.
Keeps mortgage from being assumed.
The "Get rid of" clause.
The balance owed is due on sale.
Get rid of
If the borrower misses one payment the entire balance would accelerate and become due and payable at once.
Is a clause that says once all the payments have been made, the mortgage has been defeated. The lender must give the borrower a document called a satisfaction of mortgage with in 3 months of note being paid in full.
Satisfaction of Mortgage
A document proved to the borrower by the lender with in 3 months of the note being paid in full to show its paid off.
It's the sellers responsibility to record this.
Charge for paying off a loan early.
are illegal in SC on residential mortgage loans of $180k or less.
Have always been illegal on FHA and VA loans.
Clause that allows you to pay off a mortgage early with no penalty.
Deed in Lieu of Foreclosure
This is when the mortgagor signs title over to the mortgagee to prevent foreclosure.
The mortgagee does not have to accept.
Is a legal process whereby the property used as security for a debt is sold to satisfy the debt in the event of defaulting payment of the debt.
Equitable Right of Redemption
If foreclosure proceedings have started and the party owing the money can come up with all of the money owed plus any other charges that have accrued, before they sell the property on the courthouse steps, they will not sell the property.
In SC, If a property does not bring enough money at foreclosure to pay off the debt, the lender can get this against the borrower for the difference.
Disbursement of Funds
Funds realized at a foreclosure are dispersed on a dollar for dollar basis. Junior mortgages do not get a dime until first mortgage is paideia off.
Order of disbursement of funds
Delinquent Real Estate Taxes
Master in Equity Cost
Under water- occurs when a homeowner owes more on his mortgage than his home is worth in the current market.
Lender agrees to allow Property owner to sell property at current market value but for less than the amount of loan.
Equal Credit opportunity act (ecOA)
States that lenders can not discriminated when granting credit. The may not consider race, color, religion, national origin, age, sex, marital status, or receipt of public assistance when granting credit.
Fair Credit Reporting Act
If a credit file exist concerning you, you have a right to inspect the file.
Truth in Lending (regulation z)
Requires lending institutions to disclose to individual borrowers the true cost of obtaining credit when more than four payments are involved.
Allows buyer to compare cost with other lenders.
All interest charges must be based on annual percentage rate (APR).
Annual percentage Rate- the overall averaged rate at which includes all upfront fees of the financing added to the base amount.
There are two types: fraud for housing and fraud for profit.
Typically involves multiple parties and can involve large sums of money.
Fraudulent Loan Docs
Borrower submits altered of forged pay stubs, IRS returns, etc
A property is purchased, appraised at a falsely inflated value, and resold at a much inflated price.
The fraudulent appraisal value is what makes this illegal.
Buying properties and reselling them is not in and of itself illegal.
Borrowers true identity is hidden through the use of a "nominee" , a third party, who is not actually the buyer but who's identity and credit history is used.
Buyer takes out a second mortgage to use for the down pmt with out the lenders knowledge, which puts two mortgages on the property.
Loan applicant who uses a stollen identity to make the loan application.
Investor uses a straw buyer and false documents to obtain a loan. The straw buyer signs the property over to the investor who rents the property, but makes no payments on the loan and eventually loses it in foreclosure.
Appraiser working with a loan officer or mortgage broker (and some times a real estate agent) providing an unrealistic and inflated appraisal value in order to match a buyer's over paid offer.
Is taking advantage on uneducated or desperate borrowers in order to put them into loans they can not afford or do not understand.
Predatory lending practices
Encouraging borrowers to lie about income, expenses or cash flow to get a loan.
Encouraging borrowers to borrow more money than they can realistically pay back.
Charging higher interest rates to certain buyers based on issues other than credit history.
Charging fees for unnecessary or non existent products and services.
Using high pressure tactics to get borrowers to accept high risk loans such as interest only pmts, adjustable rates and pre-payment penalties.
Targeting vulnerable buyers for cash out refinancing loans.
Stripping home owners equity by encouraging repeated refinancing (usually at a higher rate) until there is no equity left in their home some times called "loan flipping".
