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47 Cards in this Set
- Front
- Back
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Federal Reserve purpose |
The Central Bank of United States. Initially founded by Congress to address banking panics. Expanding role in banking and economy. Exists to provide the nation with a safer more flexible and stable monetary and financial system. Its actions can make borrowing more or less expensive. Can make credit more widely available and influence interest rates on bank savings accounts. |
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Federal Reserve functions |
Duties include: Stimulate economic growth, maximize employment, stable interest rates, encourage stable prices, regulate banks, provide financial services to banks and the US government, encourage sustainable pattern of international trade, payment processing. |
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Federal Reserve history |
Also known as the Fed, or central bank. Created in an effort to moderate boom / bust economic cycles and encourage public confidence in the banking system. The Federal Reserve Act became law on December 23rd 1913. There are 12 Federal Reserve banks nationwide including the Boston fed and board of governors in Washington DC that all makeup our nation's central bank. Previous to the act the government was powerless to contain or stimulate the economy and control risk. |
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Federal Reserve structure |
Consists of a board of governors and the FOMC with headquarters in Washington DC, and 12 Reserve banks located in major cities throughout the United States. |
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The Fed's role as bank examiner |
Has responsibility for examining banks and bank holding companies BHCs to protect consumers and maintain public confidence. Examinations are tailored to the institution's risk profile. Examinations determine the safety and soundness of the institution's financial condition and integrity of information systems. Examiners evaluate the quality of the institution's assets, adherence to state and federal banking laws, and effectiveness of internal controls, policies and risk management systems. Evaluation factors can be summed up with the acronym CAMELS: capital, assets, management, earnings, liquidity, sensitivity to market risks. Should deficiencies be found the bank will be put on notice requiring them to outline corrective measures. |
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Federal Open Market Committee FOMC |
Makes monetary policy and consists of members of the Board of Governors of the Federal Reserve system, and 5 Reserve Bank presidents. Hold a regularly scheduled meetings a year or more if necessary. At each meeting they decide to target for the federal funds rate which is the rate that is charged for bank to bank loans. Also issues a statement after each meeting explaining its decision to raise, lower, or hold steady the rate and usually contains information about their overall evaluation of the economy. |
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Monetary policy |
What the Federal Reserve does to influence the amount of money and credit available in the US economy. Inflation, economic output - gross domestic product GDP, and employment. It affects interest rates and performance of the economy as well as influences people to buy, save, or invest. Done by making the cost of borrowing more or less expensive. Monetary policy is referred to as either being expansionary contractionary. The Federal Reserve and FOMC set target rates that are meant to influence interest rates. It is ultimately the free market that sets interest rates that we pay. Not the government. |
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Expansionary policy |
Increases the total supply of money. It is used to combat high and unemployment in a recession by lowering interest rates. This makes the cost of credit decrease, which will stimulate investment. |
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Contractionary policy |
Decreases the total money supply. Designed to cool the economy by increasing interest rate which slows investment in an effort to control inflation. |
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Three key instruments used by the Fed to influence monetary policy |
The discount rate is the rate charged by the Federal Reserve banks to depository institutions on short-term loans. Bank reserve requirements are the amount of funds that a depository institution must hold in reserve against specified deposit liabilities or other risks. This can take the form of vault cash or deposit with a Federal Reserve Bank. Open market operation is the purchase and sales of US Treasury and federal agency securities. |
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Bank functions |
Provide financial services to customers while providing investors with a return. Services under three main categories. Credit - lending, deposit, payment processing. London is the biggest share of business and Ken account to as much as 70 to 100%. If cost of funds exceeds ability to make money by lending who were the borrowers, banks may fail. Customer deposits are held as a liability because it must be able to be returned on demand. If underwriting of credit or lending practices are poor, loan losses will occur and if severe enough customers may demand their money back. Is a bank is in danger of running out of cash it is considered a failure and taken over by federal regulators. |
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How banks make money |
Customer deposits are usually the cheapest form of funds. they lend out money deposited and earn interest on it. |
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Interest |
The price somebody pays to temporarily use someone else's money. Can be expressed as APR or APY. Rates on alone may differ depending on several factors including availability of funds to the bank, loan type risk, loan duration / term, collateral posted, loan purpose. Approximately two-thirds of US households own homes and pay a mortgage. over a 30 year term the interest payments will add up to more than the original loan. When creating an interest rate thanks must study risks and be able to cover them and still make an acceptable profit for investors. The process for building a rate involves taking the risk free rate and adding premiums. Interest rate equals risk free rate, 90 day T - bill, inflation premium, borrower defaults Premium, liquidity premium, security premium, profit. |
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The foreclosure process |
Foreclosure is the moment that ownership is transferred and the bank or a third party owns the property. It is the note or promissory note that stipulates the terms of the money went and when default occurs. When default occurs, the process by which title is transferred from borrower to lien holder is governed and outlined in the mortgage instrument or deed of trust. The mortgage instrument requires a judicial foreclosure process. A deed of trust does not require a formal court proceeding to foreclose. |
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Judicial foreclosure |
