Chapter 13 - Types of Mortgages and Sources of Finance (4%) Flashcards
Section 13.1: TYPES OF MORTGAGES
:::STATE EXAM CONTENT AREA: XII.D.1-3: TYPES OF MORTGAGE LOANS:::
** FHA, VA, and Conventional
1) FHA - Federal Housing Administration
Part of the Department of Housing
and Urban Development
FHA INSURES loans
Variety of Loan Programs
Manufactured homes
Single-family homes
Multifamily properties
- 4 MOST POPULAR PROGRAMS
** a) Section 203(b) Mortgage Insurance
** Owner occupied 1-4 family properties
** Maximum loan amount - determined
by area
** Qualifying loan ratios:
** Housing expense – 31%
** Total obligations – 43%
Mortgage Insurance Premium (MIP)
UFMIP – up front
AMIP – based on annual loan balance
Interest rate is negotiable
Points can be paid by borrower or seller
** No prepayment penalties
Assumable with lender approval
b) Section 203(k) rehabilitation mortgage
insurance
c) Section 224(c) condominiums
d) Section 251 adjustable rate mortgages
** 2) VA - Veterans Administration
** GUARANTEED by the Department of
Veterans Affairs
** Owner occupied residences
** Condominiums, mobile homes
** Funding fee
** similar to origination fee
** Eligibility
** Certificate of Eligibility
** Can be used repeatedly
** Entitlement - Current max is $104,250
** 90 days & honorable discharge
** Surviving spouse
No down payment required
Max loan of $417,000 without down payment
No maximum VA loan amount
Qualifying Ratio – 41% total obligations
Interest rate is negotiable
Points can be paid by borrower or seller
No prepayment penalties
** ANWER ON CLASS TEST IS: NOT A SERVICE RELATED DISABILITY
** 3) Conventional – private lenders
Loans not:
Insured by FHA
Guaranteed by VA
** Private Mortgage Insurance (PMI)
required if loan is more than 80% of
the value or sale price
** PMI removed when LTV reaches 78%
** May borrow up to 95% LTV
Section 13.2: LOAN REPAYMENT METHODS
:::STATE EXAM CONTENT AREA: XII.H: MATH - FINANCE:::
** Amortized Mortgage
** Payments of interest and enough principal to kill the full balance in regular periodic payments ** Early payments consist mainly of Interest
** PIP Sandwich
** Amortizing a mortgage by breaking
the monthly payments into payments
of interest and principal and arriving
at a new balance.
** Payments remain level, the interest
portion of each payment decreases,
while the principal portion of each
payment increases.
** I = P x R x T
- Calculation -
** What is the monthly payment for a
$100,000 loan at 8%, amortized for 30
years with a loan constant of
.0073376?
** a. the interest portion of the third month’s
payment
** b. the principal portion of the third month’s
payment
** c. the balance due after the third month’s
payment
$ 100,000 Loan X .0073376 Loan Constant = $733.76
** SEE PAGES 238-239
** Another question is: what is the amount of
interest paid?
# Payments x Amount of Payments = Total
Principal and Interest
Total Principal and Interest – Principal = Total
Interest
** Calculate the total interest that will be paid if
the mortgage runs to maturity? (Remember
that payments consist of both interest and
principal.)
** You arrange a $30,000 mortgage for 30 years
at 8% interest. Payments are $220.13 per
month. Calculate the total interest for life of
the loan:
** $220.13 x 360 payments = $79,246.80 Total P & I
To calculate the interest paid, simply subtract the principal
from the Total P & I.
$79,246.80 - $30,000.00 = $49,246.80 Interest
Section 13.2: LOAN REPAYMENT METHODS
:::STATE EXAM CONTENT AREA: XII.H: MATH - FINANCE:::
Adjustable Rate Mortgage(ARM)
Interest rate = Index + Margin
Index
– can move up or down
Margin (Spread)
– lender’s overhead costs plus profit -
does not change
Teaser Rate
Caps
– Payment cap is limit to any single
adjustment
– Lifetime cap is the maximum change
in rateSection 13.2: LOAN REPAYMENT METHODS
:::STATE EXAM CONTENT AREA: XII.F: OTHER TYPES OF FINANCING:::
Loan Repayment Methods
Biweekly Mortgage
26 - ½ month payments
Reduces payment period
Less interest paid
Blanket
Covers more than 1 property
Partial Release Clause
Home Equity Loan
Secured by equity
Interest – tax deductible
Reverse Mortgage
62 years of age or older
Line of credit against the home’s equity
Purchase Money Mortgage
Loan from seller (seller financing)
Package Mortgage
Real and personal property financedSection 13.3: MONEY IN THE MARKETPLACE
:::STATE EXAM CONTENT AREA: XIII.A: THE MORTGAGE MARKET AND MONEY SUPPLY:::
Intermediation and Disintermediation
Intermediation
Putting funds into financial institutions
Increases the supply of loanable funds
Reduces interest rates
Disintermediation
Removing funds from financial institutions
Decreases the supply of loanable funds
Raises interest rates
Section 13.4: FEDERAL RESERVE SYSTEM
:::STATE EXAM CONTENT AREA: XIII.B: FEDERAL REGULATORY BODIES:::
** Three economic tools: Reserve Requirement, Discount Rate, and Open Market Operations
Responsible for managing the U.S. Monetary Policy
Three economic tools
1) Reserve Requirement - the amount member
banks are required to keep on deposit
(minimum balance)
– Increased reserve lowers money supply,
raises interest (most abrupt method)
** 2) Discount Rate - the interest rate charged
member banks for borrowing from the Fed
** Discount rate increase lowers money supply,
increases interest (least effective tool)
3) Open Market Operations - purchasing or selling
government securities
– Purchase increases money supply, lowers
interest (most effective tool)
Section 13.5: THE PRIMARY MORTGAGE MARKET
:::STATE EXAM CONTENT AREA: XIII.C: PRIMARY MORTGAGE MARKET:::
** Mortgage Lenders, Mortgage Loan Originators,
Mortgage Brokers, Selling Financing, and Mortgage Bond Financing
Licensed individual
Lends money for mortgage loan
Warehousing/Warehouse Lending
Mortgage lender borrows from a
commercial bank
Loans to property buyers
Sells loan in secondary market
MORTGAGE LENDERS:
1) Savings Associations
Primarily involved in Long Term loans
such as home mortgages, etc.