Borrower should never sign a loan document with out first reading it.
Savings and Loan associations
Geared towards long term loans, credit unions.
Covered by federal deposit insurance cooperation or FDIC. These active in mortgage lending but prefer shorter term loans.
Generally prefer larger, longterm commercial and industrial property loans.
Originate loans, sell the loans in the secondary mortgage market, and may provide loan management services to investors (collections, pounds, foreclosures)
Originate loans with others money and sell loans to investors but have no servicing functions to offer investors. They are called middlemen. They match the parties, borrowers and lenders together.
Will make decisions on an individual basis after considering the type of property, the qualifications of the borrower and the current and expected stage of the economy.
Will consider financing to get a "cash flow" over a period of time rather than a lump-sum payment. Usually charges a higher interest rate than commercial lenders unless the borrower makes a large down pmt.
Person who gives a lender a note and a mortgage in exchange for money is known as...
The one word that indicates there is a Lein on your property, however, you can still use the property. This word is ...
Another term for a Lessor is
A mortgage where fixed rate level pmts are based on full amortization period of the loan and a balloon payment of the outstanding balance is due prior to the full loan term...
What does the mortgagors not promise?
They are conveying title
Type loan that requires smaller pmts in the first years and larger pmts in the later years and eventually levels off is called...
Graduated payment mortgage
The type of loan that would likely cover both real and personal property
A developer buys a tract of land and subdivides it into lots. If the developers' loan covers the entire tract, what happens when he sells a lot?
The mortgagee may release its Lein on the lot sold on receipt of an agreed sum.
Chris buys Dana's property. Chris does not have enough money to close out the transaction. Dana agrees to take a mortgage as part of the purchase price. This is called a
Purchase Money Mortgage
The grantor sells a property to grantee. After the sale, the grantor leases the property from the grantee. In other words, the grantor becomes the lessee and the grantee becomes the lessor. This is a...
Penny buys property from Lenny. After the property closes, Penny finds out that there is an existing mortgage on the property. Penny consults with attorney Flo who advises Penny that she is not personally obligated to pay the mortgage, however, the mortgage is a Lein on the property. Penny purchased the property...
Subject to a mortgage
A bank is also called
Pam's brother Kevin is applying for a residential mortgage. Fail-safe bank is qualifying Kevin for a loan. What would they consider?
Income for the last 5 years
Mortgage interest rates are based on
State of the Money Market
A major disadvantage to a lender who takes a deed in lieu of foreclosure is that the lender....
Acquires the property subject to junior lien holder rights
If the mortgage payments are paid in full before the bank forecloses on the property, then the mortgagor has a right called
Mortgage insurance is ...
A charge to the buyer to protect the lender invade of default.
When a loan is assumed and the original mortgagor is released from liability by the lender it is referred to as a
Under truth in lending laws, the lender must clarify which of the following statements when advertising loan information?
If a seller does not want to lose his low interest rate on his non-assumable loan or pay Capitol gains on the full sale price so he agrees to finance the property himself and continue to pay payments to the first mortgage. What type of loan is needed?
Wrap around mortgage
What type of mortgage provides for regular payments from the mortgagee to the mortgagor
Which of the following activities does FNMA do?
Buying mortgages from lenders at a discount.
A promissory note that requires interest only pmts accompanies which of the following types of mortgages?
What are some facts about short sales?
They should sell at market price.
It can prevent a seller from having a foreclosure on his credit history.
It can benefit the lender by saving the time and trouble of a foreclosure.
A borrower whose identity and credit history are used by someone to fraudulently obtain is called a...
Anything other than a first mortgage is considered to be junior financing. Normally, they are determined by date and time of recording. The first mortgage recorded has priority.
1 stamp =
Who pay for deed stamps?
# deed Stamps
1 per $500 of sales price
Loan Amount x mortgage insurance premium
Sales price x LTV
Loan Amount x points
Price - loan
Bring to closing
= Down pmt- earnest money deposit+ points
% Return on investment
= total income / investment value
Base Rental income
Rent before any expenses are paid.
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