Texas Real Estate Finance

Texas Real Estate Finance

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Real Estate Finance COURSE WORKBOOK

CHAPTER 1

The Nature & Cycle of Real Estate Finance


After completing this Chapter, you will be able to:

1) Explain the role of the primary and secondary mortgage markets.

2) List at least three participants in the primary mortgage market.

3) List at least three participants in the secondary mortgage market.

4) Summarize the progression of a real estate cycle in detail.

NOTES

1.0 Chapter 01 Learning Objectives


0:00 - Introduction / overview

1:50 - Learning objectives

2:40 - Key terms

NOTES

1.1 Goals & Key Terms


0:00 - The construction industry

3:35 - Credit system economy

7:50 - Real estate loans: long-term loans

8:30 - Disintermediation

12:30 - How financing works / collateral

14:10 - Default and foreclosure

15:40 - Hypothecation

16:30 - Leverage

Collateral - Marketable real or personal property which a borrower pledges

as security for a loan. In mortgage transactions, specific land is the

collateral.

Promissory Note – Following a loan commitment from the lender, the

borrower signs a note, promising to repay the loan under stipulated terms.

The promissory note establishes personal liability for its payment. The

evidence of the debt.

Default - Failure to fulfill a duty or promise or to discharge an obligation;

omission or failure to perform any act.

Foreclosure – Procedure whereby property pledged for a debt is sold to pay

the debt in event of default in payments or terms.

Hypothecate – To pledge a thing as security without the necessity of giving

up possession of it.

Equitable Title – The right to obtain full ownership of property.

NOTES

1.2 The Nature of Real Estate Finance

Key Terms to Know


Legal Title – The actual ownership of property.

Leverage - The use of debt financing of an investment to maximize the

return per dollar of equity invested.

NOTES

1.2 The Nature of Real Estate Finance

(continued)

Key Terms to Know


0:00 - Mortgage lending activities / savings account

2:25 - Primary and secondary mortgage markets

4:45 - Residential mortgages

5:35 - Price fluctuations

8:25 - Interest rates

13:10 - The financial crisis

Primary Mortgage Market – The marketplace whereby loans are originated.

Secondary Mortgage Market – The marketplace whereby the loans that

were originated in the primary mortgage market are bought and sold.

Interest Rate – The percentage of a sum of money charged for its use. Rent

or charge paid for use of money, expressed as a percentage per month or

year of the sum borrowed.

NOTES

1.3 Mortgage Lending Activities

Key Terms to Know


Please refer to page 3 of the Real Estate Finance – Infographics booklet.

NOTES

1.3.2 Primary and Secondary Mortgage

Markets - Infographic


0:00 - Real estate cycles

1:30 - Short-term cycle

2:15 - Long-term cycle

3:10 - Population / demographics

5:05 - Social attitudes

5:40 - Tax issues

6:15 - Property valuations

9:00 - American Taxpayer Relief Act of 2012

11:20 - Impact of the economy

Recession – Two or more consecutive quarters of negative growth.

NOTES

1.4 Real Estate Cycles / Impact on the

Economy

Key Terms to Know


0:00 - Important Acts to know

NOTES

1.5.1 Informational Resources


Link #1

American Recovery and Reinvestment Act overview

https://www.whitehouse.gov/recovery/about

Link #2

American Taxpayer Relief Act of 2012

https://www.congress.gov/bill/112th-congress/house-bill/8

Link #3 Consumer Financial Protection Bureau

http://www.consumerfinance.gov/

Link #4

Home Affordable Modification Program

https://www.makinghomeaffordable.gov/steps/pages/step-2-program-

hamp.aspx

Link #5

Home Affordable Refinance Program

http://www.harp.gov/

Link #6

Mortgage Forgiveness Debt Relief Act of 2007

https://www.irs.gov/uac/home-foreclosure-and-debt-cancellation

Link #7

Taxpayer Relief Act of 1997

https://en.wikipedia.org/wiki/Taxpayer_Relief_Act_of_1997

Link #8 Dodd-Frank Act

https://en.wikipedia.org/wiki/Dodd%E2%80%93Frank_Wall_Street_Reform_a

nd_Consumer_Protection_Act

NOTES

1.5.2 Links to Informational Resources


0:00 - Chapter review

NOTES

1.6 Study Info


CHAPTER 2

Money & the Monetary System



1) Identify at least two types of money supply, and provide an example

of each.

2) Explain at least two duties of the Federal Reserve.

3) Explain at least two duties of the U.S. Treasury.

4) Explain at least two duties of the FDIC.

NOTES




1:50 - Key terms

NOTES



0:00 - What is money?

6:15 - Supply of money

9:05 - Description of money

10:50 - Cost of money

13:15 - Federal Reserve

14:25 - U.S. Treasury

NOTES

2.2 What is Money?


0:00 - Federal Reserve System

Federal Reserve System – The federal banking system of the United States

under the control of central board of governors (Federal Reserve Board)

involving a central bank in each of twelve geographical districts with broad

powers in controlling credit and the amount of money in circulation.

NOTES

2.3 The Federal Reserve System

Key Terms to Know


0:00 - Instruments of credit policy

3:10 - Truth in Lending Act (TILA)

Truth in Lending Act (TILA) – The name given to the federal statutes and

regulations (Regulation Z) which are designed primarily to insure that

prospective borrowers and purchasers on credit receive credit cost

information before entering into a transaction.

