RFINANCE3: Available Loans

Under the Federal Credit Union Act, credit unions have the authority to make

30-year loans to their members to finance a principal residence. They can also make FHA or VA loans at interest rates comparable to market value. Today's credit unions are serious competition to other lending institutions. They have few, if any, federal, state, or local banking regulations, giving them great flexibility in making loans.

Other real estate loans are made on the typical single-family residence. Banks can make home loans of up to

95% of the home's value for as long as a 30-year term. - However, banks will usually require private mortgage insurance (PMI) on any loan of more than 80% of the home's value.

In addition, banks are active in the

"swing loan" market.

The first section includes a summary of the of the principle amount of the loan and estimates the deductions to be subtracted from the principle amount. These deductions include such expenses as:

Appraisal fees Escrow fee Title insurance Notary fees Recording fees Credit investigation fee Other cost and expenses This leaves the estimated cash that will be given to the borrower.

As we mentioned earlier in this unit, in California, a mortgage broker must be a licensed real estate broker, called a loan broker. Loan brokers are governed by

Article 7: Real Property Loans of the California Business and Professions Code. Mortgage loan brokers arrange for a variety of loans. They act as "middlemen" and generally do not service the loans they arrange.

Mutual savings banks are not commercial banks.

-They are savings institutions that do not issue stock and are mutually owned by their investors. - Mutual savings banks are managed by a board of trustees, directors or managers who distribute the earnings to the investors as dividends rather than interest. - These institutions do offer limited checking account privileges, but they are, first and foremost, savings institutions. - They are very active in the mortgage market, investing mostly in loans that are secured by income-producing property and some residential properties. - In the past, most of their investment was in Veteran's Administration (VA) and Federal Housing Administration (FHA) loans. However, over time, that has evolved to the bulk of their investment being in mortgage-backed securities. - State law dictates the maximum loan-to-value ratio for these banks and it differs from one state to another. The maximum varies from 50 to 90 percent, except in the case of government-backed loans. - During tight money times, if the yield on non-real-estate-related investments increases, mutual savings banks often choose to restrict real estate loans and expand their lending activities in non-real-estate-related areas.

In order to establish and maintain a good reputation,

-mortgage brokers must take some responsibility for qualifying the borrowers and examining the reliability of the investment. -They know that they must recommend reliable borrowers to the lenders and quality loans to the borrowers. -And mortgage brokers must have good access to the major financial institutions that make real estate loans.

State-chartered savings institutions are licensed by ? and regulated by? If insured?

-the State of California and -regulated by the California Department of Savings and Loans. - If the institution is insured, it also operates under the supervision of the Federal Housing Finance Board

Many of the bank loans that are real-estate related are also short term and involve:

1) Construction loans - Usually last from three to twelve months. 2) Home improvement loans - Can extend up to five years. 3) Manufactured housing loans - Usually run ten years, or sometimes longer, depending on how permanently the home is attached to the property.

There are three types of real estate investment trusts:

1) Equity trusts - In this type of trust, the investors participate as owners of large and hopefully more profitable income-producing properties, such as, apartment complexes, office buildings, shopping centers and industrial parks. Investors get their income from rents and capital gains on sales of the properties. 2) Mortgage trusts - In this type of trust, investors loan their money to be used for making mortgages on commercial income properties and get their income from interest, loan origination fees and profits from buying and selling mortgages. 3) Hybrid trusts - These are a combination of the two above types, giving investors a chance to earn income from a variety of sources.

Mortgage Loan Disclosure Statement RE 883

At the top of the form is the borrowers name and address of the property. There is also a line for the name of the real estate broker who is acting as the mortgage broker as well as a line identifying the intended lender.

Ownership of Other Lending Enterprises

Some commercial banks own real estate mortgage trusts or are members of bank holding companies. -This presents them with expanded opportunities for investment. - Some banks will make loans on large commercial real estate projects, such as shopping malls or large office complexes, placing the loans through bank holding companies and thereby generating more profits.

What are Mortgage Loan Bonds?

Some states issue income-tax-free bonds to obtain financing for comparatively low-cost mortgage loans. These loans are usually made available to eligible persons to help them purchase single-family homes. Interest income on the bonds is both federal and state tax-exempt, so they can be purchased at rates that are lower than other taxable investments.

