chap 4
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| intermediaries | mortgage lenders that serve as conduits linking flows of funds from savers to borrowers.
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| rate of interest | is established b y what borrowers are willing to pay for the use of funds over a specified period of time and what lenders are willing to accept in the4 way of compensation for the use of such funds
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| derived demand for mortgage loans | determined by the demand for housing. This demand for housing is generally determined by the number of households desirieng housing, household income, size, age, tastes, preferences for other goods, and the interest rate that must be paid to get mtg cdt.
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| supply side of mtg | established by what interest rates lenders are willing to accept when providing funds to borrowers.
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| real rate of interest | this is the minimum rate of interest that must be earned by savers to induce them to divert the use of resources (funds) from present consupmption to future consumption.
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| nominal interest rate | the contract interest rate agreed on by borrowers and lenders so the nom rate will be the real interest rate plus a premium to account for inflation
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| default risk | risk of lenders that the borrower will not pay on the loan when there is a possibility of default the lenders will charge a premium or higher rate of interest to offset the possible losses.
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| interest rate risk | the uncertainty of what interest rate to charge when the loan is made in comparison to what the economy will do in the future (often you cannot predict inflation)
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| anticipated inflation | could be forecasted @ 6% but turns out to be 8%. This would cause the interest rate to be too low by 2%.
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| Prepayment risk | if borrowers prepay loans when interest rates fall, then lenders lose the opportunity to earn interest at higher rates.
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| liquidity risk | securities that can be easliy sold and resold in well established markets will require lower premiums than those that are more difficult to sell.
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| legislative risk | risk associated with mortgage lending that also may result in a premium. it can refer to changes in regulatory environment in which markets operate.
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| constant amortization mortgage loan | (CAM) payments were determined by 1st computing a constant amount of each monthly pay to be applied to principal.
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| fully amortizing loan | a longer-term loan with monthly payments consisting of partial repayment of principal.
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| amortization | the process of loan repayment over time
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| fully amortizing, constant payment mortgage loan (CPM) | This is the most common payment system used in real estate finance. Means that a level or constant monthly payment is calculated on an original loan amount at a fixed rate of interest for a given term. Unlike the CAM the repayment of princ is not const.
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| how is the amortization of CAM and CPM different | with the CPM the amount of amortization is different from month to month where as with CAM it is the same every month
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| loan constants | a series of new interest factors were developed for various interest rates and loan maturities. these constants enable a simple multiplication to be made to determine mo. mtg payments.
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| t or f the loan constant can be multiplied by any original loan balance to obtain the mo. mtg payments necessary to amortize the loan fully by maturity date. | true
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| t or f the sheft to the CPM was based on the fact that lenders were convinced that borrower income would increase and that property values (PV) would remain or increase over time | true
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| loan closing costs | incurred in many types of real estate financing, including residential property, income prop, construction and land development loans.
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| what are the 3 categories that closing costs fall in to? | statutory costs, third party chargers, and additional finance chagres
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| statutory costs | certain charges for legal requirements pertaining to title transfer, recording of the deed and other fees required by state and local law are usually charged to the buyer of the property.
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| when are statutory costs collected | at closing of the title which in many states is done at the same time as closing of the loan, these costs to not go to the lender but to the state and local government
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| third party charges | charges for services such as legal fees, appraisals, surveys, past inspection and title insurance (not usually additional income to the lender)
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