Lesson 1 - History of Mortgage Lending

Question 1

Major reasons why people in the 1930s didn’t own homes.

Answer 1

1. Unavailability of loans

2. Publics reluctance to borrow money

Question 2

20th century borrowing

Answer 2

• 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.

Question 3

FHA 1934

Answer 3

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

Question 4

FHA 1934

Answer 4

• Offered loans up to 80% of value
• Makes borrower use a down payment
• This eliminated need for second or third mortgages

Question 5

FHA 1934

Answer 5

• 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!

Question 6

FDIC 1933

Answer 6

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.

Question 7

FNMA 1938

Answer 7

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

Question 8

VA 1944

Answer 8

• 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

Question 9

Fannie Mae’s Reorganization

Answer 9

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.

Question 10

Fannie Mae’s Earnings

Answer 10

Two sources

• Guarantee fees
• The spread between the cost to borrow and the yield on its mortgage investments

Question 11

GNMA / Ginnie Mae

Answer 11

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.

Question 12

GNMA

Answer 12

• 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.

Question 13

What is the biggest benefit of FHA mortgages?

Answer 13

They are self-insured. Conventional mortgages require PMI for higher LTV’s.

Question 14

FHLMC 1971

Answer 14

Fed Home Loan Mort Corp.

• Freddie Mac
• Gave Fannie Mae competition in the secondary market.

Question 15

ARMs 1980’s

Answer 15

• Borrow money with less cost

- Interest rates were below the std fixed rates

Question 16

Wholesale origination

Answer 16

Acquiring mortgages through purchases from the lenders originating the mortgage.

Question 17

These two are fully backed by the fed gov’t

Answer 17

FNMA & FHLMC

Question 18

Dodd-Frank Wall Street Reform and Consumer Protection Act 2010

Answer 18

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.

Question 19

Consumer Financial Protection Bureau

Answer 19

• Created as part of the Dodd-Frank

- Purpose is to help consumers understand the terms of their agreements w/ financial companies

Question 20

Home Owners Loan Corp 1933

Answer 20

HOLC 1933 created to prevent defaults and foreclosures

“Gov’t program”