Demand for a product exceeds the supply

(increased price / stimulates production)

Supply outstrips demand

(prices drop / production decreases)

The way in which the federal gov. manages its money.

Congress/President - tax legislation, federal budget

US Treasury - managing tax revenues, expenditures, and national debt

Direct control the fed. gov. exerts over money supply and interest rates.  Goal: keep US economy healthy.

- key interest rates

- reserve requirements

- open market operations

The percentages of deposits that a bank is required to maintain on deposit at the Federal Reserve Bank.

Prevents finanacial panic

Regarding Reserve requirements:

Increased reserve requirements vs. decreased reserve requirements

(and what happens to interest rates)

Increased reserve requirements reduces amount of money banks can lend, decreased available loans means higher interest rates

A decrease frees more money for investments or lending and decreases interest rates

Cheif method for Feds to control money supply, and thus inflation and interest rates

(increased money supply vs decrease; interest)

Open Market Operations

Increased money supply = decreased interest

Decreased money supply = increased interest

Federal Deposit Insurance Corporation

1933

The 'local' market in which mortgage lenders make loans to home buyers

banks, savings & loans, other mortgage lenders...

Fannie Mae/

Federal National Mortgage Association

- 1938

- most prominent

- GSE

Government-sponsored enterprise

Private corporation that is chartered by the government, and as in the case of FNMA & FHLMC, supervised by HUD

Freddie Mac/

Federal Home Loan Mortgage Corporation

- 1970

- GSE

Ginnie Mae/

Government National Mortgage Association

- Federal agency under HUD

Promissory Notes

(& who are the parties involved)

A written promise to repay a debt

Borrower = maker

Lender = Payee

Interest is computed annually on the remaining principal balance.

Almost all real estate loans are simple interest

Gives the payee the option of assigning the debt to someone else by endorsing the note.

Ex: Promissory note, check...

A mortgage or deed of trust

Required to borrow money for real estate; It makes the real property collateral for the loan by creating a lien on the property.

An arrangement where title to property is given as collateral (security), but the borrower retains possession of the property

(Different from pledging which involves surrender of possession)

Mortgager = property owner and borrower

Mortgagee = lender

Deed of Trust is AKA:

&

Who are the parties involved:

Trust Deed

Trustor = Borrower

Grantor = Borrower

Beneficiary = Lender

Trustee = Neural 3rd party who handles foreclosure, if needed

If borrower defaults, the lender may declare entire loan balance due immediately.

AKA 'calling the note'

(can be triggered by failure to pay or breach of provision such as keeping property insured)

Assumption = Buyer has primary liability of loan while original borrower retains secondary liability if buyer defaults

Subject to = Original borrower remains fully liable for the debt and buyer is not personally liable to the lender, altho upon default lender can still foreclose

A document that preevents a person who signs it from later aserting facts differently

In regards to loans assumptions, a certificate of estoppel would state the principal balance as of the assumption date of a loan

AKA mortgage foreclosures

Upon default, lender files a lawsuit against borrower in court in the county where collateral property is

Upon mortgage foreclosure, property is auctioned by county sherrif's office.

Highest bidder recieves certificate of sale

Statutory Redepmtion

(& WA law)

Upon mortgage foreclosure, after the sale of the property, this is the additional perioed the borrower has to redeem the property.

Washington = 1 year, unless lender waived rights to deficiency judgment, then it is 8 months

Seller financed real estate transaction

Contract is between vendor and vendee, where seller retains legal title to property while buyer pays off purchase price in installments

- vendor can foreclose judicially

- vendor can declare a forfeiture

Forfeiture

(& WA law)

Regarding land contracts, upon default, the vendor terminates the contract without going to court & without refunding any payments the vendee has made (law provides some protection for vendee if substantial equity)

WA state: must have forfeiture clause (almost all land contracts have one) and must be recorded

1. mortgage loan used to finance the purchase of property that is collateral for the loan

* 2. more narrowly, a mortgage that a buyer gives a seller in a seller-financed transaction (soft money mortgage since credit instead of actual cash)

Monthly payments include not only principal & interest but also 1/12th of year's property taxes and hazard insurance premiums

(safest and most practical way for lenders to make sure property taxes and insurance premium paid on time)

Secures a construction loan; A temporary loan to finance construction of improvements on the land.

Considered risky, higher interest rates and loan fees, and supervision of progress of construction

When a borrower mortgages several pieces of property as security for a single loan

ex: a 10-acre parcel divided into 20 lots secured by one loan made to subdivider

1. Partial satisfaction clause

2. Blanket deed of trust

3. Partial conveyance clause

A provision that requires the lender to release certain parcels from the blanket lien when specified portions of the overall debt have been paid off.

Allows subdivider to convey clear title to the lot buyer.

Allows lender to participate in earnings generated by the mortgaged property, usually in addition to collecting interest.  (Sometimes they become part-owner)

Most common on large commercial projects where lender is an insurance company or other large investor

A new mortgage that 'wraps around' an existing first mortgage on the property.

Generally only used with seller-financed transactions and only works if underlying loan does not contain an alienation clause.

A loan with a borrowing limit, but allows borrower to reborrower, when needed, without having to renegotiate

Often used with by builders and farmers.

Borrower makes smaller payments initially and gradually steps up to larger payments.

Beneficial for borrowers who expect their earnings to increase during the next few years

1.  gap loan

2.  bridge loan

 Used when a buyer is ready to purchase a new home but has not sold current home yet.

Used typically for down-payment and closing costs and secured by equity in property for sale and to be paid off when that sale closes.

Allows owners to borrow against the home's equity and receive a monthly check from the lender, rather than make a payment.

Usually home sold when owner dies to pay back mortgage.

Usually owner must be over certain age (such as 62 or 65) and must own home w/ little or no outstanding mortgage balance.

When a borrower obtains an entirely new mortgage loan to replace the existing one.

New mortgage pays off existing loan.

More common when interest rates drop or when payoff date of existing mortgage is approaching and large balloon payment is required