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50 Cards in this Set

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What are the 3 major components of the Real Estate financing market?
1. The Federal Reserve System
2. The primary Mortgage Market
3. The Secondary Mortgage Market
What is the most poweful influence of the flow of money in this country?
The Federal Reserve System ("The Fed")
The Fed is responsible for establishing what?
The Monetary Policy
What are the 3 major tools the FED has at their disposal to control economic growth?
1. Reserve Requirements
2. Discount Rates
3. Federal Open Market Committee (FOMC)
What is the Federal Reserve System used for?
To maintain sound credit conditions, help counteract inflationary & deflationary trends and create a favorable economic climate.
What does the FOMC(Federal Open Market Committee do?
Buys and sells US government securities on the open market. (When its sells it remove money from circulation, when it buys it infuses reserves back into general supply).
Why should R.E. licensees understand the FED?
The gold rule - they got the gold - they make the rules.
What happens when the FED limits the amt of money back can use to make loans?
When the lending decreases the interest rates rise.
What are discount rates?
The interest rate that the district banks charge for the use of money (set by the FED)
Income on a loan is realized from what two sources?
1. Finance charges collected at clsoing (loan origination fees & discount points)
2. Recurring income - which is the interest collected during the term of the loan
What is the Primary Mortgage Market?
Where borrowers (consumers)directly interact with lenders.
What is the Secondary Mortgage Market?
Where lenders and investors interact (loans are bought & sold only after they have been funded)
What are the 3 most active participants in the secondary mortgage market?
1. Fannie Mae (buy all0
2. Ginnie Mae (FHA, VA or Farm services)
3. Freddie Mac (from thrifts)
Of the 3 major participants in the secondary mortgage market - what 2 own 2/3 of all mortgages?
Fannie Mae and Freddie Mac
What is Fannie Mae?
(formerly the Federal National Mortgage Association or FNMA) Quasi-Governmental Agency. Deals in conventional as well as FHA & VA loans.
What is Ginnie Mae?
(formerly the Government National Mortgage Association or GNMA) a government agency (division of HUD) organzied as a coproration w/o capital stock. Adminsters special-assistance programs and works with Fannie Mae in secondary market activies.
What is Freddie Mac?
(Federal Home Loan Mortgage Corp or FHLMC) provides a secondary market for mortage loans, primarily conventional loans.
What is the mortgagor?
The borrower
What is the motgagee?
The lender
What are the 2 parties of a mortgage?
The mortgagor (borrower) and the Martgagee (lender)
What is a Title Theory state?
Views a mortgage as a conveyance of legle title to the martgagee. Legal title is returned to mortgagor only when the debt is paid in full. In theory lender has the right to immeidate possession of real estate if mortgagor defaults
What is a Lien Theory state?
Mortgage is viewed simply as a lien on the property. If mortgagor defaults, the mortgagee must go through a formal foreclosure procedure to obtain legal title.
What is Intermediary Theory?
Based on the principles of title theory but require the motgagee foreclose to obtain legal title. The property owner does not automatically forfeit the real estate on default of the debt. The borrower must 1st be given a notice of intention to foreclosure before lender can file suit & proceed with foreclosure.
What theory is Pennsylvania?
Intermediary Theory.
What is a Note?
(Financing Instrument) the borrower's personal promise to repay a debt according to agreed-on-terms.
What is a Mortgage?
(Security Instrument) the document that creates the lien on the property.
What is Hypothecation?
The pledging of property as security for payment of a loan without surrendering possession of the property.
What is a deed of trust?
Three-party instrument. Deed is given as security for the load to a 3rd party (trustee) trustee holds on behalf of lender (beneficiary) (borrower is the trustor)
What are the 2 ways interest may be paid?
Arrears (at the end of a period) or In Advance (at the beginning of each period)
What is a Loan Origination Fee?
The fee charged to cover the lender's initial cost of generating the loan (credit, appraisals & inspections). Typically 1% of the loan but could be up to 3%.
What is a prepayment clause?
A clause requiring the borrower to pay a prepayment penalty against the unearned portion of the interest if payments are made ahead of schedule.
What is usury?
When lenders charge interest the exceed the permissible mximum rate.
Currently in PA - what is the amt that prevents prepayment penalities?
$50,000 or less
What is a amortized loan?
Systematic payments of principal along with interest w/ the result that loans are gradually paid off over time.
What is an acceleration clause?
To assit the lender in foreclosure. The lender has the right to accelerate the maturity of the debt if in default.
What is a defeasance clause?
The mortgagee is required to execute a satification of mortgage (or release of mortgage) when the note has been fully paid.
What is PITI?
Principal
Interest
Taxes
Insurance
Set in an escrow account as part of mortgage loan to pay or the above
What defines flood water?
Surface water run-off
What is an Alienation Clause?
(also known as a resale clause or due-on-sale clause)provides that when a property is sold, the lender may either declare the balance of the seller's debt due immeidately or permit the buyer to assume the loan at an interest rate acceptable to the lender.
What is Foreclosure?
A legal procedure in which property pledged as securit is sold to satisfy the debt.
What is HEMAP?
In PA - created in the 80's - Homeowner Emergency Assistance Program. Provides counseling and loans to assist paying delinquent mortgage loans up to payment assistance of 24 months.
What is Judicial Foreclosure?
Allows the property to be sold by court order after the mortgagee has given sufficient public notice. Public sale is advertised and real estate is sold to the highest bidder. Most common mortgage foreclosure in PA.
What is Nonjudicial Foreclsosure?
No court action is required - when the security instrument contains a power of sale clause.
What is strict foreclosure?
Once proper papers have been recorded, the court establishes a deadline that balance of the defaulted debt must be paid and if not the court simply awards full legal title to the lender - no sale takes place.
What is the Friendly Foreclosure?
Deed in Lieu of Foreclosure - by mutual agreement rather than by lawsuit. Down size is the mortgagee takes the real estate subject to all junior liens.
What is the Equitable Right of Redemption?
After default but before the foreclosure sale, the borrower may pay the lender the amount in default plus costs and the debt will be instated.
What is Statutory Right of Redemption?
The borrower who can raise the necessary funds to redeem the property within the statutory period pays the redemption money to the court. Because the debt was paid from the proceeds of the sale, the borrower can take possession free and clear of the former defaulted loan. (PA does not allow this)
What is a Deficiency Judgement?
When the foreclosure sale doesn't produce enought cash to pay the loan balance the lender my be entitled to put a personal judgment against the borrower for the unpaid balance.
The person who obtains a real estate loan by executing a note and a mortgage is called the ?
Mortgagor
The borrower under a deed of trust is known as the ?
Trustor