Less advantageous for the lender due to the additional time and expense. Not often used as the collateral instrument of choice. The property is to be sold to satisfy a debt and attorney or sheriff will hold a sale at the courthouse. Notices of sale are posted in advance. They can also be found at the sheriff's office and County Building. Typically called sheriff sales. |
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Redemption period |
Theperiod f time after a foreclosure when the borrower can pay the old price in full and redeem ownership of the property. Utah does not allow redemption periods for non judicial disclosures but under circumstances they can be allowed for judicial foreclosures. If allowed the redemption period is 180 days after foreclosure. |
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Foreclosure process - non-judicial foreclosure |
Stage 1: filing of notice of default in OD, legally can file after first missed payment, standard practice is 3 missed payment 90 days, at which point the bank has retained a local attorney and incurred approximately $1,500 in fees. Stage 2: reinstatement., borrower has 90 days to correct the situation typically done through a workout agreement or full day off, stage 3 colon posting., standard practices poke posting the sale of the property and a circulate a newspaper for three consecutive weeks which must be completed at least 10 days prior to the actual sale. Stage 4 colon auctions, must be held at a courthouse in the county the property is located during normal business hours. A public auction that anyone can attend. Once a sale has occurred there is no redemption. In Utah. The sale will be canceled only if there is a last minute bankruptcy filings prior to the time of the sale or at the lender's request prior to the new deed being filed. |
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Foreclosure / title |
Foreclosure attorneys make no representations as to warranties or title. When buying a foreclosure property as an investor you are buying whatever the legal description describes along with any potential hidden defects. The property may have undiscovered liens and encumbrances. |
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Foreclosure / deed |
D sites include warranty deeds, special warranty deeds, quit claim deeds, trust deeds, trustee's deed. The bank or lender is typically for closing on a warranty deed. Purchase of a foreclosure is given a trustee's deed. There is no title insurance when purchasing a foreclosure but it can be obtained afterward through a title company. |
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Foreclosure / eviction |
Foreclosures require a 5 day notice to vacate. Once a foreclosure sale has taken place anyone still living in the property is living there illegally. After the 5 day notice expires a writ and order of restitution is filed. The entire process typically takes about 21 to 30 days depending on if there is a hearing. People usually leave before the end of this process but if not the sheriff will serve a three day notice and then conduct a lockout on the property. The sheriff will enter the property and escort the people off the ground then post notices on the property learning the former owner of consequences of illegally trespassing or entering the former property. |
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Foreclosures / fraud |
Many foreclosures are involved in fraud which is why title searching prior to the sale is so important. Types of fraud include fraudulent deeds, duplication of Deeds, multiple closing the different title companies with different lenders on the same day, strawberries, money paid outside of closing and not disclosed on the HUD, private lenders selling their positions of several different lenders undisclosed to them. |
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New rental law |
Nationally renters are allowed to stay in the property for the duration of their contract + 90 days. No contract / month to month equals 90 days. There are several restrictions and the law has not been challenged much. |
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Credit |
The credit score of the quantitative risk value, with the sum of all values formulated into a single score based on many components about the borrower including, level of delinquencies, time since last delinquency, proportion of revolving balances to credit limits, bankruptcy: chapter 7 remove all debt from the borrower it is complete on discharge from the court, chapter 13: always requires payments on a least a portion of the debt, as complete when all payments have been made, lenders may base required waiting time off of discharge from court or final payment, foreclosure in deed in lieu of foreclosure, debt write-off need to be explained, recent inquiries need to be guaranteed they haven't added unreported debt. |
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Credit report |
Generally has a section detailing borrower's credit history which includes creditor name and account number, date reported / last activity, date opened, my credit flash highest limit allowed, current balance, past due amount, months reviewed - how many months has the debt been reported, times past due 30 60 or 90 plus days, payment / term how many payments to pay off the loan, present status flash paid as agreed, close, late, in collection, charged off. |
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Lending guidelines for credit challenged |
Consideration by the underwriter will be given to how the borrower responded after their financial mishap and if they were proactive about credit lines that were still open and showed a consistent payment history. |
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Reestablishing credit |
One should be proactive about their credit profile and future payments which will be critical if future credit on good terms is desired. If account balances remain continue to pay according to the terms set forth. Maintain at least for credit references or account. One should be housing-related including rental payments, if rental payments are made and you would like to apply for a mortgage in the future be prepared to show bank statements, money orders, cancelled / cleared checks. Prepaid credit cards are available and the higher the limit the better. Maintain a good mix of open account types including revolving, installment, mortgage, charge / retail. |
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Title |
An abstract term denoting ownership |
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Deed |
A document that provide evidence of ownership or of holding title |
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Hypothecation |
Giving something as collateral or security, without giving up possession |
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Pledge |
Giving something as security and giving up possession. |
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Equitable title |
After the purchase agreement has been signed, the seller holds title in name only without full ownership rights. Buyer now holds equitable title which gives him the right to transfer his rights as buyer by assignment. equitable title is negotiable and assignable. It can be sold, given away, or mortgage. It passes to the purchaser's heirs and devisees upon the purchaser's death. |
