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What led to many people losing their homes during the Depression?
People who didn't have cash to pay for a house took out short-term loans from banks and paid interest for 5-10 years. If they didn't have the money to pay the remainder of the loan at the term of the loan, they bank would foreclose on the property, and the people lost their homes.
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What led the American government to establish the FHA?
The plight of so many people losing their homes during the Depression era led the government to establish the FHA.
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Define a deed.
A deed is a legal document that is evidence of ownership of a property.
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Explain the concept of "leverage."
Leverage is making use of someone else's money or making a low down payment and borrowing the rest of the money needed for the purchase of property.
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What are the two types of security instruments used for a real estate loan, and briefly explain each.
A promissory note is a document that establishes legal evidence of the debt. It includes the amount of money borrowed, the repayment terms, and conditions regarding the borrowing of the money or the consequences of default.
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List the five components of a mortgage loan.
Principal, interest and interest rate, points, term, payments
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What do second or third mortgage holders do to try to compensate for the higher risk of these mortgages.
They generally charge a higher interest rate and limit the term of the loan.
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What is the purpose of a rider?
Riders provide full disclosure of any requirements, restrictions, or liabilities of the borrower.
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List four lending entities in the primary market.
Commercial banks, savings and loans, credit unions, housing financing agencies
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How do secondary market lenders help primary market lenders?
When the primary market has funded enough mortgage loans that they no longer have money available to fund additional mortgage loans, the secondary market investors purchase packages of loans from the primary lenders, making it possible for the primary lenders to fund additional mortgage loans.
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List the three players in the secondary market.
Fannie Mae, Freddie Mac, Ginnie Mae
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What can the Federal Reserve do to tighten the economy?
Increase discount rates, sell securities, raise reserve requirements
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Depression era home purchasers used cash or short-term loans that often led to foreclosure when they could not pay the balance at the end of the loan's term
To address the plight of these homeowners, the government established the ___
FHA
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– evidence of ownership of property
Deed
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– using other people's money or making low down payment and borrowing remainder of money needed to purchase house
Leverage
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– includes amount of money borrowed, repayment terms, conditions related to borrowing the money or the consequences of default; establishes legal evidence of debt
Note
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– pledges the real property as collateral for the debt
Mortgage
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– conveys title rights in the property to an assigned trustee
Deed of trust
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– provide full disclosure of special requirements, restrictions, or liabilities on the borrower
Riders
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Tenants in common –
each party has defined interest in property
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– parties must take title to the property at the same time with equal interests and with provision for right of survival
Joint tenancy
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– if one spouse dies, the other obtains ownership without going through probate court
Tenancy by the entirety
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Severalty ownership –
form of ownership for single owner
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– husbands and wives own equal, undivided interest in property
Community property
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In the primary market; Commercial banks –
short-term, high interest loans for construction, business, and home improvement loans; have added mortgage lending for home loan borrowers
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In primary market; Savings and loans – one of the principal providers of home mortgage financing
Fact
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In primary market; Credit unions –
favorable rates and services dedicated to credit union members
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In primary market; – provide special programs to encourage homeownership, sometimes for people in certain professions or to encourage revitalization of certain areas of city
Housing financing agencies
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This market Purchases loan packages from primary market, allowing primary market to continue funding additional loans
Secondary market
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– under HUD's oversight; purchases government and conventional loan packages; reaches out to low-to-moderate income families, minorities, immigrants, inner-city residents, and people with special housing needs
Fannie Mae
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– purchases both government and conventional loan packages; committed to underserved part of population with programs for immigrants, minorities, low-to-moderate income families, and Native Americans
Freddie Mac
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– provides a guarantee insurance program for the government loan packages that are used as collateral for FHA and VA loans
Ginnie Mae
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Federal Reserve System
Composed of __ district banks and manages nation's monetary policy
_____– amounts of money banks are required to keep on hand
___ ___– rate at which the Fed charges banks for money
Buying/selling securities – when the Fed buys, there is___ money in the market, lower interest rates, and stimulated economy; when the Fed sells, there is___ money in the market, higher interest rates, and slower economy
Tightens economy by increasing discount rates, selling securities, raising reserve requirements
- 12
- Reserves
- Discount rates
- more
- less
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Satisfaction of mortgage
When mortgage is paid in full
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What is the purpose of a deed?
Instrument of financing
Evidence of title
Receipt for considerations exchanged
Constructive notice of recordation
Evidence of title
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Which of the following terms describes a financing instrument that pledges the real property described in the mortgage document as collateral for the debt described in the note?
A deed
Leverage
A mortgage
Abstract of title
Mortgage
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_____________ originated as a totally shareholder-owned corporation with the stated purpose to purchase conventional mortgage loan packages from the savings and loans.
