Questions and Answers
What is the Federal Reserve responsible for?
What are reserve requirements?
The amount of money banks must keep and not lend.
What is the discount rate?
The cost to a member bank for borrowing money.
What is the role of the Treasury?
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What does the Primary Mortgage Market include?
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What is an origination fee?
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Savings & Loan Associations must be chartered by the federal government.
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What is a secondary market in real estate?
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Which of the following entities buys VA guaranteed, FHA insured and conventional mortgages?
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What does Ginnie Mae focus on?
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Match the following terms with their definitions:
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What is an acceleration clause?
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Covenants are promises or agreements made between the lender and borrower.
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Provisions are statements like clauses and __________; they allow the lender legal rights if the loan terms are breached.
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What is the purpose of a condemnation clause?
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Study Notes
Federal Reserve and Banking
- Federal Reserve establishes reserve requirements and maintains sound credit conditions to address inflationary and deflationary trends.
- Reserve requirements refer to the minimum amount of funds banks must hold and not lend.
- Discount rate is the interest rate charged to commercial banks for borrowing funds from the central bank, influencing overall interest rates.
Government Financial Instruments
- The Treasury is responsible for paying government bills, raising money by selling securities, and printing money, which can influence inflation.
- Primary Mortgage Market provides direct funding to consumers through mortgage companies, banks, and credit unions, charging origination fees for services.
Mortgage Concepts
- An origination fee is charged to cover the costs of initiating a mortgage loan.
- Savings & Loan Associations aim to promote savings and home ownership and require federal or state charters for operation.
- Secondary Market purchases loans from the Primary Market, standardizing loan terms and providing lenders ongoing funding sources.
Key Government-Sponsored Entities
- Fannie Mae is a profit-making corporation that buys various types of real estate loans, operating under the Federal Housing Finance Agency since 2008.
- Freddie Mac also buys real estate loans under similar charters as Fannie Mae.
- Ginnie Mae exclusively purchases government-backed loans, such as VA and FHA mortgages, as part of HUD.
- Farmer Mac specializes in mortgages related to agricultural real estate.
Real Estate Financing
- Real estate lien notes are bi-lateral contracts that establish borrower obligations.
- Mortgages are unilateral contracts placing property as collateral, recorded publicly to establish a lender's interest.
- Hypothecation allows the borrower to retain possession of the property while it serves as collateral for a loan.
Loan Agreement Components
- Clauses are specific provisions outlining rights and responsibilities within a loan contract.
- Prepayment penalties require fees if a borrower repays all or part of a loan early and must be disclosed, though they cannot be applied to FHA or VA loans.
- Covenants refer to promises made by the borrower to the lender in a contract.
Legal Rights and Provisions
- Provisions encompass statements that grant lenders legal rights if loan terms are breached.
- An acceleration clause enables lenders to demand immediate repayment of a loan if certain terms are violated, potentially leading to foreclosure.
- The defeasance clause ends the lender's interest in the property once the loan is fully paid off.
Transfer and Property Clauses
- An alienation clause requires repayment of the loan if property ownership is transferred, protecting the lender’s interests against assumption of the loan by new owners.
- A condemnation clause ensures that proceeds from eminent domain are used to reduce the loan balance, safeguarding the lender's recovery against property loss.
Occupancy and Borrower Responsibilities
- An occupancy clause mandates the borrower to inhabit the property for a designated timeframe, typically within a few months, with continued residence often required for a year. Violating this clause can be considered mortgage fraud.
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Description
Test your knowledge of key real estate terms with these flashcards created for the Polley Pennsylvania Real Estate Practice 2020. Each card provides a crucial definition to help you prepare for your real estate exams and enhance your understanding of important concepts. Perfect for quick review and memorization.
