REAL ESTATE FINANCE: UNIT 5
Mortgage Backed Security (MBS)
A bond or other financial obligation secured by a pool of mortgage loans.
Installment Land Contract
A contract to purchase real estate without a legal deed with monthly or annual installments. The warranty deed is usually held in escrow and is recorded when the terms of the land sale are completed.
Government National Mortgage Assn. (GNMA)
A government owned agency that acts as a secondary marketing conduit for government sponsored loans such as VA and FHA loans.
Amortized loan
A loan requiring payments sufficient to repay the entire balance in a specific time.
Construction loan
A loan that is made for the purpose of building a new structure
Home Equity Loan
A loan that uses the equity in a home as collateral for repayment. Home equity loans allow borrowers to use the market value of a home as collateral for a loan. Loans secured by real estate generally are considered safer by lenders, resulting in lower interest rates than for other types of loans.
Open Ended Mortgage
A mortgage that allows the mortgagor to borrow additional funds under the same mortgage.
Package Mortgage
A mortgage that covers both real and personal property.
Wrap-around mortgage
A mortgage that includes in its balance an underlying mortgage. Rather than having distinct and separate first and second mortgages, a wraparound mortgage includes both.
Graduated payment mortgage
A mortgage that starts with low payments that automatically increase at set intervals. Frequently, the initial payment doesn't cover the entire interest due. This 'deferred interest' is added to the principal balance, resulting in 'negative amortization'.
Purchase money mortgage
A mortgage used to purchase real estate.
Budget loan
A mortgage whose payment includes escrows to pay taxes and insurance.
Bridge loan
A short term loan that allows a person to purchase a property without selling previous home.
Secondary Mortgages
Also known as second lien or junior lien mortgages, secondary mortgages are secured by houses that already have at least one other mortgage or lien.
Who is required to have this(Residential Mortgage Loan Originator License) license?
An individual who for compensation or gain or in the expectation of compensation or gain, takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan. This includes originators of liens for mobile homes or manufactured homes that are used as a residence, property tax loans, home equity loans, or secondary mortgage loans.
Motor Vehicle Sales Financing.
Companies that finance motor vehicle sales in Texas need be licensed by the OCCC. The requirement extends to dealers that provide financing themselves and to dealers that arrange financing with lenders for their customers, as well as the finance companies that provide financing to dealers' customers
Syndications and Securities
Due to the legal complexity of these financing methods, a real estate broker dealing in syndications and securities should obtain the guidance of a specialized attorney. Generally, a security exists when a person invests money in a common enterprise with the expectation of profit based on the essential managerial efforts of a third party. Obviously this definition covers not only stocks or mutual funds, but also real estate investments in some cases, such as: General and limited partnership interests Joint venture interests Timeshares and condominium interests Real estate investment trusts (REITs)
Individual (Unintentional) Investors
During times of tight money, many sellers may be forced to help the buyers by providing second mortgages, wraparound mortgages, and owner-carried financing. This help may be the difference between a sale and a no sale when the interest rates are high. A seller may also realize a higher return by carrying back a second than putting their equity in a bank.
Federal Home Loan Mortgage Corporation (FHLMC)
Federal Home Loan Mortgage Corporation Freddie Mac is a government sponsored agency that purchases mortgage loans in the secondary market. They primarily buy instruments from banks, savings and loans, and other depository instructions.
Direct lenders
Financial institutions, such as Banks and Savings & Loans, who collect deposits from customers and use those funds to provide mortgage loans.
Mortgage Banker
Financial intermediaries that originate and fund loans.
Mortgage Broker
Financial intermediaries that originate loans that are funded by an outside lenders.
I am a licensed real estate broker. My client is selling a home that she owns as investment property. The person she is selling to intends to use the home as a residence. She will beoffering seller financing. Do I need to be licensed under the SAFE Act?
Generally, an individual who acts in the capacity of residential mortgage loan originator (takes an application or offers or negotiates terms) must be licensed.
Home Improvement Loans
Home improvement loans can hold either first lien positions (the only or primary loan secured by a house) or second lien positions. Loan principal is devoted to home repairs and renovations.
Syndications and Securities: Federal Requirements
If advertising real estate for sale across state lines (interstate), dealers must register the real estate with the REC and with the Security and Exchange Commission (SEC). Brokers or dealers of these securities must also be registered with the SEC and must be a member of the National Association of Securities Dealers (NASD).
Commercial Property Financing: Underwriting
In addition to the physical characteristics of the property, the income stream is the most important consideration. This requires a detailed examination of the gross income the property can and has produced, less vacancy allowances and operating expenses to arrive at a net operating income. From the net operating income, the value of the property is determined through the capitalization process and the loan amount is determined through the application of a loan to value ratio based on that value as well as the application of the debt service.
Limited Partnerships
Limited partnerships are formed to make a substantial real estate investment that would be beyond the means of any of the individual investors. The limited partners pay for the expenses of the partnership and receive any profits. They are not responsible for any partnership losses beyond the amount of their individual investment, provided they take no part in management of the affairs of the partnership. A partnership is not taxed as an entity.
