Post on 15-Dec-2015
PREVIEW
The purpose of this unit is to acquaint the learner with the development of finance and describe how the industry has evolved into current banking and lending practices for use in our society. The licensing and legal requirements are outlined in addition to the introduction of professional mortgage organizations.
Contents
PART 1 SCOPE OF THE BUSINESS
Ch 1: Scope of the Loan Brokerage
1.1 Overview of the Book 1.2 Historic perspective
In the beginning Early progress Unstable market Today
1.3 Basic information Hard money versus seller
carry-back money Careers in mortgage loan
brokering Loan originators
1.4 Licenses and Professional organizations Legal and licensing
requirements Professional organizations
Student Learning Outcomes for Chapter 1:1. Understand the structure of the book.2. Describe the history of real estate lending in the
United States.3. Explain current and future trends in lending4. Learn about career opportunities in the mortgage
loan brokering and lending field.5. Differentiate between a mortgage broker and a
mortgage banker. 6. Identify various organizations involved with
mortgage loan brokerage.
1.1 Overview of the Book
Part 1: 1. Scope of loan brokerage2. Sources of business
Part 2: Loans3. Conventional4. Government 5. Finance & other disclosures
Part 3:Processing 6. Pre-Qualification & Loan Application 7. Credit and disclosures8. Verifications & Stacking Order9. Escrow Settlement, Title & Appraisal10. Underwriting & Quality Control11. Docs, Funding & Closing
1.1 Overview of the Book Part 4:Secondary Money Market 12. Shipping and Servicing
Part 5: Regulations and Operations13. Business Operational Practices & DOC14. California DRE License Activity for Loan Agents15. Math and Trust Funds for the Loan Agent
APPENDIXA. Loan Application B. Credit ReportC. Verifications D. Escrow InstructionsE. AppraisalF. Title ReportG. Loan DocumentsH. Employment forms I. Wholesale Brokerage Agreements J. Internet Web SitesK. Glossary
1.2 Historic Perspective
The Mortgage Loan Broker helps: Buyers obtain financing to purchase property Owners to obtain funds from refinance Connect borrowers with available lenders Provide lenders with a completed loan package
Real estate has many loan types Common terms include:
Originator: Helps obtain the loan Principal: Borrower Principal: Unpaid loan balance Lender: Creates the loan by giving funds
HISTORY OF FINANCEDevelopment of Financial Institutions
Pre 1600’s 1863
Things of value
hidden in home Deposited
in King’s treasury
Deposited with goldsmiths,
bullion dealersMoneyholders invest funds
Development of checks, increase
in volume
English system imported to
America
National Bank Act
passed
Chronology of U. S. Banking System1910 Federal Reserve System Act
Savings and Loan AssociationCalifornia Real Estate License (DRE)
1930’s Federal Home Loan Bank Act (FHLB)National Housing ActFederal Housing Administration created (FHA)Federal National Mortgage Association (FNMA)
1940’s Serviceman’s Readjustment ActVeterans Administration changed name to Department of Veterans Affairs (DVA)
Evolution of Banking Early real estate loans made by family members FHA – Federal Housing Administration FNMA – Federal National Mortgage
Association VA – Veteran’s Administration GNMA – Government National Mortgage
Association FHLMC - Federal Home Loan Mortgage
Corporation
Set guidelines and establish standards for lending practices.
Modern Real Estate Finance
Regulated Banking System reshaped finance: Land used as collateral Appraisal requirements Minimum housing standards compliance Secondary money market developed Government involvement with requirements for
ownership
Chronology of U. S. Banking System1950’s Federal Deposit Insurance Act (FDIC)
Bank Holding Company Act
1960’s Housing and Urban Development Act (HUD)Fair Housing Act Fair Credit Reporting Act National Environmental Policy ActInterstate Land Sales Full Disclosure ActGovernment National Mortgage Association (GNMA)Consumer Credit Protection Act (Truth in Lending -
Regulation Z)
Chronology of U. S. Banking System1970’s Emergency Home Finance Act
Flood Disaster Protection ActReal Estate Settlement Procedures Act (RESPA)Equal Credit Opportunity Act (ECOA)Home Mortgage Disclosure ActFair Lending Practices ActCommunity Reinvestment Act (CRA)Housing and Community Development
Amendments
Chronology of Lending Regulations (cont)1980’s Depository Institutions Deregulation and Monetary
Control Act (DIDMCA):Overrides state usurySimplified Truth-in-lendingRemoved geographic restrictions
Omnibus Reconciliation ActGarn-St. Germain Depository Institutions ActDeficit Reduction ActCompetitive Equality Banking ActFinancial Institutions Reform, Recovery and Enforcement Act (FIRREA):
Created Office of Thrift Supervision (OTS)Required mortgage insuranceEstablished appraisal licensing laws
Restructure since 1990’s
Increase in consumer debt Decrease in home ownership Increased loan specialization Better access to information on loans
Today
TARP-Troubled Asset Relief Program Subprime market crises October 2008 Created the Office of Financial Stability
GFE-Good Faith Estimate DRE 885 January 1, 2010 Real Estate Settlement Recovery Act HUD-Housing and Urban Development
SAFE-Secure and Fair Enforcement Act Nationwide Licensing System and Registry By December 31, 2010
1.3 Basic Information
Hard Money vs. Seller Carryback Money Hard Money: institutional or non-institutional loans
where a lender cash is put into a transaction. Soft Money: an extension of credit where no cash
is exchanged. Seller carryback loan. A soft money loan where the
seller extends credit to the buyer, using the seller’s equity.
Holder in due course: when a loan is sold to a third party.
Careers in Loan Brokerage
Direct employee of a bank or owner of the funds. Salaried position
Licensed loan personnel Commission only Licensed by the state Educational requirements
Non-licensed areas Marketing Loan processing
Loan Originators
1. Mortgage broker
2. Mortgage banker
3. Commercial bank or thrift institution
4. Credit union
5. Loan correspondent
LOAN ORIGINATORS
DRE Broker
Loan Origination
Loan Processing
Package sent for Lender Approval
and Funding
MORTGAGE BANKER
Sources of FundsBankTheir Own FundsInvestor (FNMA, Corp)
LoanOrigination
LoanProcessing
Loan ApprovalTheir Own Lender
MI Investor
ClosingFunding
WarehouseLine
ServicingInsuring
MORTGAGE BROKER
LOAN ORIGINATORS (cont)
Depositors(Interest Income)Bank Income
LoanOrigination
LoanApproval
ClosingFunding Dept
ServicingDept.
Bank or Savings & Loan
TYPES OF LENDERS
Thrifts: Savings & Loans Commercial Banks
Mortgage CompaniesMutual Savings Banks
Insurance Companies
Importance of Real Estate Finance Foundation of wealth accumulation Allows average person to buy a residence Originate in the primary market Sold in the secondary money market Investors purchase notes on the loans Moves capital geographically in the market
1.4 Licensee & Professional Organizations CALIFORNIA REQUIREMENTS
First state to establish licensing laws: Department of Real Estate (DRE)
Mortgage loan brokers need a state license Mortgage loan bankers need a license Direct employees of financial institutional lenders
are not required to have a license