1. Chapter 16 Residential and Commercial Property Financing This chapter examines the legal framework that facilitates the real estate lending process. Real estate credit sources and laws protecting consumers are then distinguished.

2. Legal Framework of Financing Real Estate: Understanding the mortgage concept Secured vs. Unsecured History of the mortgage concept Mortgage Hypothecation Modern mortgage concepts Title Theory Lien Theory

3. US mortgage practice Promissory note (Fig. 13.1) Typical Provisions of a promissory note (Fig. 13.2) Prepayment Clause Acceleration Clause Due on Sale Clause Typical provisions of a security instrument

4. Understanding the foreclosure process. Foreclosure Types of Foreclosure: Judicial Nonjudicial Strict Deficiency judgement

5. Alternative security instruments Deed of Trust Trustee Trustor Land contract Final Thoughts on Foreclosure Due-on-sale clause “Subject to” Assumption Deed in lieu of foreclosure

6. Structure of the U.S. Housing Finance System: Lending Process Loan Origination Primary Mortgage Market Secondary Mortgage Market

7. Housing Finance System Federal Housing Administration (FHA) FHA-insured loans Insurance fees Private Mortgage Insurance PMI vs. FHA-insured VA Loan Guarantee Program Funding Fee Secondary Mortgage Markets Federal National Mortgage Association (FNMA) Government National Mortgage Association (GNMA) Mortgage-backed securities Federal Home Loan Mortgage Corporation (FHLMC)

8. Mortgage Market Participants (Table 13.1) Mortgage originators and investors Mortgage bankers Mortgage brokers Commercial banks Savings and loan institutions Credit Unions

9. Understanding the mortgage loan origination process: FNMA/FHLMC Uniform Residential Application (Fig. 13.3) Information required from the borrower Duties of the originator EQUAL Credit Opportunity Act Consumer Credit Protection Act Real Estate Settlement and Procedures Act (RESPA)

10. Mortgage Underwriting: Qualifying applicant Qualifying the property

11. Risk Assessment Loan to value ratio guidelines Down payment source guidelines Income ratio guidelines Mortgage debt ratio Total debt ratio The underwriting decision

12. Sources of Capital in commercial Property Markets: Individual Investors Life Insurance Companies Pension Funds Real Estate Investment Trusts Commercial Banks Commercial Mortgage Backed Securities (CMBS)

13. Commercial Underwriting Criteria: Commercial loan underwriters are more concerned with the property’s ability to generate income to repay the debt than they are concerned with borrower’s income Lenders typically require that a property’s net operating income exceed the debt service requirement by 15 to 20 percent

14. Commercial Underwriting Criteria:(Cont.) Lenders also set maximum loan-to-value ratios for commercial loans. 70% -80% LTV is common as a maximum LTV