Essentials of Real Estate Finance
Fourteenth Edition
Ess_RE_Fin_14E.indb 1
Essentials of
Real Estate Finance
David Sirota, PhD ? Doris Barrell, GRI, DREI, CDEI
12/9/2014 9:25:44 AM
This publication is designed to provide accurate and authoritative information
in regard to the subject matter covered. It is sold with the understanding that the
publisher is not engaged in rendering legal, accounting, or other professional
advice. If legal advice or other expert assistance is required, the services of a
competent professional should be sought.
President: Dr. Andrew Temte
Chief Learning Officer: Dr. Tim Smaby
Executive Director, Real Estate Education: Melissa Kleeman-Moy
Development Editor: Kari Domeyer
ESSENTIALS OF REAL ESTATE FINANCE FOURTEENTH EDITION
?2015 Kaplan, Inc.
Published by DF Institute, Inc., d/b/a Dearborn Real Estate Education
332 Front St. S., Suite 501
La Crosse, WI 54601
All rights reserved. The text of this publication, or any part thereof, may not be
reproduced in any manner whatsoever without written permission from the
publisher.
Printed in the United States of America
ISBN: 978-1-4754-2839-1 / 1-4754-2839-1
PPN: 1557-1015
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Contents
I
2
Preface
Acknowledgments
Contributors
vii
ix
ix
The Nature and Cycle of Real Estate Finance
1
The Nature of Real Estate Finance
Mortgage Lending Activities
Real Estate Cycles
Impact of the Financial Crisis
Summary
Internet Resources
Review Questions
2
4
9
15
15
16
18
Money and the Monetary System
What Is Money?
The Federal Reserve System (the Fed)
Instruments of Credit Policy
The U.S. Treasury
The U.S. Mint
The Federal Deposit Insurance Corporation (FDIC)
The Federal Home Loan Bank (FHLB) System
Summary
Internet Resources
Review Questions
19
20
22
24
30
32
33
34
34
35
36
iii
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iv
3
Essentials of Real Estate Finance Fourteenth Edition
Additional Government Influence
U.S. Department of Housing and Urban Development (HUD)
Consumer Financial Protection Bureau
Significant Federal Legislation
State and Local Programs
Agricultural Lending
Summary
Internet Resources
Review Questions
4
The Secondary Mortgage Market
Major Participants in the Secondary Market
The Government-Sponsored Enterprises (GSEs)
Fannie Mae
Freddie Mac
Ginnie Mae
Federal Home Loan Bank (FHLB)
Farmer Mac
Real Estate Mortgage Investment Conduits (REMICs)
Summary
Internet Resources
Review Questions
5
Sources of Funds: Institutional, Non-Institutional, and
Other Lenders
Commercial Banks
Mutual Savings Banks
Savings Associations/Thrifts
Life Insurance Companies
Pension and Retirement Programs
Credit Unions
Mortgage Brokers and Bankers
Real Estate Trusts
Real Estate Bonds
Private Lenders
Foreign Lenders
Summary
Internet Resources
Review Questions
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37
38
42
44
48
50
51
52
54
55
56
58
60
64
66
67
68
68
68
69
71
72
73
75
76
77
78
78
79
82
84
88
90
90
92
93
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Contents
6
7
8
Instruments of Real Estate Finance
95
Encumbrances and Liens
Loan Secured by a Real Estate Interest
The Note and Deed of Trust (Trust Deed)
Note and Mortgage
Contract for Deed (Land Contract)
Junior Finance Instruments
Special Provisions in Mortgage Lending Instruments
Summary
Internet Resources
Review Questions
96
97
100
101
106
108
110
114
116
117
Real Estate Financing Programs
119
Interest
Types of Loans
Private Mortgage Insurance
Refinancing Existing Conventional Loans
Subprime and Predatory Lending
Variations in Formats
Participation Agreements
Tax Impacts in Mortgage Lending
Summary
Internet Resources
Review Questions
120
124
133
135
138
142
147
150
154
154
156
Government Loans
Federal Housing Administration (FHA)
FHA-Insured Loan Program
FHA Contributions to Real Estate Finance
VA Loan Guarantee Program
Additional VA Loan Programs
Summary
Internet Resources
Review Questions
9
Processing Real Estate Loans
Qualifying the Borrower
Qualifying the Collateral
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v
158
159
160
172
173
181
182
183
184
186
188
195
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