In general terms the main participants in a mortgage are:
The creditor has legal rights to the debt secured by the mortgage and often makes a loan to the debtor of the purchase money for the property. Typically, creditors are banks, insurers, or other financial institutions that make loans available for the purpose of real estate purchases. A creditor may sometimes be referred to as the mortgagee or lender.
The debtor[s] must meet the requirements of the mortgage conditions (and often the loan conditions) imposed by the creditor to avoid the creditor enacting provisions of the mortgage to recover the debt. Typically, the debtors will be the individual homeowners, landlords, or businesses who are purchasing their property by way of a loan. A debtor is sometimes referred to as the mortgagor, borrower, or obligatory.
Due to the complicated legal exchange, or conveyance, of the property, one or both of the main participants are likely to require legal representation. The terminology varies with legal jurisdiction; see lawyer, solicitor, and conveyancer.
Because of the complex nature of many markets, the debtor may approach a mortgage broker or financial adviser to help them source an appropriate creditor typically by finding the most competitive loan. Recently, many US consumers (particularly higher-income borrowers) are choosing to work with Certified Mortgage Planners, industry experts that work closely with Certified Financial Planners to align the home finance position(s) of homeowners with their larger financial portfolio(s).
The debt is sometimes referred to as the hypothecation, which may make use of the services of a hypothecary to assist in the hypothecation.
In addition to borrowers, lenders, government-sponsored agencies, and private agencies; there is also a fifth class of participants who are the source of funds - the Life Insurers, Pension Funds, etc.
Like any other legal system, the mortgage business sometimes uses confusing jargon. Below are some terms explained in brief.
Advance - This is the money you have borrowed plus all the additional fees.
Base Rate - In the UK, this is the base interest rate set by the Bank of England. In the United States, this value is set by the Federal Reserve and is known as the Discount Rate.
Bridging Loan - This is a temporary loan that enables the borrower to purchase a new property before the borrower is able to sell another current property.
Conveyance - This is the legal document that transfers ownership of unregistered land.
Disbursements - These are all the fees of the solicitors and governments, such as stamp duty, land registry, search fees, etc.
Early Redemption Charge / Pre-Payment Penalty / Redemption Penalty - This is the amount of money due if the mortgage is paid in full before the time is finished.
Equity - This is the market value of the property minus all loans outstanding on it.
First Time Buyer - This is the term given to a person buying property for the first time.
Freehold - This means the ownership of property and land.
Land Registration - This is a legal document that records the ownership of property and land. This is also known as a Title.
Leasehold - This means the ownership of the property and land for a specified period, which may be sold separately from freehold, which may be owned by another person.
Legal Charge - This is a legal document that records the data of the rightful owner of a property or land.
Loan Origination Fee - A charge levied by a creditor for underwriting a loan. The fee often is expressed in points. A point is 1 percent of the loan amount.
Mortgage Deed - This is a legal document that stated that the lender has a legal charge over the property.
Mortgage Payment Protection Insurance - This is a form of insurance that ensures that the current mortgage payment will be paid if the borrower proves unable to do so.
Private Mortgage Insurance - This is a form of insurance the lender has the borrower take for loans over 70% of the appraised value. This will pay the lender only the owed portion up to 70% on a defaulted loan.
Sealing Fee - This is a fee made when the lender releases the legal charge over the property.
Subject To Contract - This is an agreement between seller and buyer before the actual contract is made.
There are essentially two types of legal mortgages.
Mortgage by Demise
In a mortgage by demise, the creditor becomes the owner of the mortgaged property until the loan is repaid in full (known as "redemption"). This kind of mortgage takes the form of a conveyance of the property to the creditor, with a condition that the property will be returned on redemption.
This is an older form of legal mortgage and is less common than a mortgage by legal charge. It is no longer available in the UK, by virtue of the Land Registration Act 2002.
Mortgage by Legal Charge
In a mortgage by legal charge, the debtor remains the legal owner of the property, but the creditor gains sufficient rights over it to enable them to enforce their security, such as a right to take possession of the property or sell it.
To protect the lender, a mortgage by legal charge is usually recorded in a public register. Since mortgage debt is often the largest debt owed by the debtor, banks and other mortgage lenders run title searches of the real property to make certain that there are no mortgages already registered on the debtor's property that might have higher priority. Tax liens, in some cases, will come ahead of mortgages. For this reason, if a borrower has delinquent property taxes, the bank will often pay them to prevent the lien holder from foreclosing and wiping out the mortgage.
