Chapter 10 – Principles of Real Estate Principles

Note
* Borrow personal promise to repay
Obtained to purchase real property
Mortgage
Secure payment of the the loan
*Document that offer real property as security/colateral for the loan
Loan to value ratio
The relationship between the loan and the value of the property
Arrears
Interest is usually calculated at the end of a time period
Principle
Usually calculated each month on the unpaid monthly balance
Usuary
Charging an excessively high rate of interest
Origination Charge
One lump sum fee related to the mortgage loan
Good Faith Estimate (GFE)
That the lender is required by Federal law to give to borrowers
Points
Borrow has chosen that fee is called points
Discount Points
Represent a fee charged by a lender to increase the yield on a loan
Good Faith List of Charges
1. Appraisal Fee
2. Credit report fee
3. Title company services and lenders title insurance
4. Owners title insurance
5. Owners title insurance
6. government recording charges
7. Transfer taxes
8. Initial escrow account deposit
9. Daily interest charges
10 Homeowner’s insurance
Private Mortgage Insurance (PMI)
If the buyer borrows more than 80% of the market value of the property, the loan is considered to be a high risk by lending standards and would require this insurance to protect the lender in the event of default by the borrower.
Definition of a Mortgage Loan
1. Loan
2. Debt
3. Lien
4. Contract
5. Pledge
Hypothecation
Pledging the real property as collateral security while the borrow still retain possession and use of the property
Foreclosure
Failure to make the mortgage loan payments on schedule, the lender can institute legal procedure to recover the balance of the borrowed money.
In PA through a court ordered foreclosure sale of the property at the county courthouse to the highest bidder.
Amortization
Is the process of making regular periodic payments on a loan that will continuously reduce and eventually eliminate the loan debt.
Amortized Mortgage
Is one in which the regular periodic payments monthly and with level payments have a portion of each payment that is first applied to pay the loan interest.
The remaining portion of the loan payment is than used to reduce the loan amount known as the principal.
Term Loan
Consist only of interest. The loan principal is required to be paid at the end of a term loan in a large lump sum payment.
Balloon Mortgage
Loan payment is larger than the other payments on the loan . Mortgage loan with a balloon payment.
Purchase Money Mortage
Whenever a seller provides a loan to help buyer purchase the sellers property
Partially amortized mortgage – AKA Ballon Mortgage
Mortgage has an initial period of time. 3,5,7 during which the loan is amortized with payments including principle and interest that are calculated and spread out over a 30 year mortgage basis. Used as a temporary loan time period to take advantage of a low rate of interest where the borrower either intends to sell the property.
Documents necessary for Financing
1. Promissory Note
2. Mortgage
Promissory Note
Borrower agrees in writing to borrow money and then give a personal promise to pay back the money over time
Negotiable Instrument
Promissory Note can be transferred to another party which allows for the financing to be transferred to other parties.
Mortgage
The Mortgage is the document by which the borrow pledges real property as collateral security for repayment of the loan.
Acceleration Provision
If the borrow fails to meet the terms and conditions of the mortgage the borrower has breached the agreement and is in default.
When this occurs the lender as the non-defaulting party has the option to declare the full amount of the remaining mortgage balance due and payable after typically providing 30 days notice.
Alienation Provision
Referred to as the due on sale clause because the debt is due and payable upon the sale of the property.
Payoff Statement
If the mortgage contains no due on sale clause than an owner is permitted to sell the real property and simultaneously allow a purchaser to take over the existing mortgage on that property.
Subject to the seller’s existing mortgage*
The buyer takes over the sellers existing mortgage.
Assumes the seller’s existing mortgage*
The buyer and seller together take responsibility for the payment of the debt.
Novation*
Buyer will want to know the exact status of the mortgage at the time of the assumption.
An estoppel certificate accomplishes this objective by disclosing the amount of the unpaid balance on the loan, the rate of interest on that loan and the date when the last interest payment was made.
Primary Mortgage Market(direct lenders)
Where borrowers get the money
Mortgagor (borrower)
Mortgagee (lender)
obtains a mortgage loan to purchase real property through Mortgagee lender
Primary mortgage market
All the direct lenders that are available in the marketplace
are collectively referred as. The lender in turn agrees to provide money at the settlement.
Source Lenders in the Primary Mortgage
1. Mortgage Bankers
2. Savings and Loans Associations
3. Credit Unions
4. Commercial Banks
5. Mutual Savings Banks
6. Life Insurance
7. Individuals
8. Mortgage Bankers
Mortgage Bankers
Being a major source of residential Mortgages
Mortgage Brokers
Bring together borrowers and lenders
They work the market bud do not lend money
Assignment of Mortgage
Each time a lender provides a mortgage loan, money is removed from the lender’s pool of available funds. Lenders assign (in effect sell) their loans to investors (buyers of the loans)
Assignment
means a transfer of interest in real property from one party to another.
Secondary Mortgage Market
By purchasing these loans for money, the secondary mortgage market source, known as the assignee acts as a recycling agent by sending money back to the lender of the primary mortgage market, know as the assignor.
Buyers of loans in the Secondary Mortgage Market
1. Federal National Mortgage Association – (Fannie Mae)
2. Federal Home Loan Mortgage Corporation (Freddie Mac)
3. Other lender institutions, companies and organizations
Fannie Mae (FNMA)
They purchase FHA, VA and conventional mortgages from the primary mortgage market.
Money raised through the sale of mortgage backed securities.
Was Placed under the conservatorship of the Federal Housing Fiance Agency (FHFA).
Provided with sufficient capital from the US Treasury to cover any losses.
Ginnie Mae (GNMA)
Is a federal agency operating under HUD – the department of housing and Urban development.
Freddie Mac (FHLMC)
Freddie Mac buys FHA, VA and conventional Mortgages from the primary mortgage market.
Like Fannie Mae it was placed under the conservatorship of the Federal Housing Fiance Agency (FHFA) because of buying risky loans.
Warehouse Agency
Is a purchaser in the secondary mortgage market that buys mortgages from the primary mortgage market and then assembles the loans into packages for resale to investors.
Securitization
Throughout the process there is a constant flow of money that is being recycle.
Mortgage backed securities
Subprime Mortgage
Is simply a high risk mortgage for both the borrower and lender based on safe lending standards.
Safe Act
It provides All MLO’s be state licensed or federally registered.