The market where mortgage loans are created,
supplying funds to finance real estate purchases directly to borrowers,
is called the primary mortgage market.
The primary mortgage market is made up of primary lenders that originate new loans from borrowers. The primary market is the market where goods and securities are actually created. If a commercial bank lends a home buyer the money to buy a house via the mortgage loan, that would be a primary market activity. The dominant primary lenders are commercial banks Cbs, savings associations SAs, mutual savings banks, select credit unions, and mortgage companies. Together, these lenders originate more than 95% of all residential mortgage loans. The SAFE act requires employees of banks, savings association, credit unions, and farm credit institutions that are regulated by a federal banking agency and who engage in residential mortgage loan origination. Mortgage loan originators must submit finger prints for a background check. MLO's who are not employed by agency regulated institutions are licensed by the states. Employees of bank holding companies and their nonbank subsidiaries who act as MLOs are subject to state licensure and associated state regulation in addition to registration with the NMLS. MLOs who are not employed by agency regulated institutions are licensed by the states. Employees of bank holding companies and their nonbank subsidiaries who act as MLOs are subject to state licensure and associated state regulation, in addition to registration with NMLS.
The safe act also requires state licensed mlos to complete pre-liecensure education courses, pass a written qualification exam, and take annual continuing education courses. The safe act also requires all mlos to submit fingerprints to the nmls for submission to the fbi for a criminal background check. State licensed mlos must alos provide authorization for the nmls to obtain an independent credit report.
A mortgage loan originator is a person who solicits or offers to solicit mortgage loans, offers to accept mortgage loan applications, negotiations the terms or conditions of new or existing mortgage loans on behalf of a borrower or lender, processes mortgage loan applications, or negotiated the sales of existing mortgage loans to noninstitutional investors for compensation; The SAFE mortgage licensing act requires mlos who are not employed by a institution regulated by a federal agency to obtain a florida loan originator license. If a loan application is approved, then the loan originator earns a loan origination fee. Solicit: ask or try to obtain.
Mortgage brokers do not service loans. A mortgage broker is a person or business entity who conducts loan originator activities through one or more licensed loan originators employed by the mortgage broker as an independent contractor to the mortgage broker. Mortgage brokers do not make loans. Instead, mortgage brokers arrange loans for prospective borrowers with various mortgage lenders. Mortgage brokers do not service loans.
A mortgage lender is a person or business that makes mortgage loans or services mortgage loans for others, for compensation, sells or offers to sell mortgage loans to noninstitutional investors. A mortgage lender is not a depository institution. A mortgage lender originates the loan and the packages the loans together and sells the entire package. Mortgage lenders primarily make VA and FHA loans and then sell the loans in the secondary mortgage market. Mortgage loan originators who are employed by a mortgage broker or mortgage lender must be registered with NMLS. MLOs employed by a mortgage broker or a mortgage lender must also be state-licensed if the mortgage broker or mortgage lender is not a federal agency - regulated institution.
Mortgage lenders typically earn loan origination fees plus servicing fees. Today, mortgage lenders are the largest originators of residential real estate loans. A mortgage lender is a person or business who secures short term funds from other lenders that enable them to originate mortgage loans until they are sold on the secondary market or to large financial institutions. This process is called warehousing, because the mortgage lenders use the loans as security for the short term financing and the loans are stored for a short period of time until they are sold as a package. Mortgage lenders ofter serve as loan correspondents for life insurance companies, enabling LICs to use their insurance policy funds and pension funds to invest in mortgage instruments. A mortgage lender is the largest originator in a residential real estate loan.
Intermediation is a process practiced by financial thrift institutions that serve as financial intermediaries (middlemen) between depositors and borrowers. Intermediation occurs when thrift institutions accept depositors' savings. Thrift institutions are financial institutions that hold savings deposits. Savers deposit funds into commercial banks, savings associations, and mutual savings banks, which then lend the funds to homebuyers and other borrowers. Intermediation results in the availability of mortgage money.
