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HACE 3100: Exam 3 Ch. 12: Housing
Two largest expenditures for most consumers |
Transportation
Housing |
Spending: spending on food and housing _. _ and _ contributed to the only major components of spending to increase. |
food and spending fell
Healthcare and transportation were major components of spending to increase |
The Fair Housing Act prohibits discrimination on the basis of: (6) |
Race
Religion
sex
national origin
familial status
disability |
National homeownership rate % |
66.4% |
What can you afford? _ times your annual household gross income (before taxes) |
2.5 times your annual household gross income |
Your house payment should be no more than _ % of your monthly gross income and combined house + debt payments of _ % |
28%
36%
= 28/36 rule |
-If your monthly gross income is _%> then you're considered house poor -Working poor spend -% of their income on rent |
30% (unaffordable burden)
Half the working poor spend 50% of their income on rent
|
Down payment of a home should be _ to _% of the selling price |
3-20% of the selling price (20% or more is recommended if you can afford it) |
is a mortgage loan where the interest rate on the loan remains the same through the term of the loan |
FRM - Fixed Rate Mortgage (usually 15 or 30 year mortgage) |
_ is a mortgage with an interest rate that is linked to an economic index that adjusts or "floats" as the index changes |
ARM - Adjustable Rate Mortgage (good for the short run if rates are low and you need lower initial payments when you begin the loan) |
The current market value of a home minus the outstanding mortgage balance |
Home Equity of Credit |
Primary advantage of an equity loan is |
the tax benefit (interest paid as tax deductible) |
A lender requires credit life insurance on your loan is a type of |
predatory lending |
Loans given to households with poor credit history usually with a higher than average interest rate |
Subprime mortgage loans (the market grew from $210 B to $625 B throughout 2001 to 2005) |
"subprime" borrowers: NINJAs _% |
No Income No Job or Assets - 20% |
What kind of loans do subprime borrowers get? |
ARMs with "teaser" rates to start and HIGHER rates to follow |
There have been _ million foreclosures since 2007 |
9.3 million foreclosures |
For both you and the bank a mortgage is a "_" which flows out of your household into the mortgage servicer |
"Stream of cash flows" |
How did the housing bubble develop? |
The housing bubble grew along with the stock bubble in the mid 1990s. The stock bubble increased the wealth of people, which led them to spend money on consumption including bigger and better houses.
The increased demand led house prices to rise. Then the stock bubble burst, which only caused the housing bubble to grow more. This is because people lost faith in the stock market and thought investing in a home would be a much safer alternative. |
Another huge incentive to buy a home involving the Federal Reserve Board |
The Federal Reserve Board to cut interest rates in an effort to stimulate the economy. Fixed-rate mortgages, as well as other interest rates hit 50 year lows due to the recovery of the 2001 recession. |
The U.S. home ownership rate increased from 64% in 1994 (since 1980) to an all-time high of _% |
69.2% in 2004 increasing by 124% from 1997-2004 |
Year peak of the subprime loan boom. Up until (year) the housing market in the U.S. was flourishing due to the fact that it was so easy to get a home loan. |
2005
2006 |
If a person could not sell their home, this ultimately left the homeowner with one option to |
default (the first step towards foreclosure)
the bank will resume the responsibility of the loan if it is not taken care of in a given amount of time, therefore it is auctioned off |
What is a mortgage backed security (MBS)? |
After a mortgage is sold it is put into a group of other mortgages back by security. It is a type of investment that represent claims to cash flows from pools of mortgage loans. Banks sell mortgages for cash (liquid assets) to be able to loan money to others needing a mortgage. Bonds are typically issued representing the claims. |
The most basic types of MBS are _ _ _ certificates which entitle the holder to a pro-rata share of all principal and interest payments made on the pool of loan assets |
pass-through participation certificates |
Major banks suffered from huge losses The Lehman Brothers went out of business. _ had to sell itself to Bank of America for significantly less fraction of its former value • _______________________________,the biggest U.S. mortgage lender, eventually gets taken over by Bank of America. |
Merrill Lynch |
The biggest U.S. mortgage lender, _ , eventually gets taken over by Bank of America. |
Countrywide Financial |
Mortgage defaults led subsequently to the collapse and government rescue of (2) |
Fannie Mae and Freddie Mac |
Purpose of Fannie Mae (Federal National Mortgage Associate) |
Founded in 1938 during the Great Depression in order to expand the secondary mortgage market by securitizing mortgages in the form of mortgage backed securities (MBS). In other words, to make more Americans homeowners. (Freddie Mac was established for the same reason in 1970) |
Due to the crisis regarding subprime loans a new proposal of _ % down will be required |
20% |
Short-term policy response to financial crises |
Management/resolution
crisis lending, rate cuts
preventing bailouts
unfreezing credit markets |
Long-term policy response to financial crises |
prevention
new regulation
new institutions
domestic and international |
Short-term policy responses: Liquidity (bailouts) |
To money markets and directly to troubled banks (TARP) |
Short-term policy responses: Bank deposit guarantees |
Extension of safety net to prevent bank runs (FDIC increased consumer protection amounts) est. after Great Depression |
Short-term policy responses: Dealing with toxic debt (MBS) |
Partial nationalization of banks |
Banks are adjusting the terms of mortgage loans to avoid foreclosure, with the goal of maximizing cash payments. Governments are offering financial incentives for lenders to assist borrowers. |
Homeowner assistant |
If you can't sell your home... this trend is predicted to continue to increase in the coming years |
renting homes |
Primary advantage of renting is |
flexibility |
Costs of renting: your security deposit is put into this type of account |
Escrow account |
Allows the renter to lease property to another person |
Subleasing |
Your lease should include: (5) |
When rent is due (is there a grace period?)
Security deposit amount
Method to terminate lease
How maintenance and repairs are handled
Any special charges or fees (such as bounced check, and late rent) |
Your landlord must return a security deposit within |
30 days of the termination of the lease |
A tenant (renter) is entitled to inspect premises within |
5 business days after termination of occupancy |
What if you don't have a lease, are you still protected by the Georgia landlord-tenant laws? |
Yes, a month-to-month lease is protected if you have signed a document stating so. |
Can a landlord Limit the Number of Occupants? |
Yes, as long as the landlord is not discriminating on the basis of familial status (it would otherwise be a violation of Fair Housing Law) |
T or F, Georgia law does not regulate occupancy |
True, however city and county ordinances may impose occupancy limits |
In Georgia, does the Landlord have to tell a prospective tenant that a murder occurred in the unit? |
NO! |
An implied right from the Landlord that the unit is fit to live in |
Right to Health and Safety |
Landlord may enter in case of emergency or with advance notice for inspections and repairs (usually 24 hour notice) |
Right to privacy |
Locks on exterior doors, latches on exterior windows, and re-keyed locks on exterior doors before new tenants move in are all examples of |
Right to security |
Covers your personal property in the event of theft, loss or destruction |
Renter's insurance |