This concludes Chapter 14. Below is a brief summary which you can review before you take your chapter quiz. 

The Federal Housing Administration (FHA) does not build homes nor does it lend money itself.

1. The FHA insures loans on real property made by qualified or approved lending institutions.
2. FHA is overseen by The Department of Housing and Urban Development (HUD).
3. If a buyer wants to obtain an FHA loan, a licensee should send him/her to a qualified lender.

Requirements to receive an FHA loan:

1. The borrower is charged a one-time insurance premium (paid at closing by the borrower or the other party), which provides security to the lender in addition to the real estate in case of borrower default.
2. The lender can charge points, and either the borrower or the seller can pay them. 

The Veterans Administration (VA) will guarantee that a loan made by an approved lending institution will be paid.

• The veteran (with Certificate of Eligibility) must have served 181 days active service. A veteran's basic entitlement is $104,250 in counties where the loan limit is $417,000.
• If a veteran does not pay the mortgage as agreed there will be a foreclosure.
• Certificate of Reasonable Value: the house must qualify with an appraisal and the amount of the loan is limited.
• Points can be paid by either the seller or the buyer. VA does not allow prepayment penalties to be charged if a veteran pays off a loan early.

VA will make a direct loan if there are no lenders in the area where a veteran wants to buy property. 

California Veterans Farm

• The money loaned is obtained from the sale of State Veteran Bonds. The loan itself is made directly from the State to the veteran.
• For a veteran to qualify, he must meet the following requirements:
  1. Have had a minimum of 90 days’ active duty.  
  2. Have been given an honorable discharge from the military or a Statement of Service to verify his status.
  3. Be willing to buy a California home or farm.  

Peacetime or wartime veterans are eligible. The very highest priority is given to a service-connected disabled war veteran.

CalVet uses a Contract of Sale as the financing instrument for loans.

The Rural Economic and Community Development (RECD) makes loans for home purchases or construction in rural areas and small communities outside metropolitan areas. 

Qualifying the Buyer:

• Ability to repay the loan; Mortgage to income ratio; Assets; Liabilities; Debt Coverage ratio and Attitude.

Qualifying the property:

• Type of property; Location; Area zoning; Value range; Neighborhood; Actual/Effective age/Remaining economic life; Condition; Special clearances and Overall marketability.

Qualifying the title:

• Abstract and opinion; Chain of Title; Title insurance and Other Terms. 

Loan definitions:

1. Non-recourse loan- the borrower is not held personally liable on the note.
2. Non-recourse clause - A condition in a loan that if the lender forecloses, the borrower will not personally liable beyond the collateral pledge for the loan.  
3. Default- The non-performance of a duty or obligation that is part of a contract.
4. Conditional approval (conditional or qualified commitment)- A written pledge by a lender to lend a certain amount of money to a qualified borrower on a particular piece of real estate for a specified time under specific terms.
5. Underwriting- The analysis of the extent of risk assumed in connection with a loan.
6. Appraisal fees- An appraiser's fees are typically based on time and expenses; fees are never based on a percentage of the appraised value.
7. Estoppel Certificate- a person is prevented from asserting rights or facts that are inconsistent with a previous position or representation made by act, conduct, or silence.
8. Exculpatory clause- which the lender waives the right to a deficiency judgment. 
9. Impounds- A fund of the buyer's money that the lender sets aside for future needs relating to the parcel of property.
10. Disintermediation- investing funds directly instead of placing money savings institutions. 

Loan Sources:

1. Savings and Loans- Specialize in long term residential loans. 
   Deposits must be insured up to $250,000.
2. Banks- Make short-term loans.
3. Insurance companies- Prefer large commercial projects, but will make residential loans.
   • Participation financing- A mortgage in which the lender participates in the income of the mortgaged property beyond a fixed return, or receives a yield on the loan in addition to the straight interest rate.
4. Mortgage Broker- provides its own funds for loans or negotiates loans for compensation.
5. Mutual savings banksare also lenders in the primary market (primarily in the Eastern states). 

The Federal Reserve System is a central banking system designed to manage the nation's economy.

• Reserves: amounts of money banks are required to keep on hand.
• Discount rates: rate at which the Federal Reserve System charges banks for money.  
• Buying bonds - more money in the market, interest rates lower, economy is stimulated. Selling bonds - the opposite of buying bonds.
• The promissory note is considered to be PERSONAL PROPERTY that can be bought and sold. 

Secondary Mortgage Market - provides funds for the primary market (lenders):

1. Federal National Mortgage Association or Fannie Mae - (FNMA or "Fannie Mae")
2. Government National Mortgage Association - (GNMA or Ginnie Mae)
3. Federal Home Loan Mortgage Corporation - (FHLMC or Freddie Mac)

HUD is the regulator for Fannie Mae, Ginnie Mae and Freddie Mac.

Property appreciates in value due to inflation and due to an increase in the intrinsic value of the property.

Selling shares (securities) of FNMA, GNMA and FHLMC requires a securities license. 

California mortgage market:

• The traditional loan sources are savings and loans - depository institutions.
• California real estate lenders are Institutional/Non-institutional lenders and Government-backed programs.