Module 1: Mortgage Lending Overview Flashcards
Define Federal Statutes and give an example.
Designates legislation passed by Congress.
Dodd-Frank Act
Real Estate Settlement Procedures Act of 1974
Define Federal Regulations and give an example.
Designate rules or other requirements specified by government departments/agencies that are responsible for the administration of the regulations.
Regulation X/ RESPA
Regulation Z/ TILA
What is CRF?
Stands for Code of Federal Regulations
Define Alt-A Loan
Type of loan where risk is greater than prime but less than subprime.
ie- Borrower may have strong credit history but the mortgage may have elements that increase risk such as higher loan-to-value and debt-to-income ratios, or lack of documentation about the borrower’s income.
Define APOR
Average Prime Offer Rate - an APR derived from average interest rates, points, etc offered by a representative sample of mortgage lenders to consumers that have low-risk pricing characteristics.
Define Conforming Loan
A loan that meets the criteria necessary to be sold in the secondary market.
Define CFPB
Consumer Financial Protection Bureau - Government independent agency funded by the Fed Reserve with rulemaking/enforcement authority over many consumer financial laws. Established under Title X of the Dodd-Frank Act.
What did mortgage loans look like prior to the 1930’s?
Most early mortgages were short-term (3-5 year) interest only loans. Loans were no more than 50% of home value with substantial assets required for qualified financing.
Define Thrifts
Thrifts also known as Building and loan associations were mutually held financial institutions that provided regional home loans that grew nationally to number over 12,000 by the late 1920s.
What happened to “Thrifts” following the passage of the Federal Home Loan Bank Act of 1932?
The passage of the Federal Home Loan Bank Act of 1932 during the Great Depression saw Thrifts becoming federally chartered savings and loan associations.
What importance did the Federal Reserve Act of 1913 in regards to mortgage lending?
The Federal Reserve Act of 1913 created the Federal Reserve System which established a federal charter for banks that permitted them to make real estate loans (the shady short-term high down payment loans prior to 1930). However, the Act established the framework for government involvement with mortgage lending. Lastly the Federal Reserve Act was instrumental in implementing a system for the government to influence interest rates.
In response to the economic instability created during the Great Depression, what significant banking legislation followed? (list 3)
Federal Home Loan Act of 1932 - passed during height of the Great Depression, established Federal Home Loan Banks which had authority to lend money to thrifts, savings & Loan associations (S&Ls), credit unions and savings banks to assist in financing home mortgages in their neighborhood.
Banking Act of 1933 - aka Glass-Steagall Act created the FDIC, and providing security for people to put money in the banks and increase banks’ ability to make more home mortgage loans.
National Housing Act of 1934 - created the Federal Savings and Loan Insurance Corp (FSLIC) which extended deposit insurance protection to savings and loan depositors. However, FSLIC was abolished by the Financial Institutions Reform Recovery and Enforcement Act (FIRREA) in 1989 after the savings and loan crisis of the 1980s which exhausted FSLIC reserves. All assets were therefor transferred to the Savings Association Insurance Fund (SAIF), a division of the FDIC.
What role do FHL Banks play?
Federal Home Loan Banks are entirely privately owned by member-owners which comprise of community banks, thrifts, commercial banks, credit unions, insurance companies and state housing finance agencies who gain membership through purchase of stock. 10% of FHL Bank net income is contributed to Affordable Housing Program (AHP). Also play a part in the funds available for Jumbo Loans.
History of FHA?
Federal Housing Administration was created by the National Housing Act of 1934. The role of the FHA is to provide mortgage insurance so banks would not have to incur losses for defaulted loans. FHA has no income limits on borrowers. Government can limit the mortgage amount to be insured based on appraisal and median price of homes in an area.
Facts about FHA
FHA introduced loans that required only 20% down, created 20-year and 30-year maturities that were fully amortizing (level payments allowed the loan to be paid in full at the end of loan term).
in 1965 FHA became part of Department of Housing and Urban Develpment (HUD). FHA today is the largest insurer of mortgages in the world.
Define GSEs
Government-Sponsored Enterprises are entities established by Congress to improve the efficiency of markets. GSEs serve as financial intermediaries to assist lenders/borrowers primarily in housing/agriculture. Or create a secondary market where loans may be sold. FHL Banks are GSEs as are secondary market leaders Fannie Mae and Freddie Mac.
What is insured by the FDIC?
Deposits up to 250k. Does not insure securities, mutual funds, or other bank offerings. The 250k max amount was made permanent under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
What role did OTS play?
The office of Thrift Supervision (OTS) was a division of the US Department of the Treasury established in 1989 in response to the savings and loan crisis. Replaced the FHL Bank Board in regulating institutions that belong to SAIF. Became neglectful and ceased to exist on 10/19/2011 merging with the OCC by mandage of Dodd-Frank Act.
What role does OCC play?
The Office of Comptroller of Currency (OCC) is an independent bureau within the Treasury Department that charters, regulates, and supervises all national banks, thrift institutions, and federal branches/agencies of foreign banks. The world national or intials N.A. appear in or after the bank’s name. Headed by the Comptroller who is appointed by the president to a 5 year term.
What role does NCUA play?
The National Credit Union Administration:
- independent federal agency
- Charters and supervises federal credit unions.
- Operates the National Credit Union Share Insurance Fund (NCUSIF) backed by the credit of the US govt.
- Began as Bureau of Federal Credit Unions in 1934, changed name and scope of powers in 1970 as number of credit unions increased.
What role does FFIEC play?
The Federal Financial Institutions Examination Council (FFIEC)
- Interagency body empowered to prescribe uniform principles/standards.
- comprised of reps from Board of Governors of the FRS (FRB), FDIC, NCUA, OCC, and CFPB.
What role does the FHFA play?
The Federal Housing Finance Agency (FHFA)
- independent federal agency
- created by Federal Housing Finance Regulatory Reform act of 2008
- Purpose to promote a stronger, safer US Housing finance system.
- Has broad powers similar to federal banking regulators
- legal and regulatory authority over secondary mortgage markets
What role does HUD play?
Department of Housing and Urban Development
- Federal cabinet-level agency
- mission to create strong, sustainable, inclusive communities and affordable homes for all.
- created in 1965
- tasked with enforcing the Fair Housing Act
Define Mortgage
Written instruments using real property to secure repayment of a debt.
