Unit 16 Flashcards
3 Components of Financing Market
- Government Influences
- Primary Mortgage Market
- Secondary Mortgage Market
The Fed
Job is to maintain sound credit conditions
12 reserve districts
When amount of $ available for loans decreases (increases reserves), interest rates go up
When amount of $ available for loans increases (decrease reserves), interest rates go down
Fed can lend to district reserve banks. Discount rate is rate charged when the Fed lends $ to member banks.
Prime Rate
The short term rate charged to the banks largest, most creditworthy customers. Strongly influenced by Feds discount rate.
Discount Rate
Discount rate increases, bank interest rates increase (fewer loans and less $ in circulation)
Discount rate decreases, bank interest rates decrease (more loans and more $ circulating)
Mortgage Loan Originators (MLO)
Anyone who takes a loan by phone or in person.
in IL, must be registered with Nationwide Mortgage Licensing System and do continuing ed
Secondary Market
loans are bought and sold after funding; helps when $ is in short supply
Fannie Mae
Govt Owned. Secondary market for loans. Conventional, FHA, and VA. The buy pool of mortgages and use them as collateral for mortgage-backed securities sold on global market
Ginnie Mae
division of HUD. Pass-thru Certificate is a security interest in a pool of mortgages
Freddie Mac
Similar to Fannie Mae
Straight Loan
interest only/term loan
Amortized Loan
Pays of principle and interest. Also called direct reduction loans. Fully amortized/level-loan payment
FSA
Farm Service Agency - Agricultural loans to help purchase and operate farms FARMER MAC
PMM
Purchase Money Mortgage. Seller Financing
Package Loan
includes real and personal property
Blanket Loans
Covers more than one parcel or lot. For subdivision developments. Partial release clause
Wraparound Loans
Get second loan, they pay first payments. First loan has to approve. Probs not if alienation or due on sale clause
Open End Loans
Less costly than home improvement loan
Construction Loan
payments made as draws during construction
Sale-Leaseback
for large commercial or industrial properties
Buydown
lump sum paid to lower interest rates for first few years of loan
Reg Z - Truth in Lending
Lenders must disclose the true cost of the loan
Growing Equity Mortgage (GEM)
rapid payoff mortgage
Reverse
62 or older can borrow on the equity of their home. FHA has Home Equity Conversion Mortgage
NonRecourse
borrower not personally liable. Most common in commercial and investment
LTV
Loan to Value Ratio. Ratio of debt to value of the property. Value is sales price or appraised value, whichever is less
Conventional Loan
usually 80% because borrower makes 20% down payment. Govt not involved
Credit Scores
important for loan, other than FHA and a few other nonconforming.
Lower score, increased rate and down payment
Higher score, lower rate and possible smaller down payment
Lenders look at 2 years of repayment history
Fed Programs handling of Judgements, Foreclosures and Bankruptcies
Judgements paid and more than 2 years past
Bankruptcies usually 4 years to reestablish credit
Foreclosures usually 3 years prior with circumstances to justify
PMI
Private Mortgage Insurance
Usually terminates at 22% equity and current on payments
FHA Loans
loans insured by agency
higher LTV loans
3.5 down payment Monthly insurance premium fha appraisal maximum limits credit qualifications
Can be assumed by qualified buyer
VA Loans
VA guarantees loans for eligible veterans and their spouses
Little or no down payment
are assumable
