© 2013 All rights reserved. Chapter 6 Real Estate Finance1 New York Real Estate for Salespersons,...

© 2013 All rights reserved.Chapter 6 Real Estate Finance 1

New York Real Estate for Salespersons, 5th e

By Marcia Darvin SpadaCengage Learning


Chapter 6

Real Estate Finance (Mortgages)


Chapter 6 Key TermsAcceleration

clauseAdjustable rate

mortgage (ARM)Alienation (due on

sale) clauseAmortization

AssignmentBuydownDefaultDiscount pointsGrace periodInflation


Chapter 6 Key Terms (continued)

Loan-to-value ratioMargin Mortgage/

mortgagor/Mortgagee

Negative amortization

Payment cap/rate cap

Prepayment penalty clause

Promissory noteRelease clauseSatisfaction of

mortgageUsury laws


Mortgagor and MortgageeThe borrower gives a

mortgage to thelender

Mortgagor

The lender receives a mortgage from the borrower

Mortgagee


Mortgage Clauses

Mortgage

Note or

Bond

PrepaymentPenaltyclause

Defeasance

Clause

Acceleration

Clause

Alienation

Clause


Monthly Mortgage PaymentP = Principal

I = Interest

T = Taxes

I = Insurance


Elements of Foreclosure

Priority/Subordination

Deficiency judgment

Equity of Redemption

Foreclosure

Deed in lieuof foreclosure


Sale of Mortgaged Property

Sale Free and Clear

Sale Subject to a mortgage

Sale in which buyer assumes

mortgage debt


Conventional and Government Loans

Conventional loan

No participation

by a government

agency

Government loan

Guaranteed,

insured or

funded by a

government

agency


Specific loans and Payments

Straight-term

Straight-term

Adjust-ablerate

Adjust-ablerate

BlanketBlanket

BalloonBalloon

AmortizedAmortized

MortgageMortgage


Junior Financing

Home equity loan

Gap financingOpen-end mortgage


Special Types of MortgagesSpecial

Mortgages

Graduated

paymentPackage

Shared

appreciation

Reverse

annuity

Pledged

account


A Purchase Money Mortgage


Construction MortgageShort term loan

Disbursed in stages

Interest not charged

until the money has

been disbursed

When project is

complete,

converted to

permanent long-

term loan called

take-out or end

loan


Types of Government LoansFHA-insured loans

VA Guaranteed loans

Rural Housing

Service

State of New York

Mortgage

Association

(SONYMA)


The Primary and Secondary Mortgage Market

Sold to secondary

mortgage

market

Primary

lender

Mortgage Assignable

(conformingLoans)


Secondary Mortgage Market Organizations

Name Ownership Purchases

Fannie Mae (FNMA)

Privately owned

FHA, VA, RHS, conventional

Ginnie Mae(GNMA)

HUD VA, FHA, RHS

Freddie Mac(FHLMC)

Savings. savings and loan banks

Members of Fed. Home Loan Bank, other banks


Truth-in-Lending Act

o Disclosure

o Cooling off period

o Advertising (Regulation Z)

o Penalties


Lender’s Criteria for Granting a Loan

$ Investment

quality of the

property

$ Loan-to-value

ratio

$ Borrower’s

ability to repay

loan


Loan-to-Value RatioRatio of loan

amount to property value

Loan ÷value = ratio

Example:

Loan = $144,000Value = $160,000

144,000 = 90%160,000


Mortgage Loan Origination

Uniform Residential Loan

Application Form

Loan processing-

Application review

Underwriting-Documentation

review

Loan

Approval


Qualifying RatiosMonthly HousingExpense

Total Obligations

Fixed rate conventional loan

28% 36%

Adjustable rate Conventional loan

28 % 36%

FHA loans 31% 41%

VA loans None 41%


How to Secure FHA FinancingFHA does not make

mortgage loansFHA-insured loans

protects lenders against financial loss

Buyer pays for this insurance protection by paying an upfront mortgage insurance premium

FHA does not set maximum sales price, only a maximum loan amount

FHA insured mortgages require mortgage insurance



FHA MortgageAdvantages

Credit criteria for a borrower are not as strict

Borrower’s allowable costs can be partially wrapped into loan

100% of down payment and closing costs can be gifted

Loans are assumable

Disadvantages With a 30-year FHA loan,

and a down payment of more than 5% of the loan amount, the upfront mortgage insurance premium (MIP) is 2.25 percent of the loan amount in addition to the 1.10 percent annual renewal premium that a borrower pays for the life of the loan

FHA limits the amount that can be borrowed



Predatory Lending What is it?

High-cost (subprime

loans) include

conventional first

mortgages that have an

interest rate of more

than 8 percent and

junior mortgages that

have a high interest rate

of more than 9 percent

High-cost loans also

include conventional

loans for more than

$50,000 when the points

and fees exceed 5

percent of the loan



Predatory Lending Lender may target

certain ethnic group

Takes advantage of consumer

Lender makes unaffordable loans based on assets of borrower, not ability to repay

Induces refinancing (flipping) Fraud regard true

nature of loan obligation



Predatory Lending Practices-What is it?High-cost

(subprime loans) include conventional first mortgages that have an interest rate of more than 8 percent and junior mortgages that have an interest rate of more than 9 percent

High-cost loans also include conventional loans for more than $50,000 when the points and fees exceed 5 percent of the loan



Subprime Loans

Borrowers considered subprime if they have

a less-than-perfect credit report

Subprime lenders companies that provide loans to home-

buyers who do not have good credit histories or who are risky candidates for loans because of their incomes



New York Anti-Predatory Lending LawMany restrictions on high-cost (subprime) loans that are first or junior (second) mortgages

Loans covered under New York LawMaximum indebtedness of $300,000For family or personal reasonsApply to one- to four-unit property that is the borrower’s personal residence


© 2013 All rights reserved. Chapter 6 Real Estate Finance1 New York Real Estate for Salespersons,...

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