| A | B |
|---|
| Portfolio Lenders: Depository Institutions | Use savings deposits to fund and hold mortgage loans as investments |
| Thrifts | Formerly backbone of mortgage finance. Extremely localized. Fatal flaw: funded long-term loans with short-term savings |
| Commercial Banks | Portfolio Lenders (Stick it in the vault). Business-related real estate loans, home loans, personal investments. Assumed former roles of savings associations, large-scale construction lending, provide credit lines for mortgage bankers ("Warehouse") |
| Large Credit Unions | Historically: Employee savings and consumer loans, great expansion of clientele, mortgage lending mainly as brokers |
| Mortgage Banker's Role | Creates two financial assets: the loan and the right to service the loan. |
| Mortgage Banker fee for servicing | .25-.44% |
| Fallout Risk | Risk that the loan applicant backs out |
| Interest Rate Risk | Risk that contract rate at closing will be less than current market rate (Must sell for discount) |
| Pipeline Risk | Risk between loan commitment and loan sale |
| Forward Commitment for a Mortgage Banker | A commitment from an investor to buy at a certain price in advance |
| Mortgage Brokers (Lending Tree) Middlemen | Brings borrowers and lenders together for a fee; never owns the loan or services a loan. Widespread borrower abuse recently |
| Mortgage-Backed Securities | Multiple mortgage loans in a single pool or fund. Entitles investor to a share of the cashflows generated from the mortgages. Loans will be relatively homogenous. Nearly 2/3 of all home leans have been securitized recently |
| Fannie Mae (1968) | Spun off from HUD to become a primary purchaser of FHA & VA mortgage loans. Owns about 23% of outstanding home loans |
| Ginnie Mae (1968) | Empowered to guarantee "pass-through" MBS's based on FHA and VA loans. Does not buy mortgages. |
| Freddie Mac (1970) | Formed to purchase and securitize conventional home loans from thrifts. Chartered by congress, deals exclusively in conventional loans |
| Private Conduits | Grew out of the market for non-conforming jumbo loans. Small market share until subprimes emerged and fell. |
| Federal Home Loan Banks | Originally the banking system for thrifts, it is now a banking system for small banks and thrifts that provides loans (advances) to fund home mortgage lending |
| US Gov't Agencies to Support Rural Housing | Farm Credit System, Federal Ag. Mortgage Corp. (Farmer Mac), Rural Housing Services |
| Four ways by which first home loans are created | 1. Traditional Direct (Portfolio) Lending by banks and thrifts 2. GNMA Securities (FHA/VA) 3. GSE Process (Conforming Conventional) 4. Private Process (Nonconforming Conventional) |
| Adv of Portfolio Lender | cost and interest rate advantage |
| Adv of Brokers | service and down payment advantage |
| Adv of depository lenders | Best ARM offers |
| Adv of non-depositories | best fixed-rate offers |
| Underwriting | process of determining whether the risks of a loan are acceptable |
| Three C's of traditional underwriting | 1. Collateral 2. Creditworthiness 3. Capacity |
| Housing expense ratio | PITI/GMI. PITI: principal, interest, taxes, and insurance. GMI: Gross monthly income. "front-end ratio" 28% conv. & 29% FHA |
| Total Debt Ratio | (PITI+LTO)/GMI LTO: long-term obligation PITI: principal, interest, taxes, and insurance. GMI: Gross monthly income. Known as "back-end ratio" 36% Conv. & 43% FHA |
| Collateral underwriting | URAR appraisal yields to "automated valuation" in most cases |
| Creditworthiness & Capacity underwriting | FICO Score: credit displaced score credit report, single statistical score |
