Rural economic and community development (RECD)
Loans for homes or construction in rural areas and small communities
Direct loans from RECD Having population of 200,000 or less or by private lender with RECD guaranteeing certain percentage
Debt coverage ratio
Ratio of annual net income to annual debt service
Example: lender may require that qualified corporate borrower have net income of 1.5x the debt service of loan being approved
Abstract and opinion
Condensed history that merely discloses those items about property that are of public record
Consecutive grants, conveniences, wills, records, judicial proceedings affecting title with statement of all recorded liens and encumbrances
Mortgage to income ratio
Ratio between the monthly housing expense and stable monthly income
Chain of title
Recorded history of matters that affect title to a specific parcel of real estate, such as ownership, encumbrances, and liens
Shows successive change of ownership, each one link to the next so “chain” is formed
Title Insurance
Protects a policyholder against loss from some occurrence that has already happened, such as forged dead somewhere in chain of title
Non-recourse loan
Power is not held personally liable on the note
Lender generally feels confident that collateral property will be adequate security for loan
(If collateral sells for less lender cannot seek deficiency balance from borrower)
Non-recourse clause
When included in sales agreement, the seller of the security IS NOT Liable if borrower defaults
If lender forecloses, borrower will not be personally liable beyond collateral pledge for loan
Default
The non-performance of a duty/obligation that’s part of a contract
Normally “breach of contract” and defaulting party can seek legal remedies to recover any loss.
Conditional approval
Conditional/qualified commitment
Written pledge by lender to lend certain amount of money to qualified borrower on particular property for a specific time under specific terms
Underwriting
Underwriting a loan includes the process of preparing the terms & conditions of the loan and determining borrowers ability to repay.
Analysis of the extent of risk assumed in connection with the loan
Appraisal fees
Typically based on TIME AND EXPENSES
NEVER based on a percent of appraisal value
Estoppel certificate
Legal doctrine by which a person is prevented from asserting rights/facts that are inconsistent with previous representation by act, conduct or silence
(Can’t go back on your act, conduct or silence)
Exculpatory clause
When lender waves rights to a deficiency judgment. Sometimes inserted in mortgage note
(Power to surrender property to lender without further personal liability for deficiency)
Impounds
Also, buyers escrow
Fund of buyers money that lender sets aside for future needs relating to property
Impound account simply mortgage company to collect insurance tax payments necessary to keep your home not technically part of a mortgage
Disintermediation
To withdraw funds from financial institute, such as bank and savings to invest them directly
Savings and loans
Specialize in long-term residential loans
Banks
Make short term loans but becoming more active in home, FHA, and VA loans
Example of short term loans car, mobile home, household loan
Insurance companies
Prefer large commercial loans, but will make residential loans. Like to have equity position sometimes partners with developers “participation financing”
Participation financing
Mortgage in which lender participates in income of property beyond to fix return/receives yield on a loan
Mortgage broker
Person, corporation, firm – not otherwise banking and finance – that either provide own funds, negotiates, sales, or arranges loans for compensation
Mutual savings banks
Also lenders in primary market
Primarily in eastern states
The federal reserve system/the fed
“The fed” central banking system to manage nations economy. Each 12 districts is secured by federal reserve bank. “Fed “has great impact on real estate investment through various functions
Reserves
The amount of money “assets “banks are required to keep on hand.
