Unit 5: Sources of Funds: Institutional, Noninstitutional, and Other Lenders
Under 2016 tax law, anyone may make a gift to another person with no tax consequences of up to
$14,000.
A mutual savings bank might be found in any of the following states EXCEPT
California
A couple applies for a mortgage loan. Their loan officer will take all steps to qualify the borrowers, prepare the loan package, and submit it to one or more lenders. This loan officer works for
The answer is a mortgage broker. A mortgage broker brings together a borrower and a lender, earning an origination or placement fee. The mortgage broker does not invest capital in the loan and does not service the loan after settlement.
The only typical banking service offered by a mortgage banker is
The answer is a mortgage loan origination. There are no tellers or cashiers in an office building to service the public with checking or savings accounts, although some larger commercial banks do have their own subsidiary mortgage banking company.
A list of noninstitutional lenders would include all of the following EXCEPT
The answer is a real estate mortgage trust. Real estate mortgage trusts are listed as institutional lenders.
In the mortgage banking world, a warehouse of funds refers to
The answer is an amount of funding temporarily provided by a commercial bank. A warehouse of funds is the amount of funding that a commercial bank may commit to a mortgage banker that enables the mortgage banker to close on individual mortgage loans before receiving the total commitment from the final investor.
One aspect of investment of pension retirement funds that has created concern due to the recent financial crisis is the purchase of
The answer is blocks of mortgage-backed securities. Many of these blocks of MBSs were part of the overall economic crisis when the loans used as collateral went into default.
Demand deposits are also known as
The answer is checking accounts. Although commercial banks have other sources of capital, demand deposits provide their basic supply of funds based on the fees generated on these transactions, especially in order to cover insufficient funds by the depositor.
When lenders make loans on properties located far from where they can personally supervise, they may seek to invest in real estate transactions through the use of local intermediaries, called mortgage bankers or
The answer is correspondents. A mortgage banker with a correspondent lending status with an investor has fiscal responsibilities for performance of the loan after it closes, usually up to one year.
The primary lenders of real estate loans may be called financial intermediaries. An essential characteristic of a financial intermediary is that
The answer is funds remain available to their owners when called for. Whether institutional or noninstitutional, financial intermediaries must protect their entrusted funds so they are available, dollar for dollar, when called for according to established arrangements.
A popular use of real estate bonds is to finance municipal improvement projects. These bonds are usually considered
The answer is general obligation bonds. A popular use for real estate bonds is to finance municipal improvement projects. By issuing general obligation bonds, guaranteed by the taxing power and the full faith and credit of the community, governments can raise funds for financing schools, street improvements, sewer installations, park developments, and other civic improvement projects.
A city looking to build several parks in the community, along with other civic projects, would issue
The answer is general obligation bonds. General obligation bonds represent a promise by the issuer to levy the necessary taxes to make full and timely payments to investors. Ratings on bonds are based on the rating agency's evaluation of the ability of the municipality to repay the bonds or, conversely, the risk that the municipality may default.
In addition to acting as originating and servicing agents for their own mortgages, many commercial banks act as mortgage bankers for other commercial banks, life insurance companies, or other real estate investment trusts so they can
The answer is generate origination and servicing fees. By acting in the role of a mortgage banker, commercial banks have the opportunity to add more earnings to their overall profit picture.
The three types of real estate investment trusts (REITs) include all of the following EXCEPT
The answer is geographic REIT. Although some REITs may concentrate on a specific area of the country, there is no such designation.
A junior mortgage typically has a
The answer is higher rate than the primary mortgage. The lender in the junior lien position has a higher risk that the loan will not be paid, so the interest rate is higher.
The first savings associations were established as building and loan associations, with the specific purpose of providing loans for
The answer is housing construction. The building and loan associations eventually turned into savings and loans—then savings associations—now more often referred to as thrifts. The original purpose of providing housing construction loans became home mortgage loans.
A woman recently invested in a real estate investment trust (REIT). The return on her investment will be based on
The answer is income from apartment houses, offices, and shopping centers. Designed to deal in equities, equity REITs are owners of improved income properties, including apartments, office buildings, shopping centers, and industrial parks.
A city looking to attract a particular business to the community may use revenue bonds to develop an industrial park or construct buildings that can be leased to tenants. These bonds are known as
The answer is industrial revenue bonds. By this process, new jobs are created, new taxes are generated, and generally an impetus of growth is infused into the community. This is a strategy used in growth-oriented cities to attract more businesses.
