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PA RE Fundamentals_ Unit 12 Principals of RE Financing (1).
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PA RE Fundamentals_ Unit 12 Principals of RE Financing (1).
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PA RE Fundamentals: Unit 12 Principals ofRE Financing
The Fed Federal Reserve System - ANS-The country's CENTRAL BANKING SYSTEM,
which is responsible for the NATIONS MONETARY POLICY by regulating the
supply/FLOW of MONEY & INTEREST RATES. Divided into 12 Federal Reserve
Districts, each served by a Fed Reserve Bank. All nationally chartered banks MUST
JOIN & purchase stock in its district reserve banks.
Primary Mortgage Market - ANS-The mtg market in which LOANS ARE ORIGINATED &
make money available DIRECTLY TO BORROWERS; Loans are bought, sold and
traded in Secondary Mkt; Consists of lenders, such as commercial banks, savings &
loan assoc., & mutual savings banks. A loan must GENERATE enough INCOME thru
FINANCE CHARGES (Loan origin fees, disc pts), RECURRING INCOME (Interest
collected), & SERVICING to be an attractive investment.
Loan Investment Income Sources - ANS-A loan must GENERATE enough INCOME to
be an attractive investment. (1)FINANCE CHARGES: Collected at closing, loan
origination fees, disc pts, (2)RECURRING INCOME: Interest collected during term of
loan, (3)SERVICING LOANS: Collecting payments, incl'g Insur & Taxes, Acct'g,
bookkeeping, records prep, processing payments, following up on payments &
delinquencies.
Secondary Mortgage Market - ANS-A market for the PURCHASE & SALE OF
EXISTING MTGS designed to provide greater liquidity for mtgs; also called secondary
money market. When a loan is sold, the orig lender can continue to collect payments
from the borrower. Does NOT interact directly w/borrowers. Stimulates housing
construction mkt & mtg mkt by expanding types of loans avail. Agencies, FANNE MAE,
FREDDIE MAC, GINNIE MAE, purchase a number of mortgage loans & assemble them
into packages, called *POOLS*
Fannie Mae - ANS-A FORMER government-owned enterprise, but today, it is organized
as a completely PRIVATELY OWNED CORP that issues own stock. Deals in
CONVENTIONAL, FHA & VA LOANS. Buys from a lender a BLOCK or POOL of mtgs
that may then be used as collateral for mtg-backed securities that are sold on the global
mkt. (Fannie Mae: Federal National Mtg Assoc).
, Freddie Mac - ANS-A GOVernment-owned enterprise, similar to Fannie Mae, that
provides a SECONDARY MKT for primarily CONVENTIONAL LOANS. (Freddie Mac:
Federal Home Loan Mtg Corp).
Ginnie Mae - ANS-Always been a GOVernment agency that is a division of HUD US
Dept. of Housing & Urban Devel. , organized as a corp w/o capital stock. Administers
SPECIAL-ASSISTANCE programs & guarantees mtg-backed securities issued by
private offerors (banks, mtg co.'s, S&L) & is backed by POOLS of FHA & VA Mtg loans.
(Formerly known as GNMA Government National Mtg Assoc.)
Ginnie Mae Pass-Through Certificate - ANS-A security interest in a POOL of mtgs that
provides for a monthly pass-through of principal & interest payments directly to the
Certificate Holder. Certificates are guaranteed by Ginnie Mae.
Conventional Loan - ANS-A loan that is NOT insured or guaranteed by a government or
private source.
FHA Loan - ANS-A loan insured by the Federal Housing Administration & made by an
approved lender in accordance w/FHA's regulations.
VA Loan - ANS-A mtg loan on approved property made to a QUALIFIED VETERAN by
an authorized lender & GUARANTEED by the Dept. of Veterans Affairs in order to limit
the lenders' possible loss.
Mortgage - ANS-A conditional transfer or PLEDGE of RE as SECURITY for the
payment of a debt; also the document CREATING a MORTGAGE LIEN. Voluntary,
specific lien when properly recorded.
Mortgagee - ANS-LENDER in a mtg loan transaction.
Mortgagor - ANS-BORROWER in a mtg loan transaction
Satisfaction of Mortgage - ANS-A doc ACKNOWLEDGING the PAYMENT of a mortgage
debt.
Title Theory - ANS-Some states interpret a mtg to mean that the LENDER (mortgagee)
is the OWNER of mtg land. Borrower (mortgagor) retains equitable title & rights of
ownership. Upon FULL payment of mtg debt, the borrower becomes the landowner.
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