Paper 1 - Introduction

What is the role of lending in real estate finance?

Lending against the cash flow generated by a property is the most traditional form of real estate finance.
In its simplest form, it involves a loan to a borrower which is repaid from the rental income of the
borrower’s property. It is the most commonly used structure for investing in real estate.

What is an investment facility agreement?

An investment facility agreement—whereby a loan facility is provided to a borrower for it to purchase a

property (or a group of properties).

Is an agreement between a corporation and a public or private lender that allows the business to borrow
a particular amount of money for different purposes for a short period of time.

What is a development facility agreement?

As a development facility agreement—whereby a loan facility is provided to a borrower for it to purchase

a property (or group of properties) as well as providing funds for the development of the property (or
properties)

Paper 2 - Money and Interest

1. Explain how mortgage creates money

- About 80% of the house purchases across the developed nations in the world take place on borrowed
money. Hence, the term “house purchase” can be considered to be synonymous with the word
“mortgage”. This seems to be a normal thing until one considers how the modern banking system works.

- Banks do not lend out existing money, instead they create new money when they make loans. Therefore,
whenever a bank makes a mortgage loan, it ends up creating that money and pumping it into the system.
Therefore, the more mortgages there are, the more money there will be in the system. This fact can be
easily empirically verified by comparing the growth of mortgage loans in the banking industry to the
amount of money supply in the economy. The two charts almost move simultaneously!

2. How does speculation create more mortgage?

- When speculators observe that some of their peers have made money by speculating on real estate,
they too make an attempt to join the party. This further exerts an upward pressure on the real estate
sector as excess money and excess demand now meet speculative intentions!
-This is the perfect recipe for a bubble. Speculators drive the prices sky high through self reinforcing
feedback loops. Higher prices in the past become the justification for even higher prices in the future! This
period witnesses a rapid growth in mortgages as well as housing prices.

3. How does mortgages and real estate prices affect the money supply in the economy?

- mortgages and real estate prices have a huge influence on the money supply of the economy. Since
money supply is one of the fundamental economic parameters, the real estate prices end up having a
huge influence on the entire economy.

4. What factors affect your mortgage interest rate?

- Interest rates affect how much you pay towards your home loan each month.

- mortgage rates are only one interest-related factor influencing property values. Because interest rates
also affect capital flows, the supply and demand for capital and investors' required rates of return on
investment, interest rates drive property prices in a variety of ways.

Paper 3 - Mortgage

1. Which is the most important requisites of real estate mortgage?

1. Secures the fulfillment of a principal obligation;

2. Mortgagor, must be the absolute owner of the thing mortgaged; and

3. Mortgagor must have free disposal of their property, or be legally authorized for such purpose.

▪ Other special requisites include the following:

1. It can cover only immovable property and alienable real rights imposed upon immovable;

2. It must appear in a public instrument;

3. Registration in the registry of property is necessary to bind third persons, but not for the validity of the
contract

2. Explain the different kinds of real estate mortgage

Voluntary- agreed to by the parties or constituted by the will of the owner of the property on which it is
created

Legal- one required by law

Equitable- one which, although lacking the formalities of a mortgage, shows the intention of the parties
to make the property a security for a debt
3. Explain at least 3 types of terms and condition found in mortgage agreement

1. Promise to Pay - Specifies principal, interest, penalties, etc., along with date, names, etc.

2. Covenant to Avoid Liens with Priority over the Mortgage - For example, if borrower fails to pay
property tax, she is in default of mortgage too, because property tax lien has priority over mortgage lien.
Typical Terms & Clauses

3. Hazard Insurance - Borrower must insure value of the property (at least up to mortgage amount)
against fire, storm, etc.

4. What is the best type of housing loans based on financing scheme?

Government loans - The Philippine government provides affordable housing loans to low-income to
middle income Filipinos who want to buy a home. The Pag-IBIG Fund and Social Security System (SSS) are
the two most popular agencies for government home loans.

