Unit 1: Scope of Mortgage Loan Brokerage

California Community College

Mortgage Loan Brokering and Lending

Copyright © 2003

  The purpose of this unit is to acquaint the learner with the development of finance and describe how the industry has

evolved into current banking and lending practices for use in our society. The licensing and legal requirements are

outlined in addition to the introduction of professional mortgage organizations.

PREVIEW

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1. To describe general information about the mortgage loan business, including how the mortgage loan broker helps:

2. To acquaint the learner with the history of financing.

3. To describe the evolution of banking and lending practices.

4. To better understand the importance of financing to the field of real estate to the principal, or borrower.

5. To discuss the basic exemptions to California license requirements for lenders.

6. To bring out various organizations involved with mortgage loan brokerage.

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Section I: The MLB Business

The Mortgage Loan Broker helps: Buyers obtain financing to purchase property Owners to obtain funds from refinance Connect borrowers with available lenders Provide lenders with a completed loan

packageReal estate has many loan typesCommon terms include: Originator: Creates the loan Principal: Borrower Principal: Unpaid loan balance

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HISTORY OF FINANCEDevelopment of Financial InstitutionsPre 1600’s 1863

Things of value

hidden in home Deposited

in King’s treasury

Deposited with goldsmiths,

bullion dealers

Moneyholders invest funds

Development of checks, increase

in volume

English system imported to

America

National Bank Act passed

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Chronology of U. S. Banking System

1910’s Federal Reserve System ActSavings and Loan AssociationCalifornia Real Estate License (DRE)

1930’s Federal Home Loan Bank Act (FHLB)National Housing ActFederal Housing Administration created (FHA)Federal National Mortgage Association (FNMA)

Regulated Banking System reshaped finance:Land used as collateralAppraisal requirementsMinimum housing standards compliance Secondary money market developedGovernment involvement with requirements for ownership

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Chronology of U. S. Banking System

1940’s Serviceman’s Readjustment ActVeterans Administration changed name to Department of Veterans Affairs (DVA)

1960’s Housing and Urban Development Act (HUD)Fair Housing Act Fair Credit Reporting Act National Environmental Policy ActInterstate Land Sales Full Disclosure ActGovernment National Mortgage Association (GNMA)Consumer Credit Protection Act (Truth in Lending - Regulation Z)

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Chronology of U. S. Banking System

1970’s Emergency Home Finance ActFlood Disaster Protection ActReal Estate Settlement Procedures Act (RESPA)Equal Credit Opportunity Act (ECOA)Home Mortgage Disclosure ActFair Lending Practices ActCommunity Reinvestment Act (CRA)Housing and Community Development Amendments

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Chronology of Lending Regulations (cont)

1980’s Depository Institutions Deregulation and Monetary Control Act (DIDMCA):Overrides state usurySimplified Truth-in-lendingRemoved geographic restrictionsOmnibus Reconciliation ActGarn-St. Germain Depository Institutions ActDeficit Reduction ActCompetitive Equality Banking ActFinancial Institutions Reform, Recovery and Enforcement Act (FIRREA):Created Office of Thrift Supervision (OTS)Required mortgage insuranceEstablished appraisal licensing laws

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Restructure since 1990’sIncrease in consumer debtDecrease in home ownershipIncreased loan specializationBetter access to information on loans

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LOAN ORIGINATORSDRE

BrokerLoan

Origination

MORTGAGE BROKER

Loan Processing

Package sent for Lender Approval

and Funding

MORTGAGE BANKER

Sources of FundsBankTheir Own FundsInvestor (FNMA, Corp)

LoanOrigination

LoanProcessing

Loan ApprovalTheir Own Lender

MI Investor

ClosingFunding

WarehouseLine

ServicingInsuring

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LOAN ORIGINATORS (cont)Bank or Savings & Loan

Depositors(Interest Income)Bank Income

LoanOrigination

LoanApproval

ClosingFunding Dept

ServicingDept.

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TYPES OF LENDERS

Savings & Loans Commercial Banks

Mortgage CompaniesMutual Savings Banks

Insurance Companies

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Evolution of BankingEarly real estate loans made by family membersFHA – Federal Housing AdministrationFNMA – Federal National Mortgage AssociationVA – Veteran’s AdministrationGNMA – Government National Mortgage AssociationFHLMC - Federal Home Loan Mortgage Corporation

Set guidelines and establish standards for lending practices.

