Financing

Question 1

the primary mortgage market

Answer 1

In the primary mortgage market lenders originate mortgage loans by lending funds directly to borrowers. Mortgage loans may be provided by institutional or noninstitutional lenders.

Question 2

Warehousing

Answer 2

involves assembling loans and pledging them with a commercial bank to serve as security for a line of credit.

Question 3

pension funds

Answer 3

Although pension funds invest most heavily in government and corporate securities, many will acquire large blocks of mortgages in the secondary market and originate loans through mortgage bankers and mortgage brokers.

Question 4

Credit unions

Answer 4

specialize in short-term consumer loans but also may provide funds for long-term financing of real estate, equity loans, and home improvement loans to their members.

Question 5

Finance companies

Answer 5

specialize in consumer loans but also may make real estate loans, which are usually second mortgage loans for residential property. Larger finance companies will make loans to finance land development.

Question 6

Real estate investment trusts (REITs)

Answer 6

will invest in construction and land development loans for multi-family or commercial properties.

Question 7

the Farm Credit Bank

Answer 7

In rural areas, the Farm Credit Bank will make loans to farmers and ranchers for the purpose of buying and maintaining homes or land to be used for farming.

Question 8

Discount points

Answer 8

are prepaid interest charges, or interest rate equalization factors, used to increase the yield to the lender.

Question 9

secondary mortgage market i

Answer 9

The secondary mortgage market is the market in which existing loans are bought, sold, or borrowed against.

Question 10

conforming loans

Answer 10

Loans meeting Fannie Mae and Freddie Mac standards are called conforming loans (loans not meeting those standards are called nonconforming loans)

Question 11

jumbo loans

Answer 11

Loans for an amount in excess of the maximum Fannie Mae and Freddie Mac loan amount are called jumbo loans.

Question 12

Ginnie Mae

Answer 12

is a government corporation within the U.S. Department of Housing and Urban Development (HUD). It has three major activities:

1. manage and liquidate a portfolio of federally owned mortgages
2. provide special assistance functions, such as financing support for urban renewal projects, housing for the elderly, below-market mortgage risks and experimental housing projects, for which financing is not readily available
3. guarantee pass-through securities privately issued by approved financial intermediaries (These securities are backed by pools of FHA, VA, or RHS mortgages.)

Question 13

Freddie Mac

Answer 13

Today, Freddie Mac is authorized to buy mortgages from all types of lenders. It purchases mostly conventional mortgages but also will purchase FHA and VA loans.

Question 14

Conventional loans

Answer 14

are loans made by private parties and nongovernment lending institutions without any government insurance or government guarantee against loss for the lender.

Question 15

An FHA loan

Answer 15

is a loan in which the lender is insured by the FHA against loss in the event of foreclosure. The FHA does not serve as a lender and is not the mortgagee. Instead, private lenders, approved by the FHA, are the mortgagees. If the lender agrees to give a loan meeting the requirements set forth by FHA, FHA will insure the loan.

Question 16

A VA loan

Answer 16

is a loan in which the lender is guaranteed against loss by the VA in the event of foreclosure.

Question 17

Title I loans

Answer 17

include loans to finance repairs, improvements, or alterations of existing residences.

Question 18

Title II loans

Answer 18

are those loans used to buy or build housing, including single-family, condominium, cooperative, and multifamily housing.

Question 19

the 203(b) program

Answer 19

This program helps finance the purchase of a one- to four-family home that the borrower will occupy as his residence, using a 15- or 30-year loan and a small down payment (3.5%). Most loans have a 30-year term even though the total interest paid will be higher, because the monthly payments will be lower.