5. What is the best type of housing loans based on interest rate?

Fixed interest rate - A fixed interest rate on a housing loan (also called a fixed-rate mortgage) does not
change and remains at the then-prevailing rate in the market over the entire loan term, regardless of
interest rate movements.

6. Explain the mortgage loan process

Pre-Qualification - Pre-qualification starts the loan process. Once a lender has gathered information about
a borrower's income and debts, a determination can be made as to how much the borrower can pay for
a house. Since different loan programs can cause different valuations a borrower should get pre-qualified
for each loan type the borrower may qualify for. In attempting to approve homebuyers for the type and
amount of mortgage they want, mortgage companies look at two key factors. First, the borrower's ability
to repay the loan and, second, the borrower's willingness to repay the loan. Ability to repay the mortgage
is verified by your current employment and total income. Generally speaking, mortgage companies prefer
for you to have been employed at the same place for at least two years, or at least be in the same line of
work for a few years. It is important to remember that there are no rules carved in stone. Each applicant
is handled on a case-by-case basis. So even if you come up a little short in one area, your stronger point
could make up for the weak one. Mortgage companies could not stay in business if they did not generate
loan business, so it is in everyone's best interest to see that you qualify.

The application - is the next step of the loan process. With the aid of a mortgage professional, the
borrower completes the application and provides all Requested Documentation. A loan application is not
considered complete until you have given us at least the following information: (1) Your name, (2) Your
income, (3) Authorization to check your credit, (4) The address of the home you plan to purchase or
refinance, (5) An estimate of the home's value and (6) The loan amount you want to borrow.
The Loan Estimate - A Loan Estimate is a three-page form that you receive after applying for a mortgage.
The Loan Estimate tells you important details about the loan you have requested. We will deliver this to
you with in 3 days of your fully completed loan application. The Loan Estimate provides you with important
information, including the estimated interest rate, monthly payment, and total closing costs for the loan.
The Loan Estimate also gives you information about the estimated costs of taxes and insurance, and how
the interest rate and payments may change in the future. In addition, the Loan Estimate will also indicate
if the loan has special features that you will want to be aware of, like penalties for paying off the loan
early (a prepayment penalty) or increases to the mortgage loan balance even if payments are made on
time (negative amortization). The form uses clear language and is designed to help you better understand
the terms of the mortgage loan you’ve applied for. All lenders are required to use the same standard Loan
Estimate form. This makes it easier for you to compare mortgage loans so that you can choose the one
that is right for you. When you receive a Loan Estimate it does not mean that your loan has been approved
or denied. The Loan Estimate shows you what loan terms we can offer you if you decide to move forward.

Mortgage Programs and Rates - To properly analyze a mortgage program, the borrower needs to think
about how long he plans to keep the loan. If you plan to sell the house in a few years, an adjustable or
balloon loan may make more sense. If you plan to keep the house for a longer period, a fixed loan may be
more suitable.

With so many programs from which to choose, each with different rates, points and fees, shopping for a
loan can be time consuming and frustrating. An experienced mortgage professional can evaluate a
borrower's situation and recommend the most suitable mortgage program, thus allowing the borrower
to make an informed decision.

Processing - Once the application has been submitted, the processing of the mortgage begins. The
Processor orders the Credit Report, Appraisal and Title Report. The information on the application, such
as bank deposits and payment histories, are then verified. Any credit derogatories, such as late payments,
collections and/or judgments require a written explanation. The processor examines the Appraisal and
Title Report checking for property issues that may require further investigation. The entire mortgage
package is then put together for submission to the lender.

Underwriting - Once the processor has put together a complete package with all verifications and
documentation, the file is sent to the lender. The underwriter is responsible for determining whether the
package is deemed an acceptable loan. If more information is needed, the loan is put into "suspense" and
the borrower is contacted to supply more information and/or documentation. If the loan is acceptable as
submitted, the loan is put into an "approved" status.

