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Chapter 22
Real Estate Financing
| Question | Answer |
|---|---|
| What is MORTGAGE FINANCING? | when a borrower gives a note promising to repay the borrowed money and executes a mortgage on the real estate for which the money is being borrowed as a security |
| What is HYPOTHECATION? | the process of securing a loan by pledging a property without giving up ownership of the property |
| What is the LIEN THEORY? | those that regard the mortgage as a lien held by the mortgagee against the property owned by the mortgagor |
| What is a PROMISSORY NOTE? | is a negotiable instrument which means the payee may assign it t a third party |
| What is a MORTGAGE? | a legal document stating the pledge of the borrower to the lender |
| What is a MORTGAGOR? | the borrower |
| What is a MORTGAGEE? | the lender |
| What is a DEED OF TRUST? | conveys title to the property in question from the borrower to a trustee as security for the loan |
| What is a PRINCIPAL? | the capital amount borrowed, on which interest payments are calculated |
| What is a LOAN BALANCE? | the remaining unpaid principal at any point during the life of a mortgage loan |
| What is INTEREST? | a charge for the use of the lender's money |
| What are DISCOUNT POINTS? | one percent of the loan amount |
| What is a TERM? | the period of time over which the loan must be repaid |
| What is a PAYMENT? | the loan term, loan amount and interest rate combine to determine the periodic payment amount |
| What is MORTGAGE INSURANCE? | insurance that protects the lender against loss of a portion of the loan in case of borrower default |
| What is UNDERWRITING? | the process of assessing the lender's risk in giving a loan |
| What is the LOAN-TO-VALUE RATIO? | the relationship of the loan amount to the property value, expressed by a percentage |
| What is the EQUAL CREDIT OPPORTUNITY ACT? | an act that requires a lender to evaluate a loan applicant on the basis of that applicant's own income and credit rating, unless the applicant requests the inclusion of another's income and credit rating in the application |
| What is the INCOME RATIO? | |
| What is the DEBT RATIO? | |
| What is LOAN COMMITMENT? | |
| What is REGULATION Z? | |
| What is REAL ESTATE SETTLEMENT? | |
| What is the PROCEDURES ACT? | |
| What is the UNIFORM SETTLEMENT STATEMENT? | |
| What is the PRIMARY MORTGAGE MARKET? | |
| What is the SECONDARY MORTGAGE MARKET? | |
| What is FANNIE MAE? | |
| What is GINNIE MAE? | |
| What is FREDDIE MAC? | |
| What is FHA? | |
| What is ASSUMABILITY? | |
| What is the VA? | |
| What is AMORTIZATION? | |
| What is ADJUSTABLE RATE LOAN? | |
| What is SELLER FINANCING? | |
| What is the title-theory? | those that regard the mortgage document as a conveyance of ownership from the mortgagor to the mortgagee |
| A valid mortgage or trust deed financing arrangement requires... | a note as evidence of the debt and the mortgage or trust deed as evidence of the collateral pledge |
| The amount of the loan is typically the difference between... | the purchase price and the down payment |
| The financial components of a mortgage loan include: | principal, interest and interest rate, points, term, payments |
| Interest may be paid in... | advance at the beginning of the payment period, or in arrears at the end of the payment period |
| The interest rate is a... | percentage applied to the principal to determine the amount of interest due. The rate may be fixed for the term of the loan or it may be variable. |
| A loan with a fixed interest rate is called a... | fixed-rate loan |
| A loan with a variable interest rate is commonly called an... | adjustable rate loan |
| Federal law requires a lender on a residential property to compute and disclose an Annual Percentage Rate (APR) that includes other finance charges in addition to the basic interest rate in the calculation because... | the interest rate on a mortgage loan does not reflect the full cost of the loan to the borrower. |
| What is usury? | the charging of excessive interest rates on loans |
| From the point of view of a lender or investor, the amount loaned in a mortgage loan is the lender's capital investment and the... | interest aid by the borrower is the return earned by the invested capital |
| The promissory note sets forth: | the loan amount, the term of the loan, the method and timing of repayment, the interest rate to be paid, the borrower's promise to pay |
| Other items in the mortgage document or deed of trust may be repeated in the promissory note, especially: | the right to prepay the loan balance, charges for late payment, conditions for default, notifications and cures for default, other charges. |
| The mortgage or trust document identifies the property being given as security, giving both its legal description and mailing address. The document contains much of the same information as the note, including: | the debt amount, the term of the loan, the method and timing of payments |
| Payment of Principal and Interest: Prepayment and Late Charges: | borrower must make monthly payments to cover taxes and hazard insurance |
| Funds for Taxes and Insurance: | borrower must make monthly payments to cover taxes and hazard insurance |
| What is an escrow account? | a reserve fund which holds periodic payments of taxes and insurance |
| The Real Estate Settlement Procedures Act (RESPA) limits the... | amount of funds that the lender can require and hold for this purpose |
| What is the P&I Payment? | borrower's monthly payment to the lender for principal and interest |
