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This course is designed to enable the student to better understand the steps, procedures and laws involved in originating mortgage loans. This course is broken down into 20 modules. At the beginning of each module, an explanation and description of the objectives will be given. This course is relevant as it deals with the various laws a working Loan Officer and/or Mortgage Broker uses in his or her day-to-day activity. Knowledge of this information is invaluable to the licensee and benefits the public the licensee serves.
Learning Experiences
To ensure the adult learning experience in each module, the student will be provided detailed background and information on the topic. In addition, the student will be required to participate in group discussions on the topics to demonstrate their mastery of the objectives.
LEARNING OBJECTIVES After participating in this module, you will be able to:
better understand the definition of a mortgage, be able to explain various types of mortgages and loans, and be able to discuss various aspects of mortgage lending.
A mortgage loan is a loan secured by real property through the use of a document which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan. A home buyer or builder can obtain financing (a loan) either to purchase or secure against the property from a financial institution, such as a bank, either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably.
It is normal for home purchases to be funded by a mortgage loan as few individuals have enough savings or liquid funds to enable them to purchase property outright. In countries where the demand for home ownership is highest, strong domestic markets have developed.
on local conditions. Over this period the principal component of the loan (the original loan) would be slowly paid down through amortization. In practice, many variants are possible and common.
Index ("T-Bill"); other indices are in use but are less popular. You can select the mortgage loan you require when interest rates are quite low and get it adjusted throughout the loan term. Adjustable rates transfer part of the interest rate risk from the lender to the borrower, and thus are widely used where fixed rate funding is difficult to obtain or prohibitively expensive. Since the risk is transferred to the borrower, the initial interest rate may be from 0.5% to 2% lower than the average 30-year fixed rate; the size of the price differential will be related to debt market conditions, including the yield curve. Additionally, lenders in many markets rely on credit reports and credit scores derived from them. The higher the score, the more creditworthy the borrower is assumed to be. Favorable interest rates are offered to buyers with high scores. Lower scores indicate higher risk for the lender, and higher rates will generally be charged to reflect the (expected) higher default rates.
A blanket loan, or blanket mortgage, is a type of loan used to fund the purchase of more than one piece of real property. Blanket loans are popular with builders and developers who buy large tracts of land, then subdivide them to create many individual parcels to be gradually sold one at a time. Rather than securing a new mortgage each time a portion of the development is sold, the borrower uses the blanket loan to buy them all. Once a parcel is sold, a portion of the mortgage is released, with the rest of the mortgage remaining intact. Traditional mortgages typically have a "due-on-sale clause", which stipulates that if property secured by the mortgage is sold, the entire outstanding mortgage debt must be paid in full immediately. With a blanket mortgage, a release clause allows the sale of portions of the secured property and corresponding partial repayment of the loan. This is done to facilitate purchases and sales of multiple units of property with the convenience of a single mortgage. A builder, for example, might use a blanket mortgage to pay for construction of several homes in one neighborhood. When a home is sold, the portion of the mortgage that was used to fund that home is paid back to the lender, and then retired. The remaining outstanding balance is adjusted accordingly, and the blanket mortgage continues phase by phase in that manner, until all houses are sold and the entire mortgage is repaid and retired.
65% Hard money (Conforming loan) 20% Borrower equity (cash or additional collateralized real estate) 15% Seller carryback loan or other subordinated (mezzanine) loan
seekers. Jumbo home prices can be more subjective and not as easily sold to a mainstream borrower, therefore many lenders may require two appraisals on a jumbo mortgage loan. The interest rate charged on jumbo mortgage loans is generally higher than a loan that is conforming, due to the slightly higher risk to the lender. The spread, or difference between the two rates, depends on the current market price of risk. While typically the spread fluctuates between 0.25 and 0.5%, at times of high investor anxiety it can exceed one and a half percentage points. Jumbo mortgage loan options are similar to traditional loan programs.
A participation mortgage or participating mortgage is a mortgage, or sometimes a group of them, in which two or more persons have fractional equitable interests. In this arrangement the lender, or mortgagee, is entitled to share in the rental or resale proceeds from a property owned by the borrower, or mortgagor. The mortgage is evidenced by the bank or other fiduciary that has legal title to the mortgage and sells the fractional shares to investors or makes the investment for the certificate holders. A participation mortgage may or may not require principal and interest payments and may or may not contain a balloon payment. For instance, John has a loan for a strip mall including six separate units. All are rented or leased and in addition to the principal and interest he pays to the lender, he is required to pay a certain percentage of the incoming funds. The lender is then participating in the income stream provided by the particular property.
Rate (LIBOR) index or 1 Year Constant Maturity Treasury (CMT). The age of the senior (The older the senior is, the more money he/she will receive). Whether the payment is taken as line of credit, lump sum, or monthly payments. Line of credit will maximize the money available, while lump sum provides the cash immediately, but the interest fees are the highest. Monthly payments are set up as a "Tenure" payment. Borrowers receive them for the rest of their lives no matter how long they live. The value of the property, and whether that value is higher than the national loan limit set by HUD.
costs, which are typically several thousand dollars, but vary depending on the third-party costs (appraisal fees, title searches, etc.) which must be undertaken. Other programs skip the insurance premium but still require the origination fees and closing costs. In addition, a monthly service charge (between $25 and $35) is usually added to the total amount of the loan. In all of these cases, the costs of a reverse mortgage can typically be financed with the proceeds of the loan itself, with the costs and fees being rolled directly into the principal balance of the loan, rather than paid by the borrower in cash. While this does permit borrowers with little or no available cash to get a reverse mortgage, it means that the initial loan principal will be increased, and consequently, that the fees will begin accruing interest. Since there are no payments made during the course of the loan, the compound interest accrued on the principal plus fees are added to the principal of the loan. Interest rates on reverse mortgages are determined on a program-by-program basis, because the loans are secured by the home itself, and backed by HUD, the interest rate should always be below any other available interest rate in the standard mortgage marketplace for an FHA reverse mortgage.
of February 2007 the federal cap of $275,000 HECM loan guarantees had been issued since the program's inception in 1989. Legislators subsequently suspended the cap until September 1, 2007 allowing additional HECM loan guarantees to take place. Program growth in recent years has been very rapid. The National Reverse Mortgage Lenders Association (NRMLA) reports that 55,659 HECM loans were endorsed through the first nine months of fiscal year 2006, an 83% increase over the 30,404 loans endorsed during the same period in the prior fiscal year.
mortgage with the proceeds of the second. Once the second mortgage is satisfied, the seller is out, but this is rarely the case. Typically, the seller also charges a "middle" on the first mortgage. For example, one has a first mortgage at 6% and sell the whole property with a rate of 8% on a wraparound mortgage. He/she makes 2% middle on the first mortgage amount, using other people's money to make money. So, it is in the best interests of a seller to keep the wrap, rather than allow the buyer to assume the first mortgage. As title is actually transferred from seller to buyer, most wraparound mortgage transactions will violate the due-on-sale clause of the underlying mortgage, if such a clause is present.
expressed as a percentage of the loan amount. For example, a negative amortization loan is often advertised as featuring "1% interest", or by prominently displaying a 1% number without explaining the fixed interest rate. This practice has been done by large corporate lenders. This practice has been considered deceptive for two different reasons: most mortgages do not feature teaser rates, so consumers do not look out for them; and, many consumers aren't aware of the negative amortization side effect of only paying 1% of the loan amount per year. In addition, most negative amortization loans contain a clause saying that the payment may not increase more than 7.5% each year, except if the 5-year period is over or if the balance has grown by 15%. Critics say this clause is only there to deceive borrowers into thinking the payment could only jump a small amount, whereas in fact the other two conditions are more likely to occur.
payment, which he is not paying, is added on to the amount owed on the mortgage. Naturally, when this period ends, he must start to pay this additional amount off, along with his original principal. A Reverse Mortgage happens when a homeowner, usually a retired person, sells some or all of his equity in his home and retains the right to live there. No payments are due until the homeowner moves out of the house. However the interest charged on the loan is applied back to the principal since no interest payments are made during the life of the loan. Non-conforming mortgage A non-conforming mortgage is a term for a residential mortgage that does not conform to the loan purchasing guidelines set by the Federal National Mortgage Association/Federal Home Loan Mortgage Corporation (Fannie Mae and Freddie Mac). Mortgages which are non-conforming because they have a dollar amount over the purchasing limit set by FNMA/FHLMC are often called "jumbo" mortgages. Mortgages which are non-conforming because they do not meet FNMA/FHLMC underwriting guidelines (such as credit quality or loan-to-value ratio) are often called "subprime" mortgages. Non-conforming loans must remain in a lender's portfolio, or be sold to other companies who purchase non-conforming loans, or be securitized, with the securities being sold to investors seeking non-conforming mortgagebacked securities. Consequently, a premium is paid by those obtaining non-conforming mortgages, generally .25% or .5 points more than the same loan would cost if it were conforming. The loan amount is adjusted every few years depending upon the average sales price of homes in the U.S.
estimated value is $400,000 but with outstanding mortgage loans of $300,000 is said to have homeowner's equity of $100,000.
(30 years plus). 30 years is the usual maximum term (although shorter periods, such as 15-year mortgage loans, are common). Mortgage payments, which are typically made monthly, contain a capital (repayment of the principal) and an interest element. The amount of capital included in each payment varies throughout the term of the mortgage. In the early years the repayments are largely interest and a small part capital. Towards the end of the mortgage the payments are mostly capital and a smaller portion interest. In this way the payment amount determined at outset is calculated to ensure the loan is repaid at a specified date in the future. This gives borrowers assurance that by maintaining repayment the loan will be cleared at a specified date, if the interest rate does not change.
In other jurisdictions, the borrower remains responsible for any remaining debt. In virtually all jurisdictions, specific procedures for foreclosure and sale of the mortgaged property apply, and may be tightly regulated by the relevant government; in some jurisdictions, foreclosure and sale can occur quite rapidly, while in others, foreclosure may take many months or even years. In many countries, the ability of lenders to foreclose is extremely limited, and mortgage market development has been notably slower.
Predatory mortgage lending There is concern in the U.S. that consumers are often victims of predatory mortgage lending. The main concern is that mortgage brokers and lenders, operating legally, are finding loopholes in the law to obtain additional profit. The typical scenario is that terms of the loan are beyond the means of the borrower. The borrower makes a number of interest and principal payments, and then defaults. The lender then takes the property and recovers the amount of the loan, and also keeps the interest and principal payments, as well as loan origination fees. Option ARM An option ARM provides the option to pay as little as the equivalent of an amortized payment based on a 1% interest rate, (please note this is not the actual interest rate). As a result, the difference between the monthly payment and the interest on the loan is added to the loan principal; the loan at this point has negative amortization. In this respect, an option ARM provides a form of equity withdrawal (as in a cash-out refinancing) but over a period of time.
Mortgage lending is a major category of the business of finance in the United States. Mortgages are commercial paper and can be conveyed and assigned freely to other holders. In the U.S., the Federal government created several programs, or government sponsored entities, to foster mortgage lending, construction and encourage home ownership. These programs include the Government National Mortgage Association (known as Ginnie Mae), the Federal National Mortgage Association (known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (known as Freddie Mac). These programs work by buying a large number of mortgages from banks and issuing (at a slightly lower interest rate) "mortgage-backed bonds" to investors, which are known as mortgage-backed securities (MBS).
government corporation in 1938, rechartered as a federal agency in 1954, and became a governmentsponsored, stockholder-owned corporation in 1968. Fannie Mae, which has been described as "a private corporation with a public purpose", basically provides a secondary market for residential loans. It fulfills this function by buying, servicing, and selling loans that, since 1970 have included FHA-insured, VAguaranteed, and conventional loans. However, purchases outrun sales by such a wide margin that some observers view this association as a lender with a permanent loan portfolio rather than a powerful secondary market corporation.
Club accounts and other savings accountsdesigned to help people save regularly to meet certain goals.
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LEARNING OBJECTIVES After participating in this module, you will be able to:
are private corporations. 403(b) plans are provided by employers that are not for profit organizations.
Appraiser. An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent. Appreciation. The increase in the value of a property due to changes in market conditions, inflation, or other causes. Assessed Value. The valuation placed on property by a public tax assessor for purposes of taxation. Assessor. A public official who establishes the value of a property for taxation purposes. Asset. Items of value owned by an individual. Assets that can be quickly converted into cash are considered "liquid assets." These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.
Note: there are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty year mortgage. They charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to make the additional payment which will then be paid to reduce your principle. You could save money by doing the same thing yourself, plus you have to have faith that once you transfer money to them that they will actually transfer your funds to your lender. Blanket Mortgage. A mortgage covering at least two pieces of real estate as security for the same mortgage. Borrower (Mortgagor). One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
certain documents in case they are eventually required to foreclose on the property.
Convertible ARM. An adjustable-rate mortgage that allows the borrower to change the ARM to a fixedrate mortgage within a specific time. Cooperative (co-op). A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit. Credit History. A record of an individual's repayment of debt. Credit histories are reviewed by mortgage lenders as one of the underwriting criteria in determining credit risk. Credit Report. A report documenting the credit history and current status of a borrower's credit standing. Credit Repository. An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit. Credit. An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date. Creditor. A person to whom money is owed.
Deposit. A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an "earnest money deposit." Depreciation. A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income. Discount Point. See points. Down Payment. Money paid to make up the difference between the purchase price and the mortgage amount. Due-on-Sale-Clause. A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.
impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowners insurance when they come due. The lender pays them with your money instead of you paying them yourself.
Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages. Federal National Mortgage Association (FNMA). Also known as "Fannie Mae" A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.
insurance coverage for a dwelling and its contents. Homeowner's Warranty. A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.
Judgment. A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor. Judicial Foreclosure. A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Other states use non-judicial foreclosure. Jumbo Loan. A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
"rep" and others. The loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution.
mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc. Prime Rate. The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.
Rescission. The cancellation of a contract. With respect to mortgage refinancing, the law gives a homeowner three days to cancel a contract if the transaction uses equity in the home as security. Recorder. The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk."
that is actually borrowed plus any interest due. Right of First Refusal. A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others. Right of Ingress or Egress. The right to enter or leave designated premises. Right of Survivorship. In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
T Tenancy In Common. As opposed to joint tenancy, when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death. Third-party Origination. A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market. Title. A document that gives evidence of an individual's ownership of property. Title Insurance. A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests. Title Search. An examination of municipal records to determine the legal ownership of property. This usually is performed by a title company. Transfer of Ownership. Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device.
Usury. Interest charged in excess of the legal rate established by law. V VA Loan. A long-term, low, or no down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements. VA Mortgage Funding Fee. A first-time buyer will pay a little over two percent for a 'no money down' loan, and a second time buyer's fee is just above three percent. The reason for the fee includes the idea that the veteran is reducing taxpayer burden by contributing to the cost of his VA mortgage. Variable Rate Mortgage (VRM). See adjustable rate mortgage.
LEARNING OBJECTIVES After participating in this module, you will be able to:
explain the process of prequalifying the borrower and assessing the borrowers needs; identify the traditional elements of Private Mortgage Insurance; recognize the key components in completing a loan application; explain the differences of qualification and approval letters; and be able to complete a good faith estimate.
Counseling the Borrower Not only is pre-qualifying your borrower essential to assessing their needs but also counseling them on requirements in meeting standard guidelines to obtain a loan. Compensating factors are used when a borrower may not meet all the standard guidelines for a conventional loan. Most lenders now have niche products that will allow a borrower to obtain financing.
Besides down payment and closing costs, there are other up-front costs in buying a home that add up. Everything from mover's fees to telephone hookup charges. One way you can pare down your up-front costs is to pay less in points. Lenders will usually charge lower or even no points in exchange for a slightly higher interest rate on the mortgage. The biggest obstacle for homebuyers is coming up with enough cash to cover the down payment and other up-front costs. A 20 percent down payment was long considered the traditional standard. But that's changed in today's highly competitive lending environment. Five and 10 percent down payments are now more common. Still, if your savings fall short, don't give up.
Any loan amount above the conforming loan limit is considered a Jumbo loan. Jumbo loans typically have slightly higher interest rates than loans of a lesser value, this is because lenders generally have a higher risk on these Jumbo loans than conforming loans as well as some additional underwriting restrictions and higher a Origination fee. VA Loans: Almost every veteran is eligible for Veterans Affair benefits like VA home loans. These loans are generally the best choice for veterans who are planning to make a purchase or refinance an existing home mortgage.
READING AND UNDERSTANDING A CREDIT REPORT Credit bureaus gather information about us and sell it to banks, credit card venders, credit unions, finance companies, insurance companies, landlords, employers and others. These companies use the information to verify and supplement the data provided by consumers in an application for a credit card, loan, insurance, housing, and employment. Whether or not the applicant is approved, to a large degree, depends on what is contained in the credit report. To understand your clients credit worthiness, you will need to learn how to review and understand a credit report. A permissible purpose in which a consumer-reporting agency may furnish a credit report is defined in the Fair Credit Reporting Act. The Fair Credit Reporting Act defines the rules and procedures regulating consumer reporting agencies and the civil liability for willful and/or negligent noncompliance. What is typically referred to as a "credit report" is more accurately termed "consumer report" by the Federal government. This is because credit is only one aspect of the report. A typical consumer report contains personal data, employment history, detailed account information, information reported by landlords, utility and insurance companies, doctors, hospitals, lawyers and other agencies. Public records are also included, such as bankruptcy filings, lawsuits, court judgments, foreclosures, judgment liens, tax liens, mechanics liens, and criminal arrest and convictions. Inquiries by creditors and others are also listed on one's consumer credit report. Consumers should always be aware of what is contained in their credit report, especially if they intend to apply for credit or an insurance policy, are seeking employment or looking for a place to live. Upon review, if it is discovered that there is derogatory, incorrect, outdated or misleading information contained within the credit report then it is important to take the appropriate steps to correct the issues. Derogatory information on a credit report can damage the chances of your client qualifying for a loan. Additionally, it can even affect their chances of getting a good job or renting a place to live. Most banks, creditors, and a growing number of employers, rely on credit reports for obtaining information and making decisions.
