California real estate finance bond mckenzie fesler boone ninth edition
This presentation is the property of its rightful owner.
Sponsored Links
1 / 20

California Real Estate Finance Bond, McKenzie, Fesler & Boone Ninth Edition PowerPoint PPT Presentation


  • 282 Views
  • Uploaded on
  • Presentation posted in: General

California Real Estate Finance Bond, McKenzie, Fesler & Boone Ninth Edition. Chapter 1 Introduction to Real Estate Finance. Objectives. After completing this chapter, you should be able to: Describe current financing trends in the real estate market.

Download Presentation

California Real Estate Finance Bond, McKenzie, Fesler & Boone Ninth Edition

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


California real estate finance bond mckenzie fesler boone ninth edition

California Real Estate FinanceBond, McKenzie, Fesler & BooneNinth Edition

Chapter 1

Introduction to Real Estate Finance

© 2011 Cengage Learning created by Dr. Richard S. Savich.


Objectives

Objectives

After completing this chapter, you should be able to:

Describe current financing trends in the real estate market.

Trace the flow of money and credit into the mortgage market.

Discuss the role of the Federal Reserve System.

List five characteristics of the California mortgage market.

Explain and illustrate two basic types of promissory notes.

Describe the differences among a deed of trust, mortgage, and installment sales contract.

© 2011 Cengage Learning created by Dr. Richard S. Savich.


Outline

Outline

Welcome to the Real World of Real Estate Finance

Short Overview of the Mortgage Market

The Meaning of Money

The Flow of Money and Credit into the Mortgage Market

Federal Control of the Money Supply

Cost Characteristics of the Mortgage Market

Instruments of Real Estate Finance

The Five-Step Financing Process

© 2011 Cengage Learning created by Dr. Richard S. Savich.


Welcome to the real world of real estate finance

Welcome to the Real World of Real Estate Finance

Real Estate market in California

Booms

Early 1960s

1971 – 1973

1975 – 1979

1982 – 1989

2000 – 2006

Busts (High interest rates, government deficits, better investment opportunities)

1966

1969

1974

1980 – 1981

1990 – 1996

2007 -- ????

Caused by disintermediation

flow of money out of thrift institutions into the general money market

© 2011 Cengage Learning created by Dr. Richard S. Savich.


Fog a mirror loans

“Fog a Mirror” loans

Interest only

Stated Income

100% Loans

Negatively Amortized Adjustable Rate Mortgage (Option ARM)

© 2011 Cengage Learning created by Dr. Richard S. Savich.


Money is

Money is…

Money

Coins

Paper currency

Checking accounts (demand deposits) (along with debit cards)

Negotiable orders of withdrawal (NOW accounts)

Money market accounts

Near money

Savings accounts (time deposits)

U.S. government bonds

Cash value of life insurance

Preferred and common stocks publicly traded

Money market mutual funds

Credit

Credit cards

Overdrafts

Credit reserves

Home equity lines of credit

© 2011 Cengage Learning created by Dr. Richard S. Savich.


The meaning of money

The Meaning of Money

Created

Cash

Checking Accounts

Accumulated

Wages, fees & commissions

Interest

Dividends

Profits

Rents

Ultimate source of funds for borrowing is savings

© 2011 Cengage Learning created by Dr. Richard S. Savich.


The flow of money and credit into the mortgage market

The Flow of Money and Credit into the Mortgage Market

Income is

Taxed

Spent

Saved

Savings go to financial institutions

Known as intermediation

Withdrawals from savings are known as disintermediation

Re-deposits are known as re-intermediation

© 2011 Cengage Learning created by Dr. Richard S. Savich.


California real estate finance bond mckenzie fesler boone ninth edition

© 2011 Cengage Learning created by Dr. Richard S. Savich.


Federal control of the money supply slide 1 of 2

Federal Control of the Money Supply (Slide 1 of 2)

Federal Reserve System

Issues currency

Monetary policy

Reserve requirements

A 20% reserve requirement means that $200 in reserves is needed for every $1,000 of deposits

The higher the requirement, the lower the lending

Open-Market operations

Fed buys and sells government securities

The more government securities sold, the lower the lending

Discount rates

Rate the Fed charges banks

The higher the rate, the lower the lending

Federal funds rate

Bank to bank borrowing rate

The higher the rate, the lower the lending

Prime rate

Rate banks charge preferred customers

© 2011 Cengage Learning created by Dr. Richard S. Savich.


California real estate finance bond mckenzie fesler boone ninth edition

© 2011 Cengage Learning created by Dr. Richard S. Savich.


Federal control of the money supply slide 2 of 2

Federal Control of the Money Supply (Slide 2 of 2)

U.S. Treasury

Government Spending

Government Taxing

Together known as Fiscal Policy

When spending exceeds taxing, inflation results

Housing prices rise

Fewer people can afford housing

Established and promoted

Federal National Mortgage Association (Fannie Mae)

Government National Mortgage Association (Ginnie Mae)

Federal Land Bank System

“Recovery Act” 2008

“Make Home Affordable” program 2009

© 2011 Cengage Learning created by Dr. Richard S. Savich.


Cost characteristics of the mortgage market slide 1 of 3

Cost Characteristics of the Mortgage Market (Slide 1 of 3)

Deposit cost (Interest paid)

Borrowing costs (Underwriting and float)

Sales costs (Promotion costs)

Administration (Rent, utilities, etc.)

Reserves (?%)

Liquidity (Capital requirements)

Profit (for the shareholders)

© 2011 Cengage Learning created by Dr. Richard S. Savich.


Cost characteristics of the mortgage market slide 2 of 3

Cost Characteristics of the Mortgage Market (Slide 2 of 3)

Interest rate changes due to

Excessive government spending

Large government borrowings

Inflation

Supply

Demand

Federal reserve actions

© 2011 Cengage Learning created by Dr. Richard S. Savich.


Cost characteristics of the mortgage market slide 3 of 3

Cost Characteristics of the Mortgage Market (Slide 3 of 3)

California Mortgage Market

Large population and high demand

Financial institutions

Loan correspondents

Title companies

Security (Deed of trust)

Active secondary market

Diversification

© 2011 Cengage Learning created by Dr. Richard S. Savich.


Instruments of real estate finance slide 1 of 2

Instruments of Real Estate Finance (Slide 1 of 2)

Promissory notes

Straight

Interest only

Installment

Both principal and interest

Balloon payments

Both principal and interest, but principal payments not large enough, so more is due at end of note

Negatively amortized

Payments not even enough to cover interest

© 2011 Cengage Learning created by Dr. Richard S. Savich.


Instruments of real estate finance slide 2 of 2

Instruments of Real Estate Finance (Slide 2 of 2)

Deed of Trust (used in California instead of a mortgage)

Borrower – Trustor

Lender – Beneficiary

Third party – Trustee (Holds title until loan is paid in full)

Installment Sales Contracts

Title remains with seller

Seller is “lender”

© 2011 Cengage Learning created by Dr. Richard S. Savich.


California real estate finance bond mckenzie fesler boone ninth edition

© 2011 Cengage Learning created by Dr. Richard S. Savich.


The five step financing process

The Five-Step Financing Process

Application (Chapter 10)

Analysis/Processing (Chapters 8 & 9)

Qualifying/Underwriting (Chapters 7 – 10)

Funding/Closing (Chapter 10)

Servicing (Chapters 10 & 11)

© 2011 Cengage Learning created by Dr. Richard S. Savich.


Questions and comments

Questions and Comments?

© 2011 Cengage Learning created by Dr. Richard S. Savich.


  • Login