Unit 16

Question 1

3 Components of Financing Market

Answer 1

• Government Influences
• Primary Mortgage Market
• Secondary Mortgage Market

Question 2

The Fed

Answer 2

Job is to maintain sound credit conditions
12 reserve districts

When amount of $ available for loans decreases (increases reserves), interest rates go up

When amount of $ available for loans increases (decrease reserves), interest rates go down

Fed can lend to district reserve banks. Discount rate is rate charged when the Fed lends $ to member banks.

Question 3

Prime Rate

Answer 3

The short term rate charged to the banks largest, most creditworthy customers. Strongly influenced by Feds discount rate.

Question 4

Discount Rate

Answer 4

Discount rate increases, bank interest rates increase (fewer loans and less $ in circulation)

Discount rate decreases, bank interest rates decrease (more loans and more $ circulating)

Question 5

Mortgage Loan Originators (MLO)

Answer 5

Anyone who takes a loan by phone or in person.

in IL, must be registered with Nationwide Mortgage Licensing System and do continuing ed

Question 6

Secondary Market

Answer 6

loans are bought and sold after funding; helps when $ is in short supply

Question 7

Fannie Mae

Answer 7

Govt Owned. Secondary market for loans. Conventional, FHA, and VA. The buy pool of mortgages and use them as collateral for mortgage-backed securities sold on global market

Question 8

Ginnie Mae

Answer 8

division of HUD. Pass-thru Certificate is a security interest in a pool of mortgages

Question 9

Freddie Mac

Answer 9

Similar to Fannie Mae

Question 10

Straight Loan

Answer 10

interest only/term loan

Question 11

Amortized Loan

Answer 11

Pays of principle and interest. Also called direct reduction loans. Fully amortized/level-loan payment

Question 12

FSA

Answer 12

Farm Service Agency - Agricultural loans to help purchase and operate farms FARMER MAC

Question 13

PMM

Answer 13

Purchase Money Mortgage. Seller Financing

Question 14

Package Loan

Answer 14

includes real and personal property

Question 15

Blanket Loans

Answer 15

Covers more than one parcel or lot. For subdivision developments. Partial release clause

Question 16

Wraparound Loans

Answer 16

Get second loan, they pay first payments. First loan has to approve. Probs not if alienation or due on sale clause

Question 17

Open End Loans

Answer 17

Less costly than home improvement loan

Question 18

Construction Loan

Answer 18

payments made as draws during construction

Question 19

Sale-Leaseback

Answer 19

for large commercial or industrial properties

Question 20

Buydown

Answer 20

lump sum paid to lower interest rates for first few years of loan

Question 21

Reg Z - Truth in Lending

Answer 21

Lenders must disclose the true cost of the loan

Question 22

Growing Equity Mortgage (GEM)

Answer 22

rapid payoff mortgage

Question 23

Reverse

Answer 23

62 or older can borrow on the equity of their home. FHA has Home Equity Conversion Mortgage

Question 24

NonRecourse

Answer 24

borrower not personally liable. Most common in commercial and investment

Question 25

LTV

Answer 25

Loan to Value Ratio. Ratio of debt to value of the property. Value is sales price or appraised value, whichever is less

Question 26

Conventional Loan

Answer 26

usually 80% because borrower makes 20% down payment. Govt not involved

Question 27

Credit Scores

Answer 27

important for loan, other than FHA and a few other nonconforming. Lower score, increased rate and down payment Higher score, lower rate and possible smaller down payment Lenders look at 2 years of repayment history

Question 28

Fed Programs handling of Judgements, Foreclosures and Bankruptcies

Answer 28

Judgements paid and more than 2 years past Bankruptcies usually 4 years to reestablish credit Foreclosures usually 3 years prior with circumstances to justify

Question 29

PMI

Answer 29

Private Mortgage Insurance Usually terminates at 22% equity and current on payments

Question 30

FHA Loans

Answer 30

loans insured by agency higher LTV loans ``` 3.5 down payment Monthly insurance premium fha appraisal maximum limits credit qualifications ``` Can be assumed by qualified buyer

Question 31

VA Loans

Answer 31

VA guarantees loans for eligible veterans and their spouses Little or no down payment are assumable