Closing Disclosure - The Closing Disclosure is a five-page form that provides final details about the
mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how
much you will pay in fees and other costs to get your mortgage (closing costs). We are required by law to
give you the Closing Disclosure at least three business days before you close on your mortgage loan. This
three-day window allows you time to compare your final terms and costs to those estimated in the Loan
Estimate that you previously received from us. The three days also gives you time to ask us any questions
before you go to the closing table.

Closing - Once the loan is approved, the file is transferred to the closing and funding department. The
funding department notifies the broker and closing attorney of the approval and verifies broker and
closing fees. The closing attorney then schedules a time for the borrower to sign the loan documentation.

At the closing the borrower should:

▪ Bring a cashiers check for your down payment and closing costs if required. Personal checks are normally
not accepted and if they are they will delay the closing until the check clears your bank.

▪ Review the final loan documents. Make sure that the interest rate and loan terms are what you agreed
upon. Also, verify that the names and address on the loan documents are accurate.

▪ Sign the loan documents.

▪ Bring identification and proof of insurance.

After the documents are signed, the closing attorney returns the documents to the lender who examines
them and, if everything is in order, arranges for the funding of the loan. Once the loan has funded, the
closing attorney arranges for the mortgage note and deed of trust to be recorded at the county recorders
office.

Paper 4 - Sources of Mortgage

1. What are the different sources of primary mortgage in the Philippines?

1. deposits (banking institutions),

2. insurance policy premiums (insurance companies)

3. pension contributions (pension funds),

4. the secondary market.

2. What are the main difference between primary and secondary mortgage market?

The primary mortgage market - brings prospective borrowers (market demand) together with individuals,
agencies and entities that have money to lend (market supply) for the purpose of acquiring real estate.
The prospective borrowers include households seeking funds to buy homes; investors seeking funds to
buy investment property such as apartments, office buildings and shopping centers; and businesses
seeking funds to buy property for their production plants and corporate offices. The providers of funds in
the primary mortgage market are principally financial institutions such as banks, savings and loan
associations, and mortgage bankers who have money to lend.
The secondary mortgage market - also operates on the principle of supply and demand. In the very
simplest terms, the secondary mortgage market is a provider or source of funds to the primary mortgage
market. Those people and institutions active in the secondary mortgage market (market supply) attract
funds from the stock and bond markets and direct them to the lenders in the primary mortgage market
(market demand). As a result, the secondary mortgage market directly affects the amount and the cost of
funds in the primary market.

3. Who are the target customer of National Home Mortgage Finance Corporation?

The National Home Mortgage Finance Corporation (NHMFC) - is a Secondary Mortgage Institution (SMI)
with the primary purpose of attracting long term investments through the issuance of housing bonds or
other securities in order to increase liquidity in the housing sector and to purchase residential
loan/mortgage receivables originated by both public and private institutions and developers that are
within government-approved standards.

4. What is an MBS?

The mortgage-backed security (MBS) -was created. Pools including hundreds of mortgages were
gathered, and the rights to the cash flows generated by the mortgages were sold as separate securities.

5. What is the impact of NHMFC to the economy?

NHMFC’s commitment to and actual purchase of housing loan receivables assure originating institutions
of the immediate recovery of their liquidity as it consequently assumes the long- term risk of home lending
and other modes of home financing. Being thus relieved of risk and assured of liquidity, originating
institutions are effectively reinforced and enabled to lend to more home borrowers. With NHMFC’s
trading of the asset- backed and government guaranteed housing bonds or other forms of securities, funds
are generated which are again flowed back into home financing. This recycling process overcomes fund
volume limitations and comes full circle to the advantage of borrowers in the form of more affordable
home loans with lower interest rates and longer repayment periods.

