19.3 - Mortgage Math III & Real Estate Borrowing - slides

Question 1

How does the aging U.S. population shape future real-estate borrowing needs?

Answer 1

As Baby Boomers retire, they become cash-poor but equity-rich → demand rises for home-equity loans and reverse mortgages that convert housing wealth into spendable cash.

Question 2

Which two loan products are expected to grow because of U.S. demographic shifts?

Answer 2

1️⃣ Home-equity loans / HELOCs 2️⃣ Reverse mortgages

Question 3

Define mortgage underwriting.

Answer 3

The lender’s risk-assessment process that decides whether, and on what terms, to approve a mortgage application.

Question 4

Core information the underwriter reviews.

Answer 4

• Income & employment
• Monthly debt obligations
• Liquid assets & reserves
• Property appraisal/LTV
• Credit history & score

Question 5

What are the ‘Four Cs’ of mortgage underwriting?

Answer 5

Capacity, Capital, Collateral, Credit

Question 6

Underwriting ‘Capacity.’

Answer 6

Borrower’s ability to repay ⇢ verified via debt-to-income ratio, employment stability, cash-flow documentation.

Question 7

Underwriting ‘Capital.’

Answer 7

Borrower’s own funds at risk ⇢ down payment size, savings, and post-closing reserves. Shows commitment and cushions default risk.

Question 8

Underwriting ‘Collateral.’

Answer 8

The property itself and its value/condition. Key metric: loan-to-value (LTV) ratio from the appraisal.

Question 9

Underwriting ‘Credit.’

Answer 9

Borrower’s historical willingness to repay ⇢ credit score, payment history, bankruptcies, collections.

Question 10

Name five U.S. government entities that shape mortgage markets.

Answer 10

Examples: Fannie Mae, Freddie Mac, FHA, VA, Ginnie Mae, FHFA, Federal Reserve, CFPB, Federal Home Loan Bank System.

Question 11

Two major ways government/GSEs influence mortgages.

Answer 11

• Liquidity & standardization via secondary-market purchases/guarantees (Fannie, Freddie, Ginnie)
• Policy & regulation: insurance/credit support (FHA/VA), consumer-protection rules (CFPB), capital & safety-soundness oversight (Fed, FHFA).

Question 12

Typical steps in the real-estate purchase & sales process.

Answer 12

1️⃣ Budget & mortgage pre-approval
2️⃣ Property search & broker engagement
3️⃣ Offer & negotiation
4️⃣ Purchase & Sale Agreement (PSA)
5️⃣ Inspections/contingencies
6️⃣ Formal loan underwriting
7️⃣ Title search & appraisal
8️⃣ Closing & funding.

Question 13

Key components spelled out in a Purchase & Sale Agreement (PSA).

Answer 13

Parties, legal description of property, purchase price, earnest-money deposit, fixtures/personal property included, financing clause, closing date/location, prorations, representations & warranties, default/termination remedies.

Question 14

Contract items commonly left open-ended or contingent.

Answer 14

Inspection results, appraisal value, final loan approval, seller repairs or concessions, potential extensions of closing date, assignment rights.