Chapter 17 - Lending Flashcards
(38 cards)
Mortgage Financing:
Financing that uses mortgaged real property as security for borrowed funds.
Hypothecation:
Use of real property as collateral for a mortgage loan
Lien Theory:
A state whose laws give a lender on a mortgaged property equitable title rather than legal title.
Title Theory:
A state whose laws give legal title of a mortgaged property to the mortgagee until the mortgagor satisfies the terms and obligations of the loan.
Note:
An agreement to repay a loan of an indicated amount under certain terms.
Mortgage:
A legal document wherein a mortgagor pledges ownership interests in a property to a lender, or mortgagee, as collateral against performance of the mortgage debt obligation.
Mortgagor:
The borrower in a mortgage.
Mortgagee:
The lender in a mortgage.
Deed of Trust:
An instrument used by a borrower to convey title to mortgaged property to a trustee to be held as security for the lender, who is the beneficiary of the trust.
Principal:
The loan balance to which interest charges are applied.
Loan Balance:
At any point during the life of a mortgage loan, the remaining unpaid principal is called the loan balance, or remaining balance.
Interest:
A lender’s charge for the use of the principal amount of a loan.
Points:
A discount point is one percent of the loan amount. Thus, one point on a $100,000 loan equals $1,000. The lender charges this as pre-paid interest at closing by funding only the face amount of the loan minus the discount points. The borrower, however, must repay the full loan amount, along with interest calculated on the full amount.
Term:
The loan term is the period of time over which the loan must be repaid. A “30-year loan” is a loan whose balance must be fully paid off at the end of thirty years.
Payment:
The loan term, loan amount, and interest rate combine to determine the periodic payment amount. When these three quantities are known, it is possible to identify the periodic payment from a mortgage table or with a financial calculator. Mortgage payments are usually made on a monthly basis. On an amortizing loan, a portion of the payment goes to repay the loan balance in advance, and a portion goes to payment of interest in arrears.
Mortgage Insurance:
An insurance policy, purchased by a borrower, that protects a lender against loss of that portion of a mortgage loan which exceeds the acceptable loan-to-value ratio.
Underwriting:
A process of investigating the financial capabilities and creditworthiness of a prospective borrower and granting credit to a qualified borrower.
Qualification:
A mortgage underwriting procedure to determine the financial capabilities and credit history of a prospective borrower.
Loan-To-Value Ratio:
An underwriting ratio that relates the size of a loan to the market value of the collateral. The closer the loan value is to market value, the riskier the loan is for the lender , since the lender is less likely to recover the debt fully from the proceeds of a foreclosure sale.
Equal Credit Opportunity Act:
Requires a lender to evaluate a loan applicant on the basis of that applicant’s own income and credit rating, unless the applicant requests the inclusion of another’s income and credit rating in the application.
Income Ratio:
An underwriting ratio that relates a borrower’s gross or net income and the debt service of a loan; used to determine how large a loan a borrower can reasonably afford.
Debt Ratio:
An underwriting equation that is used to determine how much debt an individual can reasonably afford in view of the party’s or household’s income.
Loan Commitment:
A lender’s written pledge to lend funds under specific terms. May contain deadlines and conditions.
Regulation Z:
A fair financing law applying to residential loans; lenders must disclose financing costs and relevant terms of the loan to the borrower.
