Chapter Five: Sources of Funds

The advantages of working with a ____________________include: He does all the legwork for the borrower including working on the borrower's behalf with the lender. He compares wholesale mortgage rates from a large number of banks and lenders all at once.

mortgage broker

A(n) _________________ is an independent contractor who offers the loan products of multiple lenders.

mortgage broker

What is the difference between a secured and an unsecured loan?

A secured loan is a loan in which the borrower pledges some asset (e.g., a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. Unsecured loans are monetary loans that are not secured against the borrower's assets (no collateral is involved). There are small business unsecured loans such as credit cards and credit lines to large corporate credit lines.

What is the difference between a mortgage broker and a mortgage banker?

A mortgage banker originates and services loans whereas a mortgage broker only originates loans. Mortgage brokers are independent contractors who offer the loan products to multiple lenders.

_______________were designed to be cooperative financial institutions for people who share a common bond.

Credit unions

How do credit unions function? What is their purpose?

Credit unions, on the other hand, are not-for-profit institutions. Technically, credit unions are owned by their account holders, known as members. Any profit earned by a credit union is either invested back into the organization or paid out to members as a dividend. As a not-for-profit institution, credit unions pay no state or federal taxes, meaning they can charge lower interest rates than banks for most financial services. Most credit unions are highly customer-oriented, though they tend to offer only a limited selection of loan products like mortgages. Credit union mortgage loans may take longer to close because the loan underwriting processes are sometimes slower than similar bank underwriting processes. Credit union mortgages often remain with their credit unions their entire existence and they may feature lower interest rates.

_________ companies normally specialize in large-scale projects and mortgage packages.

Insurance

Where do insurance companies get the money to invest in large commercial projects?

Insurance companies receive their money through the payment of premiums by their policyholders.

__________________________________ are issued by companies or financing vehicles with relatively strong balance sheets.

Investment grade corporate bonds

________ funds are a very important factor in the overall investment market, as they make up the largest part of institutional investments.

Pension

A(n) ___________________________________ is a type of real estate company modeled after mutual funds.

REIT (Real Estate Investment Trust)

Explain how a REIT works and the advantages of being invested in a REIT.

REITs make investments in large-scale, income-producing real estate accessible to average investors. Congress decided that a way for average investors to invest in large-scale commercial properties was the same way they invest in other industries, through the purchase of equity. In the same way shareholders benefit by owning stocks of other corporations, the stockholders of a REIT earn a pro-rata share of the economic benefits that are derived from the production of income through commercial real estate ownership. REITs offer distinct advantages for investors: portfolio diversification, strong and reliable dividends, liquidity, solid long-term performance and transparency.

A(n) _________ is a debt investment in which an investor loans money to an entity that borrows the funds for a defined period of time at a fixed interest rate.

bond

The ________________ bank is a financial institution that provides services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit.

commercial

A _________ money lender is a non-institutional (nonbank) individual or company that loans money, generally secured by a note and deed of trust, for the purpose of funding a real estate transaction.

private