T HE C OLUMBIA I NSTITUTE Welcome! The Mortgage Loan System, No. 015

T HE C OLUMBIA I NSTITUTE Objectives Development of Real Estate Finance Types of mortgages and terms Primary Market Lenders Secondary Market Lenders Government Insurance/Guarantees Reviewing the Appraisal Process

Institutions Commercial Banks Investment Banks Mortgage Banks Credit Unions/community (Comm’l) Banks

Mortgage Banking Income Origination Fee 1% of loan Marketing Overages (selling loan for more than face value—ie, premium) Warehousing Income—holding high-rate mortgages for a few months to benefit over the lender’s cost of funds (risky) Can also make money servicing loan

Earlier Fannie Mae Activities Government Agency Issued bonds to buy FHA/VA loans Privatized in 1968 and bought conventional loans Securitized loans in 1990s Lowered standards in 2000s, to compete with sub-prime lenders, and failed.

Freddie Mac came out of the S&L system, but securitized as opposed to purchasing The collapse of S&Ls resulted in Freddie becoming a Fannie competitor The collapse of the S&Ls and big, national companies became primary lenders

AMCs Created by national lenders Select appraisers Communicate with them Review reports

HVCC/FHA Appraiser Independence HVCC Agreement: NYAG, Fannie, Freddie, FHFA FHA Mortgagee Letter Many more lenders went to AMCs Plus: Appraiser Independence Minus: Appraisal Fees

Pending Changes Regulation of AMCs by State Appraisal Boards Regulation oversight—HB 1728 would move the ASC to the newly formed Consumer Financial Protection Agency

Real Estate Finance Today Needs Update Current on instruments & Players Terminology Understanding the primary and secondary market participants

Government Influences Federal Reserve Department of the Treasury Credit Union Administration HUD/FHA/RESPA Federal Acts

Current Issues The subprime crisis Foreclosures and Reactive Programs Credit Scores

Conventional Loans Conforming Affordable Programs Non-conforming loans Adjustable Rate Mortgages Mortgage Calculations

Government Loan Programs Federal Housing Administration 203(b) Program Other FHA programs Department of Veterans’ Affairs State/local programs

Financing Alternatives Seller Low doc/no doc loans Self employed/Cash sources Reverse Annuity Mortgage

Re-engineering the Appraisal Process Introduction - Who and Why? The Valuation Question “Form Fillers” Theory v. Practice Single point of value or range? Practice Technology Regulation/Legislation