Functions of Government in Real Estate Finance

The government can have a large impact and effect on the financing of real estate if lenders are involved. In any federally regulated loans, then specific federal lending rules must be met. The federal reserve and the availability of credit influence interest rates. There are disclosures regarding financing that are mandated by the government. The following issues should be consdered in addition to the real estate Settlement, Truth in Lending (Will teach you)

Function of the Federal Reserve (Central Bank) in controlling the Flow of Money – The Federal Reserve (Central Bank) controls the money supply through reserve requirements, the fed funds rate, the account rate, and open market operations, Reserve requirements are the minimum cash requirement that banks must maintain in order to be in compliance with Federal Reserve regulations. when this balance falls below the required amount, the bank must borrow from other banks (usually overnight loans) and pay that bank an interest rate called Fed fund Rate. As a last resort, banks can borrow finds from Federal Reserve Bank or Central Bank. When they are short on cash, loans cannot be made, therefore the uying power of borrowers is redced.

If the Federal Reserve or Central Bank increases the reserve requirements, banks are put in the position to of maintaining additional cash reserves – cas that would otherwise have been used for loans. With fewer Naira or dollars in circulation, interest rates increase, and the economy typically slows down. Both the Fed Fund Rate and the discount rate are set by the Federal Reserve.

Situating Equa Credit Opportunity as statues will make it illegal to discriminate against borrower based on race, ethnicity origin, marital status, age (presuming legal age), or receipt of public assistance. Only income, job stability, credit and net worth must be considered in the decision to approve or disapprove the loan. The ECO prohibits or restricts certain question of the applicant such as;

a. Informationa about the applicant spouse or former spouse

b. Mart status

c. Child support income, public assistance income, alimony

d. Question regarding childbearing intentions or both control practices.

e. Question regarding race, color, religion, or national origin.

f. Certain exceptions are made if the income from child support, public assistance or alimony will be used by the applicant for loan qualification purposes.

The act also requires that an individual who has been denied credit must be advised of such denial within 30 days from the date of rejection, and if requested, the lender must furnish the applicant with the principal reasons for credit reports, and if requested, the lender must furnish the applicant with the principal reasons for credit denial.

Fair Credit Reporting Act (To be recommended) gives individuals the right to access their credit reports, and to add statements of explanation to the credit file.

The Community Reinvestment Statues (To be recommended by AGPGC PROPERTIES) prohibits redlining on the basic policies prohibiting racial and ethnic discrimination and sentiment regarding area in which they have made the loans.

Government Backing for Real Estate Loans –

The FHA and Veteran programs and the reform have set the stage for home financing, as we know it today.90-95% loan in Nigeria should be stable and attractive interest rate to be common for home acquisition. A number of Federal agencies should be made real estate financing available.

Federal Housing Authority (Administration)

The Federal Housing Administration (FHA) was created by the Federal Government to assist Nigeria workers and their families. In short, FHA acts as an insurance company. It insures loans made to approved borrowers. It is designed to (a) encourage lenders to provide long term mortgage loans with higher ratios of loan-to-value (b) reduce finance costs by eliminating the need for second and third mortgages (c) provide total amortization through fixed and equal monthly installments including experiences such as taxes and insurance (d) develop and improve housing standards (e) decreases the probability of defaults through limiting loans to those with reasonable ability to pay,(f) improve appraisal techniques and thus add protection to the borrower’s investment and (g) make loans of this nature more marketable. These goals are met in part by insuring loans made by improved lenders, and thereby inducing lenders to make loan-to-value loans for long terms.

Contract for Deed, Land Contract, Land Sales Contract, or Installment Sales Contract-

A substantial amount of real estate is sold under contract for Deed, also term Land Contract, Land Sales. Contract, or Installment Sales Contract, this is really a method of financing real estate by an owner (vendor, The buyer does not receive a deed at the time of closing, but at the future date that is determined by the terms of the contract. Even though the deed is not transfer, the buyer (vendee) has equitable title to the property. The contract does create an effective lien. The contract will contain all the necessary facts regarding the transaction including sales price, payment schedule, interest rate and agreement to repair.

The advantage of the contract for deed to the seller has always been the ease of foreclosure and the seller remaining the owner of record. If the buyer fails to make the payments as agreed or abandoned the property, the seller can recover the property without court proceedings. Because this right has been abused. Nigeria must have a special statue for foreclosures for a contract for deed (AGPGC PROPERTIES WILL HELP)