NOTES

2.4 Instruments of Credit Policy

Key Terms to Know


0:00 - Reserve requirements

1:55 - Discount rates

3:35 - Open market operations

4:50 - Truth-in Lending Act / Regulation Z

8:00 - U.S. Treasury

9:00 - Troubled Asset Relief Program (TARP)

11:20 - Office of the Comptroller of the Currency (OCC)

13:10 - The U.S. Bureau of Engraving and Printing

14:25 - U.S. Mint

Discount Rate – The minimum interest rate set by the Federal Reserve for

lending to other banks.

Sub-prime Mortgages (lending) – A type of loan granted to individuals with

poor credit histories (often below 600), who, as a result of their deficient

credit ratings, would not be able to qualify for conventional mortgages.

Regulation Z – The Truth in Lending Act of 1968 is United States federal law

designated to promote the informed use of consumer credit, by requiring

disclosures about its terms and cost to standardize the manner in which

costs associated with borrowing are calculated and disclosed.

NOTES

2.5 The U.S. Treasury and U.S. Mint

Key Terms to Know


0:00 - The Federal Deposit Insurance Corporation (FDIC)

The Federal Deposit Insurance Corporation (FDIC) - Preserves and

promotes public confidence in the U.S. financial system by insuring deposits

in banks and thrift institutions for at least $250,000; by identifying,

monitoring and addressing risks to the deposit insurance funds; and by

limiting the effect on the economy and the financial system when a bank or

thrift institution fails.

NOTES

2.6 The Federal Deposit Insurance

Corporation (FDIC)

Key Terms to Know


Please refer to page 3 of the Real Estate Finance – Supporting Documents

booklet.

NOTES

2.6.2 FDIC Overview


0:00 - The Federal Home Loan Bank System

NOTES

2.7 The Federal Home Loan Bank (FHLB)

System



8:20 - Internet resources

NOTES

2.8.1 Study Info & Information Resources


Link #1

FDIC 'About' page

https://www.fdic.gov/about/

Link #2

Federal Home Loan Bank website

http://www.fhlbanks.com/

Link #3 Federal Housing Finance Agency

http://www.fhfa.gov/

Link #4

Federal Reserve website

http://www.federalreserve.gov/default.htm

Link #5

Office of the Comptroller of Currency website

http://www.occ.gov/

Link #6 U.S. Department of Treasury website

https://www.treasury.gov/Pages/default.aspx

NOTES

2.8.2 Links to Informational Resources


CHAPTER 3

Additional Government Influence



1) Discuss at least two responsibilities of HUD.

2) Explain the purpose of the Farm Credit System.

3) Explain the purpose of the CFPB.

4) Provide at least one requirement under both RESPA and TILA.

5) Explain the purpose of the Loan Estimate and Settlement

Statement.

NOTES



0:00 - Introduction


2:40 - Key Terms

NOTES



0:00 - U.S. Department of Housing & Urban Development (HUD)

10:15 - Goals of HUD

11:55 - Office of Fair Housing and Equal Opportunity (FHEO)

13:50 - Fair Housing Act

U.S. Department of Housing & Urban Development (HUD) - Responsible for

the implementation and administration of U.S. government housing and

urban development programs.

Fair Housing Act of 1968 – A federal prohibition on discrimination in sale,

rental, financing, or appraisal of housing on the basis of race, color, religion,

gender, national origin, handicap, or familial status.

NOTES

3.2.1 U.S. Department of Housing & Urban

Development (HUD) – Part 1

Key Terms to Know


0:00 - Community Development Block Grant Program (CDBG)

3:40 - Interstate Land Sales Full Disclosure Act

6:10 - Urban renewal

7:00 - Subsidized housing / Section 8

11:30 - First-time homebuyer vouchers

12:55 - HUD Good Neighbor Next Door Program

NOTES

3.2.2 U.S. Department of Housing & Urban

Development (HUD) – Part 2


0:00 - Consumer Financial Protection Bureau (CFPB)

NOTES

3.3 Consumer Financial Protection Bureau


0:00 - Equal Credit Opportunity Act (ECOA)

Equal Credit Opportunity Act (ECOA) – A federal law enacted in 1974 which

makes it unlawful for any creditor to discriminate against any applicant,

with respect to any aspect of a credit transaction, on the basis of race, color,

religion, national origin, sex, marital status, or age.

NOTES

3.4.1 Significant Federal Legislation (ECOA,

CRA, TILA, RESPA, SAFE, APA,

Dodd-Frank) – Part 1

Key Terms to Know



booklet.

NOTES

3.4.1.2 Your Equal Credit Opportunity Rights


0:00 - RESPA

9:10 - TILA

11:50 - Community Reinvestment Act (CRA)

13:50 - Home Mortgage Disclosure Act (HMDA)

Real Estate Settlement Procedures Act (RESPA) - A consumer protection

statute, first passed in 1974. The purpose of RESPA are:

1) To help consumers become better shoppers for settlement services and

2) To eliminate kickbacks and referral fees that unnecessarily increase the

costs of certain settlement services.

Annual Percentage Rate (APR) – The relative cost of credit as determined in

accordance with Regulation Z of the Board of Governors of the Federal

Reserve System for implementing the Federal Truth in Lending Act.

NOTES

3.4.2 Significant Federal Legislation (ECOA,

CRA, TILA, RESPA, SAFE, APA,

Dodd-Frank) – Part 2

Key Terms to Know


0:00 - Industrial development agencies

2:20 - Mortgage insurance programs (PMI / MIP)

6:10 - Community redevelopment agencies

Private Mortgage Insurance (PMI) – A type of mortgage insurance required

on conventional loans in which the homebuyer makes a down payment of

less than 20% of the purchase price.

