Transcript New York Real Estate for Brokers

New York Real Estate for
Brokers, 5th e
By Marcia Darvin Spada
Cengage Learning
© 2013 All rights reserved.
Chapter 3 Real Estate Finance II
1
Chapter 3
Real Estate
Finance II
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Chapter 3 Real Estate Finance II
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Chapter 3 Key Terms
 Adjustable rate mortgage
(ARM)
 Amortized mortgage
 Bridge loan
 Buydown
 Construction loan
 Conventional loans
 Convertible mortgage
 Department of Veteran
Affairs (VA)
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Chapter 3 Real Estate Finance II
 Depression
 Disintermediation
 Federal Housing
Administration (FHA)
 Gap financing
 Ground lease
 Home equity loan
 Inflation
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Chapter 3 Key Terms (continued)
 Installment land contract
(contract for deed)
 Mortgagee/mortgagor
 Primary mortgage
market
 Recession
 Redlining
 Release clause
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Chapter 3 Real Estate Finance II
 Sale leaseback
 Secondary mortgage
market
 Stagflation
 State of New York
Mortgage Agency
(SONYMA)
 Subordinate lease
 Underwriting
 Usury
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Mortgagor and Mortgagee
The borrower gives a
mortgage to the
lender
Mortgagor
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Chapter 3 Real Estate Finance II
The lender receives a
mortgage from the
borrower
Mortgagee
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Mortgage Clauses
Mortgage
Note or
Alienation
Bond
Clause
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Acceleration Prepayment
Penalty
clause
Clause
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Defeasance
Clause
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Monthly Mortgage Payment
 P = Principal
 I = Interest
 T = Taxes
 I = Insurance
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Chapter 3 Real Estate Finance II
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Lender’s Criteria for Granting a
Loan
$ Investment quality
of the property
$ Borrower’s ability
to repay loan
$ Loan-to-value ratio
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Loan-to-Value Ratio
Ratio of loan amount
to property value
Loan ÷value = ratio
Example:
Loan = $144,000
Value = $160,000
144,000 = 90%
160,000
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Chapter 3 Real Estate Finance II
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Qualifying Ratios
Monthly Housing
Expense
Total
Obligations
Fixed rate
conventional loan
28%
36%
Adjustable rate
Conventional loan
28 %
36%
FHA loans
31%
41%
VA loans
None
41%
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Chapter 3 Real Estate Finance II
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Mortgage Loan Origination
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Chapter 3 Real Estate Finance II
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Conventional and Government
Loans
Conventional loan
Government loan
No participation by a
government agency
Guaranteed, insured
or funded by a
government agency
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Chapter 3 Real Estate Finance II
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Types of Mortgages
FHA-insured loans
VA Guaranteed loans
Rural Housing Service
State of New York
Mortgage Association
(SONYMA)
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Chapter 3 Real Estate Finance II
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Mortgages
Amortized
Straightterm
Balloon
Mortgage
Adjustable
rate
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Blanket
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Other Mortgages
Special
Mortgages
Graduated
Pledged
Reverse
payment
account
annuity
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Chapter 3 Real Estate Finance II
Package
Shared
appreciation
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Special Types of
Mortgages
Home equity loan
Convertible Mortgage
Gap financing
Purchase Money
Mortgage
Wraparound
Subordinate
or Junior Mortgages
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Chapter 3 Real Estate Finance II
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Construction Mortgage
Short term loan
When project is
Disbursed in stages
complete,
Interest not
converted to
charged until the
money has been
disbursed
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permanent longterm loan called
take-out or end
loan
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Sale Leaseback
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How to Secure FHA Financing
 FHA does not make
mortgage loans
 FHA-insured loans
protects lenders against
financial loss
 Buyer pays for this
insurance protection by
paying an upfront
mortgage insurance
premium
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 FHA does not set
maximum sales price,
only a maximum loan
amount
 FHA insured mortgages
Chapter 3 Real Estate Finance II
require mortgage
insurance
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FHA Mortgage
 Advantages
 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
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 Disadvantages
 With a 30-year FHA loan, and a
down payment of more than 5%
of the loan amount, the upfront
mortgage insurance premium
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(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
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The Primary and Secondary
Mortgage Market
Mortgage
Assignable
Sold to secondary
mortgage
(conforming
Loans)
market
Primary
lender
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Chapter 3 Real Estate Finance II
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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
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Chapter 3 Real Estate Finance II
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Truth-in-Lending Act
o Disclosure
o Cooling off period
o Advertising (Regulation Z)
o Penalties
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Chapter 3 Real Estate Finance II
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Lending
Discrimination Laws
ACTS
Truth in Lending
Act
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Community
Reinvestment
Act
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Real Estate Settlement
& Procedures Act
Home Mortgage
Disclosure Act
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The Economy and How it Affects the Real
Estate Market
Employment
Affordability
of property
for buyers
Interest
rates/indices
The
Economy
Valuation
of
Seller’s
property
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Stock
Market
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Predatory Lending PracticesWhat 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
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 High-cost loans also
Chapter 3 Real Estate Finance II
include conventional
loans for more than
$50,000 when the points
and fees exceed 5
percent of the loan
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Predatory Lending
Lender may target
certain ethnic group
Induces refinancing
(flipping)
Takes advantage of
consumer
Fraud regarding true
nature of loan
obligation
Lender makes
unaffordable loans
based on assets of
borrower, not ability to
repay
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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
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Flipping may be a
problem because it can
drive up prices
The investor attempts
Chapter 3 Real Estate Finance II
to buy low and sell
high
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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
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New York Anti-Predatory Lending Law
Places many restrictions on high-cost (subprime)
loans that are first or junior (second) mortgages
Loans covered under New York Law
Maximum indebtedness of $300,000
For family or personal reasons
Applies to one- to four-unit property that is the
borrower’s personal residence
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