Mortgage Brokers
Mortgage Brokers have no money of their own to loan, but broker loans to many different banks or mortgage companies. Each loan is funded directly by the investor purchasing the loans. Mortgage Brokers, like Mortgage Bankers, have the advantage to shop many companies to get the lowest rates. The disadvantage of a mortgage broker is that they rely on the investor for underwriting, closing, and funding the loans. For pre-qualification, ABC Mortgage may write the pre-approval letter, but the actual loan will be from XYZ Financial. The mortgage broker, after taking the pre-qualification information, finds a lender who will accept the buyer. They will package this loan and send it to the investor for underwriting and approval. Since the approval and the funds for closing come from the investor, the real estate professional should make sure the interest rate guarantee (lock) and the loan approval letter come from the investor, not just the broker. The typical mortgage broker will not be in a position to fund the loan if the investor turns it down.
Pawnshop Transactions
Pawnshops make loans in exchange for keeping collateral on-site at the lending locations. When borrowers pay back their loans, they get back the items left as collateral. If they choose not to repay, the pawnshops keep the items for retail re-sale.
Payday Loans
Payday loans are made for up to $500 and usually require payment in two weeks or less. Generally, the consumer writes a check as security for the loan with the understanding that the lender will not present the check for deposit until a predetermined date (such as the borrower's next payday).
Amy Young Barrier Removal (AYBR) Program (HTF):
Provides funds to eligible entities for accessibility modifications in rental and owner-occupied housing for persons with disabilities earning up to 80-percent area median family income. Offered through TDHCA's state funded Housing Trust Fund Program.
Federal National Mortgage Assn. (FNMA)
See Fannie Mae: Federal National Mortgage Association. Fannie Mae is one of the major secondary market investors who buys mortgages.
Signature Loans
Signature loans are unsecured loans, meaning that the borrower pledges no collateral but receives a loan upon putting a signature to an agreement. Lenders generally grant up to $500 for signature loans amounts.
The Role of Banks
Some banks, including Wells Fargo, will have in-house "private bankers" who have access to different sources of funds that are outside of the traditional lending lines. Portfolio lenders such as local community banks or credit unions may also be included in the private lending category as they will be deciding on the loan and keeping the loan in-house (or in their portfolio) rather than selling the loan to wall street.
Retail Credit Accounts
Some retailers act as creditors, financing the sales of their goods and services and thus allowing their customers to make payments over time. These creditors include boat and manufactured home dealers, furniture and carpet retailers, home improvement and air conditioner sales and service companies, some medical offices, etc.
Comprehensive Energy Assistance Program (CEAP):
The Comprehensive Energy Assistance Program (CEAP) combines case management, education, and financial assistance to help very low- and extremely low-income consumers reduce their utility bills to an affordable level. Services include utility payment assistance, energy education and budget counseling.
Homeowner Rehabilitation Assistance (HRA) Program (HOME):
The Homeowner Rehabilitation Assistance (HRA) Program provides funds to eligible entities for the rehabilitation or reconstruction of substandard homes owned and occupied for homeowners earning up to 80 percent area median family income. Offered through TDHCA's federally funded Texas HOME Program.
Neighborhood Stabilization Program (NSP):
The Neighborhood Stabilization Program provides funds to eligible entities for the acquisition and redevelopment of foreclosed, abandoned or vacant housing to create affordable housing; demolition of severely substandard housing; redevelop demolished or vacant properties; creation of land bank; and/or other related activities.
Broker FAQ
The Texas SAFE Act provides that a licensed real estate broker or salesperson may perform "real estate brokerage activity" in connection to a transaction without having a residential mortgage loan originator license. The Texas SAFE Act defines real estate brokerage activity as: Acting as a real estate broker or salesperson for a buyer, seller, lessor, or lessee of real property; Bringing together parties interested in the sale, purchase, lease, rental, or exchange of real property; Negotiating, on a party 's behalf, any provision of a contract relating to the sale, purchase, lease, rental, or exchange of real property, other than a negotiation conducted in connection with providing financing with respect to such a transaction The following questions and answers are intended to provide guidance to licensed real estate brokers and salespersons in determining whether or not certain activities require licensure as a residential mortgage loan originator under the Texas SAFE Act.
Dual Contract
The illegal or unethical practice of providing 2 different Contracts for the same transaction.
Foreign Lenders
The traditional definition of a foreign loan (issued by a foreign lender!) would be a loan that was made by a foreign government (i.e., not the U.S. government). The loan might be in the form of a bond, certificate of debt, treasury bill, treasury note, or whatever document the borrower and lender agree upon. China may be the most-frequently mentioned foreign lender in the sense that the Chinese purchase enormous amounts of debt treasury notes, bonds, etc) issues by the U.S. government. This means that our government is a borrower and China is the lender. This situation creates concern among many politicians and economists in that it is believed, by some, that holding that much debt gives China undue influence over U.S. foreign policy. A secondary meaning of a foreign lender would be any lender not based in the U.S. that makes a loan to a person or business entity that is not a resident of that non-U.S. country.