Takes 30 to 60 days to have an effect on the market
Discount rates
The rate at which the “Fed” charges banks for money. This influences economy much more quickly – almost overnight in some areas
Buying – selling securities (Bonds)
“The Fed quote is buying or selling bonds
Buying= more money in the market, low interest, economy is stimulated
Selling= less money in the market, rise in interest, economy is slowed
Six months- one year to have affect on economy
Lending laws
For consumer protection and lending
Secondary mortgage market
Purpose is to provide liquidity (funds) for primary market (institutional lenders)
Lender seller notes and second mortgage market to free up money so they can make more loans
**Provide funds for primary market(lenders)
Fannie Mae
Ginnie Mae
Freddie Mac
Federal national mortgage association
Or Fannie Mae- FMMA
- Largest purchaser and secondary market
- buys FHA, VA, and conventional loans
– privately owned, established 1938
Government national mortgage association or Ginnie Mae-GNMA
-Buys FHA and VA loans
– controlled by an agency of Department of HUD
In Tatum means when Fannie Mae and Ginnie Mae work together
Federal home loan mortgage Corporation or Freddie Mac NFHLMC
Buys conventional loans
Depository institutions
In California mortgage market, traditional loan sources are:
Savings and loans, savings or commercial banks, thrift and loans, and credit unions
California real estate lenders into three major categories
- institutional lenders: there are three types:, commercial banks, savings banks, and life insurance companies
- Non-institutional lenders: Mortgage lenders, REIT’s, credit unions, private lenders and pension funds
3.Government backed programs:
FHA, VA and Calvet
Conventional loans
NO GOVERNMENT GUARANTEES OR INSURES.
- Obtained at local savings & loan, mortgage brokers, & mortgage bankers
- Minimum down payment of 20%, unless buyer gets PMI
- Most packaged by lenders and sold in secondary mortgage market
No guarantees if you fail to repay the loan
Conventional Insured Loans
No government guarantees insurance but Instead from private insurance companies
(Insurance paid by borrower backed by private lenders)
Private Mortgage Insurance (PMI)
Insurance provided by a private insurer that protects the lender against loss in an event of foreclosure & deficiency.
PMI Required for all loans with less than 20% down
Mortgage Guarantee insurance corporation (MGIC)
Largest private insurance
Syndicate Equity Financing
Syndicates offer small investors opportunities to invest in high-yield real estate
Commercial Loan
A straight bank loan that borrowe obtains based of good credit or some non real property collateral
Bond or Stocks
Some large corporations sell stocks or general obligation bonds so they may buy real property without mortgage
Exchange
Trade or property of equal or lesser value
Sale- Leaseback
Owner sells then leases back from purchaser.
More common in commercial deals to free up money
Sales contract (not popular in Cali)
Also, installment sale contract or land contract
Seller agrees to convey title after buyer has met certain conditions & which does not require conveyance within a year
Used in a case when buyer can only make small down payment and “rent”
Long term lease
Good if property is usable as. 100% of rent being deductible as expenses & tenants total debt load remains the same
Real estate syndicate
Several investors combine skill, resources and capital to purchase and manage property they otherwise couldn’t afford
Originations phase
Of syndication… planning and buying the property, following registration and disclosure mandates etc..
Operation phase
Of syndication… which sponsor generally manages BOTH the syndicate and the real property
Completion or liquidation phase
Of syndication…. the property’s resale
The corporate form
Allows for both centralized management and limited liability for the investors. Downside, has negative tax features that make it unappealing for modern syndicates.
The general partnership or joint venture
Avoids the double taxation
Downside there is on unlimited liability provision as well as lack of centralized management.
-when one person has unlimited liability and the rest have limited
Limited Partnership
Limited liability and centralized management.
The limited liability company
Added in 1994, includes a liability limitation not unlike that offered to corporate shareholders
Real estate investment trust (REIT)
Requires minimum of 100 investors who invest in an Assorted portfolio for real estate and mortgage investments.
Sells securities specializing in real estate ventures
Two types – equity trust and mortgage trust
The department of corporations
Regulates all real estate investment trusts and has authority to grant either a permit or an exemption in deciding whether given form of business for pooling investment money constitutes a securities offering
Equity trust
Companies that invest in real estate itself or in several real estate projects
Mortgage trust
Company that invest in mortgage and other types of real estate loans/obligations
Combination trusts
Engage in both equity and mortgage trust investments
Call if Acacian as a trust
- REIT Must be been officially owned by 100 investors.
* 2.No five or fewer persons may hold more than 50% of beneficial interest. - Transferable shares/certificates of interest must prove the beneficial interest.
- In California each share/certificate of interest must carry with it and equivalent vote.
Professional management
Is considered essential to a successful syndication
Real estate syndicate act
1970
Turned the regulation of all our REITS to the Department of corporations