© 2012 Cengage Learning. Sources of Financing Chapter 12

© 2012 Cengage Learning


Sources of FinancingChapter 12


In This Chapter

You will identify various mortgage lenders, describe where these lenders get their money, and explain mortgage provisions.


Financing Primary Market – where lenders originate

loans. Secondary Market – provides a way for

lenders to sell a loan.


Primary Loan Sources Savings and loan Associations Commercial Banks Life Insurance Companies Mortgage Companies Mortgage Brokers Computerized Loan Origination Municipal Bonds Other Lenders


SAFE Act

Secure And Fair Enforcement Act established minimum standards for mortgage

training, both pre-licensing and continuing education.


SAFE Act

Requires registration of residential mortgage loan originator employees with a federal banking agency having jurisdiction

Law is broad and can cover seller financing Texas allows some exceptions for owner

financing on up to 5 owner transactions


Mortgage Loan Originators must be

Licensed One cannot work as a Mortgage Loan Originator (MLO) for a Mortgage Broker or Consumer Loan company until they have an active license

Requires pre-licensing education & testing


Requirements for Texas licensed mortgage loan

originators Complete at least 20 hours of pre-licensing education

Pass a qualification exam (includes both a state and national component)

Pass a background check Complete at least eight hours of continuing

education on an annual basis


Requirements for federally chartered mortgage loan

originators Pass a qualification exam (made up of both a state and national component)

Pass a background check Complete at least eight hours of continuing

education on an annual basis More information at

http://texasmortgagelicensing.org/licensing.asp


Texas Loan Programs Texas Veterans Land Fund Veterans’ Housing Assistance Program

(VHAP)

Veterans Home Improvement Program Texas Department of Housing and

Community Affairs


Texas Loan Programs “Bootstrap” Homebuilder Loan Program Home Investment Partnerships Program

(HOME) Housing Finance Corporation Fannie Mae REALTOR® Programs Texas State Affordable Housing Corporation


Secondary MarketPrimary Market

Mortgage Lenders

Borrowers

FinancialIntermediaries

MortgageInvestors

The Secondary Mortgage Market


Mortgage Loan Delivery Systems


Secondary Loan Sources

FNMA - Fannie Mae FHLMC - Freddie Mac FAMC - Farmer Mac GNMA - Ginnie Mae Farmer MAC


OFHEO The Office of Federal Housing Enterprise

Oversight (OFHEO) was charged with ensuring the capital adequacy and financial safety and soundness of two government sponsored enterprises the Federal National Mortgage Association

(Fannie Mae) the Federal Home Loan Mortgage Corporation

(Freddie Mac)


The Housing and Economic Recovery Act of 2008

combined OFHEO and the Federal Housing Finance Board (FHFB) to form the new Federal Housing Finance Agency (FHFA)


Automated Underwriting Systems The computer age has introduced a whole

new system in underwriting procedures as they apply to the relationship between the loan originator and the investor.


AVAILABILITY AND PRICEOF MORTGAGE MONEY Money pipelines between lenders and

borrowers. These sources are savings generated by

individuals and businesses as a result of their spending less than they earn (real savings) and government-created money, called fiat money or “printing press money.”


Usury State legislation that imposes an interest rate

ceiling on loans. U.S. Congress passed legislation that

exempts from state usury limits most first lien home loans made by institutional lenders.


Price to the Borrower The rate of interest the borrower must pay to

obtain a loan is dependent on the cost of money to the lender.


Other Financing Conditions Due-on-Sale – call clause. Prepayment- penalty for the right to repay a

loan early.


DUE-ON-SALE

Lenders can use these clauses to increase the rate of interest on the loan when the property changes hands by threatening to accelerate the balance of the loan unless the new owner accepts a higher rate of interest.


PREPAYMENT Loan contracts sometimes call for a

prepayment penalty in return for giving the borrower the right to repay the loan early.

A typical pre-payment penalty amounts to the equivalent of six months interest on the amount that is being paid early.

prepayment penalties are not allowed on FHA and VA loans.


Key Terms Alienation clause Automated

underwriting system Computerized loan

origination Disintermediation Fannie Mac Federal National

Mortgage Association

Freddie Mac Mortgage broker Mortgage company Participation

certificates Primary market Secondary

mortgage market Usury

Documents

© 2012 Cengage Learning. Sources of Financing Chapter 12