REAL 1010 Lecture Notes - Lecture 1: Real Estate Settlement Procedures Act, Fannie Mae, Hypothecation

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25 Aug 2016
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Real Estate 4/4/16
Finance- To get money; How are you going to pay for it? How much will you come up with on your own
and how much will the bank help?
Two Types
oDebt
oEquity
Balance Sheet
oAssets- left side; what do I own?
oLiabilities=Debt
oNet Worth= Equity
Equities Market=Stock Market
States Can Be:
oTitle Theory- you don’t own your house until you pay for it.
Deed typically in possession of third party; Typically, an attorney
State don’t have mortgages, they have “deeds of trust”
oLien Theory- Own your house while you’re paying for it.
Lender has a lien on the house
If you don’t pay it back, the lender can foreclose on you
**Ohio is neither of these. It is an intermediary (in between)
Hypothecation- Gives you the right to live in the house while you pay for it.
Without this, you could not live in your house until you pay for it
Bank subordinates themselves, and give you the right to live in the house.
**A bank cannot make you pay your loan off early, unless you break a promise (Default)
Default- Failure to comply with the terms and conditions of the loan
Ways to Default:
oDon’t pay payments
oDon’t pay your taxes (Real Estate taxes)
oDon’t pay your insurance
oUse the property for illegal purposes
oLet the property run down
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Real Estate 4/4/16
oGo Bankrupt
oDie
Usury- Charging an illegal rate of interest
Usury Law- The largest amount you can charge according to the state
F.N.M.A- Federal National Mortgage Association (Fannie May)
Started in 1938, to buy homes from lenders so buyers can get more houses (during depression)
2008 Top 3 company in asset size
oFederal Gov’t seized it so that it would not fail
oHad to put 180B in it to keep it from collapsing
F.H.L.M.C- Federal Home Loan Mortgage Corporation (Freddie Mac)
Started in 1970
In 2008, Fannie and Freddy were private corporations competing against each other
*Primary Mortgage Market- Lenders and Borrowers
*Secondary Mortgage Market- Lenders and Investors
*Housing Market leans on the sole fact of individuals being able to pay their house payment
*When that fails, the whole house of cards comes tumbling down
U.S. Gov’t
oFederal Reserve- Central between Gov’t and private banks
Regulates Banks
The Bank’s bank and the Gov’t’s bank
Gov’t does not own the Federal Reserve
Owned by Banks
Its Billions of dollars in profit per year go to the Gov’t
Regulation B:
oE.C.O.A- Equal Credit Opportunity Act
Prohibits discrimination in lending
Regulation Z:
oTruth in Lending Disclosure Statement
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Real Estate 4/4/16
Requires that you tell the consumer their A.P.R.
A.P.R. is a standardized way of comparing cost
oBanks- the conduit for all money flowing in and out of our economy
Overseen and Regulated by the Gov’t
Most countries have a central bank
oBusinesses and Consumers
T.R.I.D- A new integrated disclosure that banks are required to follow on home loans
Brings together Regulation Z and R.E.S.P.A.
R.E.S.P.A- Real Estate Settlement Procedures Act
Fixed Rate Loan-
Adjustable Rate Mortgage-
Treasury Bill- keeps you and the bank honest
Prime rate- The rate of interest banks charge their best business borrowers
oNot a Gov’t rate
oIt is not a Federal Reserve Rate
oEach bank sets its own prime; Raise and lower it as they want
oMost banks follow the major N.Y prime banks
L.I.B.O.R- London Inter Bank Offered Rate
oThe rate of interest the Banks in London charge each other for loans
THREE CATEGORIES OF LOANS
Purchase Money Mortgage Loan
oThe loan you use to buy a house
oMost Common
Equity Loan
oA loan against property you already own
oRight of Rescission- a federal law that requires your lender to allow 3 business days to
change your mind
oYou don’t get your money until after the 3 business days
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