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AYPO REAL ESTATE FINANCE STUDY QUESTIONS
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AYPO REAL ESTATE FINANCE STUDY QUESTIONS
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AYPO REAL ESTATE FINANCE STUDY QUESTIONSReal estate has been estimated to represent approximately - Answers-one-half of the
world's total economic wealth.
The buyer's ability to finance the property is an important, if not the -------, contingency
in most residential transactions, and a significant driver in the entire real estate-based
economy. - Answers-primary
Texas is a:
a. Lien Theory
b. Title Theory - Answers-a. Lien Theory
Lien Theory - Answers-In lien theory states such as Texas, the security for a mortgage is
a lien placed on the property, which is removed once the loan is fully repaid. The title (or
other legal instrument documenting the rights and privileges of the holder of the title) is
actually held by the buyer/property owner. This makes foreclosure more challenging
than when the lender (as in a title theory state) or a third party (as in a deed of trust)
hold actual title. In all of these cases, the buyer/property owner holds equitable title to
the property.
Title Theory - Answers-In title theory states, the mortgage is secured by the lender
holding legal title to the property until the mortgage is paid off. Again, the borrower holds
"equitable" title to the property which carries many, but not all, of the rights granted by
the actual title. The full title is given to the borrower when the loan obligation has been
fully satisfied. Because the lender has the full title, foreclosure on the property is easier
than if the mortgage was only secured by a lien, because the title does not need to be
recovered from the defaulting buyer.
Mortgages - Answers-While the loan is the money a lender provides to buy the home,
the mortgage and deed of trust are the "instruments" that document the lender's actual
interest in the property.
Amortization - Answers-paying off of debt with a fixed schedule in regular installments
over time, therefore, a fully amortized loan is one that is paid back over the term of the
loan (most frequently 15-, 20-, and 30-year periods) through a set number of equal
payments.
promissory note - Answers-piece of the mortgage loan contract committing the borrower
to pay back the loaned money.
Second Mortgages - Answers-loan that is secured by a property that is already collateral
for another mortgage, generally a first mortgage.
Type of Second Mortgages Often Issued - Answers--Home Equity Loans
,-Home Equity Line of Credit (HELOC
Home Equity Loans - Answers-Home equity loans are standard lump-sum loans that
convert the equity of a house into usable funds.
Home Equity Line of Credit (HELOC - Answers-Almost like Home Equity Loans-The
difference is that home equity lines of credit operate more like credit cards. Instead of a
lump sum disbursement, the borrower is allowed to use the line of credit whenever they
desire.
Wraparound Mortgages - Answers-The wraparound loan, or a "wrap," is a form of
creative financing, that may or may not be allowed with a homeowner's original loan. It
is a secondary loan for real property, that 'wraps around' the first loan, without paying it
off.
Chattel Mortgages - Answers-A chattel mortgage is a mortgage loan that is secured by
some form of personal property that is not tied to a piece of land. Like a standard
mortgage loan, the borrower transfers ownership of the personal property, like a car or
boat, to the lender until the loan is paid off.
Deeds of Trust - Answers-deed of trust includes a third-party trustee. The role of the
trustee alters the manner of dealing with a default.-In the event of a default, the trustee
has the right to sell the property in order to cover the loan, or as much of it as they can
get through a sale. The power-of-sale rights vested in them allow the trustee to
foreclose on the property without going through formal proceedings required for a
judicial foreclosure.
Power-of-Sale - Answers-The power-of-sale that is connected to a deed of trust is
regulated by legislation generally requiring notice to be given regarding the sale.
Because this type of sale is not approved officially by a court, it does leave a slightly
larger window for litigation resulting from disagreements over the title.
Real Estate Cycles - Answers-The U.S. real estate market is said to run in an 18-year
cycle.
