Real Estate - Ch 17 - Finance

acceleration clause

The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other covenant

Alienation Clause

Also know as "due on sale" clause permits lender to declare balance of loan immediately due if property is sold; prevents loan assumption without lender approval

Assumption of Mortgage

Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and condition of the mortgage, including payments

Beneficiary

(1) The person for whom a trust operates or in whose behalf the income from a trust estate is drawn. (2) A lender in a deed of trust loan transaction.

Deed in Lieu of Foreclosure

Used by the mortgagor (borrower) who is in default to convey the property to the mortgagee (lender) in order to eliminate the need for a foreclosure.

Deed of Trust

A deed to real property, which serves the same purpose as a mortgage, involving three parties instead of two. The third party holds naked title for the benefit of the lender. Beneficiary (Lender), Trustor (Borrower), Trustee (Third Party)

Defeasance Clause

A clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan.

Deficiency Judgment

Personal judgment levied against the borrower when a foreclosure sale does not produce sufficient funds to pay fully the mortgage debt

Discount Point

Unit of measurement used for various loan charges; one point equals one percent of the loan amount

Equitable Right of Redemption

The right of a defaulted property owner to recover the property prior to its sale by paying the appropriate fees and charges

Foreclosure

A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure bring the rights of all partie

Interest

Charge made by lender for use of money; a charge to "rent" the money

Intermediate Theory

Adopted by a number of states, a theory based on the principles of title theory but requires the mortgagee foreclose to obtain legal title.

Lien Theory

Some states interpret a mortgage as being purely a lien on real property. The mortgagee thus has not right of possession but must foreclose the lien and sell the property if the mortgagor defaults.

Loan Origination Fee

A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.

Mortgage

A conditional transfer or pledge of real estate as security for the payment of a debt. Also, the document creating a mortgage lien.

Mortgagee

A lender in a mortgage loan transaction

Mortgagor

A borrower in a mortgage loan transaction

Negotiable Instrument

A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee's right to payment.

Novation

Substituting a new obligation for an old one or substituting new parties to an existing obligation

Prepayment Penalty

A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost

promissory note

a written contract with a promise to pay a supplier a specific sum of money at a definite time

Release Deed

A document, also know as a deed of reconveyance, that transfers all rights given a trustee under a deed of trust loan back to the grantor after the loan has been fully repaid.

Satisfaction

Also know as release; documents indicating that the mortgage has been paid off

Statutory Right of Redemption

The right of a defaulted property owner to recover the property after its sale by paying the appropriate fees and charges.

Title Theory

Some states interpret a mortgage to mean the lender is the owner of mortgaged land. Upon full payment of the mortgage debt, the borrower becomes the landowner.

Trustor

A borrower in a deed of trust loan transaction; one who places property in a trust. Also called a grantor or settler.

Usury

Charging interest in excess of the maximum rate; often residential first mortgage loans are exempt from such laws

Hypothecation.

A homeowner borrows money from a lender and
gives the lender a mortgage on the property as
collateral for the loan. The homeowner retains title to
the property. This is an example of

Which of the following best expresses the mechanics of a mortgage loan transaction?

The borrower gives the lender a note and a mortgage in exchange for loan funds

In a deed of trust transaction, which of the following occurs?

The trustor conveys title to a trustee in exchange for loan funds from the beneficiary.

A lender lends money to a homeowner and takes legal title to the property as collateral during the payoff period. They are in a

title-theory state.

A lender who charges a rate of interest in excess of
legal limits is guilty of

usury.

A lender is charging 3 points on a $50,000 loan. The borrower must therefore pay the lender an advance amount of

$1,500.

The difference between a balloon loan and an
amortized loan is

an amortized loan is paid off over the loan period.

A distinctive feature of a promissory note is that

it is a negotiable instrument.

may be required to execute a release of mortgage document.

When the terms of the mortgage loan are satisfied, the
mortgagee

In addition to income, credit, and employment data, a
mortgage lender requires additional documentation,
usually including

an appraisal report.

The three overriding considerations of a lender's
mortgage loan decision are

the ability to re-pay, the value of the collateral, and the profitability of the loan.

The loan-to-value ratio is an important underwriting
criterion, for the primary reason that

the lender wants to ensure the loan is fully collateralized.

The Equal Credit Opportunity Act (ECOA) requires lenders to

consider the income of a spouse in evaluating a family's creditworthiness.

The purpose of an income ratio in qualifying a borrower is to

safeguard against over-indebtedness

A borrower's debt ratio is derived by

dividing one's debts by one's gross income.

Take-out loan commitment.

A lender's commitment to lend funds to a borrower in order to retire another outstanding loan

At the closing of a mortgage loan

the parties complete all loan origination documents and the loan is funded.

Which laws or regulations require mortgage lenders
to disclose financing costs and annual percentage rate to a borrower before funding a loan?

Truth-in-Lending laws

Which laws or regulations prevent mortgage lenders
from discriminating in extending credit to potential
borrowers based on race, color, religion, national
origin, sex, marital status, age, and dependency on
public assistance?

Equal Credit Opportunity Act

Which laws or regulations require mortgage lenders
to provide an estimate of closing costs to a borrower
and forbid them to pay kickbacks for referrals?

Real Estate Settlement and Procedures Act

The Federal Reserve System regulates the money
supply in which of the following ways?

Buying securities, changing the discount rate, and controlling banking reserves

One of the primary purposes for the secondary
mortgage market is to

cycle funds back to primary lenders so they can make more loans.

The major players in the secondary mortgage market
are

Fannie Mae, Freddie Mac, and Ginnie Mae

A principal role of FNMA is to

purchase FHA-backed and VA-backed loans

The primary role of the Federal Housing Authority
in the mortgage lending market is to

insure loans made by approved lenders.

The principal role of the Veteran's Administration in
the mortgage lending market is to

guarantee loans made by approved lenders

A graduated payment loan is a mortgage loan where

the loan payments gradually increase

A buydown is a financing arrangement where

the borrower pays additional interest at the onset in order to obtain a lower interest rate.

The key feature of an adjustable mortgage loan is that

the interest rate may vary.

One feature of a wraparound mortgage loan is that

the seller offering the buyer a wraparound can profit from a difference in interest rates

A builder is required to secure a loan with mortgages
on three properties. This is an example of

a blanket mortgage loan

Which of the following is true of a loan with negative
amortization?

Payments are not sufficient to retire the loan.