What regulates control of syndicates in this state?

The Department of Corporations - Section 25004 of the Corporations Code states that a special broker-dealer license is not necessary for a real estate broker who sells real estate syndicate security interests, as long as the broker adheres to the full disclosure provisions of the California Uniform Partnership Act. - Section 15507 of the Corporations Code also indicates that a limited partner could become liable for all the debts of the partnership if that limited partner "takes part in the control of the business." To avoid this problem, some partnerships choose to form a limited liability company, which combines the benefits of a partnership with the limited liability of a corporation. Persons belonging to a limited liability company can take an active role in running the company while still avoiding personal liability for the business. Visit the Department of Corporations web site at http://www.corp.ca.gov/ for more specific information about these regulations.

Commercial banks are very active in the home equity loan market.

The Tax Reform Act of 1986 abolished deductions for any interest paid on consumer finance, but maintained the deductions for any interest paid on home loans. -For this reason, banks have competed strongly for home loan business. -Since borrowers can get equity loans for a number of uses, including educational expenses, vacations, medical expenses and the purchase of personal items, these loans have become an important aspect of bank lending operations.

Banks are also involved in real estate financing through other opportunities. These avenues include:

Trust department operations Mortgage banker activities Ownership of other lending enterprises

Syndication is not a form of legal ownership; rather, it is a term that is used to

describe multiple ownership of an investment.

Because the tax incentives are so favorable, real estate investment trusts draw literally thousands of investors. As mentioned above, REITs concentrate on income-producing properties and generally

diversify their holdings both with regard to property type and geographical location.

Mortgage companies get involved with all types of real estate loans and can finance all stages of real estate development(from construction loans to developers to permanent loans to the persons who buy the newly constructed homes). In California, mortgage companies are licensed by

either the Department of Corporations or the Bureau of Real Estate.

Direct lenders

eliminate the traditional financial institution "intermediary" and make loans directly to the borrower. -However, when a direct lender eliminates this intermediary, he or she also eliminates the appraisal, loan screening and other services the traditional institution provides. -The lender must then perform those services himself. -However, even though the risks are greater, rewards can be seen in potential higher interest rate yields.

A Commercial Bank is a

financial institution that is designed to act as a depository for funds and as a lender for commercial activities - usually short-term loans. -Most of the funds deposited in banks are in demand accounts (personal and business checking accounts). -Since this money can be withdrawn at any time by a depositor, the bank rarely uses these funds for mortgage lending. -On the other hand, the depositors' savings accounts (along with loans from other banks and bank owners' equity) give the bank the long-term funds it needs for its investment ventures, including real estate loans.

A savings and loan association is a

financial institution whose primary function is to promote thrift and home ownership. -Also known as "savings banks" or "thrifts," these institutions often offer their depositors a higher rate of interest on their deposits than commercial banks offer. - A savings and loan invests at least part of their deposits in residential mortgage loans, which then allows more people to purchase and/or make repairs on their homes.

A mortgage broker is usually retained by a borrower to

help obtain financing for a specific commercial property. -Finding a suitable lender and arranging the loan entitles the broker to a commission or fee, which is paid by the borrower.

Issuing corporate bonds as a means of raising capital for an improvement such as acquiring new equipment can be very costly. To be successful, the corporation must

hire an investment banker or broker, have the bonds printed, and pay fees in advance to regulating agencies and the issuing brokerage firm.

The Real Estate Investment Trust (REIT) was formed

in 1960 by federal tax law.

REITs enjoy special

income tax benefits similar to those granted to mutual funds.

Istitutional lenders are different from noninstitutional lenders in several significant ways.

1) Institutional lenders are highly regulated by state and federal agencies; noninstitutional lenders have few, if any, regulations. 2) Institutional lenders are financial intermediaries; noninstitutional lenders invest their funds directly rather than through an intermediary. 3) Institutional lenders are not subject to usury law, so they may charge any rate of interest; noninstitutional lenders make loans that may be subject to usury laws, limiting the rate of interest they can charge. 4) Many institutional lenders can make VA and FHA loans, while noninstitutional lenders cannot. 5) Institutional lenders can avail themselves of the secondary mortgage market, while noninstitutional lenders do not have the secondary market available to them. 6) Many institutional lenders can offer their borrowers a "lock-in" period on their rates, meaning they will guarantee a particular rate for a two- to eight-week period prior to closing. Noninstitutional lenders typically do not offer that option.