Consumer Installment Loans
These are secured loans that a borrower pays off in multiple installments. Loan amounts typically range from $500 to $12,000.
Savings and Loan Holding Companies
Under the Home Owners' Loan Act (HOLA), a savings and loan holding company (SLHC) includes any company that directly or indirectly controls either a savings association or any other company that is an SLHC. Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) transferred to the Board of Governors of the Federal Reserve System the supervisory functions of the Office of Thrift Supervision (OTS) related to SLHCs and their non-depository subsidiaries beginning on July 21, 2011.
Credit Unions
While the majority of loans made by credit unions are consumer loans (cars, furniture, appliances) to their own members, larger credit unions do provide members with long- term mortgage money. The State Banking Commissioner regulates credit unions. Credit Unions are a good source of funds for second mortgages, home equity loans and lines of credit, and bridge loans. At times, they may operate as Mortgage Bankers by offering fixed- rate mortgage loans to be sold in the secondary market. Credit Unions can make loans with as little as 5% down. Most mortgage insurance companies provide lower MI insurance rates because credit unions typically have a lower incidence of foreclosure. Modern Credit Unions are non-profit member owned financial services institutions. For this reason they often offer better rates, terms, and fees.
In a short sale transaction, can a real estate broker or salesperson provide information about the subject property to the existing lender?
Yes, this action does not require a residential mortgage loan originator license.
I represent a potential buyer in a transaction. Can I provide the buyer with general information about the benefits and features of different loan types such as FHA, VA, Conventional, etc.?
You may provide general information about loan programs to the buyer. However, if you either take a residential mortgage loan application or attempt to negotiate a residential mortgage loan on your client's behalf, you must be licensed as a residential mortgage loan originator.
Adjustable Rate Mortgage (ARM)
A loan with an interest rate that may change periodically.
Blanket mortgage
A mortgage covering more than one property; a mortgage covering both the real property and the personal property.
Why Use Private Lenders?
Any non-institutional lender (individual or company) could be considered to be a private lender.
Governing Agencies
The Texas Office of Consumer Credit Commissioner (TOCCC) regulates certain transactions. They include: Home Equity Loans Secondary Mortgages Home Improvement Loans Motor Vehicle Sales Financing Pawnshop Transactions Signature Loans Payday Loans Consumer Installment Loans Retail Credit Accounts Texas OCCC supervises the following: Residential Mortgage Loan Originator License
Real Estate Morgage Trust (REMT)
A real estate mortgage trust is a type of real estate investment trust (REIT) that buys and sells the mortgages on real property rather than the real property itself. These trusts loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage backed securities. Their revenues are generated by both interest and fees on the mortgages. REMT's make investments in mortgage-backed securities, mortgage loans, and other real estate-related loans and securities. These can be for residential mortgage-backed securities and residential mortgages, or commercial real estate loans.
Who Does Not Need This(Texas SML Mortgage Company Residential Mortgage Loan Originator License) License?
An employee of a depository institution; a subsidiary that is owned and controlled by a depository institution and regulated by a federal banking agency; or an institution regulated by the Farm Credit Administration that is registered with, and maintains a unique identifier through, the Nationwide Mortgage Licensing System and Registry. An individual who offers or negotiates terms of a residential mortgage loan with or on behalf of an immediate family member of the individual. An individual who offers or negotiates terms of a residential mortgage loan secured by a dwelling that serves as the individual's primary residence. A licensed attorney who negotiates the terms of a residential mortgage loan on behalf of a client as an ancillary matter to the attorney's representation of the client, unless the attorney takes a residential mortgage loan application and officers or negotiates the terms of a residential mortgage loan. An employee of a Credit Union Subsidiary Organization (CUSO) that is licensed with, and maintains a unique identifier through, the Nationwide Mortgage Licensing System and Registry. An employee of a Mortgage Banker Company that is registered with, and maintains a unique identifier through, the Nationwide Mortgage Licensing System. An employee of a political subdivision involved in affordable home ownership programs that is licensed with, and maintains a unique identifier through, the Nationwide Mortgage Licensing System. An employee of an organization that qualifies for an exemption from state franchise and sales tax as a 501(c)(3) organization that is licensed with, and maintains a unique identifier through, the Nationwide Mortgage Licensing System. An Exclusive Agent of a Financial Services Company that is licensed with, and maintains a unique identifier through, the Nationwide Mortgage Licensing System and Registry. An individual who offers or negotiates terms of a commercial mortgage loan.
Who is exempt from holding this(Residential Mortgage Loan Originator License) license?
