Essentials of Real Estate Finance

8/18/2019 Essentials of Real Estate Finance

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ESSENTIALS OFREAL ESTATE FINANCE

10th Edition Revised

David SirotaDoris Barrell, Consulting Editor


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Nature of Real Estate Finance

• Construction Influence

• Credit System Economy

• Primary Secondary !ar"ets


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Cycles of Real Estate Finance

Su##ly Demand

of $ousing

Su##ly Demand

of !oney


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Factors Affecting Cycles

$ousing

Su##ly

Su##ly of

!oneyBusiness

%ctivities


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Factors Affecting Cycles

Demogra#hics

&a' Rules

Social

%ttitudes


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Money and the Monetary System

&he (ederal Reserve)the !onetary!anager of the *ation+s Economy


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Money and the Monetary System

&he (ed+s (unctions

• Regulates Reserves• Determines Discount Rates• Balances Economy &hrough

#en-!ar"et #erations• Su#ervises &ruth-in-.ending %ct


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United States Treasury

&he *ation+s /(iscal !anager

&reasury Bills, *otes, and Bonds

(IRRE%(DIC

BI( S%I(&S


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Federal ome Loan !an" System

• Patterned %fter (ederal Reserve

12 District Ban"s .oans !oney Sets Reserves

• Provides *ational !ar"et for!em3er Securities


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#rimary Acti$ities of U%

F H A

G i n n i e M a e

F a n n i e M a e &F r e d d i e M a c

I n d i a n H o u s i n g

C D B G &S e c t i o n 8 R E S P % ( a i r $ o u s i n g

$ 4 D


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Interstate Land Sales

/5ear-Round Sunshine

/6ood

soil for

cro#s7

/8ustsign

here7


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Federal Legislation

• E9ual Credit ##ortunity %ct

• Real Estate Settlement

Procedures %ct

• Community

Reinvestment %ct


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Agricultural Lending

• Cyclical Re9uirements

• (arm Credit System

• 4SD% Rural Develo#ment


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Secondary Mortgage Mar"et

• (ederal *ational !ortgage %ssociation

)/(annie !ae

• (ederal $ome .oan !ortgage

Cor#oration)/(reddie !ac

• 6overnment *ational !ortgage

%ssociation)/6innie !ae


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Fannie Mae

• riginated as 6overnment %gency

in 1:;<

• Reorgani=ed as Private

Cor#oration in 1:>?


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Fannie Mae

• Purchases .oan Pac"ages &hrough

%dministered Price System

• Sells !ortgage-Bac"ed Securities


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Fannie Mae Under&riting

• Conforming

and *onconforming

.oans

• Des"to#

4nder@riter A

/8um3o .oan


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Credit Scoring

/Perfect Score ?00-?0

#timum Score $igh 00sPreferred Score >?0

!arginal Score >20

uestiona3le Score 4nder >20/(orget It Score 4nder


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'ays to Im(ro$e Score

• Pay Bills on &ime

• $ave (e@er Cards• Do *ot /!a' ut Cards

• Correct Errors on CreditRe#orts


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Freddie Mac

• Esta3lished in 1:0 to Provide

Secondary !ar"et for Savings%ssociations

• .oan Pros#ector A Electronic

4nder@riting

• Sells Partici#ation Certificates


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Afforda)le Loan #roducts

(annie !ae

• Community$ome BuyerA

• (annie :

• (le' :

(reddie !ac

• %fforda3le6oldA

• %lt :


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Secondary Mar"et #artici(ants

• /6innie !ae)6uarantees

($% and % !ortgage-Bac"edSecurities

•/(armer !ac)4nder@rites(arm .oans

• RE!IC)!ulticlass Securities


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Financial Fiduciaries

• Commercial Ban"s

• Savings%ssociationsF&hrifts

• .ife Insurance Com#anies

• Pension (unds

• Credit 4nions


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Semi and Nonfiduciaries

• !ortgage Bro"ers and Ban"ers

• REI&s and RE!&s• Real Estate Bonds

• IndividualsFSellers• Private .oan Com#anies


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Instruments of Real Estate

• Encum3rances and .iens

Easements Covenants

oluntary and Involuntary .iens

S#ecific and 6eneral .iens


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S(ecial #ro$isions

• .ate Payment Penalty

• Pre#ayment Privilege

• Pre#ayment Penalties

• %ssum#tion vsG Su3Hect to


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S(ecial #ro$isions *cont+,

• .oc"-in Clause

• Due-on-Sale Clause• Su3ordination Clause

• Release Clause

• E'cul#atory Clause

• *onrecourse Clause


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S(ecial Con$entional #rograms

• Community $ome BuyerA

• %fforda3le 6oldA

• ero Do@n Payment

• %utomatic Rate Reduction

0J7

?J

>J

J


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FA-Insured Loans

• S#ecial ProgramsK 20;L3M,

20;LvM, 21, 20;L"M

• 4nder@riting 6uidelines

• !ortgage Insurance20;L"M

CandidateN


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.A-/uaranteed Loans

• Eligi3ilityFEntitlement

• 6uarantee• Partial Entitlement

• Certificate of

Reasona3le alue


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.A-/uaranteed Loans *cont+,

• Income ualifying Re9uirementsK


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#rocessing Real Estate Loans

& h e P r o c e s s

P r o c e s s o r 4 n d e r @ r i t e r C l o s i n g

. o a n , f f i c e r


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ualifying the Borro@er

• .oan %##lication

%ssets, .ia3ilities De#osits, Em#loyment

• Credit Re#ort

• ualifying Ratios


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0ualifying the Title

• %3stract and #inion

• &itle Insurance• &orrens System

• &itle (aults

• Survey


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Closing the Loan

• Costs at Settlement Points

Escro@ %ccount Pro#erty &a'es,

Insurance, Interest Prorations (ees


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Interest #ayments on a Loan

I = PRT

&erm .oan• Interest nly

• BalloonPayment

%morti=ed .oan• E9ual Payments

• Princi#al andInterest

• .oan /Dies at End


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Re$erse Annuity Mortgage

• .ender Pays Borro@er7

!onthly Chec"s

Initial .um# Sum

.ine of Credit

• $4D-Insured R%!

• (annie !ae Senior Programs


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.ariations in Format

• #en End !ortgage

• Construction !ortgage• Blan"et !ortgage

• Pac"age !ortgage

• !o3ile $ome !ortgage


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%efaults

• Delin9uencies Princi#al and Interest, Pro#erty

&a'es, Insurance• %dHustments

!oratorium Recasting

• Deed in .ieu


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Documents

Essentials of Real Estate Finance