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Importance of Real Estate FinanceFoundation of wealth accumulationAllows average person to buy a residenceOriginate in the primary marketSold in the secondary money marketInvestors purchase notes on the loansMoves capital geographically in the market

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CALIFORNIA REQUIREMENTS

First state to establish licensing laws: Department of Real Estate (DRE)

Mortgage loan brokers need a state licenseMortgage loan bankers need a licenseDirect employees of financial institutional lenders are not required to have a license

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Professional Organizations

CAMB - California Association of Mortgage BrokersNAMB - National Association of Mortgage BrokersMBAA - Mortgage Bankers Association of AmericaNAPMW- National Association of Professional Mortgage Women

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STUDENT EXERCISES UNIT 1:  Solve the following problems:  1 .      Describe the changes in lending practices from early borrowing to current institutional practices.  Answer: 1.      Early home buyers could not obtain institutional financing and had to rely on their own savings or private, often family member, loans 2.      Government regulation in lending practices prevailed after the 1930’s economic depression 3.      The 1980’s deregulation brought about changes in loan criteria, appraisal standards and practices and mortgage insurance requirements 

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STUDENT EXERCISES UNIT 1:  2.     Why has the business of the mortgage loan broker increased when borrowers have more access to direct institutional lenders and general loan information?   Answer: 1.   Many borrowers do not qualify according to primary lender standards

2.   A mortgage loan broker can submit a borrower’s loan package to more than one lender to obtain various loan types that may be more beneficial to a prospective borrower than the loans available through one institutional lender

3.  Institutional lenders, as they combine and merge, offer fewer choices for consumers whereas mortgage loan brokers offer both primary “A” borrower loans and many “B” and other non- conforming loans 

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STUDENT EXERCISES UNIT 1:

 

3.      List the benefits of being associated with a professional mortgage loan brokerage association for the working professional in the industry.   Answer: 1.      Affiliation with other professionals to handle their loans

2.      Access to other professionals to refer loans that you are not able to make

3.      Lobbying efforts for the industry4.      Education within the field by professional speakers

on new information 

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STUDENT REVIEW QUIZ UNIT 1 

1. The organization that offers mortgage loan brokers education and designations is known as:

a.       National Association of Real Estate Sales Associates

b.      National Mortgage and Trust Deed Underwriters of America

c.       California Association of Mortgage Brokersd.      California Association of Realtors and Mortgage

Bankers 2. Which mortgage loan broker is not required to hold a DRE license?

a.       Agent, acting for more than one principalb.      Agent, acting for only two principalsc.       Employee of the institutional lenderd.      Salesperson handling real estate loans under a

Broker

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3. The note for the real estate loan is:a.   usually sold in the secondary money marketb.   funded by the secondary money marketc.   subject to approval by the trusteed.  contains various discounts and premiums, and shows the

investor’s yield 4. Which of the following is not an institutional lender?

a.     credit unionb.     commercial bankc.     savings and loand.     insurance company

 5. The Federal Home Loan Mortgage Corporation is referred to as:

a.     Fannie Maeb.     Freddie Mac c.     Ginnie Maed.     Grannie Mac

STUDENT REVIEW QUIZ UNIT 1

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6.   Which of the following is not true regarding the mortgage loan

broker:a.    helps the borrower select the best financing of the options availableb.     helps the real estate agents pre-qualify prospective

purchasersc.        connects lenders who have funds to lend with borrowers

d.    facilitates connecting the trustee with the mortgage loan bankers 

7. The banking industry had the most reform and changes during which period:a.       1600’s to 1863b.      1850’s to 1900c.       Early 1900’s until late 1920’sd.      From 1930 to 2000

 

STUDENT REVIEW QUIZ UNIT 1

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8.   Which of the following is not a type of real estate loan:a.       conventional and government backedb.      primary and secondary money marketc.       senior and junior liensd.      original and refinance

9. Government regulates which except which of the following real estate loan matters

a.       jumbo loanb.      fair housingc.       credit reportingd.      disaster issues with loan requirements

10. Real estate loans to purchase a home was originally:a.       loans predominately made by family membersb.      originated in the secondary money marketc.       discounted to equal investor desired yieldsd..      established to set standards for lending practices set

to the majority

STUDENT REVIEW QUIZ UNIT 1

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ANSWERS TO STUDENT REVIEW QUIZ UNIT 11. C2. C3. A

4. A 5. B 6. D 7. D 8. B 9. A

10. A

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INSTRUCTOR POST TEST UNIT 1 

1. T F Lending practices began only after the colonization of the United States.

  2. T F The lending industry is heavily regulated by many state

and federal laws. 

3. T F Mortgage bankers and brokers have a stable share of the real estate loan market.

  4. T F A loan from an institutional lender is considered a

function of the primary market. 

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5. T F A third party originator to a loan is most often the principal.

  6. T F The mortgage loan brokers primary job is to bring the buyer

and seller together  7. T F A mortgage loan broker brings a borrower and lender

together in exchange for a fee.   8. T F A mortgage loan broker may only use his or her own

funds to make the loan.  9. T F An originator uses only funds from other sources, such as

secondary market. 

10. T F Using a mortgage loan broker gives the buyer less loan choices and higher fees.

 

INSTRUCTOR POST TEST UNIT 1

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ANSWERS TO THE INSTRUCTOR POST TEST UNIT 1 

 1.      F2.     T3.      F4.     T 5.      F 6.      F 7.     T 8. F 9.     F 10.  F