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CREATION OF MORTGAGES

CREATION OF MORTGAGES . LEARNING OBJECTIVES Describe the ways state laws define security interests in mortgage contracts. Discuss how funds are allocated to mortgages in capital markets. Distinguish between residential and commercial property mortgages. CREATION OF MORTGAGES.

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CREATION OF MORTGAGES

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  1. CREATION OF MORTGAGES LEARNING OBJECTIVES • Describe the ways state laws define security interests in mortgage contracts. • Discuss how funds are allocated to mortgages in capital markets. • Distinguish between residential and commercial property mortgages.

  2. CREATION OF MORTGAGES LEARNING OBJECTIVES • Identify the major clauses in mortgage contracts. • Distinguish among valid, invalid, enforceable and unenforceable mortgage contracts. • Describe the process of mortgage default and foreclosure.

  3. THE MORTGAGE • The mortgage creates an interest in a property to secure the payment of a debt, or obligation. • Real estate financing involves two separate obligations: • the promissory note, and • the mortgage. • The borrower (mortgagor) gives the mortgage. • The lender (mortgagee) receives the pledge.

  4. Mortgage Markets • Primary Mortgage Market • lenders and borrowers • Secondary Mortgage Market • conduits, investment bankers and investors • mortgage-backed securities

  5. Title and Lien Theories • Title-Theory States • lenders receive title to property • power-of-sale clause • Lien-Theory States • lenders do not receive title • foreclosure • recourse and nonrecourse loans • Deeds of Trust

  6. REAL ESTATE DEBT AND EQUITY MARKETS

  7. THE MORTGAGE CONTRACT • Must have essential elements of a valid contract. • Must be in writing and describe the property. • Additionally, the mortgage instrument must: • identify the property rights being pledged, • include the words of conveyance, • include the signature of the mortgagor, • be delivered to the mortgagee, and recorded, and • contain reference to the note, or obligation.

  8. Common Mortgage Clauses • Acceleration clause • Prepayment and late payment clause • Due-on-sale clause • Insurance clause • Interest escalation and adjustment clause

  9. Typical Clauses in the Residential Note • The Date of Executed • The Name of Mortgagor and Mortgagee • An Acceleration Clause • Terms of the Loan • Prepayment and Late Payment Penalties • Escalation Clause on Delinquent Penalties

  10. MORTGAGE RELATIONSHIPS • Primary Mortgages • Junior Mortgages • Wrap-Around Mortgages • Purchase Money Mortgages • Land Contract

  11. Single-Family Residential Mortgages • Permanent Financing • conventional • FHA & VA mortgages • other government-supported programs • owner financing • Construction Financing • forward commitments (covered loans) • open-end loans (uncovered loans)

  12. ADJUSTMENTS IN BORROWER/LENDER RELATIONSHIPS • Mortgage Satisfaction • Mortgage Default and Foreclosure • delinquency and default • deeds-in-lieu of foreclosure • equity of redemption • judicial and nonjudicial foreclosure • statutory redemption

  13. ASSUMING OR RECASTING THE MORTGAGE • Mortgage Assumption and “Subject To” Transactions • Recasting the Mortgage • Sale of the Mortgage

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