Mortgage Insurance Premium (MIP) - A one-time premium paid at the

closing pursuant to the purchase.

NOTES

3.5 State and Local Programs

(including TDHCA)

Key Terms to Know


0:00 - Agricultural lending

8:00 - Farmer Mac

10:50 - USDA Rural Development Program

NOTES

3.6 Agricultural Lending



booklet.

NOTES

3.7.1 HUD Good Faith Estimate


0:00 - Review of the Good Faith Estimate form

Good Faith Estimate – The lender’s estimate of the borrower’s settlement

costs.

NOTES

3.7.2 Review of Loan Estimate (aka GFE)

Key Terms to Know



booklet.

NOTES

3.8.1 HUD-1 Settlement Statement


0:00 - Review of the HUD-1 Settlement Statement

NOTES

3.8.2 Review of Settlement Statement

(aka HUD-1)



NOTES

3.9 Study Info


CHAPTER 4

The Secondary Mortgage Market



1) List at least three participants in both the primary and secondary

mortgage markets.

2) List at least three government sponsored enterprises and their

duties.

3) Explain the difference between a conforming and nonconforming

loan.

NOTES



0:00 - Introduction


3:15 - Key terms

NOTES



0:00 - Major participants in the secondary mortgage market

Primary Mortgage Market – The marketplace whereby loans are originated.

Secondary Mortgage Market – The marketplace whereby the loans that

were originated in the primary mortgage market are bought and sold.

NOTES

4.2 Major Participants in the Secondary

Mortgage Market

Key Terms to Know


0:00 - Government sponsored enterprises

2:10 - Federal Housing Finance Agency (FHFA)

4:30 - Fannie Mae

10:00 - Conventional loans

14:35 - Underwriting standards

Fannie Mae – An acronymic nickname for Federal National Mortgage

Association (FNMA), a privately owned corporation that purchases FHA, VA,

and conventional mortgages.

Conventional Loan – A mortgage securing a loan made by investors without

governmental underwriting, i.e., which is not FHA insured or VA guaranteed.

This type of loan is customarily made by a bank or savings and loan

association.

Underwriting – The criteria with which a lender determines the credit

worthiness in order to qualify them for the loan.

NOTES

4.3.1 Government Sponsored Enterprises

(FNMA, FHLMC, GNMA, FHLB,

Farmer Mac) – Part 1

Key Terms to Know


0:00 - Guidelines for underwriting

4:10 - Conforming & non-conforming loan

5:10 - Credit scores

7:50 - Fixed loans / adjustable rate loans / construction loans

9:10 - Freddie Mac

12:35 - Ginnie Mae

14:00 - Federal Home Loan Bank (FHLB)

16:00 - Farmer Mac

17:20 - Negative amortization loan

Conforming Loan – Those loans processed on uniform loan forms according

to FNMA/FHLMC guidelines.

Non-conforming Loan – A loan that does not meet the guidelines of

Government Sponsored Enterprises (GSE), such as Fannie Mae or Freddie

Mac.

Jumbo Loan – A loan whose amount is above conventional conforming loan

limits set by Fannie Mae and Freddie Mac.

Credit Score – A number assigned to a person that indicates to lenders their

capacity to repay a loan.

Fixed Interest Rate Loan – A loan where the interest rate does not fluctuate

during the term of the loan.

NOTES



Farmer Mac) – Part 2

Key Terms to Know


Adjustable Rate Mortgage (ARM) – A mortgage loan which bears interest at

a rate subject to change during the term of the loan, predetermined or

otherwise.

Freddie Mac – A nickname for Federal Home Loan Mortgage Corporation

(FHLMC), a corporation wholly owned by the Federal Home Loan Bank

System that purchases FHA, VA, and conventional mortgages.

Ginnie Mae – a nickname for Government National Mortgage Association

(GNMA), a U.S. government agency that purchases FHA and VA mortgages.

Negative Amortization – Occurs when monthly installment payments are

insufficient to pay the interest accruing on the principal balance, so that the

unpaid interest must be added to the principal due.

NOTES



Farmer Mac) – Part 2 (continued)

Key Terms to Know


0:00 - Real Estate Mortgage Investment Conduits (REMICs)

NOTES

4.4 Real Estate Mortgage Investment

Conduit (REMICs)



NOTES

4.5 Study Info


CHAPTER 5

Sources of Funds



1) Identify at least two types of loans offered by a commercial bank.

2) Identify the parties under of deed of trust, and explain each of their

roles.

3) Discuss the role of credit unions in the primary mortgage market.

4) Explain the difference between a mortgage banker and a mortgage

broker.

5) Identify three different types of REITs.

NOTES



0:00 - Introduction


1:45 - Key Terms

NOTES



0:00 - Commercial banks

2:40 - Short-term loans

3:55 - Long-term loans

5:00 - Equity loans

9:10 - Trusts (revocable and irrevocable)

11:45 - Deed of trust

12:30 - Mortgage banker

13:45 - Real estate mortgage trust / real estate development

15:45 - Mutual savings banks

16:45 - Savings associations

Equity – The value of an asset minus the debt.

Home Equity Loan – A loan in which the borrower uses the equity in their

home as collateral.

Irrevocable Trust – A trust that cannot be modified or terminated without

the permission of the beneficiary.

Revocable Trust – A trust which can be altered or canceled dependent on

the grantor.