Name & Address of the Employer and whether they are self-employed. Years on the Job Years employed in this line of work/profession Position Title/Type of Business Business Phone If employed in current position less than 2 years or they have more than one position, this information will be required and information about that job will be the same as listed above.
Automobiles owned (Make & Year) - Include the make, year, and approximate value. While underwriters don't really care what kind of car you drive, it is a major asset. If you have an auto loan on your credit report, be sure and list the car that goes with it in the assets section. Other Assets (Itemize) - It's not necessary to put down everything you have (you aren't going to get a loan based on the worth of your furniture). If you own investment-grade items, or something that will be sold to provide your down payment (for example, a buyer who sold a baseball card collection to get his down payment listed the collection as an "other asset" and provided an appraisal), then list it here. Total Assets - Put the total of all of the above assets. Schedule of Real Estate Owned - Include the property address and status (Sold, Pending Sale, or Rental). Indicate the type of property - principle residence (PR), second home (SH), or investment property (IP). List the current value of each property, what you owe on it, the gross rent (before expenses), mortgage payments, and other property-related expenses (divide annual payments by 12 to get a monthly figure). If you file a schedule C, E, or F to report your rental income you will need to provide it.
within the last seven years, answer "Yes." If you it's been seven years or more, or you filed for bankruptcy but your case was denied or dismissed, you can answer "No." Have you been declared Bankrupt within the past 7 years? - Bankruptcy filings won't necessarily derail your loan application, especially if some time has passed and you have cleaned up your credit. If your discharge date is within the last seven years, answer "Yes." If you it's been seven years or more, or you filed for bankruptcy but your case was denied or dismissed, you can answer "No." Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years This includes pretty much any deal in which you were voluntarily or involuntarily forced out of your home. If you were able to negotiate a short sale and get out without defaulting on your mortgage, you can answer "No" here. Are you a party to a lawsuit? Being involved in a lawsuit doesn't mean you can't get a mortgage. Lenders just want to know if there are any potential financial or other problems. Provide whatever information and documentation the lender needs. If you are a plaintiff (suing someone else) you probably won't need much. If you are a defendant (being sued) the lender will want to know the amount you are being sued for and the nature of the case. Have you directly or indirectly been obligated on any loan which resulted in foreclosure - This includes any financial obligation incurred by you or someone you co-signed for which was not paid as agreed - and resulted in a legal judgment, foreclosure, or repossession.
jointly with another person (O)? This question is asked largely to determine your eligibility for first-time homebuyer programs.
Flexibility - The affects of minor changes to down payment, income, cash reserves, or liabilities can be seen instantly. What would happen if your down payment increased by $500 or you paid off a small debt? Your answer is back in seconds.
Types of underwriting reports Underwriting Findings report. This report provides the underwriting recommendation for the case file, a detailed list of findings, and the steps necessary to complete the processing of the loan file. Underwriting Analysis report. This report contains key information used in determining the recommendation, including property, loan, and borrower information as well as the calculations. Credit Summary report. This report summarizes key statistics from the credit report, including information on the borrower's open accounts, derogatory accounts, and undisclosed accounts.
CONDITIONAL QUALIFICATION LETTERS Conditional qualification letters are given to prospective applicants typically after the pre-qualification process has occurred. This letter should contain information such as date, applicants name, mortgage broker or loan officer information (i.e., license number, address and phone number), and loan description. It should also gives details of what steps the mortgage broker has taken to qualify the prospective applicant. The conditional qualification letter should contain a statement that explains how the mortgage broker determined eligibility and qualification to meet the financial requirements of the loan. In addition, the conditional qualification letter should state clearly that it does not serve as an approval. It should, however, list the requirements to obtain a loan approval. Click here to download a sample in .pdf.
at the time of or within three business days after application. It is a legal requirement that all residential mortgage lenders/brokers must follow. The GFE provides the borrower with an estimation of the closing costs, down payment balances, prepaid expenses and all other charges that the borrower must address at the closing. Some of the items listed on the good faith estimate are considered to be prepaid finance charges that are used in calculating the Annual Percentage Rate.
and avoid costly and potentially harmful loan offers. HUD will require, for the first time ever, that lenders and mortgage brokers provide consumers with a standard Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs. HUD estimates its new regulation will save consumers nearly $700 at the closing table. In announcing HUD's final changes to the regulatory requirements of the Real Estate Settlement Procedures Act (RESPA), HUD Secretary Steve Preston said that changes in the housing market and increases in home foreclosures demands action. "It has been a long road but today we can finally announce a better way to buy homes in America," said Preston. "Consumers need and deserve to know what they're getting themselves into before they sign on the dotted line. After carefully considering the concerns of consumers and the different businesses in the housing sector, we have developed an approach that empowers the average family to shop for the most appropriate loan to meet their needs."
Fact Sheet on HUD's final RESPA Rule For the first time ever, HUD will require mortgage lenders and brokers to provide borrowers with an easy-to-read standard Good Faith Estimate (GFE) that will clearly answer the key questions they have when applying for a mortgage including: What's the term of the loan? Is the interest rate fixed or can it change? Is there a pre-payment penalty should the borrower choose to refinance at a later date? Is there a balloon payment? What are total closing costs? HUD estimates that by improving upfront disclosures on the GFE, and limiting the amount estimated charges can change, consumers will save nearly $700 in total closing costs. Based on substantial public comment, HUD withdrew a proposed requirement that closing agents read and provide a 'closing script' to borrowers in favor of a new page on the HUD-1 Settlement Statement that allows consumers to easily compare their final closing costs and loan terms with those listed on the GFE. HUD's new Good Faith Estimate has been reduced from four to three pages, including an instructional page to help borrowers better understand their loan offer. In addition, the GFE will consolidate closing costs into major categories to prevent junk fees and display total estimated settlement charges prominently on the first page so the consumer can easily compare loan offers. HUD will specify the closing costs that can and cannot change at settlement. If a fee changes, HUD will limit the amount it can change.
Click here to download a copy of the GFE in .pdf. Shopping for Your Loan This new GFE lets the borrower know that there is now a shopping chart on page 3 of the new GFE. Important Dates Originators will now need to include the following: Date that the interest rate for current GFE available through. Date that estimate for all other settlement charges is available through. Number of days a borrower has to go to closing to receive the locked interest rate. Number of days interest rate must be locked prior to settlement.
There are three (3) choices the originator may choose from in this section: Credit or Charge for the Interest Rate is included in the Origination Charge Borrower receives a credit of (dollar amount) for the interest rate. This credit reduces their settlement charges. A charge of (dollar amount) for the interest rate. This charge increases their settlement charges. There is a tradeoff table on page 3 where the total settlement charges can change by the borrower choosing a different interest rate for the loan. This will be discussed a little later in the course.
GFE instead of broken down as in the old GFE. Daily Interest Charges (#10 on the GFE) This charge (previously termed interim interest) is the daily interest on the loan from the day of settlement until the first day of the next month or the first day of the borrowers normal mortgage payment cycle. The daily amount and the number of days will need to be disclosed. Also the settlement date will be shown. Homeowners Insurance (#11 on the GFE) This charge is for the 1 year insurance policy the borrower must purchase for the property to protect it from a loss, such as fire. Charges for All Other Settlement Charges (B) on the GFE The total of your All other Settlement Charges will now be added and put in Row B on page 1. TOTALS - The totals of A & B will now be at the bottom of pages 1 & 2 of the new GFE.
On the GFE, the originator has offered the borrower a loan with a particular interest rate and estimated settlement charges. The Tradeoff Table is used when the borrower may want to choose the same loan but with lower settlement charges. They would then have a higher interest rate. The borrower may choose to have a lower interest rate in which event they would have higher settlement charges. If the borrower chooses one of these options, a new GFE would need to be prepared. Using the Shopping Chart This is a chart prepared for the borrower that will enable them to compare GFEs from different loan originators. That enables the borrower to shop for the best loan. In order for the borrower to shop, the originator will need to answer the following questions: Initial Loan Amount Loan Term Initial Interest Rate Initial Monthly Amount Owed Rate Lock Period Can Interest Rate Rise? Can Loan Balance Rise? Can Monthly Amount Owed Rise? Prepayment Penalty? Balloon Payment? The statement at the end of Page 3 of the GFE If your loan is sold in the future lets the borrower know that if their loan is sold no changes will be made.
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LEARNING OBJECTIVES After participating in this module, you will be able to:
better understand annual percentage rate; be able to complete a truth in lending disclosure statement; have an understanding of documents required on a loan file; be able to explain the anatomy of a loan; understand how home value is estimated; and be able to read a HUD1.
requires that lenders provide a Truth in Lending (TIL) document to all loan applicants within three business days of receiving a loan application, disclosing all costs associated with making and closing the loan. Here is a breakdown of the some of the charges you may find on a Truth in Lending statement and what they mean: Annual percentage rate: The annual percentage rate (APR) is the cost of credit or the amount you will pay for the credit provided to you through the loan. APR is calculated at a yearly rate. It includes not only your contractual interest rate, but also any prepaid finance charges paid during or before the loans closing such as origination points, service fees or credit fees, commitment or discount fees, buyers points, finders feels, etc. as well as any private mortgage insurance (PMI). PMI is generally required if you put less than 20 percent down on a home. Note that the APR shown on the TIL disclosure statement always exceeds the quoted interest rate because of the additional items noted above. In essence the APR reflects the true cost of your loan. Click here to download a copy of the TIL in .pdf. Click here to download a copy of the APR Calculation Table in .pdf.
Your Truth in Lending statement will contain a number of additional disclosures below the payment schedule information. Some of these may include whether or not your loan has a demand feature and / or a variable rate feature. A demand feature allows the lender to demand payment of the loan for any reason. A variable rate feature means that your interest rate is not fixed and may change. This essentially indicates that you have an adjustable rate mortgage. There is also a section on the Truth in Lending statement that details the late charge terms. This line will tell you when you will be charged a late fee and how much that fee will be.
company. It is very challenging to write down every detail. It can save you a lot of time and also makes it easy for you to track the process of the loan. Understanding Conditions After you have submitted a complete file to a lender with initial required docs and the file has been submitted to underwriting, there are a number of things the underwriter could audit and review. Usually during this phase the underwriter will generally send you a list of conditions that must be submitted prior to preparing documents for closing as well as conditions that will have to be met prior to funding. In some cases an underwriter may suspend a file if the documents you submitted with the initial file are not clear are accurate. The key step in meeting conditions comes with knowing how to completely understand what the underwriter is requesting. If you have any doubt as to what the underwriter is asking for, you may want to contact an underwriter assistant or processor to obtain clarification. Dont just assume the underwriter is clear about what they need to complete the loan process.
For buying and selling, market value can indicate the most probable price at which a home should sell in a fair sale in a competitive market. INSURABLE VALUE: The insurable value - the cost of replacing your property if it were destroyed or damagedcan used to underwrite fire and hazard insurance. ASSESSMENT VALUE: Real estate taxes are generally based on the assessed value of your home, as estimated by your local assessor; this value is usually based on market value.
of your property's value. If you believe the assessed value is unfair, you may have the right to appeal the assessor's valuation. Many assessment appeals can be resolved with a telephone call or letter to your local assessor. If a dispute is carried beyond this point, however, you may want a professional appraiser to give you an independent opinion of value to bolster your appeal to the assessor. Insuring Your Home Although most reputable insurance brokers can tell you if your fire and hazard coverage is sufficient, there are properties that may require a closer examination - for example, older buildings, custom-built homes or properties with unusual features such as solar energy collectors. An appraiser can give an opinion of the insurable value of your home by using the cost approach.
comparison approach, the cost approach and the income capitalization approach. Wherever appropriate, all three methods are used in an appraisal. SALES COMPARISON APPROACH: The sales comparison approach is used to compare sales of similar properties, taking into account differences among properties that may affect value. The sales comparison approach is typically the most applicable method of valuing single-family houses, townhouses and condominiums. COST APPROACH: The cost approach is based on the current cost of replacing or reproducing a property. After estimating the cost of building the structures on a property, and deducting an amount for depreciation, the appraiser adds the estimated value of the land and arrives at an indication of value. This method is particularly useful for estimating insurable value.
What is the role of the appraiser? The role of the appraiser is to provide objective, impartial and unbiased opinions about the value of real property - providing assistance to those who own, manage, sell, invest in and/or lend money on the security of real estate. What qualifications must appraisers have? At minimum, all states require appraisers to be state licensed or certified in order to provide appraisals to federally regulated lenders. However, appraisers who become designated members of the Appraisal Institute have gone beyond these minimum requirements. They have fulfilled rigorous educational and experience requirements and must adhere to strict standards and a code of professional ethics. The Appraisal Institute currently confers the MAI membership designation on those who are experienced in the valuation of commercial, industrial, residential and other types of properties. The SRA membership designation is held by those who are experienced in the analysis and valuation of residential real property.
Line 101 The gross sales price of the property. Line 102 Charges for personal property (such items as draperies, washer, dryer, outdoor furniture, and decorative items being purchased from the seller) Line 103 The total settlement charges to the borrower brought forward from Line 1400 (this includes all charges to the borrower (loan officer, lender & title company fees) Lines 104 and 105 Amounts owed by the borrower or previously paid by the seller. Entries charged to the borrower include a balance in the seller's escrow account if the borrower is assuming the loan.
allowance the seller is making for repairs or replacement of items. This area is also used when the seller accepts a note from the borrower for part of the purchase price.
Entries for personal property (such items as draperies, washer, dryer, outdoor furniture and decorative items that the seller may be selling to the buyer). Lines 403 - 405 Other amounts owed by the borrower or previously paid by the seller, such as: If the borrower is assuming the seller's loan, he/she must reimburse the seller for the balance in the seller's escrow account. The buyer may owe the seller a portion of uncollected rents.
Shown as blank lines for miscellaneous entries. Used to record deposits paid by the borrower to the seller or another party who is not the settlement agent. This is slightly different than the entry in 501. In this case the party holding the funds transfers it to the settlement agent to be disbursed at closing. These lines may also be used to list additional liens, which must be paid at settlement to clear title to the property.
Division of Commission (line 700) as follows: Line 701 Monies to Listing Brokerage Company Line 702 Monies to Selling Brokerage Company Line 703 Total Commission paid at Settlement Line 704 Could be used to list any bonus paid to Listing or Selling Brokerage.
Credit Report Fee: This fee covers the cost of a credit report, which shows your credit history. The lender uses the information in a credit report to help decide whether or not to approve your loan and how much money to lend you. Line 806 Tax Service Fee Line 807 Flood Certification Line 808 Left Blank for any additional charges
Lines 1000 - 1007 Escrow Account Deposits: These lines identify the payment of taxes and/or insurance and other items that must be made at settlement to set up an escrow account. The lender is not allowed to collect more than a certain amount. The individual item deposits may overstate the amount that can be collected. The aggregate adjustment makes the correction in the amount on line 1008. It will be zero or a negative amount. Line 1001 Initial Deposit for your Escrow Account Line 1002 Homeowners Insurance months @ $ per month (The lender will determine how many month are to be collected It depends on the month in which you close; therefore you will need to check w/each lender to determine this amount.
this fee is split between the buyer and the seller. Line 1103 Owners Title Insurance - The cost of the owner's policy is shown here.
Line 1205 State Tax Stamps Deed $; Mortgage $ Line 1206 Intentionally Left Blank
(taxes), etc. between the seller and buyer. They compile the HUD-1 Settlement Statement in compliance with RESPA. The HUD-1 Settlement Statement is then compared to the GFE to verify the correct tolerance with all the disclosed fees. Explanation of Fees There are several fees associated with getting a loan. Some of the fees are paid upfront and some fees may have to be paid even if the loan does not close. Some of the typical fees that lenders charge include: Application Fee Credit Report Fee Appraisal Fee Explanation of Documents Promissory Note The promissory note (also called a mortgage note or real estate note) is a note the buyer gives to the lender promising to repay the amount of the loan plus interest. The note also states the amount of time the buyer has to repay the loan and what action the lender may take if the buyer fails to make the required payments. The note should state the interest rate and specify whether it is fixed or variable. The note also may contain provisions such as a balloon payment. It is important to note that the borrowers typical monthly payment to the lender is not solely for principal and interest owed on the note. Monthly payments might also include escrow payments for property taxes and insurance. Mortgage A mortgage involves only two parties: the borrower and the lender. It creates a lien on the property, which is recorded in the public land records. With a mortgage, the borrower has full title to the property but may not transfer ownership until the debt is paid off and the lien is released. If the debt is not paid, the lender has the right to sell the property, usually through judicial foreclosure. Truth In Lending This discloses the finance charge expressed as an APR (Annual Percentage Rate), the amount financed and total number of payments. HUD-1 Settlement Statement Standard form that shows all charges for the buyer and the seller in connection with the closing. Deed - A written document for the transfer of land or other real property from one person to another. Funding When the loan is approved (all conditions have been met and the closing papers are at the closing agents place of business to be signed), the loan funds are then disbursed to the proper parties. The parties would include the lender, mortgage loan originator, escrow company, buyer, seller and the real estate agent.
HOMEWORK
LEARNING OBJECTIVES After participating in this module, you will be able to:
understand what credit is; be able to explain how a credit score is determined; be able to understand what components affect a credit score; and be able to explain how to correct errors on a credit report.
You also should know that you are entitled to check your credit score with all three of the major credit bureaus once a year.
This is why you must understand what really counts against you, what doesnt and whats worse. While different lenders use different criteria and credit reporting systems use various scoring methods, there are a few basic rules.
you when it comes to credit reporting. Again, creditors are most concerned about your history paying back other loans and credit accounts. While theres no way to instantly improve your credit, you can do things to improve your credit situation.
You also do not have an excessive amount of credit card debt. Your credit score qualifies you for very competitive interest rates and terms, but maybe not the best that a lender has to offer.
contact each credit agency immediately. Doing this helps protect you against identity theft. Consumer statements The consumer statement section contains any comments submitted to the credit bureau to be included in your credit report. Usually this statement is an explanation of why a negative credit item is appearing on your report and will be taken into consideration by creditors and lenders. Check each credit agency's website for information on how to add or remove a consumer statement.
