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26 Cards in this Set
- Front
- Back
Thrifts
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Local savings associations that made home mortgage loans in the 1970s. Held almost 60% of all mortgages.
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Disintermediation
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Occurred when short-term savings started to receive decent returns from Wall Street, instead of thrifts.
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Commercial banks
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Core business has been to make short-term loans to businesses for inventory financing and other working capital needs.But also making mortgages to customers is a big part of business.
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Warehousing
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Where commercial banks provide short-term funds to mortgage banking companies. These mortgage bankers put up originated loans as security for the bank financing and the loans are "stored" for a relatively short time.
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Portfolio lenders
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Thrifts and banks that use savings deposits to fund and hold mortgage loans as investments
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Mortgage bankers
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Originate mortgages,providing origination services and initial funding, and then sell them as quickly as possible.
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Mortgage brokers
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Bring borrowers and lenders together, but never own resulting loans nor fund them.
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Pipeline risk
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Mortgage bankers are exposed to this risk that comes during period between loan commitment and loan sale.
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Mortgage pipeline
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A term used to describe loans from the time a lender has made a commitment to lend through time loans are sold to an investor.
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Fallout risk
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Potential loss of borrowers that come during the closing period (45-60 days) when interest rates can decline and borrowers can choose not to close the loan.
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Interest rate risk
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The threat of interest rates declining and forcing mortgage banker to have to sell newly originated loan at a discount.
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Forward commitment
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One hedging technique for mortgage banking firms. Can purchase this commitment from a secondary market investor at a prespecified future selling price. Usually for a limited time (30 days to 6 months)
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Standby forward commitment
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Mortgage bankers purchase these commitments from secondary investors that give them the right, but not the obligation, to sell a certain dollar amount of a certain loan type to issuer. Good for times when interest rates fall over commitment period and unexpectedly large amount of pipeline fallout occurs--doesn't make banker obligated to deliver mortgage that are not in hand.
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Loan servicing
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Primary source of revenue in mortgage banking. Includes collecting monthly payment from borrower and remitting principal/interest payments to the investor. Manage default/foreclosure should it arise. Receive monthly servicing fees (.25 to .44 percent of total loan balance). Market value is between .75 and 1.25 percent of loan.
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Credit union
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One type of mortgage broker
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Government National Mortgage Association (GNMA)
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AKA Ginnie Mae, a unit of HUD. Guarantee mortgage-backed securities based on pools of FHA, VA, and Rural Housing Service loans. Due to lack of a good secondary market.
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Conduits
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Agencies and private companies that pool mortgages and sell MBSs
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"Prime"
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Casual term referring to conforming conventional home loans an jumbo loans written to similar underwriting quality.
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Loan underwriting
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Lender's process of determining whether to make a mortgage loan.
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Collateral
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To evaluate this, an appraisal is required (important for LTV ratio).
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Credit scoring
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A statistical method of measuring credit. Began in mid-1990s.
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Housing expense ratio
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AKA "front-end" ratio. Equal to PITI divided by GMI (Gross monthly income)
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PITI
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Monthly payment of principal an interest on a loan plus monthly payments into an escrow account toward property taxes and hazard insurance. Conventional loans - standard maximum was 28%
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Total debt ratio
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AKA "back-end" ratio. Equal to (PITI + LTO) divided by GMI. LTO is long-term obligations (sum of payments for other obligations that extend more than 10 months, including car payments and child support). Standard maximum for conventional loans is 36%.
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Automated underwriting
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Has virtually replaced traditional approach. Combines cybertechnology and the vast lending experienced in giant GSE loan portfolios and new megamortgage lenders. System classifies loan applications according to computed risk index. If favorable, application is classified as accepted. Used in almost all home mortgage lending. Credit evaluation accomplished through a credit score.
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Affordable housing loan
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Usually have low requirements for down payments and allow unusual flexibility in one of "three C's" of underwriting while maintain other two at normal standards.
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