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Loan Processing, Insurance and Foreclosure代寫


5.0
•5.1  Property valuation/appraisal
•5.2  Step-by-step evaluation of home loans
•5.3  Information required by lender
•5.4  Precautions in granting RELs
•5.5  Relevant ratios
•  5.5.1 Serviceability
•  5.5.2 LVR
•5.6  Private mortgage insurance
•5.7  Foreclosure

Announcements
•Where we are….
•Learning Objectives
LO#6 Outline the importance of borrower and property characteristics in relation to borrower qualifications for real estate finance

LO#7 Explain the steps involved in processing real estate loan application and closing a mortgage
•Relevant Readings
•Main text, 189–217
•Class Activity #1
•How do you think the property that you may like to purchase might be valued?
•What do you think might be the importance of such valuation?
•5.1  Property valuation/appraisal
Three methods
–Cost (summation) approach
–Market (value) approach
–Income (capitalisation) approach
Cost (Summation) Approach
•Basis: value of property = replacement cost
–Step 1 – Value of land alone is assessed using recent property sales
–Step 2 – Add value of all improvements
–Step 3 – Subtract allowance for depreciation, wear-and-tear, etc.
–Step 4 – Adjust for any other matters, e.g. desirability of location

Market (value) Approach
•Most popular method based on recent sale values of comparable properties
•Potential problems
–May have limited comparability
–House condition may vary considerably
–Quality of foundations may differ greatly
–Sale reflects historical trends and may be inaccurate for current market conditions
–Are any special features apparent, e.g. on sacred site or other sentimental value?

Income/capitalization Approach (out dated)
•Uses ratio of rental income from comparable properties and adjusted for any specific differences/characteristics
–Relies on net income (gross income minus expenses) to determine yield
–Also known as ‘years purchase method’ or ‘net income multiplier method’
•5.2 Step-by-step evaluation
of home loans
•Five steps :
•Step 1 – Applicant completes prescribed form including privacy waiver.
•Step 2 – Lender determines loan eligibility and serviceability, arranges valuation and determines interest rate, fees, caps, etc.
•Step 3 – If loan approved, lender sends loan offer document to borrower. If loan declined, use bank’s standard letter due to possible legal implications.
•Step 4 – If applicant proceeds, lender gathers all legal and title details from applicant’s solicitor and other institution, if refinancing involved. Applicant must sign mortgage documents in presence of authorised person.
•Step 5 – Lender arranges settlement of loan transaction with applicant’s solicitor. Charges stamp duty and other fees/charges/taxes to nominated mortgage account.
•5.3 Information required by lender
–Purpose of loan, i.e. owner-occupied or investment
–Property details, i.e. address, price, access for valuation, contractor/builder, etc.
–Type of loan requested, repayment options, whether mortgage insurance required and proposed insurance
–Applicant’s personal details including name, address and financial position
–Legal elements including purchaser’s solicitor/conveyancing firm, and validity of property's title. Important to note that this document does not constitute an offer to lend
–Applicant’s gross monthly income, LVR
•5.4 Precautions in granting RELs
•Verify accuracy of information such as valuation, dimensions of land, title, etc.
•Vendor has proper title to transfer
•For new housing, permissions granted from council, water authorities, electricity, telephone and determining suitability of site for construction
•Verify that applicant has not withheld information such as health or employment (although may be difficult to obtain)
•Despite lender’s best efforts, default may be possible from problems with health, injury, employment, family disputes, etc.
•Ensure loan officer has complied with the many complex lending procedures
•Ensure loan officers are aware of all lending policy changes
•5.5  Relevant ratios
•A number or ratios/measures are normally used to verify a borrower’s ability to borrow and service a loan
•5.5.1  Serviceability ratios
•Relative to gross monthly income
–Mortgage related expenses should not exceed x% (e.g. 25 to 28%)
–Total debt should not exceed x% (36%), including housing costs
•Class Activity #2
Total gross income = $6250
Projected monthly mortgage related exp. = $1128
Current Lt debt = $1200

Housing expense ratio =
Total debt ratio =
Will you approve this loan?

–Can applicant comfortably service loan repayments on their income?
–Three factors in loan instalments
1 – Amount of loan
2 – Period of loan
3 – Applicable interest rate (sometimes with sensitivity analysis)

[see Excel example from topic 4: Loan amortisation]
•5.5.2 Loan to Value Ratio (LVR)
•Example of LVR
–House value = $500,000; mortgage value (loan) = $350,000
–LVR = 400,000/500,000 or 70%
•LVR of 80% common, i.e. borrower needs to contribute 20%
•If LVR exceeds 80%,  private mortgage insurance (PMI) may be required
•This insurance protects the lender in the event of default.
•Class Activity #3
Purchase price = $210,700
Down payment = $64,600
LVR =

[see Excel example: LVR]

•5.6 Private Mortgage Insurance (PMI)
Example
House value = $100,000
Down payment = 10%, FRM 8%, 30yrs
PMI cover 25%

Say loan outstanding (plus related exp.) = $95,000 and borrower unable to pay

Option1: insurer pays lender $23,750 (25% of $95,0000
Option 2: insurer pays off $95,000, sells house, makes gain/loss
Some borrowers do “ Piggyback” loans called 80-10-10s to avoid PMI
  80%  First Mortgage
  10%  Second Mortgage
  10%  Down Payment
•5.7 Foreclosure
•Foreclose: taking possession of a mortgaged property as a result of defaults in mortgage payment
–Origin: French— ‘forclore’: for (out) + clore (to close)
–Bar from escaping; shut out
•The debt is paid from the funds generated by the sale
•Learning Objectives
You should now be able to:
LO#6 Outline the importance of borrower and property characteristics in relation to borrower qualifications for real estate finance

LO#7 Explain the steps involved in processing real estate loan application and closing a mortgage
•Next week/lecture…
•Thank you!
See ya next time!

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