An individual who performs solely administrative or clerical tasks on behalf of an individual licensed as a residential mortgage loan originator or exempt from licensure under Section 180.003, except as otherwise provided by Section 180.051. An individual who performs only real estate brokerage activities and is licensed or registered by the state as a real estate broker or salesperson, unless the individual is compensated by: a lender, mortgage broker, or other residential mortgage loan originator; or an agent of a lender, mortgage broker, or other residential mortgage loan originator. An individual licensed under Chapter 1201, Texas Occupations Code, unless the individual is directly compensated for arranging financing for activities regulated under that chapter by: a lender, mortgage broker, or other residential mortgage loan originator; or an agent of a lender, mortgage broker, or other residential mortgage loan originator. An individual who receives the same benefits from a financed transaction as the individual would receive if the transaction were a cash transaction. An individual who is involved solely in providing extensions of credit relating to timeshare plans, as defined by 11 U.S.C. Section 101(53D). A registered mortgage loan originator. "Registered mortgage loan originator" means an individual who: is a residential mortgage loan originator and is an employee of a depository institution.
Who Is Required to Have This(Texas SML Mortgage Company Residential Mortgage Loan Originator License) License?
Any employee or contracted individual of a corporation, company, partnership, or sole proprietorship that: Engages in the business of residential mortgage loan origination on real property located in Texas; An individual has a primary residence in the State of Texas and engages in the business of residential mortgage loan origination; Represents or holds himself or herself out to the public as a "loan officer," "mortgage consultant," "mortgage broker," "loan modification/refinance consultant," or "residential mortgage loan originator," or Otherwise represents that the individual can or will perform the activities of a residential mortgage loan origination; Provides disclosures to a prospective borrower or discusses or explains such disclosures; Determines the lender(s) or investor(s) to whom the loan will be submitted; or Issues or signs a prequalification letter or preapproval letter.
Texas SML Mortgage Company Residential Mortgage Loan Originator License
Any employee or contracted individual of a corporation, company, partnership, or sole proprietorship that: engages in the business of residential mortgage loan origination on real property located in Texas; an individual has a primary residence in the State of Texas and engages in the business of residential mortgage loan origination; represents or holds himself or herself out to the public as a "loan officer," "mortgage consultant," "mortgage broker," "loan modification/refinance consultant," or "residential mortgage loan originator," or otherwise represents that the individual can or will perform the activities of a residential mortgage loan origination; provides disclosures to a prospective borrower or discusses or explains such disclosures; determines the lender(s) or investor(s) to whom the loan will be submitted; or issues or signs a prequalification letter or preapproval letter.
Commercial Property Financing: Types of Properties
As you drive down the street, you can identify many types of commercial property. Some of the most common are: Office Buildings Retail Buildings Shoppettes Neighborhood Centers Regional Malls Box Buildings Industrial Buildings Multifamily Special Purpose Properties Hotels Restaurants Mobile Home Parks Nursing Homes
Bonds
Bonds play an important role in mortgage financing, and are the reason lenders can offer long term fixed rate loans. Mortgage loans are packaged into pools (usually over $1,000,000) and are sold as bonds. The underlying real estate serves as collateral, and the return to the investor is the interest paid by the mortgagor. Fannie Mae and Freddie Mac, because of their unique government affiliation (they are Government Sponsored Enterprises) sell bonds through the US Treasury window. This gives Fannie Mae and Freddie Mac more favorable interest rates, which is why they purchase a majority of mortgages. Banks and other financial institutions sell Mortgage Backed Securities (MBSs). These bonds help finance loans and/or properties that don't fit into the Fannie Mae or Freddie Mac guidelines. These include, but are not limited to, jumbo loans, non-warrantable condominiums, apartment homes, etc. Many times states, cities, and counties will offer tax-exempt bonds to assist low and moderate income buyers. Because of the tax free status, these bonds have lower interest rates that can be passed on to borrowers with below market financing, down payment assistance, etc. These loans have maximum income limits which will vary based on the city or county of their residence and purchase.
Commercial Banks
Commercial Banks are the largest of all lenders with the greatest total cash resources involved in the financing of real estate, and are either federally (nationally) or state chartered. Nationally-chartered banks are members of the Federal Reserve System (FRS) and the Federal Deposit Insurance Corporation (FDIC). FRS members (approximately 1/3 of all commercial banks) control the majority of total bank assets and are regulated by the Federal Reserve Board. FDIC provides insurance on depositors' accounts up to a maximum of $250,000 for each account. The word "national" must appear in their name or the letters "N.A. (national association) after the title. State chartered banks are regulated by various agencies; FDIC and FRS membership is optional. Commercial banks carry on their books time deposits (savings accounts), demand deposits (checking accounts), certificates of deposits (CD), and money market accounts. Most real estate activity is in short- term financing, particularly construction loans, bridge loans, and home equity loans. They also provide warehousing lines for Mortgage Bankers. Commercial banks rarely finance fixed rate loans for residential purchases. They prefer a high degree of liquidity, so they prefer short- term loans and adjustable rate mortgages. However, they are a great source for second mortgages, including Home Equity Lines of Credit (HELOC's), construction loans, and bridge loans. These banks may sometimes represent other institutional investors, assuming the function of mortgage company or mortgage banker, by brokering the investor's money to borrowers for a fee paid by the investor (loan correspondent). In small communities and rural areas, commercial banks represent the main source of all money, including mortgage money for farm loans.