Number of accounts and types of credit held (10%): If you have many open credit accounts, you have greater potential to accrue more debt and your score may be reduced. As for types of credit held, more variety shows you have more experience with different accounts, reducing your possibility of being a credit risk. Highest scores usually involve a mix of revolving and installment accounts, showing that you know how to handle various types of credit.
You can generally request an investigation (which must be completed within 30 days) and rectify a dispute with each credit bureau online, by phone, or by mail. Visit the credit agencies' websites for more detailed information.
someone elses money. The amount of interest charged is set as a percentage of what you owe. It is usually expressed as an annual percentage rate. When you make your monthly payment to a creditor part of the payment is what you borrowed and part of the payment is the interest you owe.
What is a credit report? Your credit report provides a summary of your credit history and allows creditors to analyze whether or not you would be a risky borrower. A credit report is much like a report card that you would get in school - it is a report card for you level of credit responsibility. Your credit report includes your name, address, birth date, social security number, and the name of your employer. Various accounts with creditors (loans, credit cards, and certain other debts) are listed, showing how much credit has been extended and whether you have paid on time. If an account has ever been overdue or referred to a collections agency, this will also be noted. Public information such as bankruptcies, foreclosures, or tax liens will be included in your credit report. There will be a record of any request for your credit record within the past year and a record of any request related to employment for the past two years. It may also have information about your employment history, home ownership, income and previous addresses.
Experian P.O. Box 949 Allen, TX 75013 (888) 397-3742 http://www.creditexpert.com Trans Union P.O. Box 2000 Chester, PA 19022 (800) 888-4213 http://www.tuc.com
Sincerely, (Your Name) Enclosures: [list what you are enclosing, with one item listed on each line]
The most important thing to remember when negotiating with either a collections agency or a creditor is not agree to payment arrangements that you cannot afford to pay.
PAGE #308 - How does being married affect your credit report?
How does being married affect your credit report? You are responsible for your own debts and any debts that you incur jointly with your partner (or anyone else). You are not responsible for your partners individual debt. For example, if you and your partner have a credit card in both names, you are jointly responsible for the bills if you both signed the application.
for the better. As you do that, you'll be able to swap some of your higher-rate credit card debts, mortgages and auto loans for lower rate ones, and that will enable you to pay back the money you owe both faster and cheaper.
Monitor for Identity Theft. Another important reason to check your credit report regularly is for an early detection of identity theft. Identity theft is when someone uses your personal information - such as your name, Social Security number, credit card number or other identifying information - without your permission to make purchases, open accounts, take-out loans, buy cars and even get new jobs. By regularly checking your credit report from each of the credit reporting agencies, you can make sure it's accurate and includes only those activities you've authorized. If you suspect that your personal information has been hijacked and misappropriated to commit fraud or theft, take action immediately, and keep a record of your conversations and correspondence. These four basic actions are appropriate in almost every case: Contact the credit reporting agencies to place a "fraud alert" on your credit reports and to review your credit reports. Close any accounts that have been tampered with or opened fraudulently. File a report with your local police or the police in the community where the identity theft took place. File a complaint with the Federal Trade Commission.
Why should I improve my score? Everywhere you turn, you hear and read about credit scores. Are they really that important if you're not in the market for a loan or credit card? The answer is yes. Your credit score is important because it may affect every major purchase you will ever make. It may determine what interest rate you will be charged on a mortgage, car loan or credit card. Even your car insurance premiums can be higher due to a poor credit score. In some cases, your credit score can even determine whether you get that job offer you've been hoping for. Just remember: a poor score costs you more. Understanding Credit Report Score The analysis of personal or business statistics in a fiscal year results in a credit score. The credit report score is a document that enlists individual entries that affect the credit score. It is a compilation of the sensitive data that is accessible free of cost... The credit report score is a figure that is calculated on the basis of an algorithm that extrapolates the fiscal factors involved in analyzing personal or business credit worthiness. There are three credit bureaus that are authorized to issue credit report scores and reports. They are Equifax, Experian, and TransUnion. These three credit bureaus use standardized scoring models to generate a score from the entries compiled on the credit report.
PAGE #320 - Difference between credit report score and credit report
Difference between Credit Report Score and Credit Report: A credit report is a comprehensive report of sensitive financial data of a business or individual within a fiscal year. The data mapping appears as entries that are obtained from various dedicated resources, each handling a particular area of research. For example there are firms that assimilate loan and registration information, while others collect and analyze information on legal implications. The report is a document that leads to the calculation of a credit rating or score. On the other hand, a credit report score is a figure. Commonly, the score would be a three figure number like '708' or a three figure number and grade, like C 708. The score or rating is mainly used in competitor comparisons and excellent scores create a niche for an individual or business in the volatile fiscal arena.
score is monitored and periodically updated to highlight the latest developments on the consumer loan repayment rates. The score is obtained by comparing a consumer with personal or business competition. The common rostrum is accessed by considering other players within a similar population. The consumer is graded according to mathematical variables obtained on using the special formula. The score is the result of figures fed into a scoring model. The credit bureaus use different proprietary credit-scoring models and hence there is a visible difference in the scores obtained from all three. There is a median score and while the lowest scores are further from it, the highest scores surpass it. The governing law emphasizes that the credit-scoring models must be empirical in nature. They have to be statistically sound and result in accurate scores.
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PROOF1
LEARNING OBJECTIVES After participating in this module, you will be able to:
explain the meaning of Private Mortgage Insurance; be able to understand the cost of Private Mortgage Insurance; and better understand how to cancel Private Mortgage Insurance.
and 80/15/5 arrangements. Both involve obtaining a primary mortgage for 80% LTV. An 80/10/10 program uses a 10% LTV second mortgage with a 10% downpayment, and an 80/15/5 program uses a 15% LTV second mortgage with a 5% downpayment. Other combinations of second mortgage and downpayment amounts might also be available. One advantage of using these arrangements is that under United States tax law, mortgage interest payments may be deductible on the borrower's income taxes, whereas mortgage insurance premiums were not until 2007. In some situations, the all-in cost of borrowing may be cheaper using a piggy-back than by going with a single loan that includes borrower-paid or lender-paid MI.
Borrower-Paid Private Mortgage Insurance (BPMI or "Traditional Mortgage Insurance") is a default insurance on mortgage loans provided by private insurance companies and paid for by borrowers. BPMI allows borrowers to obtain a mortgage without having to provide 20% down payment, by covering the lender for the added risk of a high loan-to-value (LTV) mortgage. The US Homeowners Protection Act of 1998 requires PMI to be canceled when the amount owed reaches a certain level, particularly when the loan balance is 78 percent of the home's purchase price. Often, BPMI can be cancelled earlier by submitting a new appraisal showing that the loan balance is less than 80% of the home's value due to appreciation (this generally requires two years of on-time payments first).
delinquent on the date of automatic termination, the lender must terminate the coverage as soon thereafter as the loan becomes current. Lenders must terminate the coverage within 30 days of cancellation or the automatic termination date, and are not permitted to require PMI premiums after this date. Any unearned premiums must be returned to you within 45 days of the cancellation or termination date. For high risk loans, mortgage lenders or servicers are required to automatically cancel PMI coverage once the mortgage is paid down to 77 percent of the original value of the property, provided you are current on your loan.
PMI has been terminated, and the borrower no longer has PMI coverage. No further PMI premiums are due.
risks tend to have lower premiums than companies that insure products with a wider range of credit characteristics. Regardless of the premiums charged, the rates of return in 1993, as measured by the ratio of net income to insurance in force, seem similar among the well-established firms. Overall, the re-emergence of the PMI industry has greatly expanded the opportunities for homebuyers to take out conventional mortgage loans with low down payments. PMI is now available on a wide variety of loan programs and may be used for the purchase of homes with values far exceeding the FHA loan limits.
An integral part of the PMI business is the management of problem mortgages. Foreclosing on properties is both time-consuming and costly, and insurers attempt to avoid it. Insurers try to work with delinquent borrowers, mostly through lenders, but sometimes directly with borrowers. Insurers often stress counseling as a way of helping borrowers overcome payment difficulties. Insurers will try to determine the prospects for bringing the mortgage back to scheduled payments and may work out a plan with the borrower to do so. In some cases, however, encouraging borrowers to sell their properties may be the least costly method, for both insurer and borrower, of resolving problems.
Comparison of Costs Comparing the costs to a homebuyer of purchasing a home with an FHA-insured mortgage relative to the costs of a mortgage backed by PMI is difficult. The initial fee for government insurance is higher than for PMI, but government agencies allow the borrower to finance this fee as part of the mortgage. Furthermore, the FHA refunds part of the initial premium when the borrower prepays the mortgage within a specified period. On the other hand, PMI in some circumstances can be dropped once the household has accumulated at least a 20 percent equity position in the property, whereas the household must prepay the mortgage to drop FHA insurance. The price of FHA insurance also does not vary by the size of the borrower's down payment, whereas the premium rate for PMI is lower for households making larger down payments. Overall, households that have low debt payments relative to income and that are taking out mortgages with loan-to-value ratios between 80 percent and 95 percent are more likely to choose a mortgage backed by PMI.
tracking and payment. Lender Paid Mortgage Insurance In certain cases, instead of the borrower making premium payments on the loan amount, the lender makes the premium payments without the borrower being explicitly made aware of the premiums. In this case, the amount of the premium is typically built into the mortgage payment. Tax Treatment of Mortgage Insurance Premiums MIP payments may be tax deductible until 2010, however, there may be additional benefits that are available based on specific circumstances. MLOs should not provide tax advice to a borrower and should suggest the borrower speak to an accountant on this issue.
slightly different from those for refinancings. This relationship is somewhat surprising because of the large proportion of first-time homebuyers in the home-purchase category; such homebuyers typically have lower incomes than other homeowners and consequently take out smaller loans than homeowners who are refinancing.
The 1993 fourth-quarter data indicate that the rates of approval and denial for PMI vary somewhat among applicants grouped by their income. For example, about 87 percent of the applicants for insurance for home-purchase loans whose incomes placed them in the highest income group were approved for insurance, compared with 79 percent in the lowest income group (income less than 80 percent of the median of their MSA). Approval and denial rates for applicants from middle-income groups were similar to those for the highest income group. The same patterns were found for applications for insurance on refinancings.
opening new markets as well as by supporting their traditional core businesses. An example of the latter effect is that some special programs encourage applications from borrowers who were unaware that they could qualify for mainstream insurance programs. But like the traditional PMI programs, the affordable housing initiatives also face competition from the FHA and from lenders who extend mortgages to low and moderate income homebuyers without requiring mortgage insurance.
Multiple Applications Among the 456,404 applications for PMI acted on in the fourth quarter of 1993, 18,844, or 4.1 percent, appear to be multiple or "duplicate" applications. Multiple applications were identified by searching the mortgage insurance application data for records with identical census tracts, purpose of loan, race or ethnic status, applicant income, and loan size. For matches on applicant income and loan size, differences of $1,000 were allowed when identifying matches. In the overwhelming number of cases, a multiple match consisted of only two records, indicating that lenders typically did not submit a given application to more than two PMI companies.
The easiest way to avoid Private Mortgage Insurance is by putting down a 20% down payment but most borrowers cannot afford to do so. A piggy-back loan or a second mortgage on the property is another option. This was popular before 2007 because the interest payments on the second loan were tax deductible but the mortgage insurance payments were not. Now that both are tax deductible, borrowers often end up paying more on the second loan payments than what they would have paid for Private Mortgage Insurance. 80/10/10 and 80/15/5 are two popular variations of piggy-back loans where the borrower puts down 10% or 5% as down payment and the rest of the down payment is financed through a second mortgage. Borrowers should carefully examine the closing costs and interest payments on the second loan to see whether taking a second mortgage is better suited to them than paying for mortgage insurance.
LEARNING OBJECTIVES After participating in this module, you will be able to:
have a better understandings of real estate contracts; be able to explain Offer and Acceptance; understand the difference in contract law between the US and other countries; understand the importance of specific performance and how the mortgage process can affect a buyers contractual obligations; and understand contractual theory.
As may be the case with other contracts, real estate contracts may be formed by one party making an offer and another party accepting the offer. To be enforceable, the offers and acceptances must be in writing (Statute of Frauds, Common Law) and signed by the parties agreeing to the contract. Often, the party making the offer prepares a written real estate contract, signs it, and transmits it to the other party who would accept the offer by signing the contract. As with all other types of legal offers, the other party may accept the offer, reject it - in which case the offer is terminated, make a counteroffer in which case the original offer is terminated, or not respond to the offer - in which case the offer terminates if an expiration date is placed in it. Before the offer (or counteroffer) is accepted, the offering (or countering) party can withdraw it. A counteroffer may be countered with yet another offer, and a counteroffering process may go on indefinitely between the parties.
Contract in Law In law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy.
of 'meeting of minds' may come from a misunderstanding of the Latin term 'consensus ad idem', which actually means 'agreement to the [same] thing'. There must be evidence that the parties had each from an objective perspective engaged in conduct manifesting their assent, and a contract will be formed when the parties have met such a requirement. An objective perspective means that it is only necessary that somebody gives the impression of offering or accepting contractual terms in the eyes of a reasonable person, not that they actually did want to form a contract.
the combining by 19th century judges of two distinct threads: first the consideration requirement was at the heart of the action of assumpsit, which had grown up in the Middle Ages and remained the normal action for breach of a simple contract in England & Wales until 1884, when the old forms of action were abolished; secondly, the notion of agreement between two or more parties as being the essential legal and moral foundation of contract in all legal systems, promoted by the 18th century French writer Pothier in his Traite des Obligations, much read (especially after translation into English in 1805) by English judges and jurists. The latter chimed well with the fashionable will theories of the time, especially John Stuart Mill's influential ideas on free will, and got grafted on to the traditional common law requirement for consideration to ground an action in assumpsit.
then there will be good consideration for the promise to discharge the debt. This rule has suffered some inroads recently. In Williams v. Roffey Bros & Nicholls (Contractors) Ltd the English Court of Appeal held that a promise by a joiner to complete the contracted work on time, where this was falling behind, was good consideration for the contractor's promise to pay extra money. The reasoning adopted was that the strict rule of Stilk v. Myrick was no longer necessary, as English law now recognized a doctrine of economic duress to vitiate promises obtained when the promisor was "over a barrel" for financial reasons.
An offer of a unilateral contract may often be made to many people (or 'to the world') by means of an advertisement. In that situation, acceptance will only occur on satisfaction of the condition (such as the finding of the offeror's dog). If the condition is something that only one party can perform, both the offeror and offeree are protected the offeror is protected because he will only ever be contractually obliged to one of the many offerees; and the offeree is protected, because if she does perform the condition, the offeror will be contractually obliged to pay her.
crimes. Fines can be multiplied by multiple factors for such damages. Some jurisdictions do not allow exemplary damages for breach of contract.
effort without undue risk, expense, or humiliation. Hadley v. Baxendale establishes general and consequential damages. General damages are those damages which naturally flow from a breach of contract. Consequential damages are those damages which, although not naturally flowing from a breach, are naturally supposed by both parties at the time of contract formation. An example would be when someone rents a car to get to a business meeting, but when that person arrives to pick up the car, it is not there. General damages would be the cost of renting a different car. Consequential damages would be the lost business if that person was unable to get to the meeting, if both parties knew the reason the party was renting the car. However, there is still a duty to cover; the fact that the car was not there does not give the party a right to not attempt to rent another car.
Contract theory is the body of legal theory that addresses normative and conceptual questions in contract law. One of the most important questions asked in contract theory is why contracts are enforced. One prominent answer to this question focuses on the economic benefits of enforcing bargains. Another approach, associated with Charles Fried, maintains that the purpose of contract law is to enforce promises. This theory is developed in Fried's book, Contract as Promise. Other approaches to contract theory are found in the writings of legal realists and critical legal studies theorists.
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LEARNING OBJECTIVES After participating in this module, you will be able to:
explain the history of title insurance; be able to explain the different types of title policies; better understand the charges for title insurance; and explain why a buyer needs title insurance.
History Prior to the invention of title insurance buyers in real estate transactions bore sole responsibility for ensuring the validity of the land title held by the seller. If the title were later deemed invalid or found to be fraudulent, the buyer lost his investment. In 1868, the case of Watson v. Muirhead was heard by the Pennsylvania Supreme Court. Plaintiff Muirhead had lost his investment in a real estate transaction as the result of a prior lien on the property. Defendant Watson, the conveyancer, had discovered the lien prior to the sale but told Muirhead the title was clear after his lawyer had (erroneously) determined that the lien was not valid. The courts ruled that Watson (and others in similar situations) was not liable for mistakes based on professional opinions. As a result, in 1874, the Pennsylvania legislature passed an act allowing for the incorporation of title insurance companies.
recorders' offices pursuant to various rules established by state legislatures and courts, scrutinizing the instruments to which they refer and making the determination of how they affect the title under applicable law. (The final arbiters of title matters are the courts, which make decisions in suits brought by parties having disagreements.) Initially, this was done by hiring an abstractor to search for the documents affecting the title to the land in question and an attorney to opine on their meaning under the law, and this is still done in some places. However, this procedure has been found to be cumbersome and inefficient in most of the US. Substantial errors made by the abstractor or the attorney will be compensated only to the limit of the financial responsibility of these parties (including their liability insurance). Some errors may not be compensated at all, depending on whether the error was the result of negligence. The opinions given by attorneys as to each title are not uniform and often require time consuming analysis to determine their meanings.
detailed information to the consumer as to the price of title search and insurance before the real estate contract is signed. Title insurance coverage lasts as long as the insured retains an interest in the land insured and typically no additional premium is paid after the policy is issued.
issue title insurance; it provides standardized policy and endorsement forms that most title insurers issue.
amounted to a high percentage of the losses paid by the insurers. A more significant percentage of losses paid by the insurers are the result of errors and omissions in the title examining process itself.
apply if it has been more than ten years since the last policy was issued. Less than ten years, the reissue rate applies. The reissue rate offers a discount of approximately ten percent off of the basic rate. If the transaction is a refinance, the savings can be as much as thirty percent off of the reissue rate. These rates and applicable discounts are filed with and approved by the Pennsylvania Insurance commission. Applicable discounts are mandatory not optional. Service fees In some states, the regulated premium charge does not include part of the underwriting costs necessary for the process. In those states, title insurers may also charge search or abstracting fees for searching the public records, or examination fees to compensate them for the title examination. These fees are usually not regulated and in those cases may sometimes be negotiated. In some states, regulation requires that the title insurer base its policy on the opinion of an attorney. The attorney's fees are not regulated. They are also not part of the title insurance premium, though the title insurer may include those fees within its invoice as a convenience to the attorney rendering the opinion. Similarly, fees for closing a sale or mortgage transaction are not regulated in most states though the charge for closing may appear in the invoice disclosing the total charges for the transaction.