NOTES

5.2 Commercial Banks

Key Terms to Know


Deed of Trust – A legal document by which a borrower pledges certain real

property or collateral as guarantee for the repayment of a loan. It differs

from the mortgage in a number of important respects. For example, instead

of their being two parties to the transaction there are three. There is the

borrower who signs the trust deed and who is called the trustor. There is

the third, neutral party, to whom trustor deeds the property as security for

the payment of the debt, who is called the trustee. And, finally, there is the

lender who is called the beneficiary, the one who benefits from the pledge

agreement in that in the event of a default the trustee can sell the property

and transfer the money obtained at the sale to lender as payment of the

debt.

Trustee – One who holds property in trust for another to secure the

performance of an obligation. Third party under a deed of trust.

Trustor – One who borrows money from a trust deed lender, then deeds

the real property securing the loan to a trustee to be held as security until

trustor has performed the obligation to the lender under terms of a deed of

trust.

Beneficiary – The lender on the security of a note and deed of trust.

NOTES

5.2 Commercial Banks (continued)

Key Terms to Know


0:00 - Life insurance companies

NOTES

5.3 Life Insurance Companies


0:00 - Pension & retirement programs

NOTES

5.4 Pension & Retirement Programs


0:00 - Credit unions

NOTES

5.5 Credit Unions


0:00 - Mortgage broker

2:40 - Mortgage banker

6:00 - SAFE Act

Mortgage Broker – A broker who arranges a mortgage loan between a

lender and a borrower for a fee.

NOTES

5.6 Mortgage Banker and Broker

Key Terms to Know


0:00 - REITs

7:00 - REMTs

Real Estate Investment Trust (REIT) - A business trust which deals

principally with interest in land, generally organized to conform to the

Internal Revenue Code.

NOTES

5.7 Real Estate Trust (REIT, REMT)

Key Terms to Know



booklet.

NOTES

5.7.2 REIT Overview


0:00 - Real estate bonds

Bond – A debt instrument that represents debt.

NOTES

5.8 Real Estate Bonds

Key Terms to Know


0:00 - Seller financing

2:25 - Financing from family members

3:55 - Foreign lenders

Seller Financing – A loan provided by the seller of a property or business to

the purchaser.

NOTES

5.9 Private & Foreign Lenders

Key Terms to Know



NOTES

5.10 Study Info


CHAPTER 6

Instruments of Real Estate Finance



1) List three examples of an easement.

2) Identify at least four types of liens.

3) Explain the priority of liens concept in detail, and identify what type

of lien always takes top priority over other liens.

4) Describe the difference between a mortgage and deed of trust.

5) Summarize at least two clauses in a mortgage lending instrument.

NOTES



0:00 - Introduction


2:30 - Key terms

NOTES



0:00 - Encumbrances

1:10 - Easements

4:50 - Liens


8:45 - Mortgage

9:45 - Contract for deed

10:20 - Voluntary lien / involuntary lien / general lien / specific lien

13:20 - Judgement lien

Encumbrance – A right or interest in a property that is used by someone

other than the owner.

Easement – A right, privilege or interest limited to a specific purpose which

one party has in the land of another.

Encroachment – An unlawful intrusion onto another’s adjacent property by

improvements to real property (ex: a swimming pool built across a property

line).

Easement by Necessity – Exists when a landowner has no access to roads

and is landlocked.

Lien – A form of encumbrance which usually makes specific property

security for the payment of a debt or discharge of an obligation (ex:

judgments, taxes, mortgages, deeds of trust, etc..).

NOTES

6.2.1 Encumbrances and Liens – Part 1

Key Terms to Know


Voluntary Lien – Any lien placed on property with consent of, or as a result

of, the voluntary act of the owner.

Involuntary Lien – A lien imposed against property without consent of an

owner (ex: taxes, special assessments, federal income tax liens, etc..).

General Lien – A lien on all the property of a debtor.

Specific Lien – A lien that attaches to one specific property only.

Judgment Lien – A legal claim on all of the property of a judgment debtor

which enables the judgment creditor to have the property sold for payment

of the amount of the judgment.

NOTES


(continued)

Key Terms to Know



NOTES

6.2.1.2 Easements - Infographic


0:00 - Mortgage lien

1:50 - Priority of liens

4:05 - Security for a loan (fee simple / leasehold)

7:20 - Life estate interest

9:20 - Air and mineral rights

9:55 - Personal property

11:05 - Title & lien theory

14:05 - Intermediate theory

14:30 - General requirements for a finance instrument

Mortgage Lien – A legal claim against a mortgaged property, which must be

paid when the property is sold.

Fee Simple Estate – Absolute ownership of real property; a person has this

type of estate where the person is entitled to the entire property with

unconditional power of disposition during the person’s life and descending

to the person’s heirs or distributees.

Leasehold Estate – Non-freehold estate; of limited duration, providing the

right of possession and control but not title.

Life Estate – A freehold estate created for the duration of the life or lives of

certain named persons; a non-inheritable estate.

NOTES


Key Terms to Know



10:00 - The promissory note

Deed of Trust – A legal document by which a borrower pledges certain real

property or collateral as guarantee for the repayment of a loan. It differs

from the mortgage in a number of important respects. For example, instead

of their being two parties to the transaction there are three. There is the

borrower who signs the trust deed and who is called the trustor. There is

the third, neutral party, to whom trustor deeds the property as security for

the payment of the debt, who is called the trustee. And, finally, there is the

lender who is called the beneficiary, the one who benefits from the pledge

agreement in that in the event of a default the trustee can sell the property

and transfer the money obtained at the sale to lender as payment of the

debt.

