Ch. 16 Re Financing Practice

Front 1

The Federal Reserve System (the Fed)

Back 1

maintains sound credit conditions, helps counteract inflationary and deflationary trends, and creates a favorable economic climate.

Front 2

reserve requirements

Back 2

The Fed requires that each member bank keep a certain level of assets on hand as reserve funds.

-by increasing its reserve requirements, the Fed limits the amount of money that member banks can use to make loans.

-when the amount of money available for lending decreases, interest rates rise.

Front 3

discount rate

Back 3

the rate charged by the Fed when it lends money to its member banks.

-when the Fed discount rate is high, bank interest rates are high.

Front 4

prime rate

Back 4

(the short-term interest rate charged to a bank’s largest, most creditworthy customers) is strongly influenced by the Fed’s discount rate.

Front 5

primary mortgage market

Back 5

made up of the lenders that originate mortgage loans

Front 6

Federal Deposit Insurance Corporation (FDIC).

Back 6

Fiduciary lenders are subject to standards and regulations established by government agencies such as the Federal Deposit Insurance Corporation (FDIC).

Front 7

Secure and Fair Enforcement for Mortgage Licensing Act of 2008

Back 7

in IL the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) requires that each individual state must license and register mortgage loan originators (MLOs).

Front 8

secondary mortgage market

Back 8

various agencies purchase existing mortgages from banks and savings associations and assemble them into packages called blocks or pools.

Front 9

Fannie Mae

Back 9

The Federal National Mortgage Association, usually called Fannie Mae, is a government sponsored enterprise that provides a secondary market for mortgage loans, dealing in conventional, Federal Housing Administration (FHA), and Department of Veteran Affairs (VA) loans.

Front 10

Ginnie Mae

Back 10

The Government National Mortgage Association, usually called Ginnie Mae, administers special assistance programs, and guarantees mortgage backed securities using FHA and VA loans as collateral.

(within the Department of Housing and Urban Development (HUD))

Front 11

Freddie Mac

Back 11

The Federal Home Loan Mortgage Corporation, usually called Freddie Mac, (like Fannie Mae) provides a secondary market primarily for conventional loans.

Front 12

straight loan

Back 12

(interest only or term loan) is a nonamortized loan that divides the loan into 2 amounts to be paid off separately. Borrower first makes payment on the interest only, followed by the principal at the end.

Front 13

amortized loan

Back 13

(direct reduction loan) partially pays off both principal and interest.

Front 14

adjustable rate mortgages (ARMs)

Back 14

originate at one rate of interest, then fluctuate up or down during the loan term, based on an objective economic indicator.

Front 15

balloon payment

Back 15

when periodic payments are not enough to fully amortize the loan by the time the final payment is due, the final payment is larger than the others

Front 16

growing equity mortgage (GEM)

Back 16

(rapid payoff mortgage) uses a fixed interest rate, but payments of principal are increased according to a fixed index/schedule. The total payment increases and the loan is paid off more quickly

Front 17

reverse mortgage

Back 17

allows ppl 62 or older to borrow money against the equity they have built in their home.

Front 18

nonrecourse loan

Back 18

one in which the borrower is not held personally responsible for the loan.

Front 19

loan to value (LTV) ratio

Back 19

the ratio of debt to value of the property

(sale or appraisal price, whichever is less)

Front 20

conventional loans

Back 20

are viewed as the most secured loans because their LTV ratios are often lowest.

Front 21

private mortgage insurance (PMI)

Back 21

A borrower can obtain a mortgage loan with a lower down payment by obtaining private mortgage insurance (PMI). PMI protects the top 20-30% of the loan

Front 22

FHA Loan

Back 22

refers to a loan that is insured by the agency

Front 23

Mortgage Insurance Premium (MIP)

Back 23

the borrower is charged a mortgage insurance premium (MIP) for all FHA loans.

Front 24

certificate of reasonable value (CRV)

Back 24

It establishes the maximum value of the property for VA purposes and,as a result,the maximum size of the VA loan.

Front 25

purchase mortgage money (PMM)

Back 25

a note and a mortgage created at the time of purchase when the seller agrees to finance all or part of the purchase price.

Front 26

package loan

Back 26

includes real and personal property

Front 27

blanket loan

Back 27

covers more than one parcel or lot.

Front 28

partial release clause

Back 28

associated with blanket loans - releases parcels of land as they are paid off.

Front 29

wraparound loan

Back 29

enables a borrower with an existing mortgage to obtain additional financing from a second lender without paying off the first loan.

(the second lender gives the borrower a new loan at a higher interest rate and assumes payment of the existing loan.)

Front 30

open end loan

Back 30

it allows the borrower to open the mortgage to increase the debt to its original amount.

Front 31

construction loan

Back 31

(Interim financing) is made to finance improvements.

Front 32

buydown

Back 32

a way to temporarily lower the initial interest rate on a loan by paying extra cash up front.

Front 33

home equity loans

Back 33

provide a source of funds using the equity built up in a home

Front 34

Truth in Lending Act (TILA)

Back 34

(Regulation Z) requires that credit institutions inform borrowers of all finance charges and the true interest rate before a loan is completed.

Front 35

trigger terms

Back 35

cannot be used without including certain information with it.

Front 36

Equal Credit Opportunity Act (ECOA)

Back 36

prohibits lenders and others who grant or arrange credit to consumers from discriminating against credit applicants

Front 37

Community Reinvestment Act (CRA)

Back 37

financial institutions are expected to meet the deposit and credit needs of their communities; participate and invest in local community development and rehab projects; and participate in loan programs for housing, small businesses, and small farms.

Front 38

Real Estate Settlement Procedures Act (RESPA)

Back 38

applies to any residential RE transaction involving a first mortgage loan - RESPA is designed to ensure the buyer and seller are fully informed of all settlement costs.

Front 39

impounds

Back 39

reserves for insurance and taxes

Front 40

acquisition cost

Back 40

the amount of money or other valuable consideration expended to obtain title to the property.