Commercial banks are the primary reservoirs of commercial credit in this country and the largest group of financial institutions in both assets and numbers. The amount invested in real properties by DBs has increased over the years. CBs hold demand deposits, check accounts, as do federally chartered SAs and credit unions. A commercial bank is chartered by a national bank.
https://www.youtube.com/watch?v=wm0xeKbyKtg
The chartering agency provides the rules and regulations that a commercial bank can perform. If chartered by the government, a bank must display the words national association or na in their name. State chartered CBs are regulated by state agencies and membership in the frs is optional. Almost all banks are members of the frs. Commercial banks do VA, FHA, conventional, and construction in residential and commercial. A commercial bank has also concentrated on home equity lines of credit for home owners with equity in their home.
SAFE mortgage licensing act.
Distinguish between primary and secondary markets. Understand mortgage practices of commercial banks. Understand mortgage practices of savings associations. Understand mortgage practices of mutual savings banks. Understand mortgage practices of life insurance companies. Distinguish between a mortgage loan originator, a mortgage broker, and a mortgage lender.
Lender lends money to buy property: Credit union, bank, person.
Underwriter: assess risk for client and bank.
Banker: helps you get a home loan so you can buy a house. Engage banker up front before looking at house to find out how much house you can buy. What are your goals?
Huds settlement cost booklet -- closing services the borrower may be charged at closing, homebuying process, gfe, and settlement statement.
GFE -- closing settlement costs, charges buyer is likely to pay at closing.
Servicing disclosure statement: who is servicing the loan.
http://www.hud.gov/offices/hsg/ramh/res/settlementaug17english.pdf
http://www.hud.gov/offices/hsg/ramh/res/gfeform.pdf
Sometimes businesses are owned by a parent company. These businesses are called affiliates. Like if a closing service is owned by a bigger corp. A lender, broker, or real estate agent can refer a borrower to an affiliate but the borrower does not have to choose the referred affiliate. The referring party must give the loanor an Affiliated Business Arrangement Disclosure (ABAD):
ABAD: affiliated business agreement disclosure, when someone refers a borrower to an affiliate this disclosure must be given. The disclosure says that the borrower is no required to hire the referred affiliate and may shop around. THE ABAD must include the affiliates provider charges. If the lender, broker, or real estate agent refers a buyer to an attorney, credit reporting agency, or real estate appraiser an ABAD is not required.
Purchasing title insurance: A seller cannot force a home buyer to use a particular title insurance company.
https://www.youtube.com/watch?v=S10E_UBDI54
https://www.youtube.com/watch?v=QxuB2OxWwIg
https://www.youtube.com/watch?v=MYfX5Qy_rAk
https://www.youtube.com/watch?v=ihdStrGSFFI
If the seller is paying for the buyer's title insurance then the law does not prohibit the seller from choosing the title company.
The closing agent must provide the borrower with a Settlement Closure Act
http://www.hud.gov/offices/adm/hudclips/forms/files/1.pdf
Describe the function and tools used by the federal regulatory body. Like other markets, the mortgage market is ties to supply and demand. The available mortgage money and the available interest rates. When mortgage money goes down, rates go up. When rates go down, mortgage money goes up. The supply of mortgage money available at any given time depends on:
1) continuous and orderly flow of money into various types of financial institutions
2) the amount borrowed by the federal government
All lenders in the mortgage market are tied together by long-term credit lending with real property as security. All lenders are reliant upon the total amount of money available in the nation. Price movements of money in different areas are related. When a corporation in San Fran borrows $50 million from a savings bank in Boston the mortgage market money is depleted. The result could be higher interest rate loans in Orlando. Each geographical area is a component of the entire mortgage market. The mortgage market is in turn part of the vast financial market called the overall capital market. As interrelated parts, each is responsible for changes affecting the whole system. It is the total demand for money interacting with the total supply that determines interest rates and costs of mortgages. At any given time a number of a number of businesses or institutions are renting mortgage money to other businesses or individuals. The rent paid for the use of the money is called interest. When money is plentiful an available from many sources the supply of money exceeds the demand making an easy money market situation. The interest charged for money loaned during an easy money market is less than in a tight money market. A tight money market exists when demands for funds exceeds the available supply, resulting in the increased interest charged for money.
