LOANS AND LENDING

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LOANS AND LENDING

• OBJECTIVES
• Fixed-rate loan amortization
• Determine remaining balances
• Determining interest paid per period
• Adjustable rate mortgages
• Graduated PMT mortgages
• Loan qualifying
• APR calculation

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SOME TERMS
DO ER OF ACTION RECEIVER OF ACTION

• PAYOR
• ASSIGNOR
• TRUSTOR
• MORTGAGOR
• VENDOR
• LESSOR

• PAYEE
• ASSIGNEE
• TRUSTEE
• MORTGAGEE
• VENDEE
• LESSEE

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MORTGAGE OR TRUST DEED ?

• TYPICALLY INVOLVES ONLY 2 PARTIES MORTGAGOR -
  MORTGAGEE
• ALWAYS INVOLVES 3 PARTIES
• TRUSTOR BENEFICIARY - TRUSTEE

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2 INSTRUMENTS

• PROMISSORY NOTE (AN IOU)
• 1 OR MORE SECURITY INSTRUMENTS
• TRUST DEED REAL PROPERTY
• MORTGAGE REAL PROPERTY
• UCC-1 AGREEMENT
  PERS. PROPERTY

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TYPES of NOTES

• Straight Note
  (non-amortizing)
• Amortizing Note (balance to zero)
• Adjustable Rate (ARM)
• Installment Note (separate
  principal)
• Demand Note (payable on
  demand)
  
• Hybrid Combination of A, B or C

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TRUST DEED SYSTEM

• Promissory Note Security

TRUSTEE
TRUST DEED
TRUSTOR
BENEFICIARY
TRUSTEE HOLDS NAKED LEGAL TITLE TO PROPERTY
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PRIORITY

• FIRST TO RECORD IS FIRST IN RIGHT

3/27/97
TRUST DEED
TRUST DEED
4/15/01
TRUST DEED
8/31/03
JUNIOR LIENS
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IMPORTANT CLAUSES IN LOAN

• Acceleration Clause
• Due-on-Sale Clause
• Assumption Clause
• Assume
• Or go Subject To
• Pre-Payment
• Yield Maintenance
• Defeasancce

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Terminology of Amortizing Note

• N PERIODS IN SCHEDULE
• i INTEREST/DISCOUNT RATE
• PV PRESENT BALANCE OF NOTE
• PMT AMOUNT REQD TO AMORTIZE
• FV ENDING BALANCE OF NOTE

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REMAINING BALANCE

• PV of all UNMADE Pmts, or
• FV of all MADE Pmts

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Amortization Table
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AMORTIZATION
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REMAINING BALANCE
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THE AMORTIZING LOAN
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FRONT BACKEND RATIOS

• FRONT END RATIO
• P I
• Insurance
• HOA
• Taxes
• ALL HOUSING EXPENSES
• 28 - 34

• BACK END RATIO
• ALL HOUSING EXPENSES
• Installment Debt
• 32 - 38

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ARM

• Floating interest rate
• Spread over Base Index
• Annual increases in rate lt 2
• Increases in PMT lt 7.5

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Base Index Spread

• .

Current Mortgage Rate
Spread
Index
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COMMERCIAL LOANS

• Based on Lower of
• Loan to Value Ratio
• Debt Service Ratio

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DEBT SERVICE RATIODEBT COVERAGE RATIO
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RESIDENTIAL UNDERWRITING

• Gross Hshld Inc. 75,000
• Monthly 6,250
• Front 30 Back 40 1,875 2,500
• Assume 300,000 PP
• Taxes (1.2) 300 300
• HOA 175 175
• Insurance 125 125
• Sub-Total 600 600
• Princ. Interest 1,275 1,900
  

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BACK END RATIOS

• Household Income/ Month 6,250
• Back end ratio (40) 2,500
• Taxes 300
• HOA 175
• Insurance 125 Consumer Debt/ Month 200
  Total 800
• PI (2500 less 800) 1,700

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THE APR

• APR is the lenders yield
• Includes points and loan fees
• Required on residential loans 1-4 units
• Synonymous with IRR, APY

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Calculating the APR

• Set up loan and determine PMT
• Determine balance at end of holding period (FV of
  all made PMTS)
• Add points and loan fees
• Subtract pts fees from PV
• Resolve for I (monthly IRR, APR)

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STRUCTURED INVESTMENT VEHICLE
GSE
Real Estate Mortgage Investment Conduit
Loan a Loan b Loan n
BANK
Servicers
AAA Aaa B C
BOND
Insurers
TRANCHES