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MLO - CHAPTER 1
The Residential Mortgage Market
| Question | Answer |
|---|---|
| Depository banks are also known as | commercial banks - Wells Fargo, Regions |
| Depository banks receive 2 types of deposits -- | demand deposits (checking accounts) or time deposits (savings accounts and certs of deposit) |
| While the majority of loans are sold in the secondary market, many of them are retained as _________ | portfolio loans |
| portfolio loans are | loans that are kept |
| Banks used to primarily provide loan products for shorter-term loans than residential mortgages. 2 examples of short term loan -- | Construction loan -- has to be replaced with a real one, lasts for a year or less Home Equity Line of Credit -- relatively short term and high rate of interest |
| Savings and Loans lent from _______ | their own money |
| Why are real estate loans beneficial to life insurance companies? | due to the long term nature of financial obligations |
| How are credit unions different from banks? | they return surplus income to their members in the form of dividends |
| credit unions are _______ owned | member |
| Who regulates federally insured credit unions? | National Credit Union Administration (NCUA) |
| What was created by Congress to ensure member's deposits in federally insured credit unions? | National Credit Union Share Insurance Fund created in 1970 |
| Where does non-depository mortgage company money come from? | sale of bonds |
| What is the major difference between depository and non-depository? | non-depository mortgage companies rely on commercial banks that grant them "warehouse" lines of credit these are short-term and normally repaid through the sale of these notes to the secondary market |
| The Secondary Market is | where loans get funded and sold, they do not lend money they purchase mortgage notes as investments to earn a return |
| The return that Secondary Markets earn is called ______ and represents _____________ | yield, the money earned on an investment |
| Who plays a vital role in financing mortgages and increasing homeownership opportunities in the US | Federal National Mortgage Association |
| Who is the largest investor in home mortgages today? | Fannie Mae |
| What 2 housing objectives does Fannie Mae help accomplish? | - Addresses the imbalances of mortgage credit among regions of the US - Standardizes mortgage loans, attracting investors who traditionally have not invested in the primary market |
| How does Fannie Mae address imbalance of mortgage credit in the US? | by making funds available to capital-deficient areas of the country |
| What is Fannie Mae's major source of income? 2 lines of business | 1. Mortgage portfolio investments 2. Guaranty fees from its mortgage-backed securities (MBS) |
| When was the Federal Home Loan Mortgage Corporation (FHLMC) founded? | 1970 when savings and loans were struggling (disco freddie) |
| When was Fannie Mae created? | in the 1930s during the great depression (depressed Fannie) |
| Both Fannie and Freddie are known as ___________ loans | conforming they both conform to their standards |
| Freddie Mac was designed to accommodate | savings association needs |
| How does Freddie Mac raise money for the purchasing of loans? | selling its own securities, rather than borrowing money through the sale of an issue of bonds |
| Freddie Mac has an ________ guarantee, not a government guarantee | agency there is no legal obligation on the part of the government to back the PCs issued by Freddie Mac |
| What are PCs? | Participation Certificates |
| When was the Government National Mortgage Association (GNMA) established? | 1968 Forrest Gump and Ginny dated in the 60s |
| Who wholly owns GNMA? | the government |
| What loans is GNMA in charge of? | FHA, VA and USDA |
| What does the Ginnie Mae guarantee allow? | lenders to obtain a better price for their loans in the capital markets |
| What is Ginnie Mae most widely known for? | the tandem plan |
| What is the tandem plan? | cooperates with Fannie Mae to GUARANTEE investor the timely payment of principal and interest on securities for low-yield, high-risk loans This aids in stimulating housing sales and production for price ranges that are typically lower |
| The Ginnie Mae model significantly limits the | investors' exposure to risk associated with secondary market transactions |
| Ginnie Mae does NOT | issue, sell, or buy loans |
| What placed Fannie Mae and Freddie Mac in savings institutions? And when? | Federal Housing Finance Agency (FHFA) 2008 |
| Why were Fannie and Freddie placed in savings institutions (consevatorship)? | because a default could have caused severe disruptions in global financial markets, made home mortgage more difficult and expensive, and had negative repercussions in the economy |
| How much did FHFA lend to Fannie and Freddie? | 187.5 billion in taxpayer funds |
