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Unit 16

Unit 16: Real Financing: Practice

TermDefinition
FEDERAL RESERVE SYSTEM Regulates flow of money and interest rates of the member banks by controlling reserve requirements and discount rates.
RESERVE REQUIREMENTS Level of assets on hand banks are required to keep as reserve funds
DISCOUNT RATES Rate is the rate charged by the Fed when it lends money to its member banks
PRIME RATE Short term interest rate that a bank charged to its most creditworthy and largest customers
PRIMARY MORTGAGE MARKET A medium in which lenders that originate mortgage loans and make money directly available to borrowers
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) Governement body that establishes regulations intended to protect depositors against reckless lending
SECURE AND FAIR ENFORCEMENT FOR MORTGAGE LICENSING ACT OF 2008 Federal act requiring participating states to license and register mortgage loan originators
MORTGAGE LOAN ORIGINATORS Anyone, who for compensation purposes, takes a residential mortgage loan application by phone or in person
SECONDARY MORTGAGE MARKET A medium in which existing mortgage loans are purchased from the primary market and held as investments
adjustable-rate mortgage (ARM) a loan where the interest rate is periodically adjusted based on an index
adjustment period established how often the interest rate may change on an adjustable rate mortgage
amortized loan a loan in which principal and interest are paid off at the same rate through the term of the loan
balloon payment the final payment on a loan that is typically larger than the other payments.
blanket loan a loan that covers multiple parcels and allows the borrower to partially release a lien after repaying a certain amount
buydown an up front payment of a certain amount of the loan's interest to bring down the interest rate temporarily or permanently
certificate of reasonable value (CRV) an appraisal report on a VA loan
Community Reinvestment Act (CRA) a law that refers to the responsibility of financial institutions to meet community needs for low-income and moderate-income housing
construction loan a temporary loan for the development of new property, where the lender disperses funds in payments, or draws, for the completed portion of work
conversion option an option for a borrower to convert a loan from an ARM to a fixed rate mortgage at certain intervals during the term of the loan
conventional loan a loan that is considered to have the least risk for a lender and has the lowest LTV
Equal Credit Opportunity Act (ECOA) This law prohibits lenders and creditors from discrimination
Fannie Mae Purchases conventional, FHA, and VA loans in blocks to use as collateral for mortgage backed securities.
FHA loan Government insured program that will finance up to 97% of borrower's loan.
Freddie Mac Purchases mostly conventional loans for use as collateral for mortgage backed securities
Ginnie Mae Guarantees pass through certificates for special assistance loans
growing equity mortgage (GEM) a type of financing option that is characterized by increasing mortgage payments through the loan term
home equity loan a loan that uses the equity in the home as collateral
index a marker used to determine the interest rate on an adjustable rate mortgage
loan-to-value (LTV) ratio a ratio of loan amount to the appraised value or sale price of the property
margin a premium that is added to the interest rate on an adjustable rate mortgage that covers the lender's cost of doing business
mortgage insurance premium (MIP) a lump sum payment made for FHA loans that guarantee the loan against default
non-recourse loan a loan in which the borrower cannot be held personally responsible
open-end loan after a borrower has reduced the loan amount over a period of time, this type of loan allows the borrower to increase debt back to the original loan amount (or amount stated in note) at the current market interest rate
package loan a loan for both real and personal property
pass through certificates a Ginnie Mae guaranteed investment in special assistance loans in which principal and interest pass directly to the certificate holder
payment cap limits the amount of a mortgage payment on an adjustable rate mortgage
purchase money mortgage (PMM) a seller financed home loan
rate cap limits the interest rate on an adjustable rate mortgage either at any given time (periodic) or through the term of the loan (aggregate)
Real Estate Settlement Procedures Act (RESPA) This law ensures buyers and seller are fully informed of all settlement or closing costs for residential real estate loans for new first mortgages
reverse mortgage a loan that results in an increasing loan amount and diminishing equity
sale-leaseback arrangement the buyer become the landlord (lessor) and the original owner becomes the tenant (lessee)
straight loan a loan in which the interest is paid first and then the principal
trigger terms a list of words, when used in advertising, require specific information regarding the terms of a loan to be disclosed (e.g., APR, down payment, cash price, etc)
Truth in Lending Act (TILA) Also called Regulation Z, this law requires creditors to disclose all fees (e.g., loan fees, service, charges, etc) charged by the lender
VA loan Government guaranteed loan program for vererans
wraparound loan A loan from a second institution that pays the borrower's first mortgage. Often used when existing mortgage cannot be prepaid.
Primary Mortgage Insurance protects lender against default for up to 20-30 % of a loan amount
Farm Service Agency (FSA) an agency of the US Department of Agriculture that guarantees loans and / or makes direct loans to help families in purchase and operate farms
Federal Agricultural Mortgage Corporate (Farmer Mac) government sponsored enterprise that bundles agricultural loans for sale as mortgage backed securities
Created by: Asimon0722