Commercial Property Financing
Commercial property financing is very different than residential financing. In commercial property financing, the lender is looking at the property as the primary source to repay the loan. If the property is not performing, it will be difficult for the borrower to make the loan payments over an extended period of time. That also means that the collateral for loan is in trouble. Therefore a great deal of emphasis is placed on the income stream and the quality of the income stream. In fact, if the quality of the income stream is high enough, it might result in a "non recourse" loan in which the borrower does not have to sign on the loan as a guarantor. Also, the lender is dealing with corporate and partnership borrowers as well as individual borrowers. In residential financing the emphasis is on the borrower and the ability of the borrower to make the loan payment. As the loan to value ratios have increased with the proliferation of the 100% loan programs, a relatively small downturn in property values will put borrowers "upside down" relative to the value of the properties compared to the loan amounts. Therefore the analysis of the borrower and their ability to make the loan payment becomes paramount. Residential loans involve one to four family residential properties. These properties fall under the guidelines of Fannie Mae, Freddie Mac, FHA and VA as long as they are conforming loans. The loans exceeding those loan limits are still considered residential loans, although with possibly different underwriting standards. Any property that exceeds four units or any property that is for business purposes (shopping centers, office buildings, etc.) is considered commercial.
Owner Financing
During periods of tight money, owners may finance all or part of the purchase price. If a home is free and clear, and the owner doesn't have an immediate need for cash from his equity, he may wish to provide owner financing. This usually benefits both the buyer by allowing a lower rate than the current market will provide, and the seller by allowing for a higher return than putting the equity in a savings account. Also, the seller can provide a 'second mortgage' to the purchaser who has a first mortgage arranged, but is lacking some of the required down payment. Private "Hard Money" investors may also be accessible for hard to finance transactions. Each private lender may also inform mortgage brokers of their programs and rates. The lending criteria of each investor will be different, however, so buyers will need to compare loan offers closely. Applications for private loans will be similar to traditional bank applications and in most cases a decision on the loan can be made more quickly. And take care to review the rates - Hard Money lenders will typically charge a higher interest rate than other lenders. Many investors will also be able to finance mixed-use or commercial transactions. Bridge loans or construction loans may also be available through private lenders.
Indirect Lenders
Indirect lenders provide mortgage origination services, but rely on the secondary market for funds. They may initially fund the loan, but will immediately sell the loan. There are two parts to selling a loan. The first is the actual funding for the loan, the amount of the mortgage. The second is the 'Servicing', which is the right to collect payments and disburse the principal and interest to the investor. The servicer will collect the tax and insurance payments (including flood and mortgage insurance if required) and hold them in the escrow account until they need to be paid. Loans may be sold individually, one at a time, or in pools, which are groups of loans. These pools are typically for $1,000,000 or more. Large mortgage servicers, including banks, savings and loans, and mortgage companies, earn a fee for servicing loans. Servicing includes collecting the loan payments, disbursing the taxes and insurance from the escrow account, and paying the interest and principle to the investor. This fee is usually between .25% and .50% of the loan per year. A $300,000 loan will generate between $750.00 and $1500.00 gross annual income for the servicing company. Loan servicing is considered an asset, so these companies will pay a Servicing Release Premium (SRP) to the originating company for the right to service the loan. The SRP is a percentage of the loan amount, usually between 1.0% and 2.0%. The premiums are based on the loan amount, and loan type. This fee is considered income for the originating lender. Loan servicing is such a good asset that companies will often purchase mortgage companies just to increase their servicing portfolio. Remember, when a loan or loan servicing is sold, the terms remain the same. The only change for the customer is where to send the payments. To avoid any confusion, when a loan is sold, the lender is prohibited from charging late fees or giving negative ratings to the credit bureau for 60 days from the date of transfer.
Commercial Property Financing: Loan Sources
Life Insurances Companies: Note: Life insurance companies lend money in various forms and with various underwriting guidelines. Learn more about these products and features, as well as how these loans are serviced online by clicking here. Life insurance companies are the largest single commercial property lenders. Some life insurance companies will work directly with the borrower, but most receive loans through Mortgage Bankers or Mortgage Brokers. Most of them re interested in loans of two million dollars or more. Pension Funds: Pension funds also receive loans through mortgage bankers and brokers, but they sometimes receive loans through Life Insurance Companies via a Guaranteed Investment Contract (GIC). They are also seeking larger loans. Commercial Banks: Commercial banks are not long term lenders but they do construction loans and "mini perm" loans on commercial property. The mini perm loan might be a 3 year loan at interest only, floating at 1% to 2% over prime. They will do smaller loans (under one million) and are more flexible in their underwriting standards.30 Savings & Loans: Savings and Loans will do the same kind of loans the life insurance companies will do and most will do smaller loans. Their underwriting standards are not as strict as life companies.