The lending practices of life insurance companies include the following characteristics:

1) Most companies will loan only 80 percent or less of the value of the property or project. 2) Loan terms are usually 30 years. Lock-in clauses are more common with these loans, sometimes preventing a loan from being paid off for as long as 10 to 15 years on a 30-year loan. 3) Historically, interest rates on these loans have been lower than what banks or savings and loan associations offer. But more recently, the gap has been closing. 4) Insurance companies typically shy away from construction loans but are happy to extend the take-out or permanent loan after the building or development has been successfully completed according to the approved plans and specifications. 5) Insurance companies frequently tend to use mortgage companies as their agents. When they do this, they don't have to originate or process the loan themselves and can avoid other administrative and service tasks. Since few insurance companies are actually headquartered in California, using mortgage companies as agents is a frequent activity here, especially given the high demand for loans in this state. Note: You can find more detailed information about the lending authority for insurance companies in the California Insurance Code.

Life insurance companies are organized in one of two ways:

1) Mutual companies owned by the policyholders who share in the earnings through premium rebates 2) Stock companies owned by stockholders who get dividends on the earnings

The lending practices of savings and loan associations also include the following characteristics.

1) These institutions have great flexibility in their lending operations. -Generally most home loans do not exceed 95 percent of the home's value (either the sales price or the appraised value - whichever is lower), but lately, loans of 100 percent or more have become popular. - Most institutions put limits on the maximum amount for a single loan - usually no more than 1 percent of their total assets. Because of this limitation, larger savings banks can make larger loans than the smaller savings banks can. 2) Many of these institutions limit their loan terms to 30 years; however, in some cases they may offer a 40-year loan. -In the area of home refinancing, these lenders often prefer 15-year loans. -When interest rates are rising, lenders may set up a "balloon" payment in three to five years, so they can renegotiate the loan. - The loan is set up with the monthly payments amortized over 30 years, but the unpaid balance is due in the three or five year time frame. 3) The interest rates for loans from savings associations have historically been higher than what banks have charged, due to the higher demand for loans from the savings institutions. However, more recently that has changed, and the rates charged by both savings associations and banks are usually about the same. 4) Most loans are made on single-family, owner-occupied residences. When market conditions are favorable, savings associations will branch out into lending on mobile homes, non-owner-occupied residences, apartments and even commercial or industrial property. 5) Sometimes savings associations make combination loans available to their customers. These loans combine a short-term loan (such as a construction loan) with a longer term loan (such as the permanent financing of a home after construction is completed) into a single loan.

Private parties very different from any other type:

1) no formal structure 2) very few laws or regulations to deal with in regard to their lending practices 3) the practices and policies of private parties vary greatly from one lender to another. 4) However, many states, including California, have passed laws that regulate the maximum amount of interest an entity can charge on various loans.

In California, institutional lenders include:

Commercial banks Savings and loan associations Life insurance companies

Bonds can be used for real estate financing in two ways.

Corporation Bonds and Municipal Bonds

Why can credit unions pay higher interest rates on deposits than other savings institutions?

Credit unions pay no income tax they also off a wide variety of loans at far lower interest rates than their competitors. This makes credit union membership very attractive.

Private Parties:

Even though the term "private party" actually means any non-government lender, we will use the term to mean a person who lends money to another person.

The difference between GO bonds and revenue bonds is:

GO bonds are typically used to fund projects that will benefit the entire community, while revenue bonds are used to fund projects that will benefit specific populations, who provide the revenue to repay the debt through user fees and user taxes.

What are Municipal Bonds?

Government entities can also issue bonds as a way to finance real estate projects and community improvements such as sewers, road paving, schools and parks. These bonds are typically referred to as municipal bonds. There are two types of municipal bonds: general obligation (GO) bonds and revenue bonds.

The disclosure is divided into 3 major sections:

Loan Summary General information about the loan Signatures and warnings

The last section is for signatures and warnings. This section includes:

Loan broker name, license number and NMLS ID number (number permanently assigned by the Nationwide Mortgage Licensing System & Registry (NMLS) for each company, branch, and individual that maintains a single account on NMLS.) Broker's address Broker representative, license number and NMLS ID number Broker signature or Representative's signature Borrowers signature and date This section also advises the borrower that the disclosure is not a loan commitment and warns the borrower not to sign until he/she reads and understands the entire document.

