SECONDARY MORTGAGE MARKETS Flashcards
What is the function of the secondary mortgage market?
To provide a place for lenders and investors to buy and sell mortgage loans originated in the primary mortgage market.
What brought about the development of the secondary mortgage market?
The secondary mortgage market came about largely because of various public policy measures and programs aimed at promoting more widespread home ownership.
Identify the two categories of conventional loans and describe the difference between them.
Conforming loans and nonconforming loans. Conforming loans may be sold to government-sponsored enterprises, or GSEs, who then securitize, package, and sell the loans to investors in the secondary market.
- Nonconforming loans are not eligible for purchase by a GSE, but can be sold on the secondary market as whole loans; or pooled, securitized, and sold as privatelabel, mortgage-backed securities.
What are some common examples of nonconforming loans?
Jumbo loans which carry a principal balance amount in excess of the ceiling established by the GSE; mortgages with initial interest rates that are below
market and that later increase; low- or no-documentation loans; graduated payment mortgages; negative amortization loans; reverse annuity mortgages; and no-equity mortgages.
What should credit unions do to ensure their mortgage loans are eligible for sale on the secondary market?
To ensure that loans are eligible for sale to the secondary market, credit unions should apply underwriting and documentation standards that conform to those specified by the GSEs or private-label issuers.
What is a due-on-sale clause?
Gives the credit union the option of calling the loan if the borrower sells or transfers all or part of the interest in the property securing the loan.
What is the purpose of a quality control program?
The quality control program tests a sample of closed loans to verify that underwriting and closing procedures comply with lender policies or practices,
government regulations, and the requirements of investors and private mortgage insurers.
To ensure that the credit union’s mortgage loans meet secondary mortgage market standards, credit unions must comply with NCUA Part 722 on appraisals and are encouraged to use what?
Uniform documentation.