Paper 5 - Mortgage Companies

1. What is the role of mortgage company?

A mortgage company is a firm engaged in the business of originating and/or funding mortgages for
residential or commercial property. A mortgage company is often just the originator of a loan; it markets
itself to potential borrowers and seeks funding from one of several client financial institutions that provide
the capital for the mortgage itself.
▪ Some mortgage companies do offer turnkey mortgage services, including the origination, funding and
servicing of mortgages. The factors that differentiate one mortgage company from another include
relationships with funding banks, products offered and internal underwriting standards.

2. What is the role of a mortgage broker?

There are a number of professionals out there whose job is to assist you in picking a mortgage product
that best suits your needs. You need them – you can’t get a mortgage without one. A mortgage broker is
a licensed professional who compares mortgages from a variety of lenders to find the best option for their
clients.

When they receive a mortgage application, a mortgage broker will shop it around to their lenders to see
which lender will give you the best interest rates, conditions, and terms. Mortgage brokers will come to
you, so it’s a bit easier to fit meetings into your schedule. Brokers either work solo or within a larger broker
network. You generally won’t be expected to pay a broker; they get paid a commission by the lenders,
depending on the mortgage product that you end up choosing so there is no direct cost to the mortgagor,
their clients.

3. How does a mortgage company operate?

The mortgage company's chief function is to originate and service mortgage loans for institutional
investors, holding these loans in inventory for a short term in the period between mortgage origination
and sale to institutions.

Mortgage Lending The Mortgage Banking, or Mortgage Lending, Group is responsible for originating and
servicing mortgage loans for retail (i.e., individuals or families) clients.

Mortgage Sales The Mortgage Sales function works to generate sales leads, educate potential borrowers
on loan options, and move borrowers through the loan origination process.

Mortgage Loan Operations The Mortgage Loan Operations function is responsible for all tasks between
the submission of a mortgage application and the final funding (pending approval) of a mortgage loan.
The steps between include application processing, underwriting (approval or denial of loan application),
closing, and post-closing.

Mortgage Loan Servicing The Mortgage Loan Servicing Group deals with all communication between the
borrower and the lender after the approval and initial funding of the loan. They collect payments, help
the borrower with repayment plans or loan consolidation and assist with other customer service-related
tasks (address change, billing questions, account statements, insurance adjustments, escrow account
management, etc.) during the life of a loan.

Paper 6 - Property Identification

1. What is the purpose of a property appraisal?

• An appraisal may be defined as an estimate of value of an adequately described property as of a specific
date.

• It is the considered opinion of a knowledgeable and qualified professional supported by an analysis of

relevant data.

• An appraisal provides information that has several uses in financing.

• It is used as an important measure of loan amount.

• Lenders limit loan amounts to a percentage of property value.

• On commercial loans, it may be a percentage of the property’s income.

• A property’s income is also a reflection of the property’s value.

2. Who uses property appraisal?

Market Transactions

▪ Purchase, Sale & Exchange

▪ Financing

▪ Leasing

▪ Management

▪ Insurance

▪ Remodeling

▪ Development

▪ Feasibility

▪ Highest and Best Use

▪ Exercise of Purchase and Lease options

Legal Transactions

▪ Eminent domain - condemnor and condemnee

▪ Property tax assessment and tax appeals cases

▪ Estate, inheritance, and gift taxes

▪ Income tax Casualty loss, deprecation basis and capital gains reporting
▪ Personal and corporate legal actions

▪ Environmental impact reports

▪ Fire or title insurance claims

▪ Marital and partnership dissolutions

▪ Landlord-tenant and property damage lawsuits

▪ Loan foreclosures

▪ Company liquidation or merger

▪ Bankruptcy

▪ Security for bail bonds

3. Explain the following principles of appraisal

Supply and demand - Scarcity influences supply and that what people want and can purchase controls
the demand.

Substitution - The value of replaceable property will tend to coincide with the value of an equally desirable
substitute property.

Highest and best use - It is the use of land at the time of the appraisal that will provide the greatest net
return.

Contribution - This principle applies to the contributory market value added by an improvement.

Conformity - To achieve maximum value, land use must conform to the surrounding area.