Although not considered one of the three major types of institutional lenders, we need to take a minute to discuss mutual savings banks.

Mutual savings banks operate a great deal like savings and loans associations. - They are located primarily in the northeast. - There are no mutual savings banks in California. - However, it is important to know something about them because of the huge role they play in furnishing capital for residential loans through the secondary mortgage market.

The trade organization for mortgage brokers is the

National Association of Mortgage Brokers (NAMB), based in Washington, D.C. -NAMB promotes the mortgage broker industry through programs and services such as education, professional certification and government affairs representation. -NAMB emphasizes a strict code of ethics and best lending practices that foster integrity, professionalism and confidentiality when working with consumers. - NAMB also endorses the licensing of mortgage brokers in all states.

The Bureau of Real Estate (BRE) also requires the Real Estate Broker to review, date and sign the document and to put the BRE phone number on the document so the borrower may make a complaint if necessary.

Once the borrower signs the document, he or she must immediately receive a copy. In addition to providing the borrower with a copy of this disclosure, the broker must also keep a copy on file for the Commissioner's inspection for three (3) years.

Private loan companies are prevalent in this country.

Some are very large national firms with branches in hundreds of cities across the country. Others are much smaller, individual operations. In either case, these lenders deal mostly in junior financing; that is, second deeds of trust that allow borrowers to pull out some of the equity in their property to use for other purchases. Borrowers often use this money for purchasing automobiles, furniture or other high cost items. Some of these private loan companies deal with financing for consumer goods other than real estate, but there are others who deal exclusively in real estate financing. They can make loans from their own or borrowed funds, they can act as brokers between borrowers and lenders, and they can buy and sell junior financing instruments. These lenders have been particularly active in the junior loan market.

A large variety of noninstitutional lenders exists in the real estate marketplace. This is not surprising, given the fact that noninstitutional lenders are relatively free of regulations. Noninstitutional lenders include:

Private Parties (Individuals) Mortgage Brokers Mortgage Bankers Real Estate Trusts Syndications Real Estate Bonds Private Loan Companies Pension and Endowment Funds Credit Unions

California law requires loan companies to get licenses and performance bonds. There are also laws that limit the fees that loan companies can charge for their services.

Private loan companies are also bound by Regulation Z of the Federal Truth-in-Lending Act. According to this act, a lender must disclose the true cost of the credit being offered, so that borrowers can compare all the credit terms available to them. It also provides a three-day right to rescind, which means the borrower has up to three business days to cancel the loan.

What practices help the loan companies offset the risks that come with dealing in junior loans.

Private loan companies typically charge more in interest than other lenders and tend to charge higher loan placement fees.

The second section gives general information about the loan. This section details:

Proposed interest rate Loan payment Length of the loan Any prepayment penalty and its terms Compensation to the loan broker Statement regarding credit life insurance Lists current liens against the property and any liens that will remain on the property after the loan in made Balloon payment information. Note: There is a notice to the borrower in bold explaining that if the borrower does not have the funds to make the balloon payment at the end of the term, he or she may have to obtain another loan against the property or face possible foreclosure. Article 7 Compliance Statement

Syndicates may operate in the form of a:

Real estate investment trust Corporation General partnership Limited partnership Tenancy in common In California, the limited partnership is the preferred form.

Other California Bonds

Savings associations are also allowed the opportunity to issue mortgage-backed bonds. The association uses the money from the sale of the bonds to create more mortgages, which keeps a continuous flow of real estate finance funds.

What makes GO bonds different from revenue bonds?

The ability to back up GO bonds with tax funds( which are repaid using the revenue generated by the specific project the bonds are issued to fund -- for example, tolls collected on the toll bridge built from the revenue bonds).

Mortgage Banker Activities

The loan departments of many banks are also involved in originating and servicing loans for other lenders. -When so doing, they act as mortgage bankers and can represent life insurance companies, real estate investment or mortgage trusts and, in some cases, other banks. -When performing these activities, the bank will get an origination fee plus a percentage for servicing the account.