This type of mortgage is common in the United States and, since 1925, it has been the usual form of mortgage in England and Wales (it is now the only form - see above).
At common law, a mortgage was a conveyance of land that on its face was absolute and conveyed a fee simple estate, but which was in fact conditional, and would be of no effect if certain conditions were not met - usually, but not necessarily, the repayment of a debt to the original landowner. Hence the word "mortgage," Law French for "dead pledge;" that is, it was absolute in form, and unlike a "live gage", was not conditionally dependent on its repayment solely from raising and selling crops or livestock, or of simply giving the fruits of crops and livestock coming from the land that was mortgaged. The mortgage debt remained in effect whether or not the land could successfully produce enough income to repay the debt. In theory, a mortgage required no further steps to be taken by the creditor, such as acceptance of crops and livestock, for repayment.
The difficulty with this arrangement was that the lender was the absolute owner of the property and could sell it, or refuse to re-convey it to the borrower, who was in a weak position. Increasingly the courts of equity began to protect the borrower's interests so that a borrower came to have an absolute right to insist on reconveyance on redemption. This right of the borrower is known as the "equity of redemption".
This arrangement, whereby the mortgagee (the lender) was in theory the absolute owner, but in practice had few of the practical rights of ownership, was seen in many jurisdictions as being awkwardly artificial. By statute, the common law position was altered so that the mortgagor would retain ownership, but the mortgagee's rights, such as foreclosure, the power of sale, and the right to take possession would be protected.
In the United States, those states that have reformed the nature of mortgages in this way are known as lien states. A similar effect was achieved in England and Wales by the Law of Property Act 1925, which abolished mortgages by the conveyance of a fee simple.
Foreclosure and Non-Recourse Lending
In most jurisdictions, a lender may foreclose the mortgaged property if certain conditions - principally, non-payment of the mortgage loan - apply. Subject to local legal requirements, the property may then be sold. Any amounts received from the sale (net of costs) are applied to the original debt. In some jurisdictions, mortgage loans are non-recourse loans: if the funds recouped from the sale of the mortgaged property are insufficient to cover the outstanding debt, the lender may not have recourse to the borrower after foreclosure. In other jurisdictions, the borrower remains responsible for any remaining debt. In virtually all jurisdictions, specific procedures for foreclosure and sale of the mortgaged property apply, and may be tightly regulated by the relevant government; in some jurisdictions, foreclosure and sale can occur quite rapidly, while in others, foreclosure may take many months or even years. In many countries, the ability of lenders to foreclose is extremely limited, and mortgage market development has been notably slower.
Mortgages in the United States
Types of Mortgage Instruments
Two types of mortgage instruments are used in the United States: the mortgage (sometimes called a mortgage deed) and the deed of trust.
In all but a few states, a mortgage creates a lien on the title to the mortgaged property. Foreclosure of that lien almost always requires a judicial proceeding declaring the debt to be due and in default and ordering a sale of the property to pay the debt.
The Deed of Trust
The deed of trust is a deed by the borrower to a trustee for the purposes of securing a debt. In most states, it also merely creates a lien on the title and not a title transfer, regardless of its terms. It differs from a mortgage in that, in many states, it can be foreclosed by a non-judicial sale held by the trustee. It is also possible to foreclose them through a judicial proceeding.
Most "mortgages" in California are actually deeds of trust. The effective difference is that the foreclosure process can be much faster for a deed of trust than for a mortgage, on the order of 3 months rather than a year.
Deeds of trust to secure repayments of debts should not be confused with trust instruments that are sometimes called deeds of trust but that are used to create trusts for other purposes, such as estate planning. Though there are superficial similarities in the form, many states hold deeds of trust to secure repayment of debts and do not create true trust arrangements.
Mortgage Payment Types
* Fixed Rate Mortgage
* Adjustable Rate Mortgage
* Balloon Payment Mortgage
* Interest Only Mortgage
* Negative Amortization Mortgage
* Reverse Mortgage
* Graduated Payment Mortgage
From Wikipedia, Mortgage
Real Estate Investing
There are many gurus out there that contend that real estate is a panacea where you cannot lose money. Although this is false, there are a number of advantages to investing in real estate.