The demand is increased or decreased based on the following factors:
1) Changes in the number and size of households
2) Shifts in geographic preferences for households
3) Existing inventory in structures
4) Changes in employment rates and income
5) Changes in real property services, taxes, and maintainence
6) Changed is construction costs
Influences on the supply side are varied. Because they re considered long term loans, mortgages do not compete directly with the short term demand for funds. Mortgages must compete with other long term claims for money: stocks, bonds, and long-term bonds issued by the various federal, state, and local governments. As a consequence, the mortgage stock and bond markets are in competition for the overall supply of funds in what is called the nation's capital market.
Another important influence on the mortgage interest rate and the mortgage market is the refinancing of the national debt. The US gov. owes the owners of short term and long term securities trillions of dollars. At the present time this debt is refinanced periodically by the sale of new securities to the open market. When the US treasury sells enough securities to pay interest on $500 billion, for example, it drains a large amount of money from the capital market. The drainage results in less funds available for the mortgage market and higher interest rates.
The Federal Reserve System: commonly called the Fed is the central bank of the United States. It was established by Congress in 1913 to provide the nation a more stable and secure monetary system. The Federal Reserve System consists of a 7-member board of governors and 12 reserve banks located in major cities across the nation. The members of the board of governors are appointed by the President and confirmed by the Senate.
The Federal Reserve duties include:
1) Conducting the nation's monetary policy
2) Supervising and regulating banking institutions and protecting the credit rights of consumers
3) Maintaining the stability of the nation's financial system
The Fed uses 3 economic tools of monetary policy:
1) Open Market Operations: when the Fed decides to sell securities through open market trading, the FRS holds the funds received from the sale. This reduces the supply of money in circulation, which in turn causes a drop in loanable funds and causes interest rates to rise. Higher interest rates cause some businesses and individuals to postpone borrowing. As borrowing drops off, the economy slows down, and inflation is reduced. When an increase in economy activity is needed, the Feds buy securities, thereby releasing money back into normal circulation and increasing loanable funds.
2) Discount Rates: if the discount rate is increased, member banks have to pay a higher interest rate for borrowing money from their district bank. The higher interest rate is passed on in the form of higher interest to consumers. This reduces the number of loans because consumers become reluctant to borrow. Because increasing or decreasing the rate has the highest impact on the short term credit cost, the discount rate is considered the least effective economic tool for influencing the interest rates of long term real estate loans.
3) Reserve Requirement: changing the reserve requirement is regarded as perhaps the most abrupt or drastic way to influence the supply of money. Because most member banks have large amount of time deposits and demand deposits a very small increase in percentage of reserve requirements has an immediate impact on the amount of funds taken out of circulation.
Federal Home Loan Banking System:
FHBLS
Created to provide the same regulatory and administrative services for the nation's savings associations that the FRS provides for commercial banks. Patterned after the Fed, the FHLBS includes 12 district Federal Loan Banks. They constitute a permanent pool of reserve credit for savings association member institutions and ensure a source of mortgage funds when local funds are insufficient. Federal Home Loan Banking Systems. All federally chartered savings associations are required to be members of their district FHLB. While membership is optional for state-chartered savings associations, mutual savings banks, and insurance companies, many of these that meet their standards can qualify. Long term loans such as real estate must be secured by a collateral. A member institution in a Federal Home Loan Banking System does not need collateral to borrow if loan is less than a year.
Federal deposit insurance corporation:
The FDIC, federal deposit insurance corporation, insures deposits in savings and bank associations. The FDIC is an independent agency of the federal government. It is funded by premiums that banks and savings associations pay for deposit insurance coverage from earning on investments in US treasury securities. Deposit accounts are insured to $250,000 per depositor in each bank or thrift that the FDIC insures. Saving, checking, and certain retirement accounts IRAs are insured up to $250,000. The Federal Deposit Insurance Reform Act merged the Bank Insurance Fund and the Savings Insurance Fund into the Deposit Insurance Fund DIF that insures both banks and savings associations.
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