Chapter 1 - Mortgage Lending Overview Flashcards
Demand Deposits
Money that is immediately accessible and a customer may elect to withdraw from the bank at any time.
Correspondent
A mortgage banker who originates mortgage loans that are sold to other mortgage bankers or financial institutions
Disintermediation
The loss of deposits to competing investments that offer higher returns
Federal Deposit Insurance Corporation (FDIC)
A public corporation, established in 1933, that ensures up to $250,000 for each depositor for most member commercial banks and S&Ls. FDIC has it own reserves and can also borrow from the US Treasury. Insures deposits only. The FDIC is the primary federal regulator of banks that are chartered by the states that do not join the Federal Reserve System. The FDIC insures a depositor’s qualified account(s) up to $250,000. This maximum was made permanent under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Federal Home Loan Mortgage Corporation (Freddie Mac)
Created in 1970 as a nonprofit, federally chartered institution controlled by the Federal Home Loan Bank System. Freddie Mac buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market. Freddie Mac was converted to a privately held stock corporation and is currently under the conservatorship of the Federal Housing Finance Agency. Automated u/w system is Loan Prospector
Federal Housing Finance Agency (FHFA)
Created by the Federal Housing Finance Regulatory Reform Act of 2008. Government agency that merged the powers and regulatory authority of the Federal Housing Finance Board (FHFB) and the Office of Federal Housing Enterprise Oversight (OFHEO), as well as the GSE mission office at the Department of Housing and Urban Development (HUD); the conservator of Fannie Mae and Freddie Mac. Has expanded legal and regulatory authority over the secondary mortgage markets and oversight of the 14 housing-related government sponsored enterprised - including Fannie Mae and Freddie Mac - and oversight of the 12 FHL Banks.
Federal National Mortgage Association (Fannie Mae)
The nation’s largest investor in residential mortgages. Fannie Mae was originally chartered as a GSE by Congress in 1938. In 1968, Fannie Mae was made a private shareholder-owned company. In 2008, it was placed in conservatorship under the Federal Housing Finance Agency. Fannie Mae buys mortgages or interests in pools of mortgages from lenders. Fannie Mae pools loans that generally conform to its standards and converts them into mortgage-backed securities, for which is guarantees timely payment of principal and interest. Automated u/w system is Desktop Underwriter
Government National Mortgage Association (Ginnie Mae)
Created in 1968 as a government-owned corporation, operating under HUD. A primary function of Ginnie Mae is to promote investment by guaranteeing the payment of principal and interest on FHA, VA, Rural Housing Service, or HUD’s Office of Public and Indian Housing federally insured or guaranteed mortgages through its mortgage-backed securities program. Ginnie Mae’s mortgage-backed securities are the only ones that carry the full faith and credit guarantee of the United States government. Ginnie Mae does not purchase mortgages from lenders, nor does it buy, sell or issue securities.
Government-Sponsored Enterprise (GSE)
A group of financial services corporations created by the United States Congress to enhance the flow of credit to targeted sectors of the economy and to make those segments more efficient and transparent. Federal Home Loan Banks, Fannie Mae and Freddie Mac are GSEs.
Mortgage
An instrument that creates a voluntary lien on real property to secure repayment of a debt. The parties to a mortgage are the mortgagor (borrower) and mortgagee (lender).
Mortgage-Back Security (MBS)
Debt obligations that represent claims to the cash flows from pools of mortgage loans. A Fannie Mae security that represents an undivided interest in a group of mortgages. Mortgage loans purchased from the primary mortgage market are assembled into pools by a government/quasi-government entity or a private investor who operates in the secondary mortgage market. Securities are then issued that represent claims on the principal and interest payments made by borrowers on the loans in the pool, a process known as securitization. Principal and interest payments from the individual mortgage loans are grouped and paid out to the MBS holders.
Mortgage Banker
Party who originates, sells, and services mortgage loans, and usually acts as the originator and servicer of loans on behalf of large investors, such as insurance companies, pension plans, or Fannie Mae.
Mortgage Broker
Party who, for a fee, places loans with investors, but typically does not service such loans.
Mortgage Loan Originator (MLO)
As defined by the SAFE Act, an individual who either takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan for compensation or gain.
Primary Mortgage Market
When lenders make mortgage loans directly to borrowers. Also called Primary Market.
Secondary Mortgage Markets
The private investors and government agencies that buy and sell real estate mortgages. Also called Secondary Markets. Private investors can be Wall Street or investment brokers, high-risk investors, insurance companies, or pension plans, for example. An important by-product of secondary mortgage markets is the standardization of loan criteria. Fannie Mae, Ginnie Mae and Freddie Mac are responsible for the vast majority of the secondary mortgage market activity.