Commercial Property Financing: Loan Terms
Loan terms are quite different with commercial property loans. Loan to Value Ratios: Loan to value ratios on commercial property are typically 75% Prepayment Penalties:: Prepayment penalties vary widely. In many cases there is a "lock in" that does not allow a borrower to prepay the loan for a certain number of years. After that the penalty is a percentage of the loan balance. In some cases there is a "defeasance" clause that requires substitute collateral if the borrower wants to prepay the loan. In most all instances, there is a penalty of some kind up until the maturity of the loan. Call Dates: Although the loan is written for a 25 or 30 year period, there is almost always a call or balloon date. Most of these vary from 5, 7, to 10 year periods, although some go to 15 years.
Texas SML supervises the following:
Mortgage Banker Registration Mortgage Company License Financial Services Company Registration Credit Union Subsidiary Organization License Auxiliary Mortgage Loan Activity Company License Independent Contractor Processor/Underwriter Company License Residential Mortgage Loan Servicer Registration Mortgage Banker Branch Registration Mortgage Company Branch License Credit Union Subsidiary Organization Branch License Mortgage Banker Residential Loan Originator License Mortgage Company Residential Mortgage Loan Originator License Financial Services Company Exclusive Agent Credit Union Subsidiary Organization Residential Mortgage Loan Originator License Auxiliary Mortgage Loan Activity Residential Mortgage Loan Originator License Independent Contractor Loan Processor and Underwriter Individual License
Mortgage Bankers
Mortgage Bankers, like Mortgage Companies, also loan their own money. However, they usually sell the servicing rights along with the mortgage. The value of this servicing, called the Servicing Release Premium (SRP), becomes income for the Mortgage Banker. This is how a Mortgage Banker (or Broker) can earn money on a transaction, even if the borrower doesn't pay points or origination fees. Mortgage Bankers can sell loans individually or in pools. Warehousing: Since Mortgage Bankers fund their own loans, they need a source of money to fund these loans. Most Mortgage Bankers will have a Warehouse Line, which is a line of credit from a bank to provide funds for the loan closing. A Warehouse Bank is a commercial bank that extends a line of credit to a mortgage banker. The mortgage banker deposits (warehouses) loans in the commercial bank, and then borrows against this collateral to fund new loans. The loans serving as security are "warehoused" at the bank and later sold to secondary market investors. Mortgage Bankers have the advantage to choose the best program and rates from a wide variety of investors. Also, since they loan their own money, they control the entire lending process, including taking the application, processing and underwriting the loan, and providing documents and funds for the closing. The disadvantage of using a mortgage banker is all their loans, including servicing, are sold immediately after closing. A borrower will not know who the end investor will be until after closing.
Mortgage Companies
Mortgage Companies loan their own money, and then usually sell the loan to recapture their original money, plus a small profit. Mortgage companies typically sell the loans to Fannie Mae or Freddie Mac, who put together Mortgage Backed Securities (MBS's) which are sold on "Wall Street" as investments grade securities. The mortgage company will continue to "service" the loan (collect payments, and disburse the taxes and insurance) and distribute the interest to the purchasers of the loan. Many of the larger mortgage companies may also issue their own mortgage- backed securities to allow mortgage types and terms not available through Fannie Mae or Freddie Mac. Mortgage- Backed Securities are securities that backed the value of the mortgaged real estate pledged as security for the loan. These instruments are sold on WallStreet to individual investors. The advantage of using a mortgage company is they will provide all the mortgage services from loan application to closing. They will also service the loan, which involves collecting the monthly payments and disbursing the taxes and insurance payments, as needed. A borrower will send their payments to the same company they originally applied with. The disadvantage of using a Mortgage Company is they usually offer only their own programs, and do not have other investors to choose from to obtain the best programs or rates. Also, since loan servicing can be transferred or sold at any time, the customer has no guarantee that they will continue to deal with the original lender.
Does the Texas SAFE Act prohibit a real estate broker or salesperson from contacting the existing lender in a short sale to facilitate the transaction?
No, contacting the existing lender to determine whether or not they will approve a short sale transaction is considered a real estate brokerage activity and is not in connection with providing financing to the prospective buyer.
I represent a seller who is delinquent on his mortgage loan payments. I'm concerned that his lender may proceed with foreclosure actions before we can sell the house. May I contact the seller's existing lender to work out a loan modification?
No. Engaging in loan modification activities requires a license under Texas law. The Texas SAFE Act requires an individual to be licensed prior to taking a residential mortgage loan application or offering or negotiating the terms of a residential mortgage loan. Additionally, the Mortgage Broker License Act clarifies that residential mortgage loans include, "new loans and renewals, extensions, modifications, and rearrangements".