Trustee – One who holds property in trust for another to secure the

performance of an obligation. Third party under a deed of trust.

Trustor – One who borrows money from a trust deed lender, then deeds

the real property securing the loan to a trustee to be held as security until

trustor has performed the obligation to the lender under terms of a deed of

trust.

Beneficiary – The lender on the security of a note and deed of trust.

Promissory Note – Following a loan commitment from the lender, the

borrower signs a note, promising to repay the loan under stipulated terms.

The promissory note establishes personal liability for its payment. The

evidence of the debt.

NOTES

6.3 The Note & Deed of Trust

Key Terms to Know


0:00 - The promissory note

3:35 - The mortgage

Mortgage – An instrument recognized by law by which property is

hypothecated to secure the payment of a debt or obligation; a procedure

for foreclosure in event of default is established by statute.

NOTES

6.4 The Note and Mortgage

Key Terms to Know


0:00 - Contract for deed (land contract)

Land Contract – A contract used in a sale of real property whereby the seller

retains title to the property until all or a prescribed part of the purchase

price has been paid.

Vendee – A purchaser, buyer.

Vendor – A seller.

NOTES

6.5 The Contract For Deed (Land Contract)

Key Terms to Know


0:00 - Junior finance instrument

6:20 - Home equity line of credit

7:45 - Third mortgages

Subordinate – To make subject to, junior or inferior to.

NOTES

6.6 Subordinate Finance Instruments

Key Terms to Know


0:00 - Late payment penalty

1:00 - Pre-payment penalty

1:50 - Locked-in clause

2:10 - Due on sale clause

4:20 - Assumption clause

5:00 - Subject-to clause

6:20 - Release clause

Prepayment Penalty – The charge payable to a lender by a borrower under

the terms of the loan agreement if the borrower pays off the outstanding

principal balance of the loan prior to its maturity.

Due on Sale Clause – An acceleration clause granting the lender the right to

demand full payment of the mortgage upon a sale of the property.

Release Clause - A stipulation that upon the payment of a specific sum of

money to the holder of a

trust deed or mortgage, the lien of the instrument as to a specifically

described lot or area shall be removed from the blanket lien on the whole

area involved.

NOTES

6.7 Special Provisions in Mortgage Lending

Instruments

Key Terms to Know



booklet.

NOTES

6.8.1 Promissory Note


0:00 - Review of promissory note

NOTES

6.8.2 Review of Promissory Note Form



booklet.

NOTES

6.9.1 Residential Deed of Trust


0:00 - Review of trust form

NOTES

6.9.2 Review of Trust Form



NOTES

6.10 Study Info


CHAPTER 7

Loan Types, Terms & Issues



1) Define interest and how interest is calculated.

2) Summarize at least three types of loans.

3) Define PMI and explain how it is used.

NOTES



0:00 - Introduction


3:20 - Key terms

NOTES



0:00 - What is interest?

0:50 - Simple interest

3:20 - Interest rate factor

4:40 - Interest-only loans / term loans

16:15 - Points

17:20 - Buy-down of interest

18:30 - Full amortization

Interest Rate – The percentage of a sum of money charged for its use. Rent

or charge paid for use of money, expressed as a percentage per month or

year of the sum borrowed.

Simple Interest - Interest computed on the principal amount of a loan only

as distinguished from compound interest.

Interest Only Loan - A straight, non-amortizing loan in which the lender

receives only interest during the term of the loan and principal is repaid in a

lump sum at maturity.

Straight Note – A note in which a borrower repays the principal in a lump

sum at maturity while interest is paid as authorized by the agent’s principal.

Balloon Payment – An installment payment on a promissory note, usually

the final one for discharging the debt, which is significantly larger than the

other installment payments provided under the terms of the promissory

note.

NOTES

7.2 Interest

Key Terms to Know


Amortization - The liquidation of a financial obligation on an installment

basis; also, recovery over a period of cost or value.

Negative Amortization – Occurs when monthly installment payments are

insufficient to pay the interest accruing on the principal balance, so that the

unpaid interest must be added to the principal due.

Amortized Loan - A loan to be repaid, interest and principal, by a series of

regular payments that are equal or nearly equal, without any special balloon

payment prior to maturity.

NOTES

7.2 Interest (continued)

Key Terms to Know


0:00 - Convention loan

1:20 - Conforming vs non-conforming loans

3:50 - Fixed rate loans

9:05 - Tax liens

10:30 - Ad valorem

12:40 - Homeowners Insurance

Conventional Loan – A mortgage securing a loan made by investors without

governmental underwriting, i.e., which is not FHA insured or VA guaranteed.

This type of loan is customarily made by a bank or savings and loan

association.

Conforming Loan – Those loans processed on uniform loan forms according

to FNMA/FHLMC guidelines.

Non-conforming Loan – A loan that does not meet the guidelines of

Government Sponsored Enterprises (GSE), such as Fannie Mae or Freddie

Mac.

Fixed Interest Rate Loan – A loan where the interest rate does not fluctuate

during the term of the loan.

Ad Valorem – Latin for “according to value”.

Homeowners Insurance – A form of property insurance designed to protect

an individual’s home against damages to the house itself, or to possessions

in the home.

