Lesson 1 - History of Mortgage Lending Flashcards
Major reasons why people in the 1930s didn’t own homes.
- Unavailability of loans
2. Publics reluctance to borrow money
20th century borrowing
- Emphasis on farm lending (Midwest & West)
- Avg home $4,000
- Commodity prices were down so farm values were down and the agriculture sector needed credit.
FHA 1934
Federal Housing Administration 1934:
- Created to help produce mortgage financing
- Encourage wider home ownership
- Improve housing standards
- Create a better method of financing mortgage loans
FHA 1934
- Offered loans up to 80% of value
- Makes borrower use a down payment
- This eliminated need for second or third mortgages
FHA 1934
- 80%, 90% and 95% loans
- 15 and 30 year loan terms
- Current qualifying standards
- Higher housing standards (so collateral is worth something)
- Mortgage insurance
- Escrow accounts
DESIGNED TO PERMANENTLY CHANGE MTG. LENDING PRACTICES!
FDIC 1933
Fed Deposit Insurance Corp
- Now that the fed gov’t insured banks and consumer deposit safety, the banks were able to lend money for longer terms.
FNMA 1938
Fed Nat’l Mtg Assn
- 1938
- Purchased FHA loans from mortgage lenders in order to free up FHA capital.
- allowed lenders to use their additional revenue from servicing the loans for FNMA.
- Backed by US gov’t
- Provided liquidity to mtg companies to make more loans
- Provided mtg companies additional income
- Purchased FHA mtgs
VA 1944
- allowed veterans to obtain low interest, high LTV loans
- some allowed w/ no down payment
- originally available for 2 years after service but then changed to 10 years in 1946
Fannie Mae’s Reorganization
1954 The most important part of this reorganization was that Fannie Mae was originally privatized - the owners were the mortgage companies that sold their loans to Fannie Mae. This allowed Fannie Mae to resume making advance purchase commitments to originators.
Fannie Mae’s Earnings
Two sources
- Guarantee fees
- The spread between the cost to borrow and the yield on its mortgage investments
GNMA / Ginnie Mae
Government National Mtg Assn
- 1968 congress converted Fannie Mae into a quasi-private corp, no longer subject to Federal budget constraints.
- Takes over Fannie Mae’s functions of supporting federal housing initiatives.
GNMA
- Mission was to support the gov’t housing objectives by assisting the segment of the housing market for which conventional financing was not readily available.
- Wholly owned gov’t corp.
What is the biggest benefit of FHA mortgages?
They are self-insured. Conventional mortgages require PMI for higher LTV’s.
FHLMC 1971
Fed Home Loan Mort Corp.
- Freddie Mac
- Gave Fannie Mae competition in the secondary market.
ARMs 1980’s
- Borrow money with less cost
- Interest rates were below the std fixed rates
Wholesale origination
Acquiring mortgages through purchases from the lenders originating the mortgage.
These two are fully backed by the fed gov’t
FNMA & FHLMC
Dodd-Frank Wall Street Reform and Consumer Protection Act 2010
Signed in response to 2008 mtg and financial crisis.
- Designed to create stable economic conditions in order to grow jobs, protect consumers, end bailouts and too big to fail, regulate Wall Street and prevent further crisis.
Consumer Financial Protection Bureau
- Created as part of the Dodd-Frank
- Purpose is to help consumers understand the terms of their agreements w/ financial companies
Home Owners Loan Corp 1933
HOLC 1933 created to prevent defaults and foreclosures
“Gov’t program”