Trust Department Operations:

The trust departments of many banks manage large amounts of money and property for their beneficiaries. -For example, they act as executors of estates, guardians for minors' estates, escrow agents, and trustees for retirement or pension plans, just to name a few. - Since trust departments are charged with the responsibility of maintaining maximum yields at the lowest possible risk, they tend to be very conservative when making investments with the money of others that they control. -For this reason real estate loans often present an investment opportunity that meets the low risk criteria.

Questions:

What is the major difference between an institutional lender and a noninstitutional lender? Institutional lenders are highly regulated by state and federal agencies, while noninstitutional lenders have few, if any, regulations. Who licenses commercial banks? The California Department of Financial Institutions licenses state-chartered banks, while the Comptroller of the Currency gives licenses to nationally-chartered banks. Historically what has been true of interest rates on loans from savings and loan associations? The interest rates for loans from savings associations have historically been higher than what banks have charged, due to the higher demand for loans from the savings institutions. However, more recently that has changed, and the rates charged by both savings associations and banks are usually about the same. What kinds of projects are typical for life insurance company investments? Life insurance companies are a major source of credit for shopping centers, office buildings, hotels and motels, industrial buildings and large apartment complexes.

Questions:

What is usury law and what type of private party lender is exempt from these laws? Usury laws regulate the maximum amount of interest an entity can charge on various loans. Most private party lenders are not exempt; however, seller carryback loans are exempt. What is a mortgage correspondent and what does it do? A mortgage correspondent is a mortgage banking company that represents an institutional lender. The correspondent receives a fee for originating, processing and closing a loan. In some cases the correspondent may also collect payments, periodically inspect the property and supervise a foreclosure. How many types of Real Estate Investment Trusts are there and what are they? There are three types of real estate investment trusts: equity trusts, mortgage trusts and hybrid (or combined) trusts. What are the two types of municipal bonds and how are they used? General obligation (GO) bonds are typically used to fund projects that will benefit the entire community, like sewers, road paving and parks. Revenue bonds are used to fund projects that will benefit specific populations, who provide the revenue to repay the debt through user fees and user taxes, such as toll charges for a bond-financed toll bridge construction project.

Sellers

When a potential buyer doesn't have enough down payment money or would rather not tie up his capital in home equity, a seller can be put in the position to "carry back" a loan for some part of the transaction. -When a seller does this, it is usually in the form of a second trust deed. -Sometimes if the seller's home is paid off, he or she will agree to finance the entire loan, making it a first deed of trust. - In either case, the sellers become private lenders. Note: On the previous screen, we talked about usury laws. Carryback loans are exempt from usury laws; in other words, a seller can charge any rate of interest he or she wishes.

However if, as part of a real estate transaction, a broker helps a buyer fill out an application for a loan or arrange financing, there are some requirements and restrictions that the broker must follow.

When negotiating a loan for a prospect, within three business days of receiving a completed loan application or prior to the signing of any loan documents, the broker must make certain that the borrower receives a completed loan disclosure statement. The CALIFORNIA ASSOCIATION OF REALTORS® (CAR) has a form for this called the Mortgage Loan Disclosure Statement.

A syndicate is

a group of two or more people who unite their resources for the purpose of making and operating an investment. -Members of the syndication can pool their capital to finance a real estate transaction or to purchase a piece of property.

Note: In California, a mortgage broker must be

a licensed real estate broker, called a loan broker. - Loan brokers are governed by Article 7: Real Property Loans of the California Business and Professions Code.

Life insurance companies hold

a major portion of the savings of the American public. -Only savings and loan associations control more savings than life insurance companies do. -These companies are a major source of credit for shopping centers, office buildings, hotels and motels, industrial buildings and large apartment complexes.

Commercial banks operate under

a state or federal charter. - The California Department of Financial Institutions licenses state-chartered banks - the Comptroller of the Currency gives licenses to nationally-chartered banks.

Life insurance companies typically invest up to ? in real estate loans?

a third of their assets

The investment broker does what?

advises the corporation which bonds to market, what interest rates to pay and what the prices of the bonds should be. After the bonds are sold, the value changes with the market conditions, effectively changing the yield on any bonds that are sold before they mature.

What did the Credit Union Membership Access Act of 1999 do?

allowed credit unions to seek new members and expanded membership eligibility to household residents of existing members, including unmarried couples, live-in housekeepers, nursing care professionals or anyone who contributes to the support of the household.