| Application of Payment: the amount of each payment is applied to various items in order of priority, the order is? | 1. prepayment charges 2. escrow 3. interest 4. principal 5. late charges |
| Charges and Liens: the borrower is liable for... | paying any charges, liens, or other expenses that may have priority over the mortgage or trust instrument |
| Hazard or Property Insurance: the borrower must keep the property insured as... | the lender requires |
| Occupancy, Preservation, Maintenance and Protection of the Property: the borrower must take and maintain occupancy of the property as the... | borrower's principal residence according to the lender's requirements. The borrower must not use or neglect the property in such a way as to impair the lender's lien on the property |
| Protection of Lender's Rights in the Property: the lender may take actions it believes are necessary to... | protect its rights in the property if the borrower's actions threaten them |
| Mortgage Insurance: the lender may require the borrower to obtain... | private mortgage insurance |
| Private mortgage insurance generally applies to... | loans that are not backed by the Federal Housing Administration or Veterans Administration and that have a down payment of less than 20% of the property value |
| Inspection: with proper notice, the lender may inspect the property if there is... | reasonable cause to fear damage to its lien |
| Condemnation: if the property is condemned or taken by eminent domain... | the lender declares a claim on any resulting proceeds |
| Borrower Not Released: Forbearance by Lender Not a Waiver: the lender reserves the right to take future action against the borrower for... | default, even if the lender decides not to take immediate action |
| Transfer of the Property or a Beneficial Interest in Borrower: if the borrower sells or transfers its interest in the property without the lender's approval... | the lender may demand immediate and full repayment of the loan balance. (this is the alienation clause, also known as a due-on-sale clause and a call clause) |
| What is acceleration? | the requirement to repay the loan before the scheduled date |
| Borrower's Rights to Reinstate: if the lender holds the borrower in default under the terms of the mortgage and proceeds to enforce its rights under the document... | the borrower has the right to reinstate his or her interest by performing certain actions. |
| The redemption clause gives the borrower... | a period of time to satisfy obligations and prevent the lender from forcing a sale of the property. |
| Release: the lender agrees to release the mortgage or trust document to the borrower when.. | the borrower has paid off the loan and all other sums secured by the document |
| The release clause, also known as the defeasance clause, may specify that the... | mortgagee will execute a satisfaction of mortgage to the mortgagor. In the case of a deed of trust, the lender as beneficiary requests the trustee to execute a release deed or deed of reconveyance to the borrower as trustor |
| Most lenders use some version of the _____ promulgated by Fannie Mae. | Uniform Residential Loan Application |
| The Uniform Residential Loan Application requests the borrower provide information about the... | property and the borrower |
| Property information includes: | age and year built, original cost, year acquired and current loan balance |
| Borrower information includes: | age, employment history, assets, education, monthly income and expenses, debts |
| Supporting documentation includes: | appraisal report, credit report, income and employment verification, purchase contract |
| The initiation of the application process occurs when... | the lender receives the completed application packet from the applicant |
| Mortgage underwriting includes: | evaluating the borrower's ability to repay the loan, appraising the value of the property offered as security, determining the terms of the loan |
| The principal risks are that the borrower will... | default on repayment of the loan or damage the value of the property as security |
| A lender assesses risks by... | qualifying both the borrower and property |
| In qualifying a borrower, an underwriter weighs the ability of the borrower to... | repay the loan |
| In qualifying a property, an underwriter assesses the ability of the property value to... | cover potential losses |
| Based on the ECOA, a lender may not... | discount income from part-time work, spouse, child support, alimony, etc; assume income will be reduced for maternity leave; refuse a loan because of the security's location; ask applicants questions about their personal information; make spouse sign |
| If a lender denies a request for a loan, or offers a loan under different terms then... | the lender must give the applicant written notice providing specific reasons for the actions |
| What are the eight types of information a lender must rely on the determine if an applicant qualifies? | current income or assets, current employment status, credit history, monthly payment for mortgage, monthly payments made on other loans for same property, monthly payments for other mortgage-related expenses, monthly debt payments v. monthly income |
| A qualified mortgage is one that... | meets the "ability to repay" requirements |
| Generally not allowed for qualified mortgages: | interest-only period, negative amortization, balloon payment, loan term of more than 30 years, excessive upfront fees |
| Generally required for qualified mortgages: | monthly debt of no more than 43% of monthly pre-tax income, limits on points |
Created by:
alli-bohanon
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