| FHFA serves as the ______ to Fannie and Freddie | conservator placed in conservatorship |
| As conservator of Fannie and Freddie, FHFA has taken over | the assets and assumed all powers of the shareholders, directors, and officers |
| What are conventional loans? | those not guaranteed by the government |
| What are the 2 categories of conventional loans? | conforming and non-conforming |
| Mortgage loans that conform to financing limits set by the FHA and meeting UW guidelines set by Fannie and Freddie are _________ conventional | Conforming conventional |
| Mortgage loans that do NOT conform to Fannie and/or Freddie guidelines or the government | Non-conforming conventional |
| What are some examples of non-conforming loans? | - Jumbo Loans - Loans that are intended for poor credit - Loans that allow for minimal documentation of income - Loans that allow payment of only interest or allow balance to increase - Loans for tricky finances, such as self employed |
| Why are mortgage rates for non-conforming loans usually higher? | Because they are less liquid in the secondary market and carry greater risk for a lender |
| All conforming loans are __________, but not all _______________ are conforming | conventional, conventional |
| FHFA uses an _______________ increase/decrease in average housing prices to adjust the conforming loan limits | October to October percentage |
| How many units can you go up to with conforming? | 4 5 units is considered commercial, non-conforming |
| Mortgage loan originators can be broken down into what 3 categories? | - Mortgage Bankers - Mortgage Brokers - Correspondent lenders |
| Examples of mortgage bankers | - Depository commercial bankers - NON DEPOSITORY mortgage companies - Credit Unions - Private Investors |
| What is a mortgage banker? | person, corporation, or firm not otherwise in banking and finance that provides its own funds for mortgage financing as opposed to savings and loan association or commercial banks that use other people’s money (depositors) to originate mortgage loans |
| Mortgage bankers generally borrow money from commercial bankers on a _________________ | warehouse line of credit |
| What are mortgage brokers? | independent contractors who offer the loan products of multiple lenders called wholesalers |
| What are wholesale lenders? | banks or other institutions that do not deal directly with consumers, but offer their loans through third parties such as mortgage brokers |
| Mortgage brokers do not _____ themselves | lend |
| What is a correspondent lender? | originate and fund loans in their name, then sell them off to larger lenders who service or sell hybrid between banker and broker |
| Correspondent lenders ______________ upon close | sell the loan rarely keeping it as a portfolio |
| What does a Residential Mortgage Loan Originator(RMLO) do? | market the services and products of their lending institution and and contract people or companies to solicit new business |
| What are the 6 mortgage lending activities? | 1. Origination 2. Processing 3. Underwriting 4. Close 5. Funding 6. Servicing |
| The detailed process of evaluating a borrower's loan application to determine the risk involved for the lender | Underwriting |
| What takes place in Processing? | the gathering of required information for the loan approval obtaining credit report, appraisal, verification of employment, assets, etc |
| The consummation of a contractual real estate transaction in which all appropriate docs are signed and the proceeds are dispersed is called ____ | close |
| CLOSING = | CONSUMMATION |
| The administration aspect of a loan from the time the proceeds are dispersed until the loan is paid off | servicing |
| A market for the purchase and sale of existing mortgage designed to provide greater liquidity for selling mortgages is called ____________ | the Secondary Market |
| The Federal agency established to restore Fannie and Freddie to a sound and solvent financial condition is ________ | Federal Housing Finance Agency (FHFA) |
| The _______ guarantee allows mortgage lenders to obtain a better price for their loans on the capital markets | Government National Mortgage Association's (GNMA) |
| A federally charted corporation established as the Federal Home Loan Mortgage Corporation (FHLMC) in 1970 for the purpose of purchasing mortgages in the secondary market is also known as _____ | Freddie Mac |
| The line of credit used by a mortgage lender to close and fund a loan before selling it to the secondary market is called a | Warehouse Line |
| Today the __________ specializes as the intermediary between the borrower and the lender | Mortgage Broker |
| A __________ is a mortgage that is not guaranteed or insured by any government agency | Conventional Loan |
| A ____________ seeks to originate numerous loan transactions and then sell these mortgages to large investors | Mortgage banker |
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