Predatory Lending & Mortgage Agreements

• Predatory lending involves unfair, deceptive, or fraudulent practices by lenders during loan origination.

Loan Specifics and Fees

• A point is a loan fee equal to 1% of the mortgage amount.
• Sub-prime loans often feature high interest rates, high closing costs, hidden fees, and balloon payments.
• They are often geared towards unqualified buyers and involve frequent refinancing ("flipping").

Mortgage Agreement Terms

• An acceleration clause allows for faster mortgage loan repayment than the original terms.
• An adjustable-rate mortgage (ARM) has an interest rate that adjusts periodically based on a market index.
• An alienation clause (or "due on sale" clause) allows the lender to demand full loan repayment if the property is sold.
• Assignment is the transfer of a right or contract from one person to another.

Types of Mortgages

• Amortization is the process of decreasing a loan principal over its life.
• A balloon mortgage does not fully amortize, leaving a balance due at maturity.
• A blanket mortgage finances the purchase of multiple properties, commonly used for subdivision financing.
• A bridge loan is a short-term loan, typically lasting from 2 weeks to 3 years.
• A buydown involves paying additional points to the lender to secure a lower interest rate.
• A construction mortgage finances the construction of improvements or buildings on a property.
• A conventional mortgage is secured by real property through a mortgage note.
• A graduated payment mortgage features payments that gradually increase from a low initial level to a final level.
• A home equity loan is secured by the borrower's equity in the property.
• A package mortgage finances the purchase of a home and personal items like appliances.
• A pledged account mortgage (PAM) uses a savings account to gradually reduce mortgage payments.

Financial Metrics and Considerations

• Capitalization rate relates net operating income to present value (Value = Income / Rate).
• Default is the failure to repay a loan.
• Discount points represent prepaid interest, with one point equaling 1% of the loan amount.
• The "due on sale" clause, also known as an alienation clause, allows a lender to demand full loan repayment if the property is sold.
• FHA mortgages are backed loans that typically require a lower down payment and may have lower interest rates.
• A grace period is a time extension past a payment deadline without penalty.
• Inflation is the rate at which the price level of goods and services is rising, decreasing purchasing power.
• Interest and tax deductibility can reduce the income subject to tax, especially expenses incurred to produce income.
• Lifetime caps/ceilings limit the maximum interest rate on some mortgages.
• Loan-to-value ratio (LTV) expresses the ratio of a loan to the value of the purchased asset.
• Margin is the amount of interest a bank charges on a loan over the base rate.

Mortgage Insurance

• Mortgage insurance premium (MIP) is paid by a mortgagor for mortgage insurance, either to a government agency like the FHA or to a private company.
• Private Mortgage Insurance (PMI) is payable to a lender or trustee for a pool of securities and may be required when taking out a mortgage loan.

Parties Involved

• A mortgage is a legal agreement where a bank lends money in exchange for the property title, voided upon debt payment.
• The mortgagor is the borrower, typically a homeowner.
• The mortgagee is the lender or bank providing the loan.

Other Important Concepts

• Negative amortization occurs when the loan payment is less than the interest charged, increasing the outstanding loan balance.
• A prepayment penalty clause assesses a penalty if the mortgage is prepaid within a certain time.
• The primary mortgage market includes borrowers and mortgage originators like brokers, bankers, credit unions, and banks.
• The secondary mortgage market involves buying and selling mortgage loans and servicing rights between originators, aggregators, and investors.
• A promissory note is a signed document promising to pay a stated sum to a specified entity on a specified date or on demand.
• Redlining is the illegal practice of refusing to lend money within a specific area.
• Regulation Z is the Truth in Lending Act, requiring disclosures about credit terms and costs.

Explanation of predatory lending practices, including unfair loan terms and hidden fees. Covers mortgage agreement clauses like acceleration and alienation, and different mortgage types such as adjustable-rate and balloon mortgages. Discusses amortization and assignment processes.