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16 Cards in this Set
- Front
- Back
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THE FEDERAL RESERVE SYSTEM |
to maintain sound credit conditions, help counteract inflationary and deflationary trends, and create a favorable economic climate- by regulating the supply of money and interest rates -country is divided into 12 fed reserve districts, each served by a federal reserve bank |
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OPEN MARKET OPERATION |
Fed regulates flow of money and interest rates in the marketplace thru its member banks by controlling their reserve req and discount rates- buys securities on the open market and inserts them back into general supply |
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RESERVE REQUIREMENTS |
requires each member bank keep a certain amount of assets on hand as reserve funds which are unveil for loans or any other use - so it limits the amount of money avail for lending - by increasing reserve req, the Fed limits the amount of money that member banks can use to make loans, thereby interest rates rise and slow down an overactive economy |
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DISCOUNT RATES |
Fed reserve member banks are permitted to borrow money from the district reserve banks to expand their lending operations. Discount rate is the rate charged by the Fed when it lends to its member banks. |
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PRIMARY MORTGAGE MARKET |
made up of lenders that originate mortgage loans. These lenders make money available directly to borrowers Income on a loan for investors ( lenders) is realized from 2 sources: 1. Finance charges collected at closing such as loan orig fees and discount points 2. Recurring income that is , interest collected during term of loan
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SECONDARY MORTGAGE MARKET |
Purchases, services and sometimes re-sells existing mortgages and mortgage-backed securities created by the primary market lenders. -GINNIE MAE, FANNIE, MAE, FREDDIE MAC
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CONVENTIONAL LOAN |
A loan that is not backed -lender bears all the risk -viewed as most secure loan bc its loan-to-value ratio is lowest -lower ratio of debt to value so higher down payment - 28/36 28 % for housing and 08% for recurring debt so (36% total) |
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DETERMINING LTV |
If a property has an appraised value of $100k secured by a $90k loan, the LTV is 90%
$90,000 loan / $100,000 = .90 or 90% |
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CONFORMING LOAN GUIDELINES |
For first mortgages secured by 1-4 family unit residences -min down payment, max amount, limitson seller contributions, and borrower qualifying ratios |
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PRIVATE MORTGAGE INSURANCE (PMI) |
-one way a borrower can obtain a conventional mortgage loan with a smaller down payment. -When the LTV ratio is higher than a specified %, typically 80% the lender req additional security to minimize the risk -LTV's of up to 95% of the appraised value are poss with PMI. -Protects 20-30% of the loan against borrower default |
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FHA |
Neither builds homes nor lends money to purchase single family housing, rather it insures loans on real property made by approved lending institutions. Insures lenders against loss in case of borrower default. - most popular loan is a Fixed interest rate loa for 10-30 yrs on one fam to four fam residences. -tech req est under congressional auth must be met before FHA issue the insurance 1. In addition to interest, the borrower pays a one time mortgage insurance prem for FHA insurance 2. The mortgaged real estate must be appraised by an approved FHA appraiser 3. FHA regulations serf standards for type and construction of buildings quality of neighborhoods and credit req for borrowers
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VA LOAN |
Under Serviceman's Readjustment Act of 1944 and subsequent federal legislation, the VA is auth to guarantee loans to purchase or construct homes for eligible veterans. 29/41 (12% RECURRING DEBT)
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PREQUALIFYING A BUYER |
Example: Harrisons have gross monthly income of $3900 - to determine what they can afford multiply the gross income by .36%= $3900 x .36 = $1404 Recurring expenses are $475 $1404-$475= $929 10% of max payment is devoted to PITI so: $929 x .10 = $92.90 round up to $93 $929 - $93= $836 Harrisons can afford $836 in P&I assuming current interest rates are 7% they would qualify for a loan amount of $125, 714 Using loan factor of 6.65 divide P&I by rate factor x $1000 |
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REGULATION Z |
Truth in Lending Act, requires that credit institutions inform borrowers of the true cost of obtaining credit so that borrowers can compare costs of various lenders and avoid uninformed use of credit. |
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ADVERTISING AND TRIGGER TERMS |
If trigger terms are used which generally are the use of any numbers a total financing term disclosure is mandatory.. spec credit terms like down payment, monthly payment, dollar amount of finance charge or term of loan cannot be used unless cash price, req down payment, number, amounts, due dates of all payments,and APR is used - Fine of up to $10k may be imposed for engaging in an unfair deceptive trade practice. -wilfull violation is a misdemeanor punishable by a fine of up to $5k or one yr imprisonment or both |
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RESPA |
Real Estate Settlement Procedures Act Created to ensure that the buyer and seller in a residential real estate transaction involving a new first mortgage loan have knowledge of all settlement costs - All transaction charges to the parties be clearly itemized on the HUD-1 that makes loan fraud harder to conceal |
