Module 1: Overview Of The Industry Flashcards
What is the concept of equity redemption?
Originally the seller of a property retained ownership until the loan was fully paid. However, this made it difficult to pay off the mortgage resulting in the practice changing so that the purchased took ownership of the property while they were paying off the mortgage.
What is principal risk and where did it originate from?
Principal risk is the risk that individuals will not pay back the principal balance on their mortgage. This resulted from times during the 1920s and 30s when mortgages were setup like bonds. Interest only was paid during the life of the loan and the principal was paid back in full at the end. Because at times a home value would fall below the borrowed amount, borrowers were just walking away from the home.
What is a fully amortized mortgage?
When mortgage payments remain constant and a split of interest and principal is apart of the payment.
Does the federal government play a direct or indirect role in the housing market?
Indirect
When could chartered banks enter the mortgage market?
1954, allowed through the bank act
When did the partially amortized mortgage come into play?
1970s
When were mortgage backed securities introduced?
1986
What happened in 1992?
Home buyers plan introduced. Can draw up to $25,000 from RRSP tax free for purchase of first home. Must be paid back over 15 years.
At what LTV is mortgage insurance required for?
Over 80% LTV
What is the max TDS and GDS for credit scores above 680?
GDS 39% and TDS 44%; however when using CMHC its GDS 35% and TDS 42%
What is the partially ammortized mortgage?
Similar to fuly ammortized mortgage however, there are numerous terms involved over the life of the mortgage at which rates are re-negotiated.
What % of the mortgage market do the big 6 banks make up?
67%
What % of the mortgage market do ‘other banks’ make up?
5%
What % of the mortgage market do credit unions make up?
14%
Define a mortgage
The mortgage is not the loan! The mortgage is the security of land the borrower gives to the mortgage lender to obtain the loan.
True or False, CMHC backs Mortgage Backed Securities (MBSs)
True
Outline some of the differences between the Canadian and American Mortgage Markets:
-Most Canadian MBSs are backed by CMHC, meaning that those investing in MBSs you have a guarantee by a Canadian government program will be backing the potential default of these mortgages.
-Default insurers will refuse to insure high risk borrowers, thus you know the pool of mortgages within the MBSs are fairly safe.
Define the different types of mortgage lenders:
-Prime Lender: Considered ‘A’ deals, borrower would qualify at most major financial institutions, good quality property, reasonable loan.
-Alternative Lending: Called ‘B’ and ‘C’ deals, borrowers ability to repay is less certain, mortgage amount relative to property value may be too high.
-Private Mortgages: Mortgage loans made by wealthy, private individuals, often to borrowers who have bad credit and cannot get a mortgage from a traditional lending institution.
What is the difference between Mortgage Backed Securities ad Canada Mortgage Backed Bonds?
Canada Mortgage Bonds reduce the risk of Cash Flow uncertainty for investors, compared to Mortgage Backed Securities. (Mortgages under CMB’s cant be prepaid whereas mortgages under MBSs can).
Define a mortgage originator:
Any mortgage professional engaged in the acceptance, completion and/or submission of mortgage loan applications to an underwriting lender.
What is a Mortgage Representative?
Mortgage represenatives (also referred to as ‘mortgage specialists’ or ‘mobile mortgage advisors’) work for financial institutions, many on a comission or a bonus basis. They develop new business leads from their contracts within the community.
-Governed federally under the OSFI, not required to hold a provincial licence/registration under the MRA
What is a mortgage lender referred to as?
The Mortgagee
What is a mortgage borrower referred to as?
The Mortgagor
What is Title Insurance?
Title insurance compensates the insured for losses resulting from the title, the legal evidence that shows the rightful owner of land, not being as stated in the policy.
What are the three categories of mortgage originators:
-Mortgage Brokers
-Associate Mortgage Brokers
-Lender-employed mortgage representatives (those working at the bank)