Not necessarily. There are two types of Title Insurance. Your lender likely will require that you purchase a Lender's Policy. This policy only insures that the financial institution has a valid, enforceable lien on the property. Most lenders require this type of insurance, and typically require the borrower to pay for it. An Owner's Policy on the other hand is designed to protect you from title defects that existed prior to the issue date of your policy. Title troubles, such as improper estate proceedings or pending legal action, could put your equity at serious risk. If a valid claim is filed, in addition to financial loss up to the face amount of the policy, your owner's title policy covers the full cost of any legal defense of your title. How much does Title Insurance cost? The one-time premium is directly related to the value of your home. Typically, it is less expensive than your annual auto insurance. It is a one-time only expense, paid when you purchase your home. Yet it continues to provide complete coverage for as long as you or your heirs own the property.
Invoices for any unpaid taxes, utilities, assessments, and latest utilities meter readings Receipts for last payment of interest on mortgages Bill of Sale of personal property covered by the purchase agreement Any unrecorded instruments that affect the title Proof of satisfaction of any mechanics' liens, chattel mortgages, judgments, or mortgages that were paid prior to the closing Photo identification (passport, driver's license, or state-issued identification card)
financial protection through a reduction of the risk of insolvency; and the assumption of risks beyond those disclosed in the public records (for which the abstractor was not liable). Since the late 1800s, the title insurance industry has grown to where it now is; an essential component in an overwhelming majority of real estate transactions in this country. The services provided by the title insurers may vary somewhat from one area of the country to the other, reflecting the different laws, customs and procedures of the various states and counties throughout the nation. But the essential purpose of these services is the same to assist all of the parties in real estate transactions by ensuring that the acquisition or transfer of an interest in real estate can be effected with a maximum degree of efficiency, security and safety.
acquires, but the sellers rights and interests, "the seller's title," in the property. It is essential for the prospective purchaser to know before the transaction takes place, precisely what rights or interests the seller can convey. The purchaser also needs to know who else may have rights or interest in the property, and about any encumbrances against the property that may affect the use or enjoyment of the land. The title search must cover all these rights and interests. Benefits of Title Insurance Title insurance typically provides a broad range of benefits to the parties involved in a real estate transaction.
protection than would be afforded by the attorney's opinion alone. The attorney's opinion is generally limited to recorded matters and the client can only recover from the attorney if the attorney is found to be negligent.
In some parts of the country, predominantly in the northeast, the counties' records are maintained in Grantor/Grantee books that index properties by seller's and buyer's names and are laborious to search. In some states, the county real estate records are indexed in a Tract Index similar to a title company's title plant. A tract index indexes properties by the property location, i.e., lot number, and if reliable, title companies may use them instead of going to the expense of building their own title plants.
yourself. However, you were advised by a trusted and competent advisor that you do not need an owner's title policy. "Once they search the title to protect the lender, you know your chain is good. So why pay the extra money for an owner's policy." Good advice? Not when that claim comes in.
insurance would cost only $871. Also, today $1,020 will purchase $127,000 of title insurance coverage. Source: Texas Land Title Association
because many contract forms then add another phrase which may totally or substantially remove the protection afforded by the desired phrase. The key problematical language to look for is "subject to" any matters of record. Where a contract, on the one hand, requires a seller to transfer "good and marketable title," etc. but then, on the other hand, says that the title conveyed may be "subject to" matters of record, the right hand may taketh away what the left hand giveth.
would expose the company to additional and unwanted risk). In any event, it should be obvious that the interests of the title insurance company and its agents are diametrically opposed to the best interests of the homebuyer when it comes to deciding what your final policy will and will not cover. You need someone to represent you in the transaction who is knowledgeable, free of conflicting interests and committed to protecting your interests above all others. Owner's title insurance can provide you with important protections that are not afforded by an attorney's title opinion or, even, an attorney's review of a title abstract. For example, title insurance can protect you against claims that even the most careful title examination would not reveal, like a forged deed in the chain of title, defective conveyances from people thought to be single who were really married (the missing spouse may turn up later to claim her "rights"), people erroneously believed to be dead, defective deeds executed by minors or mental incompetents and claims by missing and previously unknown heirs.
HOMEWORK
LEARNING OBJECTIVES After participating in this module, you will be able to:
explain possible solutions for distressed or delinquent borrowers; understand government bailout pros and cons; and list various government or government supported programs.
All major corporations, even highly profitable ones, borrow money to finance their operations. In theory, the lower interest rate paid to the lender is offset by the higher return obtained from the investments made using the borrowed funds. Corporations regularly borrow for a period of time and periodically "rollover" or pay back the borrowed amounts and obtain new loans in the credit markets, a generic term for places where investors can provide funds through financial institutions to these corporations. The term liquidity refers to this ability to borrow funds in the credit markets or pay immediate obligations with available cash. Prior to the crisis, many companies borrowed short-term in liquid markets to purchase long-term, illiquid assets like mortgage-backed securities (MBS), profiting on the difference between lower short-term rates and higher long-term rates. Some have been unable to "rollover" this short-term debt due to disruptions in the credit markets, forcing them to sell long-term, illiquid assets at fire-sale prices and suffering huge losses.
urgent need to recapitalize banks and may make it more politically difficult to take necessary action. Research by JP Morgan and Wachovia indicates that the value of toxic assets issued during late 2005 to mid-2007 are worth between 5 cents and 32 cents on the dollar. Approximately $305 billion of the $450 billion of such assets created during the period are in default. By another indicator, toxic assets are worth about 40 cents on the dollar, depending on the precise vintage (period of origin).
investment. The crisis has caused unemployment to rise and GDP to decline at a significant annual rate during Quarter 4 of 2008. On February 13, 2008, former President George W. Bush signed into law a $168 billion economic stimulus package, mainly taking the form of income tax rebate checks mailed directly to taxpayers. Checks were mailed starting the week of April 28, 2008. On February 17, 2009, U.S. President Barack Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA), an $800 billion stimulus package with a broad spectrum of spending and tax cuts.
United States 2000's According to the FDIC chairman, Sheila C. Bair, looking back as far as the 1980s, "the FDIC applied workout procedures for troubled loans out of bank failures, modifying loans to make them affordable and to turn non-performing into performing loans." The U.S. housing boom of the first half of this decade ended abruptly in 2006. Housing starts, which peaked at more than 2 million units in 2005, have plummeted to just over half that level. Home prices, which were increasing at double-digit rates nationally in 2004 and 2005, are now (in 2006) falling in many areas across the country.
During 2007, investors and ratings agencies have repeatedly downgraded assumptions about sub-prime credit performance. A Merrill Lynch study published in July estimated that if U.S. home prices fell only 5 percent, subprime credit losses to investors would total just under $150 billion, and Alt-A credit losses would total $25 billion. On the heels of this report came news that the S&P/Case-Shiller Composite Home Price Index for 10 large U.S. cities had fallen in August to a level that was already 5 percent lower than a year ago, with the likelihood of a similar decline over the coming year. The complexity of many mortgage-backed securitization structures has heightened the overall risk aversion of investors, resulting in what has become a broader illiquidity in global credit markets. These disruptions have led to a precipitous decline in sub-prime lending, a significant reduction in the availability of Alt-A loans, and higher interest rates on jumbo loans. The tightening in mortgage credit has placed further downward pressure on home sales and home prices, a situation that now could derail the U.S. economic expansion.
Under the financial rescue package, the Treasury plans to directly inject $250 billion of capital into U.S. banks in exchange for preferred shares. Nine of the largest U.S. banks were essentially arm-twisted into signing on for the first $125 billion in capital infusions. "Those of us who have looked to the selfinterest of lending institutions to protect shareholder's equity ... are in a state of shocked disbelief," said the former Fed chief. "Specifically, the government could establish standards for loan modifications and provide guarantees for loans meeting those standards," Bair said. "By doing so, unaffordable loans could be converted into loans that are sustainable over the long term." Bair made clear that she considers existing voluntary loan modification programs inadequate. "We are falling badly behind and more needs to be done," she said on a day when RealtyTrac announced U.S. home foreclosure filings in the third quarter 2008 were 71% above the comparable period a year earlier.
will step up in annual increments to either the original loan interest rate or the market interest rate at the time of the modification, whichever is lower; Forbearing on a portion of the principal, which will require the borrower to make a balloon payment when the loan matures, is paid off, or is refinanced.
Raises maximum loan to value (LTV) from 90% to 93% for borrowers above a 31% mortgage debt to income (DTI) ratio or above a 43% ratio Eliminates government profit sharing of appreciation over market value of home at time of refi. Retains government declining share (from 100% to 50% after five years) of equity created by the refi, to be paid at time of sale or refi as an exit fee Authorizes payments to servicers participating in successful refis Administrative simplification: eliminates borrower certifications regarding not intentionally defaulting on any debt, eliminates special requirement to collect 2 years of tax returns, eliminates originator liability for first payment default, eliminates March 1, 2008 31% DTI test, eliminates prohibition against taking out future second loans, requires Board to make documents, forms, and procedures conform to those under normal FHA loans to the maximum extent possible consistent with statutory requirements.
BLOG
LEARNING OBJECTIVES After participating in this module, you will be able to:
explain the background of the sub-prime market; better understand how credit affected the sub-prime market; and be able to list various impacts on the market that occurred from the financial sector employing sub-prime loans.
Background and timeline of events The immediate cause or trigger of the crisis was the bursting of the United States housing bubble which peaked in approximately 20052006. High default rates on "subprime" and adjustable rate mortgages (ARM) began to increase quickly thereafter. An increase in loan incentives such as easy initial terms and a long-term trend of rising housing prices had encouraged borrowers to assume difficult mortgages in the belief they would be able to quickly refinance at more favorable terms. However, once interest rates began to rise and housing prices started to drop moderately in 20062007 in many parts of the U.S., refinancing became more difficult. Defaults and foreclosure activity increased dramatically as easy initial terms expired, home prices failed to go up as anticipated, and ARM interest rates reset higher. Falling prices also resulted in homes worth less than the mortgage loan, providing a financial incentive to enter foreclosure. The ongoing foreclosure epidemic that began in late 2006 in the U.S. continues to be a key factor in the global economic crisis, because it drains wealth from consumers and erodes the financial strength of banking institutions.
corporations had suffered about $8 trillion in losses, as their holdings declined in value from $20 trillion to $12 trillion. Losses in other countries have averaged about 40%. Losses in the stock markets and housing value declines place further downward pressure on consumer spending, a key economic engine. Leaders of the larger developed and emerging nations met in November 2008 and March 2009 to formulate strategies for addressing the crisis. As of April 2009, many of the root causes of the crisis had yet to be addressed. A variety of solutions have been proposed by government officials, central bankers, economists, and business executives.
In its "Declaration of the Summit on Financial Markets and the World Economy," dated November 15, 2008, leaders of the Group of 20 cited the following causes: During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.
lowers homeowners' equity. The decline in mortgage payments also reduces the value of mortgagebacked securities, which erodes the net worth and financial health of banks. This vicious cycle is at the heart of the crisis. By September 2008, average U.S. housing prices had declined by over 20% from their mid-2006 peak. This major and unexpected decline in house prices means that many borrowers have zero or negative equity in their homes, meaning their homes were worth less than their mortgages. As of March 2008, an estimated 8.8 million borrowers - 10.8% of all homeowners had negative equity in their homes, a number that is believed to have risen to 12 million by November 2008. Borrowers in this situation have an incentive to default on their mortgages as a mortgage is typically nonrecourse debt secured against the property. Economist Stan Leibowitz argued in the Wall Street Journal that although only 12% of homes had negative equity, they comprised 47% of foreclosures during the second half of 2008. He concluded that the extent of equity in the home was the key factor in foreclosure, rather than the type of loan, credit worthiness of the borrower, or ability to pay. Increasing foreclosure rates increases the inventory of houses offered for sale. The number of new homes sold in 2007 was 26.4% less than in the preceding year. By January 2008, the inventory of unsold new homes was 9.8 times the December 2007 sales volume, the highest value of this ratio since 1981. Furthermore, nearly four million existing homes were for sale, of which almost 2.9 million were vacant. This overhang of unsold homes lowered house prices. As prices declined, more homeowners were at risk of default or foreclosure. House prices are expected to continue declining until this inventory of unsold homes (an instance of excess supply) declines to normal levels.
originations) in 1994, 9% in 1996, $160 billion (13%) in 1999, and $600 billion (20%) in 2006. A study by the Federal Reserve found that the average difference between subprime and prime mortgage interest rates (the "subprime markup") declined significantly between 2001 and 2007. The combination of declining risk premia and credit standards is common to boom and bust credit cycles. In addition to considering higher-risk borrowers, lenders have offered increasingly risky loan options and borrowing incentives. In 2005, the median down payment for first-time home buyers was 2%, with 43% of those buyers making no down payment whatsoever. By comparison, China has down payment requirements that exceed 20%, with higher amounts for non-primary residences.
NPR described it this way: The problem was that even though housing prices were going through the roof, people weren't making any more money. From 2000 to 2007, the median household income stayed flat. And so the more prices rose, the more tenuous the whole thing became. No matter how lax lending standards got, no matter how many exotic mortgage products were created to shoehorn people into homes they couldn't possibly afford, no matter what the mortgage machine tried, the people just couldn't swing it. By late 2006, the average home cost nearly four times what the average family made. Historically it was between two and three times. And mortgage lenders noticed something that they'd almost never seen before. People would close on a house, sign all the mortgage papers, and then default on their very first payment. No loss of a job, no medical emergency, they were underwater before they even started. And although no one could really hear it, that was probably the moment when one of the biggest speculative bubbles in American history popped.
year before dropping to $90 billion per year, which included $350 billion of Alt-A securities. Fannie Mae had stopped buying Alt-A products in the early 1990s because of the high risk of default. By 2008, the Fannie Mae and Freddie Mac owned, either directly or through mortgage pools they sponsored, $5.1 trillion in residential mortgages, about half the total U.S. mortgage market. The GSE have always been highly leveraged, their net worth as of 30 June 2008 being a mere US$114 billion. When concerns arose in September 2008 regarding the ability of the GSE to make good on their guarantees, the Federal government was forced to place the companies into a conservatorship, effectively nationalizing them at the taxpayers' expense.
A contributing factor to the rise in house prices was the Federal Reserve's lowering of interest rates early in the decade. From 2000 to 2003, the Federal Reserve lowered the federal funds rate target from 6.5% to 1.0%. This was done to soften the effects of the collapse of the dot-com bubble and of the September 2001 terrorist attacks, and to combat the perceived risk of deflation. The Fed believed that interest rates could be lowered safely primarily because the rate of inflation was low; it disregarded other important factors. Richard W. Fisher, President and CEO of the Federal Reserve Bank of Dallas, said that the Fed's interest rate policy during the early 2000s was misguided, because measured inflation in those years was below true inflation, which led to a monetary policy that contributed to the housing bubble. According to Ben Bernanke, now chairman of the Federal Reserve, it was capital or savings pushing into the United States, due to a world-wide "saving glut", which kept long term interest rates low independently of Central Bank action. The Fed then raised the Fed funds rate significantly between July 2004 and July 2006. This contributed to an increase in 1-year and 5-year ARM rates, making ARM interest rate resets more expensive for homeowners. This may have also contributed to the deflating of the housing bubble, as asset prices generally move inversely to interest rates and it became riskier to speculate in housing.
their books during 2009, which will significantly reduce their capital ratios. One news agency estimated this amount to be between $500 billion and $1 trillion. This effect was considered as part of the stress tests performed by the government during 2009. Martin Wolf wrote in June 2009: " an enormous part of what banks did in the early part of this decade the off-balance-sheet vehicles, the derivatives and the 'shadow banking system' itself was to find a way round regulation."
confidence of trading partners in Merrill Lynch's solvency and its ability to refinance its short-term debt led to its acquisition by the Bank of America. Economist Joseph Stiglitz summarized how credit default swaps contributed to the systemic meltdown: "With this complicated intertwining of bets of great magnitude, no one could be sure of the financial position of anyone else-or even of one's own position. Not surprisingly, the credit markets froze."
stated that the "combined effect of these factors was a financial system vulnerable to self-reinforcing asset price and credit cycles."
Financial speculation in commodity futures following the collapse of the financial derivatives markets has contributed to the world food price crisis and oil price increases due to a "commodities super-cycle." Financial speculators seeking quick returns have removed trillions of dollars from equities and mortgage bonds, some of which has been invested into food and raw materials.
agencies and regulators, as well as political officials, began to take additional, more comprehensive steps to handle the crisis.
The FDIC deposit insurance fund, supported by fees on insured banks, fell to $13 billion in the first quarter of 2009. That is the lowest total since September 1993.
