THE COLUMBIA INSTITUTEWelcome!

The Mortgage Loan System, No. 015

THE COLUMBIA INSTITUTE

Objectives

• Development of Real Estate Finance

• Types of mortgages and terms

• Primary Market Lenders

• Secondary Market Lenders

• Government Insurance/Guarantees

• Reviewing the Appraisal Process

Institutions

• Commercial Banks

• Investment Banks

• Mortgage Banks

• Credit Unions/community (Comm’l) Banks

Mortgage Banking Income

• Origination Fee 1% of loan

• Marketing Overages (selling loan for more than face value—ie, premium)

• Warehousing Income—holding high-rate mortgages for a few months to benefit over the lender’s cost of funds (risky)

• Can also make money servicing loan

Earlier Fannie Mae Activities

• Government Agency

• Issued bonds to buy FHA/VA loans

• Privatized in 1968 and bought conventional loans

• Securitized loans in 1990s

• Lowered standards in 2000s, to compete with sub-prime lenders, and failed.

• Freddie Mac came out of the S&L system, but securitized as opposed to purchasing

• The collapse of S&Ls resulted in Freddie becoming a Fannie competitor

• The collapse of the S&Ls and big, national companies became primary lenders

AMCs

• Created by national lenders

• Select appraisers

• Communicate with them

• Review reports

HVCC/FHA Appraiser Independence

• HVCC Agreement: NYAG, Fannie, Freddie, FHFA

• FHA Mortgagee Letter

• Many more lenders went to AMCs

• Plus: Appraiser Independence

• Minus: Appraisal Fees

Pending Changes

• Regulation of AMCs by State Appraisal Boards

• Regulation oversight—HB 1728 would move the ASC to the newly formed Consumer Financial Protection Agency

Real Estate Finance Today

• Needs Update• Current on instruments & Players• Terminology• Understanding the primary and

secondary market participants

Government Influences

• Federal Reserve

• Department of the Treasury

• Credit Union Administration

• HUD/FHA/RESPA

• Federal Acts

Current Issues

• The subprime crisis

• Foreclosures and Reactive Programs

• Credit Scores

Conventional Loans

• Conforming

• Affordable Programs

• Non-conforming loans

• Adjustable Rate Mortgages

• Mortgage Calculations

Government Loan Programs

• Federal Housing Administration

• 203(b) Program

• Other FHA programs

• Department of Veterans’ Affairs

• State/local programs

Financing Alternatives

• Seller

• Low doc/no doc loans

• Self employed/Cash sources

• Reverse Annuity Mortgage

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