The first big advantage is that it is an extremely expensive product. Each sale you make generates more profit potential for this reason.
Leverage, or the ability to borrow based on the value of the property, is probably the second greatest advantage. It is much easier to finance real estate than any other product. While investing in most assets requires the purchaser to have the full purchase price available for the asset, in real estate investing, one only needs to have a fraction of the purchase price available (like 5%, 10%, or 20%) as a down payment. Therefore, real estate, although incredibly expensive, is still easier to buy than say, a piece of industrial equipment of the same value.
The local advantage is rarely discussed but it stands to reason that you know your neighborhood better than a real estate investing expert would if they were in another part of the world. This creates an advantage the beginner can exploit in his market.
In brief, real estate investing is worth exploring. The bulk of the world's assets is in real estate. Common people everywhere own it and are giving it up in foreclosure, sickness, death, job transfers, divorce, or an inability to maintain it or pay tax on it.
The best way a beginner can get started in real estate investing without taking on any personal risk is to 'bird dog', or hunt for good deals, for another more experienced investor. This is an excellent strategy because it allows the beginner to learn the most valuable skill an investor has: their ability to find and recognize the value.
Although investing in real estate doesn't require an advanced degree, a basic understanding of business will go a long way to succeeding in such ventures. If one's looking for a "hobby", real estate investing should be at the bottom of the list. However, if you're ready to put a good-faith effort into learning and investing, it will certainly pay off in the long run.
Real estate is an illiquid investment and it should be part of a balanced investment portfolio having liquid assets that could be quickly converted to cash to sustain the real estate when the returns it reaps are not acceptable to the investor.
From Wikipedia, Real Estate Investing
Real Estate Mortgage Investment Conduit
Real Estate Mortgage Investment Conduit, or REMIC, is an investment-grade mortgage bond that separates mortgage pools into different maturity and risk classes.
REMICs were authorized under the Tax Reform Act of 1986 which holds commercial and residential mortgages in trust, and issues securities representing an undivided interest in these mortgages. A REMIC, which can be a corporation, trust, association, or partnership, assembles mortgages into pools and issues pass-through certificates, multi-class bonds similar to a collateralized mortgage obligation (CMO), or other securities to investors in the secondary mortgage market. Mortgage-backed securities issued through a REMIC can be debt financings of the issuer or a sale of assets. The Tax Reform Act eliminated the double taxation of income earned at the corporate level by an issuer and dividends paid to securities holders, thereby allowing a REMIC to structure a mortgage-backed securities offering as a sale of assets, effectively removing the loans from the originating lender's balance sheet, rather than a debt financing in which the loans remain as balance sheet assets. A REMIC itself is exempt from federal taxes, although income earned by investors is fully taxable. As a tax-exempt entity, a REMIC may invest only in qualified mortgages and permitted investments, including single-family or multifamily mortgages, commercial mortgages, second mortgages, mortgage participation, and federal agency pass-through securities. Non-mortgage assets, such as credit card receivables, leases, and auto loans are ineligible investments. The Tax Reform Act made it easier for savings institutions and real estate investment trusts to hold mortgage securities as qualified portfolio investments. A savings institution, for instance, can include REMIC-issued mortgage-backed securities as qualifying assets in meeting federal requirements for treatment as a savings and loan for tax purposes.
A REMIC can issue mortgage securities in a wide variety of forms: securities collateralized by Government National Mortgage Association (Ginnie Mae) pass-through certificates, whole loans, single class participation certificates, and multi-class mortgage-backed securities; multiple class pass-through securities and multi-class mortgage-backed securities; multiple class pass-through securities with fast-pay or slow-pay features; securities with a subordinated debt tranche that assumes most of the default risk, allowing the issuer to get a better credit rating; and Collateralized Mortgage Obligations with monthly pass-through of bond interest, eliminating reinvestment risk by giving investors call protection against early repayment.
Major Issuers of REMICs
Among the major issuers of REMICs are the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae), the two leading secondary market buyers of conventional mortgage loans, and also privately operated mortgage conduits owned by mortgage bankers, mortgage insurance companies, and savings institutions.
From Wikipedia, Real Estate Mortgage Investment Conduit