Financing Sources - Primary Market Flashcards
Who is the activity between in a Primary Mortgage Market?
What is the institution that lends money deposited by others called?
The activity between the borrower and lender.
A Financial Intermediary
What are the 4 major types of Financial Intermediaries?
1) Commercial Banks
2) Savings and Loan Associations
3) Insurance Companies
4) Mutual Savings Banks
Commercial Banks have the _____ total cash resources involved in real estate financing.
greatest
National (federally chartered) Commercial Banks are members of the _____ and _____, insuring each account up to $_____. The word “National” appears in their name, or “___” after the name.
Federal Reserve System
Federal Deposit Insurance Corporation (FDIC)
$250k
“N.A.”
State chartered Commercial Banks are regulated by various ____ ____ and membership in ____ and ____ is ____.
Various state agencies
Membership in FRS and FDIC is optional
Commercial Banks deal mainly with what type of financing?
How often do you see Commercial Banks doing home mortgage loans and why? Where is the exception?
Short-term financing (particularly construction and warehousing of loans)
Rarely because of the lack of liquidity (cannot be sold quickly for cash). In small towns and rural areas, however, commercial banks are the primary source of money for all types of loans.
Are Savings and Loan Associations federal or state chartered?
These are ___ in nature and focused largely on ___ loans.
Either
Local in nature and focused largely on real estate loans.
(these used to be the primary source of home financing but were hit hard in the late 1980s due to too many bad loans)
How are Federal Savings and Loan Association individual deposits insured?
Are state chartered Savings and Loan Association individual deposits insured the same way?
By the Savings Association Insurance Fund (SAIF).
State chartered Savings and Loan Associations may optionally join SAIF and most do.
Insurance Companies:
Most lending is typically done through ___ ___ (name 2 types), rather than dealing ___ with borrowers.
Insurance Companies deal mostly in ___-___ projects (e.g., office buildings, shopping malls, etc.).
Since their primary business is insurance and they must be able to pay insurance claims, they are interested in the highest possible yield on the funds ___ and ___.
Most lending is typically done through Loan Correspondents (Mortgage Brokers or Mortgage Bankers), rather than dealing directly with borrowers.
Insurance Companies deal mostly in large-scale projects
They are interested in the highest possible yield on their funds liquidity and safety.
Mutual Savings Banks are located primarily in _____ states.
Mutual Savings Banks are the oldest American institutions concerned primarily with ___.
Similar to Savings and Loan Associations, Mutual Savings Banks are owned by their ___ and focus on ___ financing.
Most are ___ insured.
Mutual Savings Banks are located primarily in Northeastern states.
Mutual Savings Banks concerned primarily with savings.
Mutual Savings Banks are owned by their depositors and focus on home financing.
Most are FDIC insured.
6 other types of funds for the Primary Market (PCIRIL)
1) Pension Funds
2) Credit Unions
3) Individual (Unintentional) Investors
4) REIT’s Real Estate Investment Trusts
5) Industrial Banks
6) Limited Partnerships
What Act governs Pension Funds?
ERISA (Employee Retirement Security Act) of 1974
Who regulates Credit Unions?
What are Credit Unions known for in terms of the types of loans they make? ___-cost and without a lot of ___ ___.
State Banking Commissioners regulate Credit Unions.
They are known for making low-cost loans without a lot of junk charges.
Who regulates Individual/Unintentional Investors?
Individual/Unintentional Investors are a huge source of ___ mortgages, providing as much as 1/3 of all loans less than $20k.
Why are they Unintentional?
They are not regulated.
They are a huge source of secondary mortgages
They are Unintentional because they are sellers who never intended to be in the loan business but were forced to in order to sell their homes.
REIT’s (Real Estate Investment Trusts) usually invest in large ____ projects.
They are owned by their ___ and enjoy generous federal ___ ___ advantages
They usually invest in large commercial projects.
They are owned by their investors and enjoy generous federal income tax advantages.
Industrial Banks do the bulk of their business in what 3 areas?
They charge ___ interest rates and pay ___ on deposits.
1) Construction loans
2) Second mortgages
3) loans on vacant land
They charge higher interest rates and pay higher on deposits
Limited Partnerships are often formed to make significant investments beyond the reach of any ___ ___.
They are usually ___, so they share in the appreciation, and are not liable for losses of the partnership beyond their initial investment.
Profits are taxed to the ___ as Partnerships are not taxes as entities.
Beyond the reach of any individual investor.
They are usually passive.
Profits are taxed to the individuals.
