new york real estate for brokers, 5th e

© 2013 All rights reserved.Chapter 3 Real Estate Finance II 1

New York Real Estate for Brokers, 5th e

By Marcia Darvin SpadaCengage Learning


Chapter 3

Real Estate Finance II


Chapter 3 Key TermsAdjustable rate

mortgage (ARM)Amortized mortgageBridge loanBuydownConstruction loanConventional loansConvertible

mortgageDepartment of

Veteran Affairs (VA)

DepressionDisintermediationFederal Housing

Administration (FHA)Gap financingGround leaseHome equity loan Inflation


Chapter 3 Key Terms (continued)

Installment land contract (contract for deed)

Mortgagee/mortgagor

Primary mortgage market

Recession RedliningRelease clause

Sale leaseback Secondary mortgage

marketStagflationState of New York

Mortgage Agency (SONYMA)

Subordinate leaseUnderwritingUsury


Mortgagor and MortgageeThe borrower

gives amortgage 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


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


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%


Mortgage Loan Origination

Uniform Residential Loan

Application Form

Loan processing-

Application review

Underwriting-Documentation

review

Loan

Approval


Conventional and Government Loans

Conventional loan

No participation by a government agency

Government loan

Guaranteed, insured or funded by a government agency


Types of MortgagesFHA-insured loans

VA Guaranteed loans

Rural Housing

Service

State of New York

Mortgage

Association

(SONYMA)


Mortgages

Straight-term

Straight-term

Adjust-ablerate

Adjust-ablerate

BlanketBlanket

BalloonBalloon

AmortizedAmortized

MortgageMortgage


Other Mortgages

Special

Mortgages

Graduated

paymentPackage

Shared

appreciation

Reverse

annuity

Pledged

account


Special Types of Mortgages

Home equity loan

Gap financing

Wraparound

Subordinate or Junior Mortgages

Purchase Money Mortgage

Convertible 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

© 2013 All rights reserved.

Sale Leaseback

Chapter 3 Real Estate Finance II 18


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



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


Lending Discrimination Laws

ACTSACTS

Truth in Lending Truth in Lending ActAct

Community Community ReinvestmentReinvestment

ActAct

Real Estate SettlementReal Estate Settlement& Procedures Act& Procedures Act

Home MortgageHome MortgageDisclosure ActDisclosure Act



The Economy and How it Affects the Real Estate Market


Affordability of propertyfor buyers

Valuation of

Seller’sproperty

Stock Market

Interest rates/indices

TheEconomy

Employment


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



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 regarding true nature of loan obligation



Flipping Real estate

investors or speculators believe that they can turn quick profits by buying the property at a certain price and then immediately selling the property at a higher price

Flipping may be a problem because it can drive up prices

The investor attempts to buy low and sell high



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 LawPlaces many 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 reasonsApplies to one- to four-unit property that is the borrower’s personal residence


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