Anticipation - Since value is considered to be the worth of all present and future benefits, the anticipation
of future benefits must be evaluated.

Arm’s length transaction - This is a transaction in which the parties involved are not related or previously
involved.

Paper 7 - Government Mortgage Program

1. Explain the policy bias toward homeownership

• An important consequence of the policy bias toward homeownership is that government has shouldered
much of the responsibility in providing housing finance especially to lower-income segments of the
population.
• While private banks and financial institutions focused their real estate and housing loans to middleand
high-income groups, the government – through the publicly controlled Social Security System (SSS),
Government Service Insurance System (GSIS) and the Pag-Ibig Fund – contributed the bulk of housing
loans for middle- to low-income groups.

• The three institutions have always been the biggest source of funds for the government's housing
programs.

2. What laws are involved in government housing program?

From the Commonwealth period to the Marcos years, government was the principal provider of housing
and performed all major functions related to:

• Land acquisition,

• Production of low-cost and tenement housing,

• Management of housing projects, and

• Slum clearance and resettlement.

Many laws were likewise enacted to make housing more accessible the earliest being The Homesite Act
(Commonwealth Act 620, 1936) that mandated government to acquire lands for subdivision into homelots
or farm units; friar lands and estates like the Piedad Estate, Tala and Payatas were acquired for this
purpose.

Home financing was established in 1950 under Republic Act 580, which provided for mortgage insurance
to stimulate low-interest lending by banks and financial institutions; this was the precursor of what later
became the Home Insurance Guaranty Corporation (renamed Home Guaranty Corporation in 2000).

It was also in the 1950s that the Government Service Insurance System (GSIS) and the Social Security
System (SSS) began their involvement in financing government housing projects and extending housing
loans to members.

The next decade saw the expansion of government housing activities through the passage of the
Tenement Law that mandated the construction of tenement housing for an estimated 2,300 families, and
the National Social Housing Law intended for lowincome families resettled in government housing sites.

Presidential Decree 757 issued in 1975 mandated the creation of the National Housing Authority (NHA)
and the dissolution of various housing agencies, interagency task forces and ad-hoc committees tasked
with land acquisition, slum clearance and resettlement, low-cost housing projects and the like; these
responsibilities were consolidated under NHA.
The National Home Mortgage Finance Corporation (PD 1267) was set up in 1977 to create a secondary
mortgage market by purchasing the mortgages of loan-originating financial institutions.

The year 1978 saw the establishment of the Ministry of Human Settlements (PD 1936) to consolidate all
housing related concerns, and through PD 530 the Home Development Mutual Fund (HDMF) – better
known as the PAG-IBIG Fund – that provided for another system of private contribution for housing
purposes.

In the same year, the National Shelter Program was established with the avowed purpose of delivering
more housing services by integrating and synchronizing public and private initiatives, toward
institutionalizing a "total systems approach" to housing.

3. What is the national shelter program?

The National Shelter Program (NSP) is a comprehensive strategy of the government to assist homeless
low- and middle-income families in meeting their housing needs through affordable housing
opportunities.

Under the NSP are five major schemes categorized under two main groups:

Direct Housing which includes:

(i) housing production;

(ii) community programs;

(iii) developmental loans;

and Indirect Housing, which is composed of:

(i) home mortgages; and

(ii) guarantees.

4. What are the home loans offered by HDMF?

Ikaw, Bangko, Industria at Gobyerno

The Housing Development Mutual Find (HDMF)—better known as the Pag-IBIG Fund—is one of the most
familiar and popular options when it comes to housing loans. They give financial assistance to its members
looking to purchase their own home. Pag-IBIG stands for “Pangtutulungan (Cooperation) sa Kinabukasan
(for the future): Ikaw (You), Bangko (the Bank), Industria (Industry) at Gobyerno (and the Government)’’

Loans through Pag-IBIG

A. Retail
If you’re looking to apply for a loan from Pag-IBIG directly, retail is the way to go. Just like other agencies
that offer house loans, Pag-IBIG makes it possible for its members to get a loan too. They’ve made this
option available for a wide array of workers—from private sector workers, OFWs or even self-employed
workers.