Eric Dinallo: Ensure any financial institution has the necessary capital to support its financial commitments. Regulate credit derivatives and ensure they are traded on well-capitalized exchanges to limit counterparty risk. Raghuram Rajan: Require financial institutions to maintain sufficient "contingent capital" (i.e., pay insurance premiums to the government during boom periods, in exchange for payments during a downturn.) Michael Spence and Gordon Brown: Establish an early-warning system to help detect systemic risk. Niall Ferguson and Jeffrey Sachs: Impose haircuts on bondholders and counterparties prior to using taxpayer money in bailouts. Nouriel Roubini: Nationalize insolvent banks. Reduce debt levels across the financial system through debt for equity swaps. Reduce mortgage balances to assist homeowners, giving the lender a share in any future home appreciation. Paul McCulley advocated "counter-cyclical regulatory policy to help modulate human nature." He cited the work of economist Hyman Minsky, who believed that human behavior is pro-cyclical, meaning it amplifies the extent of booms and busts. In other words, humans are momentum investors rather than value investors. Counter-cyclical policies would include increasing capital requirements during boom periods and reducing them during busts.
Fareed Zakaria believes that the crisis may force Americans and their government to live within their means. Further, some of the best minds may be redeployed from financial engineering to more valuable business activities, or to science and technology. Roger Altman wrote that "the crash of 2008 has inflicted profound damage on [the U.S.] financial system, its economy, and its standing in the world; the crisis is an important geopolitical setback the crisis has coincided with historical forces that were already shifting the world's focus away from the United States. Over the medium term, the United States will have to operate from a smaller global platform - while others, especially China, will have a chance to rise faster."
homes is largely liquidated, and home price deflation comes to an end. That will stabilize the now-uncertain value of the home equity that acts as a buffer for all home mortgages, but most importantly for those held as collateral for residential mortgage-backed securities. Very large losses will, no doubt, be taken as a consequence of the crisis. But after a period of protracted adjustment, the U.S. economy, and the world economy more generally, will be able to get back to business.
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PROOF2
LEARNING OBJECTIVES After participating in this module, you will be able to:
to discuss the history of Fannie Mae; be able to discuss the history of Freddie Mac; and be able to explain various changes to reform Fannie Mae and Freddie Mac.
Fannie Mae was established in 1938 as a mechanism to make mortgages more available to low-income families. It was added to the Federal Home Mortgage association, a government agency in the wake of the Great Depression in 1938, as part of Franklin Delano Roosevelt's New Deal in order to facilitate liquidity within the mortgage market. In 1968, the government converted Fannie Mae into a private shareholder-owned corporation in order to remove its activity from the annual balance sheet of the federal budget. Consequently, Fannie Mae ceased to be the guarantor of government-issued mortgages, and that responsibility was transferred to the new Government National Mortgage Association (Ginnie Mae).
As Daniel Mudd, then President and CEO of Fannie Mae, testified in 2007, instead the agency's responsible underwriting requirements drove business into the arms of the private mortgage industry who marketed aggressive products without regard to future consequences: "We also set conservative underwriting standards for loans we finance to ensure the homebuyers can afford their loans over the long term. We sought to bring the standards we apply to the prime space to the subprime market with our industry partners primarily to expand our services to underserved families.
On December 16, 2003, President George W. Bush signed the American Dream Downpayment Act, a new program that provided grants to help home buyers with downpayment and closing costs. The act authorized $200 million dollars per year for the program for fiscal years 2004-2007. President Bush also tripled the funding for organizations like Habitat for Humanity that help families help themselves become homeowners through 'sweat equity' and volunteerism in their communities. Substantially increasing, by at least $440 billion, the financial commitment made by the governmentsponsored enterprises involved in the secondary mortgage market specifically targeted toward the minority market.
There is a wide belief that FNMA securities are backed by some sort of implied federal guarantee, and a majority of investors believe that the government would prevent a disastrous default. Vernon L. Smith, 2002 Nobel Laureate in economics, has called FHLMC and FNMA "implicitly taxpayer-backed agencies". The Economist has referred to "the implicit government guarantee" of FHLMC and FNMA. In testimony before the House and Senate Banking Committee in 2004, Alan Greenspan expressed the belief that Fannie Mae's (weak) financial position was the result of markets believing that the U.S. Government would never allow Fannie Mae (or Freddie Mac) to fail.
others. Moody's changed the credit rating on that day to Baa3, the lowest investment grade credit rating. Freddie's senior debt credit rating remains Aaa/AAA from each of the major ratings agencies Moody's, S&P, and Fitch. As of the start of the conservatorship, the United States Department of the Treasury had contracted to acquire US$1 billion in Freddie Mac senior preferred stock, paying at a rate of 10 percent a year, and the total investment may subsequently rise to as much as US$ 100 billion. Home loan interest rates may go down as a result, and owners of Freddie Mac debt and the Asian central banks who had increased their holdings in these bonds may be protected. Shares of Freddie Mac stock, however, plummeted to about one U.S. dollar on September 8, 2008. The yield on U.S Treasury securities rose in anticipation of increased U.S. federal debt.
to sell (fewer competing buyers); thus it would cost the consumer more (typically to of a percentage point, and sometimes more, depending on credit market conditions). OFHEO annually sets the limit of the size of a conforming loan in response to the October to October change in mean home price. The conforming loan limit for 2009 used by lenders is $417,000 (much lower than OFHEO limits). Above that conforming loan limit, a mortgage is considered a non-conforming jumbo loan. The conforming loan limit is 50 percent higher in such high-cost areas as Alaska, Hawaii, Guam and the US Virgin Islands, and is also higher for 2-4 unit properties on a graduating scale.
The failure of Congress to address these broader issues stems from a flawed reform process that focused on Fannie Maes Enron-like behavior instead of the statutory privileges that have allowed it to amass enormous market power. Together, these two GSEs control half of the residential mortgage market, deterring competition and forcing the housing and housing finance markets to rely on two financially unstable co-monopolists. With such market power concentrated in the hands of only two companies, the stability of U.S. financial markets could be undermined by financial problems in just one of them. Of course, if a bailout ever becomes necessary, the taxpayers could end up paying the bill. In recent years, there have been a number of proposals to reform these GSEs. Some involve more regulation, others urge the creation of more GSEs to foster competition among government-subsidized entities, and still others would eliminate the statutory privileges that tie the GSEs to the taxpayer.
goal, the GSEs use their preferred credit rating to borrow in major financial markets and use the funds raised to acquire residential mortgages from brokers and other mortgage originators, earning profits and covering expenses on the difference in the interest rates earned and paid. The GSEs also package mortgages acquired from originators into pass through securities that are collateralized with qualified residential mortgages. Payments of principal and interest made by the homeowners are then passed through to the investors holding the securities.
Is Fannie Mae Really Needed? However, independent analysts have looked into the matter and have found little evidence that the FNMA, FMLMC, and FHLB make much of a difference in how many new homes are built or how many Americans become homeowners. In fact, a broad review of the evidence accumulated in the postwar era suggests that their impact on homeownership is inconsequential. Specifically, in 1965, when the GSE presence in the mortgage market was slightly above 6 percent, Americas homeownership rate was 63.3 percent. In 1990, after outstanding residential mortgage credit had expanded more than tenfold from $220.8 billion in 1965 to $2.6 trillion in 1990 and after the federal and GSE presence in the residential mortgage market had grown from 6 percent in 1965 to 48 percent in 1990, Americas homeownership rate was at 63.9 percent - virtually identical to the rate 25 years earlier. Expressed another way, the $1.24 trillion increase in federal and GSE involvement in the mortgage market was associated with an increase of less than 0.6 percentage points in the homeownership rate. In this regard, it is worth noting that Americas greatest surge in homeownership took place between 1946 and 1960, when homeownership jumped from the mid-40 percent range at the end of World War II to 62 percent in 1960, when the FNMAs activity was still limited and the FHLMC did not yet exist.
credit markets were perfectly capable of driving the homeownership rate into the mid-60 percent range. However, as more credit is forced into the system through the creation and expansion of subsidized GSEs, mortgage interest rates may fall somewhat, but this encourages private financial institutions that provide housing credit to look elsewhere for investments with better yields. While the slightly lower interest rates encourage and/or allow some moderate-income borrowers on the margin of eligibility to become homeowners, this stimulative effect may be partly or wholly offset by a credit-induced rise in home prices in excess of the growth in personal incomes.
With mortgage interest payments still deductible from income for state and federal tax purposes, more and more households use mortgage credit obtained through a mortgage refinancing to buy a car, conduct home improvements, consolidate personal debt, or pay for a college education because the interest payment that would otherwise be incurred on debt accumulated directly for these reasons such as a car loan from a dealer or a student loan from a bank - is not tax-deductible. In part, this privileged use of debt, combined with substantial home price inflation, explains why outstanding residential mortgage credit has nearly tripled since 1990 while housing production and homeownership have expanded at a much slower pace.
From the beginning of our discussions, you and I have agreed to avoid disrupting the capital markets by indicating a wish to change Fannie Maes charter, status, or mission.
However, the greater risk is not that additional regulation of the GSEs will render them merely useless, but that it will render them both useless and dangerous. As past practices reveal, it is likely that Fannie Mae and Freddie Mac will soon co-opt the regulators as they have done so adeptly in the past. The Fannie Mae Foundations $500 million of goodwill spending will buy the company helpful and influential supporters by the trainload. One merely needs to read the transcript of a recent congressional hearing for a sense of the loyal following that Fannie Mae has assembled in Congress.
BLOG
LEARNING OBJECTIVES After participating in this module, you will be able to:
define loan to value, interest, and other mortgage math terms; be able to calculate interest; and be able to complete other mortgage math calculations.
Loan to value The loan-to-value (LTV) ratio expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. For instance, if a borrower wants $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000/$150,000 or 87%. Loan to value is one of the key risk factors that lenders assess when qualifying borrowers for a mortgage. The risk of default is always at the forefront of lending decisions, and the likelihood of a lender absorbing a loss in the foreclosure process increases as the amount of equity decreases. Therefore, as the LTV ratio of a loan increases, the qualification guidelines for certain mortgage programs become much more strict. Lenders can require borrowers of high LTV loans to buy mortgage insurance to protect the lender from the buyer default, which increases the costs of the mortgage.
The term "Combined Loan To Value" adds additional specificity to the basic Loan to Value which simply indicates the ratio between one primary loan and the property value. When "Combined" is added, it indicates that additional loans on the property have been considered in the calculation of the percentage ratio. The aggregate principal balance(s) of all mortgages on a property divided by its appraised value or Purchase Price, whichever is less. Distinguishing CLTV from LTV serves to identify loan scenarios that involve more than one mortgage. For example, a property valued at $100,000 with a single mortgage of $50,000 has an LTV of 50%. A similar property with a value of $100,000 with a first mortgage of $50,000 and a second mortgage of $25,000 has an aggregate mortgage balance of $75,000. The CLTV is 75%. Combined Loan to Value is an amount in addition to the Loan to Value, which simply represents the first position mortgage or loan as a percentage of the property's value.
where r is the period interest rate (I/m), B0 the initial balance and m the number of time periods elapsed.
and he would have to pay $2581.19 to pay off the balance at this point.
1. When rates are the same but the periods are different a direct comparison is inaccurate because of the time value of money. Paying $3 every six months costs more than $6 paid at year end so, the 6% bond cannot be 'equated' to the 6% GIC. 2. When interest is due, but not paid, does it remain 'interest payable', like the bond's $3 payment after six months or, will it be added to the balance due? In the latter case it is no longer simple interest, but compound interest. A bank account offering only simple interest and from which money can freely be withdrawn is unlikely, since withdrawing money and immediately depositing it again would be advantageous.
Decide on the 'expected' inflation rate. This still leaves both parties exposed to the risk of 'unexpected' inflation. Allow the interest rate to be periodically changed. While a 'fixed interest rate' remains the same throughout the life of the debt, 'variable' or 'floating' rates can be reset. There are derivative products that allow for hedging and swaps between the two.
The Federal Reserve (Fed) implements monetary policy largely by targeting the federal funds rate. This is the rate that banks charge each other for overnight loans of federal funds. Federal funds are the reserves held by banks at the Fed. Open market operations are one tool within monetary policy implemented by the Federal Reserve to steer short-term interest rates. Using the power to buy and sell treasury securities, the Open Market Desk at the Federal Reserve Bank of New York can supply the market with dollars by purchasing Tnotes, hence increasing the nation's money supply. By increasing the money supply or Aggregate Supply of Funding (ASF), interest rates will fall due to the excess of dollars banks will end up with in their reserves. Excess reserves may be lent in the Fed funds market to other banks, thus driving down rates.
For example, to determine the monthly payment for a 30-year loan at an interest rate of 9.25 %, find 9.250 in the interest column and the first factor in that row is the 30 Year column. The factor is 8.23 per $1000 of the loan. Using a loan amount of $45,250.00, you would divide this amount by 1000. 45,250 1000 = 45.25. Next, you would multiply 45.25 (the number of thousands) by $8.23 (the factor) to calculate the monthly payment. 45.25 X $8.23 = $372.4075.
$4183.44 (yearly interest) 12 = $348.62 (monthly interest). $372.41 (monthly payment) - $348.62 (interest) = $23.79 (principal paid). The principal balance after the second payment is $45,226.39 - $23.79 or $45,202.60.
Payment 1 2
We have just created the beginning of an amortization table. Click here to download a copy of payment factors in .pdf.
treated as a short-term loan due in the first payment. When start-up fees are paid as first payment(s), the balance due might accrue more interest, as being delayed by the extra payment period(s).
HOMEWORK
LEARNING OBJECTIVES After participating in this module, you will be able to:
discuss the Truth in Lending Act; explain the Equal Credit Opportunity Act; explain the Real Estate Settlement Procedures Act; explain the Home Ownership and Equity Protection Act; discuss the Home Mortgage Disclosure Act; discuss the Depository Institutions Deregulation and Monetary Control Act; and be able to discuss the Alternative Mortgage Transaction Parity Act.
Several appendices contain information such as the procedures for determinations about state laws, state exemptions and issuance of staff interpretations, special rules for certain kinds of credit plans, a list of enforcement agencies, model disclosures which if used properly will ensure compliance with the Act, and the rules for computing annual percentage rates in closed-end credit transactions and total annual loan cost rates for reverse mortgage transactions.
keep their business operating. The Federal Trade Commission (FTC), the nations consumer protection agency, enforces the Equal Credit Opportunity Act (ECOA), which prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or because you get public assistance. Creditors may ask you for most of this information in certain situations, but they may not use it when deciding whether to give you credit or when setting the terms of your credit. Not everyone who applies for credit gets it or gets the same terms: Factors like income, expenses, debts, and credit history are among the considerations lenders use to determine your creditworthiness. The law provides protections when you deal with any organizations or people who regularly extend credit, including banks, small loan and finance companies, retail and department stores, credit card companies, and credit unions. Everyone who participates in the decision to grant credit or in setting the terms of that credit, including real estate brokers who arrange financing, must comply with the ECOA.
Ask if you get alimony, child support, or separate maintenance payments, unless they tell you first that you dont have to provide this information if you arent relying on these payments to get credit. A creditor may ask if you have to pay alimony, child support, or separate maintenance payments.
Have a cosigner other than your spouse, if one is necessary. Keep your own accounts after you change your name, marital status, reach a certain age, or retire, unless the creditor has evidence that youre not willing or able to pay. Know whether your application was accepted or rejected within 30 days of filing a complete application.
spell out the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers.
Section 8: kickbacks, fee-splitting, unearned fees Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback or anything of value in exchange for referrals of settlement service business involving a federally related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed. Violations of Section 8's anti-kickback, referral fees and unearned fees provisions of RESPA are subject to criminal and civil penalties. In a criminal case a person who violates Section 8 may be fined up to $10,000 and imprisoned up to one year. In a private law suit a person who violates Section 8 may be liable to the person charged for the settlement service an amount equal to three times the amount of the charge paid for the service. Section 9: Seller required title insurance Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance.
Section 6 provides borrowers with important consumer protections relating to the servicing of their loans. Under Section 6 of RESPA, borrowers who have a problem with the servicing of their loan (including escrow account questions), should contact their loan servicer in writing, outlining the nature of their complaint. The servicer must acknowledge the complaint in writing within 20 business days of receipt of the complaint. Within 60 business days the servicer must resolve the complaint by correcting the account or giving a statement of the reasons for its position. Until the complaint is resolved, borrowers should continue to make the servicer's required payment. A borrower may bring a private law suit, or a group of borrowers may bring a class action suit, within three years, against a servicer who fails to comply with Section 6's provisions. Borrowers may obtain actual damages, as well as additional damages if there is a pattern of noncompliance.
No, RESPA covers most conventional loans too. Are home equity loans covered under RESPA? Yes, home equity loans secured by residential property are covered. How does the coverage of home equity loans and subordinate lien loans differ from other RESPA covered loans? If the loan involves an open-end line of credit, providing the disclosures required by Regulation Z satisfies the RESPA good faith estimate and the HUD-1 or HUD-1A requirements. Both subordinate lien loans and open-end lines of credit (home equity loans) in first lien position are exempted from the loan servicing requirements.
between the credit agency and the lender? Yes, provided the printer can only be used for communication with the lender and not for general use. If it's for general use it may be considered payment for the referral of business. Can a flood zone certification company examine a lender's existing loan portfolio for free or at a reduced rate, in exchange for the lender sending the company future business? No. Flood zone certification is a covered settlement service (24 CFR 3500.2), therefore RESPA would apply to agreements by companies or persons providing portfolio reviews. Providing free or reduced reviews is a thing of value. Providing this service in exchange for referrals of future flood insurance business would violate Section 8(a) of RESPA which provides that "no person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person."
Yes, provided that the compensation is exclusively related to the automobile loan and does not represent, in whole or in part, compensation for the referral of real estate business, and no lien is placed on a residence to secure the auto loan. Affiliated businesses If a lender refers a consumer to more than one of its affiliated settlement service providers, does the lender have to provide a separate affiliated business arrangement disclosure statement for each referral? No, the lender can use one disclosure statement.
