| A | B |
|---|
| Note | Exact terms of the financial obligation |
| Treatment of Title | pledges the property as security for the note. Can be either mortgage or Deed of Trust (Georgia) |
| Fixed Interest Rate | fixed monthly payments throughout the life of the loan |
| Index interest rate | market-determined rate beyond control of either borrower or lender |
| Margin | Lender's markup on top of the index. Usually help constant at 2.75% |
| Teaser Interest Rate | initial, temporarily reduced interest rate that will jump higher after a certain period of time |
| Payment shock | When your ARM's rate increases after a teaser expires and the index increases. Therefore your payment jumps drastically |
| Interest Rate Cap: Periodic | limits change in interest rate from period to period. Generally does NOT result in negative amortization |
| Interest Rate Cap: Lifetime | Limits change over the life of the loan. Generally does NOT result in negative amortization |
| Payment Caps | Limit on payment changes rather than interest rate changes. Can result in negative amortization |
| Example Cap Rate | 1/3 Period/Life |
| Arrear payments | occur at the end of the month |
| Fully Amortizing loans | The level payment is sufficient to cover interest due plus enough principal reduction to ring the full payment of the outstanding balance at exactly the end of the term |
| Partially amortizing loans | Balloon loans, amortized over 30 years but maturity of 15 years |
| Non-Amortizing loans | Bullet loans, an interest only loan. Dangerous because you build ZERO equity. These tend to be longer terms |
| Traditional Prepayment Policy | No right of prepayment unless explicitly provided. Ex: commercial loans typically have penalties |
| Modern Statutory Case | right of prepayment unless explicitly prohibited |
| Types of prepayment penalties | % of outstanding balance, yield maintenance, defeasance |
| Recourse Loans | Personal liability, generally residential |
| Non-recourse loans | no personal liability, generally commercial loans |
| Rational Default | If you purposely default on your loan, the bank can still come after your other assets |
| Demand Clause | Right to require prepayment of loan given certain circumstances |
| Mortgagor | Borrower |
| Mortgagee | Lender |
| Title Theory | Mortgage is a temporary transfer of a title. The lender holds the title to the property until it is paid. Lender can foreclose. Borrow has right to use and occupy |
| Lien Theory | Lender does not have the title to the property, instead, the borrower holds a lien on the property until the debt is paid. Lien also gives the lender the right to foreclose |
| Description of the Property | A legal description. Not an address or tax id |
| Insurance clause | requires property casualty insurance to be purchased |
| Escrow clause | fund paid into monthly for payment of property taxes, casualty insurance, and sometimes community fees. This is a non-interest bearing account |
| Acceleration Clause | Enables the lender to declare the entire loan balance due and payable |
| Due-on-sale clause | makes loan due and payable whenever the borrower sells the property |
| Hazardous substances clause | prohibits the use and storage of hazardous substances on the property beyond normal use. If so, then the acceleration clause can be used |
| Preservation and maintenance clause | requires property to be maintained in essentially its original condition |
| Deed of trust | Title transferred to a third party (trustee) until the owner pays the note. Returned by the deed of reconveyance. The trustee holds the power of sale instead of the bank |
| Default | failure to meet requirements of the note or mortgage |
| Technical Default | any violations of terms |
| Substantive Default | Three missed payments (90 Days) |
| Assisted Sale (Short Sale) | Borrower sells the house for less than the amount owed with the lender forgiving the difference (mortgage servicer must OK) This is less costly than foreclosure (19% loss vs. 40% loss) Can be risky for buyer (liens travel with title) For defaulter, the IRS may look at the reduction as a gain. Loan owner may be open to fraud if the owner sells to an in-law for a reduced price |
| Deed in lieu of foreclosure | A deed instrument in which a borrower conveys all interest in a real property to the lender to satisfy a loan that is default and avoid foreclosure proceedings. ADV: Quick, Quiet, and Cheap DISADV: Other liens remain, bankruptcy court may nullify transfer and lender loses its priority claim |
| Foreclosure | Legal process of terminating all claims of ownership and all liens inferior to foreclosing lien |
| Equity Right of redemption | You have the right to the return of your property if you settle the debt before the foreclosure sale |
| Statutory Right of Redemption | You have the right to get your property back after the foreclosure sale. Must be allowed and is usually 6-12 months |
| Deficiency Judgement | Judgement against mortgagor for unrecovered balance |
| Judicial Foreclosure | court-administered public action |
| Power of sale | public auction conducted by trustee or mortgagee (preferred by lenders) |
| GA Foreclosures | Majority done by the use of the power of sale in the security deed |
| Mortgage Servicer | current owner of the loan, after it has been sold by the originating bank |
| Bankruptcy | Possible threat to ability to foreclose. No form of bankruptcy can set aside a mortgage lien. Chapter 7: Liquidation, Chapter 11: Court supervised "workout", Chapter 13: Wage-earner's proceeding. Chapter 11 & 13 can result in foreclosure delays |
| "Subject to" borrower does NOT sign mortgage note | No personal liability for mortgage loan (existing debt). Property is still subject to the mortgage |
| Buyer ADDS signature to note | Personality liability for first loan, property is subject to mortgage |
| Debt without a mortgage (contract for a deed) | Seller can finance the sale through installment payments and, by retaining the title, has recourse in case of default |
| Equal Credit Opportunity Act | Can't discriminate based on race, color, religion, nationality, sex, martial status, age, source of income |
| Federal Truth-in-Lending Act (TILA) | Statement of APR, Disclosures (Demand clause, assumability, variable rate, hazard/casualty insurance, late charges, prepayment charges), Borrower has right to rescind any loan within 3 days of loan completion for a principal residence |
| Real Estate Settlement Procedures Act (RESPA) | Applies to nearly all standard home mortgages; Standard format closing statement (HUD-1), presentation of HUD booklet explaining HUD-1, Good-faith estimate of closing costs within 3 days of applying, Closing statement (HUD-1) available for inspection 24 hours before closing, Prohibits kickbacks from closing service vendors |
| Home Ownership and Equity Protection Act | Targeted at abuses in subprime lending. Detailed disclosure of fees is required, prepayment fee only allowed for 5 years, balloon payment prohibited within 5 years, no neg amort, no lending to those than can't afford it |
| Home Mortgage Disclosure Act (1975) & Community Reinvestment Act (1977) | Home mortgage lenders are required to maintain a record of home loans granted and home loans denied by applicants income level, neighborhood income level, loan purpose, applicant gender, and neighborhood area. |
| Red lining | Discrimination in real estate by denying loans by area |
