Flashcards in The Primary Mortgage Market Deck (17)
Primary Mortgage Market
Comprised of mortgage brokers, lenders, or depository institutions like credit unions or banks
Credit unions or banks either hold onto loans that they originate (portfolio lending) or sell them into the secondary mortgage market
Mortgage Loan Originators (MLOs)
All must be either registered with Nationwide Mortgage Licensing System (NMLS) or licensed. Licensing entails 20 hours in pre-licensing education, passing a 3 hour test and annual continuation education.
Collect borrower's payments and do the accounting to make sure that those payments pay the lender making the loan, and pay the borrowers property tax and homeowner's insurance payments when they are due.
Third Party Originators (TPO)
Large banks will let mortgage lenders and mortgage brokers originate loans on their behalf.
Only purpose is to originate, underwrite and fund mortgage loans-then sell them off to other larger financial institutions like banks (mortgage bankers)
Warehouse Line of Credit (LOC)
Think of a credit card for a mortgage lender to close a loan with, then when he sells the loan for a profit, he pays off the credit card
Lenders close funds and loan in his own name using a warehouse LOC just described, but immediatly sells the loan back to the same bank that provided the warehouse line.
Match borrowers with lenders, does not underwrite, must disclose all compensations to customers. Used to get the best deal that a borrower couldn't do on their own
brokers compensation, title services, taxes, government fees.
Taking a higher interest rate in order to close the loan to a borrower who can't afford the additional closing costs upfront
Service Release Premium (SRP)
brokers get paid via borrowers credit, lenders get paid via service release premium.
Secondary Market Transactions
The purchase and sale of mortgage loans after they have been closed or funded
4 C's of Underwriting
Credit (how borrowers handle their financial obligations)
Collateral (value of the property as determined by an appraisal)
Character (mode of living and employment stability)
Capacity (debt to income ratio)
Front End Ratio (Housing Expense)
Housing Expenses (PITI)/Gross monthly income
Back End Ratio (Total debt obligations)
All Long term debt (PITI, consumer, other)/Gross monthly income