ESSENTIALS OF REAL ESTATE FINANCE 10th Edition Revised

1
ESSENTIALS OF REAL ESTATE FINANCE10th Edition
Revised

• David Sirota
• Doris Barrell, Consulting Editor

2
Nature of Real Estate Finance

• Construction Influence
• Credit System Economy
• Primary Secondary Markets

3
Cycles of Real Estate Finance

• Supply Demand of Housing

• Supply Demand of Money

4
Factors Affecting Cycles
Supply of Money
Housing Supply
Business Activities
5
Factors Affecting Cycles
Tax Rules
Social Attitudes
Demographics
6
Money and the Monetary System

• The Federal Reservethe Monetary Manager of the
  Nations Economy

7
Money and the Monetary System

• The Feds Functions

• Regulates Reserves
• Determines Discount Rates
• Balances Economy Through Open-Market Operations
• Supervises Truth-in-Lending Act

8
United States Treasury
The Nations Fiscal Manager
FIRREA
FDIC
OTS
BIF
SAIF
Treasury Bills, Notes, and Bonds
9
Federal Home Loan Bank System

• Patterned After Federal Reserve
• 12 District Banks
• Loans Money
• Sets Reserves
• Provides National Market for Member Securities

10
Primary Activities of HUD
11
Interstate Land Sales
Year-Round Sunshine
Good soil for crops!
Just sign here!
12
Federal Legislation

• Equal Credit Opportunity Act

• Real Estate Settlement Procedures Act

• Community Reinvestment Act

13
Agricultural Lending

• Cyclical Requirements
• Farm Credit System
• USDA Rural Development

14
Secondary Mortgage Market

• Federal National Mortgage AssociationFannie
  Mae
• Federal Home Loan Mortgage CorporationFreddie
  Mac
• Government National Mortgage AssociationGinnie
  Mae

15
Fannie Mae

• Originated as Government Agency in 1934
• Reorganized as Private Corporation in 1968

16
Fannie Mae

• Purchases Loan Packages Through Administered
  Price System
• Sells Mortgage-Backed Securities

17
Fannie Mae Underwriting

• Conforming and Nonconforming Loans

• Desktop Underwriter

Jumbo Loan
18
Credit Scoring
Perfect Score 800-850 Optimum Score High
700s Preferred Score 680 Marginal
Score 620 Questionable Score Under 620 Forget
It Score Under 400
19
Ways to Improve Score

• Pay Bills on Time
• Have Fewer Cards
• Do Not Max Out Cards
• Correct Errors on Credit Reports

20
Freddie Mac

• Established in 1970 to Provide Secondary Market
  for Savings Associations
• Loan Prospector Electronic Underwriting
• Sells Participation Certificates

21
Affordable Loan Products

• Fannie Mae
• Community Home Buyer
• Fannie 97
• Flex 97

• Freddie Mac
• Affordable Gold
• Alt 97

22
Secondary Market Participants

• Ginnie MaeGuarantees FHA and VA
  Mortgage-Backed Securities
• Farmer MacUnderwrites Farm Loans
• REMICMulticlass Securities

23
Financial Fiduciaries

• Commercial Banks
• Savings Associations/Thrifts
• Life Insurance Companies
• Pension Funds
• Credit Unions

24
Semi and Nonfiduciaries

• Mortgage Brokers and Bankers
• REITs and REMTs
• Real Estate Bonds
• Individuals/Sellers
• Private Loan Companies

25
Instruments of Real Estate

• Encumbrances and Liens
• Easements
• Covenants
• Voluntary and Involuntary Liens
• Specific and General Liens

26
Instruments of Real Estate

• Interests Secured
• Note and Deed of Trust
• Note and Mortgage
• Mortgage
• Contract for Deed
• Junior Instruments

27
Special Provisions

• Late Payment Penalty
• Prepayment Privilege
• Prepayment Penalties
• Assumption vs. Subject to

28
Special Provisions (cont.)

• Lock-in Clause
• Due-on-Sale Clause
• Subordination Clause
• Release Clause
• Exculpatory Clause
• Nonrecourse Clause

29
Conventional Loans

• 30-Year Fixed Rate
• Adjustable-Rate
• Private Mortgage Insurance
• Buydowns

30
Special Conventional Programs

• Community Home Buyer
• Affordable Gold
• Zero Down Payment
• Automatic Rate Reduction

0!
8
7
6
31
More Special Programs

• Subprime Loan
• Track Record Adjusted
• Refinancing
• Electronic Loan Services

32
FHA-Insured Loans

• Special Programs 203(b), 203(v), 251, 203(k)
• Underwriting Guidelines
• Mortgage Insurance

203(k) Candidate?
33
VA-Guaranteed Loans

• Eligibility/Entitlement
• Guarantee
• Partial Entitlement
• Certificate of Reasonable Value

34
VA-Guaranteed Loans (cont.)

• Income Qualifying Requirements 41 of Gross
  Monthly Income
• Closing Costs (May Not Be Included in VA Loans)
• Funding Fee (May Be Paid in Cash or Included in
  Loan Amount)

35
Processing Real Estate Loans
36
Qualifying the Borrower

• Loan Application
• Assets, Liabilities
• Deposits, Employment
• Credit Report
• Qualifying Ratios

37
Qualifying the Collateral

• Definition of Value
• The Appraisal Process
• Direct Sales Comparison
• Cost Approach
• Income Approach
• Gross Rent Multiplier
• Reconciliation

38
Qualifying the Title

• Abstract and Opinion
• Title Insurance
• Torrens System
• Title Faults
• Survey

39
Closing the Loan

• Costs at Settlement
• Points
• Escrow Account
• Property Taxes, Insurance, Interest
• Prorations
• Fees

40
Interest Payments on a Loan
I PRT

• Term Loan
• Interest Only
• Balloon Payment

• Amortized Loan
• Equal Payments
• Principal and Interest
• Loan Dies at End

41
Adjustable-Rate Mortgage

• Adjustment Period
• Initial Rate, Qualifying Rate
• Index, Margin
• Note Rate
• Rate Caps, Payment Caps

42
Reverse Annuity Mortgage

• Lender Pays Borrower!
• Monthly Checks
• Initial Lump Sum
• Line of Credit
• HUD-Insured RAM
• Fannie Mae Senior Programs

43
Variations in Format

• Open End Mortgage
• Construction Mortgage
• Blanket Mortgage
• Package Mortgage
• Mobile Home Mortgage

44
Tax-Free Mortgage Lending

• Refinance
• Installment Sale
• Option to Buy
• 1031 Exchange

45
Defaults

• Delinquencies
• Principal and Interest, Property Taxes, Insurance
• Adjustments
• Moratorium
• Recasting
• Deed in Lieu

46
Foreclosures

• Judicial
• Conventional, FHA-Insured, VA-Guaranteed
• Power-of-Sale
• Deed of Trust, Mortgage
• Strict Foreclosure
• Tax Impact