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Flashcards in Chapter 3 Deck (18):
1

Primary market

where lenders make loans to home buyers

2

Secondary market

where lenders sell loans to investors

3

Loan origination process

1) Processing application
2) Approval decision
3) Funding the loan

4

Disintermediation

when depository institutions lose funds to higher-yielding investments

5

Secondary market activities

1) Buying and selling loans
2) Issuing mortgage-backed securities

6

Loan servicing

Processing payments
Collections
Keeping payment records
Preventing default
(The entity that services a loan isn't necessarily the lender that originated it.)

7

Mortgage-backed securities

investment instruments with pools of mortgage loans as collateral. May be purchased directly from secondary market agencies or on Wall St.

8

Secondary market functions

Promotes home ownership and investment
Provides funds
Stabilizes primary market

9

Fannie Mae

Federal National Mortgage Association. Buys conventional, FHA, and VA loans from all types of lenders. Issues MBSs based on pools of conventional, FHA, or VA loans.

10

GSE / Government-sponsored enterprise

Created and supervised by the federal govt. but owned by private stockholders. Ex. Fannie Mae and Freddie Mac.

11

Ginnie Mae

Government National Mortgage Association. Wholly owned govt. corporation. Agency within HUD. Guarantees MBSs based primarily on FHA and VA loans (not conventional loans).

12

Freddie Mac

Federal Home Loan Mortgage Corporation. Buys conventional, FHA, and VA loans from all types of lenders. Issues MBSs based on pools of conventional, FHA, or VA loans.

13

Subprime loans

loans made to less creditworthy buyers

14

FHFA / Federal Housing Finance Agency

regulates Fannie Mae and Freddie Mac

15

Secondary market agency

one of the 3 govt.-created entities that buy loans and issue MBSs (or guarantees them): Fannie, Freddie, and Ginnie

16

Securitizing

When a secondary market agency creates MBSs by buying a large number of mortgage loans, "pooling" them together, and pledging the pool as collateral for the securities.

17

Portfolio loan

A mortgage loan that the lender keeps in its own investment portfolio until the loan is repaid (instead of selling the loan on the secondary market).

18

Conventional loan

A loan that is not insured or guaranteed by a govt. agency.