NOTES

7.3.1 Types of Loans – Part 1

Key Terms to Know


0:00 - Adjustable rate mortgage

3:20 - Graduate payment mortgage

5:30 - Home equity loan

8:00 - Home equity line of credit

11:20 - Home ownership and Equity Protection Act of 1994

12:10 - Reverse annuity mortgage

15:00 - Conventional loan compliance

Adjustable Rate Mortgage (ARM) – A mortgage loan which bears interest at

a rate subject to change during the term of the loan, predetermined or

otherwise.

Graduate Payment Mortgage - Providing for partially deferred payments of

principal at start of loan. (There are a variety of plans.) Usually after the first

five years of the loan term the principal and interest payment are

substantially higher, to make up principal portion of payments lost at the

beginning of the loan.

Home Equity Loan – A loan in which the borrower uses the equity in their

home as collateral.

Home Equity Line of Credit (HELOC) – A loan in which the lender agrees to

lend a maximum amount within an agree period, where the collateral is the

borrower’s equity in their house.

NOTES

7.3.2 Types of Loans – Part 2

Key Terms to Know



NOTES

7.3.3 Types of Loans - Infographic


0:00 - Private mortgage insurance (PMI)

1:50 - PITI

2:50 - Mortgage Forgiveness Debt Relief Act 2007

4:05 - PMI guidelines

7:20 - Split loans

Private Mortgage Insurance (PMI) – A type of mortgage insurance required

on conventional loans in which the homebuyer makes a down payment of

less than 20% of the purchase price.

PITI – An acronym for a mortgage payment that is the sum of monthly

principal, interest, taxes, and insurance.

NOTES

7.4 Private Mortgage Insurance (PMI)

Key Terms to Know


0:00 - HARP

1:30 - Home Affordable Modification Program (HAMP)

NOTES

7.5 Refinancing Existing Conventional Loans


0:00 - Subprime loans / predatory lending

Sub-prime Mortgages (lending) – A type of loan granted to individuals with

poor credit histories (often below 600), who, as a result of their deficient

credit ratings, would not be able to qualify for conventional mortgages.

NOTES

7.6 Subprime & Predatory Lending

Key Terms to Know


0:00 - Variations and formats

0:25 - Open-end mortgage

1:05 - Construction mortgage

1:40 - Blanket mortgage

2:10 - Leasehold mortgage

2:30 - Package mortgage

3:30 - Manufactured housing mortgage

4:15 - Purchase money mortgage

4:30 - Bridge loan

4:45 - Wrap-around loan

4:55 - Option to buy

5:20 - Lease with the option to buy (lease purchase agreement)

5:45 - Participation agreement

7:20 - Sale buyback

8:00 - Split fee financing

Construction Loan - A loan made to finance the actual construction or

improvement on land. Funds are usually dispersed in increments as the

construction progresses.

Blanket Mortgage - A single mortgage which covers more than one piece of

real property.

Wrap Around Mortgage - A financing device whereby a lender assumes

payments on existing trust deeds of a borrower and takes from the

borrower a junior trust deed with a face value in an amount equal to the

amount outstanding on the old trust deeds and the additional amount of

money borrowed.

NOTES

7.7 Participation Agreements

Key Terms to Know


0:00 - Tax impact in mortgage lending

1:25 - 1031 Exchange

3:30 - Fixed vs adjustable rate mortgages

Section 1031 Exchange - A section of the U.S. Internal Revenue Service

Code that allows investors to defer capital gains taxes on any exchange of

like-kind properties for business or investment purposes.

NOTES

7.8 Tax Impact in Mortgage Lending /

Review of Fixed and Adjustable Rate

Mortgages

Key Terms to Know


0:00 - Red flags involving mortgage fraud

NOTES

7.9 Mortgage Fraud


Link #1

http://www.tdi.texas.gov/title/mortgagefraud.html

NOTES

7.9.2 Mortgage Fraud Resource Page



NOTES

7.10 PITI - Infographic


PITI Case Study

NOTES

7.10.2 PITI Case Study



NOTES

7.11 Study Info


CHAPTER 8

Government Loans



1) Identify at least two duties of the FHA.

2) Identify at least three underwriting guidelines for FHA loans.

3) Identify at least three types FHA loans.

NOTES



0:00 - Introduction


8:05 - Key Terms

NOTES

8.1 Intro, Goals & Key Terms


0:00 - History of the FHA

1:50 - History of the VA

3:55 - Federal Housing Administration (FHA)

7:00 - Requirements under the FHA

10:10 - Home inspections for FHA loans

NOTES

8.2 Federal Housing Administration (FHA)



booklet.

NOTES

8.2.2 FHA Home Loans 101


0:00 - Mortgage insurance for FHA loans

3:30 - Title 1 program

5:10 - Title 2 programs

12:45 - FHA & HUD programs

13:05 - Energy Efficient Mortgage (EEM)

14:10 - Home Equity Conversion Mortgage (HECM)

14:55 - Good Neighbor Next Door

17:00 - Homeownership voucher

21:00 - Native American housing

21:35 - Title 2 manufactured housing

23:40 - Disaster relief

FHA-Insured Loan – A mortgage loan in which payments are insured by the

Federal Housing Administration.

Mortgage Insurance Premium (MIP) - A one-time premium paid at the

closing pursuant to the purchase.

NOTES

8.3 FHA Insured Loan Program

Key Terms to Know



booklet.

