© OnCourse Learning

Chapter 13: Sources of Financing

Primary Market – where lenders originate loans.

Secondary Market – provides a way for lenders to sell a loan.

FINANCIN

G

© OnCourse Learning

Savings and Loan AssociationsCommercial BanksLife Insurance CompaniesMortgage CompaniesMortgage BrokersMunicipal BondsComputerized Loan Origination (CLO)

PRIMARY LOAN SOURCES

© OnCourse Learning

The result created when lenders are required to pay high rates of interest for deposits while receiving long-term income from low-interest rate mortgage loans. © OnCourse Learning

DISINTERMEDIATION

Originating loans through the use of a networked computer system.provides information on current mortgage loan terms and loan types available on the market.

conveys loan application information electronically.

monitors the loan approval process so that the practitioner can check on the progress of the loan application at any time. © OnCourse Learning

COMPUTERIZED LOAN ORIGINATION

Mortgage Lenders

Borrowers

FinancialIntermediaries

MortgageInvestors

Primary Market Secondary Market

The Secondary Mortgage Market

© OnCourse Learning

Mortgage Loan Delivery Systems

© OnCourse Learning

established as an independent entity within the Department of Housing and Urban Development.

purpose is to ensure the capital adequacy and financial soundness of Fannie Mae and Freddie Mac

requires Fannie Mae and Freddie Mac to meet certain affordable housing goals set annually

© OnCourse Learning

OFHEO

FNMAGNMAFHLMCFarmer Mac

SECONDARY LOAN SOURCES

© OnCourse Learning

This process is very streamlined. The regular uniform residential loan application is submitted to the lender and the lender then verifies the applicant’s employment, income, and assets. This information is fed into the computer and is promptly analyzed by the computer program. If the borrower is accepted and if the loan-to-value ratio is greater than 80%, the application is then forwarded to a private mortgage insurer. Those that are not accepted are considered as “refer” or “caution” and sent to the underwriting department.© OnCourse Learning

AUTOMATED UNDERWRITING SYSTEMS

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.

USURY

© OnCourse Learning

Price to BorrowerDue-on-Sale – call clause.Prepayment - penalty for the right to

repay a loan early.

OTHER FINANCING CONDITIONS

© OnCourse Learning

Alienation clause Automated underwriting

system Computerized loan

origination Disintermediation Fannie Mac

Freddie Mac Mortgage broker Mortgage company Participation certificates Primary market Secondary mortgage

market Usury

Key Terms

© OnCourse Learning