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© 2012 Cengage Learning
© 2012 Cengage Learning
Sources of FinancingChapter 12
© 2012 Cengage Learning
In This Chapter
You will identify various mortgage lenders, describe where these lenders get their money, and explain mortgage provisions.
© 2012 Cengage Learning
Financing Primary Market – where lenders originate
loans. Secondary Market – provides a way for
lenders to sell a loan.
© 2012 Cengage Learning
Primary Loan Sources Savings and loan Associations Commercial Banks Life Insurance Companies Mortgage Companies Mortgage Brokers Computerized Loan Origination Municipal Bonds Other Lenders
© 2012 Cengage Learning
SAFE Act
Secure And Fair Enforcement Act established minimum standards for mortgage
training, both pre-licensing and continuing education.
© 2012 Cengage Learning
SAFE Act
Requires registration of residential mortgage loan originator employees with a federal banking agency having jurisdiction
Law is broad and can cover seller financing Texas allows some exceptions for owner
financing on up to 5 owner transactions
© 2012 Cengage Learning
Mortgage Loan Originators must be
Licensed One cannot work as a Mortgage Loan Originator (MLO) for a Mortgage Broker or Consumer Loan company until they have an active license
Requires pre-licensing education & testing
© 2012 Cengage Learning
Requirements for Texas licensed mortgage loan
originators Complete at least 20 hours of pre-licensing education
Pass a qualification exam (includes both a state and national component)
Pass a background check Complete at least eight hours of continuing
education on an annual basis
© 2012 Cengage Learning
Requirements for federally chartered mortgage loan
originators Pass a qualification exam (made up of both a state and national component)
Pass a background check Complete at least eight hours of continuing
education on an annual basis More information at
http://texasmortgagelicensing.org/licensing.asp
© 2012 Cengage Learning
Texas Loan Programs Texas Veterans Land Fund Veterans’ Housing Assistance Program
(VHAP)
Veterans Home Improvement Program Texas Department of Housing and
Community Affairs
© 2012 Cengage Learning
Texas Loan Programs “Bootstrap” Homebuilder Loan Program Home Investment Partnerships Program
(HOME) Housing Finance Corporation Fannie Mae REALTOR® Programs Texas State Affordable Housing Corporation
© 2012 Cengage Learning
Secondary MarketPrimary Market
Mortgage Lenders
Borrowers
FinancialIntermediaries
MortgageInvestors
The Secondary Mortgage Market
© 2012 Cengage Learning
Mortgage Loan Delivery Systems
© 2012 Cengage Learning
Secondary Loan Sources
FNMA - Fannie Mae FHLMC - Freddie Mac FAMC - Farmer Mac GNMA - Ginnie Mae Farmer MAC
© 2012 Cengage Learning
OFHEO The Office of Federal Housing Enterprise
Oversight (OFHEO) was charged with ensuring the capital adequacy and financial safety and soundness of two government sponsored enterprises the Federal National Mortgage Association
(Fannie Mae) the Federal Home Loan Mortgage Corporation
(Freddie Mac)
© 2012 Cengage Learning
The Housing and Economic Recovery Act of 2008
combined OFHEO and the Federal Housing Finance Board (FHFB) to form the new Federal Housing Finance Agency (FHFA)
© 2012 Cengage Learning
Automated Underwriting Systems The computer age has introduced a whole
new system in underwriting procedures as they apply to the relationship between the loan originator and the investor.
© 2012 Cengage Learning
AVAILABILITY AND PRICEOF MORTGAGE MONEY Money pipelines between lenders and
borrowers. These sources are savings generated by
individuals and businesses as a result of their spending less than they earn (real savings) and government-created money, called fiat money or “printing press money.”
© 2012 Cengage Learning
Usury State legislation that imposes an interest rate
ceiling on loans. U.S. Congress passed legislation that
exempts from state usury limits most first lien home loans made by institutional lenders.
© 2012 Cengage Learning
Price to the Borrower The rate of interest the borrower must pay to
obtain a loan is dependent on the cost of money to the lender.
© 2012 Cengage Learning
Other Financing Conditions Due-on-Sale – call clause. Prepayment- penalty for the right to repay a
loan early.
© 2012 Cengage Learning
DUE-ON-SALE
Lenders can use these clauses to increase the rate of interest on the loan when the property changes hands by threatening to accelerate the balance of the loan unless the new owner accepts a higher rate of interest.
© 2012 Cengage Learning
PREPAYMENT Loan contracts sometimes call for a
prepayment penalty in return for giving the borrower the right to repay the loan early.
A typical pre-payment penalty amounts to the equivalent of six months interest on the amount that is being paid early.
prepayment penalties are not allowed on FHA and VA loans.
© 2012 Cengage Learning
Key Terms Alienation clause Automated
underwriting system Computerized loan
origination Disintermediation Fannie Mac Federal National
Mortgage Association
Freddie Mac Mortgage broker Mortgage company Participation
certificates Primary market Secondary
mortgage market Usury