Real Estate Financing: Practices (Chapter 15)

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the relationship of the total finance charges associated with a loan; must be disclosed to borrowers by lenders.

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annual percentage rate (APR)

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mortgage covering more than one parcel of real estate, providing for each parcel's partial release from the mortgage lien upon repayment of a definite portion of the debt.

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blanket mortgage

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financing technique used to reduce the monthly payments for the first few years of a loan. funds in the form of discount points are given to the lender to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time.

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buydown

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form indicating the appraised value of a property being financed with a VA loan.

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certificate of reasonable value (CRV)

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standardized conventional loan that meets Fannie Mae's or Freddie Mac's purchase requirements.

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conforming loan

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short-term loan usually made during the construction phase of a building project.

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construction loan/interim financing

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loan from private investors that requires no government insurance nor guarantee.

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conventional loan

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federal cabinet department active in national housing programs. among its many programs are urban renewal, public housing, model cities, rehabilitation loans, FHA subsidies, fair housing enforcement, and water and sewer grants.

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Department of Housing and Urban Development (HUD)

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federal law that prohibits discrimination in the extension of credit because of race, color, religion, national origin, sex, age, or marital status.

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Equal Credit Opportunity Act (ECOA)

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An act that regulates the collection, dissemination, and use of consumer information, including consumer credit information..

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Fair Credit Reporting Act

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quasi-government agency established to purchase any kind of mortgage loans in the secondary mortgage market from the primary lenders.

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Fannie Mae (FNMA)

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country's central banking system, which controls the nation's monetary policy by regulating the supply of money and interest rates.

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Federal Reserve System

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loan insured by the Federal Housing Administration and made by an approved private lender in accordance with the FHA's regulations.

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FHA-insured loan

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corporation established to purchase primarily conventional mortgage loans in the secondary mortgage market.

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Freddie Mac

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government agency under HUD that plays an important role in the secondary mortgage market. it sells mortgage-backed securities that are backed by pools of FHA and VA loans.

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Ginnie Mae

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loan (line of credit) under which a property owners use their residence as collateral and can then draw funds up to a prearranged amount against the property.

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home equity loans

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residential mortgage loan in excess of acceptable loan amount for purchase by Fannie Mae or Freddie Mac; also called nonconforming loans.

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jumbo loan

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relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.

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loan-to-value ratio (LTV)

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mortgage loan that is expandable by increments up to a maximum dollar amount, the full loan being secured by the same original mortgage; an equity line mortgage.

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open-end mortgages

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A real estate loan used to finance the purchase of both real property and personal property, such as in the purchase of a furnished home that includes window coverings and major appliances.

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package loan

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An act that protects against unscrupulous, sometimes fraudulent, lending practices usually intending to make repayment impossible; designed to take advantage of unwary borrowers that are frequently the low-income, uninformed, elderly, or non-English speaking.

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Predatory Lending Act

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Mortgage market in which loans are originated, consisting of lenders such as commercial banks, savings associations, and mortgage brokers.

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primary mortgage market

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Mortagage insurance provided by a private carrier that protects a lender against a loss in the event of a foreclosure and deficiency.

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private mortgage insurance (PMI)

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A note secured by a mortgage or deed of trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price of the real estate.

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purchase-money mortgage

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Federal law that ensures that residential buyers and sellers receive full disclosure of all settlement charges when a 1-4 family unit residence is financed by federally-related first mortgage loans.

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Real Estate Settlement Procedures Act (RESPA)

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A Regulation also called the Truth-in-Lending Act requiring credit institutions to inform borrower of the true cost of obtaining credit.

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Regulation Z/Truth-in-Lending Act

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A mortgage loan under which the homeowner receives monthly payments based on the homeowner's accumulated equity rather than a lump sum; loan must be repaid at a prearranged date, upon the death of the owner, or the sale of the property.

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reverse-annuity mortgage (RAM)

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A transaction in which an owner sells improved property and, as part of the same transaction, signs a long-term lease to remain in possession of the premises.

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sale and leaseback

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market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages; also called the secondary money market

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secondary mortgage market

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Lender allows a borrower in default on mortgage loan payments to sell the mortgaged property for less money than necessary to satisfy the loan to avoid the delay and expense of a foreclosure sale.

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short sale

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A written agreement between holders of liens on a property that changes the priority of mortgage, judgment, and other liens under certain circumstances

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subordination agreement

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A loan made to a borrower with a credit rating below what is required for regular loans creating greater risk liability for the lender that is countered by higher interest rates and fees; called B, C, or D paper

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subprime mortgage

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A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs to limit the lender's possible loss

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VA-guaranteed loan

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A method of refinancing in which the new mortgage is placed in a secondary position. the new mortgage includes both the unpaid principal balance of the first mortgage and whatever additional sums are advanced by the lender

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wraparound loan