Chapter 15: Real Estate Financing: Practices

Question 1

annual percentage rate (APR)

Answer 1

The relationship of the total finance charges associated with a loan. This must be disclosed to borrowers by lenders under the Truth in Lending Act

Question 2

blanket mortgage

Answer 2

A mortgage covering more than one parcel of real estate, providing for each parcel’s partial release from the mortgage lien upon repayment of a definite portion of the debt

Question 3

buydown

Answer 3

A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time

Question 4

certificate of reasonable value (CRV)

Answer 4

A form indicating the appraised value of a property being financed with a VA loan

Question 5

conforming loan

Answer 5

A standardized conventional loan that meets Fannie Mae’s or Freddie Mac’s purchase requirements

Question 6

construction loan

Answer 6

A short term loan usually made during the construction phase of a building project

Question 7

Consumer Financial Protection Bureau (CFPB)

Answer 7

A federal agency created by the Dodd-Frank Act in 2010 to oversee consumer protection via financial regulations within seven federal agencies

Question 8

conventional loan

Answer 8

A loan from private investors that requires no government insurance or guarantee

Question 9

Department of Housing and Urban Development (HUD)

Answer 9

A federal cabinet department active in national housing programs. Among its many programs are urban renewal, public housing, model cities, rehabilitation loans, FHA subsidies, fair housing enforcement, and water and sewer grants

Question 10

Equal Credit Opportunity Act (ECOA)

Answer 10

The federal law that prohibits discrimination in the extension of credit because of race, color, religion, national origin, sex, age, or marital status

Question 11

Fair Credit Reporting Act

Answer 11

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Question 12

Fannie Mae (FNMA)

Answer 12

A quasi-government agency established to purchase any kind of mortgage loans in the secondary market from the primary lender

Question 13

Federal Reserve System

Answer 13

The country’s central banking system, which controls the nation’s monetary policy by regulating the supply of money and interest rates.

Question 14

FHA-insured loan

Answer 14

A loan insured by the Federal Housing Administration and made by an approved private lender in accordance with the FHA’s regulations

Question 15

Freddie Mac

Answer 15

A corporation established to purchase primarily conventional mortgage loans in the secondary mortgage market

Question 16

Ginnie Mae

Answer 16

A government agency under HUD that plays an important role in the secondary mortgage market. It sells mortgage-backed securities that are backed by pools of FHA and VA loans

Question 17

home equity loans

Answer 17

A loan (sometimes called a line of credit) under which property owners use their residence as collateral and can then draw funds ups to a prearranged amount against the property

Question 18

jumbo loan

Answer 18

A residential mortgage loan in excess of acceptable loan amounts for purchase by Fannie Mae or Freddie Mac; also called nonconforming loans

Question 19

loan-to-value ratio (LTV)

Answer 19

The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral

Question 20

open-end mortgages

Answer 20

A mortgage loan that is expandable by increments up to a maximum dollar amount, the full loan being secured by the same original mortgage; an equity line mortgage

Question 21

package loan

Answer 21

A real estate loan used to finance the purchase of both real property and personal property, such as in the purchase of a furnished home that includes window coverings and major appliances

Question 22

Predatory Lending Act

Answer 22

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Question 23

primary mortgage market

Answer 23

The mortgage market in which loans are originated, consisting of lenders such as commercial banks, savings associations, and mortgage broker

Question 24

private mortgage insurance (PMI)

Answer 24

Insurance provided by a private carrier that protects a lender against a loss in the event of a foreclosure and deficiency

Question 25

purchase money mortgage

Answer 25

A note secured by a mortgage or deed of trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price of the real estate

Question 26

rate lock

Answer 26

A guarantee from mortgage lenders that they will give mortgage loan applicants a certain rate, at a certain price, for a specific time period

Question 27

Real Estate Settlement Procedures Act (RESPA)

Answer 27

Federal law that insures that residential buyers and sellers receive full disclosure of all settlement charges when a 1-4 family unit residence is financed by federally-related first mortgage loans. The Act mandates a HUD booklet about closing costs, a loan estimate of closing costs, and a standardized closing statement. The Act, known as Regulation X, also prohibits kickbacks from lenders

Question 28

Regulation Z

Answer 28

Implements the Truth in Lending Act requiring credit institutions to inform borrowers of the true cost of obtaining credit

Question 29

reverse mortgage

Answer 29

A loan under which the homeowner receives monthly payments based on the homeowner's accumulated equity rather than a lump sum. The loan must be repaid at a prearranged date, upon the death of the owner, or the sale of the property

Question 30

sale and leaseback

Answer 30

A transaction in which an owner sells an improved property and, as part of the same transaction, signs a long-term lease to remain in possession of the premises.

Question 31

secondary mortgage market

Answer 31

A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages; also called the secondary money market. Mortgages are first originated in the primary mortgage market

Question 32

subordination agreement

Answer 32

A written agreement between holders of liens on a property that changes the priority of mortgage, judgment, and other liens under certain circumstances

Question 33

subprime mortgage

Answer 33

A loan made to a borrower with a credit rating below what is required for regular loans creating greater risk liability for the lender that is countered by higher interest rates and fess; called B, C, or D paper

Question 34

trigger terms

Answer 34

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Question 35

Truth in Lending Act

Answer 35

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Question 36

VA-guaranteed loan

Answer 36

A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs to limit the lender's possible loss

Question 37

predatory lending

Answer 37

Unscrupulous, sometimes fraudulent, lending practices usually intending to make repayment impossible; designed to take advantage of unwary borrowers that are frequently the low-income, uninformed, elderly, or non-English speaking

Question 38

Regulation X

Answer 38

The rules which implement and interpret the Real Estate Settlement Procedures Act (RESPA) of 1974

Question 39

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)

Answer 39

Legislation passed in 2010, primarily affecting the financial institutions and their consumers in an effort to prevent a recurrence of events that caused the economic recession and the mortgage market meltdown during the mid 2000s.