Real estate's unique role in the economic system - Answers-- A presence in virtually all
economic sectors, including financial
- A predominance of long-term, and often costly, financial commitments
- Home ownership's intrinsic ties to individual wealth, disposable income, and
employment
The Four-Phase Cycle - Answers-- Recovery
- Expansion
- Hyper supply
- Recession
,Phase 1: Recovery - Answers-During this first phase of the cycle, the market is no
longer in decline, but now has begun to curve back upward. This, generally, would be
the best time for buyers, because there is really only one real direction for the market to
go: up! This economic phase of the cycle usually comes with high (but stabilized)
unemployment, a higher number of foreclosures, and a lot of fear and nervousness in
the general economy. Most people will be wary and shy away from real estate
purchases at this point until their confidence in the market returns. The investor and the
bold will be looking to buy while prices are bottomed out.
Phase 2: Expansion - Answers-During the expansion phase, the economic engines are
running with more power and predictability. Businesses are adding employees and
looking to expand their customer base, and confidence in real estate is gaining
momentum.
Speculators - Answers-investors who rely heavily on future growth of the real estate
market to generate profits, and base their numbers upon this need. As a result, they
may begin to overpay for properties in hopes of flipping or reselling them for even more.
Phase 3: Hyper Supply - Answers-"boom" time- Overzealous Speculation
Phase 4: Recession - Answers-In Phase 4, the ambitious building projects undertaken
in Phases 1 and 2 aren't selling, so prices start to drop. Foreclosures rise as owners find
themselves underwater and investors begin to flounder. Compound this with an
economic recession and you have a recipe for economic disaster such as we saw in the
mid 2000s.
Other Factors Influencing the Real Estate Cycle - Answers-- Demographics
Interest rates
-The Economy
-Government Interventions and Policies
Demographics - Answers-demographic that is in the market and driving the current
trend.- ex. Baby boomers either upgrading, downgrading or moving to homes for care
Interest Rates - Answers-The more affordable the loans become, the more people can
enter the market. Likewise, rises in the rates will drive many right back out of the
market.
The Economy - Answers-Economic indicators such as the GDP, employment data,
manufacturing activity, the prices of goods, etc. all will have an impact on the availability
of mortgage funds and the consumer's ability to access them
Government Policies/Subsidies - Answers-Some of the more common policies present
in our daily economic management toolkit, such as tax credits, deductions and
subsidies can be enough to inject a little life back into an otherwise sluggish market.
, Ex.Other times, such as during the 2008 crash, more substantive interventions are
called for. In this instance, bailout programs, like the Home Affordable Refinance
Program (HARP) and the Home Affordable Modification Program (HAMP) were
designed to specifically address the crisis at that time
Impact of the Economy - Answers-Real estate, as much as any commodity or
investment, is subject to the health of the general economy. Although the real estate
market does not run completely parallel to the overall economy, it is heavily influenced
by the availability of capital to fund the purchase of real estate.
Financial Markets - Answers-The financial market can be described as any or all of
multiple marketplaces where trading of securities takes place. These include equities,
bonds, currencies and derivatives.
Stock Markets - Answers-Stock markets, such as the New York Stock Exchange,
provide investors with a place to buy and sell shares in publicly traded companies.
Bond Markets - Answers-A bond is an investment vehicle where an investor loans
money to a specified entity. The bond generally has a predetermined duration and
interest rate, and can be sold by both the private and public sectors to fund their
projects and initiatives.
Money Market - Answers-The money market is the section of the financial market where
highly liquid financial instruments with very short maturity periods are traded. That
means that the "instruments" are easily convertible into cash (cash being the most liquid
of all) and reach their maturity in value generally in less than a year, sometimes in much
shorter terms.
Forex Market - Answers-Currencies are traded in the forex market (foreign exchange),
the largest market in the world, where an average trading value exceeding $1.9 trillion
takes place every day. Forex market trading involves all of the currencies in the world.
Any individual, business, or government authority may participate in this market.
OTC Market - Answers-The term "over-the-counter" refers to stocks traded either on the
over-the-counter bulletin board (OTCBB) or the "pink sheets," but not traded on any of
the stock markets. OTCBB and pink sheet companies are far less regulated than those
on a stock exchange, with the majority traded this way being penny stocks or from much
smaller companies.
the Loan Estimate - Answers-is designed to provide disclosures that will be helpful to
consumers in understanding the key features, costs, and risks of the mortgage for which
they are applying. This form will be provided to consumers within three business days
after they submit a loan application.
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