Because mortgage bankers are not providing real estate financing from deposits, they are
The answer is less regulated than banks. Although the mortgage banking industry is regulated under specific state laws, it is less regulated than banks because funds are not being invested from lending depositors. However, as a result of the mortgage crisis, the government decided that mortgage bankers from nondeposit banks should be licensed, so it implemented licensing of originators at the state and federal level through the SAFE Act.
The licensing requirements of the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) apply to all
The answer is loan originators. The SAFE Act was designed to provide more consumer protection by requiring states to establish minimum standards for the licensing and registration of mortgage loan originators. Loan processors and underwriters are not subject to licensing requirements, as long as they perform under the direction and supervision of a licensed loan originator. A real estate professional who only describes the loan process is not subject to the SAFE Act.
The trust department of a bank would be interested in participating in all of the following activities EXCEPT
The answer is manager of a small savings account. Bank trust departments supervise and manage relatively large quantities of money or property, not small savings accounts. They may serve as executors, conservators, guardians, trustees, or escrow agents.
A borrower has applied for a loan from a mortgage company that intends to process the loan and then submit it to an investor for underwriting, closing, and funding. This borrower has applied with a
The answer is mortgage broker. Mortgage brokers follow investor guidelines but do not perform the function of underwriting, closing, or funding the loan. The investor (lender) is at risk if the loan goes into default, not the mortgage broker.
Which of these joins borrowers with lenders for real estate loans?
The answer is mortgage brokers. Mortgage brokers do not make mortgage loans, nor do they process or service the loan after settlement/closing.
The SAFE Act was passed to provide protection to the public from
The answer is mortgage loan originators. As originally enacted, the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) required individual employees of agency-regulated institutions who engage in the business of residential mortgage loan origination to be licensed.
Bonds for sale issued by a county to fund street improvements are called
The answer is municipal bonds. A popular use for real estate bonds is to finance municipal improvement projects such as schools or street improvements.
A mortgage banker must have capital to fund loans and is expected to have a specified level of
The answer is net worth and/or regulatory capital. A mortgage banker must have capital to fund loans, or access to credit, such as through a warehouse line of credit. Moreover, to maintain and renew its license or charter, a mortgage banker must have a specified level of net worth and/or regulatory capital. Mortgage brokers generally are not required to have funding sources or net worth except in nominal amounts.
When sellers of a property decide to provide financing, it's usually because
The answer is other financing is not available. The seller is willing to provide financing in order to get the deal done or as part of a business strategy because sellers typically lend at a higher rate and require more down payment. These loans are typically not long term like a 30-year mortgage.
More than 70% of mutual savings banks' assets are derived from
The answer is savings accounts. The mutual savings banks are actually savings institutions where their depositor-owners receive profits as interest or dividends on savings accounts.
The single-most important source of private loan financing is
The answer is sellers of property. Family members are also a frequent source, but sellers of a property who are willing to carry back a portion of the total sales price are sometimes the only way a sale can be completed.
The primary activity that marks the difference between a mortgage broker and a mortgage banker is that a mortgage banker will
The answer is service the loan after settlement. Mortgage bankers not only originate new loans but also collect payments, periodically inspect the collateral involved, and supervise a foreclosure, if necessary.
When a seller provides financing in the form of a second mortgage, the seller/lender can minimize the risk of not being paid on the second mortgage in the event of default by
The answer is setting up a collection escrow account for the first and second loan. The collection account administrator is required to notify the seller when the payments are delinquent.
A mortgage banker operating as a correspondent lender typically does not have his own funds to lend, so he establishes a line of credit with commercial banks that is called
The answer is warehousing. These short-term loans allow commercial banks to generate revenue and the resources the mortgage banker needs to provide financing until the loan is sold to the investor, which opens up the line of credit for more lending activities.
When a company issues bonds that are a claim against its general assets, they are called unsecured bonds or
debentures
A young couple wants to purchase a home and realizes that they are short on funds and need some assistance from their parents. The parents can assist with financing as long as a
gift form/letter is executed from the donor.
A house is selling for $180,000 and the seller owes $140,000. The borrower is short $40,000 for the down payment, but the seller is willing to carry back $20,000 of the $40,000 equity as a second mortgage as long as the buyer agrees to pay $20,000 cash. This type of financing by the seller is called
junior financing.
A mortgage secured by a lien on a property that is subordinate to another mortgage on the same property is called a
junior mortgage.
The Real Estate Investment Trust Act of 1960 provided vehicles for real estate investors to enjoy special income tax benefits through investment in
real estate trusts.
A U.S. savings bond is an example of a type of bond that is bought at a price lower than its face value, with the face value repaid at the time of maturity without making any interest payments. This type of bond is called a
zero-coupon bond.