Modern Real Estate Practice in Illinois Eighth Edition Chapter 16: Real Estate Financing: Practice ©2014 Kaplan, Inc.

Introduction to the Real Estate Financing Market The Federal Reserve System –Reserve requirements –Discount rates Primary Mortgage Market –Made up of lenders that originate mortgage loans

Introduction to the Real Estate Financing Market Secondary Mortgage Market –Fannie Mae (now government owned) –Ginnie Mae (a government agency) –Freddie Mac (now government owned)

Financing Techniques Straight Loans –Also called interest-only loan –Essentially divides loan into two amounts (interest and principal) to be paid off separately; interest first, then principal

Financing Techniques Adjustable-Rate Mortgages (ARMs) Balloon Payment Loan Growing-Equity Mortgage (GEM) Reverse Mortgage Nonrecourse Loan

Loan Programs Conventional Loans Private Mortgage Insurance FHA-Insured Loans –Prepayment privileges –Low downpayment loans –Discount points

Loan Programs VA-Guaranteed Loans –Certificate of eligibility –Certificate of reasonable value (CRV) –Reasonable discount points –Prepayment privileges –Assumption rules Agricultural Loan Programs –FSA loans / Farm Credit System –Farmer Mac

Other Financing Techniques Purchase-Money Mortgages Package Loans Blanket Loans Wraparound Loans Open-end Loans Construction Loans (Interim Financing) Sale-and-Leaseback Buydown Home Equity Loan

Financing Legislation Truth-in-Lending Act and Regulation Z –Creditor –Three-day right of recission –Advertising –Penalties

Financing Legislation Equal Credit Opportunity Act (ECOA) Community Reinvestment Act of 1977 (CRA) Real Estate Settlement Procedures Act (RESPA)

Scoring and Automated Underwriting Shortens loan approval and reduces costs Uses credit report and history information