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Title theory |
The title goes to the lender until the property is paid off. The mortgagee can take property at any time, but usually doesn't until the borrower defaults. |
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Lien theory |
Used in most states, the mortgage is a lien on the property. The mortgagee holds a security interest I can only take possession of the property upon foreclosure. |
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Intermediate theory |
Applies to the lien theory until the borrower defaults and then it changes to a title Theory. |
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Estoppel certificate |
Current information regarding a loan given by the lender in response to a release signed by the borrower or an order from the court. |
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Promissory note |
The contract that documents and is primary evidence of the loan. It indicates how much was borrowed, the payment, interest, amortization term. The borrower is known as the maker or payer , the lender the payee. |
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Mortgage |
Generically refers to any debt that is secured by real property. a specific document called a mortgage is given as security for a note. Anote is necessary for a mortgage but a mortgage is not necessary for a note. A mortgage is a judicial lien and foreclosure must be pursued through the courts. |
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Mortgage foreclosure process |
A judicial process. the mortgagee files a complaint with the court. A List pendens is filed against the property giving public notice there is a pending court action. The borrower can still sell the property but it would be subject to the court action. Notice is posted on the property and at least three public places. The first mortgage is notified of the action if the foreclosure is brought by a junior lien holder. Any others such as a mechanics lien or second mortgage must file a notice of interest if they want to be notified of a foreclosure action brought by another party. The mortgagor is notified and given the opportunity to respond to the complaint. If no response the court may give a default judgement which generally expedite the process. A court date is set, court is held, & a judgment is rendered. Other factors include equity of redemption, sheriff sale, statutory period of redemption. With the exception of a non recourse loan if the mortgagee fails to get the full amount owed through a sale they can sue the borrower and obtain a deficiency judgment. The judgment is enforceable and collectible as any other judgment at law. |
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Borrower's equity of redemption |
The right of the defaulting mortgagor to bring the obligation current and avoid the sale before it is held. |
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Sheriff sale |
A date is set for the sale to take place, a three-week advertising. Is required during which the property must be advertised in the legal section of a local paper at least once a week, followed by a 10-day moratorium, the sale must take place within 10 days after the moratorium, usually the sale is held at the county courthouse where the buyer bids and must pay cash for the property, the buyer receives a certificate of sale which is not a deed. |
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Statutory period of redemption |
Usually 6 months, mortgagor retains right of possession, must redeem rather than reinstate the property to retain ownership meaning completely pay off all liens against the property. |
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Trust deed and note |
A legal process that may be used for securing a loan instead of a mortgage. The trustor is the borrower, trustee is a third party, beneficiary is the lender. a non-judicial security instrument which avoids court and hastens the process of foreclosure and makes it less expensive. The trustor conveys the power of sale, sometimes referred to as their title or naked title, to the trustee. Can only be exercised if default occurs. The trustor retains title and has full right to any increase in value between purchase and full payment. The beneficiary has no ownership interest. |
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Trust Deed foreclosure |
When payments are in arrears the beneficiary notifies the trustee to proceed with foreclosure. The trustee files a notice of default which gives public or constructive notice of foreclosure action. Notice requirements are the same as for a mortgage. Depending on state law and equitable period Of redemption follows the notice of default. It is determined by statute. During the redemptive. The trustor has the right to reinstate the loan by paying all back payments and penalties. advertising and moratorium requirements are the same. At a trustee's sale a buyer pays cash and receive a trustee's deed sometimes referred to as a foreclosure deed. Awesome the only better as the beneficiary. Depending on state law the beneficiary could to entertain a deficiency judgment. And utah the beneficiary and has three month to do so. Some states allow a statutory redemption period after the sale. |
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Forbearance |
The lender hold off on initiating the foreclosure action to give the borrower a chance to straighten things out. They do not forfeit the foreclosure right to use later. |
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Uniform real estate contract |
Also known as a land contract, installment sales contract, or contract for deed. Special characteristics are that it contains both the note and security agreement in one document. It's written as though you tolerate title theory state. The lender retains legal title of the property until the debt is paid in full however the fire holds equitable title. Remedies for default include treat all money as rent and evict the borrower by filing an unlawful detainer action mama bring suit to recover all deleted with payments, penalties, attorneys fees, damages or for clothes. You shouldn't use a uniform real estate contract up a trust deed or note to be use instead. The right to repossess property may not be allowed by the courts if the buyer has significant equity in the property. I trust deed and note cannot be placed behind a uniform real estate contract because the lender cannot pass title as required and a Trust Deed and notes. |
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All inclusive trust deed |
Functionally like a Trust Deed, used to wrap around one or more underlying loans. It is foreclosed in the same manner as a trust deed. |
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Deed in lieu of foreclosure |
In a lien theory state the lender has no ownership interest in the property as collateral for the loan. To avoid foreclosure the borrower may offer to give the property to the lender. If no other lanes are on the title the lender may agree. this process is also sometimes referred to as a friendly foreclosure. Will not protect the borrower's credit rating nor does it cut off any rights of junior lien holders. |
