2. ESSENTIALS OF REAL ESTATE FINANCE 10th Edition Revised David Sirota Doris Barrell, Consulting Editor

3. Nature of Real Estate Finance Construction Influence Credit System Economy Primary & Secondary Markets

4. Cycles of Real Estate Finance Supply & Demand of Housing Supply & Demand of Money

5. Factors Affecting Cycles Housing Supply Supply of Money Business Activities

6. Factors Affecting Cycles Demographics Tax Rules Social Attitudes

7. Money and the Monetary System The Federal Reserve—the Monetary Manager of the Nation’s Economy

8. Money and the Monetary System The Fed’s Functions Regulates Reserves Determines Discount Rates Balances Economy Through Open-Market Operations Supervises Truth-in-Lending Act

9. United States Treasury The Nation’s “Fiscal Manager” Treasury Bills, Notes, and Bonds FIRREA FDIC BIFSAIF OTS

10. Federal Home Loan Bank System Patterned After Federal Reserve –12 District Banks –Loans Money –Sets Reserves Provides National Market for Member Securities

11. Primary Activities of HUD

12. Interstate Land Sales “Year-Round Sunshine” “Good soil for crops!” “Just sign here!”

13. Federal Legislation Equal Credit Opportunity Act Real Estate Settlement Procedures Act Community Reinvestment Act

14. Agricultural Lending Cyclical Requirements Farm Credit System USDA Rural Development

15. Secondary Mortgage Market Federal National Mortgage Association—“Fannie Mae” Federal Home Loan Mortgage Corporation—“Freddie Mac” Government National Mortgage Association—“Ginnie Mae”

16. Fannie Mae Originated as Government Agency in 1934 Reorganized as Private Corporation in 1968

17. Fannie Mae Purchases Loan Packages Through Administered Price System Sells Mortgage-Backed Securities

18. Fannie Mae Underwriting Conforming and Nonconforming Loans Desktop Underwriter ® “Jumbo Loan”

19. Credit Scoring “Perfect Score”800-850 Optimum ScoreHigh 700s Preferred Score680 Marginal Score620 Questionable ScoreUnder 620 “Forget It” ScoreUnder 400

20. Ways to Improve Score Pay Bills on Time Have Fewer Cards Do Not “Max Out” Cards Correct Errors on Credit Reports

21. Freddie Mac Established in 1970 to Provide Secondary Market for Savings Associations Loan Prospector ® Electronic Underwriting Sells Participation Certificates

22. Affordable Loan Products Fannie Mae Community Home Buyer® Fannie 97 Flex 97 Freddie Mac Affordable Gold® Alt 97

23. Secondary Market Participants “Ginnie Mae”—Guarantees FHA and VA Mortgage-Backed Securities “Farmer Mac”—Underwrites Farm Loans REMIC—Multiclass Securities

24. Financial Fiduciaries Commercial Banks Savings Associations/Thrifts Life Insurance Companies Pension Funds Credit Unions

25. Semi and Nonfiduciaries Mortgage Brokers and Bankers REITs and REMTs Real Estate Bonds Individuals/Sellers Private Loan Companies

26. Instruments of Real Estate Encumbrances and Liens –Easements –Covenants –Voluntary and Involuntary Liens –Specific and General Liens

27. Instruments of Real Estate Interests Secured –Note and Deed of Trust –Note and Mortgage –Mortgage –Contract for Deed –Junior Instruments

28. Special Provisions Late Payment Penalty Prepayment Privilege Prepayment Penalties Assumption vs. Subject to

29. Special Provisions (cont.) Lock-in Clause Due-on-Sale Clause Subordination Clause Release Clause Exculpatory Clause Nonrecourse Clause

30. Conventional Loans 30-Year Fixed Rate Adjustable-Rate Private Mortgage Insurance Buydowns

31. Special Conventional Programs Community Home Buyer® Affordable Gold® Zero Down Payment Automatic Rate Reduction 0%! 8% 6% 7%

32. More Special Programs Subprime Loan Track Record Adjusted Refinancing Electronic Loan Services

33. FHA-Insured Loans Special Programs: 203(b), 203(v), 251, 203(k) Underwriting Guidelines Mortgage Insurance 203(k) Candidate?

34. VA-Guaranteed Loans Eligibility/Entitlement Guarantee Partial Entitlement Certificate of Reasonable Value

35. VA-Guaranteed Loans (cont.) Income Qualifying Requirements: 41% of Gross Monthly Income Closing Costs (May Not Be Included in VA Loans) Funding Fee (May Be Paid in Cash or Included in Loan Amount)

36. Processing Real Estate Loans

37. Qualifying the Borrower Loan Application –Assets, Liabilities –Deposits, Employment Credit Report Qualifying Ratios

38. Qualifying the Collateral Definition of Value The Appraisal Process –Direct Sales Comparison –Cost Approach –Income Approach –Gross Rent Multiplier –Reconciliation

39. Qualifying the Title Abstract and Opinion Title Insurance Torrens System Title Faults Survey

40. Closing the Loan Costs at Settlement –Points –Escrow Account –Property Taxes, Insurance, Interest –Prorations –Fees

41. Interest Payments on a Loan I = PRT Term Loan Interest Only Balloon Payment Amortized Loan Equal Payments Principal and Interest Loan “Dies” at End

42. Adjustable-Rate Mortgage Adjustment Period Initial Rate, Qualifying Rate Index, Margin Note Rate Rate Caps, Payment Caps

43. Reverse Annuity Mortgage Lender Pays Borrower! –Monthly Checks –Initial Lump Sum –Line of Credit HUD-Insured RAM Fannie Mae Senior Programs

44. Variations in Format Open End Mortgage Construction Mortgage Blanket Mortgage Package Mortgage Mobile Home Mortgage

45. Tax-Free Mortgage Lending Refinance Installment Sale Option to Buy 1031 Exchange

46. Defaults Delinquencies –Principal and Interest, Property Taxes, Insurance Adjustments –Moratorium –Recasting Deed in Lieu

47. Foreclosures Judicial –Conventional, FHA-Insured, VA-Guaranteed Power-of-Sale –Deed of Trust, Mortgage Strict Foreclosure Tax Impact