© 2011 Cengage Learning Chapter 1: Scope of Mortgage Loan Brokerage By Dr. D. Grogan M.C. “Buzz” Chambers

© 2011 Cengage Learning PREVIEW 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.

© 2011 Cengage Learning Contents PART 1 SCOPE OF THE BUSINESS Ch 1: Scope of the Loan Brokerage 1.1 Overview of the Book 1.2 Historic perspective  In the beginning  Early progress  Unstable market  Today 1.3 Basic information  Hard money versus seller carry-back money  Careers in mortgage loan brokering  Loan originators 1.4 Licenses and Professional organizations  Legal and licensing requirements  Professional organizations

© 2011 Cengage Learning Student Learning Outcomes for Chapter 1: 1. Understand the structure of the book. 2. Describe the history of real estate lending in the United States. 3. Explain current and future trends in lending 4. Learn about career opportunities in the mortgage loan brokering and lending field. 5. Differentiate between a mortgage broker and a mortgage banker. 6. Identify various organizations involved with mortgage loan brokerage.

© 2011 Cengage Learning 1.1 Overview of the Book Part 1: 1. Scope of loan brokerage 2. Sources of business Part 2: Loans 3. Conventional 4. Government 5. Finance & other disclosures Part 3:Processing 6. Pre-Qualification & Loan Application 7. Credit and disclosures 8. Verifications & Stacking Order 9. Escrow Settlement, Title & Appraisal 10. Underwriting & Quality Control 11. Docs, Funding & Closing

© 2011 Cengage Learning 1.1 Overview of the Book Part 4:Secondary Money Market 12. Shipping and Servicing Part 5: Regulations and Operations 13. Business Operational Practices & DOC 14. California DRE License Activity for Loan Agents 15. Math and Trust Funds for the Loan Agent APPENDIX A. Loan Application B. Credit Report C. Verifications D. Escrow Instructions E. Appraisal F. Title Report G. Loan Documents H. Employment forms I. Wholesale Brokerage Agreements J. Internet Web Sites K. Glossary

© 2011 Cengage Learning 1.2 Historic Perspective 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 package Real estate has many loan types Common terms include:  Originator: Helps obtain the loan  Principal: Borrower  Principal: Unpaid loan balance  Lender: Creates the loan by giving funds

© 2011 Cengage Learning HISTORY OF FINANCE Development of Financial Institutions Pre 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

© 2011 Cengage Learning Chronology of U. S. Banking System 1910 Federal Reserve System Act Savings and Loan Association California Real Estate License (DRE) 1930’s Federal Home Loan Bank Act (FHLB) National Housing Act Federal Housing Administration created (FHA) Federal National Mortgage Association (FNMA) 1940’s Serviceman’s Readjustment Act Veterans Administration changed name to Department of Veterans Affairs (DVA)

© 2011 Cengage Learning Evolution of Banking Early real estate loans made by family members FHA – Federal Housing Administration FNMA – Federal National Mortgage Association VA – Veteran’s Administration GNMA – Government National Mortgage Association FHLMC - Federal Home Loan Mortgage Corporation Set guidelines and establish standards for lending practices.

© 2011 Cengage Learning Modern Real Estate Finance Regulated Banking System reshaped finance:  Land used as collateral  Appraisal requirements  Minimum housing standards compliance  Secondary money market developed  Government involvement with requirements for ownership

© 2011 Cengage Learning Chronology of U. S. Banking System 1950’s Federal Deposit Insurance Act (FDIC) Bank Holding Company Act 1960’s Housing and Urban Development Act (HUD) Fair Housing Act Fair Credit Reporting Act National Environmental Policy Act Interstate Land Sales Full Disclosure Act Government National Mortgage Association (GNMA) Consumer Credit Protection Act (Truth in Lending - Regulation Z)

© 2011 Cengage Learning Chronology of U. S. Banking System 1970’sEmergency Home Finance Act Flood Disaster Protection Act Real Estate Settlement Procedures Act (RESPA) Equal Credit Opportunity Act (ECOA) Home Mortgage Disclosure Act Fair Lending Practices Act Community Reinvestment Act (CRA) Housing and Community Development Amendments

© 2011 Cengage Learning Chronology of Lending Regulations (cont) 1980’sDepository Institutions Deregulation and Monetary Control Act (DIDMCA): Overrides state usury Simplified Truth-in-lending Removed geographic restrictions Omnibus Reconciliation Act Garn-St. Germain Depository Institutions Act Deficit Reduction Act Competitive Equality Banking Act Financial Institutions Reform, Recovery and Enforcement Act (FIRREA): Created Office of Thrift Supervision (OTS) Required mortgage insurance Established appraisal licensing laws

© 2011 Cengage Learning Restructure since 1990’s Increase in consumer debt Decrease in home ownership Increased loan specialization Better access to information on loans

© 2011 Cengage Learning Today TARP-Troubled Asset Relief Program  Subprime market crises  October 2008  Created the Office of Financial Stability GFE-Good Faith Estimate  DRE 885  January 1, 2010  Real Estate Settlement Recovery Act  HUD-Housing and Urban Development SAFE-Secure and Fair Enforcement Act  Nationwide Licensing System and Registry  By December 31, 2010

© 2011 Cengage Learning 1.3 Basic Information Hard Money vs. Seller Carryback Money  Hard Money: institutional or non-institutional loans where a lender cash is put into a transaction.  Soft Money: an extension of credit where no cash is exchanged. Seller carryback loan. A soft money loan where the seller extends credit to the buyer, using the seller’s equity. Holder in due course: when a loan is sold to a third party.

© 2011 Cengage Learning Careers in Loan Brokerage Direct employee of a bank or owner of the funds.  Salaried position Licensed loan personnel  Commission only  Licensed by the state  Educational requirements Non-licensed areas  Marketing  Loan processing

© 2011 Cengage Learning Loan Originators 1. Mortgage broker 2. Mortgage banker 3. Commercial bank or thrift institution 4. Credit union 5. Loan correspondent

© 2011 Cengage Learning LOAN ORIGINATORS DRE Broker Loan Origination Loan Processing Package sent for Lender Approval and Funding MORTGAGE BANKER Sources of Funds Bank Their Own Funds Investor (FNMA, Corp) Loan Origination Loan Processing Loan Approval Their Own Lender MI Investor Closing Funding Warehouse Line Servicing Insuring MORTGAGE BROKER

© 2011 Cengage Learning LOAN ORIGINATORS (cont) Depositors (Interest Income) Bank Income Loan Origination Loan Approval Closing Funding Dept Servicing Dept. Bank or Savings & Loan

© 2011 Cengage Learning TYPES OF LENDERS Thrifts: Savings & LoansCommercial Banks Mortgage Companies Mutual Savings Banks Insurance Companies

© 2011 Cengage Learning Importance of Real Estate Finance Foundation of wealth accumulation Allows average person to buy a residence Originate in the primary market Sold in the secondary money market Investors purchase notes on the loans Moves capital geographically in the market

© 2011 Cengage Learning 1.4 Licensee & Professional Organizations CALIFORNIA REQUIREMENTS  First state to establish licensing laws: Department of Real Estate (DRE)  Mortgage loan brokers need a state license  Mortgage loan bankers need a license  Direct employees of financial institutional lenders are not required to have a license

© 2011 Cengage Learning Professional Organizations CAMB- California Association of Mortgage Brokers  NAMB - National Association of Mortgage Brokers  MBAA- Mortgage Bankers Association of America  NAPMW- National Association of Professional Mortgage Women 