Real Estate Finance Exam #1

Front 1

Mortgage Reform - Dodd Frank

Back 1

Signed by Obama in 2010, this lengthy piece of legislation contains provisions to restore accountability and responsibility to the financial system

Front 2

Real Estate Cycles

Back 2

Supply and Demand

Population Characteristics

Who is Buying What

Social Attitudes

Tax Issues

Property Value Fluctuations

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Collateral

Back 3

Pledging Real Property to back up a promise to repay a loan

Front 4

Hypothecation

Back 4

Borrower is legal owner, retains right to possession and control while lender holds an equitable title in property

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Equitable Title

Back 5

Lender's interest in real property. Ends when the loan is paid in full

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Disintermediation

Back 6

When more funds are withdrawn from financial institutions than can be deposited. Net loss in deposits, cutback on lending and slow-down in economy

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Leverage

Back 7

Use of proportionally small amount of money to secure large loan for a property

Front 8

Primary Markets and Secondary Markets

Back 8

Primary Markets are where loans are originated (commercial banks), Secondary Markets are where mortgages are traded (Freddie Mac, Fannie Mae)

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Money Supply

Back 9

M1 - Money is easily obtainable

M2 - All of M1 + market funds, deposits less than $100,000

M3 - All of M2 + deposits over $100,000, money held abroad

Front 10

Costs of Money

Back 10

Higher the cost, lower the borrowing activity and slower the economic activity

Front 11

Prime Rates

Back 11

Interest rate a lender charges most creditworthy customers

Front 12

Reserve Requirements

Back 12

Fed requires its members to keep a certain percentage of the bank's total funds on deposit with its federal bank

Front 13

Discount Rates

Back 13

Rate of interest charged by the Federal Reserve to its member banks to borrow money

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Open Market

Back 14

Fed's activities in buying and selling securities to control the money supply

Front 15

Federal Fund Rates

Back 15

Recommended rate by Federal National Reserve for member banks to charge each other on short-term loans

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The Federal Reserve Bank

Back 16

The nation's money manager. Central banking system of US

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Truth in Lending Act (Regulation Z)

Back 17

Title I of Consumer Protection Act. Regulation Z requires lenders to reveal total loan costs through the use of a standard measurement of interest rates called an APR

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U.S. Treasury’s Role

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The Treasury prints and mints all paper currency and coins in circulation through the United States Mint. The Department also collects all federal taxes through the Internal Revenue Service

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Right of Recession

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A 3-day recession period in which loan borrower can rescind the transaction

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FDIC

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Insures all accounts in member depository institutions, both banks and savings associations

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HUD Responsibilities & Activites

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Enforces fair housing laws, helps create a decent home and living environment for all US citizens.

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Fair Housing

Back 22

Prohibits discrimination in housing transactions

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Real Estate Settlement Procedures Act

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Law that requires certain disclosures to consumers about mortgage loan settlements.

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Equal Credit Opportunity Act

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Federal law prohibiting discrimination of lending due to race, religion, sex, age, marital status or source of income

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Different HUD Housing Programs

Back 25

Supervises FHA, Ginnie Mae, Fair Housing

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Community Reinvestment Act

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Financial institutions expected to meet the deposit and credit needs of their community

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FHA

Back 27

FHA stands for Federal Housing Administration, which is a program that helps stimulate the housing market by making home loans accessible and affordable

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Housing Choice Vouchers

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Rental assistance to eligible consumers, funds can be used towards mortgage

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USDA Program

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Funds projects to bring housing, community facilities, utilities and other services to rural areas

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OHFA and Homebuyer Programs

Back 30

As the state's affordable housing leader, the Ohio Housing Finance Agency (OHFA) provides opportunities for Ohioans to locate affordable housing. The Agency offers a variety of programs to help first-time homebuyers, renters, senior citizens and others find quality affordable housing that meets their needs.

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Fannie Mae

Back 31

Fannie Mae mostly buys mortgage loans from commercial banks

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Freddie Mac

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Freddie Mac mostly buys mortgages from smaller banks that are often called "thrift" banks

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Ginnie Mae

Back 33

Ginnie Mae performs the same function as Freddie and Fannie, except they only deal with government-insured mortgages, such as those backed by the Federal Housing Administration (FHA)

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Farmer Mac

Back 34

Deals in Agricultural mortgages

Front 35

Underwriting Guidelines for Fannie & Freddie

Back 35

Selling guidelines. Desktop Underwriter, Desktop Originator can be accessed online

Freddie Mac only looks at total debt-to-income ratio with no set percentage for housing expense

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Government-Sponsored Enterprises (GSE)

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Fannie Mae, Freddie Mac, independent entities receiving favorable tax benefits with Treasury, under supervision of Federal Housing Finance Agency

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Fannie Mae's Loan Limits

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$424,100 for single family homes in the continental US

Front 38

Conforming Loans

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A mortgage loan that conforms to GSE (Fannie Mae and Freddie Mac) guidelines. The most well-known guideline is the size of the loan.

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Non-Conforming Loan

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A non-conforming loan is a loan that fails to meet bank criteria for funding. Reasons include the loan amount is higher than the conforming loan limit (for mortgage loans), lack of sufficient credit, the unorthodox nature of the use of funds, or the collateral backing it.

Front 40

Credit Scoring

Back 40

Objective method of assessing credit risk based on statistical probability of repayment of the debt. Based on Experian, Equifax, TransUnion. Numerical score is FICO.