Yes, provided the charge is reasonably related to the value of the space. Specific forms and consumer information Where a mortgage broker is used, is it the mortgage broker's responsibility to provide the Good Faith Estimate (GFE) to consumers, or is that the lender's responsibility? If the mortgage broker is not an exclusive agent of the lender, the broker should provide a GFE within 3 days of receiving an application. The lender is not required to send an additional GFE; however, it is the lender's responsibility to ascertain that one was sent and includes an estimate of all costs that are likely to occur. Where the broker is the exclusive agent of the lender, either the broker or the lender shall provide the GFE.
next year's escrow payments. If there is a surplus in the escrow account and the borrower is in default, may the servicer retain the surplus as payment towards the amount in default? HUD's escrow rules are inapplicable to loans that are in default, which is defined under the RESPA rules as current payments which are more than 30 days delinquent. The parties should consult the mortgage documents or state law to resolve whether escrow funds are available for this purpose.
or signing any contracts. Pay special attention to the small print. 6. Free means free. Throw out any offer that says you have to pay to get a gift or a free gift. If something is free or a gift, you dont have to pay for it. Period. 7. Report fraud. If you think youve been a victim of fraud, report it. Its one way to get even with a scam artist who cheated you. By reporting your complaint to 1-877-FTC-HELP or www.ftc.gov, you are providing important information to help law enforcement officials track down scam artists and stop them!
PAGE #826 - Depository Institutions Deregulation and Monetrary Control Act (DIDMCA)
Depository Institutions Deregulation and Monetary Control Act (DIDMCA) The Depository Institutions Deregulation and Monetary Control Act, a United States federal financial statute law passed in 1980, gave the Federal Reserve greater control over non-member banks. It forced all banks to abide by the Fed's rules. It allowed banks to merge. It removed the power of the Federal Reserve Board of Governors under the Glass-Steagall Act and Regulation Q to set the interest rates of savings accounts. It raised the deposit insurance of US banks and credit unions from $40,000 to $100,000. It allowed credit unions and savings and loans to offer checkable deposits. Allowed institutions to charge any interest rates they chose.
the first years of the loan. The United States House of Representatives passed H.R.3915 "The Mortgage Reform and Anti-Predatory Lending Act of 2007" in November, 2007. It remains before the United States Senate. The House bill would require lenders to write mortgages that take into account the borrowers' ability to pay at the fully-indexed rate. AMTPA Purpose: It is the purpose of this chapter to eliminate the discriminatory impact that those regulations have upon non-federally chartered housing creditors and provide them with parity with federally chartered institutions by authorizing all housing creditors to make, purchase, and enforce alternative mortgage transactions so long as the transactions are in conformity with the regulations issued by the Federal agencies.
BLOG
LEARNING OBJECTIVES After participating in this module, you will be able to:
explain how Fair Lending involves Originating Loans; discuss the history of the S.A.F.E Act; discuss the Fair Credit Reporting Act; better understand the laws governing Privacy and Do-Not-Call; explain FTC Red Flag Rules; and discuss appraisal Law and the history of FHA.
Filing a Complaint If you have experienced any one of the above actions, you may be the victim of discrimination. Recognizing the signs of lending discrimination is the first step in filing a complaint. HUD investigates your complaints at no cost to you.
Some allege this disparity to be attributed to subprime lenders purposefully marketing to AfricanAmerican communities - what some have called reverse redlining. They allege lenders will provide loans to these communities, but at a higher cost and with less favorable conditions. Some facts about subprime lenders Home refinance loans account for higher shares of subprime lenders' total origination than prime lenders' originations Subprime lenders originate a larger percentage of their total originations in predominately black census tracts than prime lenders Subprime lenders are more likely to have terms like "consumer," "finance," and "acceptance" in their lender names
(6) Enhancing consumer protections and supporting anti-fraud measures; (7) Providing consumers with easily accessible information, offered at no charge, utilizing electronic media, including the Internet, regarding the employment history of, and publicly adjudicated disciplinary and enforcement actions against, loan originators; (8) Establishing a means by which residential mortgage loan originators would, to the greatest extent possible, be required to act in the best interests of the consumer; (9) Facilitating responsible behavior in the subprime mortgage market place and providing comprehensive training and examination requirements related to subprime mortgage lending; (10) Facilitating the collection and disbursement of consumer complaints on behalf of state mortgage regulators.
with which a particular seller provides financing is so limited that HUD's view is that Congress did not intend to require such sellers to obtain loan originator licenses. Accordingly, state legislation that excludes from licensing and registration requirements an individual who offers or negotiates terms of a residential mortgage loan only to the buyer or prospective buyer of the seller's residence will not be found to be out of compliance with the SAFE Act. The MSL includes this exclusion in section XX.XXX.040 (3)(c). Additionally, the definition generally would not apply to, for example, a licensed attorney who negotiates terms of a residential mortgage loan with a prospective lender on behalf of a client as an ancillary matter to the attorney's representation of the client, unless the attorney is compensated by a lender, mortgage broker, or other mortgage loan originator or by an agent of such lender, mortgage broker, or other loan originator. In such cases, the duties of loyalty, competence, and diligence owed by the attorney to his or her client are significant. HUD views the SAFE Act's requirements for registration and licensing as not applying in this context, which is distinguished from the commercial context contemplated in the SAFE Act. The MSL includes this exclusion in section XX.XXX.040(3)(d).
In addition, HUD is aware that some states already require licensure of loan originators, and that some individuals in those states will hold licenses that do not expire until as late as December 2010. Nonetheless, the provision for HUD to enforce the SAFE Act's standards in any state that fails to implement these standards reflects the underlying statutory concern that loan originators who do not meet these standards pose a significant risk to borrowers and the housing finance system. As a result, any period during which loan originators may operate without a SAFE Act-compliant license must be only as long as necessary for substantial numbers of qualified loan originators to obtain licenses.
Washington, DC 20410-8000 Telephone: (202) 708-6401 FAX: (202) 708-2678 Email: safeprogram@hud.gov
unverified information from its files, usually within 30 days after you dispute it. However, the CRA is not required to remove accurate data from your file unless it is outdated (as described below) or cannot be verified. If your dispute results in any change to your report, the CRA cannot reinsert into your file a disputed item unless the information source verifies its accuracy and completeness. In addition, the CRA must give you a written notice telling you it has reinserted the item. The notice must include the name, address and phone number of the information source. You can dispute inaccurate items with the source of the information. If you tell anyone - such as a creditor who reports to a CRA - that you dispute an item, they may not then report the information to a CRA without including a notice of your dispute. In addition, once you've notified the source of the error in writing, it may not continue to report the information if it is, in fact, an error. Outdated information may not be reported. In most cases, a CRA may not report derogatory information that is more than seven years old; ten years for bankruptcies.
Here are some questions consumers commonly ask about consumer reports and CRAs -- and the answers. Note that you may have additional rights under state laws. Contact your state Attorney General or local consumer protection agency for more information. Q. Do I have a right to know what's in my report? A. Yes, if you ask for it. The CRA must tell you everything in your report, including, in most cases, the sources of the information. The CRA also must give you a list of everyone who has requested your report within the past year - two years for employment related requests. Q. Is there a charge for my report? A. Sometimes. There's no charge if a company takes adverse action against you, such as denying your application for credit, insurance or employment, and you request your report within 60 days of receiving the notice of the action. The notice will give you the name, address, and phone number of the CRA. In addition, you're entitled to one free report a year (1) you're unemployed and plan to look for a job within 60 days, (2) you're on welfare, or (3) your report is inaccurate because of fraud.
A. Only if you say it's okay. A CRA may not supply information about you to your employer, or to a prospective employer, without your consent. Q. Can creditors, employers, or insurers get a report that contains medical information about me? A. Not without your approval. Q. What should I know about "investigative consumer reports"? A. "Investigative consumer reports" are detailed reports that involve interviews with your neighbors or acquaintances about your lifestyle, character, and reputation. They may be used in connection with insurance and employment applications. You'll be notified in writing when a company orders such a report. The notice will explain your right to request certain information about the report from the company you applied to. If your application is rejected, you may get additional information from the CRA. However, the CRA does not have to reveal the sources of the information.
consumers throughout the nation about unwanted and uninvited calls to their homes from telemarketers. Pursuant to its authority under the Telephone Consumer Protection Act (TCPA) of 1991, the FCC established, together with the Federal Trade Commission (FTC), a national Do-Not-Call Registry. The registry is nationwide in scope, applies to all telemarketers (with the exception of certain non-profit organizations), and covers both interstate and intrastate telemarketing calls. Commercial telemarketers are not allowed to call you if your number is on the registry, subject to certain exceptions. As a result, consumers can, if they choose, reduce the number of unwanted phone calls to their homes. The fine for each violation of the Telephone Consumer Protection Act (TCPA) is up to $16,000. The fine for each violation of the Telemarketing Sales Rule (TSR) which is regulated by the FTC is up to $11,000.
If you subscribe to CALLER ID, you should know when a telemarketer is calling you: telemarketers are required to transmit Caller ID information and may not block their numbers. Telemarketers must ensure that predictive dialers abandon no more than three percent of all calls placed and answered by a person. A call will be considered "abandoned" if it is not transferred to a live sales agent within two seconds of the recipient's greeting. As a result, you are less likely to run to answer the phone only to find silence or the "click" of the calling party disconnecting the line.
practices, or specific activities known as red flags that could indicate identity theft.
The Red Flags Rules provide all financial institutions and creditors the opportunity to design and implement a program that is appropriate to their size and complexity, as well as the nature of their operations. Guidelines issued by the FTC, the federal banking agencies, and the NCUA (ftc.gov/opa/2007/10/redflag.shtm) should be helpful in assisting covered entities in designing their programs. A supplement to the Guidelines identifies 26 possible red flags. These red flags are not a checklist, but rather, are examples that financial institutions and creditors may want to use as a starting point. They fall into five categories: alerts, notifications, or warnings from a consumer reporting agency; suspicious documents; suspicious personally identifying information, such as a suspicious address; unusual use of or suspicious activity relating to a covered account; and notices from customers, victims of identity theft, law enforcement authorities, or other businesses about possible identity theft in connection with covered accounts.
Fannie Mae, being a GSE, was influenced by the US Congress to become less stringent in its lending guidelines to allow more lending to individuals that would not typically qualify for a conforming loan. Other investors followed suit, and lending guidelines become less and less strict as competition for loans increased. As a small part of this large problem, the competition led to unhealthy activities, such as lenders and mortgage brokers pressuring appraisers to overvalue properties, allowing for larger loans and therefore less equity invested by the homeowner. The HVCC is a direct response to this undue pressure. Please note that the appraisal industry is managed by ethics and guidelines. This article does not intend to reflect poorly on this industry. It is the opinion that the majority of appraisers would not respond unethically to undue pressure.
LEARNING OBJECTIVES After participating in this module, you will be able to:
explain the history of the Gramm-Leach-Bliley Act; explain the Consumer Credit Protection Act; explain the Fair and Accurate Transaction Act; discuss truth in advertising; explain the USA Patriot Act; and be able to explain the Flood Disaster Protection Act of 1973.
The Gramm-Leach-Bliley Act allowed commercial banks, investment banks, securities firms and insurance companies to consolidate. For example, Citicorp (a commercial bank holding company) merged with Travelers Group (an insurance company) in 1998 to form the conglomerate Citigroup, a corporation combining banking, securities and insurance services under a house of brands that included Citibank, Smith Barney, Primerica and Travelers. This combination, announced in 1993 and finalized in 1994, would have violated the Glass-Steagall Act and the Bank Holding Company Act of 1956 by combining securities, insurance, and banking, if not for a temporary waiver process. The law was passed to legalize these mergers on a permanent basis. Historically, the combined industry has been known as the "financial services industry".
Changes caused by the Act Many of the largest banks, brokerages, and insurance companies desired the Act at the time. The justification was that individuals usually put more money into investments when the economy is doing well, but they put most of their money into savings accounts when the economy turns bad. With the new Act, they would be able to do both 'savings' and 'investment' at the same financial institution, which would be able to do well in both good and bad economic times.
The GLBA also did not remove the restrictions on banks placed by the Bank Holding Company Act of 1956 which prevented financial institutions from owning non-financial corporations. It conversely prohibits corporations outside of the banking or finance industry from entering retail and/or commercial banking. Many assume Wal-Mart's desire to convert its industrial bank to a commercial/retail bank ultimately drove the banking industry to back the GLBA restrictions.
The privacy notice must also explain to the customer the opportunity to opt-out. Opting out means that the client can say "no" to allowing their information to be shared with affiliated parties. The Fair Credit Reporting Act is responsible for the opt-out opportunity, but the privacy notice must inform the customer of this right under the GLBA. The client cannot opt-out of: information shared with those providing priority service to the financial institution marketing of products or services for the financial institution when the information is deemed legally required.
Subchapter V of CCPA is the Fair Debt Collection Practices Act (FDCPA) that became effective March 20, 1978. The purpose of the FDCPA is to eliminate unethical and abusive practices by debt collectors while engaged in the collection of consumer debts. The FDCPA attempts to accomplish this goal through a series of open-ended lists of prohibited activities. The Act applies to debt collectors who collect debts on behalf of third parties, but it does not apply to the collection efforts of original creditors. Under appropriate circumstances, an attorney is considered a debt collector subject to the provisions of the act. For example, an attorney who, in the regular course of business, represents creditors attempting to collect consumer debts would be considered a debt collector. The Federal Trade Commission issues official staff commentary that serves as official interpretations of the FDCPA.
Suspicious Social Security number (SSN), for example an SSN that has not been issued or is listed on the Social Security Administration's Death Master File. Another example would be one in which the SSN range does not match the date of birth or is the same SSN as provided by other persons opening an account. Suspicious address or phone number as follows: the address or phone number is known to have been furnished on fraudulent applications; the address either does not exist or is that of a mail drop or prison; the phone number is invalid or associated with a pager or answering service; or the address or phone number is the same or similar to information submitted by other persons opening accounts. Use of an account that has been inactive for a "reasonably lengthy period of time." Mail sent to the account holder is returned while transactions continue. Notice from the account holder or law enforcement that identity theft has occurred.
This new notice of rights is in addition to a general notice of rights already required by earlier FCRA amendments. The FTC has issued final regulations and a sample copy of the identity theft rights. Under the FTC's rule consumers who report fraud to a consumer reporting agency will receive the special victims' notice of rights. The FTC's final rule also includes notices that explain the obligations of companies that furnish information on consumers as well as those that use consumer reports.
enlarged type. Will the notice let me know when I'm a victim of identity theft? Not always. When an imposter opens up a new credit account in your name, the thief usually establishes an address different from yours. The address might be a post office box or a vacant apartment used as a mail-pickup by the thief. When the imposter fails to pay on the credit card account, which is usually the case, the creditor will send the warning notice to the address associated with the account. And that is not your address. So you will be in the dark about the impending negative notice to your credit report. The negative information will be recorded in your credit report, however. That is why we emphasize the importance of ordering your credit report at least once a year. If you are a victim of identity theft, you will learn of it on your credit report.
specialties are dominated by one or two companies, such as the following: Medical Records: Medical Information Bureau (www.mib.com) For more on the MIB, see PRC Fact Sheet 8, How Private is my Medical Information, http://www.privacyrights.org/fs/fs8-med.htm Insurance Reports: ChoicePoint's CLUE (www.choicetrust.com) and Insurance Services Office ISO APLUS Report, (www.iso.com/offices_contacts/index.html). For more on insurance reports, see PRC Fact Sheet 26, CLUE and You: How Insurers Size You Up, www.privacyrights.org/fs/fs26-CLUE.htm Check-writing history: Reports about your check writing history are also "specialty" reports. This includes reports obtained by banks or other financial institutions from ChexSystems.
it causes or is likely to cause substantial consumer injury which a consumer could not reasonably avoid; and it is not outweighed by the benefit to consumers.
What penalties can be imposed against a company that runs a false or deceptive ad? The penalties depend on the nature of the violation. The remedies that the FTC or the courts have imposed include: Cease and desist orders. These legally-binding orders require companies to stop running the deceptive ad or engaging in the deceptive practice, to have substantiation for claims in future ads, to report periodically to FTC staff about the substantiation they have for claims in new ads, and to pay a fine of $16,000 per day per ad if the company violates the law in the future. Civil penalties, consumer redress and other monetary remedies. Civil penalties range from thousands of dollars to millions of dollars, depending on the nature of the violation. Sometimes advertisers have been ordered to give full or partial refunds to all consumers who bought the product. Corrective advertising, disclosures and other informational remedies. Advertisers have been required to take out new ads to correct the misinformation conveyed in the original ad, notify purchasers about deceptive claims in ads, include specific disclosures in future ads, or provide other information to consumers.
regional offices with specific inquiries about how to comply with the law. In addition, one of the FTC's top law enforcement priorities is fighting fraudulent and deceptive practices aimed at small businesses. The agency has taken the lead in challenging deceptive invention promotion services, questionable franchise opportunities, bogus office supply scams, and other practices that prey on aspiring entrepreneurs.
amount of insurance authorized to be outstanding and by requiring known flood-prone communities to participate in the program, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Flood Disaster Protection Act of 1973". Congress found that: (1) annual losses throughout the Nation from floods and mudslides are increasing at an alarming rate, largely as a result of the accelerating development of, and concentration of population in, areas of flood and mudslide hazards; (2) the availability of Federal loans, grants, guaranties, insurance, and other forms of financial assistance are often determining factors in the utilization of land and the location and construction of public and of private industrial, commercial, and residential facilities;
extend, or renew any loan secured by improved real estate or a mobile home located or to be located in an area that has been identified by the Director as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968, unless the building or mobile home and any personal property securing such loan is covered for the term of the loan by flood insurance in an amount at least equal to the outstanding principal balance of the loan or the maximum limit of coverage made available under the Act with respect to the particular type of property, whichever is less.
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PROOF3
LEARNING OBJECTIVES After participating in this module, you will be able to:
define Ethics; explain the history and theory of Ethics; and be able to list types of fraud and how to report them.
themselves or as the body of obligations and duties that a particular society requires of its members. Approaches to Ethical Theory Ethics have developed as people reflected on the intentions and consequences of their acts. From this reflection on the nature of human behavior, theories of conscience have developed, giving direction to much ethical thinking.
