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84 Cards in this Set
- Front
- Back
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mortgage |
- a loan for the cost of the home minus the down payment - It's a separate document that is signed at closing - It pledges the home as security for the loan |
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Promissory Note |
-document that contains a promise to repay the loan and the terms and conditions of how the loan will be repaid |
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Term |
- For a specific period of time - Terms are usually 15,20,30 and even 40 years |
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Lock -in (loan commitment) |
- written agreement guaranteeing the home buyer a specified interest rate |
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Principal |
- the amount you return to the lender for the actual dollars you borrowed |
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Interest |
- the fee charged by the financial institution for lending you the money |
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Fixed Interest Rate |
- set at time of purchase and reflects the conditions at the time the mortgage is written - fixed rate- pays the interest and gradually reduces the outstanding principal each month |
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Adjustable Interest Rate (ARM) |
- interest rate changes as national interest move up and down - many have caps that limit how much interest can be charged |
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Term Loan |
- interest payments only until due |
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Amortized loan |
regular equal payment for life of loan including both principal & interest |
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balloon loan |
- any loan that has a final payment larger than any of the previous |
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budget mortage |
- collection 1/12 of the estimated cost of the annual property taxes and hazard insurance on the mortgaged property impound or escrow account: an account into which the lender places monthly tax and insurance payments - when taxes and insurance are due the lender pays them in full |
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PITI Payment |
- 1/12) Principal, Interest, Taxes and Insurance |
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Equity |
the difference between the value of the property and outstanding debt |
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points |
- one percent of the loan amount |
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origination fee |
- fee lender charges for making loan usually stated in terms of a percentage of loan amount |
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discount points |
- lender's charge to raise the return on the loan usually stated as a percentage of the loan amount |
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loan to value |
- the amount the lender is willing to loan and the market value of the property |
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Conventional Mortgage Loans |
- fixed rate, level payment, fully amortized loans - Any home loan not insured by FHA or guaranteed by VA |
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Private Mortgage Insurance |
- generally required for loans over 80% of value - if borrower leaves a down payment of 20% or more insurance not required - protects lender for losses up yo 20 % of the loan - 2.5% of loan in single up front premium - .5 % annual premium (.041 per month) |
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FHA (Federal Housing Administration) |
- Anyone can qualify - 3-5% down - 97-95% L-T-V - up-front premium- 1.50% which can be included in loan - annual premium- based on average balance : - .5% for loans with maturity of more than 15 years - .25% for loans of 15 years or less |
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VA ( Veterans Affairs) |
- guarantees loans -funding fee - Veterans Only - Rate negotiable points - No down payment 100% L-T-V |
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Regulation Z |
- Part of the Truth-in-Lending Act of 1969 - Requires lender to show the borrower the cost of the credit - amount financed - finance charge- total dollar amount the credit will cost the borrower over the life of the loan - Total Payments, and APR |
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Dodd- Frank Wall Street Reform ad Consumer Protection Act |
- Passed in 2010 - New Compliance standards (TRID) |
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TRID |
- 6 items create a loan application 2. Monthly Income 3. Social Security Number 4. Property Address 5. Estimated Value of the Property 6. Loan Amount Sought |
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APR ( annual percentage Rate) |
- combines the interest rate with the other costs of the loan into a single figure that shows the true annual cost of the loan |
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Right to Rescission |
- Borrowers right to cancel a credit transaction - 3 business days after signing to back out (includes Saturdays) - Does not apply to acquisition or initial construction of principal dwelling |
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Qualifying for a Loan |
-settlement funds, purpose of the loan, monthly income, assets and liabilities, credit references, loan to value ratios, credit report |
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credit report |
-provides lender with independent means of checking borrower's credit history |
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Fair credit Reporting Act |
- consumer right to their file at credit bureau |
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Credit Scoring |
method used to evaluate credit risk |
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FICO Socre |
- Scores range from 300 to 850 - Measure the credit risk you pose to lenders - Higher scores mean lower risk - Average credit score is 678 |
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How is FICO Score determined |
- Payment History: 35% - Duration of credit history: 15% - Amount of new credit: 10% - types of credit used: 10% - Debt: 30% |
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Equal Credit Opportunity Act of 1974 |
- Prohibits discrimination in lending by: - Race - Color - Religion - National Origin - Sex - Martial Status - Age - source of income |
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Redlining |
- lenders refusing to make loans in certain areas |
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Predatory lending |
- unscrupulous lenders who take advantage of borrowers lack of knowledge |
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Mortgage Fraud |
- usually involves a conspiracy between a loan originator and an appraiser, buyer's broker, title company or seller's real estate agent |
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identity theft |
- the misuse of another person's identifying information for fraudulent purposes |
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Patriot Act of 2001 |
- Requires financial institutions to verify the identities of all people who do business with them - name and home address - D.O.B - Tax ID number - A copy of an ID |
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Liquid asset |
- an asset that can be converted into cash in a short time, with little or no loss in value |
