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What are the three basic steps in the mortgage process?
- -a home buyer
- -a loan originator
- -a mortgage lender
- -ongoing administration that includes payment processing, loan modifications (if any), and other duties.
- -loan servicer; a separate entity hired by the lender to do mortgage servicing
What is a loan originator? What is retail or direct lending?
- -loan originator; processing of loan application, collects borrower info, submit documents to lender.
- -past and common; loan officer; employee of lender; loan originator; retail loans or direct loans; the lender deals directly with the borrower.
- -secondary market made loan origination more complicated.
What are the pros and cons of a lender using loan correspondents or mortgage brokers?
- Pros: reduces the lenders' overhead, save on cost of local space and employees
- cons: less likely to know about a mistake on a loan application, or have the ability to prevent similar mistakes.
Wholesale lenders and loan correspondents or mortgage brokers
wholesale lending; lenders who have vast qualities of funds available for lending, but who use outside entities to find their borrowers; loan correspondents or mortgage brokers
A mortgage broker decides to approve a loan or not.
false; lender does, mortgage broker just gets application ready and can only give the buyers a preliminary loan approval.
Mortgage brokers differ from Loan officer
- -mortgage brokers are independent contractors who get paid a commission; work for multiple lenders; help homebuyers find a loan that fits their needs; intermediaries for mortgage lenders
- -Loan Officer; works under one lender, direct with borrowers.
Secure and Fair Enforcement for Mortgage Licensing Act aka SAFE Mortgage Licensing Act
- -designed to prevent abusive practices during loan origination.
- -require residential mortgage loan originators to be state licensed or federally registered
- -require state to comply with standard reporting requirements and use uniform license application forms
- -tracking and reporting loan originator information across state lines
- -imposing fiduciary duties on loan originators
- -enhancing consumer protection and anti-fraud measures
Real estate agents who receive compensation for arranging loans must be licensed loan originators.
The majority of homebuyers obtain financing from one of these four types of primary lenders...
- -commercial banks
- -thrift institutions
- -credit unions
- -mortgage companies
In the US commercial banks are either national banks or state banks.
-security firms, aka stock brokerages; raise capital for and handle finances for corporations, directs use of government and corporte bonds, give investment advice, corporate finance
Commercial banks are a type of investment bank
false; very different; investment banks don't give loans or take deposits
Financial Services Modernization Act aka Gramm-Leach-Bliley Act
made it legal for a holding company (bank) to have a bank, a securities firm, and an insurance company.
- -holds deposits and makes loans, emphasizes commercial lending but also makes residential mortgage loans
- -governed by state or federal
- -savings and loans (S&L) banks
- -savings banks
- -governed by state or federal
- -focus on giving loans to individuals
- -a nonprofit depository institution that serves the members of a particular group
- -federal or state charter
- -small personal loans, residential loans
- -exempt from taxation, which in return allows them to loan to members at a below market interest rate
- -home equity loan
Home Equity Loan
- -a loan obtained by the borrower using a home he already owns as collateral
- -offered by credit union
- -banks, thrifts, and credit unions
- -government-regulated entities that hold customers' deposits and provide a wide range of financial services in addition to offering mortgage loans
Mortgage Companies aka mortgage bankers
- -only offer mortgage lending and affiliated services
- -can sell mortgages to make money
Mortgage companies are depository institutions
false; only offer mortgage lending and other affiliated services
Mortgage banks can be affiliated with large banks or thrifts.
Mortgage companies can act as mortgage bankers or as mortgage brokers. What is the difference
- Mortgage Banker; lender; takes buyer's application, makes underwriting decision, funds loan
- Mortgage Broker; intermediary, not a lender; helps buyer choose and apply for a loan
the process of evaluating the financial status of a loan applicant and the value of the property he hopes to buy, to determine the risk of default and the risk of loss in the event of default and foreclosure.
Depository institutions are required to undergo _________ examinations by government regulators to make sure their operations comply with the law.
- -are subject to different regulators depending on their charter
- -regulated on: capital requirements, reserve requirements, accounting procedures, comply with consumer protection laws and fair lending law, etc.
Consumer Financial Protection Bureau (CFPB)
regulates non-bank mortgage companies
limits on interest rates for certain types of loans
Private financing or seller financing
- -cheaper for buyers
- -must follow usury laws, disclosure laws, and predatory lending laws
What are three main programs where created during the New Deal to help the mortgage industry?
- -Federal Housing Administration (FHA); encouraged residential lending by offering mortgage insurance to protect against foreclosure losses
- -Federal Home Loan Bank Board (FHLBB); assisted savings and loans
- -Federal National Mortgage Association (Fannie Mae); provided secondary market for FHA-insured loans
What was one important reaction, created by the FHA, that helped turn-around home purchase loans?
-long-term, fixed-rate loans
The Savings and Loan Crisis
- -market interest rates skyrocked in the late 1970s and early 1980s; disintermediation occured
- -Hunders of S&Ls became unable to meet their financial needs, leading to a government bailout of the industry
Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
- bailout for 1980s S&L crisis
- -new rules and elimated some corporations
unable to meet financial obligations; broke
The Mortgage Market and Financial Crisis 2007, 2008
- -Housing Bubble; an artificial increase in property value
- -Government actions (1970s-1980s) that encouraged homeownership played a role in rising prices; made it easier for low-mod income peoples to get homes, so regardless of price these people could get in even though they could not afford it; little regulation
- -relaxed borrowing standards and high investor profits became the norm
- -piggyback loans; no down payment
- -subprime loans; loans issued to home buyers with low credit scores or other financial problems; 20% by 2006
- -ARM (adjustable-rate mortgage) offered low interest rates; homeowners thought they could sell quick; they were unable to and trapped in a home they could not afford
- -Affected other areas in the economy
Government Bailout for 2007-2008 Mortgage Market Crash
- -Housing and Economic Recovery Act (HERA); strengthen the housing market; tax-credit to first-time homebuyers, neighborhood funds for foreclosed communities, FHA loan limits, more regulations for and more capital to Fannie Mae and Freddie Mac, new rules for mortgage disclosures, refinancing options for struggling homeowners; Making Home Affordable program
- -Troubled Asset Relief Program (TARP); emergency bailout bill, help ease credit
- -The American Recovery and Reinvestment Act of 2009; create jobs and promote investment and consumer spending
- -Dodd-Frank Wall Street Reform and Consumer Protection Act 2010;
- --regulatory oversight; Consumer Financial Protection Bureau (CFPB),
- --Liqudation authority; help or liquidate banks
- --Mortgage Reform and Anti-Predatory Lending Act; originator compensation (only compensated by borrower or lender and no more compensation for the higher the interest rate), ability to repay rule (new application information), prepayment penalties (prohibited in ARMs and high-cost mortgages), high-cost loans (stricter fee limites), appraisal reforms (stricter physical inspections)
The 30-year fully amortized loan is now the "standard" loan type. This occurred as a response to what?
-the large numbers of foreclosures that took place during the Depression
Mortgage companies don't keep any loans in portfolio.
FIRREA was enacted in response to the S&L crisis.
In the twenty-first century, the majority of residential loans are made by:
A wholesale lender makes loans through a correspondent.
A subprime lender is likely to charge a higher interest rates because of the greater ____.
Which type of lender is oriented toward short-term deposits and short-term loans to big business clients, although it may have significant investments in residential mortgages?