Pension Funds and Insurance Companies
Pension funds and insurance companies have recently had such growth that they have been looking for new outlets for their investments. They manage huge sums of money, and traditionally have invested in ultra-conservative instruments, such as government bonds. However, the booming economy of the 1990's, and corresponding budget surpluses for the federal government, left a shortage of treasury securities for these companies to buy. They had to find other secure investments, such as mortgages, to invest their assets. The higher yields available with Mortgage Backed Securities were also a plus. The typical mortgage- backed security will carry an interest rate of 1.00% or more above the government security. Pension funds and insurance companies will also provide direct funding for larger commercial and development loans, but will rarely loan for individual home mortgages. Pension funds are regulated by the Employee Retirement Income Security Act (1974).
Federal Credit Union Act
President Franklin Delano Roosevelt signed the Federal Credit Union Act into law on June 26, 1934. The act authorized the formation of federally chartered credit unions in all states, helping to make more credit available, and promote the principle thrift through a national system of nonprofit, cooperative credit unions. Enacted during the depths of the Great Depression, the Federal Credit Union Act ?enabled credit unions to be organized throughout the United States under charters approved by the federal government. The purpose was to make credit available to more Americans and promote thrift through a national system of nonprofit, cooperative credit unions. The Federal Credit Union Act also is the source of authority for all federally chartered credit unions and governs the coverage and terms of insured accounts at all federally insured credit unions. It also determines the structure and duties of the National Credit Union Administration (NCUA).
REIT Act
REIT (The Real Estate Investment Trust Act) was enacted to provide more capital to satisfy the growing demand for long-term investment money by attracting individual small investors. They were formed under the Act in 1960. The purpose was to allow smaller investors an opportunity to invest in commercial real estate. They are tax-free entities as long as they pass 90% or more of their earnings on to the shareholders. There are three types of trusts, an equity trust that invests in commercial real estate, a mortgage trust that invests in mortgages, and a hybrid trust that does both. The larger ones are listed on the New York Stock Exchange. Individuals buy stock in the real estate investment trust (REIT), an unincorporated association. The REIT must have at least 100 shareholders. No 5- share holders may hold more than 50% of the stock. REITs are exempt from income taxes provided: At least 95% of the profit is distributed each year as dividends. (The dividends are taxable to the individual investor.) The income is derived from real property investments. There are two types of REITs: Equity Trusts: Invest in income properties (e.g., large apartment complexes). Derive profit primarily from the operation of their income-producing properties. Mortgage Trusts: Invest in or make mortgage loans. Derive profit primarily from mortgage interest.
Real Estate Investment Trusts (REITs)
REITs make loans, secured by real property, which provide financing for large commercial projectssuch as second-home developments, apartment complexes, shopping malls and office buildings. REITs are owned by stockholders and enjoy certain federal tax advantages.
Condominiums as Securities
Regulatory commissions consider condominium unit sales to be the sale of a security when: The developer is the exclusive sale or rental agent, AND A rental pool is a requirement or condition of the sale. (Click the button below for the definition of 'rental pool'.) **RENTAL POOL Rental pool is a leasing arrangement in which owners, as a condition of purchase, agree to have their units available for rental as determined by the management. Owners then share in profits and losses of all the rental apartments in the pool according to proportionate interests. (This prevents Seasonal variations and Management favoritism or bribery Even if a rental pool is not required, a condominium may be considered a security if the benefit of depreciation as a tax deduction is used as an inducement to purchase. Provisions for non-profit management services or non-profit common element use fees (e.g., golf course or swimming pool fees) do not trigger the registration requirement.
Savings and Loans
Savings and Loans are also direct lenders. They generally loan money from their depositors' accounts (savings and checking accounts, certificates of deposits, money market funds, etc) and service the loan. They prefer to offer adjustable loans because their deposits are subject to changes in the interest rates. Most Savings & Loans are federally chartered by the Federal Home Loan Bank Board. Accounts are insured up to $100,000 by the Federal Savings & Loan Insurance Corporation (FSLIC). Prior to 1980, most of the real estate financing in this country was provided by Savings and Loans. They collected money from their customers through savings accounts, checking accounts, and certificates of deposits. They would then loan this money (usually with fixed rates loans) to finance real estate purchases. This worked well while the economy and interest rates were stable. The spike in interest rates of the 1970's led to higher interest rates being paid on the savings and checking accounts, while the revenue from their fixed- rate mortgages they provided remained constant. Losing a little money on most loans led to a collapse of many Savings and Loans in the 1980's. Since that time, Savings and Loans have reinvented themselves, using their deposits to provide adjustable rate mortgages (ARM's), Home Equity Lines of Credit, and short term loans such as construction loans and bridge loans. To avoid interest rate risk, any fixed rate loans offered by Savings and Loans are sold in the secondary market.