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Primary Market |
- Where lenders originate loans, where borrowers and lenders meet - Players: Mortgage Bankers, Brokers, Commercial Banks, Savings & Loan Associations, Credit Unions - sources of funds are divided into gov't regulated and non gov't regulated |
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Secondary Market |
- Where existing home loans are resold, wholesale market amount lenders - Players: Fannie Mae and Freddie Mac, wholesale mortgage bankers |
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Savings and loan Associations |
- formerly backbone of mortgage finance - fatal flaw: Funded long-term loans with short - term savings |
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Commercial Banks |
- historically real estate needs of business clients - Assumed former roles of savings associations - Large- Scale construction Lending |
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Mortgage Banker |
- Not a bank- accepts no deposits - originates loans to sell - retains right to service the loan for a fee |
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Mortgage broker |
- brings borrower and lender together for a fee; never owns the loan |
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Ginnie Mae (1968) |
- Empowered to guarantee pass through mortgage- backed securities based on FHA and VA loans - does not buy mortgages - guarantees timely payment of interest and principal to holders of GNMA securities |
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Fannie Mae (1968) |
- primary purchaser of FHA and VA mortgage loan |
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Freddie Mac (1970) |
- purchase and securitize conventional home loans from thrifts |
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Farmer Mac (1987) |
- formed to establish the secondary market for farm real estate loans |
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Ususry |
- State legislation that imposes an interest rate ceiling on loans |
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Due on Sale - Call clause (alienation clause) |
- is a clause that says that the full balance of the loan may be called due upon sale or transfer of ownership of the property used to secure the note |
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Prepayment |
- penalty for the right to repay a loan early |
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automated underwriting system |
- information from a mortgage loan application is uploaded to an AUS by Fannie Mae which retrieves relevant data, such as a borrower's credit history, and arrives at a logic- based loan decision. |
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disintermediation |
- removing the middleman - for example: withdrawal of funds from a bank in order to invest them directly |
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Margin |
- the lender's cost of doing business - 2-3% depending on the loan |
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Adjustment Period |
- amount of time between changes in rate - 1 year is the most common |
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Interest cap rate |
- cap or ceiling on how much the interest rate can rise for any one adjustment period |
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payment cap |
- limits the amount payment can rise |
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negative amortization |
- accrual of interest on a loan balance so that, as loan payments are made the loan balance rises. |
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graduates payment mortgage |
- helps borrowers qualify for loans by basing repayment schedules on salary expectations |
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equity sharing |
- agreement where the party providing financing gets a portion of the ownership |
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Rich Uncle Loan |
- Cosigning for someone |
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Package Mortgage |
- Mortgage that secures personal property in addition to real property |
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Blanket Mortgage |
- Mortgage secured by 2 or more properties |
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Construction loan or interim Loan |
- Short- Term loan for new construction or remodeling of an existing structure |
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Reverse Mortgage |
- Primarily designed for elderly or retired people with considerable equity in their property - converts home equity to income without requiring the borrower to move |
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Blended- Rate Loan |
- offered by lenders to help in refinancing - available on FHA, VA and Conventional Loans held by Fannie Mae |
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Wrap around Mortgage |
- financing arrangement between buyer and seller. - seller carries a portion of the buyer's loan |
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option |
- a contract which gives the buyer the right, but not the obligation, to buy or sell an asset |
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subordination |
- the order of priorities in claims for ownership or interest in a property - for example property taxes are always paid first, anything after that is subordinate |
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contract for deed |
- contract between buyer and seller, where seller provides financing to the buyer - the buyer repays the loan in installments - seller retains legal title to the property |
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creative financing |
- buying land or property using other people's money |
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acceleration clause |
- in the event of default, it allows the lender to call the loan balance due in full |
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condemnation clause |
- if all or part of the property is taken by action of eminent domain any money received is used to reduce the balance on the note |
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assumption |
- buyer adds signature to the note, personal liability for the loan, original owner is secondarily liable |
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novation |
- releases the seller from the personal obligation |
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estoppel |
- verification of amount still owed |
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technical default |
- any violation of the terms of the note |
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Substantive default |
- three missed payments |
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equity of redemption |
-mortgagor can stop foreclosure by paying the loan balance and the foreclosure costs up to that point |
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deficiency Judgment |
- judgment against the mortgagor if the foreclosure sale does not bring enough to pay the balance owed |
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statutory redemption |
- foreclosed borrower has, depending on the state, 1 month to 1 year or more after the foreclosure to pay in full the judgment and retake title to the property |
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short sale |
- homeowner must sell the home for less than is owed - the seller walks away with nothing and the lender with less than what is owed |