May be chartered by either the
Federal or the State government
2) Commercial Banks
May be chartered by either the
Federal or the State government
Short-term construction loans
Long-term real estate loans
Loan to mortgage bankers
Deposits are insured to $250,000
3) Credit Unions
Nonprofit cooperative financial
institution
Run by members
Not regulated or supervised by
Federal Reserve
Regulated by National Credit Union
Administration or at state level
** 4) Life Insurance Companies
** Regulated by States - no Federal
Regulation
** Have large amounts of predictable
funds
** Noted for Large Loans such as
apartment buildings, shopping centers,
office buildings, etc.
** Purchase mortgage backed
securities in secondary market
5) Real Estate Investment Trusts (REITS)
Individuals pooling their resources for
investment
Equity trusts
Buy, own & manage investment
properties
Mortgage trusts
Fund construction and/or purchase of
commercial or apartment projects
Mixed trusts
Lending and ownership activities
Mortgage Loan Originator (MLOs)
Individual takes residential loan
applications
Do not make loans – arrange loans
Mortgage Broker
Individual works under a MLO
Licensed by Florida Office of Financial
Regulation
Seller Financing
Mortgage Bond Financing
Section 13.6: THE SECONDARY MORTGAGE MARKET
:::STATE EXAM CONTENT AREA: XIII.D: SECONDARY MORTGAGE MARKET:::
/* 3 MAIN PLAYERS: Fannie Mae, Freddie Mac, and Ginnie Mae
** Purchase blocks of loans from primary
market
** Provides a constant source of funds
** Purchases mortgages from primary
mortgage market
** Secondary lenders do not lend money
** Federal law requires that each borrower be notified
whenever a loan is being sold to another lender
** Primary lender makes money
** Loan origination fees
** Points
** Services loans for secondary market
** ANSWER ON CLASS TEST: NOT REITS
/* 3 MAIN PLAYERS (there are others)
/* 1) Federal National Mortgage
Association (FNMA or Fannie Mae)
/* 2) Federal Home Loan Mortgage
Corporation (FHLMC or Freddie Mac)
/* 3) Government National Mortgage
Association (GNMA or Ginnie Mae)
** primary engaged in purchasing federally
subsidized residential mortgages that are
originated by local lenders.
** offers below-market interest rates to low-
income families
** provides a secondary market for VA and
FHA loans and guarantees payment of
securities backed by residential mortgages
** ANSWER ON CLASS TEST: NOT PRIMARY MORTGAGE MARKET
Section 13.9: LAWS REGARDING FAIR CREDIT AND LENDING PROCEDURES
/* RESPA: Real Estate Settlement Procedures Act
/* Good Faith Estimate (GFE)
/* Settlement Costs and You – booklet
/* Uniform Settlement Statement (HUD-1)
/* Kickbacks and rebates
/* Mortgage Servicing Disclosure
Statement
** ANSWER ON CLASS TEST IS: NOT LEAD BASED PAINT
Section 13.9: LAWS REGARDING FAIR CREDIT AND LENDING PROCEDURES
/* Truth-in-Lending -or- Consumer Lender Protection Act
**/*** Meaningful information – true cost of
credit
**/*** Consumers shown cost of credit
Dollars & percentages
**/*** Interest shown as annual percentage
rate (APR)
**/*** Includes:
Discount
Origination fee
**/*** Each point paid
+ 1/8% to lenders APRSection 13.9: LAWS REGARDING FAIR CREDIT AND LENDING PROCEDURES
** Triggering Terms
- Amount of down payment
- Amount of any payment
- Number of payments
- Period of repayment
- Amount of any finance charge
- Required Disclosures
- Amount or percentage of down payment
- Terms of repayment
- Annual percentage rate (APR)
- Consumers shown cost of credit
- Dollars & percentages
** ANSWER ON CLASS TEST IS: NOT ASSUMABLE MORTGAGE
** ON THE TEST YOU MAY SEE:
WHICH OF THE FOLLOWING AD EXCERPTS CONTAINS A TRIGGERING TERM?… ANSWER: THE ONE W/ THE #
-OR-
WHICH OF THE FOLLOWING AD EXCERPTS DOES NOT CONTAIN A TRIGGERING TERM?… ANSWER EXAMPLE: LOW DOWN PAYMENTS