NOTES

8.3.2 HUD Mortgage Insurance Premiums


Link #1

HUD Title 1 Program

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/title/ti

_abou

Link #2

HUD Section 203b Program

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/ins/sf

h203b

Link #3

HUD Section 203k Program

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/

203k--df

Link #4

HUD Section 203h Program

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/ins/20

3h-dft

Link #5

HUD Section 203n Program

http://portal.hud.gov/hudportal/HUD?src=/programdescription/203n

Link #6

HUD Section 207 Program

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/prog

desc/progsec207

Link #7


http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/ins/25

1--df

NOTES

8.3.3 Useful Resources For HUD Programs


Link #8


http://portal.hud.gov/hudportal/HUD?src=/hudprograms/hecm

Link #9


http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/prog

desc/disab811

Link #10

HUD Energy Efficient Mortgage Program

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/eem/e

nergy-r

Link #11 HUD Good Neighborhood Next Door Program

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/reo/go

odn/gnndabot

Link #12

HUD Homeownership Vouchers

http://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_hou

sing/programs/hcv/homeownership

NOTES

8.3.3 Useful Resources For HUD Programs

(continued)


0:00 - Underwriting and underwriting guidelines

14:05 - MIP

15:45 - Closing costs

17:15 - Buy-downs

19:20 - Assumptions

Underwriter – An individual at a lending institution who determines credit

worthiness in order to qualify an applicant for a loan.

Underwriting – The criteria with which a lender determines the credit

worthiness of a borrower in order to qualify them for the loan.

Assumption of Mortgage - The taking of a title to property by a grantee

wherein grantee assumes liability for payment of an existing note secured

by a mortgage or deed of trust against the property, becoming a co-

guarantor for the payment of a mortgage or deed of trust note.

NOTES

8.4 Underwriting Guidelines

Key Terms to Know


0:00 - Section 203B program

1:15 - Section 203K programs

4:55 - Section 251 program

6:20 - Refinancing

7:05 - Direct endorsement

8:20 - FHA contributions

NOTES

8.5 Most Frequently Used FHA Loans /

Direct Endorsement / FHA Contributions

to Real Estate Finance


0:00 - VA loans

3:20 - Eligibility for VA loans

8:00 - Certificate of Reasonable Value

10:30 - Interest rates and VA loans

11:05 - Qualifying requirements for a VA loan

12:25 - Closing costs

NOTES

8.6 VA Loan Guarantee Program



booklet.

NOTES

8.6.2 VA Loan Overview



booklet.

NOTES

8.6.3 Summary of VA Home Loan Guaranty

Benefits


0:00 - Adjustable rate VA loans

0:55 - Refinancing a VA loan

1:20 - Other VA loan programs

NOTES

8.7 Additional VA Loan Programs


FHA Case Study

NOTES

8.8 FHA Case Study


VA case study

NOTES

8.9 VA Case Study



NOTES

8.10 Study Info


CHAPTER 9

Lender Loan Processes



1) Explain at least two criteria a lender uses to qualify a borrower for a

loan.

2) Describe the three appraisal methods used to value property.

3) Identify how the Uniform Residential Loan Application is used.

NOTES



0:00 - Introduction


3:25 - Key terms

NOTES



0:00 - Qualifying the borrower

9:45 - The loan application process

13:15 - Financial statements

NOTES

9.2.1 Qualifying the Borrower – Part 1


0:00 - Liabilities

2:45 - Net worth

3:25 - Data verification

8:30 - Credit report

11:25 - Credit score

15:50 - Quality of the borrower’s income

NOTES

9.2.2 Qualifying the Borrower – Part 2


0:00 - Value (value in-use / value in-exchange / market value)

1:35 - Appraisal

6:45 - Types of appraisals

10:00 - Direct sales comparison approach (market data approach)

11:45 - Cost approach

15:10 - Income capitalization approach

16:35 - Gross rent multiplier

17:00 - Reconciliation

Appraisal – A written statement, independently and impartially prepared by

a qualified appraiser setting forth an opinion in a federally related

transaction as to the market value of an adequately described property as

of a specific date. It is supported by the presentation and analysis of

relevant market information. An opinion of value.

Appraiser – One qualified by education, training and experience who is

hired to estimate the value of real and personal property based on

experience, judgment, facts, and use of formal appraisal processes.

Sales Comparison Approach – One of the three major valuation methods,

which compares a subject property’s characteristics with those of

comparable properties which have recently sold in similar transactions.

Cost Approach – One of three methods in the appraisal process. An analysis

in which a value estimate of a property is derived by estimating the

replacement cost of the improvements, deducting therefrom the estimated

accrued depreciation, then adding the market value of the land.

NOTES

9.3 Qualifying the Collateral

Key Terms to Know


Depreciation – The ability to deduct expenses on improvements made to

income producing property.

Income Capitalization Approach – One of the three methods of the

appraisal process generally applied to income producing property, and

involves a three-step process – (1) find net annual income, (2) set an

appropriate capitalization rate or “present worth” factor, and (3) capitalize

the income dividing the net income by the capitalization rate.

Capitalization Rate – The rate of interest which is considered a reasonable

return on the investment, and used in the process of determining value

based upon net income.

Capitalization Rate = NOI / Purchase Price

Net Operating Income – The annual income generated by an income-

producing property after taking into account all income collected from

operations, and deducing all expenses incurred from operations.

Gross Rent Multiplier – A number which, times the gross income of a

property, produces an estimate of value of the property.

NOTES

9.3 Qualifying the Collateral (continued)

Key Terms to Know



booklet.

NOTES

9.4.1 Sample Credit Report


0:00 - Review of the credit report

NOTES

9.4.2 Review of Sample Credit Report



booklet.

