© 2008 by South-Western, Cengage Learning Chapter 13 Charles J. Jacobus Thomas E. Gillett

© 2008 by South-Western, Cengage Learning Georgia Real Estate An Introduction to the Profession Seventh Edition Chapter 13 Sources of Financing

© 2008 by South-Western, Cengage Learning Where lenders originate loans Where lenders originate loans Regulated by the Federal the Federal Government Government Non-regulated Non-regulated by the Federal by the Federal Government Government

© 2008 by South-Western, Cengage Learning Savings and Loan Associations Disintermediation: Moving money out of saving and into other investments Restructuring the System FIRREA

© 2008 by South-Western, Cengage Learning Commercial Banks Short term loans and ARMs “One stop banking” Life Insurance Companies Invest premiums Large scale investments Participation Loans

© 2008 by South-Western, Cengage Learning Mortgage Companies Makes loans & sells to investors Retains servicing Mortgage Brokers Bring together borrowers and lenders

© 2008 by South-Western, Cengage Learning Computerized Loan Origination (CLO) Immediate preliminary loan approval Info on loan terms Conveys applications Monitors approval process Municipal Bonds Other Lenders

© 2008 by South-Western, Cengage Learning Provides liquidity to the Primary Market Provides liquidity to the Primary Market Traditional Delivery System Traditional Delivery System Secondary Market Delivery System Secondary Market Delivery System

© 2008 by South-Western, Cengage Learning

Loan applications Appraisal forms Credit report Closing statements Loan approval criteria Promissory Notes & Security Instruments

© 2008 by South-Western, Cengage Learning

FNMA: Federal National Mortgage Association Private corporation Buys FHA, VA, & Conventional loans Commitments Approved forms & credit criteria FNMA Pooling Mortgage Backed Securities Home Seller Program

© 2008 by South-Western, Cengage Learning GNMA: Government National Mortgage Association Federal Agency within HUD Ginnie Mae Procedures HUD/FHA, VA

© 2008 by South-Western, Cengage Learning FHLMC: Federal Home Loan Mortgage Corporation Conventional Loans Participation Certificates Whole mortgages or part interest in a pool of mortgages

© 2008 by South-Western, Cengage Learning Farmer Mac Secondary Market for farm real estate loans Office of Federal Housing Enterprise Oversight Ensures financial soundness of Fannie Mae and Freddie Mac

© 2008 by South-Western, Cengage Learning Private Conduits Conduits: handle commercial Mortgage- Backed Securities Automated Underwriting Systems Freddie Mac: Loan Prospector Fannie Mae: Desktop Underwriter

© 2008 by South-Western, Cengage Learning Competition for funds Government Business Consumers Usury Ceiling on rates charged Price to Borrower

© 2008 by South-Western, Cengage Learning Due-on-Sale Clause: Loan balance becomes due upon sale. Prepayment Penalty: Fee for early payment.

© 2008 by South-Western, Cengage Learning Key Terms Key Terms Alienation clause Automated underwriting system Computerized loan origination Disintermediation Fannie Mae Freddie Mac Mortgage broker Mortgage company Participation certificates Primary market Secondary market Usury