If you strike a deal with a home seller to give you a big wad of cash or to slip a check across the closing table, say, to pay for a new roof, and if the lender doesn't know about it -- because it's not disclosed in the purchase contract nor addendum nor your estimated closing statement - it's mortgage fraud. Silent second mortgage. A borrower without a down payment can commit mortgage fraud by borrowing the down payment from the seller in exchange for giving the seller a silent second mortgage, which is unrecorded (or records after closing) and hidden from the lender. Falsifying employment income. Stated income loans were originally created for self-employed individuals whose income is difficult to verify, but some employed borrowers inflate their income above and beyond a W-2. Non-owner occupant claiming occupancy. Lenders offer higher interest rates and less favorable terms to non-owner occupants because the lender's risk is higher. If you don't intend to live in the property, don't promise that you will.
these laws have been in effect for many years, lending discrimination continues to be a cause for national concern. This guide will help lenders compare the treatment of loan applicants and identify differences that may be discriminatory. It offers suggestions on how to correct discriminatory practices and improve fair lending performance. Part One describes how to compare the experiences of testers to determine if all persons asking about credit are provided equivalent information and encouragement. Such lending tests can be performed internally by the lender or by using an independent contractor. The information provided here on how to plan and manage a pre-application testing program will help an institution decide. Testing can help to detect discrimination or it can reassure an institution that it does not discriminate. Its focus is the point where an applicant inquires about a loan, gathers information and receives counseling or an invitation to apply. Discrimination at this important stage of the loan process occurs before it is captured on paper and often results from how one person treated another. We encourage financial institutions to take whatever steps are necessary, including some form of pre-application testing, to inspect the treatment of potential applicants. It will help to prevent illegal discrimination, improve customer service and attain lending goals.
Self-testing allows an institution to compare, in a controlled manner, the treatment of customers and potential customers. Testing for discrimination can help to find potential problems, or it can reassure an institution that it does not discriminate. In addition, an institution can gain insight into how its lending practices appear from the loan applicant's perspective, a valuable insight not readily available through other internal audit methods. WHAT IS PRE-APPLICATION TESTING? Testing is a way of measuring differences in treatment. A financial institution can use pre-application testing to uncover instances of overt or subtle discrimination against individuals protected under the ECOA and the Fair Housing Act. To detect illegal discrimination, testers visit financial institutions posing as prospective loan applicants. While they do not actually complete a loan application, testers do experience the important pre-application phase of the loan process. After discussing loan possibilities, they objectively document how they were treated and the information given to them by the institution's personnel. There are three basic types of tests: paired, multi-layered or sandwich, and complaint. Paired Testing A paired test consists of sending two individuals (or two couples) separately to an institution to collect detailed information about its lending practices. The testers pose as potential applicants for the same type of loan. Example: To test for discrimination based on race, a white tester and a black tester separately visit a lending institution to ask about applying for the same type of loan. They would be provided with similar background information such as family size and employment. The black tester would generally have a slightly higher income and less debt in order to appear better qualified than his or her white counterpart. Otherwise, the individuals selected as testers should be similar in all significant respects except for the variable being tested (e.g., race, gender, familial status, etc.).
Complaint testing, unlike the sandwich or paired scenarios, uses a single tester to evaluate the experience of an actual loan applicant who believes that an illegal discriminatory event has occurred. The tester assumes characteristics similar to the complainant's and attempts to obtain information about the same loan product. Example: The complainant is Hispanic and believes that his loan application was denied based on his national origin. A white tester would be assigned slightly worse financial and employment qualifications than those of the complainant. The complainant's experiences at the institution would be compared to the white tester's experiences to determine if there were any differences in treatment. If the tester is offered a loan or receives better treatment and more information, then the complainant may have been discriminated against on the basis of national origin. In all three types of testing, paired, multi-layered and complaint, the testers prepare an objective, factual written account of their experiences on a standardized report form.
Providing testers with a testing identity and detailed instructions on how to complete the test The number of tests that should be performed to determine if a financial institution may have discriminatory lending practices that are illegal will vary according to the institution's size and loan volume. For example, if testing a multi-billion dollar institution operating in a large metropolitan area, several tests for each branch may be necessary. However, if the financial institution is small or has a low lending volume, more than a few tests may be impractical. The aim is to test a representative sample of an institution's lending staff over time. Institution size and loan volume also should determine the frequency of testing. For example, all the testing for race discrimination in a financial institution that typically has few minority loan applicants should not be performed in one week nor should the number of tests each week exceed the institution's weekly average of loan applications.
fictitious identities are used for uniformity. The identities generally include information and instructions needed to complete the test; various personal and financial characteristics that the tester assumes for the test; and information about the lending institution to be tested. To maintain objectivity, however, a tester should not be provided with information about the identities of the other testers or the purpose of the test. Items that might be included in an identity are: Name, Age, Marital Status, and Number of Children Employers, Previous Employers, Occupations/Job Titles, Years of Work Experience, Income for the tester and, if applicable, spouse Current Address and Housing Information, Previous Address, Total Household Expense, and Prospective Property Information Loan Type and Amount, Savings and Debt Information Walk-in Interview or Appointment
Complete tests as scheduled Carefully document the test experience Maintaining Confidentiality & Objectivity The testing program must be kept confidential as any breach of confidentiality could invalidate the tests. Testers should not disclose their involvement in the testing program, or discuss their test experiences with anyone other than the test program manager. Moreover, testing should be an objective process used to investigate lending practices. Among other things, testers should: Remember that testing a particular lending institution does not necessarily indicate that discrimination occurs there Refrain from making leading statements that may induce lenders to make biased comments Respond neutrally if a lender makes a biased statement
Interviewing Techniques Testers should act interested and enthusiastic about obtaining a loan. When testing for discrimination in mortgage lending, testers will usually portray themselves as first-time home buyers so it is plausible that they may not know a great deal about the mortgage lending process; however, some familiarity with basic lending terms is advisable. Testing identities are designed by the test supervisor to specifically control for a variety of discriminatory practices. Deviation from the assigned identity may invalidate the test results. Therefore, it is imperative that testers carefully follow their identity instructions. Testers should let the loan officer solicit information from them concerning their loan needs and personal qualifications. However, if by the end of the site visit, a loan officer has not been informative, a tester may ask, for example: Do you think I will qualify for the loan? What type of loan do you recommend based on my qualifications? How long is the application process? What else do I need to provide you with before submitting my application?
After completing the test, several critical steps are necessary to determine whether illegal discrimination has occurred during the test and what corrective measures should be considered. These include: Debriefing the testers Completing all test forms Analyzing each test carefully Writing a report on the results of the test Recommending corrective action
A narrative description of the conversation Follow-Up Report: This type of report may be used to record any post-test attempts by loan staff to contact a tester. Testers should record who made the contact, the type of contact (e.g., mail or telephone), whether a specific product or program was discussed, the date and time of the contact, and a narrative description of the conversation or nature of the contact.
detected through the comparative analysis of a sample of loan files. The sample should include a target group of applicants from a protected group most at risk of discrimination on a prohibited basis. These should be compared against a control group of others not at risk. It is necessary to inspect and compare individual loan files for both accepted and rejected applicants to determine differences in the actual treatment of applicants and possible illegal discrimination. The following guidelines present a step-by-step approach to a comparative analysis of loan files. The focus here is on residential mortgage loans because residential mortgage loan applications provide most of the monitoring information necessary to test for illegal discrimination. However, the procedures also can be used to analyze other types of loan applications, such as consumer loans, to the extent that information contained in the applications would allow. The basic steps suggested provide some examples of how loan product features, underwriting standards, or instances of lender assistance to borrowers can be compared to discern differences in treatment. The more detailed the loan file comparison becomes, the better one will be able to test for discrimination and judge an institution's fair lending performance.
Compare the treatment of applicants in the target group against this group to determine if the target group received less favorable treatment.
include: Placing the sample on a spreadsheet and developing a list of comparative factors Identifying any exceptions to institution lending policy or practices Comparing applications from the target group and the control group to determine differences in treatment of the applicants Creating a Comparison Spreadsheet After creating the sample of loan applications, place them on a spreadsheet. Using a spreadsheet will help to determine if the reasons for an applicant's denial are consistent with the institution's lending policies and practices and whether policies and practices are consistently applied without regard to any prohibited bases. Appendix D lists additional items that a lender might include on the spreadsheet to more adequately determine unfavorable treatment of target group applicants. Other factors can be added as a lender may deem necessary. In particular, a lender may want to include such items as assistance in completing an application or cross-selling more suitable loan products or other services. These and other factors could indicate whether the quality of assistance offered to target applicants and control applicants differ in any way.
categories: technical and substantive. Within the category of technical violations, some may be procedural, such as not having the Equal Housing Lender poster on display. However, technical violations, especially of a repetitive nature, can be indicators that possible substantive violations may also exist. Substantive violations involve actual discrimination on a prohibited basis, either disparate treatment or disparate impact. Identifying Types of Lending Discrimination When evaluating the results of the analysis, look for any evidence of overt discrimination, as well as evidence of disparate treatment and disparate impact. Evidence of overt discrimination exists when a lender openly and blatantly discriminates on a prohibited basis.
is within an institution's control and the relationship of the number of instances of the conduct to total lending activity. Depending on the circumstances, violations that may involve only a small percentage of an institution's total lending activity could constitute a pattern or practice.
Closing the Gap - A Guide to Equal Opportunity Lending, a publication of the Federal Reserve Bank of Boston released in April, 1993, presents a comprehensive approach that financial institutions can take to address possible discrimination in lending and improve fair lending performance. It emphasizes participation and involvement at all levels of lender operations. While the focus is on mortgage lending, most of the recommendations apply to other lending areas, including consumer, commercial and small business lending. A fair lending check list from Closing the Gap is highlighted here to assist lenders in evaluating performance.
available. Discrimination is less likely to occur if information regarding qualifications, rules, common exceptions, and helpful hints is clearly spelled out in writing, made available in the lobby, and explained to all applicants.
evaluating fair lending performance. 1. When hiring, do you seek cultural diversity which reflects the demo-graphics of your community? 2. When hiring lending staff, do you take into account possible racial, religious or other prejudices of job applicants?
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LEARNING OBJECTIVES After participating in this module, you will be able to:
explain ethical standards; explain how to protect a consumers information; understand the requirement of disclosure; understand the necessity of confidentiality; discuss Discrimination; understand the ramification of following laws and regulations; and be able to list the National Association of Mortgage Brokers Code of Ethics.
Is she showing integrity and professionalism in referring this loan to Frank? Yes. Can Mary receive a commission? Yes. Mary can receive a commission from Frank.
entity.
Disclosure Case Study Discussion Has Deshon, the Mortgage Broker, done anything wrong? Yes. A licensee should disclose to all appropriate parties to a mortgage transaction any personal interest, direct or indirect.
Yes, by indicating the Mike has money to donate due to his business doing well. What is the rule of confidentiality? Licensees should hold in strict confidence any information arising from the professional relationship concerning the business and affairs of his or her Client, and shall not divulge that information unless the Licensee is expressly authorized by the Client or required by law to do so.
Potentially yes. A Licensee should provide timely service and respond on a timely basis to inquiries from participants in a mortgage transaction.
Martha Stewart, a loan officer, had been practicing for over 30 years. Well known in her area, Martha often received new clients from various REALTORS. Knowing that image and branding were important to her business, Martha would often visit her REALTORS, and meet for lunch. One REALTOR, Ken Lay, had known Martha for many years. While having lunch one day, Martha was thanking Ken for sending her a client the previous month. Ken told her, Martha, I wouldn't send my clients to anyone else, mainly, because of the service you provide to my clients. Martha gave Ken a thank you card, which included a check for $2000, which she told him, This is a referral fee for all the business you give me. Ken thanked Martha, and said, WOW! Maybe I should get my loan officer license. Clearly the money is great.
(2) knowingly misrepresent or understate any cost, fee, interest rate, or other expense in connection with a Mortgage Applicant's applying for or obtaining a Mortgage Loan; (3) disparage any source or potential source of Mortgage Loan funds in a manner which knowingly disregards the truth or makes any knowing and material misstatement or omission;
(C) Consumer Credit Protection Act, 15 U.S.C. Chapter 1600 (Truth in Lending Act); (D) Regulation Z, 12 C.F.R. Part 226; (E) Equal Credit Opportunity Act, 15 U.S.C. 1691; (F) Regulation B, 12 C.F.R. Part 202; and (G) Section 50, Article XVI, Constitution.
(1) The person offers other goods or services to a consumer in a separate but related transaction and the person engages in a false misleading or deceptive practice in the related transaction. (2) The mortgage broker sponsors a loan officer or affiliates with another mortgage broker who offers other goods or services to a consumer in a separate but related transaction and the person engages in a false, misleading or deceptive practice in the related transaction; whether or not the sponsoring broker is aware of or participates in such act.
(1) the seriousness of each violation, including, but not limited to, the nature, circumstances (including any mitigating circumstances), extent, and gravity of each violation; (2) the history of any previous violations; (3) the amount deemed necessary or appropriate to deter future violations; efforts to correct the violation(s); and (4) any other matter that justice may require or that the Commissioner determines has a reasonable bearing on the appropriateness of the amount of the administrative penalty.
(l) In addition to or in lieu of an action to invoke or enforce suspension or revocation of a license or to impose administrative penalties or any other enforcement action permitted by the Act and this Chapter, the Commissioner may initiate an action which, upon notice and an opportunity for a hearing, will result in the affected licensee's being placed on probationary status. The order placing a licensee on probationary status shall specify the terms and conditions of probation.
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LEARNING OBJECTIVES After participating in this module, you will be able to:
explain how National Associations deal with complaints; explain the Code of Ethics for Inspectors; explain the Code of Ethics for Appraisers; explain Regulation Z and laws governing advertising; explain Fair Housing Laws; and be able to further explain the issues that RESPA covers on real estate and mortgage transactions.
in writing on the Complaint Form provided by TAMB and published on its website and available through TAMB's fax on demand. Complaints submitted anonymously will not be entertained. The Complaint should be submitted to the TAMB office at 502 E. 11th St., Suite 400, Austin, TX 78701. The TAMB office shall make an appropriate record of receiving the complaint and forward the complaint and accompanying materials to the Chairman of the Ethics, Grievance & Arbitration Committee. 2. Handling by the Ethics, Grievance & Arbitration Committee. The Chairman of the Committee shall review all complaint materials and make the following preliminary determinations: The subject of the complaint is a member of TAMB. The conduct complained of warrants TAMB's interest in pursuing a resolution of the complaint or some other action. The subject of the complaint is a licensed broker or loan officer under the Texas Mortgage Broker Act. The conduct complained of, if proven, warrants action by the Savings & Loan Commissioner's office under the Texas Mortgage Broker Act.
findings to the Board with or without a recommendation for Board action. The Board in its discretion, shall, accept the findings, request additional information, or conduct its own hearing, giving the parties reasonable notice and opportunity to be heard. Should the Board accept the findings of the Chairman, the Board shall, in accordance with law and the Bylaws of the Association take such disciplinary action as it deems appropriate. Action shall be taken by majority vote of the Board.
financial interest. B. Inspectors shall not inspect properties under contingent arrangements whereby any compensation or future referrals are dependent on reported findings or on the sale of a property. C. Inspectors shall not directly or indirectly compensate realty agents, or other parties having a financial interest in closing or settlement of real estate transactions, for the referral of inspections or for inclusion on a list of recommended inspectors, preferred providers, or similar arrangements. D. Inspectors shall not receive compensation for an inspection from more than one party unless agreed to by the client(s). E. Inspectors shall not accept compensation, directly or indirectly, for recommending contractors, services, or products to inspection clients or other parties having an interest in inspected properties. F. Inspectors shall not repair, replace, or upgrade, for compensation, systems or components covered by ASHI Standards of Practice, for one year after the inspection.
It is unethical to knowingly: (a) act in a manner that is misleading or fraudulent; (b) use, or permit an employee or third party to use, a misleading analysis, opinion, conclusion, or report; (c) communicate, or permit an employee or third party to communicate, any analysis, opinion, conclusion, or report in a manner that is misleading;
E.R. 2-1 It is unethical: (a) to knowingly violate the rules set forth in the Regulations of the Appraisal Institute that govern the confidentiality of an admissions matter or the confidentiality of a peer review proceeding; or (b) for a Member who has made a referral initiating a peer review proceeding, or who has any knowledge of the existence of such referral or any subsequent screening or review of the matter, to fail to treat such knowledge confidentially.
E.R. 2-5 It is unethical to fail to preserve each workfile for: (a) a period of five years from the date of preparation of such workfile; (b) a period of two years following final disposition of a proceeding in which the Member gave testimony pertaining to the subject matter of the workfile; (c) a period commencing upon notification that a service is the subject of a peer review proceeding under Regulation No. 6 until notification by the Appraisal Institute of final disposition of such peer review proceeding; (d) a period commencing upon a request from Admissions relating to a service (appraisal, appraisal review, appraisal consulting, or real property consulting) until notification by the Appraisal Institute of the completion of review by Admissions; or (e) a period of two years following the final disposition of a review of a service (appraisal, appraisal review, appraisal consulting, or real property consulting) by a state licensing and/or certification board, whichever period shall be the last to expire.
In Providing Services (Appraisal, Appraisal Review, Appraisal Consulting, or Real Property Consulting), A Member Must Develop and Report Unbiased Analyses, Opinions, and Conclusions Ethical Rules E.R. 3-1 It is unethical to knowingly contribute to or participate in the development, preparation, use, or reporting of an analysis, opinion, or conclusion that is biased. E.R. 3-2 It is unethical to knowingly permit an entity that is wholly or partially owned or controlled by a Member to contribute to or participate in the development, preparation, use, or reporting of an analysis, opinion, or conclusion that is biased.
(b) use of the hypothetical condition results in a credible analysis; and (c) the Member complies with the applicable disclosure requirements set forth in USPAP for hypothetical conditions.
consenting to or approving such acquisition or change of position; (c) at the time of such disclosure, the Member gives the client the right to terminate the service without payment of any fee or other charge; and (d) the facts concerning such acquisition or change of position are fully and accurately described in each report resulting from the service.