B. Assisted By Developers

Typically, when you purchase properties like condominiums, agents, brokers or developers are hands-on
in assisting you. This also includes applying for house loans. The developer will walk you through as the
buyer in applying for the said loan.

5. What are the home loans offered by SHFC?

The Social Housing Finance Corporations (SHFC) was born out of the transfer of loan programs which was
originally run by the National Home Mortgage Finance Corporation (NHMFC). The SHFC is concentrated
on providing housing loans and financing for low-income families and informal settlers. Just like the
NHMFC, the SHFC works with secondary markets such as LGUs undergoing housing projects to help those
with lower incomes gain their own home.

This is directed more towards corporations or LGUs that partner with developers of socialized housing
projects.

1. Abot Kaya Pabahay Fund-Development Loan Program (AKPF-DLP)

2. Community Mortgage Program (CMP)

3. High-Density Housing Program (HDH)

4. Localized Community Mortgage Program (LCMP)

A. Abot Kaya Pabahay Fund-Development Loan Program (AKPF-DLP)

Those who fall under the income family bracket living in an urban city can be helped through financing
house or building construction via the AKPF-DLP. But these said homes must be part of the community
mortgage program (CMP) or a specific housing project. This is directed more towards corporations or LGUs
that partner with developers of socialized housing projects.

B. Community Mortgage Program (CMP)

Legally organized Informal Settlers (ISF) of depressed areas can find help in financing their homes through
the CMP. In a gist, this program seeks to help ISFs have the opportunity to improve their neighborhood
by making it financially possible. Through this, they could eventually own their own homes. The CMP
cannot be a single person-application, it requires beneficiaries to form and register a Community
Association to qualify. But how does each beneficiary receive rights over their property or land? It’s
possible through a Lease Purchase Agreement (LPA) with the Community Association.

C. High-Density Housing Program (HDH)

SHFC has always been active in ISF Housing Program, with this the government provided them with P50
billion that is to be allotted for five years. So, the SHFC opted to create the High-Density Housing Program
(HDH). Their main goal is to provide safe and flood-free homes for ISFs living within the National Capital
Region (NCR).

D. Localized Community Mortgage Program (LCMP)

The LCMP works hand-in-hand with LGUs. This community mortgage program is designed for members of
the LGU looking to acquire land which is primarily mortgaged to SHFC. Should the said city or municipality
be qualified, they will be accredited by SHFC as partner LGU. Once this has been approved, those who fall
under the qualifications can essentially receive any of the three acquisition loan options:

P30,000 for site development loan (with a monthly amortization of P205.59)

P100,000 for lot acquisition loan (with a monthly amortization of P685.30)

P120,000 house construction loan (with a monthly amortization of 834.60)

Paper 8 - Residential Loan Analysis

1. Explain the mortgage standards

Underwriting Standards ➢ Originators may generate income for themselves in one or more ways.

i. They typically charge an origination fee.

ii. Profit can be generated from selling a mortgage at a higher price than it originally cost.

✓ This profit is called secondary marketing profit.

iii. Third, the mortgage originator may hold the mortgage in its investment portfolio.

2. What are the parts of loan approval process?

➢ Mortgage originators can:

i. hold the mortgage in their portfolio
ii. sell the mortgage to an investor who wishes to hold the mortgage or who will place the mortgage in a
pool of mortgages to be used as collateral for the issuance of a security
iii. use the mortgage themselves as collateral for the issuance of a security
➢ When a mortgage is used as collateral for the issuance of a security, the mortgage is said to be
securitized.

3. What are the important functions of underwriter?

4. Explain the importance of loan-to-value ratio

5. Explain the importance of debt-to-income ratio

6. Explain the importance of payment-to-income ratio

7. What is the purpose of a mortgage insurance?