FNMA
GSE
GNMA
FHLMC
FHLMC
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During the 1930's, the normal practice in purchasing a home was to
pay all cash.
employ multiple layers of loans to finance the property.
obtain amortizing loans over long loan terms.
rent until a down payment was saved.
Pay all cash
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Which of the following is NOT included in the primary mortgage market?
Commercial banks
Savings banks
Credit unions
Ginnie Mae
Ginnie Mae
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A financing instrument that pledges certain real property as collateral for a debt is a
promissory note.
deed.
title.
mortgage.
Mortgage
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The concept of loan priority is best described as
the ranking of multiple loans to the same borrower in terms of amount of remaining loan balance.
the order in which multiple loans will be paid off in case of foreclosure.
the order in which principal and interest are repaid in an amortized loan.
the order in which multiple loans on a property are recorded.
the order in which multiple loans will be paid off in case of foreclosure.
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In the case of default on financing where a homeowner has three mortgages on the property, which mortgage holder will be paid off first?
The first mortgage holder
The third mortgage holder
Whichever mortgage holder is owed the most amount of money
Whichever mortgage holder is owed the least amount of money
The first mortgage holder
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Which of the following is true regarding the primary and secondary mortgage loan market?
The primary market makes individual loans.
The secondary market sells loans to the primary market.
The primary market makes only first priority loans.
The secondary market specializes in higher-risk loans.
The primary market makes individual loans.
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Every mortgage loan requires a
trust deed.
tax lien.
warranty deed.
promissory note.
promissory note.
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List at least seven of the different types of lenders in the primary loan market. (any seven of the following)
- Commercial banks
- Savings and Loans
- Insurance companies
- Mutual savings banks
- Pension funds
- Credit unions
- Individual investors
- REITs
- Industrial banks
- Limited partnerships
- Mortgage bankers
- Mortgage brokers
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Which type of lender is a huge source of second mortgages?
Individual investors provide as much as 1/3 of all loans of less then $20,000.
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Where do mortgage bankers obtain the money they lend?
Mortgage bankers may use their own funds, borrow funds, or act as a loan correspondent for an out-of-town investor.
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Briefly explain the RHS Direct Loan Program.
This program provides home loans at low interest rates for applicants with low incomes who can afford the loan payments, who are without adequate housing, who are unable to obtain credit elsewhere, and who have acceptable credit histories.
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For whom does RECD make loans?
Home purchases or construction in rural areas and small communities outside metropolitan areas with a population of less than 20,000.
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Briefly explain seller financing and include the types of seller financed loans. 4
Sellers are unintentional investors because they never intended to become involved in real estate financing whey they initiated the sale of their property. Buyers ask sellers to finance or carry back part of the purchase price in the form of a loan.
With purchase money mortgages, borrowers give the seller a mortgage and note to finance some or all of the purchase price.
With wraparound loans, the borrower takes out a second loan that is large enough to cover that loan and the first loan. The second lender makes payments on the first loan for the borrower. Sellers profit from the higher interest rate charged.
With land contracts, the buyer and seller enter into a contract wherein the buyer lives on the property, makes payments to the seller, and receives the title to the property when the contract has been fulfilled.
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What are the three classifications of mortgage loans?
Method of payment, time period, property pledged
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What kind of problem can result from a straight loan?
A straight loan is an interest-only loan. If the property doesn't appreciate in value over time, the borrower could end up with less in proceeds on the sale than what he needs to pay off the loan
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List two advantages of conventional loans over government-backed loans. (See other correct answers on Page 24.)
Processing a conventional loan usually takes less time. Loan approval from a conventional lender can take 30 days or less, while approval on a government-backed loan seldom, if ever, can be done in less than 30 days.
There is usually no legal limit on loan amounts with conventional loans; however, government-backed loans have dollar limits that vary by agency.
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What does federal law say about the termination of private mortgage insurance?
Federal law requires that any loans originated after July 1999 must have the PMI terminated after the borrower has accumulated 22% of equity in the property (loan-to-value ratio is 78%) and is current with all loan payments. However, the law also states that a borrower whose equity equals 20% of the purchase price or appraised value may request that the lender cancel the PMI.