By definition, an institutional lender is:

any financial institution whose loans and lending practices are regulated by law.

A secured bond is:

backed by a mortgage

GO bonds are

backed by the full faith and credit of the municipality that issues them.

In either form of organization, the insurance companies are licensed

by the state where they have their home office or in which they are incorporated.

Loan servicing duties usually include:

collecting payments, including principal, interest, insurance and taxes, on a note in accordance with the loan terms. Servicing also includes operational procedures such as accounting, bookkeeping, insurance and tax record preparation, follow-up on loan payments, follow-up on any delinquencies and analysis of the loan.

Pension funds collect

contributions from workers and sometimes employers and then invest those funds to create a large money pool from which the workers may withdraw when they reach retirement. The California State Teachers Retirement Fund is one example in this state. Traditionally, pension funds have been invested in stocks and bonds and this continues to be the case for the most part. More recently though, since mortgage-backed securities have become available, pension funds have begun to play a role in the real estate market by purchasing existing real estate loans in the secondary market. In addition, some funds are now developing their own programs that allow the fund contributors to use pension funds to purchase homes.

The goal was to

influence small investors to combine their resources with others to raise venture capital for real estate transactions.

California has the largest dollar volume of:

insurance company real estate loans of any state in the United States. - Texas is in second place, but no other states even come close.

Mortgage brokers rarely

invest any of their own capital in a loan, so they are taking no risk of loss. -In addition, after the loan is placed, mortgage brokers do not service the loan. - Loan payments are made directly to the lender, although in some cases they could be made to a collection service.

An unsecured bond is:

issued against the company's general assets also called a debenture.

REITs prefer to target their lending activities towards

land development projects and permanent financing for condominiums, high rises, warehouses, office complexes, single-family subdivisions and other major projects.

Life insurance companies probably have the widest range of?

lending practices of all the institutional lenders. -Investment policies are generally very flexible and cover many activities. - Life insurance companies who are not incorporated in California, but who choose to do business in this state, are subject to the same rules and restrictions that apply to California-incorporated companies.

Contrary to what the term may imply, mortgage banking is not really banking as we know it. There are no tellers, accounts, or depositors or any of the other things we normally associate with a bank. Mortgage bankers are really

managers of real estate loans. -Most mortgage companies are privately owned and get their income from doing loan origination and servicing those loans.

Corporations can issue bonds as a:

method of raising capital.

Sometimes lenders make real estate loans on properties that are not located in areas where the lender can personally supervise the loans. For this reason, lenders may choose to use the services of a

mortgage banker (or mortgage company).

Indirect Lenders

mortgage brokers -To avoid the potential problems of doing appraisals and loan screenings, some private lenders choose to use mortgage brokers to locate suitable transactions for their real estate investments. - Using a mortgage broker helps to overcome the typical private lender's lack of knowledge of real estate lending. -Additionally, it's the borrower and not the private lender who typically pays for the services of the mortgage broker.

When a mortgage banking company represents an institutional lender, it is known as a

mortgage correspondent. -The correspondent receives a fee for originating, processing and closing the loan. - In some cases the correspondent may also collect payments, periodically inspect the property and supervise a foreclosure, if that becomes necessary.

Credit unions are

nonprofit financial institutions into which members place their money, usually through direct deposit. Traditionally, credit unions were formed and made up of a group of people from a specific occupation or profession - like teachers or automobile workers. This is not true today.

Often, life insurance companies form partnerships with

project developers when financing major commercial projects. -Doing this has the effect of expanding the companies' investment portfolios. -In addition, insurance companies procure blocks of single-family mortgages from the secondary mortgage market to enhance their investment position.

According to government regulations, the majority of a savings and loan association's assets must be in:

real estate loans. -These institutions do extend business and consumer loans, but in far smaller numbers than their real estate loans. -Savings institutions can make collateral loans that are secured by a borrower's savings accounts, savings certificates, bonds, other existing secured notes or other forms of readily liquid assets.

Commercial banks primarily do

short term loans, mostly to businesses to finance their operations. However, lately, California banks have been aggressive players in the home loan market.

A swing or bridge loan is a

short-term loan that covers the situation that exists when a buyer purchases a new home before selling his or her existing home. -The loan for the "replacement home" will be paid off when the existing home sells.

