1. Chapter 12

2. Georgia Real Estate An Introduction to the Profession Eighth Edition
Chapter 2
chapter title

3. Key Terms alienation clause automated underwriting system
computerized loan origination
disintermediation
Fannie Mae
Freddie Mac
Ginnie Mae
mortgage broker
mortgage company
participation certificate
primary market
secondary mortgage market
usury
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4. Primary Market The primary market is where lenders originate loans.
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5. Primary Market
Primary lenders often sell their loans in the secondary market. Insurance companies, pension funds, and individual investors buy these loans for cash. This makes more money available to the primary lenders.
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6. Disintermediation
Disintermediation results when depositors take money out of their savings accounts and invest directly in government securities, corporate bonds and money market funds.
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7. Commercial Banks
Commercial banks have realized that first-lien residential loans are very secure, low-risk loans.
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8. Life Insurance Companies
Generally, life insurers specialize in large-scale investments such as shopping centers, office and apartment buildings.
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9. Mortgage Companies
A mortgage company makes a mortgage loan and then sells it to a long-term investor. The mortgage company will usually continue to service the loan.
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10. Mortgage Companies
Mortgage bankers typically receive 1% - 3% of the amount of the loan when it is originated, and from 0.25% - 0.5% of the outstanding balance each year thereafter for servicing.
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11. Mortgage Companies
Commercial banks, savings and loan associations and mutual savings banks often originate more real estate loans than they can hold themselves, and these are sold on the secondary market.
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12. Mortgage Brokers
Mortgage brokers specialize in bringing together borrowers and lenders. The mortgage broker does not lend money and usually does not service loans.
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13. Computerized Loan Origination
Computerized loan origination (CLO) enables borrowers to obtain preliminary loan approval immediately from the loan originator.
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14. Other Lenders
Pension funds and trust funds are placing more money into real estate loans. Pension funds are an often-overlooked source of primary market financing.
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15. Other Lenders
Credit unions have branched out into first and second mortgage loans.
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16. Secondary Market
The secondary mortgage market provides a way for a lender to sell a loan. It also permits investment in real estate loans without the need for loan origination and servicing facilities.
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17. Secondary Market The secondary market is a pipeline for loan money.
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18. Secondary Market Delivery System
Primary lenders can make loans from the secondary market funds instead of their own deposits.
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19. Secondary Market Delivery System
With the secondary market system, the borrower obtains a loan from a mortgage originator.
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20. Secondary Market Delivery System
This includes mortgage companies, banks and thrifts that originate loans they intend to sell.
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21. Secondary Market Delivery System
The mortgage originator packages the loan with other loans and then sells the package as a whole or keeps the package and sells securities that are backed by the loans in the package.
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22. Secondary Market Delivery System
There are two sources for this secondary market:
Private investors such as commercial banks, savings and loans, pension plans, trust funds and other investors
Investment pools who are looking for more security in their investments
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23. Mortgage Loan Delivery Systems
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24. Standardized Loan Procedures
Loan forms and procedures have become standardized:
loan application forms
appraisal forms
credit report forms
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25. Standardized Loan Procedures
Loan forms and procedures have become standardized:
closing statements
loan approval criteria
promissory notes, mortgages and trust deeds
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26. Standardized Loan Procedures
Loan terms have been standardized into categories: fixed-rate 15 year loans, fixed-rate 30 year loans, etc.
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27. Standardized Loan Procedures
Nearly all loans must be insured. This can be FHA, PMI or a VA guarantee.
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28. FNMA
The Federal National Mortgage Association (FNMA or Fannie Mae) was organized by the federal government to buy FHA loans from lenders.
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29. FNMA
This made it possible for lenders to grant more loans to consumers. It also purchases VA loans.
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30. FNMA
Fannie Mae buys FHA, VA and conventional home loans from lenders across the United States.
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31. FNMA
Fannie Mae must purchase all loans delivered to it under the terms of the commitments. The largest loan Fannie Mae would was is $417,000 for a single-family home.
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32. GNMA
The Government National Mortgage Association (GNMA or Ginnie Mae) is a federal agency entirely within the Department of HUD.
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33. GNMA
Ginnie Mae has some low-income housing functions. It is best known for its mortgage-backed securities.
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34. GNMA
Ginnie Mae offers a government guarantee of repayment. GNMA issues guarantee certificates. The purpose of Ginnie Mae is to guarantee the timely payment of the principal and interest to the investor, backed by the US government.
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35. FHLMC
The goal of the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) is to increase the availability of financing for residential mortgages.
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36. FHLMC
Freddie Mac deals primarily in conventional mortgages. They issue their own securities against their own mortgage pools.
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37. Farmer Mac
The Federal Agricultural Mortgage Corporation (Farmer Mac) is a separate agency within the Farm Credit System to establish the secondary market needed for farm real estate loans.
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38. Farmer Mac
Farmer Mac purchases loans directly from originators and issues their own 100% guaranteed securities backed by the loans.
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39. Usury
Usury laws were originally enacted to prohibit lenders from overcharging interest on loans to individuals.
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40. Price to the Borrower
The rate of interest the borrower must pay to obtain a loan is dependent on the cost of money to the lender, reserves for default, loan servicing costs and available investment alternatives.
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41. Due-on-Sale
Most loans contain a due-on-sale clause also known as an alienation clause. If a borrower sells the property to someone considered uncreditworthy by the lender could call the loan balance due.
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42. Due-on-Sale
Also, when interest rates increase, lenders can use this clause to increase the rate of interest on the loan when the property changes hands by threatening to accelerate the balance of the loan unless the new owner accepts a higher rate of interest.
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43. Prepayment
Loan contracts sometimes contain a prepayment penalty. The penalty varies from loan to loan and from state to state.
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44. Prepayment
By federal law, prepayment penalties are not allowed on FHA and VA loans.
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