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– have greatest total cash resources involved in real estate financing; deal mostly with short-term financing
Commercial banks
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– local in nature and focused largely on real estate loans
Savings and Loans
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Insurance companies – typically involves mortgage___ and mortgage_____ rather than dealing directly with borrowers
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– owned by depositors and focus on home financing
Mutual savings banks
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– traditionally invested only in conservative investments but now invest more into real estate
Pension funds
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– make low cost loans without a lot of extra charges
Credit unions
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– huge source of second mortgages; mostly real estate sellers
Individual investors
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REITs – usually invest in large_____ projects
commercial
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– mostly construction loans, second mortgages, and loans on vacant land
Industrial banks
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Mortgage brokers – brings together
a lender and borrower
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– created to meet housing and community development needs of rural America; programs for low to moderate income rural residents
RHS
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Direct loan program – loans from RHS for
low income applicants
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Guaranteed loan program – private sector loans are guaranteed by RHS to allow low to moderate income___ residents to acquire housing for primary homes
rural
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– federal lender for home purchase or construction in rural areas and fewer than 20,000 member communities outside metropolitan areas
RECD
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Purchase money mortgage –
buyer borrows directly from seller by having seller carry the loan note
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– borrower secures a second loan to combine first loan and second loan; pays second loan/lender who then makes payment on first loan; profits gained from higher interest rates on second loan
Wraparound
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– title goes into escrow until buyer fulfills the contract; buyer lives on property while making purchase payments to seller
Installment land contract
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- loan; fully in which principal is directly reduced with interest computed on the declining balance of the loan; partially in which payments are insufficient to fully amortize the loan at maturity, so balloon payment is required
Amortized loan
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– loan where only interest payments are made with principal due as final payment
Straight loan
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–loan where requires payment of principal, interest, taxes, and homeowner's insurance; lender makes tax and insurance payments on behalf of borrower
Budget loan
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– mortgage where monthly payments gradually increase from below what's required to amortize the loan to above those of a normal fixed rate loan
Graduated payment mortgage
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–mortgage with periodic adjustment of interest rate
Adjustable rate mortgage
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– loan where interest rate stays the same throughout the term of the loan
Fixed rate loan
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– second mortgage that is paid to seller to cover both first loan and second loan
Wraparound
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– short-term financing for construction of real estate project
Construction loan
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– short-term loan to cover newly purchased property until buyer's previous property sells
Property pledged
Bridge loan
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– finances both real estate and personal property in one loan
Package mortgage
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– mortgage secured by more than one property
Blanket mortgage
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3 Government-backed loans –
FHA, VA, RHS
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_____________ is a possible alternative to the installment land contract, involving less risk with more advantage to both buyer and seller.
Purchase money mortgage
Contract for deed
Wraparound mortgage
Conditional sales contract
Wraparound mortgage
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A developer would most likely obtain which of the following types of mortgages on a new subdivision?
Package mortgage
Blanket mortgage
Open end mortgage
Wrap around mortgage
Blanket mortgage
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Construction loans fall within which loan classification?
Method of Payment
Time Period
Property Pledged
Term Duration
Time Period
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Which type of lending institution has the greatest total cash resources involved in real estate financing?
Commercial banks
Savings and Loans
REITs
Industrial banks
Commercial banks
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Typically, conventional loans
require lower down payments than government-backed loans require.
are less flexible than government-backed loans .
have more forms than government-backed loans.
require higher down payments than government-backed loans require.
require higher down payments than government-backed loans require.
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Which of the following statements is NOT true?
The primary mortgage market is made up of lenders who originate loans.
Savings and loans are either federal or state chartered and focused largely on real estate loans.
Credit unions are known for making low cost loans without a lot of junk charges.
REITs have the greatest cash resources involved in real estate financing.
REITs have the greatest cash resources involved in real estate financing.
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Those known as unintentional investors are
limited partnerships.
sellers.
insurance companies.
mortgage bankers.
Sellers
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The primary mortgage market does not include
commercial banks.
insurance companies.
Fannie Mae.
credit unions.
Fannie Mae
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A _____________ cannot be done without lender approval if the senior lien contains a strict due-on-sale clause.
purchase money mortgage
land contract
wraparound mortgage
contract for deed
wraparound mortgage
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One program provided by the RHS for low to moderate income rural residents is
blanket loans.
direct loans.
purchase money mortgage.
all-inclusive deed of trust
Direct loans
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Which of the following is NOT a classification of mortgage loans?
Term Duration
Method of Payment
Time Period
Property Pledged
Term Duration
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Which type of lender is the primary source of money for all types of loans in small towns and rural areas?
Credit unions
Industrial banks
Commercial banks
Savings and loans
Commercial banks
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PMI loans made after July 1999 are now regulated by Federal law. What is this law called?
PMI Federal Act
Homeowners Protection Act
RESPA
Interest Payment Act
Homeowners Protection Act
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When financial institutions use funds from depositors to make mortgage loans, the process is called
interference.
syndication.
intermediation.
disintermediation.
intermediation.
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With which type of lender is the lending done typically through loan correspondents rather than dealing directly with borrowers?
Mortgage brokers
Insurance companies
Limited partnerships
Mutual savings banks
Insurance companies
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