History of Mortgages in the US

Question 1

FHA

Answer 1

Federal Housing Administration: passed after the Great Depression and focused on making more credit available to borrowers, stabilizing home prices, regulating the terms and interest rates of mortgages, and creating standardized underwriting guidelines

Question 2

Underwriting Guidelines

Answer 2

Set of rules that lenders use to determine whether it makes sense to lend money

Question 3

Federal National Mortgage Association

Answer 3

Amendment to the National Housing Act. Was established for two purposes. 1) Provide local banks with federal money to finance residential mortgages in an attempt to raise levels of home ownership. 2) Fannie Mae created a secondary mortgage market which purchased FHA insured mortgages, thus making it possible for banks to make more housing loans, under better terms for borrowers and w/o so heavy a reliance on the use of depositor’s funds.

Question 4

Department of Housing and Urban Development (HUD)

Answer 4

Created in 1965 whose initial purpose was to provide resources for the revitalization of inner cities and to help lower income borrowers become home owners.

Question 5

Government Sponsored Enterprises (GSEs)

Answer 5

Composed of FNMA, FHLMC, and GNMA IOT create a competitive marketplace. FHLMC (Freddie Mac). All of these institutions purpose is to ensure that lenders have access to capital to lend to borrowers

Question 6

Securitization

Answer 6

Process within secondary markets which paved the way for US mortgages to be sold on world financial exchanges in large “pools” of loans, rather than nationally on an individual basis.

Question 7

Depository Institutions Deregulation and Monetary Control Act (DIDMCA)

Answer 7

Enacted in 1980’s and allowed federal banks charge whatever interest rates they want, states be damned…

Question 8

Alternative Mortgage Transactions Parity Act of 1982 (AMPTA)

Answer 8

Fostered adjustable rate mortgages, balloon mortgages and interest only mortgages as an alternative to fixed rate products.

Question 9

Tax Reform Act of 1986

Answer 9

Expanded the home mortgage interest deduction, which allows homeowners to deduct the interest they pay on any loan used to build, purchase or improve their homes.

Question 10

Sub Prime Loans

Answer 10

Lending to borrowers whose financial positions are not good enough to meet guidelines established by the GSEs Known as Predatory Lending Practices..

Question 11

SAFE ACT (Secure and Fair Enforcement for Mortgage Licensing Act) 2008

Answer 11

Response to burst of housing bubble in 2008. The US mortgage industry has undergone fundamental restructuring, beginning with who is allowed to participate as an originator. Standards were developed as part as an effort to ensure participants were qualified, informed, and responsible

Question 12

Loss Mitigation

Answer 12

Help to avoid foreclosures including loan modifications, short sales and other techniques designed to minimize losses for all parties while keeping home values strong.

Question 13

Dodd Frank Wall Street Reform Act and Consumer Protection Act (2010)

Answer 13

1. Rating agencies accountable to investors
2. Created Consumer Financial Protection Bureau
3. Created Mortgage Reform and Anti Predatory Lending Act