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Unit 16
Unit 16: Real Financing: Practice
| Term | Definition |
|---|---|
| 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 |
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Asimon0722
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