(a) the Member whose report or workfile contains the confidential information, analyses, opinions, conclusions, or factual data; (b) such Members client and those persons specifically authorized by that client to receive the confidential information, analyses, opinions, conclusions, or factual data; (c) third parties, when and to the extent that the committee member is legally required to do so by statute, ordinance, or court order; and (d) committee members and their duly authorized agents within the scope of the Bylaws and Regulations of the Appraisal Institute.
fee, commission, or thing of value for the purpose of this Rule. E.R. 5-4 does not apply to a Member when providing real property consulting services that are subject to the requirements of another licensed occupation or profession. E.R. 5-5 It is unethical to prepare or use in any manner a resume or statement of qualifications that is misleading.
(A) The amount or percentage of the down payment. (B) The terms of repayment. (C) The annual percentage rate, using that term, and, if the rate may be increased after consummation, that fact. (4) An advertisement shall be made only for such products and terms as are actually available and, if their availability is subject to any material requirements or limitations, the advertisement shall specify those requirements or limitations;
other arrangers of credit. Brokers who advertise credit terms are subject to Regulation Z as well.
5.00%!!!! 15 YEAR LOAN Come and get it while it lasts! Call TODAY!! ZYX MORTGAGE (666) 626-6262
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If you do not state an interest rate/APR or specific loan terms you still must state 4 - 7 listed previously to be in compliance. If any payment(s)/loan terms/product descriptions are disclosed, all of the above are required. This explanation is not all-inclusive of the requirements that may apply to any unique ads.
Descriptions of properties as well as of services and amenities are permissible such as jogging trails, great view. It is also permissible to describe conduct required of potential tenants. Advertising for nonsmoking or sober tenants does not violate the Act. Age Advertisements must not contain limitations on the number or age of children or express a preference for adults, couples or single persons. There is an exemption for developments that qualify as housing for older persons in one of two ways. The first is housing intended for and occupied solely by persons 62 years of age or older. The second is housing intended for occupancy by at least one person at least 55 years of age or older per unit.
attorneys, private arbitrators and REALTOR Associations. Typically the arbitration procedure calls for a complaint or petition to be filed describing the dispute. The respondent will be given the opportunity to respond. A hearing is convened at which the parties present evidence and make arguments. The arbitrator(s) renders an award. The prevailing party may seek to enforce the award as a judgment by requesting that a court of law do so. Arbitration awards may be appealed on procedural or due process grounds. Brokers should always be proactive in their handling of potential complaints. Many consumer complaints escalate to mediation, arbitration or even lawsuits due to the initial response (or lack thereof) to the first signs of a problem. The State Association of REALTORS sponsor an Ombudsman Dispute Resolution Service. The ombudsman mediates an informal telephone meeting between the consumer and the licensee and attempts to help the parties resolve any issues. The program has been highly successful and has helped to raise the level of consumer confidence in the real estate profession.
computation year. It also notifies the borrower of any shortages or surpluses in the account and advises the borrower about the course of action being taken. A Servicing Transfer Statement is required if the loan servicer sells or assigns the servicing rights to a borrower's loan to another loan servicer. Generally, the loan servicer must notify the borrower 15 days before the effective date of the loan transfer. As long the borrower makes a timely payment to the old servicer within 60 days of the loan transfer, the borrower cannot be penalized. The notice must include the name and address of the new servicer, toll-free telephone numbers, and the date the new servicer will begin accepting payments.
Provide business, personal, and leadership development advancing women in mortgage-related professions. Defining Statement NAPMW serves all mortgage professionals who want to excel and employers who want excellence. Purposes To promote and foster educational opportunities for its members. To maintain the high standards of the profession. To work for equal recognition and opportunities for women. To bring its members together for the exchange of experiences, ideas and interests in all phases of mortgage banking on the local, region, and national levels. To encourage women to choose the mortgage banking profession as a career.
LEARNING OBJECTIVES After participating in this module, you will be able to:
explain FHA Programs and the history of FHA; discuss Mortgage Insurance Premiums; explain VA Programs; and be able to explain the difference between Traditional and Non-traditional Mortgage Products.
advantage of this loan is that you can buy a home that needs a lot of work, but have only one mortgage payment, and you can complete the repairs after buying the home. Indian Reservations and Other Restricted Lands - A family who purchases a home under this program can apply for financing through an FHA-approved lending institution such as a bank, savings and loan, or a mortgage company. To qualify, the borrower must meet standard FHA credit qualifications. An eligible borrower can receive approximately 97% financing and use a gift for the downpayment. Closing cost can be financed; covered by a gift, grant or secondary financing; or paid by the seller without reduction in value.
Yes - as you will with most loans. The Housing and Economic Recovery Act of 2008 provides for a one-year moratorium on the implementation of FHAs risk-based premiums beginning October 1, 2008. Consequently, effective with new FHA case number assignments on or after that date, FHA will no longer base its mortgage insurance premiums on a combination of credit bureau score and loan-to-value ratio. The new premiums (upfront and annual) to be implemented for all loans for which a case number is assigned on or after October 1, 2008, are described below. Mortgagee Letter 2008-16 is rescinded in its entirety. Please note that certain parts of that mortgagee letter are retained and reiterated in the guidance that follows.
An FHA insured mortgage may be used to purchase or refinance a new or existing 1-4 family home, a condominium unit or a manufactured housing unit (provided the manufactured housing unit is on a permanent foundation). HUD's internet site can provide additional information on FHA mortgages by going to: www.hud.gov/buying/index.cfm You can also find an FHA approved lender in your area by going to: http://www.hud.gov/ll/code/llslcrit.html You may also wish to contact a HUD approved housing counseling agency in your area for unbiased and free counseling on your particular situation. You can find a list of these agencies at www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm There are also many local and State government programs available that use HUD and/or non-HUD funds to provide grants for the downpayment or to help pay closing costs. To find out what programs are available in your area visit www.hud.gov/buying/localbuying.cfm NEWS: On 1-20-2010 FHA announced policy changes to address risk and strengthen finances. This involves MIP, Credit Scores and Seller concessions. Visit the following link to read the press release: http://portal.hud.gov/portal/page/portal/HUD/ press/press_releases_media_advisories/2010/HUDNo.10-016
monthly, or in some combination of the two (split premiums). In the U.S., payments by the borrower are tax-deductible until 2010.
Experience shows that homeowners with less than 20% invested in the cost of a home are significantly more likely to default, making low down payment mortgages riskier for lenders and investors. To offset that risk, lenders and investors typically require mortgage insurance for loans with down payments of less than 20%. How do borrowers benefit from private MI? Private MI makes it possible for families to buy homes with a low down payment, helping them become homeowners sooner than otherwise possible. (For more information about how private mortgage insurance can help your borrower, visit www.privatemi.com.) For first-time buyers, private MI helps clear the biggest hurdle to homeownership: coming up with the traditional 20% down payment. For trade-up buyers, private MI allows them to consider a wider range of homes and leverage their investment in their homes. Both first-time and move-up buyers can benefit by putting less money down and keeping cash for other uses: making investments, paying off debt, or paying for home improvements or emergencies.
Q&A How much does private MI cost? Premium prices vary. They are based on the size of the down payment, type of mortgage and amount of insurance coverage. Typically, premiums are included in the monthly mortgage payment. Can private MI be cancelled? Yes. Mortgage lenders/investors will typically permit the cancellation of private MI when the homeowner builds up enough equity in the home. Investors establish criteria for private MI cancellation, and most will cancel private MI upon request for borrowers who have a good payment history, more than 20%-25% equity, and have had the mortgage for at least two to three years. Under federal law, private MI on most loans made on or after July 29, 1999, will end automatically on the date the mortgage is scheduled to reach 78% of the original value of the house.
monthly income vs. 28% for a conforming loan assuming the veteran has no monthly bills. As of January 1, 2006, the maximum VA loan amount with no down payment is $417,000 and can be as high as $625,500 in certain high cost areas. VA also allows the seller to pay all of the veteran's closing cost as long as the cost do not exceed 4% of the sales price of the home.
home loan? A: Yes, depending on the circumstances. If a veteran has already used a portion of his or her eligibility and the used portion cannot yet be restored, any partial remaining eligibility would be available for use. The veteran would have to discuss with a lender whether the remaining balance would be sufficient for the loan amount sought and whether any down payment would be required.
Simply put, a VA Home Loan allows qualified buyers the opportunity to purchase a home with no down payment. There are also no monthly mortgage insurance premiums to pay, limitations on buyer's closing costs, and an appraisal that informs the buyer of the property value. For most loans on new houses, construction is inspected at appropriate stages and a one-year warranty is required from the builder. VA also performs personal loan servicing and offers financial counseling to help veterans having temporary financial difficulties.
to a level payment starting in the sixth year); and in some areas, Growing Equity Mortgages, or GEMs (gradually increasing payments with all of the increase applied to principal, resulting in an early payoff of the loan). There is no prepayment penalty.
Can you take out a VA loan for a second home or vacation cabin? The law requires that you certify that you intend to occupy the property as your home. But it specifically provides that occupancy by the veteran's spouse satisfies the personal occupancy requirement. However, there are no provisions for other family members. VA Home Loans are available for a variety of purposes including building, altering, or repairing a home; refinancing an existing home loan; buying a manufactured home with or without a lot; buying and improving a manufactured home lot; and installing a solar heating or cooling system or other weatherization improvements. You are also allowed to buy income property consisting of up to four units, provided you occupy one of the units. Can a veteran obtain a VA loan for the purchase of property in a foreign country? No. The property must be located in the United States, its territories, or possessions. The latter consist of Puerto Rico, Guam, Virgin Islands, American Samoa and Northern Mariana Islands.
This paper examines the non-traditional mortgage market and its potential impact on borrowers and lenders. First, it describes the range of non-traditional mortgage products, their typical loan terms, market distribution and potential effects for consumers. Second, it examines the market conditions that have fostered non-traditional mortgage lending, the underwriting and credit implications of nontraditional mortgage lending for originators and the potential for payment shocks and defaults for borrowers. Third, it analyzes information gathered regarding the characteristics of non-traditional mortgage borrowers in terms of income, credit scores and loan-to-value ratios relative to all mortgage borrowers. Fourth, it lays out the key concerns over non-traditional mortgage borrowing for consumers and the housing market. Fifth, it discusses some actions that are needed to ensure that these products are not aggressively marketed to vulnerable consumers. Last, it discusses the proposed federal regulatory guidance on non-traditional mortgages.
Hybrid ARMs start as fixed rate mortgages which convert to adjustable rate mortgages after an initial period and thus offer the prospect of higher monthly payments should interest rates rise. Piggyback (no money down, 80/20, or 80/10/10 loans) allow borrowers to purchase a home with little or nothing down and without requiring private mortgage insurance. Lenders have recently been offering mortgage products which help borrowers avoid the costs of paying PMI by making an 80 percent of the home price traditional mortgage and a 10 percent second lien for borrowers with a 10 percent down payment or in some cases with a 20 percent second lien mortgage to make the down payment to the seller.
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LEARNING OBJECTIVES After participating in this module, you will be able to:
explain Adjustable Rate Mortgages; list 10 things to know about Reverse Mortgages; discuss the history of Non-traditional Lending; and be able to discuss Rural and Farm Loans.
rate will be limited by the interest rate cap structure of your loan.
All adjustable rate mortgages have an adjusting interest rate tied to an index. In Western Europe, the index may be the ECB Refi rate (where the mortgage is called a tracker mortgage), TIBOR or Euro Interbank Offered Rate (EURIBOR). Six common indices in the United States are: 11th District Cost of Funds Index (COFI) London Interbank Offered Rate (LIBOR) 12-month Treasury Average Index (MTA) Constant Maturity Treasury (CMT) National Average Contract Mortgage Rate Bank Bill Swap Rate (BBSW)
Negative amortization. This means the mortgage balance is increasing. This occurs whenever the monthly mortgage payments are not large enough to pay all the interest due on the mortgage. This may be caused by the payment cap contained in the ARM when are high enough that the principal plus interest payment is greater than the payment cap. Conversion. The agreement with the lender may have a clause that allows the buyer to convert the ARM to a fixed-rate mortgage at designated times. Prepayment. Some agreements may require the buyer to pay special fees or penalties if the ARM is paid off early. Prepayment terms are sometimes negotiable. It should be obvious that the choice of a home mortgage loan is complicated and time consuming. As a help to the buyer, the Federal Reserve Board and the Federal Home Loan Bank Board have prepared a mortgage checklist.
month, but the payment amount only once every 12 months. Cap structure is sometimes expressed as initial adjustment cap / subsequent adjustment cap / life cap, for example 2/2/5 for a loan with a 2% cap on the initial adjustment, a 2% cap on subsequent adjustments, and a 5% cap on total interest rate adjustments. When only two values are given, this indicates that the initial change cap and periodic cap are the same. For example, a 2/2/5 cap structure may sometimes be written simply 2/5.
Counseling Clearinghouse on (800) 569-4287 for the name and telephone number of a HUD-approved counseling agency and a list of FHA-approved lenders within your area.
Reverse mortgage loan advances are not taxable, and generally dont affect your Social Security or Medicare benefits. You retain the title to your home, and you dont have to make monthly repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence. In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12 consecutive months before the loan must be repaid. If youre considering a reverse mortgage, be aware that: Lenders generally charge an origination fee, a mortgage insurance premium (for federally-insured HECMs), and other closing costs for a reverse mortgage. Lenders also may charge servicing fees during the term of the mortgage. The lender sometimes sets these fees and costs, although origination fees for HECM reverse mortgages currently are dictated by law.
If you live in a higher-valued home, you may be able to borrow more with a proprietary reverse mortgage, but the more you borrow, the higher your costs. The best way to see key differences between a HECM and a proprietary loan is to do a side-by-side comparison of costs and benefits. Many HECM counselors and lenders can give you this important information.
private-label MBS, which are securitized by entities other than the GSEs and do not carry an explicit or implicit guarantee. Total outstanding private-label MBS represented 29 percent of total outstanding MBS in 2005, more than double the share in 2003. Of total private-label MBS issuance, two-thirds comprised nonprime loans in 2005, up from 46 percent in 2003. With the increased exposure to private-label MBS and a large share of higher-risk nontraditional mortgages being securitized in this sector, investors appear willing to assume greater risk in their search for yield. Recent Innovations in Mortgage Products The U.S. mortgage market, which for decades was dominated by fixed-rate mortgages, now includes innovations such as nontraditional mortgages, simultaneous second-lien (or piggyback) mortgages, and no-documentation or low-documentation loans. Nontraditional mortgages allow borrowers to defer payment of principal and, sometimes, interest and include interest-only mortgages (IOs) and adjustable-rate mortgages (ARMs) with flexible payment options (also called pay-option ARMs, or POs).
used in recent years. Lenders have targeted a wider spectrum of consumers, who may not fully understand the embedded risks but use the loans to close the affordability gap. The degree to which mortgage market innovation, fueled by significant MBS liquidity, boosted home sales last year is unknown. Anecdotal evidence suggests that affordability and financing played a strong role in extending the volume component of the mortgage credit cycle last year. For example, there is a correlation between nontraditional mortgage loans and home price growth. An analysis of state-level data from Loan Performance Corporation shows the penetration of IOs and pay-option ARMs for nonprime borrowers into areas with strong price appreciation and reveals a strong positive relationship between the concentration of such loans and home price growth. This analysis illustrates the recent development of borrowers increasingly using IOs and pay-option ARMs to purchase homes they might not otherwise have been able to afford. A June 2006 study by Harvards Joint Center for Housing Studies also confirms this trend.
growth of more than 40 percent during 2004. The sustainability of solid mortgage performance and historically low losses among FDIC-insured institutions is at the forefront of current industry analysis. How long can such favorable conditions last, especially in light of recent developments? There are growing signs that mortgage loan performance may have peaked. The increase in risk layering in residential mortgage lending as well as recent market and institutional developments support this perception. Lenders themselves exhibit modest concern about nontraditional mortgage loan quality, as reported in the Federal Reserve Boards quarterly survey of senior loan officers. Almost 41 percent of respondents believe credit quality on nontraditional loans is likely to decline in 2006, compared with 12 percent who view similar worsening in traditional mortgage loans.
risk-management functionsto help lenders and customers address the uncertainty raised by nontraditional mortgage products.
in a surge of mortgage equity withdrawals. Mortgage debt grew by nearly $4 trillion from year-end 2000 to year-end 2005, with an estimated one-half of this growth resulting from the refinancing of existing mortgages. Many homeowners who refinanced were able to take advantage of the low mortgage interest rates, taking cash out and still reducing their monthly payments. A 2002 Federal Reserve survey found that approximately 25 percent of mortgage refinance funds were used to pay for consumer expenditures. The switch from consumer debt to mortgage debt is evident in that growth in home equity lines of credit (HELOCs) outstripped growth in credit card debt, even though the average interest rate for credit cards declined. Although growth in HELOCs continued to outpace that of credit cards, HELOC growth fell from 40 percent in 2004 to 8 percent in 2005. Rising interest rates and slowing home price appreciation may make home equity lending and cash-out refinancing less financially advantageous, which in turn could reinvigorate growth in other forms of consumer lending, such as credit cards.
To be eligible for direct and guaranteed operating loan and farm ownership assistance, applicants must be a U.S. citizen or legal resident alien; be unable to obtain sufficient credit from other sources; not be delinquent on any Federal debt; have acceptable credit history, adequate collateral, and sufficient loan repayment ability; and meet other criteria.
Federal Deposit Insurance Corporation, www.fdic.gov Federal National Mortgage Association, www.fanniemae.com Federal Home Loan Mortgage Corporation, www.freddiemac.com Federal Emergency Management Agency, www.fema.gov The National Association of REALTORS The National Association of Professional Mortgage Women The National Association of Mortgage Brokers U.S. Department of Housing and Urban Development, www.hud.gov U.S. Department of Treasury, www.ustreas.gov Howard Walker, Attorney, hwalker@hwalker.com
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