Savings banks must be either

state or federally chartered.

In California, the mortgage business has grown considerably in order to meet the need for financing and refinancing of one-to-four family residences. On the state level, ? was formed...

the California Association of Mortgage Brokers (CAMB) was formed in 1990 and currently has more than 4,000 members across the state. - The organization describes its members as "consumer advocates in the mortgage selection process, helping home buyers to pre-qualify, select a mortgage loan, and complete escrow. -By linking with banks, other financial institutions, and private lenders, mortgage brokers offer consumers access to a wide range of choices as they select the right mortgage for their needs."

In California, insurance companies are regulated by

the Department of Insurance, which dictates what types of loans are permitted and what the maximum loan-to-value ratios can be, as well as other conditions of operation.

Federally-chartered savings institutions are licensed by? and regulated by? If insured?

the Federal Housing Finance Board and -regulated by the Office of Thrift Supervision. - Their accounts are insured by the Savings Association Insurance Fund (SAIF) under the Federal Deposit Insurance Corporation (FDIC). Note: All federally-chartered associations are required to participate in the federal savings insurance program. Participation in the insurance program is voluntary for state-chartered savings institutions.

What action served to make investment in junior loans more widespread.

the Tax Reform Act of 1986 abolished deductions for any interest paid on consumer finance, but maintained the deductions for any interest paid on home loans. This action served to make investment in junior loans more widespread.

In California, the maximum rate for real estate loans is

the greater of 10 percent or 5 percent above the Federal Reserve Bank discount rate -Some lenders are exempt from the law - all institutional lenders and some noninstitutional lenders such as mortgage companies and credit unions among others. Private parties, however, are not exempt.

Insurance companies are very concerned with

the safety and stability of an investment over the long term. -This is the reason they typically prefer to finance larger real estate projects. - However, more recently they have become active in the financing of single-family residences with the assistance of mortgage bankers and brokers.

In California, Cal-Vet loans are funded through

the sales of tax-exempt bonds. From the program's beginning in 1921 until 1980, only GO bonds were sold to support the program. General obligation bonds are backed by the full faith and credit of the State of California and must be authorized by a vote of the people at a general, statewide election. All GO bonds sold to support the Cal-Vet loan program are repaid by Cal-Vet loan holders through the payment of principal and interest on their loans. Even though the Cal-Vet program has been totally self-supporting and no taxpayer funds have been used to repay its bonds, there are state and federal limitations on the amounts of GO bonds which may be sold for the program. Because demand for Cal-Vet loans was exceeding the ability to fund with general obligation bonds, legislation was passed which enabled Cal-Vet to sell revenue bonds to supplement general obligation bonds. The first Cal-Vet revenue bonds were sold in 1980. These bonds are also repaid by Cal-Vet loan holders.

The mortgage banking industry is regulated under specific state laws. Even so, mortgage companies are less regulated than traditional institutional lenders because

they are not lending money that belongs to depositors. -Often, mortgage bankers lend their own money from funds they borrow on a line of credit from a commercial bank. -They then put together and sell loan "packages" to investors and keep the service contracts for the loans.

They are exempt from corporate tax if

they invest at least 75 percent of their assets in real estate and distribute 90 percent or more of their annual real estate income to their investors.

Credit unions make mostly short-term loans. When they do make real estate loans

they tend to be second mortgages or home improvement loans

Noninstitutional lenders are

those entities who make real estate loans but who are not so strictly regulated by state or federal government agencies.

An endowment in the financial world is a

transfer of money or property which is donated to an institution, with the stipulation that it be invested, keeping the principal intact. This allows the donation itself to have a much greater impact over a long period of time than if it were spent all at once, due to compound interest. Since these endowment funds are permanent, fund managers want to choose investments that are safe and will generate relatively high levels of income for long periods of time. For this reason, endowment funds offer a good source of mortgage financing for commercial and industrial properties. Many commercial banks and mortgage companies handle investments for endowment funds.

many states, including California, have passed laws that regulate the maximum amount of interest an entity can charge on various loans. This is called?

usury law. - If a loan exceeds the maximum amount, it is considered illegal. - In some cases where a lender has been found guilty of usury, the borrower did not have to pay any interest on the loan.