TDHCA
The TDHCA also offers programs covering Rental Assistance, Homelessness prevention and Rental housing development. There are even programs covering home repair for property owned my those who earn up to 80 percent of the median family income. The TDHCA is resource for all Texans, including those in need and those capable of assisting. Programs cover almost every aspect of housing and assistance and are available to moderate- and low-income Texans through partnerships with local governments, private developers and community based organizations. The TDHCA is also responsible for the oversight and regulation of the manufactured housing industry in Texas. This involves licensing of not only the manufactures but also of all those involved in the sales of manufactured housing as well. The primary purpose of the TDHCA is to help develop communities to improve the quality of life for all Texans. Through our study in this section we also learn that The TDHCA is the primary conduit for federal and state funds to be administered to local communities through the various partnerships that the agency has. Students, after completion of this unit, are now able to;
The Texas Department of Savings and Mortgage Lending
The Texas Department of Savings and Mortgage Lending is an agency of the State of Texas and is subject to the oversight and under the jurisdiction of the Finance Commission of Texas. What We Do: The Department has two key areas of regulatory responsibility: the chartering, regulation and supervision of the state's thrift industry; and the licensing/registration and regulation of the state's mortgage industry. These two areas of responsibility cover the vast majority of residential mortgage lending in Texas. Currently, We: Regulate State Chartered Savings Banks with combined assets of over $9.5 billion. Regulate over 20,000 Residential Mortgage Loan Originators throughout Texas. Regulate over 400 Mortgage Banking Companies. Investigate and resolve consumer complaints, related to mortgage origination. Agency Philosophy: The Texas Department of Savings and Mortgage Lending is fundamentally committed to the comprehensive regulation of the state's savings institutions, residential mortgage loan originators, mortgage companies, and mortgage bankers to protect the financial interests of depositors, creditors and borrowers. The Department will act in accordance with the highest standards of ethics and integrity, and will at all times remain accessible and responsive to the public, the industry, other government agencies, and public officials. The Department will strive to recruit and retain qualified professional staff who share its philosophy and are highly motivated to carry out its mission. The Department strives to realize this philosophy in achieving its mission by applying the following attitudes and characteristics in the performance of its duties and responsibilities, and in all of its dealings: Fairness Ethical Conduct Professionalism Responsiveness Quality Equal Opportunity Flexibility Openness The Department will aggressively enforce the state's statutes, rules and regulations to promote public confidence, protect consumers, and provide a healthy mortgage lending environment to meet the credit needs of Texans and maintain a safe and sound thrift system.
Weatherization Assistance Program (WAP):
The Weatherization Assistance Program (WAP) helps low-income Texans, particularly the elderly and persons with special needs, control energy costs to ensure a healthy and safe living environment. The program funds the installation of weatherization materials and provides energy conservation education.
1031 Real Estate Exchange
This is a way to sell an investment property and use the proceeds to procure another investment property without paying the capital gains tax on the property sold. 1031 refers to the IRS statute allowing this type of transaction. This is sometimes called a Starker Real Estate Exchange from the investor who successfully sued the IRS that led to this provision. This provision states that as long as an investor does not take possession of the proceeds from the sale, and invests all of the funds into a new investment property, there is no tax liability. The seller will hire an exchange company to take possession of the money and hold it until it is needed for the new purchase. The exchange must be real property for real property. It cannot involve personal property. For instance, a person cannot exchange a rental property for a business. The ownership must stay the same. Joe Smith cannot sell a property and use the proceeds to buy a property for Joe and Mary Smith. After a property is sold, the seller has 45 days to identify a property, and 180 days to close the purchase. The purchase price for the new property must be equal to or greater than the net proceeds from the sale. Any proceeds not used for the purchase will be subject to taxes. 1031 exchanges are very complicated, and everyone needs to rely on a professional 1031 exchange company. Tiny pitfalls may make the entire exchange illegal, and could cost the buyer thousands in taxes.
S.A.F.E. Act
Under the Secure and Fair Enforcement of Mortgage Licensing (S.A.F.E.) Act passed in 2008 by Congress, all mortgage loan originators are required to be licensed. Texas passed its companion legislation in 2008. This Act passed regulatory and oversight powers to two state agencies. The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) established requirements for the licensing and registration of all Mortgage Loan Originators (MLOs). MLOs who work for an insured depository or its owned or controlled subsidiary that is regulated by a federal banking agency, or for an institution regulated by the Farm Credit Administration, are registered. All other MLOs are to be licensed by the states. The SAFE Act requires state-licensed MLOs to pass a written qualified test, to complete pre-licensure education courses, and to take annual continuing education courses. The SAFE Act also requires all MLOs to submit fingerprints to the Nationwide Mortgage Licensing System (NMLS) for submission to the FBI for a criminal background check; and state-licensed MLOs to provide authorization for NMLS to obtain an independent credit report. The Testing, Education, and Background Check links from this page explain how state-licensed MLOs can satisfy each of these professional requirements. Please note that while the SAFE Act requires NMLS to fulfill certain responsibilities associated with providing educational services or ensuring background checks are completed, it is individual state law that determines when a state-licensed MLO is required to pass the SAFE Mortgage Test, complete pre-licensure or continuing education training, and when state-licensed MLOs are required to complete their background checks.