NOTES

9.5.1 Uniform Residential Loan Application


0:00 - Review of the Uniform Residential Loan Application

NOTES

9.5.2 Review of Uniform Residential Loan

Application



booklet.

NOTES

9.6.1 Request For Verification of Deposit


0:00 - Review of the Request for Verification of Deposit form

NOTES

9.6.2 Review of Request For Verification of

Deposit



booklet.

NOTES

9.7.1 Request For Verification of Employment


0:00 - Review of the Request For Verification of Employment form

NOTES

9.7.2 Request For Verification of Employment



booklet.

NOTES

9.8.1 Uniform Residential Appraisal Report


0:00 - Review of the Uniform Residential Appraisal Report

NOTES

9.8.2 Review of the Uniform Residential

Appraisal Report


Link #1

http://files.consumerfinance.gov/f/201411_cfpb_small-entity-compliance-

guide_tila-respa.pdf

NOTES

9.9.1 Link to RESPA & TILA Mortgage

Servicing Final Rules


0:00 - Review of the Required Lender Notices

NOTES

9.9.2 Required Lender Notices


0:00 - Qualifying the title

2:30 - Abstract of title

3:40 - Title insurance

5:20 - Title commitment

6:35 - Cloud on title

7:05 - Survey

Actual Notice – Express or implied knowledge of a fact.

Constructive Notice – A fact, imputed to a person by law, which should have

been discovered because of the person’s actual notice of circumstances and

the inquiry that a prudent person would have been expected to make.

Chain of Title – A history of conveyances and encumbrances affecting the

title from the time the original patent was granted, or as far back as records

are available, used to determine how title came to be vested in current

owner.

Abstract of Title – A summary or digest of all transfers, conveyances, legal

proceedings, and any other facts relied on as evidence of title, showing

continuity of ownership, together with any other elements of record which

may impair title.

Title Insurance – Insurance to protect a real property owner or lender up to

a specified amount against certain types of loss (ex: defective or

unmarketable title).

NOTES

9.10 Qualifying the Title

Key Terms to Know


Marketable Title – Title which a reasonable purchaser, informed as to the

facts and their legal importance and acting with reasonable care, would be

willing and ought to accept.

Clouded Title – Title that is encumbered or burdened with defects.

Survey – A document which precisely shows the property lines, and size and

location of improvements on a particular property.

NOTES

9.10 Qualifying the Title (continued)

Key Terms to Know



booklet.

NOTES

9.11.1 Title Commitment


0:00 - Review of a Title Commitment

NOTES

9.11.2 Review of Title Commitment


0:00 - Closing on a loan

Proration – The division of certain settlement costs between a buyer and

seller.

NOTES

9.12 Lender Closing

Key Terms to Know


Please refer to page 104 of the Real Estate Finance – Supporting

Documents booklet.

NOTES

9.13.1 HUD-1 Settlement Statement &

Closing Disclosure


Lender Loan Process Case study

NOTES

9.13.2 Lender Loan Process - Case Study



NOTES

9.14 Study Info


CHAPTER 10

Defaults & Foreclosures



1) Explain the purpose of the acceleration clause.

2) Discuss how a deed in-lieu of foreclosure is used.

3) Discuss the difference between a foreclosure and short sale.

4) Explain the difference between judicial and non-judicial foreclosure.

NOTES



0:00 - Introduction


4:20 - Key terms

NOTES



0:00 - Defaults

3:15 - Acceleration clause

9:40 - Delinquency

13:00 - Tax and mechanic’s lien

14:25 - Homeowners insurance

15:20 - Poor property management

Default - Failure to fulfill a duty or promise or to discharge an obligation;

omission or failure to perform any act.

Acceleration Clause – A condition in a real estate financing instrument

giving the lender the power to declare all sums owing lender immediately

due and payable upon the happening of an event, such as sale of the

property, or a delinquency in the repayment of the note.

Mechanic’s Lien – A lien created by statute which exists against real

property in favor of persons who have performed work or furnished

materials for the improvement of the real property.

NOTES

10.2 Defaults

Key Terms to Know



NOTES

10.2.2 Priority of Liens - Infographic


0:00 - Adjustment and modifications

3:45 - Deed in-lieu of foreclosure

6:00 - Short sale

6:45 - Moratorium and recasting

8:15 - Government loan modification programs

8:30 - Voluntary conveyance of deed

10:00 - Remedies for FHA and VA loans

11:15 - Foreclosure auctions

Deed in Lieu of Foreclosure – A deed to real property accepted by a lender

from a defaulting borrower to avoid the necessity of foreclosure

proceedings by the lender.

Foreclosure – Procedure whereby property pledged for a debt is sold to pay

the debt in event of default in payments or terms.

Short Sale – A seller’s attempt to sell the real estate whereby the liens are

greater than the value of the property.

NOTES

10.3 Adjustments & Modifications

Key Terms to Know


0:00 - Basics of a judicial foreclosure

7:00 - Foreclosure of a junior mortgage

8:05 - Non-judicial foreclosure

9:50 - Strict foreclosure

10:50 - Deficiency judgments

Deficiency Judgment – A judgment given by a court when the value of

security pledged for a loan is insufficient to pay off the debt of the

defaulting borrower.

NOTES

10.4 Types of Foreclosures & Deficiency

Judgments

Key Terms to Know



NOTES

10.4.2 Mortgage vs Deed of Trust -

Infographic


0:00 - Tax impacts of foreclosure

NOTES

10.5 Tax Impacts of Foreclosures


0:00 - A business of many specializations

NOTES

10.6 Study Info